Amendments to the 2013 Mortgage Rules Under the Equal Credit Opportunity Act (Regulation B), Real Estate Settlement Procedures Act (Regulation X), and the Truth in Lending Act (Regulation Z), 39901-39945 [2013-15466]
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Vol. 78
Tuesday,
No. 127
July 2, 2013
Part IV
Bureau of Consumer Financial Protection
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12 CFR Parts 1002, 1024, and 1026
Amendments to the 2013 Mortgage Rules Under the Equal Credit
Opportunity Act (Regulation B), Real Estate Settlement Procedures Act
(Regulation X), and the Truth in Lending Act (Regulation Z); Proposed
Rule
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Federal Register / Vol. 78, No. 127 / Tuesday, July 2, 2013 / Proposed Rules
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Parts 1002, 1024, and 1026
[Docket No. CFPB–2013–0018]
RIN 3170–AA37
Amendments to the 2013 Mortgage
Rules Under the Equal Credit
Opportunity Act (Regulation B), Real
Estate Settlement Procedures Act
(Regulation X), and the Truth in
Lending Act (Regulation Z)
Bureau of Consumer Financial
Protection.
ACTION: Proposed rule with request for
public comment.
AGENCY:
This rule proposes
amendments to certain mortgage rules
issued by the Bureau of Consumer
Financial Protection (Bureau) in January
2013. These proposed amendments
focus primarily on clarifying, revising,
or amending provisions on loss
mitigation procedures under Regulation
X’s servicing provisions, amounts
counted as loan originator
compensation to retailers of
manufactured homes and their
employees for purposes of applying
points and fees thresholds under the
Home Ownership and Equity Protection
Act and the qualified mortgage rules in
Regulation Z, exemptions available to
creditors that operate predominantly in
‘‘rural or underserved’’ areas for various
purposes under the mortgage
regulations, application of the loan
originator compensation rules to bank
tellers and similar staff, and the
prohibition on creditor-financed credit
insurance. The Bureau also is proposing
to adjust the effective dates for certain
provisions of the loan originator
compensation rules. In addition, the
Bureau is proposing technical and
wording changes for clarification
purposes to Regulations B, X, and Z.
DATES: Comments must be received on
or before July 22, 2013.
ADDRESSES: You may submit comments,
identified by Docket No. CFPB–2013–
0018 or RIN 3170–AA37, by any of the
following methods:
• Electronic: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail/Hand Delivery/Courier:
Monica Jackson, Office of the Executive
Secretary, Consumer Financial
Protection Bureau, 1700 G Street NW.,
Washington, DC 20552.
Instructions: All submissions should
include the agency name and docket
number or Regulatory Information
Number (RIN) for this rulemaking.
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SUMMARY:
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Because paper mail in the Washington,
DC area and at the Bureau is subject to
delay, commenters are encouraged to
submit comments electronically. In
general, all comments received will be
posted without change to https://
www.regulations.gov. In addition,
comments will be available for public
inspection and copying at 1700 G Street
NW., Washington, DC 20552, on official
business days between the hours of 10
a.m. and 5 p.m. Eastern Time. You can
make an appointment to inspect the
documents by telephoning (202) 435–
7275.
All comments, including attachments
and other supporting materials, will
become part of the public record and
subject to public disclosure. Sensitive
personal information, such as account
numbers or social security numbers,
should not be included. Comments
generally will not be edited to remove
any identifying or contact information.
FOR FURTHER INFORMATION CONTACT:
Whitney Patross, Attorney; Richard
Arculin, Michael Silver, and Daniel
Brown, Counsels; Marta Tanenhaus,
Mark Morelli, Senior Counsels and Paul
Ceja, Senior Counsel and Special
Advisor, Office of Regulations, at (202)
435–7700.
SUPPLEMENTARY INFORMATION:
I. Summary of Proposed Rule
In January 2013, the Bureau issued
several final rules concerning mortgage
markets in the United States (2013 Title
XIV Final Rules), pursuant to the DoddFrank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act), Public
Law 111–203, 124 Stat. 1376 (2010).1
1 Specifically, on January 10, 2013, the Bureau
issued Escrow Requirements Under the Truth in
Lending Act (Regulation Z), 78 FR 4726 (Jan. 30,
2013) (2013 Escrows Final Rule), High-Cost
Mortgage and Homeownership Counseling
Amendments to the Truth in Lending Act
(Regulation Z) and Homeownership Counseling
Amendments to the Real Estate Settlement
Procedures Act (Regulation X), 78 FR 6856 (Jan. 31,
2013) (2013 HOEPA Final Rule), and Ability to
Repay and Qualified Mortgage Standards Under the
Truth in Lending Act (Regulation Z), 78 FR 6407
(Jan. 30, 2013) (2013 ATR Final Rule). The Bureau
concurrently issued a proposal to amend the 2013
ATR Final Rule, which was finalized on May 29,
2013. See 78 FR 6621 (Jan. 10, 2013) and 78 FR
35430 (June 12, 2013). On January 17, 2013, the
Bureau issued the Real Estate Settlement
Procedures Act (Regulation X) and Truth in
Lending Act (Regulation Z) Mortgage Servicing
Final Rules, 78 FR 10901 (Regulation Z) (Feb. 14,
2013) and 78 FR 10695 (Regulation X) (Feb. 14,
2013) (2013 Mortgage Servicing Final Rules). On
January 18, 2013, the Bureau issued the Disclosure
and Delivery Requirements for Copies of Appraisals
and Other Written Valuations Under the Equal
Credit Opportunity Act (Regulation B), 78 FR 7215
(Jan. 31, 2013) (2013 ECOA Final Rule) and, jointly
with other agencies, issued Appraisals for HigherPriced Mortgage Loans (Regulation Z), 78 FR 10367
(Feb. 13, 2013). On January 20, 2013, the Bureau
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This document proposes several
amendments to the provisions adopted
by the 2013 Title XIV Final Rules to
clarify or revise regulatory provisions
and official interpretations primarily
relating to the 2013 Mortgage Servicing
Final Rules and the 2013 Loan
Originator Compensation Final Rule, as
described further below. This document
also proposes modifications to the
effective dates for provisions adopted by
the 2013 Loan Originator Compensation
Final Rule, and certain technical
corrections and minor refinements to
Regulations B, X, and Z.
Specifically, the Bureau is proposing
several modifications to the Regulation
X loss mitigation provisions adopted by
the 2013 Mortgage Servicing Final
Rules, in § 1024.41. Two of the revisions
concern the requirement in
§ 1024.41(b)(2)(i) that servicers review a
borrower’s loss mitigation application
within five days and provide a notice to
the borrower acknowledging receipt and
informing the borrower whether the
application is complete or incomplete. If
the servicer does not deem the
application complete, the servicer’s
notice must also list the missing items
and direct the borrower to provide the
information by the earliest remaining
date of four possible timeframes. The
proposed changes would provide
servicers more flexibility with regard to
setting and describing the date by which
borrowers should supply missing
information and would set forth
requirements and procedures for a
servicer to follow in the event that an
application is later found by the servicer
to be missing information or
documentation necessary to the
evaluation process. Another proposed
modification would provide servicers
more flexibility in providing short-term
payment forbearance plans based on an
evaluation of an incomplete loss
mitigation application. Other
clarifications and revisions would
address the content of notices required
under § 1024.41(c)(1)(ii) and (d), which
inform borrowers of the outcomes of
their evaluation for loss mitigation and
any appeal filed by the borrower. In
addition, the proposed amendments
would address the appropriate timelines
to apply where a foreclosure sale has
not been scheduled at the time the
borrower submits a loss mitigation
application or when a foreclosure sale is
rescheduled, what actions are permitted
while the general ban on proceeding to
foreclosure before a borrower is 120
issued the Loan Originator Compensation
Requirements under the Truth in Lending Act
(Regulation Z), 78 FR 11279 (Feb. 15, 2013) (2013
Loan Originator Compensation Final Rule).
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Federal Register / Vol. 78, No. 127 / Tuesday, July 2, 2013 / Proposed Rules
days delinquent is in effect, and the
application of the 120-day prohibition
to foreclosures for certain reasons other
than nonpayment.
Second, the Bureau is proposing
clarifications and revisions to the
definition of points and fees for
purposes of the qualified mortgage
points and fees cap and the high-cost
mortgage points and fees threshold, as
adopted in the 2013 ATR Final Rule and
the 2013 HOEPA Final Rule,
respectively. In particular, the Bureau is
proposing to add commentary to
§ 1026.32(b)(1)(ii) to clarify for retailers
of manufactured homes and their
employees what compensation must be
counted as loan originator
compensation and thus included in the
points and fees thresholds.
Third, the Bureau is proposing to
revise two exceptions available under
the 2013 Title XIV Final Rules to small
creditors operating in predominantly
‘‘rural’’ or ‘‘underserved’’ areas while
the Bureau re-examines the underlying
definitions of ‘‘rural’’ or ‘‘underserved’’
over the next two years, as it recently
announced it would do in Ability-toRepay and Qualified Mortgage
Standards Under the Truth in Lending
Act (Regulation Z) (May 2013 ATR Final
Rule).2 First, the Bureau is proposing to
extend an exception to the general
prohibition on balloon features for highcost mortgages under
§ 1026.32(d)(1)(ii)(C) to allow all small
creditors, regardless of whether they
operate predominantly in ‘‘rural’’ or
‘‘underserved’’ areas, to continue
originating balloon high-cost mortgages
if the loans meet the requirements for
qualified mortgages under
§§ 1026.43(e)(6) or 1026.43(f). In
addition, the Bureau is proposing to
amend an exemption from the
requirement to establish escrow
accounts for higher-priced mortgage
loans under the § 1026.35(b)(2)(iii)(A)
for small creditors that extend more
than 50 percent of their total covered
transactions secured by a first lien in
‘‘rural’’ or ‘‘underserved’’ counties
during the preceding calendar year. To
prevent creditors that qualified for the
exemption in 2013 from losing
eligibility in 2014 or 2015 because of
changes in which counties are
considered rural while the Bureau is reevaluating the underlying definition of
‘‘rural,’’ the Bureau is proposing to
amend this provision to allow creditors
to qualify for the exemption if they
extended more than 50 percent of their
total covered transactions in rural or
underserved counties in any of the
previous three calendar years (assuming
2 78
FR 35430 (May 29, 2013)
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the other criteria for eligibility are also
met).
Fourth, the Bureau is proposing
revisions, as well as general technical
and wording changes to various
provisions of the 2013 Loan Originator
Compensation Final Rule in § 1026.36.
These include revising the definition of
‘‘loan originator’’ in the regulatory text
and commentary, such as provisions
addressing when employees (or
contractors or agents) of a creditor or
loan originator in certain administrative
or clerical roles (e.g., tellers or greeters)
may become ‘‘loan originators’’ and thus
subject to the rule, upon providing
contact information or credit
applications for loan originators or
creditors to consumers. It also proposes
a number of clarifications to the
commentary on prohibited payments to
loan originators.
Fifth, the Bureau is proposing to
clarify and revise two aspects of the
rules implementing the Dodd-Frank Act
prohibition on creditors financing credit
insurance premiums in connection with
certain consumer credit transactions
secured by a dwelling. The Bureau is
proposing to add new § 1026.36(i)(2)(ii)
to clarify what constitutes financing of
such premiums by a creditor. The
Bureau also is proposing to add new
§ 1026.36(i)(2)(iii) to clarify when credit
insurance premiums are considered to
be calculated and paid on a monthly
basis, for purposes of the statutory
exclusion from the prohibition for
certain credit insurance premium
calculation and payment arrangements.
Sixth, the Bureau is proposing to
make certain provisions under the 2013
Loan Originator Compensation Final
Rule take effect on January 1, 2014,
rather than January 10, 2014, as
originally provided. The affected
provisions would be the amendments to
or additions of (as applicable)
§ 1026.25(c)(2) (record retention),
§ 1026.36(a) (definitions), § 1026.36(b)
(scope), § 1026.36(d) (compensation),
§ 1026.36(e) (anti-steering), § 1026.36(f)
(qualifications), and § 1026.36(j)
(compliance policies and procedures for
depository institutions). The Bureau
believes that this change would
facilitate compliance because these
provisions largely focus on
compensation plan structures,
registration and licensing, and hiring
and training requirements that are often
structured on an annual basis and
typically do not vary from transaction to
transaction. The Bureau is also seeking
comment on whether to adjust the date
for implementation of the ban on
financing credit insurance under
§ 1026.36(i), which the Bureau
temporarily delayed and extended to
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39903
January 10, 2014, to provide additional
guidance on the issues discussed above.
See Loan Originator Compensation
Requirements under the Truth in
Lending Act (Regulation Z); Prohibition
on Financing Credit Insurance
Premiums; Delay of Effective Date (2013
Effective Date Final Rule).3
In addition to the proposed
clarifications and amendments to
Regulations X and Z discussed above,
the Bureau is proposing technical
corrections and minor clarifications to
wording throughout Regulations B, X,
and Z that are generally not substantive
in nature.
II. Background
A. Title XIV Rulemakings Under the
Dodd-Frank Act
In response to an unprecedented cycle
of expansion and contraction in the
mortgage market that sparked the most
severe U.S. recession since the Great
Depression, Congress passed the DoddFrank Act, which was signed into law
on July 21, 2010. Pub. L. 111–203, 124
Stat. 1376 (2010). In the Dodd-Frank
Act, Congress established the Bureau
and, under sections 1061 and 1100A,
generally consolidated the rulemaking
authority for Federal consumer financial
laws, including the Equal Credit
Opportunity Act (ECOA), Truth in
Lending Act (TILA), and Real Estate
Settlement Procedures Act (RESPA), in
the Bureau.4 At the same time, Congress
significantly amended the statutory
requirements governing mortgage
practices with the intent to restrict the
practices that contributed to and
exacerbated the crisis. Under the statute,
most of these new requirements would
have taken effect automatically on
January 21, 2013, if the Bureau had not
issued implementing regulations by that
date.5 To avoid uncertainty and
potential disruption in the national
mortgage market at a time of economic
vulnerability, the Bureau issued several
final rules in a span of less than two
weeks in January 2013 to implement
these new statutory provisions and
provide for an orderly transition.
3 78
FR 32547 (May 31, 2013).
1011 and 1021 of the Dodd-Frank Act,
in title X, 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. Section 1029 of the Dodd-Frank Act
excludes from this transfer of authority, subject to
certain exceptions, any rulemaking authority over a
motor vehicle dealer that is predominantly engaged
in the sale and servicing of motor vehicles, the
leasing and servicing of motor vehicles, or both. 12
U.S.C. 5519.
5 Dodd-Frank Act section 1400(c), 15 U.S.C. 1601
note.
4 Sections
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On January 10, 2013, the Bureau
issued the 2013 ATR Final Rule, the
2013 Escrows Final Rule, and the 2013
HOEPA Final Rule. On January 17,
2013, the Bureau issued the 2013
Mortgage Servicing Final Rules. On
January 18, 2013, the Bureau issued
Appraisals for Higher-Priced Mortgage
Loans (Regulation Z) 6 (issued jointly
with other agencies) and the 2013 ECOA
Final Rule. On January 20, 2013, the
Bureau issued the 2013 Loan Originator
Compensation Final Rule. Most of these
rules will become effective on January
10, 2014.
Concurrent with the 2013 ATR Final
Rule, on January 10, 2013, the Bureau
issued Proposed Amendments to the
Ability to Repay Standards Under the
Truth in Lending Act (Regulation Z)
(2013 ATR Concurrent Proposal), which
the Bureau finalized on May 29, 2013
(May 2013 ATR Final Rule).7
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B. Implementation Initiative for New
Mortgage Rules
On February 13, 2013, the Bureau
announced an initiative to support
implementation of its new mortgage
rules (Implementation Plan),8 under
which the Bureau would work with the
mortgage industry and other
stakeholders to ensure that the new
rules can be implemented accurately
and expeditiously. The Implementation
Plan includes: (1) Coordination with
other agencies, including to develop
consistent, updated examination
procedures; (2) publication of plainlanguage guides to the new rules; (3)
publication of additional corrections
and clarifications of the new rules, as
needed; (4) publication of readiness
guides for the new rules; and (5)
education of consumers on the new
rules.
This proposal concerns additional
clarifications and revisions to the new
rules. The purpose of these updates is
to address important questions raised by
industry, consumer groups, or other
agencies. Priority for this set of updates
has been given to issues that are
important to a large number of
stakeholders and critically affect loan
originators’ and mortgage servicers’
implementation decisions. Additional
updates will be issued as appropriate.
III. Legal Authority
The Bureau is issuing this proposed
rule pursuant to its authority under
ECOA, TILA, RESPA, and the DoddFrank Act. Section 1061 of the Dodd6 78
FR 10367.
FR 6622; 78 FR 35430.
8 Consumer Financial Protection Bureau Lays Out
Implementation Plan for New Mortgage Rules. Press
Release. Feb. 13, 2013.
7 78
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Frank Act transferred to the Bureau the
‘‘consumer financial protection
functions’’ previously vested in certain
other Federal agencies, including the
Federal Reserve Board and the
Department of Housing and Urban
Development. The term ‘‘consumer
financial protection function’’ 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.’’ 9 Section 1061 of the DoddFrank Act also transferred to the Bureau
all of HUD’s consumer protections
functions relating to RESPA.10 Title X of
the Dodd-Frank Act, including section
1061 of the Dodd-Frank Act, along with
ECOA, TILA, RESPA, and certain
subtitles and provisions of title XIV of
the Dodd-Frank Act, are Federal
consumer financial laws.11
A. 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).
B. RESPA
Section 19(a) of RESPA, 12 U.S.C.
2617(a), authorizes the Bureau to
prescribe such rules and regulations, to
make such interpretations, and to grant
such reasonable exemptions for classes
of transactions, as may be necessary to
achieve the purposes of RESPA, which
includes its consumer protection
purposes. In addition, section 6(j)(3) of
RESPA, 12 U.S.C. 2605(j)(3), authorizes
the Bureau to establish any
requirements necessary to carry out
section 6 of RESPA, and section
6(k)(1)(E) of RESPA, 12 U.S.C.
U.S.C. 5581(a)(1).
Law 111–203, 124 Stat. 1376, section
1061(b)(7); 12 U.S.C. 5581(b)(7).
11 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 TILA), Dodd-Frank section 1400(b), 15
U.S.C. 1601 note (defining ‘‘enumerated consumer
laws’’ to include certain subtitles and provisions of
Title XIV).
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10 Public
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2605(k)(1)(E), authorizes the Bureau to
prescribe regulations that are
appropriate to carry out RESPA’s
consumer protection purposes. As
identified in the 2013 RESPA Servicing
Final Rule, the consumer protection
purposes of RESPA include responding
to borrower requests and complaints in
a timely manner, maintaining and
providing accurate information, helping
borrowers avoid unwarranted or
unnecessary costs and fees, and
facilitating review for foreclosure
avoidance options.
C. TILA
Section 105(a) of TILA, 15 U.S.C.
1604(a), authorizes the Bureau to
prescribe regulations to carry out the
purposes of TILA. Under section 105(a),
such regulations may contain such
additional requirements, classifications,
differentiations, or other provisions, and
may provide for such adjustments and
exceptions for all or any class of
transactions, as in the judgment of the
Bureau are necessary or proper to
effectuate the purposes of TILA, to
prevent circumvention or evasion
thereof, or to facilitate compliance
therewith. A purpose of TILA is ‘‘to
assure a meaningful disclosure of credit
terms so that the consumer will be able
to compare more readily the various
credit terms available to him and avoid
the uninformed use of credit.’’ TILA
section 102(a), 15 U.S.C. 1601(a). In
particular, it is a purpose of TILA
section 129C, as amended by the DoddFrank Act, to assure that consumers are
offered and receive residential mortgage
loans on terms that reasonably reflect
their ability to repay the loans and that
are understandable and not unfair,
deceptive, and abusive. Section 105(f) of
TILA, 15 U.S.C. 1604(f), authorizes the
Bureau to exempt from all or part of
TILA any class of transactions if the
Bureau determines that TILA coverage
does not provide a meaningful benefit to
consumers in the form of useful
information or protection. Under TILA
section 103(bb)(4), the Bureau may
adjust the definition of points and fees
for purposes of that threshold to include
such charges that the Bureau determines
to be appropriate.
TILA section 129C(b)(3)(B)(i) provides
the Bureau with authority to prescribe
regulations that revise, add to, or
subtract from the criteria that define a
qualified mortgage upon a finding that
such regulations are necessary or proper
to ensure that responsible, affordable
mortgage credit remains available to
consumers in a manner consistent with
the purposes of the ability-to-repay
requirements; or are necessary and
appropriate to effectuate the purposes of
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the ability-to-repay requirements, to
prevent circumvention or evasion
thereof, or to facilitate compliance with
TILA sections 129B and 129C. 15 U.S.C.
1639c(b)(3)(B)(i). In addition, TILA
section 129C(b)(3)(A) requires the
Bureau to prescribe regulations to carry
out the purposes of the qualified
mortgage provisions, such as to ensure
that responsible and affordable mortgage
credit remains available to consumers in
a manner consistent with the purposes
of TILA section 129C. 15 U.S.C.
1639c(b)(3)(A).
D. The Dodd-Frank Act
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). Title X of
the Dodd-Frank Act is a Federal
consumer financial law. Accordingly,
the Bureau is exercising its authority
under the Dodd-Frank Act section
1022(b) to prescribe rules that carry out
the purposes and objectives of ECOA,
RESPA, TILA, title X, and the
enumerated subtitles and provisions of
title XIV of the Dodd-Frank Act, and
prevent evasion of those laws.
Section 1032(a) of the Dodd-Frank Act
provides that the Bureau ‘‘may prescribe
rules to ensure that the features of any
consumer financial product or service,
both initially and over the term of the
product or service, are fully, accurately,
and effectively disclosed to consumers
in a manner that permits consumers to
understand the costs, benefits, and risks
associated with the product or service,
in light of the facts and circumstances.’’
12 U.S.C. 5532(a). The authority granted
to the Bureau in Dodd-Frank Act section
1032(a) is broad, and empowers the
Bureau to prescribe rules regarding the
disclosure of the ‘‘features’’ of consumer
financial products and services
generally. Accordingly, the Bureau may
prescribe rules containing disclosure
requirements even if other Federal
consumer financial laws do not
specifically require disclosure of such
features.
Dodd-Frank Act section 1032(c)
provides that, in prescribing rules
pursuant to Dodd-Frank Act section
1032, the Bureau ‘‘shall consider
available evidence about consumer
awareness, understanding of, and
responses to disclosures or
communications about the risks, costs,
and benefits of consumer financial
products or services.’’ 12 U.S.C. 5532(c).
Accordingly, in proposing provisions
authorized under Dodd-Frank Act
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section 1032(a), the Bureau has
considered available studies, reports,
and other evidence about consumer
awareness, understanding of, and
responses to disclosures or
communications about the risks, costs,
and benefits of consumer financial
products or services.
The Bureau is proposing to amend
rules finalized in January 2013 that
implement certain Dodd-Frank Act
provisions. In particular, the Bureau is
proposing to amend regulatory
provisions adopted by the 2013 ECOA
Final Rule, the 2013 Mortgage Servicing
Final Rules, the 2013 HOEPA Final
Rule, the 2013 Escrows Final Rule, the
2013 Loan Originator Compensation
Final Rule, and the 2013 ATR Final
Rule.
IV. Proposed Effective Dates
A. For Provisions Other Than Those
Related to the 2013 Loan Originator
Compensation Final Rule or the 2013
Escrows Final Rule
In enacting the Dodd-Frank Act,
Congress significantly amended the
statutory requirements governing a
number of mortgage practices. Under
the Dodd-Frank Act, most of these new
requirements would have taken effect
automatically on January 21, 2013, if the
Bureau had not issued implementing
regulations by that date.12 Where the
Bureau was required to prescribe
implementing regulations, the DoddFrank Act further provided that those
regulations must take effect not later
than 12 months after the date of the
regulations’ issuance in final form.13
The Bureau issued the 2013 Title XIV
Final Rules in January 2013 to
implement these new statutory
provisions and provide for an orderly
transition. To allow the mortgage
industry sufficient time to comply with
the new rules, the Bureau established
January 10, 2014—one year after
issuance of the earliest of the 2013 Title
XIV Final Rules—as the baseline
effective date for nearly all of the new
requirements. In the preamble to certain
of the various 2013 Title XIV Final
Rules, the Bureau further specified that
the new regulations would apply to
transactions for which applications
were received on or after January 10,
2014.
Except for the amendments regarding
the 2013 Loan Originator Compensation
Final Rule and the 2013 Escrows Final
Rule discussed below, the Bureau
proposes an effective date of January 10,
12 Dodd-Frank Act section 1400(c)(3), 15 U.S.C.
1601 note.
13 Dodd-Frank Act section 1400(c)(1)(B), 15
U.S.C. 1601 note.
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2014 for the proposals in this document.
The Bureau believes that having a
consistent effective date across most of
the 2013 Title XIV Final Rules will
facilitate compliance. The Bureau
requests public comment on this
proposed effective date, including on
any suggested alternatives.
B. For Provisions Related to the 2013
Escrows Final Rule
While the Bureau established January
10, 2014 as the baseline effective date
for most of the 2013 Title XIV Final
Rules, the Bureau identified certain
provisions that it believed did not
present significant implementation
burdens for industry, including
amendments to § 1026.35 adopted by
the 2013 Escrows Final Rule. For these
provisions, the Bureau set an earlier
effective date of June 1, 2013.
As discussed in the section-by-section
analysis below, the Bureau is now
proposing to amend one such provision,
§ 1026.35(b)(2)(iii)(A), which provides
an exemption from the higher-priced
mortgage loan escrow requirement to
creditors that extend more than 50
percent of their total covered
transactions secured by a first lien in
‘‘rural’’ or ‘‘underserved’’ counties
during the preceding calendar year and
also meet other small creditor criteria,
and do not otherwise escrow loans
serviced by themselves or an affiliate. In
light of recent changes to which
counties meet the definition of ‘‘rural,’’
the Bureau is proposing to amend this
provision to prevent creditors that
qualified for the exemption in 2013
from losing eligibility in 2014 or 2015
because of these changes. The Bureau is
proposing to amend this provision to
allow creditors to qualify for the
exemption if they qualified in any of the
previous three calendar years (assuming
the other criteria for eligibility are also
met). In addition, the Bureau is
proposing to amend
§ 1026.35(b)(2)(iii)(D)(1) to prevent
creditors that were previously ineligible
for the exemption, but may now qualify
in light of the proposed changes, from
losing eligibility because they had
established escrow accounts for firstlien higher-priced mortgage loans (for
which applications were received after
June 1, 2013), as required when the final
rule took effect and prior to the
proposed amendments taking effect.
Because the § 1026.35(b)(2)(iii)
exemption applies based on a calendar
year, the Bureau believes it is
appropriate to set a January 1, 2014
effective date for these provisions. The
Bureau notes that a January 1, 2014
effective date is more beneficial to
industry, because the amendment
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would only expand eligibility for the
exemption—thus an effective date of
January 1, 2014, as opposed to January
10, 2014, would mean that creditors are
able to take advantage of this expanded
exemption earlier. The Bureau thus
proposes that the amendments to
§ 1026.35(b)(2)(iii) and its commentary
take effect for applications received on
or after January 1, 2014. The Bureau
invites comment on this approach, and
specifically whether an effective date for
transactions where applications were
received on or after January 1, 2014 is
appropriate, in light of the proposed
changes to the calendar year exemption
under § 1026.35(b)(2)(iii).
tkelley on DSK3SPTVN1PROD with PROPOSALS2
C. For Provisions Related to the 2013
Loan Originator Compensation Final
Rule
The proposed effective date for
certain provisions in this proposal
related to the 2013 Loan Originator
Compensation Final Rule is January 1,
2014 for the reasons discussed below.
V. Proposal To Change the Effective
Date of the 2013 Loan Originator
Compensation Rule
As described above, the Bureau
established January 10, 2014 as the
baseline effective date for nearly all of
the provisions in the 2013 Title XIV
Final Rules, including most provisions
of the 2013 Loan Originator
Compensation Final Rule. The Bureau
believed that having a consistent
effective date across nearly all of the
2013 Title XIV Final Rules would
facilitate compliance. However, the
Bureau identified a few provisions that
it believed did not present significant
implementation burdens for industry,
including § 1026.36(h) on mandatory
arbitration clauses and waivers of
certain consumer rights and § 1026.36(i)
on financing credit insurance, as
adopted by the 2013 Loan Originator
Compensation Final Rule. For these
provisions, the Bureau set an earlier
effective date of June 1, 2013.14
Since issuing the 2013 Loan
Originator Compensation Final Rule in
January, the Bureau has received a
number of questions about transition
issues, particularly with regard to
application of provisions under
§ 1026.36(d) that generally prohibit
basing loan originator compensation on
transaction terms but permit creditors to
award non-deferred profits-based
compensation determined with
14 After interpretive issues were raised concerning
the credit insurance provision as discussed further
below, the Bureau temporarily delayed and
extended the effective date for § 1026.36(i) in the
2013 Effective Date Final Rule until January 10,
2014. 78 FR 32547 (May 31, 2013).
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reference to profits from mortgagerelated business so long as the
compensation does not exceed 10
percent of the loan originators’ total
compensation or the loan originator
does not engage in more than a specified
number of transactions within a 12month period. For instance, the Bureau
has received inquiries about when the
2013 Loan Originator Compensation
Final Rule permits creditors and loan
originator organizations to begin taking
into account transactions for purposes
of paying compensation under a nondeferred profits-based compensation
plan pursuant to
§ 1026.36(d)(1)(iv)(B)(1) (i.e., the 10percent total compensation limit, or the
10-percent limit). The Bureau also
believes that, given the current effective
date, some creditors and loan originator
organizations intending to pay
compensation under a non-deferred
profits-based compensation plan
pursuant to § 1026.36(d)(1)(iv)(B)(1)
might believe that they must undertake
a separate accounting for the period
from January 1 through January 9, 2014,
given that the effective date is January
10, 2014, and is tied to when
applications are received.
While the profits-based compensation
provisions present relatively
complicated transition issues, the
Bureau is also conscious of the fact that
most other provisions in the 2013 Loan
Originator Compensation Final Rule are
simpler to implement because they
largely recodify and clarify existing
requirements that were previously
adopted by the Federal Reserve Board in
2010 with regard to loan originator
compensation, and by various agencies
under the Secure and Fair Enforcement
for Mortgage Licensing Act of 2008, 12
U.S.C. 5106–5116 (SAFE Act), with
regard to loan originator qualification
requirements. The provisions are also
focused on compensation plan
structures, registration and licensing,
and hiring and training requirements
that are often structured on an annual
basis and typically do not vary from
transaction to transaction.
For all of these reasons, the Bureau
proposes moving the general effective
date for most provisions adopted by the
2013 Loan Originator Compensation
Final Rule to January 1, 2014. Although
that would shorten the implementation
period by nine days, the Bureau believes
that the change would actually facilitate
compliance and reduce implementation
burden by providing a cleaner transition
period that more closely aligns with
changes to employers’ annual
compensation structures and
registration, licensing, and training
requirements. In addition, because
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elements of the 2013 Loan Originator
Compensation Final Rule concerning
retention of records, definitions, scope,
and implementing procedures affect
multiple provisions, the Bureau is
proposing to make the change with
regard to the bulk of the 2013 Loan
Originator Compensation Final Rule as
described further below, rather than
attempting to treat individual provisions
in isolation. Finally, the Bureau is also
proposing changes, discussed below, to
the effective date for provisions on
financing of credit insurance under
§ 1026.36(i), in connection with
proposing further clarifications and
guidance on the Dodd-Frank Act
requirements related to that provision.
These proposed clarifications and
amendments to the effective date
require only minimal revisions to the
rule text and commentary. They
primarily would be reflected in the
Dates caption and discussion of
effective dates in the Supplementary
Information of a rule finalizing this
proposal. As amended by the DoddFrank Act, TILA section 105(a), 15
U.S.C. 1604(a), directs the Bureau to
prescribe regulations to carry out the
purposes of TILA, and provides that
such regulations may contain additional
requirements, classifications,
differentiations, or other provisions, and
may provide for such adjustments and
exceptions for all or any class of
transactions, that the Bureau judges are
necessary or proper to effectuate the
purposes of TILA, to prevent
circumvention or evasion thereof, or to
facilitate compliance. Further, under
Dodd-Frank Act section 1022(b)(1), 15
U.S.C. 5512(b)(1), the Bureau has
general authority 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. The
Bureau is proposing to change the
effective date of the 2013 Loan
Originator Compensation Final Rule
with respect to those provisions
described above pursuant to its TILA
section 105(a) and Dodd-Frank Act
section 1022(b)(1) authority.
The Bureau believes these changes
would facilitate compliance and help
ensure that the 2013 Loan Originator
Compensation Final Rule does not have
adverse unintended consequences. The
Bureau requests public comment on
these proposed effective dates,
including on any suggested alternatives.
1. Effective Date for Amendments to
§ 1026.36(d)
The Bureau is proposing three
specific changes to the effective date for
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the amendments to § 1026.36(d). First,
the Bureau is proposing that the
provisions of the 2013 Loan Originator
Compensation Final Rule revising
§ 1026.36(d) would be effective January
1, 2014, not January 10, 2014. The
Bureau is concerned that an effective
date of January 10, 2014, for the
revisions to § 1026.36(d) may result in
creditors and loan originator
organizations believing that they have to
account separately for the period from
January 1 through January 9, 2014,
when applying the new compensation
restrictions under § 1026.36(d) (for
example, if a creditor wishes to pay
individual loan originators through nondeferred profits-based compensation
plans pursuant to § 1026.36(d)(1)(iv), or
if a loan originator organization wishes
to pay to an individual loan originator
compensation pursuant to
§ 1026.36(d)(2)(i)(C)). The Bureau
recognizes that this proposal would
make certain aspects of the 2013 Loan
Originator Compensation Final Rule
effective nine days earlier than
originally stated, meaning that creditors
and loan originator organizations would
have a slightly shorter implementation
period. On balance, however, the
Bureau believes this proposed change
will ease compliance burdens for
creditors and loan originator
organizations by eliminating any
concern about a need for separate
accountings as described above. As
noted above, the Bureau is also
proposing to change the effective date
for the addition of § 1026.25(c)(2)
(records retention) from January 10,
2014, to January 1, 2014. This proposed
change dovetails with the proposal to
change the effective date of § 1026.36(d)
to January 1, 2014, to ensure that
records on compensation paid between
January 1 and January 10, 2014, are
properly maintained.
Second, the Bureau is proposing that
the revisions to § 1026.36(d) (other than
the addition of § 1026.36(d)(1)(iii), as
discussed below) would apply to
transactions that are consummated and
for which the creditor or loan originator
organization paid compensation on or
after January 1, 2014. The Bureau
believes applying the effective date for
the revisions to § 1026.36(d) based on
application receipt, rather than based on
transaction consummation and
compensation payment, could present
compliance challenges. This proposed
change would permit transactions to be
taken into account for purposes of
compensating individual loan
originators under the exceptions set
forth in § 1026.36(d)(1)(iv) if the
transactions were consummated and
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compensation was paid to the
individual loan originator on or after
January 1, 2014, even if the applications
for those transactions were received
prior to January 1, 2014. The Bureau
believes this clarification, in
conjunction with the proposed change
to the effective date for the revisions to
§ 1026.36(d) described above, will
reduce compliance burdens on creditors
and loan originator organizations by
allowing them to take into account all
transactions consummated in 2014 (and
for which compensation is paid to
individual loan originators in 2014) for
purposes of paying compensation under
§ 1026.36(d)(1)(iv) that is earned in
2014. This proposed revision will also
allow the consumer-paid compensation
restrictions and exceptions thereto in
the revisions to § 1026.36(d)(2) to be
effective upon the consummation of any
transaction where such compensation is
paid in 2014 even if the application for
that transaction was received in 2013.
Making this proposed clarification
would eliminate the concern that
creditors and loan originator
organizations would potentially have to
undertake separate accountings
depending on when the applications for
the transactions were received.15
For example, assume a creditor
utilizes a calendar-year accounting
method and wishes, pursuant to the
exception for non-deferred profits-based
compensation in
§ 1026.36(d)(1)(iv)(B)(1), to pay a bonus
to an individual loan originator with
reference to the profits of the creditor’s
mortgage-related business during the
first quarter of calendar year 2014. In
applying the 10-percent limit under
§ 1026.36(d)(1)(iv)(B)(1) to determine
the maximum permissible amount of the
quarterly bonus, a creditor could have
interpreted the 2013 Loan Originator
Compensation Final Rule’s effective
date provision to mean that it would
have to account separately for
transactions that were consummated in
2014 but where the applications were
15 The Bureau recognizes that, under this
proposed revision, creditors and loan originator
organizations would still have to account separately
for compensation under a non-deferred profitsbased compensation plan that is paid in 2014 but
is earned in 2013 (e.g., a year-end bonus paid in
January 2014 based on profits of a creditor’s
mortgage-related business during calendar year
2013). This approach is consistent with how
compensation under a non-deferred profits-based
compensation plan is treated generally for purposes
of the 10-percent limit calculation under
§ 1026.36(d)(1)(iv)(B)(1) (i.e., non-deferred profitsbased compensation that is earned during one time
period but is actually paid during a second time
period is excluded from the total compensation
amount for the second time period, and may be
included in total compensation for the first time
period). See comment 36(d)(1)–3.v.C, as proposed
to be revised.
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39907
received in 2013 (i.e., by not counting
them in the calculation of the 10percent limit for the first quarter of
2014). The Bureau’s proposal would
alleviate this concern by allowing the
creditor to calculate the bonus with
reference to the creditor’s mortgagerelated business profits during the first
quarter of 2014 without having to
inquire into the particular details about
the transactions on whose terms the
compensation was based, such as when
the applications for those transactions
were received.
Third, the Bureau is proposing that
the provisions of § 1026.36(d)(1)(iii),
which pertain to contributions to or
benefits under designated taxadvantaged plans for individual loan
originators, would apply to transactions
for which the creditor or loan originator
organization paid compensation on or
after January 1, 2014, regardless of when
the transactions were consummated or
their applications were received. These
changes regarding the effective date for
the revisions to § 1026.36(d)(1)(iii) more
clearly reflect the Bureau’s intent to
permit payment of compensation related
to designated tax-advantaged plans
during both 2013 (as explained in CFPB
Bulletin 2012–2 clarifying current
§ 1026.36(d)(1)) 16 and thereafter (under
the 2013 Loan Originator Compensation
Final Rule). Without this proposed
change, the Bureau believes there could
be uncertainty about whether the
clarification in the Bulletin, new
§ 1026.36(d)(1)(iii), or neither would
apply if a creditor or loan originator
organization wished to pay
compensation in 2014 in the form of
contributions to or benefits under
designated tax-advantaged plans where
the compensation was determined based
on the terms of transactions
consummated during 2013.
In addition to the three specific
changes to the effective date described
above, the Bureau solicits comment
generally on whether the proposed
changes to the effective date for the
amendments to § 1026.36(d) are
appropriate or whether other
approaches should be considered. In
particular, the Bureau solicits comment
on whether the amendments to
16 The Bureau explained in the Supplementary
Information to the 2013 Loan Originator
Compensation Final Rule that it issued CFPB
Bulletin 2012–2 (the Bulletin) to address questions
regarding the application of § 1026.36(d)(1) to
‘‘Qualified Plans’’ (as defined in the Bulletin). The
Bureau noted in that Supplementary Information
that until the final rule takes effect, the
clarifications in CFPB Bulletin 2012–2 remain in
effect and that the Bureau interprets ‘‘Qualified
Plan’’ as used in the Bulletin to include the
designated tax-advantaged plans described in the
final rule.
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§ 1026.36(d) should take effect on
January 1, 2014, and apply to all
payments of compensation made on or
after that date, regardless of the date of
consummation of the transactions on
whose terms the compensation was
based. The Bureau believes such an
approach would create a bright line that
the payment of compensation on or after
January 1, 2014, would be subject to the
new rule. However, this approach could
raise complexity about how the new
rule would apply to payments under
non-deferred profits-based
compensation plans pursuant to
§ 1026.36(d)(1)(iv)(B)(1) made on or
after January 1, 2014, where the
compensation payments are based on
the terms of transactions consummated
in 2013, prior to the effect of the new
rule.17 This approach also could
incentivize creditors and loan originator
organizations to structure their
compensation programs for 2013 to pay
non-deferred profits-based
compensation earned during 2013 in
early 2014, rather than in 2013 when the
current rule would remain in effect
(although the Bureau also notes that the
10-percent limit would set an upper
limit on such behavior).
tkelley on DSK3SPTVN1PROD with PROPOSALS2
2. Effective Dates for Amendments to or
Additions of § 1026.36(a), (b), (e), (f), (g),
and (j)
Rather than implementing the
proposed change in effective dates for
§ 1026.36(d) in isolation, the Bureau is
also proposing to make the amendments
to or additions of (as applicable)
§ 1026.36(a) (definitions), § 1026.36(b)
(scope), § 1026.36(e) (anti-steering
provisions), § 1026.36(f) (loan originator
qualification requirements) and
§ 1026.36(j) (compliance policies and
procedures for depository institutions)
take effect on January 1, 2014. The
Bureau is proposing not to tie the
effective date to the receipt of a
particular loan application, but rather to
a date certain. Because these provisions
rely on a common set of definitions and
in some cases cross reference each
other,18 the Bureau is proposing to make
17 For example, the 2013 Loan Originator
Compensation Final Rule revised § 1026.36(d)(1)(i)
and comment 36(d)(1)–2 to clarify how to
determine whether a factor is a proxy for a term of
a transaction, and § 1026.36(d)(1)(ii) now contains
a definition of ‘‘term of a transaction.’’ Thus, there
is a question as to whether, with respect to
payments under a non-deferred profits-based
compensation plan pursuant to
§ 1026.36(d)(1)(iv)(B)(1), a creditor or loan
originator organization would have to apply the
new proxy provisions and definition of a term of
a transaction retroactively in assessing whether
compensation based on transactions consummated
in 2013 can be paid in 2014.
18 For example, § 1026.36(j) requires that
depository institutions establish written policies
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them effective on January 1, 2014, and
without reference to receipt of
applications to avoid a potential
incongruity among the effective dates of
those substantive provisions and the
effective dates of the regulatory
definitions and scope provisions
supporting those substantive provisions.
Thus, the Bureau believes this proposed
revision would facilitate compliance.
The Bureau is not, however,
proposing to adjust the effective date for
§ 1026.36(g), which requires that loan
originators’ names and identifier
numbers be provided on certain loan
documentation, except to clarify and
confirm that the provision takes effect
with regard to any application received
on or after January 10, 2014, by a
creditor or a loan originator
organization. Because this provision
requires modifications to
documentation for individual loans and
the systems that generate such
documentation, the Bureau believes it is
appropriate to have it take effect with
the other 2013 Title XIV Final Rules that
affect individual loan processing.
3. Effective Date for § 1026.36(i)
As discussed in the 2013 Effective
Date Final Rule and below, the Bureau
initially adopted a June 1, 2013 effective
date for § 1026.36(i), but later delayed
the provision’s effective date to January
10, 2014, while the Bureau considered
addressing interpretive questions
concerning the provision’s applicability
to transactions other than those in
which a lump-sum premium is added to
the loan amount at consummation. As
discussed in the section-by-section
analysis below, the Bureau is now
proposing amendments to § 1026.36(i),
which will not be finalized until the
Bureau has appropriately considered
public comments and issued a final
rule. The Bureau believes that creditors
will need time to adjust certain credit
insurance premium billing practices
once the clarifications are finalized.
However, the Bureau believes that the
January 10, 2014 effective date adopted
in the 2013 Effective Date Final Rule
will allow sufficient time for
compliance. This is consistent with the
generally applicable effective date for
the 2013 Title XIV Final Rules,
including for several provisions the
Bureau is proposing to amend through
this notice. The Bureau requests
comment on whether the effective date
for § 1026.36(i) may be set earlier than
January 10, 2014, upon finalization of
any clarifications and amendments, and
and procedures reasonably designed to ensure and
monitor compliance with § 1026.36(d), (e), (f), and
(g).
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still permit sufficient time for creditors
to adjust credit insurance premium
practices as necessary.
VI. Section-by-Section Analysis
A. Regulation B
Section 1002.14 Rules on Providing
Appraisals and Other Valuations
14(b) Definitions
14(b)(3) Valuation
The Bureau is proposing to amend
commentary to § 1002.14 to clarify the
definition of ‘‘valuation’’ as adopted by
the 2013 ECOA Final Rule. Dodd-Frank
Act section 1744 amended ECOA by,
among other things, defining
‘‘valuation’’ to include any estimate of
the value of the dwelling developed in
connection with a creditor’s decisions to
provide credit. See ECOA section
701(e)(6). Similarly, the 2013 ECOA
Final Rule adopted § 1002.14(b)(3),
which defines ‘‘valuation’’ as any
estimate of the value of a dwelling
developed in connection with an
application for credit. Consistent with
these provisions, the Bureau intended
the term ‘‘valuation’’ to refer only to an
estimate for purposes of the 2013 ECOA
Final Rule’s newly adopted provisions.
However, the 2013 ECOA Final Rule
added two comments that refer to a
valuation as an appraiser’s estimate or
opinion of the value of the property:
Comment 14(b)(3)–1.i, which gives
examples of ‘‘valuations,’’ as defined by
§ 1002.14(b)(3); and comment 14(b)(3)–
3.v, which provides examples of
documents that discuss or restate a
valuation of an applicant’s property but
nevertheless do not constitute
‘‘valuations’’ under § 1002.14(b)(3).
The Bureau did not intend by these
two comments to alter the meaning of
‘‘valuation’’ to become inconsistent with
ECOA section 701(e)(6) and
§ 1002.14(b)(3). Accordingly, the Bureau
proposes to clarify comments 14(b)(3)–
1.i and 14(b)(3)–3.v by removing the
words ‘‘or opinion’’ from their texts.
B. Regulation X
General—Technical Corrections
In addition to the proposed
clarifications and amendments to
Regulation X discussed below, the
Bureau is proposing technical
corrections and minor wording
adjustments for the purpose of clarity
throughout Regulation X that are not
substantive in nature. The Bureau is
proposing such technical and wording
clarifications to regulatory text in
§§ 1024.30, 1024.39, and 1024.41; and to
commentary to §§ 1024.17, 1024.33 and
1024.41.
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Sections 1024.35 and .36, Error
Resolution Procedures and Requests for
Information
The Bureau is proposing minor
amendments to the error resolution and
request for information provisions of
Regulation X, adopted by the 2013
Mortgage Servicing Final Rules. The
error resolution procedures largely
parallel the information request
procedures (particularly in the areas in
which amendments are proposed); thus
the two sections are discussed together
below. Section 1024.35 implements
section 6(k)(1)(C) of RESPA, and
§ 1024.36 implements section 6(k)(1)(D)
of RESPA. To the extent the
requirements under §§ 1024.35 and
1024.36 are applicable to qualified
written requests, these provisions also
implement sections 6(e) and 6(k)(1)(B)
of RESPA. As discussed in part V (Legal
Authority), the Bureau proposes these
amendments pursuant to its authority
under RESPA sections 6(j), 6(k)(1)(E)
and 19(a). As explained in more detail
below, these amendments are necessary
and appropriate to achieve the
consumer protection purposes of
RESPA, including ensuring
responsiveness to consumer requests
and complaints and the provision and
maintenance of accurate and relevant
information.
35(c) and 36(b), Contact Information for
Borrowers To Assert Errors and
Information Requests
The Bureau is proposing to amend the
commentary to § 1024.35(c) and
§ 1024.36(b) with respect to disclosure
of the exclusive address (if a servicer
chooses to establish one) when a
servicer discloses contact information to
the borrower for the purpose of
assistance from the servicer. Section
1024.35(c) states that a servicer may, by
written notice provided to a borrower,
establish an address that a borrower
must use to submit a notice of error to
a servicer in accordance with the
procedures set forth in § 1024.35.
Comment 35(c)–2 clarifies that, if a
servicer establishes any such exclusive
address, the servicer must provide that
address to the borrower in any
communication in which the servicer
provides the borrower with contact
information for assistance from the
servicer. Similarly, § 1024.36(b) states
that a servicer may, by written notice
provided to a borrower, establish an
address that a borrower must use to
submit information requests to a
servicer in accordance with the
procedures set forth in § 1024.36.
Comment 36(b)–2 clarifies that, if a
servicer establishes any such exclusive
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address, a servicer must provide that
address to the borrower in any
communication in which the servicer
provides the borrower with contact
information for assistance from the
servicer.
The Bureau is concerned that
comments 35(c)–2 and 36(b)–2 could be
interpreted more broadly than the
Bureau had intended. Section
1024.35(c) and comment 35(c)–2, as
well as § 1024.36(b) and comment
36(b)–2, are intended to inform
borrowers of the correct address for the
borrower to use for purposes of
submitting notices of error or
information requests, so that borrowers
do not inadvertently send these
communications to other nondesignated servicer addresses (which
would not provide the protections
afforded by §§ 1024.35 and 1024.36,
respectively). If interpreted literally, the
existing comments would require the
servicer to include the designated
address for notices of error and requests
for information when any contact
information for the servicer is given to
the borrower. However, if the servicer is
merely including a phone number or
web address (without a mailing
address), there is no risk of the borrower
mailing a notice of error or information
request to a wrong address. Thus it
would be unnecessary to mandate that
the servicer provide the designated
address every time a phone number or
web address is given. The Bureau does
not intend that the servicer be required
to inform the borrower of the designated
address in all communications with
borrowers where any contact
information whatsoever for assistance
from the servicer is provided.
Accordingly, the Bureau is proposing
to amend comment 35(c)–2 to provide
that, if a servicer establishes a
designated error resolution address, the
servicer must provide that address to a
borrower in any communication in
which the servicer provides the
borrower with an address for assistance
from the servicer. Similarly, the Bureau
is proposing to amend comment 36(b)–
2 to provide that if a servicer establishes
a designated information request
address, the servicer must provide that
address to a borrower in any
communication in which the servicer
provides the borrower with an address
for assistance from the servicer. The
Bureau requests comment regarding this
proposed revision to comments 35(c)–2
and 36(b)–2, and in particular about
whether these updated comments
appropriately clarify when the address
must be disclosed.
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35(g) and 36(f) Requirements Not
Applicable
35(g)(1)(iii)(B) and 36(f)(1)(v)(B)
The Bureau is proposing amendments
to § 1024.35(g)(1)(iii)(B) (untimely
notices of error) and § 1024.36(f)(1)(v)(B)
(untimely requests for information).
Section 1024.35(g)(1)(iii)(B) provides
that a notice of error is untimely if it is
delivered to the servicer more than one
year after a mortgage loan balance was
paid in full. Similarly,
§ 1024.36(f)(1)(v)(B) provides that an
information request is untimely if it is
delivered to the servicer more than one
year after a mortgage loan balance was
paid in full.
The Bureau is proposing to replace
the references to the date a mortgage
loan balance is paid in full to the date
the mortgage loan is discharged. This
change would specifically address
circumstances in which a loan is
terminated without being paid in full,
for example, because it was discharged
through foreclosure or deed in lieu of
foreclosure. This change would also
align more closely with the
§ 1024.38(c)(1) record retention
requirements, which require a servicer
to retain records that document actions
taken with respect to a borrower’s
mortgage loan account only until one
year after the date a mortgage loan is
discharged. The Bureau requests
comment regarding these proposed
changes.
Section 1024.41 Loss Mitigation
Procedures
As discussed in part V (Legal
Authority), the Bureau proposes
amendments to § 1024.41 pursuant to its
authority under sections 6(j)(3),
6(k)(1)(E), and 19(a) of RESPA. The
Bureau believes that these proposed
amendments are necessary to achieve
the consumer protection purposes of
RESPA, including to facilitate the
evaluation of borrowers for foreclosure
avoidance options. Further, the
proposed amendments implement, in
part, a servicer’s obligation to take
timely action to correct errors relating to
avoiding foreclosure under section
6(k)(1)(C) of RESPA by establishing
servicer duties and procedures that
must be followed where appropriate to
avoid errors with respect to foreclosure.
In addition, the Bureau relies on its
authority pursuant to section 1022(b) of
the Dodd-Frank Act to prescribe
regulations necessary or appropriate to
carry out the purposes and objectives of
Federal consumer financial law,
including the purpose and objectives
under sections 1021(a) and (b) of the
Dodd-Frank Act. The Bureau
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additionally relies on its authority
under section 1032(a) of the Dodd-Frank
Act, which authorizes the Bureau to
prescribe rules to ensure that the
features of any consumer financial
product or service both initially and
over the terms of the product or service,
are fully, accurately, and effectively
disclosed to consumers in a manner that
permits consumers to understand the
costs, benefits, and risks associated with
the product or service, in light of the
facts and circumstances.
41(b) Receipt of a Loss Mitigation
Application
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41(b)(2) Review of Loss Mitigation
Application Submission
41(b)(2)(i) Requirements
The Bureau is proposing to amend the
commentary to § 1024.41(b)(2)(i) to
clarify servicers’ obligations with
respect to providing notices to
borrowers regarding the review of loss
mitigation applications. Section
1024.41(b)(2)(i) requires a servicer that
receives a loss mitigation application 45
days or more before a foreclosure sale to
review and evaluate the application
promptly and determine, based on that
review, whether the application is
complete or incomplete.19 If the
application is incomplete, the servicer
must also determine what additional
documentation and information are
required to make it complete. The
servicer then must notify the borrower
within five days (excluding legal public
holidays, Saturdays and Sundays) that
the servicer acknowledges receipt of the
application, and that the servicer has
determined that the loss mitigation
application is either complete or
incomplete. If an application is
incomplete, the notice must state the
additional documents and information
that the borrower must submit to make
the loss mitigation application
complete. In addition, servicers are
obligated under § 1024.41(b)(1) to
exercise reasonable diligence in
obtaining documents and information
necessary to complete an incomplete
application, which may require, when
appropriate, the servicer to contact the
borrower and request such information
as illustrated in comment 41(b)(1)–4.i.
The Bureau believes that additional
commentary is warranted to address
situations in which a servicer
determines additional information from
the borrower is needed to complete an
19 A ‘‘complete loss mitigation application’’ is
defined in § 1024.41(b)(1) as ‘‘an application in
connection with which a servicer has received all
the information the servicer requires from a
borrower in evaluating applications for the loss
mitigation options available to the borrower.’’
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evaluation of a loss mitigation
application after either (1) the servicer
has provided notice to the borrower
informing the borrower that the loss
mitigation application is complete, or
(2) the servicer has provided notice to
the borrower identifying specific
information or documentation necessary
to complete the application and the
borrower has furnished that
documentation or information. The
notice required by § 1024.41(b)(2)(i)(B)
is intended to provide the borrower
with timely notification that a loss
mitigation application was received and
either is considered complete by the
servicer or is considered incomplete and
that the borrower is required to take
further action for the servicer to
evaluate the loss mitigation application.
The Bureau has received repeated
questions concerning circumstances in
which a borrower submits information
that appears facially complete based on
an initial review by the servicer, but the
servicer, upon further evaluation,
determines that it does not in fact have
enough information to evaluate the
borrower for a loss mitigation option
pursuant to requirements imposed by an
investor or guarantor of a mortgage loan.
The Bureau is very conscious of
concerns that servicers have prolonged
loss mitigation processes by incomplete
and inadequate document reviews that
lead to repeated requests for
supplemental information, and designed
the rule to ensure an adequate up-front
review. At the same time, the Bureau
does not believe it is in the best interest
of borrowers or servicers to create a
system that leads to borrower
applications being denied solely
because they contain inadequate
information and the servicer believes it
may not request the additional
information needed.
The Bureau is therefore proposing
three provisions to address these
concerns. First, the Bureau is proposing
new comment 41(b)(2)(i)(B)–1 to clarify
that, notwithstanding that a servicer has
informed a borrower that an application
is complete (or notified the borrower of
specific information necessary to
complete an incomplete application), a
servicer must request additional
information from a borrower if the
servicer determines, in the course of
evaluating the loss mitigation
application submitted by the borrower,
that additional information is required.
Second, the Bureau is proposing new
comment 41(b)(2)(i)(B)–2, to clarify that
except as provided in
§ 1024.41(c)(2)(iv), the provisions and
timelines triggered by a complete loss
mitigation application in § 1024.41 are
not triggered by an incomplete
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application. An application is
considered complete only when a
servicer has received all the information
the servicer requires from a borrower in
evaluating applications for the loss
mitigation options available to the
borrower, regardless of whether the
servicer has sent a § 1024.41(b)(2)(i)(B)
notification incorrectly informing the
borrower that the loss mitigation
application is complete or incorrectly
informed the borrower of the
information necessary to complete such
application. The Bureau notes that the
proposed clarifications do not allow
servicers to inform borrowers that
facially incomplete applications are
complete or to incorrectly describe the
information necessary to complete an
application. Servicers are required
under § 1024.41(b)(2)(i)(A) to review a
loss mitigation application to determine
whether it is complete or incomplete. In
addition, servicers are subject to the
§ 1024.38(b)(2)(iv) requirement to have
policies and procedures reasonably
designed to achieve the objectives of
identifying documents and information
that a borrower is required to submit to
complete an otherwise incomplete loss
mitigation application, and servicers are
obligated under § 1024.41(b)(1) to
exercise reasonable diligence in
obtaining documents and information
necessary to complete an incomplete
application.
Third, as described more fully below,
the Bureau is proposing new
§ 1024.41(c)(2)(iv) to require that, if a
servicer creates a reasonable expectation
that a loss mitigation application is
complete but later discovers information
is missing, the servicer must treat the
application as complete for certain
purposes until the borrower has been
given a reasonable opportunity to
complete the loss mitigation
application. The Bureau believes the
proposed rule would mitigate potential
risks to consumers that could arise
through a loss mitigation process
prolonged by incomplete and
inadequate document reviews and
repeated requests for supplemental
information. The Bureau believes these
new provisions will provide flexibility
to servicers who make good faith
mistakes in conducting up-front reviews
of loss mitigation applications for
completeness, while ensuring that
borrowers do not lose the protections
under the rule due to such mistakes and
that servicers have incentives to
conduct rigorous up-front review of loss
mitigation applications. However, the
Bureau requests comment regarding
whether proposed comments
41(b)(2)(i)(B)–1 and –2, in connection
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with proposed § 1024.41(c)(2)(iv),
adequately balance the consumer
interests in receipt of accurate notices.
The Bureau also seeks comment
regarding whether further provisions
would be warranted to protect
borrowers’ interests in reducing dual
tracking and prolonged loss mitigation
processing, and avoiding application
denials for lack of adequate information,
while also providing servicers strong
incentives to conduct rigorous up-front
reviews and appropriate flexibility in
the event of good-faith and clerical
mistakes in conducting such reviews.
41(b)(2)(ii) Time Period Disclosure
The Bureau is proposing to amend the
§ 1024.41(b)(2)(ii) time period
disclosure requirement, which requires
a servicer to provide a date by which a
borrower should submit any missing
documents and information necessary to
make a loss mitigation application
complete. Section 1024.41(b)(2)(ii)
requires a servicer to provide in the
notice required pursuant to
§ 1024.41(b)(2)(i)(B) the earliest
remaining of four specific dates set forth
in § 1024.41(b)(2)(ii). The four dates set
forth in § 1024.41(b)(2)(ii) are: (1) The
date by which any document or
information submitted by a borrower
will be considered stale or invalid
pursuant to any requirements applicable
to any loss mitigation option available
to the borrower; (2) the date that is the
120th day of the borrower’s
delinquency; (3) the date that is 90 days
before a foreclosure sale; and (4) the
date that is 38 days before a foreclosure
sale.
In general, many of the protections
afforded to a borrower by § 1024.41 are
dependent on a borrower submitting a
complete loss mitigation application a
certain amount of time before a
foreclosure sale, and such protections
decrease as a foreclosure sale
approaches. It is therefore in the interest
of borrowers to complete loss mitigation
applications as early in the delinquency
and foreclosure process as possible.
However, even if a borrower does not
complete a loss mitigation application
sufficiently early in the process to
secure all the protections available
under § 1024.41, that borrower may still
benefit from some of the protections
afforded. Borrowers should not be
discouraged from completing loss
mitigation applications merely because
they cannot complete a loss mitigation
application by the date that would be
most advantageous in terms of securing
the protections available under
§ 1024.41. Accordingly, the goal of
§ 1024.41(b)(2)(ii) is to inform borrowers
of the time by which they should
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complete their loss mitigation
applications to receive the greatest set of
protections available, without
discouraging later efforts if any such
timeline is not met. The Bureau notes
§ 1024.41(b)(2)(ii) requires servicers to
inform borrowers of the date by which
the borrower should make the loss
mitigation application complete, as
opposed to the date by which the
borrower must make the loss mitigation
application complete.
The Bureau believes based on
communications with consumer
advocates, servicers, and trade
associations that the requirement in
§ 1024.41(b)(2)(ii) may be overprescriptive and may prevent a servicer
from having the flexibility to suggest an
appropriate date by which a borrower
should complete a loss mitigation
application. For example, if a borrower
submits a loss mitigation application on
the 114th day of delinquency, the
servicer would have to inform him or
her by the 119th day that the borrower
should complete the loss mitigation
application by the 120th day under the
current provision. A borrower is
unlikely to be able to assemble the
missing information within one day,
and would be better served by being
advised to complete the loss mitigation
application by a reasonable later date
that would afford the borrower the
benefits of the rule as well as enough
time to gather the information.
In response to these concerns, and in
accordance with the goals of the
provision, the Bureau is proposing to
amend the requirement in
§ 1024.41(b)(2)(ii). Specifically, the
Bureau proposes to replace the
requirement that a servicer disclose the
earliest remaining date of the four
specific dates set forth in
§ 1024.41(b)(2)(ii) with a more flexible
requirement that a servicer determine
and disclose a reasonable date by which
the borrower should submit the
documents and information necessary to
make the loss mitigation application
complete. The Bureau proposes to
clarify this amendment in proposed
comment 41(b)(2)(ii)–1, which would
clarify that, in determining a reasonable
date, a servicer should select the
deadline that preserves the maximum
borrower rights under § 1024.41, except
when doing so would be impracticable.
Proposed comment 41(b)(2)(ii)–1 would
further clarify that a servicer should
consider the four deadlines previously
set forth in § 1024.41(b)(2)(ii) as factors
in selecting a reasonable date. Proposed
comment 41(b)(2)(ii)–1 also would
clarify that if a foreclosure sale is not
scheduled, for the purposes of
determining a reasonable date, a
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servicer may make a reasonable estimate
of when a foreclosure sale may be
scheduled. This proposal is intended to
provide appropriate flexibility while
also requiring that servicers consider the
impact of the various timing
requirements set forth in § 1024.41. The
Bureau requests comment regarding the
proposed revision to § 1024.41(b)(2)(ii).
41(b)(3) Timelines
The Bureau is proposing to add a new
provision in § 1024.41(b)(3) addressing
the timelines when no foreclosure sale
is scheduled as of the date a complete
loss mitigation application is received
or a foreclosure sale is rescheduled after
receipt of a complete application. As
discussed above, § 1024.41 is structured
to provide different procedural rights to
borrowers and impose different
requirements on servicers depending on
the number of days remaining until a
foreclosure sale is scheduled to occur,
as of the time that a complete loss
mitigation application is received. In
particular, § 1024.41(e)(1) requires that,
if a complete loss mitigation application
is received 90 days or more before a
foreclosure sale, a servicer may require
that a borrower accept or reject an offer
of a loss mitigation option no earlier
than 14 days after the servicer provides
the offer. Similarly, § 1024.41(h)
provides borrowers with a right to
appeal a denial of a loan modification
option when a complete loss mitigation
application is received 90 days or more
in advance of a foreclosure sale.
Alternatively, § 1024.41(e)(1) provides
that if a complete loss mitigation
application is received less than 90 but
more than 37 days before a foreclosure
sale, a servicer may require that a
borrower accept or reject an offer of a
loss mitigation option no earlier than
seven days after the servicer provides
such offer, and under § 1024.41(h), the
borrower does not have a right to appeal
denial of a loan modification option in
this circumstance. Likewise, the
prohibition on foreclosure sales in
§ 1024.41(g) sets limitations on a
servicer’s ability to move for judgment
or order of sale or to conduct a
foreclosure sale when a complete
application is received more than 37
days before a foreclosure sale.
However, the provisions of § 1024.41
do not expressly address situations in
which a foreclosure sale is rescheduled,
or has not yet been scheduled at the
time a complete loss mitigation
application is received. Since issuance
of the final rule, the Bureau has received
questions about the applicability of the
timing provisions in such scenarios.
Specifically, industry stakeholders have
asked whether it is appropriate to use
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estimated dates of foreclosure where a
foreclosure sale has not been scheduled
at the time a complete loss mitigation
application is received, and have
requested guidance on how to apply the
timelines if no foreclosure is scheduled
as of the date a complete loss mitigation
application is received, but a foreclosure
sale is subsequently scheduled less than
90 days after receipt of such application,
or if a foreclosure sale has been
scheduled for less than 90 days after a
complete application is received, but is
then postponed to a date that is 90 days
or more after the receipt date.
The Bureau believes guidance in such
situations is appropriate, and is
proposing in § 1024.41(b)(3) to provide
that, for purposes of § 1024.41, timelines
based on the proximity of a foreclosure
sale to the receipt of a complete loss
mitigation application will be
determined as of the date a complete
loss mitigation application is received.
Proposed comment 41(b)(3)–1 would
clarify that if a foreclosure sale has not
yet been scheduled as of the date that
a complete loss mitigation application is
received, the application shall be treated
as if it were received at least 90 days
before a foreclosure sale. Proposed
comment 41(b)(3)–2 would clarify that
such timelines would remain in effect
even if at a later date, a foreclosure sale
was rescheduled.
The Bureau believes this approach
would provide certainty to both
servicers and borrowers as well as
ensure that borrowers receive the
broadest protections available under the
rule in situations in which a foreclosure
sale has not been scheduled at the time
a borrower submits a complete loss
mitigation application. The Bureau
considered proposing a rule that would
vary the applicable timelines depending
on the number of days remaining until
foreclosure sale at the time that a
foreclosure sale is in fact scheduled
even when the scheduling (or
rescheduling) occurs after a complete
loss mitigation application is received.
Such an approach would have some
advantages to both servicers (in
reducing the risk of foreclosure sale
delays compared to categorically
applying the procedures applicable to
applications received at least 90 days
before a scheduled foreclosure sale
when no foreclosure sale has yet been
scheduled when a complete loss
mitigation application is received) and
to consumers (in providing appeal rights
if a sale is initially scheduled to occur
less than 90 days after receipt of a
completed application but is later
delayed). However, the Bureau was
concerned that such a rule would have
a number of disadvantages. First, it
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would add significant complexity and
uncertainty to the existing timelines
under the regulation. Second, it could
create incentives for servicers to draw
out their evaluation processes in the
hope that a foreclosure sale would be
scheduled in the intervening period,
and disincentives for servicers to push
off a previously scheduled foreclosure
sale. Third, it could potentially create
borrower confusion if changes to the
timelines were permitted to occur after
the servicer has provided the borrower
with the notice required under
§ 1024.41(c)(1)(ii) explaining whether
the loss mitigation application has been
approved and laying out applicable
timelines for follow-up. Similarly, the
Bureau was concerned that allowing
servicers to estimate foreclosure dates
where a complete loss mitigation
application is received before a
foreclosure sale is scheduled would be
imprecise—the Bureau believes it is
necessary to clearly define what rights
a borrower is entitled to and does not
believe it is appropriate for a borrower’s
rights to turn on an estimated date.
Thus, on balance, the Bureau believes
that a straightforward rule under which
deadlines are calculated as of the date
of receipt of a complete loss mitigation
application, and a complete loss
mitigation application is treated as
having been received 90 days or more
before a foreclosure sale if no sale is
scheduled as of the date the application
is received, may be preferable because it
would provide industry and borrowers
with clarity regarding its application,
without the unnecessary complexity
that may arise from an approach where
the timelines would vary based on the
number of days remaining before a laterscheduled foreclosure sale and whether
a notice has already been provided to
the borrower. The Bureau recognizes
that the proposed rule might in some
cases require a servicer to delay a
foreclosure sale to adhere to the
specified time for the borrower to
respond to a loss mitigation offer and to
appeal the servicer’s denial of a loan
modification option, where applicable.
However, the Bureau believes that, in
most circumstances, a foreclosure sale
that is not scheduled at the time a
complete application is received is
unlikely to be subsequently scheduled
to occur less than 90 days after the
receipt date. The Bureau requests
comment and supporting data regarding
circumstances in which this may occur.
Additionally, the Bureau believes
borrowers should not lose certain
protections of the rule because a
servicer quickly schedules a foreclosure
sale, particularly when a borrower has
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been informed by either the
§ 1024.41(c)(1)(ii) notice or the
§ 1024.41(h)(4) notice that he or she has
such rights. The Bureau seeks comment
on this provision addressing the
calculation of timelines as of the date a
complete loss mitigation application is
received, or a scheduled foreclosure sale
is subsequently rescheduled after
receipt of a complete loss mitigation
application. In particular the Bureau
seeks comment as to whether the
alternative approach that would vary
the applicable timelines depending on
the number of days remaining until
foreclosure sale at the time that a
foreclosure sale is in fact scheduled or
subsequently rescheduled would be
preferable and whether there are
additional situations in which
application of the timelines should be
clarified or modified.
41(c) Evaluation of Loss Mitigation
Applications
41(c)(1) Complete Loss Mitigation
Application
41(c)(1)(ii)
The Bureau is proposing to amend
§ 1024.41(c)(1)(ii) to state explicitly that
the notice required by § 1024.41(c)(1)(ii)
must state the deadline for accepting or
rejecting a servicer’s offer of a loss
mitigation option, in addition to the
requirements currently in
§ 1024.41(d)(2) to specify, where
applicable, that the borrower may
appeal the servicer’s denial of a loan
modification option, the deadline for
doing so, and any requirements for
making an appeal. The Bureau intended
that the § 1024.41(c)(1)(ii) notice would
specify the time and procedures for the
borrower to accept or to reject the
servicer’s offer, in accordance with the
timing requirements specified in
§ 1024.41(e). Indeed, § 1024.41(e)(2)
provides both that the servicer may
deem the borrower to have rejected the
offer if the borrower does not respond
within the timelines specified under
§ 1024.41(e)(1) and that the servicer
must give the borrower a reasonable
opportunity to complete documentation
necessary to accept the offer if the
borrower does not follow the specified
procedures but begins making payments
in accordance with the offer by the
deadline specified in § 1024.41(e)(1).
The Bureau is therefore proposing to
amend § 1024.41(c)(1)(ii) to state
explicitly that the notice provided to the
borrower under the provision must state
the date and procedures by which the
borrower is required to respond to an
offer of a loss mitigation option, in
addition to the information regarding
appeals currently required to be
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included in such notices under
§ 1024.41(d)(2).
41(c)(2) Incomplete Loss Mitigation
Application Evaluation
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41(c)(2)(iii) Payment Forbearance
The Bureau is proposing to modify
the requirement in § 1024.41(c)(2) to
allow servicers to offer certain shortterm forbearances to borrowers,
notwithstanding the prohibition on
servicers offering a loss mitigation
option to a borrower based on the
review of an incomplete loss mitigation
application. The Bureau had
intentionally drafted § 1024.41 with
broad definitions of ‘‘loss mitigation
option’’ and ‘‘loss mitigation
application,’’ to provide a streamlined
process in which a borrower will be
evaluated for all available loss
mitigation options at the same time,
rather than having to apply multiple
times to be evaluated for different
options one at a time. Since publication
of the final rule, however, both industry
and consumer advocates have raised
questions and concerns about how the
rule applies in situations in which a
borrower merely needs and requests
short-term forbearance. For instance, a
number of servicers have inquired about
whether the rule would prevent them
from granting a borrower’s request for
waiver of late fees or other short-term
relief after a natural disaster until the
borrower submits all information
necessary for evaluation of the borrower
for long-term loss mitigation options.
Additionally, both consumer advocates
and servicers have raised concerns
about whether a borrower’s request for
short-term relief would later preclude a
borrower from invoking the protections
afforded by the rule if the borrower
encounters a significant change in
circumstances that warrants long-term
loss mitigation alternatives.
The Bureau is very conscious of the
difficulties involved in distinguishing
short-term forbearance programs from
other types of loss mitigation and of the
fact that some servicers have
significantly exacerbated borrowers’
financial difficulties in the past by using
short-term forbearance programs
inappropriately instead of reviewing the
borrowers for long-term options.
Nevertheless, the Bureau believes that it
may be possible to revise the rule to
facilitate appropriate use of short-term
payment forbearance programs without
creating undue risk for borrowers who
need to be evaluated for a full range of
loss mitigation alternatives.
At the outset, the Bureau notes that it
does not construe the existing rule to
require that servicers obtain a complete
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loss mitigation application prior to
exercising their discretion to waive late
fees. Additionally the Bureau notes that
a servicer may offer any borrower any
loss mitigation option if the borrower
has not submitted a loss mitigation
application or if the option is not based
on an evaluation of information
submitted by the borrower in
connection with a loss mitigation
application, as clarified in existing
comment 41(c)(2)(i)–1.
With regard to short-term forbearance
programs that involve more than simply
waiving late fees, such as where a
servicer allows a borrower to forgo
making two payments and then to catch
up by spreading the cost over the next
year, the Bureau believes that the issues
raised by various stakeholders can most
appropriately be addressed by providing
more flexibility to servicers to provide
such relief notwithstanding that a
borrower has submitted an incomplete
loss mitigation application. Thus, the
Bureau is not proposing to change the
current definition of loss mitigation
option, which includes all forbearance
programs, but rather to relax the
prohibition in § 1024.41(c)(2)(i) against
evading the requirement to evaluate a
borrower’s complete loss mitigation
application for all loss mitigation
options available to the borrower by
offering a loss mitigation option based
upon an evaluation of an incomplete
loss mitigation application. Specifically,
the Bureau is proposing to add
§ 1024.41(c)(2)(iii) to provide that a
servicer may offer a short-term payment
forbearance program to a borrower
based upon an evaluation of an
incomplete loss mitigation application.
The proposed exemption in
§ 1024.41(c)(2)(iii) would apply only to
short-term payment forbearance
programs. Proposed comment
41(c)(2)(iii)–1 states that a payment
forbearance program is a loss mitigation
option for which a servicer allows a
borrower to forgo making certain
payments for a period of time. Payment
forbearance programs are usually
offered when a borrower is having a
short-term difficulty brought on, for
example, a natural disaster. In such
cases, the servicer offers a short-term
payment forbearance arrangement to
assist the borrower in managing the
hardship. The Bureau believes it is
appropriate for servicers to have the
flexibility to offer short-term payment
forbearance programs prior to receiving
a complete loss mitigation application
for all available loss mitigation options.
Proposed comment 41(c)(2)(iii)–1 also
would explain how to determine
whether a particular payment
forbearance program is ‘‘short-term.’’
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Specifically, it would provide that
short-term programs allow the
forbearance of payments due over
periods of up to two months. Thus, if a
borrower is allowed to forgo making
payments due in January and February,
but must make the monthly obligation
due in March, such a program would be
considered a two-month program. The
proposed comment clarifies this would
be considered a two-month payment
forbearance, regardless of the amount of
time the servicer provides the borrower
to make up the forborne payments, and
provides examples illustrating this
principle. Different payment
forbearance programs may have the
borrower make up the payments at the
end of the forbearance period, spread
over a certain period of time (for
example, over the next 12 payments) or
may make the forgone payments due
when the loan matures. The Bureau
believes these all would be considered
two-month payment forbearance
programs despite the different
repayment time periods because, under
all of these scenarios, the borrower
would resume making regular payments
in March.
The Bureau notes that, under the
proposed approach, servicers that
receive a request for a short-term
payment forbearance and grant such
requests would remain subject to the
requirements triggered by the receipt of
a loss mitigation application in
§ 1024.41. Thus, as explained in
proposed comment 41(c)(2)(iii)–2, if a
servicer offers a payment forbearance
program based on an incomplete loss
mitigation application, the servicer is
still required to review the application
for completeness, to send the
§ 1024.41(b)(2)(i)(B) notice to inform the
borrower whether the application is
complete or incomplete, and if
incomplete what documents or
additional information are required, and
to use due diligence to complete the loss
mitigation application. If a borrower
submits a complete application, the
servicer must evaluate it for all available
loss mitigation options. The Bureau
believes that maintaining these
requirements is important to ensure that
borrowers are not inappropriately
diverted into short-term forbearance
programs without access to the full
protections of the regulation. At the
same time, if a borrower in fact does not
want an evaluation for long-term
options, the borrower will simply fail to
provide the additional information
necessary to submit a complete
application and the servicer will
therefore not be required to conduct a
full assessment for all options.
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To ensure that a borrower who is
receiving an offer of short-term payment
forbearance program understands the
options available, proposed
§ 1024.41(c)(2)(iii) would require a
servicer offering a short-term payment
forbearance program to a borrower
based on an incomplete loss mitigation
application to include in the
§ 1024.41(b)(2)(i)(B) notice additional
information, specifically that: (1) The
servicer has received an incomplete loss
mitigation application and on the basis
of that application the servicer is
offering a short-term payment
forbearance program; (2) absent further
action by the borrower, the servicer will
not be reviewing the incomplete
application for other loss mitigation
options; and (3) if the borrower would
like to be considered for other loss
mitigation options, he or she must
submit the missing documents and
information required to complete the
loss mitigation application. The Bureau
believes that providing this more
specific information, coupled with the
proposed amendments under
§ 1024.41(c)(2)(iii), is critical to ensure
that the rule provides both flexibility to
servicers and borrowers to avoid
unwarranted delays and paperwork
where short-term forbearance is
appropriate and a safeguard against the
misuse of short-term forbearance to
avoid addressing long-term problems.
For example, suppose a borrower
submits information in connection with
a request for a payment forbearance
program, but such information is not a
complete loss mitigation application as
defined in § 1024.41(b)(1). Under
proposed § 1024.41(c)(2)(iii), the
servicer would be able to offer the
borrower a payment forbearance
program. However, the servicer would
have to send the notice required by
§ 1024.41(b)(2)(i)(B) notifying the
borrower that his or her loss mitigation
application is incomplete and stating
the additional documents and
information the borrower must submit
to make the loss mitigation application
complete. The borrower then would
have the information needed to
complete the loss mitigation application
if he or she would like a full review for
all loss mitigation options. However, if
the borrower feels the payment
forbearance program is sufficient, he or
she would be able to decline to
complete the loss mitigation application
and the full § 1024.41 procedures would
not be triggered.
Finally, the Bureau proposes
comment 41(c)(2)(iii)–3 clarifying
servicers’ obligations on receipt of a
complete loss mitigation application.
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The proposed comment states that,
notwithstanding that a servicer offers a
borrower a payment forbearance
program after an evaluation of an
incomplete loss mitigation application,
a servicer must still comply with all
requirements in § 1024.41 on receipt of
a borrowers submission of a complete
loss mitigation application. This
comment is intended to clarify that,
even though payment forbearance may
be offered as short-term assistance to a
borrower, a borrower is still entitled to
submit a complete loss mitigation
application and receive an evaluation of
such application for all available loss
mitigation options. Although payment
forbearance may assist a borrower with
a short-term hardship, a borrower
should not be precluded from
demonstrating a long-term inability to
afford a mortgage, and being considered
for long-term solutions, such as a loan
modification, when that may be
appropriate.
Accordingly, the Bureau proposes to
amend the loss mitigation provisions in
§ 1024.41 by adding new
§ 1024.41(c)(2)(iii) and new comments
41(c)(2)(iii)–1, –2, and –3. The Bureau
requests comment regarding all aspects
of these proposed provisions, and in
particular on whether the proposed
amendments appropriately address
concerns regarding servicers’ ability to
work with borrowers by offering
payment forbearance programs as
appropriate, pending receipt and
evaluation of complete loss mitigation
applications. Additionally, the Bureau
requests comment as to whether shortterm forbearance programs are
appropriately defined and whether it
might be appropriate to develop tailored
definitions to address specific situations
such as programs offered to victims of
natural disasters or unemployment.
Further, the Bureau seeks comment as to
whether it would be helpful to require
that additional language be added to the
§ 1024.41(b)(2)(i)(B) notice when a
servicer is offering a short-term payment
forbearance program based on an
incomplete loss mitigation application
to encourage a borrower to assess
realistically whether he or she is
encountering short-term or long-term
problems and to complete a loss
mitigation application as appropriate.
Finally, the Bureau seeks comment on
whether additional safeguards would be
appropriate or necessary to provide
flexibility for appropriate use of shortterm forbearance programs without
creating loopholes for abuse or
disincentives to long-term loss
mitigation activities.
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41(c)(2)(iv) Servicer Creates Reasonable
Expectation That a Loss Mitigation
Application Is Complete
As discussed above, the Bureau is
proposing new § 1024.41(c)(2)(iv) which
states that if a servicer creates a
reasonable expectation that a loss
mitigation application is complete but
later discovers that the application is
incomplete, the servicer shall treat the
application as complete as of the date
the borrower had reason to believe the
application was complete for purposes
of applying paragraphs (f)(2) and (g)
until the borrower has been given a
reasonable opportunity to complete the
loss mitigation application. This
provision is designed to work in
connection with proposed new
comments 41(b)(2)(i)–1 and –2 as
discussed above to address scenarios
when a servicer determines that an
application the servicer determined to
be complete or to be missing particular
information in fact is lacking additional
information needed for evaluation.
The Bureau has received questions
about the impact of an error in the
notice required by § 1024.41(b)(2)(i)(B),
particularly in light of the short time
period the servicer has to review the
information submitted by the borrower.
As discussed above the Bureau
recognizes that, in certain
circumstances, a borrower may submit
information that appears facially
complete, or that appears to be missing
only specific information, but that a
servicer, upon further evaluation, may
determine that additional information is
needed in order for the servicer to
evaluate the borrower for all available
loss mitigation options. The proposed
commentary to § 1024.41(b)(2)(i) is
intended to clarify that servicers are
required to obtain the missing
information in such situations.
Proposed § 1024.41(c)(2)(iv) is intended
to protect borrowers while a servicer
requests the missing information.
Proposed comment 41(c)(2)(iv)–1
would clarify that a servicer creates a
reasonable expectation that a loss
mitigation application is complete when
the servicer notifies the borrower in the
§ 1024.41(b)(2)(i)(B) notice that the
application is complete or when the
servicer notifies the borrower in the
§ 1024.41(b)(2)(i)(B) notice that certain
items are missing and the borrower
provides all the missing documents and
information. The Bureau believes that a
borrower would have a reasonable
expectation that his or her loss
mitigation application was complete in
either of these situations.
Where a servicer creates a reasonable
expectation that a loss mitigation
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application is complete but later
discovers that the application is
incomplete, proposed § 1024.41(c)(2)(iv)
would provide that the servicer shall
treat the application as complete for
certain purposes until the borrower has
been given a reasonable opportunity to
supply the missing information
necessary to complete the loss
mitigation application. Specifically,
under this provision, the servicer would
need to treat the application as complete
for purposes of the foreclosure referral
ban in § 1024.41(f)(2) and the
foreclosure sale limitations in
§ 1024.41(g). Proposed
§ 1024.41(c)(2)(iv) would ensure that
servicers that make good faith mistakes
in making initial determinations of
completeness need not be considered in
violation of the rule, and that borrowers
do not lose protections under the rule
due to such mistake. The Bureau
believes that, once a borrower is given
reason to believe he or she has the
benefit of certain protections (which are
triggered by submission of a complete
loss mitigation application), if the
servicer discovers that an application is
incomplete, the borrower should have a
reasonable opportunity to complete the
application before losing the benefit of
such protections.
Proposed comment 41(c)(2)(iv)–2
gives guidance on what would be a
reasonable opportunity for the borrower
to complete a loss mitigation
application. The comment states that a
reasonable opportunity requires that the
borrower be notified of what
information is missing and be given
sufficient time to gather the information
and submit it to the servicer. The
amount of time that is sufficient for this
purpose will depend on the facts and
circumstances.
The Bureau believes proposed
§ 1024.41(c)(2)(iv) would provide
incentives to servicers to conduct
rigorous up-front reviews, while
providing servicers the ability to correct
a good-faith mistake or clerical error.
Further, servicers seeking relief under
the provision need only give borrowers
a reasonable opportunity to provide the
missing information, thus allowing a
servicer to continue the foreclosure
process if a borrower does not provide
such information. The Bureau seeks
comment on all aspects of this proposed
provision. In particular, the Bureau
seeks comment as to if the additional
information is supplied by the borrower,
should the application be considered
complete as of the date the borrower
was given a reasonable belief it was
complete, or as of the date it was
actually completed. Additionally the
Bureau seeks comment as to if other
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measures would be necessary or useful
to clarify servicer obligations and risks
regarding the § 1024.41(b)(2)(i)(B)
notice.
Section 1024.41(d) Denial of Loan
Modification Options
As discussed above, the Bureau is
proposing to move the substance of
§ 1024.41(d)(2) to § 1024.41(c)(1)(ii).
Therefore, the Bureau is proposing to recodify § 1024.41(d)(1) as § 1024.41(d)
and to re-designate the corresponding
commentary accordingly.
The Bureau is also proposing to
clarify the requirement in
§ 1024.41(d)(1), re-codified as
§ 1024.41(d), that a servicer must
disclose the reasons for the denial of
any trial or permanent loan
modification option available to the
borrower. The Bureau believes it is
appropriate to clarify that the
requirement to disclose the reasons for
denial focuses on only those
determinations actually made by the
servicer and does not require a servicer
to continue evaluating additional factors
after a decision has been established.
Thus, when a servicer’s automated
system uses a program that considers a
borrower for a loan modification by
proceeding through a series of questions
and ends the process if the consumer is
denied, the servicer need not modify the
system to continue evaluating the
borrower under additional criteria. For
example, suppose a borrower must meet
qualifications A, B, and C to receive a
loan modification, but the borrower
does not meet any of these
qualifications. A servicer’s system may
start by asking if the borrower meets
qualification A, and on the failure of
that qualification end the analysis for
that specific loan modification option. If
a servicer were required to disclose all
potential reasons why the borrower may
have been denied for that loan
modification option (i.e., A, B, and C),
it would need to consider a lengthy
series of hypothetical scenarios: For
example, if the borrower had met
qualification A, would the borrower also
have met qualification B? The Bureau
did not intend such a requirement,
which it believes would be potentially
burdensome.
The Bureau instead intended to
require only the disclosure of the actual
reason or reasons on which the
borrower was evaluated and denied.
Accordingly, the Bureau is proposing to
amend § 1024.41(d) to require that a
denial notice provided by the servicer
must state the ‘‘specific reason or
reasons’’ for the denial and also, where
applicable, disclose that the borrower
was not evaluated based on other
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criteria. The Bureau believes that this
additional information will help
borrowers understand the status of their
application and the fact that they were
not fully evaluated under all factors
(where applicable). The Bureau is also
proposing new comment 41(d)–4 stating
that, if a servicer’s system reaches the
first issue that causes a denial but does
not evaluate borrowers for additional
factors, a servicer need only provide the
reason or reasons actually considered.
Amended § 1024.41(d) would also
require that the notice must state the
servicer did not evaluate the borrower
on other criteria. The notice is not
required to list such criteria. Thus, a
servicer would not be required to
consider hypothetical situations to
compile a complete list of potential
reasons for denial of the loan
modification option, but a borrower
would not be given the false impression
that the denial reason stated is the only
grounds on which he or she might have
been denied. The Bureau believes this
proposed amendment appropriately
balances potential concerns about
compliance challenges with concerns
about informing borrowers about the
status of their applications and about
information that is relevant to potential
appeals. The Bureau seeks comment on
this proposed amendment to the denial
notification requirement.
41(f) Prohibition on Foreclosure Referral
The Bureau is proposing new
comment 41(f)–1 to clarify what servicer
actions are prohibited during the preforeclosure review period. Section
1024.41(f) prohibits a servicer from
making the first notice or filing required
by applicable law for any judicial or
non-judicial foreclosure process unless
a borrower’s mortgage loan is more than
120 days delinquent; a servicer is also
prohibited from making such a notice or
filing while a borrower’s complete loss
mitigation application is being
evaluated. The Bureau has received
numerous questions about what is
prohibited. Specifically, the Bureau has
been asked if the first notice or filing
includes the breach letters required by
Fannie Mae (typically required at 60
days delinquency). Additionally, the
Bureau has been asked if the phrase
‘‘first notice or filing’’ has the same
interpretation as the Federal Housing
Administration (FHA) uses to define the
‘‘first public action,’’ which marks the
initiation of the foreclosure process
(which includes filing a complaint or
petition, recording a notice of default or
publication of a notice of sale, but not
merely posting a notice on the
property). In light of the requests for
clarification of what is allowed under
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this provision, the Bureau believes
additional guidance is appropriate.
The Bureau notes that the foreclosure
process is a matter of State law, and is
addressed differently in each State.
Thus, the first notice or filing required
by applicable law will be determined
based on State law. In general, once a
loan is delinquent, a servicer continues
collection activity and will begin early
intervention outreach. The Bureau
believes that servicers frequently use
demand or breach letters to notify
borrowers of their delinquency at this
stage. It is at this point that the Fannie
Mae breach letter would typically be
sent. At some point, many servicers will
internally refer the loan to a foreclosure
department or will send the loan to a
foreclosure attorney. The formal
foreclosure process will begin,
generally, with a notice of default
mailed to the borrower in a non-judicial
State or with the onset of a legal action
in a judicial State. It is at this point that
the ‘‘first public action,’’ as FHA defines
it, would typically occur.
The Bureau designed the preforeclosure review period to mitigate the
harms of dual tracking, by giving
borrowers the opportunity to submit a
complete loss mitigation application
and have it considered without the
pressure imposed by an active
foreclosure process. Once a formal
foreclosure process has begun, there is
both more potential confusion on the
part of borrowers due to dual tracking
between foreclosure procedures and loss
mitigation applications, and there is
more pressure on the servicer to comply
with State requirements and owner/
investor requirements and expectations
to complete the foreclosure process in a
timely fashion. The Bureau is concerned
that defining ‘‘first notice or filing’’ to
match the terms used by the FHA and
Fannie Mae for purposes of managing
their foreclosure processes would be
inconsistent with the intent behind the
pre-foreclosure review period under
1024.41(f). In particular, the Bureau is
concerned that the FHA ‘‘first public
action’’ requirement could occur
significantly later in the foreclosure
process than the Bureau had intended
under the ‘‘first notice or filing’’
standard because the term ‘‘first public
action,’’ as defined by FHA, does not
encompass notices to the borrower. The
Bureau believes that interpreting the
term ‘‘first notice or filing’’ consistent
with the term ‘‘first public action’’
would allow activity the rule intended
to delay until after the pre-foreclosure
review period.
The Bureau notes that the rule does
not prohibit servicers from engaging in
collection activity or communication
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with the borrower; in fact, other
provisions of the rules affirmatively
require that periodic statements with
delinquency information be sent and
that the servicer must engage in early
intervention activities. The Bureau
believes it would be appropriate for a
servicer to send a breach letter at day
60, if the letter were sent for the general
purpose of notifying the borrower of his
or her delinquency and encouraging
discussions about potential cures and
loss mitigation options. However, to the
extent that the servicer is sending a
breach letter at day 60 with the purpose
of serving as the formal notification of
default to begin foreclosure proceedings
in a non-judicial State, that is the type
of activity that the rule was intended to
delay until after the pre-foreclosure
review period. The Bureau is therefore
proposing a new comment to clarify
what is prohibited under § 1024.41(f).
Proposed comment 41(f)–1 would state
that whether a document is considered
the first notice or filing is determined
according to applicable State law. A
document that would be used as
evidence of compliance with foreclosure
practices required pursuant to State law
is considered the first notice or filing,
and a servicer thus is prohibited from
filing such a document during the preforeclosure review period. Documents
that would not be used in this fashion
are not considered the first notice or
filing. Thus, a servicer is not prohibited
from attempting to collect the debt,
sending periodic statements, sending
breach letters or any other activity
during the pre-foreclosure review
period, so long as such documents
would not be used as evidence of
complying with requirements applicable
pursuant to State law in connection
with a foreclosure process, and are not
banned by other applicable law (e.g., the
Fair Debt Collection Practices Act or
bankruptcy law). Instead, the Bureau
expects that, when a State requires the
first step to begin the formal foreclosure
process is that a notice of default must
be mailed to the borrower, such a notice
would be sent after the expiration of the
pre-foreclosure review period because
earlier notices could not be used for
such purposes consistent with the
regulation.
Thus, under proposed comment 41(f)–
1, to comply with the requirements of
§ 1024.41(f), any document that would
be used as evidence of compliance with
a State law requirement to initiate the
foreclosure process by providing the
borrower with a notice of default must
be provided after the pre-foreclosure
review period required by § 1024.41(f).
If a State law process mandates a notice
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to a borrower of the availability of
mediation and such notice is a
necessary prerequisite under State law
to commence the foreclosure process,
that notice is included in the definition
of first notice or filing for the purposes
of § 1024.41.
The Bureau acknowledges that the
provisions of § 1024.41 extend the
timeline of a foreclosure by an
additional 120 days. While the proposed
clarifications may highlight that existing
state procedures in connection with the
Bureau’s rule may create delays in the
foreclosure process that are longer than
120 days, the Bureau notes this is not
a new delay imposed by the proposed
clarifications. The Bureau seeks to
establish a rule that balances protecting
consumers and encouraging
communication between borrowers and
servicers. The proposed rule would
protect consumers by giving effect to the
provisions in § 1024.41 intended to
ensure a borrower is given sufficient
time to submit a complete loss
mitigation application and a servicer
has time to work with the borrower
without the pressure of a foreclosure
practice. The rule would encourage
communication by allowing the servicer
to engage in any activity not being used
as a prerequisite to State foreclosure
practices. Further, the Bureau seeks to
establish a workable rule that will
clearly define what is and is not
allowed, a goal that is complicated in
light of both the varying foreclosure
laws of different states, and the fact that
a notice to the borrower may be sent for
multiple reasons. The Bureau believes
the proposed clarifications best balance
these goals, but seeks comment on this
topic.
41(f)(1) Pre-Foreclosure Review Period
The Bureau is proposing to amend the
prohibition on referral to foreclosure
until after the 120th day of delinquency
by limiting the foreclosure ban in two
scenarios: when the foreclosure is based
on a borrower’s violation of a due-onsale clause, and when the servicer is
joining the foreclosure action of a
subordinate lienholder. Section
1024.41(f)(1) requires a 120-day preforeclosure review period; A servicer
may not make the first notice or filing
required by applicable law for any
judicial or non-judicial foreclosure
process unless a borrower’s mortgage
loan obligation is more than 120 days
delinquent. This review period is
intended to ensure a borrower’s loss
mitigation application may be submitted
and reviewed without the pressure of an
active foreclosure process and to
mitigate some of the consumer harms
associated with dual tracking. However,
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the Bureau notes that there may be some
circumstances where a servicer
forecloses for reasons that do not
involve a borrower’s delinquency. In
such scenarios, the Bureau
acknowledges the protections for
delinquent borrowers may not be
appropriate or necessary. For example,
if a borrower were current on his or her
loan but transferred the property to
another party (in breach of the loan
contract), the rationale for the preforeclosure review of loss mitigation
applications would not be applicable.
Similarly, if a borrower were current on
his or her first lien but was delinquent
on a second lien mortgage, and the
servicer for the second lien began a
foreclosure action, it would be
appropriate for the servicer of the first
lien to join the foreclosure action,
regardless of the fact that the borrower
is current on the first lien mortgage.
The Bureau believes it may be
appropriate to include an exemption to
the 120-day pre-foreclosure review
period in certain scenarios and is
proposing to amend § 1024.41(f)(1) to
include exclusions to the 120-day
foreclosure ban when the foreclosure is
based on a borrower’s violation of a dueon-sale clause or when the servicer is
joining the foreclosure action of a
subordinate lienholder. The Bureau
seeks comment on the proposed
changes. Additionally, the Bureau seeks
comment on whether other scenarios
would appropriately be exempted from
the 120-day foreclosure ban and on
whether the exemption is appropriate in
situations in which a borrower has
submitted a complete loss mitigation
application
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41(h) Appeal Process
41(h)(4) Appeal Determination
The Bureau is proposing to amend
§ 1024.41(h)(4) to provide expressly that
the notice informing a borrower of the
determination of his or her appeal must
also state the amount of time the
borrower has to accept or reject an offer
of a loss mitigation option after the
notice is provided to the borrower. For
the reasons discussed in the section-bysection analysis of § 1024.41(c)(1)(ii),
which would require the
§ 1024.41(b)(2)(i)(B) notice to include
how long the borrower has to accept or
reject an offer of a loss mitigation
option, the Bureau believes it is
important that borrowers be informed of
their rights. The Bureau believes that a
borrower who is offered a loss
mitigation option should be informed of
how long he or she has to accept that
option regardless of whether the option
is being offered in response to an initial
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evaluation of a loss mitigation
application or after the conclusion of an
appeal. The Bureau seeks comment on
this amendment.
41(j) Prohibition on Foreclosure Referral
As discussed above, the Bureau is
proposing to amend the prohibition on
referral to foreclosure until after the
120th day of delinquency by limiting
the foreclosure ban in two situations:
when the foreclosure is based on a
borrower’s violation of a due-on-sale
clause and when the servicer is joining
the foreclosure action of a subordinate
lienholder. For the same reasons, the
Bureau believes it would be appropriate
to make corresponding amendments to
the provision in § 1024.41(j) prohibiting
a small servicer from making the first
notice or filing required by applicable
law for any judicial or non-judicial
foreclosure process unless a borrower’s
mortgage loan obligation is more than
120 days delinquent. Thus, the Bureau
is proposing to amend § 1024.41(j) to
allow foreclosure before the 120th day
of delinquency when the foreclosure is
based on a borrower’s violation of a dueon-sale clause and when the servicer is
joining the foreclosure action of a
subordinate lienholder, by incorporating
a cross-reference to § 10124.41(f)(1). The
Bureau seeks comment on this
amendment.
C. Regulation Z
General—Technical Corrections
In addition to the proposed
clarifications and amendments to
Regulation Z discussed below, the
Bureau is also proposing technical
corrections and minor clarifications to
wording throughout Regulation Z that
are not substantive in nature. The
Bureau is proposing such technical and
wording clarifications to regulatory text
in §§ 1026.23, 1026.31, 1026.32,
1026.35, and 1026.36 and to
commentary to §§ 1026.25, 1026.32,
1026.34, 1026.36, and 1026.41.
Section 1026.23
Right of Rescission
23(a) Consumer’s Right To Rescind
23(a)(3)(ii)
The Bureau is proposing to amend
§ 1026.23(a)(3)(ii) to update a crossreference within that section from
§ 1026.35(e)(2), as adopted by the
Bureau’s Amendments to the 2013
Escrows Final Rule under the Truth in
Lending Act (Regulation Z) (May 2013
Escrows Final Rule),20 to § 1026.43(g).
The cross-reference in the Amendments
to the 2013 Escrows Final Rule under
the Truth in Lending Act (Regulation Z)
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20 78
FR 30739 (May 23, 2013).
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is the correct cross-reference during the
time period that rule will be in effect for
transactions where applications are
received on or after June 1, 2013, but
prior to January 10, 2014. For
transactions where applications are
received on or after January 10, 2014,
the correct cross-reference will be to
§ 1026.43(g). For this reason, the Bureau
is proposing to remove the crossreference to § 1026.35(e)(2) and replace
it with a cross-reference to § 1026.43(g).
Section 1026.32 Requirements for
High-Cost Mortgages
32(b) Definitions
Two of the Bureau’s 2013 Title XIV
Final Rules—the 2013 ATR Final Rule
and the 2013 HOEPA Final Rule—
contain provisions that relate to a
transaction’s ‘‘points and fees.’’ 21
Specifically, § 1026.43(e)(2)(iii), as
adopted by the 2013 ATR Final Rule,
sets forth a cap on points and fees for
a closed-end credit transaction to
acquire qualified mortgage status. In
addition, § 1026.32(a)(1)(ii), as adopted
by the 2013 HOEPA Final Rule, sets
forth a points and fees coverage
threshold for both closed- and open-end
credit transactions.22 These two final
rules also adopted definitions of points
and fees for closed- and open-end credit
transactions.
Section 1026.32(b)(1) defines ‘‘points
and fees’’ for closed-end credit
transactions, for purposes of both the
qualified mortgage points and fees cap
and the high-cost mortgage coverage
threshold. Section 1026.32(b)(1)(i)
defines points and fees for closed-end
credit transactions to include all items
included in the finance charge as
specified under § 1026.4(a) and (b), with
the exception of certain items
specifically excluded under
§ 1026.32(b)(1)(i)(A) through (F). These
excluded items include interest or timeprice differential; certain types and
amounts of mortgage insurance
premiums; certain bona fide third-party
charges not retained by the creditor,
loan originator or an affiliate of either;
and certain bona fide discount points
paid by the consumer. Section
1026.32(b)(1)(ii) through (vi) lists
certain other items that are specifically
included in points and fees, including
compensation paid directly or indirectly
by a consumer or creditor to a loan
originator; certain real-estate related
items listed in § 1026.4(c)(7); premiums
21 See 78 FR 6407; 78 FR 6856. The Bureau also
addressed points and fees in the May 2013 ATR
Final Rule. See 78 FR 35430.
22 Section 1026.43(b)(9) provides that, for the
qualified mortgage points and fees cap, ‘‘points and
fees’’ has the same meaning as in § 1026.32(b)(1).
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for various forms of credit insurance,
including credit life, credit disability,
credit unemployment and credit
property insurance; the maximum
prepayment penalty, as defined in
§ 1026.32(b)(6)(i), that may be charged
or collected under the terms of the
mortgage loan; and the total prepayment
penalty as defined in § 1026.32(b)(6)(i)
incurred by the consumer if the
consumer refinances an existing
mortgage loan with the current holder of
the existing loan (or a servicer acting on
behalf of the current holder, or an
affiliate of either).
Section 1026.32(b)(2), which defines
points and fees for open-end credit
plans for purposes of the high-cost
mortgage thresholds, essentially follows
the inclusions and exclusions set out in
§ 1026.32(b)(1) for closed-end
transactions, with several modifications
and additional inclusions related to fees
charged for open-end credit plans.
32(b)(1)
The Bureau is proposing to add new
commentary to § 1026.32(b)(1) to clarify
when charges paid by parties other than
the consumer, including third parties,
are included in points and fees. Prior to
the Dodd-Frank Act, TILA section
103(aa)(1)(B) provided that a mortgage is
subject to the restrictions and
requirements of HOEPA if the total
points and fees ‘‘payable by the
consumer at or before closing’’
(emphasis added) exceed the threshold
amount. However, section 1431(a) of the
Dodd-Frank Act amended the points
and fees coverage test to provide in
TILA section 103(bb)(1)(A)(ii) that a
mortgage is a high-cost mortgage if the
total points and fees ‘‘payable in
connection with the transaction’’
(emphasis added) exceed newly
established thresholds. Similarly, TILA
section 129C(b)(2)(A)(vii) provides that
points and fees ‘‘payable in connection
with the loan’’ (emphasis added) are
included in the points and fees
calculation for qualified mortgages.
The Bureau believes that additional
clarification concerning the treatment of
charges paid by parties other than the
consumer, including third parties, for
purposes of inclusion in or exclusion
from points and fees would be
beneficial to consumers and creditors
and facilitate compliance with the rule.
Specifically, the Bureau is proposing to
add new comment 32(b)(1)–2 to clarify
the treatment of charges imposed in
connection with a closed-end credit
transaction that are paid by a party to
the transaction other than the consumer,
for purposes of determining whether
that charge is included in points and
fees as defined in § 1026.32(b)(1). The
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proposed comment states that charges
paid by third parties that fall within the
definition of points and fees set forth in
§ 1026.32(b)(1)(i) through (vi) are
included in points and fees, and
provides examples of third-party
payments that are included and
excluded. In discussing included
charges, the proposed comment notes
that a third-party payment of an item
excluded from the finance charge under
a provision of § 1026.4, while not
included in points and fees under
§ 1026.32(b)(1)(i), may be included
under § 1026.32(b)(1)(ii) through (vi). In
discussing excluded charges, the
proposed comment states that a charge
paid by a third party is not included in
points and fees under § 1026.32(b)(1)(i)
as a component of the finance charge if
any of the exclusions from points and
fees in § 1026.32(b)(1)(i)(A) through (F)
applies.
The proposed comment also discusses
the treatment of ‘‘seller’s points,’’ as
described in § 1026.4(c)(5) and
commentary. The proposed comment
states that seller’s points are excluded
from the finance charge and thus are not
included in points and fees under
§ 1026.32(b)(1)(i), but also notes that
charges paid by the seller may be
included in points and fees if the
charges are for items in
§ 1026.32(b)(1)(ii) through (vi). Finally
the proposed comment restates for
clarification purposes that, pursuant to
§ 1026.32(b)(1)(i)(A) and (ii), charges
that are paid by the creditor, other than
loan originator compensation paid by
the creditor that is required to be
included in points and fees under
§ 1026.32(b)(1)(ii), are excluded from
points and fees. To the extent that the
creditor recovers the cost of such
charges from the consumer, the cost is
recovered through the interest rate,
which is excluded from points and fees
under § 1026.32(b)(1)(i)(A). Section
1026.32(b)(1)(i) and (A) implements
section 103(bb)(4)(A) of TILA to include
in points and fees ‘‘[a]ll items included
in the finance charge under 1026.4(a)
and (b)’’ but specifically excludes
‘‘interest and time-price differential.’’
Under § 1026.32(b)(1)(ii), however,
compensation paid by the creditor to
loan originators, other than employees
of the creditor, is included in points and
fees.
The Bureau believes this clarification
of the treatment of charges paid by
parties other than the consumer for
points and fees purposes is consistent
with the amendment to TILA made by
section 1431(a) of the Dodd-Frank Act,
discussed above.
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32(b)(1)(ii) and 32(b)(2)(ii)
Section 1431(c)(1)(B) of the DoddFrank Act requires that points and fees
include ‘‘all compensation paid directly
or indirectly by a consumer or creditor
to a mortgage originator from any source
. . . . ’’ TILA section 103(bb)(4). The
2013 ATR Final Rule implemented this
statutory provision in amended
§ 1026.32(b)(1)(ii), which provides that,
for both the qualified mortgage points
and fees limits and the high-cost
mortgage points and fees threshold,
points and fees include all
compensation paid directly or indirectly
by a consumer or creditor to a loan
originator, as defined in § 1026.36(a)(1),
that can be attributed to the transaction
at the time the interest rate is set. The
2013 HOEPA Final Rule implemented
§ 1026.32(b)(2)(ii), which provides the
same standard for including loan
originator compensation in points and
fees for open-end credit plans (i.e., a
home equity line of credit, or HELOC).
Concurrent with the 2013 ATR Final
Rule, the Bureau also issued the 2013
ATR Concurrent Proposal, which,
among other things, proposed certain
clarifications for calculating loan
originator compensation for points and
fees. The Bureau finalized the 2013 ATR
Concurrent Proposal in the May 2013
ATR Final Rule, which further amended
§ 1026.32(b)(1)(ii) to exclude certain
types of loan originator compensation
from points and fees. In particular, the
May 2013 ATR Final Rule excludes
from points and fees loan originator
compensation paid by a consumer to a
mortgage broker when that payment has
already been counted toward the points
and fees thresholds as part of the
finance charge under § 1026.32(b)(1)(i).
See § 1026.32(b)(1)(ii)(A). It also
excludes from points and fees
compensation paid by a mortgage broker
to an employee of the mortgage broker
because that compensation is already
included in points and fees as loan
originator compensation paid by the
consumer or the creditor to the mortgage
broker. See § 1026.32(b)(1)(ii)(B). In
addition, the May 2013 ATR Final Rule
excludes from points and fees
compensation paid by a creditor to its
loan officers. See § 1026.32(b)(1)(ii)(C).
The 2013 ATR Concurrent Proposal
had requested comment on whether
additional adjustment of the rules or
additional commentary is necessary to
clarify any overlapping definitions
between the points and fees provisions
in the 2013 ATR Final Rule and the
2013 HOEPA Final Rule and the
provisions adopted by the 2013 Loan
Originator Compensation Final Rule. In
particular, the Bureau sought comment
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on whether additional guidance would
be useful regarding persons who are
‘‘loan originators’’ under § 1026.36(a)(1)
but are not employed by a creditor or
mortgage broker, such as employees of
a retailer of manufactured homes.
In response to the 2013 ATR
Concurrent Proposal, several industry
and nonprofit commenters requested
clarification of what compensation must
be included in points and fees in
connection with transactions involving
manufactured homes. First, they
requested additional guidance on what
activities would cause a manufactured
home retailer and its employees to
qualify as loan originators. Second, they
requested additional guidance on what
compensation paid to manufactured
home retailers and their employees
would be counted as loan originator
compensation and included in points
and fees. The Bureau believes it is
appropriate to provide additional
opportunity for public comment on
these issues. Accordingly, rather than
provide additional guidance in the May
2013 ATR Final Rule, the Bureau noted
that it would propose and seek
comment on additional guidance.
The 2013 Loan Originator
Compensation Final Rule had provided
additional guidance on what activities
would cause such a retailer and its
employees to qualify as loan originators
in light of language from the DoddFrank Act creating an exception from
the definition of loan originator for
employees of manufactured home
retailers that engage in certain limited
activities. See § 1026.36(a)(1)(i)(B) and
comments 36(a)–1.i.A and 36(a)–4.
Commenters responding to the 2013
ATR Concurrent Proposal nevertheless
argued that it remains unclear what
activities a retailer and its employees
could engage in without qualifying as
loan originators and causing their
compensation to be included in points
and fees. Industry commenters also
noted that, because a creditor has
limited knowledge of and control over
the activities of a manufactured home
retailer and its employees, it would be
difficult for the creditor to know
whether the retailer and its employees
had engaged in activities that would
require their compensation to be
included in points and fees. Industry
commenters therefore urged the Bureau
to adopt a bright-line rule under which
compensation would be included in
points and fees only if paid to an
employee of a creditor or a mortgage
broker.
As noted in the May 2013 ATR Final
Rule, the Bureau does not believe it is
appropriate to use its exception
authority to exclude from points and
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fees all compensation that may be paid
to a manufactured home retailer. As a
general matter, to the extent that the
consumer or creditor is paying the
retailer for loan origination activities,
the retailer is functioning as a mortgage
broker and compensation for the
retailer’s loan origination activities
should be captured in points and fees.
As discussed below, the Bureau is
proposing to clarify what compensation
must be included in points and fees. As
discussed in the SUPPLEMENTARY
INFORMATION describing proposed
revisions and clarifications to the rule
text and commentary defining ‘‘loan
originator,’’ the Bureau is also proposing
to clarify the circumstances in which
employees of manufactured home
retailers are loan originators, including
a revision to § 1026.36(a)(i)(B). In
addition, the Bureau is continuing to
conduct outreach with the
manufactured home industry and other
interested parties to address concerns
about what activities are permissible for
a retailer and its employees without
causing them to qualify as loan
originators.
Industry commenters responding to
the 2013 ATR Concurrent Proposal also
requested that the Bureau clarify what
compensation must be included in
points and fees when a retailer and its
employees qualify as loan originators.
They argued that it is not clear whether
the sales price received by the retailer
or the sales commission received by the
retailer’s employee should be
considered, at least in part, loan
originator compensation. They urged
the Bureau to clarify that compensation
paid to a retailer and its employees in
connection with the sale of a
manufactured home should not be
counted as loan originator
compensation.
Under § 1026.32(b)(1)(ii), loan
originator compensation is included in
points and fees only if it can be
attributed to a transaction at the time
the interest rate is set. The Bureau
believes that the sales price would not
include compensation that is paid for
loan origination activities and that can
be attributed to a specific transaction.
The sales price of a manufactured home
allows manufactured home retailers to
recover their costs (including the costs
of compensating salespersons and other
employees) and earn a profit. The
Bureau does not believe that
manufactured home retailers charge a
different sales price depending on
whether or not the retailer engages in
loan origination activities for that
particular transaction. If the retailer
does not increase the price to obtain
compensation for loan origination
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activities, then it does not appear that
the sales price would include loan
originator compensation that could be
attributed to that particular transaction.
The Bureau acknowledges that it is
theoretically possible that the sales
price could include loan originator
compensation that could be attributed to
a particular transaction at the time the
interest rate is set and that therefore
should be included in points and fees.
One approach for calculating loan
originator compensation for
manufactured home transactions would
be to compare the sales price in a
transaction in which the retailer
engaged in loan origination activities
and the sales prices in transactions in
which the retailer did not do so (such
as in cash transactions or in transactions
in which the consumer arranged credit
through another party). To the extent
that there is a higher sales price in the
transaction in which the retailer
engaged in loan origination activities,
then the difference in sales prices could
be counted as loan originator
compensation that can be attributed to
that transaction and that therefore
should be included in points and fees.
However, the Bureau does not believe
that it is workable for the creditor to use
this comparative sales price approach to
determine whether the sales price
includes loan originator compensation
that must be included in points and
fees. The creditor is responsible for
calculating loan originator
compensation to be included in points
and fees for the qualified mortgage and
high-cost mortgage points and fees
thresholds. Accordingly, under the
comparative sales price approach, the
creditor would have to analyze a
manufactured home retailer’s prices to
determine if there were differences in
the prices that would have to be
included in points and fees as loan
originator compensation. This would
appear to be an extremely difficult
analysis for the creditor to perform. Not
only would the creditor have to
compare the sales prices from numerous
transactions, it would have to determine
whether any differences between the
sales prices can be attributed to the loan
origination activities of the retailer and
not to other factors.
As noted above, the Bureau does not
believe that the sales price of a
manufactured home includes loan
originator compensation that can be
attributed to a particular transaction.
Moreover, the Bureau does not believe
it is practicable for the creditor to
attempt to analyze the sales price to
determine if it does in fact include loan
originator compensation that can be
attributed to a particular transaction and
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therefore must be included in points
and fees. Accordingly, the Bureau is
proposing guidance providing that the
sales price of a manufactured home does
not include loan originator
compensation that can be attributed to
the transaction at the time the interest
rate is set and that the sales price
therefore does not include loan
originator compensation that must be
included in points and fees under
§ 1026.32(b)(1)(ii). The Bureau requests
comment on this proposed guidance. In
addition, the Bureau requests comment
on whether the sales price of a
manufactured home does include loan
originator compensation that can be
attributed to the transaction at the time
the interest rate is set, and, if so,
whether there are practicable ways for a
creditor to measure that compensation
so that it could be included in points
and fees.
With respect to employees of
manufactured home retailers, the
Bureau notes that the May 2013 ATR
Final Rule added § 1026.32(b)(1)(ii)(B),
which excludes from points and fees
compensation paid by mortgage brokers
to their loan originator employees. It
appears to the Bureau that when an
employee of a retailer would qualify as
a loan originator, the retailer also would
qualify as a loan originator and therefore
would qualify as a mortgage broker. If
the retailer qualifies as a mortgage
broker, any compensation paid by the
retailer to the employee would be
excluded from points and fees under
§ 1026.32(b)(1)(ii)(B).
The Bureau notes, however, that if
there were instances in which an
employee of a manufactured home
retailer would qualify as a loan
originator but the retailer would not, the
exclusion from points and fees in
§ 1026.32(b)(1)(ii)(B) for compensation
paid to an employee of a mortgage
broker would not apply because the
retailer would not be a mortgage broker.
Nevertheless, the Bureau believes it may
still be appropriate to exclude such
compensation paid to an employee of a
manufactured home retailer. As noted
by some commenters responding to the
2013 ATR Concurrent Proposal, it may
be difficult for creditors to determine
whether employees of a manufactured
home retailer have engaged in loan
origination activities and, if so, what
compensation they received for doing
so. The Bureau understands that a
retailer typically pays a sales
commission to its employees, so it may
be difficult for a creditor to know
whether a retailer has paid any
compensation to its employees for loan
origination activities, as distinct from
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compensation for sales activities.23
Accordingly, to prevent any such
uncertainty, the Bureau is proposing
new § 1026.32(b)(1)(ii)(D), which
excludes from points and fees all
compensation paid by manufactured
home retailers to their employees. The
Bureau requests comment on this
proposed exclusion. The Bureau also
requests comment on whether there are
instances in which an employee of a
manufactured home retailer would
qualify as a loan originator but the
retailer would not qualify as a loan
originator.
The Bureau notes that it is proposing
to exclude from points and fees only
compensation that is paid by a
manufactured home retailer to its
employees. To the extent that an
employee of a manufactured home
retailer receives from another source
(such as the creditor) loan originator
compensation that can be attributed to
the transaction at the time the interest
rate is set, then that compensation must
be included in points and fees.
As noted above, the Bureau is
proposing new § 1026.32(b)(1)(ii)(D),
which excludes from points and fees all
compensation paid by manufactured
home retailers to their employees. The
Bureau is also proposing new
§ 1026.32(b)(2)(ii)(D), which provides
that, for open-end credit plans,
compensation paid by manufactured
home retailers to their employees is
excluded from points and fees for
purposes of the high-cost mortgage
points and fees threshold.
The Bureau is also proposing new
comment 32(b)(1)(ii)–5, which explains
what compensation is included in loan
originator compensation that must be
included in points and fees for
manufactured home transactions.
Proposed comment 32(b)(1)(ii)–5.i states
that, if a manufactured home retailer
receives compensation for loan
origination activities and such
compensation can be attributed to the
transaction at the time the interest rate
is set, then such compensation is loan
originator compensation that is
included in points and fees. Proposed
comment 32(b)(1)(ii)–5.ii specifies that
the sales price of the manufactured
home does not include loan originator
compensation that can be attributed to
the transaction at the time the interest
rate is set and therefore is not included
23 Commenters asserted that creditors may
presume that the sales commissions should be
treated as loan originator compensation and include
such payments in points and fees. They maintain
that doing so would prevent most loans from
staying under the qualified mortgage points and
fees limits and would cause many loans to exceed
the high-cost mortgage points and fees thresholds.
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in points and fees. Proposed comment
32(b)(1)(ii)–5.iii specifies that,
consistent with new
§ 1026.32(b)(1)(ii)(D), compensation
paid by a manufactured home retailer to
its employees is not included in points
and fees.
The Bureau is proposing new
§ 1026.32(b)(1)(ii)(D) and (b)(2)(ii)(D)
pursuant to its authority under TILA
section 105(a) to make such adjustments
and exceptions for any class of
transactions as the Bureau finds
necessary or proper to facilitate
compliance with TILA and to effectuate
the purposes of TILA, including the
purposes of TILA section 129C of
ensuring that consumers are offered and
receive residential mortgage loans that
reasonably reflect their ability to repay
the loans. The Bureau’s understanding
of this purpose is informed by the
findings related to the purposes of
section 129C of ensuring that
responsible, affordable mortgage credit
remains available to consumers. The
Bureau believes that using its TILA
exception authorities will facilitate
compliance with the points and fees
regulatory regime by not requiring
creditors to investigate the
manufactured housing retailer’s
employee compensation practices, and
by making sure that all creditors apply
the provision consistently. It will also
effectuate the purposes of TILA by
helping to keep mortgage loans available
and affordable by ensuring that they are
subject to the appropriate regulatory
framework with respect to qualified
mortgages and the high-cost mortgage
threshold. The Bureau is also invoking
its authority under TILA section
129C(b)(3)(B) to revise, add to, or
subtract from the criteria that define a
qualified mortgage consistent with
applicable standards. For the reasons
explained above, the Bureau has
determined that it is necessary and
proper to ensure that responsible,
affordable mortgage credit remains
available to consumers in a manner
consistent with the purposes of TILA
section 129C and necessary and
appropriate to effectuate the purposes of
this section and to facilitate compliance
with section 129C. With respect to its
use of TILA section 129C(b)(3)(B), the
Bureau believes this authority includes
adjustments and exceptions to the
definitions of the criteria for qualified
mortgages and that it is consistent with
the purpose of facilitating compliance to
extend use of this authority to the points
and fees definitions for high-cost
mortgage in order to preserve the
consistency of the qualified mortgage
and high-cost mortgage definitions. As
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noted above, by helping to ensure that
the points and fees calculation is not
artificially inflated, the Bureau is
helping to ensure that responsible,
affordable mortgage credit remains
available to consumers.
The Bureau also has considered the
factors in TILA section 105(f) and has
concluded that, for the reasons
discussed above, the proposed
exemption is appropriate under that
provision. Pursuant to TILA section
105(f), the Bureau may exempt by
regulation from all or part of this title all
or any class of transactions for which in
the determination of the Bureau
coverage does not provide a meaningful
benefit to consumers in the form of
useful information or protection. In
determining which classes of
transactions to exempt, the Bureau must
consider certain statutory factors. For
the reasons discussed above, the Bureau
is proposing to exclude from points and
fees compensation paid by a retailer of
manufactured homes to its employees
because including such compensation
in points and fees does not provide a
meaningful benefit to consumers. The
Bureau believes that the proposed
exemption is appropriate for all affected
consumers to which the proposed
exemption applies, regardless of their
other financial arrangements and
financial sophistication and the
importance of the loan to them.
Similarly, the Bureau believes that the
proposed exemption is appropriate for
all affected loans covered under the
proposed exemption, regardless of the
amount of the loan and whether the
loan is secured by the principal
residence of the consumer. Furthermore,
the Bureau believes that, on balance, the
proposed exemption will simplify the
credit process without undermining the
goal of consumer protection, denying
important benefits to consumers, or
increasing the expense of the credit
process.
The Bureau also concludes that, to the
extent that it determines that it would
be appropriate to adopt a regulatory
provision that excludes from points and
fees any loan originator compensation
in the sales price of a manufactured
home, such an exclusion also would be
appropriate under TILA section 105(f).
The Bureau believes that including such
compensation in points and fees does
not provide a meaningful benefit to
consumers. The Bureau believes that
such an exemption would be
appropriate for all affected consumers to
which the exemption would apply,
regardless of their other financial
arrangements and financial
sophistication and the importance of the
loan to them. Similarly, the Bureau
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believes that the exemption would be
appropriate for all affected loans,
regardless of the amount of the loan and
whether the loan is secured by the
principal residence of the consumer.
Furthermore, the Bureau believes that,
on balance, the exemption would
simplify the credit process without
undermining the goal of consumer
protection, denying important benefits
to consumers, or increasing the expense
of the credit process.
32(b)(1)(vi) and 32(b)(2)(vi)
The Bureau is proposing changes to
§ 1026.32(b)(1)(vi) and (2)(vi) to
harmonize more fully the definitions of
‘‘total prepayment penalty’’ adopted in
these two sections with the statutory
requirement implemented by them.
Section 1026.32(b)(1)(vi) and (2)(vi)
implements section 1431(c) of the DoddFrank Act, which added new TILA
section 103(bb)(4)(F). That provision
requires that points and fees include
‘‘all prepayment fees or penalties that
are incurred by the consumer if the loan
refinances a previous loan made or
currently held by the same creditor or
an affiliate of the creditor.’’ As adopted
by the 2013 ATR Final Rule,
§ 1026.32(b)(1)(vi) implements this
provision as it relates to closed-end
credit transactions, and provides that
points and fees must include ‘‘[t]he total
prepayment penalty, as defined in
paragraph (b)(6)(i) of this section,
incurred by the consumer if the
consumer refinances the existing
mortgage loan with the current holder of
the existing loan, a servicer acting on
behalf of the current holder, or an
affiliate of either.’’ As adopted by the
2013 HOEPA Final Rule,
§ 1026.32(b)(2)(vi) implements this
provision as it relates to open-end credit
plans (i.e., a home equity line of credit,
or HELOC), and provides that points
and fees must include ‘‘[t]he total
prepayment penalty, as defined in
paragraph (b)(6)(ii) of this section,
incurred by the consumer if the
consumer refinances an existing closedend credit transaction with an open-end
credit plan, or terminates an existing
open-end credit plan in connection with
obtaining a new closed- or open-end
credit transaction, with the current
holder of the existing plan, a servicer
acting on behalf of the current holder,
or an affiliate of either.’’
The Bureau intended these provisions
to work in the same manner for closedend and open-end credit transactions:
To include in points and fees any
prepayment charges triggered by the
refinancing of an existing loan or
termination of a HELOC by obtaining a
new credit transaction with the current
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39921
holder of the existing closed-end
mortgage loan or open-end credit plan.
The Bureau believes that additional
clarification as to when prepayment
penalties are included in points and fees
in connection with the refinancing of a
closed-end mortgage loan or the
termination and replacement of a
HELOC with the holder of the existing
loan or HELOC would be beneficial.
The Bureau is proposing changes to
§ 1026.32(b)(1)(vi) and (2)(vi) to clarify
both provisions’ application.
Specifically, the Bureau is proposing to
state expressly that § 1026.32(b)(1)(vi)
applies to instances where the consumer
takes out a closed-end mortgage loan to
pay off and terminate an existing openend credit plan held by the same
creditor and the plan imposes a
prepayment penalty (as defined in
§ 1026.32(b)(6)(ii)) on the consumer.
The Bureau also is proposing to strike
from § 1026.32(b)(2)(vi) the reference to
obtaining a new closed-end credit
transaction because § 1026.32(b)(2)(vi)
relates to points and fees only for openend credit plans and § 1026.32(b)(1)(vi)
would apply instead. The Bureau is also
proposing to insert in § 1026.32(b)(2)(vi)
a reference to § 1026.32(b)(6)(i), the
definition of prepayment penalties for
closed-end credit transactions, to clarify
that this definition applies in
calculating the prepayment penalties
included where a consumer refinances a
closed-end mortgage loan with a HELOC
with the creditor holding the closed-end
mortgage loan (i.e., the closed-end
mortgage loan’s prepayment penalties
are included in calculating points and
fees for the HELOC). The Bureau
believes that these changes are
consistent with the statutory provision
implemented by this section and clarify
the Bureau’s intended application of
§ 1026.32(b)(1)(vi) and (2)(vi).
32(b)(2)
The Bureau is proposing the addition
of a new comment 32(b)(2)–1 that
directs readers for further guidance on
the inclusion of charges paid by parties
other than the consumer in points and
fees for open-end credit plans to
proposed comment 32(b)(1)–2 on
closed-end credit transactions.
32(d) Limitations
32(d)(1)
32(d)(1)(ii) Exceptions
32(d)(1)(ii)(C)
The Bureau is proposing to revise the
exception to the prohibition on balloon
payments for high-cost mortgages in
§ 1026.32(d)(1)(ii)(c) for transactions
that satisfy the criteria set forth in
§ 1026.43(f), which implements a Dodd-
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Frank Act provision that allows certain
balloon-payment mortgages made by
small creditors operating predominantly
in ‘‘rural or underserved areas’’ to be
accorded status as qualified mortgages
under the 2013 ATR Final Rule. The
Bureau has received extensive comment
on the definitions of ‘‘rural’’ and
‘‘underserved’’ that it adopted for
purposes of § 1026.43(f) and certain
other purposes in the 2013 Title XIV
Final Rules, and recently announced
that it would reexamine those
definitions over the next two years to
determine whether further adjustments
are appropriate particularly in light of
access to credit concerns.24 The Bureau
also amended the 2013 ATR Final Rule
to add § 1026.43(e)(6) to allow small
creditors during the period from January
10, 2014, to January 10, 2016, to make
balloon-payment qualified mortgages
even if they do not operate
predominantly in rural or underserved
areas.25 In light of those actions, the
Bureau is proposing to revise
§ 1026.32(d)(1)(ii)(c) to expand the
exception to the prohibition on balloon
payments for high-cost mortgages for
transactions that satisfy the criteria in
either § 1026.43(f) or (e)(6).
The balloon qualified mortgage
provision in § 1026.43(f) implements a
Dodd-Frank Act provision that appears
to have been designed to promote access
to credit. The Dodd-Frank Act generally
prohibits balloon-payment loans from
being accorded qualified mortgage
status, but Congress appears to have
been concerned that small creditors in
rural areas might have sufficient
24 See e.g., U.S. Consumer Fin Prot. Bureau,
Clarification of the 2013 Escrows Final Rule (May
16, 2013), available at https://
www.consumerfinance.gov/blog/clarification-of-the2013-escrows-final-rule/.
25 Specifically, in the May 2013 ATR Final Rule,
the Bureau adopted § 1026.43(e)(6), which provided
for a temporary balloon-payment qualified mortgage
that requires all of the same criteria be satisfied as
the balloon-payment qualified mortgage definition
in § 1026.43(f) except the requirement that the
creditor extend more than 50 percent of its total
first-lien covered transactions in counties that are
‘‘rural’’ or ‘‘underserved.’’ This temporary balloonpayment qualified mortgage would sunset,
however, after January 10, 2016. As discussed in the
section-by-section analysis of § 1026.43(e)(6) in the
May 2013 ATR Final Rule, the Bureau adopted this
two-year transition period for small creditors to roll
over existing balloon-payment loans as qualified
mortgages, even if they do not operate
predominantly in rural or underserved areas,
because the Bureau believes it is necessary to
preserve access to responsible, affordable mortgage
credit for some consumers. The Bureau also noted
that, during the two-year period for which
§ 1026.43(e)(6) is in place, the Bureau intends to
review whether the definitions of ‘‘rural’’ and
‘‘underserved’’ should be adjusted further and to
explore how it can best facilitate the transition of
small creditors that do not operate predominantly
in rural or underserved areas from balloon-payment
loans to adjustable-rate mortgages. 78 FR 35430.
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difficulty converting from balloonpayment loans to adjustable rate
mortgages that they would curtail
mortgage lending if they could not
obtain qualified mortgage status for their
balloon-payment loans. As adopted in
the 2013 ATR Final Rule, the exemption
is available to creditors that extended
more than 50 percent of their total
covered transactions secured by a first
lien in ‘‘rural’’ or ‘‘underserved’’
counties during the preceding calendar
year.
Because commenters raised similar
concerns about the prohibition in
HOEPA on high-cost mortgages having
balloon-payment features, the Bureau
decided in the 2013 HOEPA Final Rule
to adopt § 1026.32(d)(1)(ii)(C) to allow
balloon-payment features on loans that
met the qualified mortgage
requirements. The Bureau stated that, in
its view, (1) allowing creditors in certain
rural or underserved areas to extend
high-cost mortgages with balloon
payments will benefit consumers by
expanding access to credit in these
areas, and also will facilitate
compliance for creditors who make
these loans; and (2) allowing creditors
that make high-cost mortgages in rural
or underserved areas to originate loans
with balloon payments if they satisfy
the same criteria promotes consistency
between the 2013 HOEPA Final Rule
and the 2013 ATR Final Rule, and
thereby facilitates compliance for
creditors that operate in these areas.
Because the Bureau has now decided
to allow small creditors an additional
two years to transition from balloonpayment loans to other products while
it reevaluates the definitions of ‘‘rural’’
and ‘‘underserved,’’ the Bureau believes
it is appropriate to carry over the
flexibility provided by the revised May
2013 ATR Final Rule into the HOEPA
balloon loan provisions. Accordingly,
the Bureau is proposing to amend
§ 1026.32(d)(1)(ii)(C) to include the
§ 1026.43(e)(6) exception. The Bureau is
proposing to expand this exception
pursuant to its authority under TILA
section 129(p)(1), which grants it
authority to exempt specific mortgage
products or categories from any or all of
the prohibitions specified in TILA
section 129(c) through (i) if the Bureau
finds that the exemption is in the
interest of the borrowing public and will
apply only to products that maintain
and strengthen homeownership and
equity protections.
The Bureau believes expanding the
balloon-payment exception for high-cost
mortgages to allow certain small
creditors operating in areas that do not
qualify as ‘‘rural’’ or ‘‘underserved’’ to
continue to originate high-cost
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mortgages with balloon payments is in
the interest of the borrowing public and
will strengthen homeownership and
equity protection. The Bureau believes
allowing greater access to credit in
remote areas that nevertheless may not
meet the definitions of ‘‘rural’’ or
‘‘underserved’’ while creditors
transition to adjustable rate mortgages
(or the Bureau reconsiders those
definitions) will help those consumers
who otherwise may be able to obtain
credit only from a limited number of
creditors. Further, it will do so in a
manner that balances consumer
protections with access to credit. In the
Bureau’s view, concerns about
potentially abusive practices that may
accompany balloon payments will be
curtailed by the additional requirements
set forth in § 1026.43(e)(6) and (f).
Creditors that make these high-cost
mortgages will be required to verify that
the loans also satisfy the additional
criteria discussed above, including some
specific criteria required for qualified
mortgages. Further, creditors that make
balloon-payment high-cost mortgages
under this exception will be required to
hold the high-cost mortgages in
portfolio for a specified time, which the
Bureau believes also decreases the risk
of abusive lending practices.
Accordingly, for these reasons and for
the purpose of consistency between the
two rulemakings, the Bureau is
proposing to amend the 2013 HOEPA
Final Rule to include an exception to
the § 1026.32(d)(1) balloon-payment
restriction for high-cost mortgages
where the creditor satisfies the
conditions set forth in §§ 1026.43(f)(1)(i)
through (vi) and 1026.43(f)(2) or the
conditions set forth in § 1026.43(e)(6).
Section 1026.35 Requirements for
Higher-Priced Mortgage Loans
35(b) Escrow Accounts
35(b)(2) Exemptions
35(b)(2)(iii)
35(b)(2)(iii)(A)
The Bureau is proposing to revise the
exemption provided by
§ 1026.35(b)(2)(iii) to the general
requirement that creditors establish an
escrow account for first lien higherpriced mortgage loans where a small
creditor operates predominantly in rural
or underserved areas and meets various
other criteria. The Bureau has received
extensive comment on the definitions of
‘‘rural’’ and ‘‘underserved’’ that it
adopted for purposes of § 1026.35(b)(2)
and certain other purposes in the 2013
Title XIV Final Rules and recently
announced that it would re-examine
those definitions over the next two years
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to determine whether further
adjustments are appropriate particularly
in light of access to credit concerns. In
light of that coming re-examination, the
Bureau is proposing to revise
§ 1026.35(b) and its commentary to
minimize volatility in the definitions
while they are being re-evaluated.
The exemption in § 1026.35(b)(2)(iii)
implements a Dodd-Frank Act provision
that appears to have been designed to
promote access to credit by exempting
small creditors in rural areas that might
have sufficient difficulty maintaining
escrow accounts that they would curtail
making higher-priced mortgage loans
rather than trigger the escrow account
requirement. As adopted in the 2013
Escrows Final Rule, and as amended by
the Amendments to the 2013 Escrows
Final Rule,26 the exemption is available
to creditors that extended more than 50
percent of their total covered
transactions secured by a first lien on
properties that are located in ‘‘rural’’ or
‘‘underserved’’ counties during the
preceding calendar year. In general, a
county’s status as ‘‘rural’’ is defined in
relation to Urban Influence Codes (UICs)
established by the United States
Department of Agriculture’s Economic
Research Service. Due to updated
information from the 2010 Census,
however, the list of ‘‘rural’’ counties
will change between 2013 and 2014,
with a small number of new counties
meeting the definition of rural and
approximately 82 counties no longer
meeting that definition. The Bureau
estimates that approximately 200–300
otherwise eligible creditors during 2013
could lose their eligibility for 2014
solely because of changes in the status
of the counties in which they operate
(assuming the geographical distribution
of their mortgage originations does not
change significantly over the relevant
period).27 In light of the Bureau’s intent
to review whether the definitions of
‘‘rural’’ and ‘‘underserved’’ should be
adjusted further during the two-year
transition period for balloon-payment
mortgages discussed above, the Bureau
26 78
FR 30739 (May 23, 2013).
extent of such volatility in the transition
from 2012 rural/non-rural status (for purposes of
eligibility for the exemption during 2013) to 2013
rural/non-rural status (for purposes of eligibility for
the exemption during 2014) is likely far greater than
during other year-to-year transitions. This is due to
the fact that this first year-to-year transition under
the Bureau’s ‘‘rural’’ definition happens to coincide
with the redesignation by the USDA’s Economic
Research Service of U.S. counties’ urban influence
codes, on which the ‘‘rural’’ definition is generally
based. This redesignation occurs only decennially,
based on the most recent census data. Nevertheless,
for purposes of eligibility for the exemption during
2013 and 2014, the volatility is significant—just as
creditors are first attempting to apply the
exemption’s criteria.
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27 The
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also believes that subjecting small
creditors that make higher-priced
mortgage loans to such volatility in their
eligibility for the exemption from the
escrows requirement in the meanwhile
could create significant burden for such
creditors with little meaningful benefit
to consumers in return.
Accordingly, the Bureau is proposing
to revise § 1026.35(b)(2)(iii)(A) to
provide that, to qualify for the
exemption, a creditor must have
extended more than 50 percent of its
total covered transactions secured by a
first lien on properties located in
‘‘rural’’ or ‘‘underserved’’ counties
during any of the preceding three
calendar years. As proposed, the
provision thus would prevent a creditor
from losing eligibility for the exemption
under the ‘‘rural or underserved’’
element of the test unless it has failed
to exceed the 50-percent threshold three
years in a row.
As discussed above in the section-bysection analysis of § 1026.32(d)(1)(ii)(C),
the Bureau also is proposing to modify
the exception from the prohibition on
balloon payments for high-cost
mortgages in that section. Section
1026.32(d)(1)(ii)(C) provides an
exception to the general prohibition on
balloon payments for high-cost
mortgages for balloon-payment qualified
mortgages made by certain creditors
operating predominantly in ‘‘rural’’ or
‘‘underserved’’ areas. Believing that the
same rationale for allowing balloonpayment qualified mortgages made by
creditors in rural or underserved areas
applies to high-cost mortgages, the
Bureau adopted the
§ 1026.32(d)(1)(ii)(C) exception in the
2013 HOEPA Final Rule. As explained
above, the Bureau believes the same
underlying rationale for the two-year
transition period for balloon-payment
qualified mortgages described above
applies equally to the
§ 1026.32(d)(1)(ii)(C) exception from the
high-cost mortgage balloon prohibition.
Accordingly, the Bureau believes it is
appropriate to extend this temporary
framework to § 1026.32(d)(1)(ii)(C) and
therefore is proposing to amend
§ 1026.32(d)(1)(ii)(C) to include loans
meeting the criteria under
§ 1026.43(e)(6). Thus, for both balloonpayment qualified mortgages and for the
high-cost mortgage balloon prohibition,
the Bureau has adopted or is now
proposing to adopt a two-year transition
period during which the special
treatment of balloon-payment loans
does not depend on the creditor
operating predominantly in rural or
underserved areas.
The Bureau considered taking the
same approach with regard to the
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39923
escrow requirement but concluded
ultimately that a smaller adjustment was
appropriate. Because higher-priced
mortgage loans are already subject to an
escrow requirement, all creditors are
currently required to maintain escrow
accounts for such loans. Implementation
of the Dodd-Frank Act exemption will
thus reduce burden for some creditors,
but does not impose different
requirements than the status quo except
as to the length of time that an escrow
account must be maintained. This is
fundamentally different than the abilityto-repay and high-cost mortgage
requirements, which would prohibit
new balloon-payment loans from being
accorded qualified mortgage status or
from being made going forward absent
implementation of the special
exemptions. In addition, the Bureau
may change the definition of rural or
underserved areas as the result of its reexamination process, but does not
anticipate lifting the requirement that
creditors operate predominantly in rural
or underserved areas to qualify for the
exemption because Congress
specifically contemplated that
limitation on the escrows exemption.
Accordingly, the Bureau believes it is
appropriate to leave the definition in
place, but to prevent volatility in the
definition from negatively impacting
creditors who have fallen within the
existing definition while the Bureau reevaluates the underlying definitions.
The Bureau believes that, as with the
other two balloon-payment provisions
for which the Bureau believes two-year
transition periods are appropriate, this
amendment will benefit consumers by
expanding access to credit in certain
areas that met the definitions of ‘‘rural’’
or ‘‘underserved’’ at some time in the
preceding three calendar years and also
will facilitate compliance for creditors
that make these loans. The Bureau also
believes that the proposed amendment
will promote additional consistency
between the 2013 HOEPA Final Rule,
the 2013 ATR Final Rule, and the 2013
Escrows Final Rule, thereby facilitating
compliance for affected creditors.
The Bureau notes that the mechanics
of proposed § 1026.35(b)(2)(iii)(A) differ
slightly from the express transition
period ending on January 10, 2016,
under § 1026.43(e)(6). Thus, this
proposed amendment would not
parallel the same transition period
precisely, as does proposed
§ 1026.32(d)(1)(ii)(C), which simply
would incorporate § 1026.43(e)(6)’s
conditions by cross-reference. Instead,
proposed § 1026.35(b)(2)(iii)(A) would
approximate a two-year transition
period by extending from one to three
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years the time for which a creditor, once
eligible for the exemption, cannot lose
that eligibility because of changes in the
rural (or underserved) status of the
counties in which the creditor operates.
Because the 2013 Escrows Final Rule
took effect on June 1, 2013, the escrows
provisions already have begun operating
over seven months earlier than the
provisions adopted by the 2013 HOEPA
and ATR Final Rules (which take effect
on January 10, 2014). Thus, whereas the
two balloon-payment provisions
specifically last through January 10,
2016, the escrows-requirement
exemption would guarantee eligibility
(for a creditor that is eligible during
2013) through 2015. Thus, the proposed
§ 1026.35(b)(2)(iii) exemption would
approximately, though not exactly, track
the extension of the balloon exemption
for qualified mortgages under
§ 1026.43(e)(6), and the proposed
extension of the HOEPA balloon
exemption under proposed
§ 1026.32(d)(1)(ii)(C).
In addition to the proposed changes
discussed above, the Bureau also is
proposing to amend
§ 1026.35(b)(2)(iii)(D)(1) and its
commentary to conform to the proposed
expansion of the exemption to creditors
that may meet the section
35(b)(2)(iii)(A) criteria for calendar year
2014 based on loans made in ‘‘rural’’ or
‘‘underserved’’ counties in calendar year
2011, but not 2012 or 2013. Section
§ 1026.35(b)(2)(iii)(D)(1) currently
prohibits any creditor from availing
itself of the exemption if it maintains
escrow accounts for any extensions of
consumer credit secured by real
property or a dwelling that it or its
affiliate currently service, unless the
escrow accounts were established for
first-lien higher-priced mortgage loans
on or after April 1, 2010, and before
June 1, 2013, or were established after
consummation as an accommodation for
distressed consumers. With respect to
loans where escrows were established
on or after April 1, 2010, and before
June 1, 2013, the Supplementary
Information to the 2013 Escrows Final
Rule explained that the Bureau believes
creditors should not be penalized for
compliance with the then current
regulation, which would have required
any such loans to be escrowed after
April 1, 2010, and prior to June 1,
2013—the date the exemption took
effect.
The Bureau understands that creditors
who did not make more than 50 percent
of their first-lien higher-priced mortgage
loans in ‘‘rural’’ or ‘‘underserved’’
counties in calendar year 2012 would
have been ineligible for the exemption
for calendar year 2013, and thus would
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have been required under § 1026.35(a)
to escrow any higher-priced mortgage
loans those creditors made after June 1,
2013. However, it is possible in light of
the proposed amendments that some of
these same creditors may have met this
criteria during calendar year 2011—and
thus, should the Bureau finalize the
proposal and allow creditors to qualify
for the exemption (assuming they satisfy
the other conditions set forth in
§ 1026.35(b)(2)(iii)(B), (C), and (D))—
such creditors may qualify for the
exemption in 2014. However, there
would be one barrier: For applications
received on or after June 1, 2013, but
before the date the proposed
amendment takes effect (as proposed,
January 1, 2014), such a creditor who
made a first-lien higher-priced mortgage
loan would have been required to
escrow that loan, and thus would be
deemed ineligible under
§ 1026.35(b)(2)(iii)(D).
The Bureau does not believe that such
creditors should lose the exemption
because they were ineligible prior to the
proposed amendment taking effect and
thus made loans with escrows from June
1, 2013, through December 31, 2013. As
the Bureau discussed in the
Supplementary Information to the final
rule, the Bureau believes creditors
should not be penalized for compliance
with the current regulation. The Bureau
thus believes it is appropriate to amend
§ 1026.35(b)(2)(iii)(D)(1) and comment
35(b)(2)(iii)–1.iv to exclude escrow
accounts established after April 1, 2010
and before January 1, 2014. The Bureau
invites comment on this approach, and
specifically whether an effective date for
transactions where applications were
received on or after January 1, 2014 is
appropriate, in light of the proposed
change to the calendar year exemption
under § 1026.35(b)(2)(iii).
Section 1026.36
Compensation
Loan Originator
36(a) Definitions
The Bureau is proposing several
clarifications, revisions, and
amendments to § 1026.36(a) and
associated commentary to resolve
inconsistencies in wording, to conform
the comments to the intended operation
of the regulation text, and to address
issues raised during the regulatory
implementation process. The Bureau
proposes these changes pursuant to its
TILA section 105(a) and Dodd-Frank
Act section 1022(b)(1) authority.
References to Credit Terms
The Bureau is proposing to amend
§ 1026.36(a) and its commentary to
clarify the meaning of ‘‘credit terms’’ in
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those provisions. For example,
§ 1026.36(a)(1)(i)(A) excludes from the
definition of ‘‘loan originator’’
persons—i.e., a loan originator’s or
creditor’s employees (or agents or
contractors thereof) engaged in certain
administrative and clerical tasks that are
not considered to be loan originator
activity under the rules. To be eligible
for the exclusion, the person must not,
among other things, offer or negotiate
‘‘credit terms available from a creditor.’’
Likewise, comment 36(a)–4.i. provides
that the definition of loan originator
does not include persons who, among
other things, do not discuss ‘‘specific
credit terms or products available from
a creditor with the consumer.’’
Similarly, comment 36(a)–4.ii.B
provides that the definition of loan
originator does not include an employee
of a creditor or loan originator who
provides loan originator or creditor
contact information to a consumer,
provided the employee does not, among
other things, ‘‘discuss particular credit
terms available from a creditor.’’ See
also § 1026.36(a)(1)(i)(B) and comments
36(a)–1.i.A.2 through –1.i.A.4 (other
similar references to credit terms). As
discussed below, the Bureau is
proposing to revise comment 36(a)–
4.ii.B to clarify that it applies to loan
originator or creditor agents and
contractors as well as employees.
The Bureau intended the references to
‘‘credit terms’’ in these provisions to
refer to particular credit terms that are
or may be made available to the
consumer in light of the consumer’s
financial characteristics. The Bureau
believes that, when a loan originator’s or
creditor’s employee (or agent or
contractor thereof) is offering or
discussing particular credit terms
selected based on his or her assessment
of the consumer’s financial
characteristics, the person is acting in
the role of a loan originator. However,
this does not extend to a person’s
discussion of general credit terms that a
creditor makes available and advertises
to the public at large, such as where
such person merely states: ‘‘We offer
rates as low as 3% to qualified
consumers.’’
In light of inquiries from loan
originators and creditors, the Bureau is
concerned that the term ‘‘credit terms’’
could be construed too broadly and thus
render any person that provides such
general information a loan originator.
This was not the Bureau’s intent.
Accordingly, the Bureau is proposing to
revise § 1026.36(a)(1)(i)(A) and (B), and
comments 36(a)–1 and –4 to address
several inconsistencies regarding the
meaning of ‘‘credit terms’’ to clarify that
any such activity must relate to
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‘‘particular credit terms that are or may
be available from a creditor to that
consumer selected based on the
consumer’s financial characteristics,’’
not credit terms generally. Thus, a
person who discusses with a consumer
that, based on the consumer’s financial
characteristics, a creditor should be able
to offer the consumer an interest rate of
3%, would be considered a loan
originator. However, a person who
merely states general information such
as ‘‘we offer rates as low as 3% to
qualified consumers’’ would not be
considered a loan originator under the
proposed rule because the person is not
offering particular credit terms that are
or may be available to that consumer
selected based on the consumer’s
financial characteristics. In addition, for
clarification purposes the Bureau is
proposing to move a parenthetical that
explains ‘‘credit terms’’ includes rates,
fees, and other costs to new
§ 1026.36(a)(1)(i)(6).
The Bureau believes these changes
better align the scope of the loan
originator definition with the intended
scope of the 2013 Loan Originator
Compensation Final Rule. The Bureau
solicits comment on whether additional
guidance concerning the meaning of
particular credit terms that are or may
be made available to the consumer in
light of the consumer’s financial
characteristics is necessary, and if so,
what clarifications would be helpful.
Application-Related Administrative and
Clerical Tasks
Comment 36(a)–4.i provides that the
definition of loan originator does not
include persons who (1) At the request
of the consumer, provide an application
form to the consumer; (2) accept a
completed application form from the
consumer; or (3) without assisting the
consumer in completing the application,
processing or analyzing the information,
or discussing specific credit terms or
products available from a creditor with
the consumer, deliver the application to
a loan originator or creditor.
The Bureau is proposing to revise
comment 36(a)–4.i to provide that the
definition of loan originator does not
include a person who, acting in his or
her capacity as an employee (or agent or
contractor), provides a credit
application form from the entity for
whom the person works to the
consumer for the consumer to complete.
In such a case, provided that the person
does not assist the consumer in
completing the application or otherwise
influence his or her decision, the
Bureau believes the person is
performing an administrative task, not
acting as a loan originator by engaging
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in a referral to a particular creditor or
loan originator or assisting a consumer
in obtaining or applying to obtain credit.
As also discussed below with respect to
persons who provide creditor or loan
originator contact information, the
Bureau believes ambiguity regarding the
meaning of ‘‘in response to a consumer’s
request’’ could cause unnecessary
compliance challenges. Moreover, the
Bureau notes that classifying such
individuals as loan originators would
subject them to the requirements
applicable to loan originators with, in
the Bureau’s view, little appreciable
benefit for consumers in situations
where the person is providing a credit
application from the entity for whom
the person works. The Bureau proposes
to revise comment 36(a)–4.i accordingly,
including removing the condition that
the provision of the application must be
‘‘at the request of the consumer.’’
As a result of these proposed
revisions, employees (or agents or
contractors) of manufactured home
retailers who provide a credit
application form from one particular
creditor or loan originator organization
that is not the entity for which they
work would not qualify for the
exclusion in § 1026.36(a)(1)(i)(B), but
those who simply provide a credit
application form from the entity for
which they work would potentially be
eligible for the exclusion if other
conditions are met. An employee of a
manufactured home retailer who simply
provides a credit application form from
one particular creditor or loan originator
organization that is its employer would
potentially be eligible for the exclusion
in § 1026.36(a)(1)(i)(B). An agent or
contractor of a manufactured home
retailer who simply provides a credit
application form from one particular
creditor or loan originator organization
it works for as agent or contractor would
potentially be eligible for the exclusion
discussed in comment 36(a)–4.i. The
revisions would also clarify that
someone who merely delivers a
completed credit application form from
the consumer to a creditor or loan
originator would potentially be eligible
for the exclusion if other conditions are
met but would remove language that
could have been misinterpreted to
suggest that someone who accepts an
application in the sense of taking or
helping the consumer complete an
application could be eligible for the
exclusion.
Responding to Consumer Inquiries and
Providing General Information
Employees (or agents or contractors)
of a creditor or loan originator who
provide loan originator or creditor
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contact information. Comment 36(a)–
4.ii.B provides that the definition of
loan originator does not include persons
who, acting as employees of a creditor
or loan originator, provide loan
originator or creditor contact
information to a consumer in response
to the consumer’s request, provided that
the employee does not discuss
particular credit terms available from a
creditor and does not direct the
consumer, based on the employee’s
assessment of the consumer’s financial
characteristics, to a particular loan
originator or creditor seeking to
originate particular credit transactions
to consumers with those financial
characteristics. Similar to the
clarifications regarding credit terms
discussed above, the Bureau also is
proposing to clarify that comment
36(a)–4.ii.B applies to loan originator or
creditor agents and contractors as well
as employees. The Bureau notes this is
consistent with comments 36(a)–1.i.B
and 36(a)–4.
In addition to making conforming
technical revisions, the Bureau is
proposing to remove the requirement
that creditor or loan originator contact
information must be provided ‘‘in
response to the consumer’s request’’ for
the exclusion to apply. The Bureau has
received many inquiries on this topic
from stakeholders expressing concern
that, absent a clarifying amendment, the
rule could be interpreted to require
tellers, greeters, or other such
employees (or contractors or agents) to
be classified as loan originators for
merely providing contact information to
a consumer who did not clearly or
explicitly ask for it. Stakeholders have
further asserted that such persons
should not be considered loan
originators when their conduct is
limited to following a script prompting
them to ask whether the consumer is
interested in a mortgage loan and the
tellers are not able to engage in any
independent assessment of the
consumer. Moreover, stakeholders have
asserted it would be very costly to
implement the training and certification
requirements under Regulation Z as
amended by the 2013 Loan Originator
Compensation Final Rule for employers
with large numbers of administrative
staff who interact with consumers on a
day-to-day basis in the manner
described.
In light of these concerns, the Bureau
is proposing a limited expansion of the
existing exclusion that does not require
the consumer to initiate a request for
loan originator or creditor contact
information as a prerequisite to its
availability. The Bureau understands
that basing the exclusion on the
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consumer requesting contact
information could cause those who
work for creditor or loan originator
organizations in administrative or
clerical roles (e.g., tellers) to be treated
as loan originators when simply
attempting to explain generally what
financing products the entity for which
the person works offers. The Bureau
also believes ambiguity regarding the
meaning of ‘‘in response to a consumer’s
request’’ could cause unnecessary
compliance challenges. In such
instances, the Bureau does not believe
tellers or other such staff should be
considered loan originators for merely
providing loan originator or creditor
contact information to the consumer,
provided that the person does not
discuss particular credit terms available
from a creditor to the consumer and
does not direct the consumer, based on
his or her assessment of the consumer’s
financial characteristics, to a particular
loan originator or creditor seeking to
originate credit transactions to
consumers with those financial
characteristics. The Bureau also notes
that classifying such individuals as loan
originators would subject them to the
requirements applicable to loan
originators with, in the Bureau’s view,
little appreciable benefit for consumers.
Accordingly, the Bureau is proposing
to remove the qualifying phrase ‘‘in
response to the consumer’s request’’
from comment 36(a)–4.ii.B. However,
the Bureau is not proposing to exclude
from the definition of ‘‘loan originator’’
employees (or agents or contractors) of
creditors and loan originator
organizations who, in the course of
providing loan originator or creditor
contact information to the consumer,
direct that consumer to a particular loan
originator or particular creditor based
on his or her assessment of the
consumer’s financial characteristics or
discuss particular credit terms available
from a creditor to the consumer. These
actions can influence the credit terms
that the consumer ultimately obtains,
and the Bureau continues to believe
these actions should result in
application of the requirements imposed
by the rule on loan originators. The
Bureau believes this proposed
amendment should enable creditors and
loan originators to implement the rule
with respect to persons acting under the
controlled circumstances specified by
the comment while still mitigating
harmful steering outcomes the Bureau
intended for the rule to address.
Describing other product-related
services. Comment 36(a)–4.ii.C provides
that the definition of loan originator
does not include persons who describe
other product-related services. The
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Bureau is proposing to amend this
comment to provide examples of
persons who describe other productrelated services. The proposed new
examples include persons who describe
optional monthly payment methods via
telephone or via automatic account
withdrawals, the availability and
features of online account access, the
availability of 24-hour customer
support, or free mobile applications to
access account information. In addition,
the proposed amendment to comment
36(a)–4.iii.C would clarify that persons
who perform the administrative task of
coordinating the closing process are
excluded, whereas persons who arrange
credit transactions are not excluded.
Amounts for Charges for Services
That Are Not Loan Origination
Activities. Comment 36(a)–5.iv.B
provides that compensation includes
any salaries, commissions, and any
financial or similar incentive, regardless
of whether it is labeled as payment for
services that are not loan origination
activities. The Bureau is proposing to
revise this comment to provide that
compensation includes any salaries,
commissions, and any financial or
similar incentive ‘‘to an individual loan
originator,’’ regardless of whether it is
labeled as payment for services that are
not loan origination activities. The
proposed wording change conforms this
provision to the other provisions in
comment 36(a)–5.iv that permit
compensation paid to a loan originator
organization under certain
circumstances for services it performs
that are not loan originator activities.
The Bureau requests comment on these
proposed clarifications generally and on
whether other clarifications to
comments 36(a)–4 and 36(a)–5 should
be considered.
36(b) Scope
The Bureau is proposing to revise the
scope of provisions in § 1026.36(b) to
reflect the applicability of the servicing
provisions in § 1026.36(c) regarding
payment processing, pyramiding late
fees, and payoff statements as modified
by the 2013 TILA Servicing Final
Rule.28 Current § 1026.36(b) and
28 Among other things, the 2013 TILA Servicing
Final Rule implemented TILA sections 129F and
129G added by section 1464 of the Dodd-Frank Act.
The requirements in TILA section 129F concerning
prompt crediting of payments apply to consumer
credit transactions secured by a consumer’s
principal dwelling. The requirements in TILA
section 129G concerning payoff statements apply to
creditors or servicers of a home loan. The 2013
TILA Servicing Final Rule, however, did not
substantively revise the existing late fee pyramiding
requirement in § 1026.36(c) but instead
redesignated the requirement as new paragraph
36(c)(2) to accommodate the regulatory provisions
implementing TILA sections 129F and 129G.
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comment 36(b)–1 (relocated from
§ 1026.36(f) and comment 36–1,
respectively, by the 2013 Loan
Originator Compensation Final Rule)
provide that § 1026.36(c) applies to
closed-end consumer credit transactions
secured by a consumer’s principal
dwelling. The new payment processing
provisions in § 1026.36(c)(1) and the
restrictions on pyramiding late fees in
§ 1026.36(c)(2) both apply to consumer
credit transactions secured by a
consumer’s principal dwelling. The new
payoff statement provisions in
§ 1026.36(c)(3), however, apply more
broadly to consumer credit transactions
secured by a dwelling.
The proposal would revise
§ 1026.36(b) and comment 36(b)–1 to
state that § 1026.36(c)(1) and (c)(2)
apply to consumer credit transactions
secured by a consumer’s principal
dwelling. The proposed revisions also
would provide that § 1026.36(c)(3)
applies to a consumer credit transaction
secured by a dwelling (even if it is not
the consumer’s principal dwelling).
The Bureau is proposing these
revisions to § 1026.36(b) and comment
36(b)–1 to conform them to
modifications made to § 1026.36(c) by
the 2013 Servicing Final Rules that
changed the applicability of certain
provisions in § 1026.36(c). The Bureau
believes the proposed revisions are
necessary to reflect the applicability of
the provisions in § 1026.36(c) as
modified by the 2013 Servicing Final
Rules.
The Bureau seeks comment on these
proposed revisions generally. The
Bureau also invites comment on
whether additional revisions to
§ 1026.36(b) and comment 36(b)–1
should be considered to clarify further
the applicability of the provisions in
§ 1026.36(c) as modified by the 2013
Servicing Final Rules.
36(d) Prohibited Payments to Loan
Originators
36(d)(1) Payments Based on a Term of
the Transaction
36(d)(1)(i)
The Bureau is proposing to revise
comments 36(d)(1)–1.ii and 36(d)(1)–
1.iii.D, which interpret
§ 1026.36(d)(1)(i)–(ii), to improve the
consistency of the wording across the
regulatory text and commentary, and
provide further interpretation of the
intended meaning of the regulatory text.
36(d)(1)(iii)
The Bureau is proposing to revise the
portions of comment 36(d)(1)–3 that
interpret § 1026.36(d)(1)(iii) to improve
the consistency of the wording across
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the regulatory text and commentary, and
provide further interpretation of the
intended meaning of the regulatory text.
36(d)(1)(iv)
The Bureau is proposing revisions to
the portions of comment 36(d)(1)–3 that
interpret § 1026.36(d)(1)(iv). Section
1026.36(d)(1)(iv) permits, under certain
circumstances, the payment of
compensation under a non-deferred
profits-based compensation plan to an
individual loan originator even if the
compensation is directly or indirectly
based on the terms of multiple
transactions by multiple individual loan
originators. Section
1026.36(d)(1)(iv)(B)(1) permits this
compensation if it does not exceed 10
percent of the individual loan
originator’s total compensation
corresponding to the time period for
which the compensation under a nondeferred profits-based compensation
plan is paid. Comments 36(d)(1)–3.ii
through –3.v further interpret
§ 1026.36(d)(1)(iv)(B)(1). Section
1026.36(d)(1)(iv)(B)(2) permits this type
of compensation if the individual loan
originator is a loan originator for ten or
fewer consummated transactions during
the 12-month period preceding the
compensation determination. Comment
36(d)(1)–3.vi further interprets
§ 1026.36(d)(1)(iv)(B)(2).
The Bureau is proposing to amend
comment 36(d)(1)–3 to improve the
consistency of the wording across the
regulatory text and commentary,
provide further interpretation as to the
intended meaning of the regulatory text
in § 1026.36(d)(1)(iv), and ensure that
the examples included in the
commentary accurately reflect the
interpretations of the regulatory text
contained elsewhere in the commentary.
These proposed amendments include
clarifying in comment 36(d)(1)–3.vi that,
for purposes of determining whether an
individual loan originator was the loan
originator for ten or fewer transactions,
only consummated transactions are
counted, consistent with
§ 1026.36(d)(1)(iv)(B)(2). Nearly all of
the proposed revisions address the
commentary sections that interpret the
meaning of § 1026.36(d)(1)(iv)(B)(1) (i.e.,
setting forth the 10-percent total
compensation limit) and not
§ 1026.36(d)(1)(iv)(B)(2).
The Bureau is proposing more
extensive clarifications to two
comments interpreting § 1026.36(d)(1).
First, the Bureau proposes to revise
comment 36(d)(1)–3.v.A, which clarifies
the meaning of ‘‘total compensation’’ as
used in § 1026.36(d)(1)(iv)(B)(1). The
proposed revisions clarify that the first
component of total compensation—all
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wages and tips reportable for Medicare
tax purposes in box 5 on IRS form W–
2 (or IRS form 1099–MISC, as
applicable)—includes all such wages
and tips that are actually paid during
the relevant time period regardless of
when they are earned, except for any
compensation under a non-deferred
profits-based compensation plan that is
earned during a different time period.
The Bureau is proposing these changes
to comment 36(d)(1)–3.v.A in
conjunction with proposed revisions,
described below, to comment 36(d)(1)–
3.v.C. The proposed revisions to the two
comments cumulatively are intended to
provide a more precise interpretation of
the following language in
§ 1026.36(d)(1)(iv)(B)(1): ‘‘total
compensation corresponding to the time
period for which the compensation
under the non-deferred profits-based
compensation plan is paid.’’ In
particular, the Bureau believes that it is
important to state more expressly in the
commentary that compensation under a
non-deferred profits-based
compensation plan that is paid during a
particular time period but is earned
during a different time period (e.g., a
bonus made with reference to mortgagerelated business profits for a calendar
year that is paid in January of the
following calendar year) is excluded
from the total compensation amount for
the particular time period in which the
payment is made. This concept is
discussed in an example in comment
36(d)(1)–3.v.C, but the Bureau is
concerned that failing to highlight the
concept more generally could lead to
the language being misinterpreted to
apply only to the facts in the example.
The Bureau is also proposing
additional language in comment
36(d)(1)–3.v.A to make clearer that
compensation under the non-deferred
profits-based compensation plan that is
earned during a particular time period
can be included in the total
compensation amount for that time
period at the election of the party
paying the compensation. This
interpretation of the meaning of ‘‘total
compensation’’ was implied in several
examples in the commentary to
§ 1026.36(d)(1)(iv)(B)(1) (e.g., comment
36(d)(1)–3.v.F.1); in this proposal, it is
made more explicit.29 The Bureau also
29 The Bureau included these commentary
provisions in the 2013 Loan Originator
Compensation Final Rule based on its belief that
creditors and loan originator organizations paying
non-deferred profits-based compensation under
§ 1026.36(d)(1)(iv)(B)(1) would potentially benefit
from having the discretion to include the nondeferred profits-based compensation in the total
compensation amount, which, if done, would
increase the amount of non-deferred profits-based
compensation that can be paid under the 10-percent
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is proposing to clarify that, if the person
elects to include in total compensation
the amount of any creditor or loan
originator organization contributions to
accounts of individual loan originators
in designated tax-advantaged plans that
are defined contribution plans, the
contributions must be actually made
during the relevant time period (rather
than earned during that time period but
made during a different time period).
The Bureau believes that these changes
would facilitate compliance.
Furthermore, the Bureau is proposing
to revise comment 36(d)(1)–3.v.C to
clarify the meaning of ‘‘time period’’ in
§ 1026.36(d)(1)(iv)(B)(1). The Bureau is
concerned that comment 36(d)(1)–3.v.C
inadvertently conflates the two relevant
time periods to be used for the 10percent limit calculation: The time
period for compensation under the nondeferred profits-based compensation
plan, and the time period for the total
compensation. The proposed revisions
would clarify that: (1) The relevant time
period for compensation paid under the
non-deferred profits-based
compensation plan is the time period
for which a person makes reference to
profits in determining the compensation
(i.e., when the compensation was
earned); and (2) the relevant time period
for the total compensation is the same
time period, but only certain types of
compensation may be included in the
total compensation amount for that time
period, as explained in comment
36(d)(1)–3.v.A.
Collectively, the proposed revisions to
comments 36(d)(1)–3.v.A and –3.v.C are
intended to clarify that, while the time
period used to determine both elements
of the 10-percent limit ratio is the same:
(1) The non-deferred profits-based
compensation for the time period is
whatever such compensation was
earned during that time period,
regardless of when it was actually paid;
and (2) compensation that is actually
paid during the time period, regardless
of when it was earned, generally will be
limit (although this would make the calculation of
total compensation somewhat more complex). The
Bureau similarly provided discretion to creditors
and loan originator organizations to include in total
compensation the amount of any contributions by
the creditor or loan originator organization to the
individual loan originator’s accounts in designated
tax-advantaged plans that are defined contribution
plans. The Bureau believes the potential marginal
increase in the non-deferred profits-based
compensation that can be paid under
§ 1026.36(d)(1)(iv)(B)(1) as a result of including
these components of compensation in the total
compensation amount does not raise a significant
risk of steering incentives. See comment 36(d)(1)–
3.v.F, as proposed to be revised, for an example of
where including non-deferred profits-based
compensation in total compensation affects the
amount of non-deferred profits-based compensation
that can be paid.
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included in the amount of total
compensation for that time period, but
whether the compensation is included
ultimately depends on the type of
compensation. The proposal also revises
the examples in comment 36(d)(1)–3.v.C
to reflect the proposed changes to
comment 36(d)(1)–3.v.A and, to allay
potential confusion about when the
provisions take effect, remove reference
to calendar year 2013. See part IV of this
Supplementary Information for
discussion more generally of the
Bureau’s proposed changes to the
effective date for the provisions of
§ 1026.36(d)(1). The Bureau believes
these changes would facilitate
compliance.
36(f) Loan Originator Qualification
Requirements
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36(f)(3)
The Bureau is proposing to change the
dates referenced in § 1026.36(f)(3)(i) and
(f)(3)(ii) and its associated commentary
from January 10, 2014, to January 1,
2014. These proposed changes coincide
with the proposed revision of the
effective date for § 1026.36(f). See part
IV of the Supplementary Information for
a discussion of the effective date for
§ 1026.36(f).
36(i) Prohibition on Financing Credit
Insurance
The Bureau is proposing to amend
§ 1026.36(i) to clarify the scope of the
prohibition on a creditor financing,
directly or indirectly, any premiums for
credit insurance in connection with a
consumer credit transaction secured by
a dwelling. Dodd-Frank Act section
1414 added TILA section 129C(d),
which generally prohibits a creditor
from financing premiums or fees for
credit insurance in connection with a
closed-end consumer credit transaction
secured by a dwelling, or an extension
of open-end consumer credit secured by
the consumer’s principal dwelling. The
prohibition applies to credit life, credit
disability, credit unemployment, credit
property insurance, and other similar
products, including debt cancellation
and debt suspension contracts (defined
collectively as ‘‘credit insurance’’ for
purposes of this discussion). The same
provision, however, excludes from the
prohibition credit insurance premiums
or fees that are ‘‘calculated and paid in
full on a monthly basis.’’
Section 1026.36(i) as Adopted in the
2013 Loan Originator Compensation
Final Rule
In the 2013 Loan Originator
Compensation Final Rule, the Bureau
implemented this prohibition by
adopting the statutory provision without
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substantive change, in § 1026.36(i). The
final rule provided an effective date of
June 1, 2013 for § 1026.36(i), and
clarified that the provision applies to
transactions for which a creditor
received an application on or after that
date.30
In the preamble to the final rule, the
Bureau responded to public comments
on the regulatory text that the Bureau
had included in its proposal. The public
comments included requests from
consumer groups for clarification on the
applicability of the regulatory
prohibition to certain factual scenarios
where credit insurance premiums are
charged periodically, rather than as a
lump-sum that is added to the loan
amount at consummation. In particular,
they requested clarification on the
meaning of the exclusion from the
prohibition for credit insurance
premiums or fees that are ‘‘calculated
and paid in full on a monthly basis.’’
The Bureau did not receive any public
comments from the credit insurance
industry. The Bureau received a limited
number of comments from creditors
concerning the general prohibition, but
these comments did not address
specifically the applicability of the
exclusion from the prohibition for
premiums that are calculated and paid
in full on a monthly basis.
In their comments, the consumer
groups described two practices that they
believed should be prohibited by the
regulatory provision. First, they
described a practice in which some
creditors charge credit insurance
premiums on a monthly basis but add
those premiums to the consumer’s
outstanding principal. They stated that
this practice does not meet the
requirement that, to be excluded from
the prohibition, premiums must be
‘‘paid in full on a monthly basis.’’ They
also stated that this practice constitutes
‘‘financing’’ of credit insurance
premiums, which is prohibited by the
provision. Second, the consumer groups
described a practice in which credit
insurance premiums are charged to the
consumer on a ‘‘levelized’’ basis,
meaning that the premiums remain the
same each month, even as the consumer
pays down the outstanding balance of
the loan. They stated that this practice
does not meet the condition of the
exclusion that premiums must be
‘‘calculated . . . on a monthly basis,’’
and therefore violates the statutory
prohibition. In the preamble of the final
rule, the Bureau stated that it agreed
that these practices do not meet the
condition of the exclusion and violate
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the prohibition on creditors financing
credit insurance premiums.
Outreach during implementation
period following publication of the final
rule. After publication of the final rule,
representatives of credit unions and
credit insurers expressed concern to the
Bureau about these statements in the
preamble of the final rule. Credit union
representatives questioned whether
adding monthly premiums to a
consumer’s loan balance should
necessarily be considered prohibited
‘‘financing’’ of the credit insurance
premiums and indicated that, if it is
considered financing, they would not be
able to adjust their data processing
systems before the June 1, 2013 effective
date.
Credit insurance company
representatives stated that level and
levelized credit insurance premiums are
in fact ‘‘calculated . . . on a monthly
basis.’’ (They use the term ‘‘levelized’’
premiums to refer to a flat monthly
payment that is derived from a
decreasing monthly premium payment
arrangement and use the term ‘‘level’’
premium to refer to premiums for which
there is no decreasing monthly premium
payment arrangement available, such as
for level mortgage life insurance.) The
companies asserted that levelized
premiums are, in fact, ‘‘calculated . . .
on a monthly basis,’’ because an
actuarially derived rate is multiplied by
a fixed monthly principal and interest
payment to derive the monthly
insurance premium. They also asserted
that level premiums are ‘‘calculated . . .
on a monthly basis’’ because an
actuarially derived rate is multiplied by
the consumer’s original loan amount to
derive the monthly insurance premium.
Accordingly, they urged that level and
levelized credit insurance premiums
should be excluded from the prohibition
on creditors financing credit insurance
premiums so long as they are also paid
in full on a monthly basis. Industry
representatives have further stated that
even if the Bureau concludes that level
or levelized credit insurance premiums
are not ‘‘calculated’’ on a monthly basis
within the meaning of the exclusion
from the prohibition, they are not
‘‘financed’’ by a creditor and thus are
not prohibited by the statutory
provision.
Delay of § 1026.36(i) Effective Date
In light of these concerns, and the
Bureau’s belief that, if the effective date
were not delayed, creditors could face
uncertainty about whether and under
what circumstances credit insurance
premiums may be charged periodically
in connection with covered consumer
credit transactions secured by a
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dwelling, the Bureau issued the 2013
Effective Date Final Rule delaying the
June 1, 2013 effective date of
§ 1026.36(i) to January 10, 2014.31 In
that final rule, the Bureau stated its
belief that this uncertainty could result
in a substantial compliance burden to
industry. However, the Bureau also
stated that it would revisit the effective
date of the provision in this proposal.
Proposed Amendments to § 1026.36(i)
The Bureau is now, as contemplated
in the 2013 Effective Date Final Rule,
proposing amendments to § 1026.36(i)
to clarify the scope of the prohibition on
a creditor financing, directly or
indirectly, any premiums for credit
insurance in connection with a
consumer credit transaction secured by
a dwelling. The Bureau believes from
communications with consumer
advocates, creditors, and trade
associations that its statement in the
final rule in response to consumer group
public comments may have been
overbroad and left ambiguity about
when a creditor violates the prohibition
on financing credit insurance
premiums.
As an initial, interpretive matter, the
Bureau believes it is important to
highlight the structure of § 1026.36(i).
First, although the heading of the
statutory prohibition emphasizes the
prohibition on financing ‘‘singlepremium’’ credit insurance, which
historically has been accomplished by
adding a lump-sum premium to the
consumer’s loan balance at
consummation, the provision more
broadly prohibits a creditor from
‘‘financing’’ credit insurance premiums
‘‘directly or indirectly’’ in connection
with a covered consumer credit
transaction secured by a dwelling. That
is, it generally prohibits a creditor from
financing credit insurance premiums at
any time, not just at consummation. The
Bureau is proposing to clarify the scope
of the prohibition by striking the term
‘‘single-premium’’ from the § 1026.36(i)
heading, and by adding redesignated
§ 1026.36(i)(2)(ii), as discussed below.
Second, ‘‘credit insurance for which
premiums or fees are calculated and
paid in full on a monthly basis’’ is
excluded from the general prohibition.
However, the mere fact that, under a
particular premium calculation and
payment arrangement, credit insurance
premiums do not meet the conditions of
the exclusion that they be ‘‘calculated
and paid in full on a monthly basis’’
does not mean that a creditor is
necessarily financing them in violation
of the prohibition. For example, it is
31 78
FR 32547 (May 31, 2013).
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possible that credit insurance premiums
could be calculated and paid in full by
a consumer directly to a credit insurer
on a quarterly basis with no indicia that
the creditor is financing the premiums.
The Bureau is proposing to clarify the
scope of this exclusion by adding
§ 1026.36(i)(2)(iii), as discussed below.
‘‘Financing’’ credit insurance. The
Bureau believes that practices that
constitute ‘‘financing’’ of credit
insurance premiums or fees by a
creditor are generally equivalent to an
extension of credit to a consumer with
respect to payment of the credit
insurance premiums or fees. Under
§ 1026.2(a)(14), credit means ‘‘the right
to defer payment of debt or to incur debt
and defer its payment.’’ Accordingly, as
discussed above, financing of credit
insurance premiums is not limited to
addition of a single, lump-sum premium
to the loan amount by the creditor at
consummation. The Bureau believes
that a creditor also finances credit
insurance premiums within the
meaning of the prohibition when it
provides a consumer the right to defer
payment of premiums or fees at other
times, including when it adds a monthly
credit insurance premium to the
consumer’s principal balance.
Accordingly, the Bureau proposes to
add redesignated § 1026.36(i)(2)(ii),
which clarifies that a creditor finances
credit insurance premiums or fees when
it provides a consumer the right to defer
payment of a credit insurance premium
or fee owed by the consumer. However,
the Bureau invites public comment on
whether this clarification is appropriate.
For example, the Bureau does not
believe that a brief delay in receipt of
the consumer’s premium or fee, such as
might happen preceding a death or
period of employment that the credit
insurance is intended to cover, should
cause immediate cancellation of the
credit insurance. The Bureau also does
not believe that refraining from
cancelling or causing cancellation of
credit insurance in such circumstances
means that a creditor has provided the
consumer a right to defer payment of the
premium or fee, but the Bureau invites
public comment on consequences of
defining the term ‘‘finances’’ as
proposed. In addition, some creditors
have suggested that they may, as a
purely mechanical matter, add a
monthly credit insurance premium to
the principal balance shown on a
monthly statement but then subtract the
premium from the principal balance
immediately or as soon as the premium
or fee is paid. Furthermore, under a
provision of Regulation X (12 CFR
1024.17(f)(4), a creditor servicing a loan
and escrowing credit insurance
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premiums may permit a consumer to
make additional monthly deposits over
one or more months to eliminate an
escrow deficiency, and if the deficiency
is greater than or equal to one month’s
escrow payment, cannot require
elimination of the deficiency faster than
through two or more equal monthly
payments. Accordingly, the Bureau
solicits comment on whether a creditor
should instead be considered to have
financed credit insurance premiums or
fees only if it charges a ‘‘finance
charge,’’ as defined in § 1026.4(a), on or
in connection with the credit insurance
premium or fee.
Calculated and paid in full on a
monthly basis. The Bureau proposes to
clarify in § 1026.36(i)(2)(iii) that credit
insurance premiums or fees are
calculated on a monthly basis if they are
determined mathematically by
multiplying a rate by the monthly
outstanding balance (e.g., the loan
balance following the consumer’s most
recent monthly payment). As discussed
above, § 1026.36(i) excludes from the
prohibition on a creditor financing
credit insurance premiums or fees any
‘‘credit insurance for which premiums
or fees are calculated and paid in full on
a monthly basis.’’ Although it has
considered the concerns raised by
industry following the issuance of the
final rule, the Bureau continues to
believe that the more straightforward
interpretation of the statutory language
regarding a premium or fee that is
‘‘calculated . . . on a monthly basis’’ is
a premium or fee that declines as the
consumer pays down the outstanding
principal balance. Credit insurance with
this feature is often referred to as a
‘‘monthly outstanding balance,’’ or
M.O.B. credit insurance product. Level
or levelized premiums or fees that are
calculated by multiplying a rate by the
initial loan amount or by a fixed
monthly principal and interest payment
are not calculated ‘‘on a monthly basis’’
in any meaningful way because the
factors in the calculation do not change
monthly (in contrast to the M.O.B.
credit insurance product). Accordingly,
under the proposed clarification, credit
insurance cannot be categorically
excluded from the scope of the
prohibition on the ground that it is
‘‘calculated and fully paid on a monthly
basis’’ if its premium or fee does not
decline as the consumer pays down the
outstanding principal balance. The
Bureau notes that even if a particular
premium calculation and payment
arrangement provides for credit
insurance premiums to be calculated on
a monthly basis within the meaning of
the proposed clarification, it must also
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provide for the premiums to be paid in
full on a monthly basis (rather than
added to principal, for example) to be
categorically excluded from § 1026.36(i).
Financed by the creditor. The Bureau
notes that the scope of the prohibition
only extends to credit insurance
premiums financed by the creditor.
Thus, while a monthly credit insurance
premium or fee that does not decline as
the consumer pays down the
outstanding principal balance may not
be categorically excluded from the
prohibition’s scope as ‘‘calculated and
fully paid on a monthly basis,’’ a
creditor only violates the prohibition if
the creditor finances the credit
insurance premium or fee.
Accordingly, the Bureau’s statement
implying in the final rule that levelized
credit insurance premiums amount to a
violation of the prohibition appears to
have been overbroad. For example,
credit insurance companies have
described creditors as acting as passive
conduits collecting and transmitting
monthly premiums from the consumer
to a credit insurer, rather than
advancing funds to an insurer and
collecting them subsequently from the
consumer. Under such a scenario, the
Bureau believes that a creditor would
not likely be providing a consumer the
right to defer payment of a credit
insurance premium or fee owed by the
consumer within the meaning of the
proposal, as discussed above. Similarly,
under an alternative interpretation that
a creditor ‘‘finances’’ credit insurance
only if it charges a ‘‘finance charge’’ on
or in connection with the credit
insurance premium or fee, as discussed
above, a creditor that acts merely as a
passive conduit for the payment of
credit insurance premiums and fees to
a credit insurer would not likely be
charging such a finance charge. On the
other hand, a creditor that does not act
merely as a passive conduit, but instead
achieves a levelized premium by
deferring payments, or portions of
payments, due to a credit insurer for a
monthly outstanding balance credit
insurance product (or by imposing a
finance charge incident to such
deferment, under the alternative
interpretation discussed above) would
likely be considered to be financing the
credit insurance premiums or fees.
The Bureau invites public comment
on the extent to which creditors act
other than as passive conduits in a
manner that would constitute financing
of credit insurance premiums or fees.
The Bureau specifically invites public
comment on what actions by a creditor
should or should not be considered
financing of debt cancellation or
suspension contract fees, when the
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creditor is a party to the debt
cancellation or suspension contract and
payments for principal, interest, and the
debt cancellation or suspension contract
are retained by the creditor.
VI. Section 1022(b)(2) of the DoddFrank Act
A. Overview
In developing the proposed rule, the
Bureau has considered the potential
benefits, costs, and impacts.32 The
Bureau requests comment on the
preliminary analysis presented below as
well as submissions of additional data
that could inform the Bureau’s analysis
of the benefits, costs, and impacts. The
Bureau has consulted, or offered to
consult with, the prudential regulators,
SEC, HUD, FHFA, the Federal Trade
Commission, and the Department of the
Treasury, including regarding
consistency with any prudential,
market, or systemic objectives
administered by such agencies.
As noted above, the proposed
amendments focus primarily on
clarifying or revising provisions on (1)
Loss mitigation procedures under
Regulation X’s servicing provisions; (2)
amounts counted as loan originator
compensation to retailers of
manufactured homes and their
employees for purposes of applying
points and fees thresholds under
HOEPA and the qualified mortgage rules
in Regulation Z; (3) determination of
which creditors operate predominantly
in ‘‘rural’’ or ‘‘underserved’’ areas for
various purposes under the mortgage
regulations; (4) application of the loan
originator compensation rules to bank
tellers and similar staff; and (5) the
prohibition on creditor-financed credit
insurance. The Bureau also is proposing
to adjust the effective dates for certain
provisions adopted by the 2013 Loan
Originator Compensation Final Rule and
proposing technical and wording
changes for clarification purposes to
Regulations B, X, and Z.
B. Potential Benefits and Costs to
Consumers and Covered Persons
The Bureau believes that, compared to
the baseline established by the final
rules issued in January 2013,33 the
32 Specifically, section 1022(b)(2)(A) of the DoddFrank Act 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 Dodd-Frank Act; and the impact
on consumers in rural areas.
33 The Bureau has discretion in any rulemaking
to choose an appropriate scope of analysis with
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primary benefit of most of the
provisions of the proposed rule to both
consumers and covered persons is an
increase in clarity and precision of the
regulations and an accompanying
reduction in compliance costs.
As described above, the proposed
modifications to the Regulation X loss
mitigation provisions would help
servicers by providing clarity as to what
is required by certain provisions of the
rule, including a servicer’s
responsibility when it determines that a
loss mitigation application that
appeared facially complete in fact is
lacking information necessary to
complete review, how timelines are
calculated when a foreclosure sale has
not been scheduled or is rescheduled,
and the actions prohibited during the
pre-foreclosure review period.
In addition, the Bureau proposed
modifications to the Regulation X loss
mitigation provisions, which include
allowing servicers more flexibility
regarding the disclosure of a date by
which a borrower should complete an
incomplete loss mitigation application;
allowing servicers to accommodate
borrowers in need of immediate, shortterm relief by offering short-term
payment forbearance based on the
evaluation of an incomplete loss
mitigation application; the disclosure of
certain information in the notices
informing borrowers of the decisions of
the evaluation of a loss mitigation
application; and allowing servicers to
foreclose before the 120th day of
delinquency when the foreclosure is
based on a borrower’s violation of a dueon-sale clause or a subordinate lien is
foreclosing.
The Bureau believes that servicers
and consumers will benefit from these
amendments because they will provide
increased clarity, in part through
reduced implementation costs. Further,
the Bureau believes the proposed
modifications to the loss mitigation
rules would only minimally increase
costs to servicers, and in many instances
would reduce servicer burden. These
modifications would improve the loss
mitigation process for servicers by
allowing them to provide more practical
deadlines for borrowers to complete loss
mitigation applications, and by allowing
servicers to offer a short-term payment
forbearance program based on an
incomplete application. Further, the
proposal would provide servicers a
reasonable mechanism to seek
additional information in situations in
which a facially complete loss
mitigation application is later
respect to potential benefits and costs and an
appropriate baseline.
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determined to lack information that is
critical to completion of the servicer’s
review, while providing appropriate
protections for consumers to minimize
dual tracking and provide strong
incentives for servicers to conduct
rigorous up-front reviews.
The Bureau believes the proposed
modifications to the servicing final rule
should generally benefit borrowers by
encouraging servicers to disclose to
borrowers more useful information
regarding the deadline to submit loss
mitigation applications and to offer
short-term forbearance without
requiring borrowers to submit complete
loss mitigation applications. The Bureau
believes that such modifications could
result in some cost to consumers if a
servicer’s mistake in the
§ 1024.41(b)(1)(i)(B) notice were to
prolong or delay the loss mitigation
process. However, the Bureau has
sought to minimize this potential cost
by providing incentives for servicers to
conduct rigorous upfront review and
preserving certain of the protections
under the rule for borrowers in the
event of servicer mistakes. The
proposed amendments would impose
some costs on consumers by making it
easier for servicers to foreclose during
the first 120 days of delinquency for
certain reasons other than nonpayment
of a debt.
The Bureau does not currently have
data regarding the incidence of the
situations specifically covered by these
provisions, e.g. how often servicers
make mistakes regarding whether an
application is complete or the
information necessary to complete an
incomplete application, and therefore
cannot quantify these benefits.
However, the nature of the benefits and
costs of specific timelines, procedures
and disclosures was considered in detail
in the discussion of benefits, costs, and
impacts in part VII of the 2013 Mortgage
Servicing Final Rules.
Two of the proposed sets of
modifications to the Regulation Z
provisions involve loan originator
compensation. The Bureau is proposing
to clarify for retailers of manufactured
homes and their employees what
compensation can be attributed to a
transaction at the time the interest rate
is set and must be included in the
points and fees thresholds for qualified
mortgages and high-cost mortgages
under HOEPA. As discussed above, the
proposal would exclude from points
and fees of loan originator
compensation paid by a retailer of
manufactured homes to its employees
and would clarify that the sales price of
a manufactured home does not include
loan originator compensation that must
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be included in points and fees. Both of
these proposed changes would reduce
the burden for creditors in
manufactured home transactions by
eliminating the need for them to attempt
to determine what, if any, retailer
employee compensation and what, if
any, part of the sales price would count
as loan originator compensation that
must be included in points and fees. As
a result, this amendment is likely to
lower slightly the amount of money
counted toward the points and fees
thresholds on the covered loans. As a
result, keeping all other provisions of a
given loan fixed, this will result in a
greater number of loans to be eligible to
be qualified mortgages. For such loans,
the costs of origination may be slightly
lower as a result of the slightly
decreased liability for the lender and
any assignees and for possibly
decreased compliance costs. Consumers
may benefit from slightly increased
access to credit and lower costs on the
affected loans, however these
consumers will also not have the added
consumer protections that accompany
loans made under the general ability-torepay provisions. The lower amount of
points and fees may also lead fewer
loans to be above the points and fees
triggers for high-cost mortgages under
HOEPA: This should make these loans
both more available and offered at a
lower cost to consumers, though
consumers will not have the added
consumer protections that apply to
high-cost mortgages. A more detailed
discussion of these effects is contained
in the discussion of benefits, costs, and
impacts in part VII of the 2013 ATR
Final Rule and the 2013 HOEPA Final
Rule.
The Bureau also is proposing to revise
when employees (or agents or
contractors) of a creditor or loan
originator in certain administrative or
clerical roles (e.g., tellers or greeters)
may become ‘‘loan originators’’ under
the 2013 Loan Originator Compensation
Rule, and therefore subject to that Rule’s
requirements applicable to loan
originators, such as qualification
requirements and restrictions on certain
compensation practices. As noted
above, classifying such individuals as
loan originators would subject them to
the requirements applicable to loan
originators with, in the Bureau’s view,
little appreciable benefit for consumers.
Removing them from this classification
should lower compliance costs
including those related to SAFE Act
training, certification requirements, and
compensation restrictions.
The proposed provisions regarding
credit insurance would clarify what
constitutes financing of such premiums
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by a creditor, and is therefore generally
prohibited under the Dodd-Frank Act.
The proposal would also clarify when
credit insurance premiums are
considered to be calculated and paid on
a monthly basis for purposes of a
statutory exclusion from the prohibition
for certain credit insurance premium
calculation and payment arrangements.
As noted earlier, the Bureau believes
that language in the preamble to the
2013 Loan Originator Compensation
Final Rule led to some confusion among
creditors and credit insurance providers
regarding whether credit insurance
products were prohibited under the rule
based on how their premiums are
calculated. The Bureau is now
proposing to clarify that the prohibition
only extends to creditors financing
credit insurance premiums, and
providing additional guidance on what
constitutes creditor financing and what
is excluded from the prohibition. The
Bureau believes that increased clarity
regarding the application of the rule to
certain products—particularly to
insurance with ‘‘level’’ or ‘‘levelized’’
premiums—should benefit both
creditors and providers of credit
insurance products.
The proposal would also make two
adjustments to provisions that provide
certain exceptions for creditors
operating predominantly in ‘‘rural’’ or
‘‘underserved’’ areas during the next
two years, while the Bureau reexamines
the definition of ‘‘rural’’ or
‘‘underserved’’ as it recently announced
in the May 2013 ATR Final Rule.
Specifically, the proposal would extend
an exception to the general prohibition
on balloon features for high-cost
mortgages under the 2013 HOEPA Final
Rule that is available to certain loans
made by small creditors who operate
predominantly in rural or underserved
areas temporarily to all small creditors,
regardless of their geographic
operations. The proposal would also
amend an exemption from the
requirement to maintain escrows for
higher-priced mortgage loans under the
2013 Escrow Final Rule that is available
to small creditors that extended more
than 50 percent of their total covered
transactions secured by a first lien in
‘‘rural’’ or ‘‘underserved’’ counties
during the preceding calendar year to
allow small creditors to qualify for the
exemption if they made more than 50
percent of their covered transactions in
‘‘rural’’ or ‘‘underserved’’ counties
during any of the previous three
calendar years.
As noted above, the Bureau believes
expanding the balloon-payment
exception for high-cost mortgages to
allow certain small creditors operating
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in areas that do not qualify as ‘‘rural’’ or
‘‘underserved’’ to continue to originate
certain high-cost mortgages with balloon
payments during the next two years will
benefit creditors who might be unable to
convert to offering adjustable rate
mortgages by the time the final rules
take effect in January 2014. The
proposal would also promote
consistency between HOEPA
requirements and the May 2013 ATR
Final Rule, thereby facilitating
compliance for creditors. The Bureau
believes that the proposal would also
benefit consumers by increasing access
to credit relative to the 2013 HOEPA
Final Rule. Although balloon loans can
in some cases increase risks for
consumers, the Bureau believes that
those risks are appropriately mitigated
in these circumstances because the
balloon loans must meet the
requirements for qualified mortgages in
order to qualify for the exception. This
includes certain restrictions on the
amount of up-front points and fees and
various loan features, as well as a
requirement that the loans be held on
portfolio by the small creditor. These
requirements reduce the risk of
potentially abusive lending practices
and provide strong incentives for the
creditor to underwrite the loan
appropriately.
The amendment to the qualifications
for the exemption from the escrow
requirements should minimize the
disruptions from any changes in the
categorization of certain counties while
the Bureau is reevaluating the
underlying definitions. This in turn
should lower compliance costs for
certain creditors during the interim
period. Consumers may benefit from
greater access to credit and lower costs,
but in return would not receive the
benefits of an escrow account. A more
detailed discussion of these effects is
contained in the discussion of benefits,
costs, and impacts in part VII of the
2013 Escrows Final Rule.
C. Impact on Depository Institutions and
Credit Unions With $10 Billion or Less
in Total Assets, As Described in Section
1026; the Impact of the Provisions on
Consumers in Rural Areas; Impact on
Access to Consumer Financial Products
and Services
The proposed rule is generally not
expected to have a differential impact
on depository institutions and credit
unions with $10 billion or less in total
assets as described in section 1026. The
exceptions are those provisions related
to the definition of rural and
underserved which directly impact
entities with under $2 billion in total
assets. The proposed rule may have
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some differential impacts on consumers
in rural areas. To the extent that
manufactured housing loans, higherpriced mortgage loans, high-cost loans
or balloon loans are more prevalent in
these areas, the relevant provisions may
have slightly greater impacts. As
discussed above, costs for creditors in
these areas should be reduced;
consumers should benefit from
increased access to credit and lower
costs, though they will not have access
to the heightened protections afforded
by various provisions. Given the nature
and limited scope of the changes in the
proposed rule, the Bureau does not
believe that the proposed rule would
reduce consumers’ access to consumer
products and services.
VII. Regulatory Flexibility Act Analysis
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.34 These analyses must
‘‘describe the impact of the proposed
rule on small entities.’’ 35 An IRFA or
FRFA is not required if the agency
certifies that the rule will not have a
significant economic impact on a
substantial number of small entities,36
or if the agency considers a series of
closely related rules as one rule for
purposes of complying with the IRFA or
FRFA requirements.37 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.38
This rulemaking is part of a series of
rules that have revised and expanded
the regulatory requirements for entities
that originate or service mortgage loans.
As noted above, in January, 2013, the
Bureau issued the 2013 ATR Final Rule,
U.S.C. 601 et. seq.
U.S.C. 603(a). For purposes of assessing the
impacts of the proposed 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).
36 5 U.S.C. 605(b).
37 5 U.S.C. 605(c).
38 5 U.S.C. 609.
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2013 Escrows Final Rule, 2013 HOEPA
Final Rule, 2013 Mortgage Servicing
Final Rules, and the 2013 Loan
Originator Compensation Final Rule.
Since January 2013, the Bureau also has
issued the May 2013 ATR Final Rule,
Amendments to the 2013 Escrows Final
Rule, and the 2013 Effective Date Final
Rule, along with Proposed Amendments
to the 2013 Mortgage Rules under the
Real Estate Settlement Procedures Act
(Regulation X) and Truth in Lending Act
(Regulation Z).39 The Supplementary
Information to each of these rules set
forth the Bureau’s analyses and
determinations under the RFA with
respect to those rules. Because these
rules qualify as ‘‘a series of closely
related rules,’’ for purposes of the RFA,
the Bureau relies on those analyses and
determines that it has met or exceeded
the IRFA requirement.
In the alternative, the Bureau also
concludes that the proposed rule, if
adopted, would not have a significant
impact on a substantial number of small
entities. As noted, the proposal
generally clarifies the existing rule and
to the extent any changes are
substantive, these changes would not
have a material impact on small entities.
The provisions related to servicing do
not apply to many small entities under
the small servicer exemption (and to the
extent that they do, small entities will
benefit from the same increased
flexibility under the proposed
provisions as other servicers), while the
provisions related to loan officer
compensation and the ‘‘rural’’ and
‘‘underserved’’ definitions lower the
regulatory burden and possible
compliance costs for affected entities.
Therefore, the undersigned certifies that
the proposed rule, if adopted, would not
have a significant impact on a
substantial number of small entities.
VIII. Paperwork Reduction Act
This proposed rule would amend 12
CFR Part 1002 (Regulation B) which
implements the Equal Credit
Opportunity Act, 12 CFR Part 1026
(Regulation Z), which implements the
Truth in Lending Act (TILA), and 12
CFR Part 1024 (Regulation X), which
implements the Real Estate Settlement
Procedures Act (RESPA). Regulations B,
Z and X currently contain collections of
information approved by OMB. The
Bureau’s OMB control number for
Regulation B is 3170–0013, for
Regulation Z is 3170–0015 and for
Regulation X is 3170–0016. However,
the Bureau has determined that this
proposed rule would not materially alter
these collections of information or
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impose any new recordkeeping,
reporting, or disclosure requirements on
the public that would constitute
collections of information requiring
approval under the Paperwork
Reduction Act, 44 U.S.C. 3501 et seq.
Comments on this determination may be
submitted to the Bureau as instructed in
the ADDRESSES section of this notice and
to the attention of the Paperwork
Reduction Act Officer.
List of Subjects
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.
Supplement I to Part 1002—Official
Interpretations
*
*
*
*
Section 1002.14 Rules on Providing
Appraisals and Valuations
*
*
*
*
*
14(b)(3) Valuation.
1. * * *
i. A report prepared by an appraiser
(whether or not licensed or certified)
including the appraiser’s estimate of the
property’s value.
*
*
*
*
*
3. * * *
v. Reports reflecting property inspections
that do not provide an estimate of the value
of the property and are not used to develop
an estimate of the value of the property.
*
*
*
*
*
PART 1024—REAL ESTATE
SETTLEMENT PROCEDURES ACT
(REGULATION X)
4. The authority citation for part 1024
continues to read as follows:
12 CFR Part 1024
Condominiums, Consumer protection,
Housing, Mortgage servicing, Mortgages,
Reporting and recordkeeping.
■
12 CFR Part 1026
Advertising, Consumer protection,
Credit, Credit unions, Mortgages,
National banks, Reporting and
recordkeeping requirements, Savings
associations, Truth in lending.
Subpart A—General
Authority and Issuance
For the reasons set forth in the
preamble, the Bureau proposes to
amend 12 CFR parts 1002, 1024, and
1026 as set forth below:
§ 1024.30
5. Section 1024.30, as amended
February 14, 2013, at 78 FR 10695,
effective January 10, 2014, is amended
by revising paragraph (a) to read as
follows:
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. Appendix A to Part 1002 is
amended by revising paragraph 2.d to
read as follows:
■
Appendix A to Part 1002—Federal
Agencies To Be Listed in Adverse
Action Notices
*
*
*
*
Authority: 12 U.S.C. 2603–2605, 2607,
2609, 2617, 5512, 5532, 5581.
■
PART 1002—EQUAL CREDIT
OPPORTUNITY ACT (REGULATION B)
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2. * * *
d. Federal Credit Unions: National Credit
Union Administration, Office of Consumer
Protection, 1775 Duke Street, Alexandria, VA
22314.
Scope.
(a) In general. Except as provided in
paragraphs (b) and (c) of this section,
this subpart applies to any mortgage
loan, as that term is defined in
§ 1024.31.
*
*
*
*
*
■ 6. Section 1024.35, as amended
February 14, 2013, at 78 FR 10695,
effective January 10, 2014, is amended
by revising paragraph (g)(1)(iii)(B) to
read as follows:
§ 1024.35
Error resolution procedures.
*
*
*
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*
(g) * * *
(1) * * *
(iii) * * *
(B) The mortgage loan is discharged.
*
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*
■ 7. Section 1024.36, as amended
February 14, 2013, at 78 FR 10695,
effective January 10, 2014, is amended
by revising paragraph (f)(1)(v)(B) to read
as follows:
*
§ 1024.36
■
*
*
*
*
*
3. In Supplement I to Part 1002, under
Section 1002.14, under Paragraph
14(b)(3) Valuation, as amended January
31, 2013, at 78 FR 6407, effective
January 18, 2014, paragraphs 1.i and 3.v
are revised to read as follows:
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Requests for information.
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(f) * * *
(1) * * *
(v) * * *
(B) The mortgage loan is discharged.
*
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8. Section 1024.39, as amended
February 14, 2013, at 78 FR 10695,
effective January 10, 2014, is amended
by revising paragraphs (b)(1) and (3) to
read as follows:
■
§ 1024.39 Early intervention requirements
for certain borrowers.
*
*
*
*
*
(b) Written notice. (1) Notice required.
Except as otherwise provided in this
section, a servicer shall provide to a
delinquent borrower a written notice
with the information set forth in
paragraph (b)(2) of this section not later
than the 45th day of the borrower’s
delinquency. A servicer is not required
to provide the written notice more than
once during any 180-day period.
*
*
*
*
*
(3) Model clauses. Model clauses MS–
4(A), MS–4(B), and MS–4(C), in
appendix MS–4 to this part may be used
to comply with the requirements of this
paragraph (b).
*
*
*
*
*
■ 9. Section 1024.41, as amended
February 14, 2013, at 78 FR 10695,
effective January 10, 2014, is amended
by revising paragraphs (b)(2)(ii),
(c)(1)(ii), (c)(2)(i), (d), (f)(1), (h)(4), (j)
and adding paragraphs (b)(3), (c)(2)(iii),
and (c)(2)(iv) to read as follows:
§ 1024.41
Loss mitigation procedures.
*
*
*
*
*
(b) * * *
(2) * * *
(ii) Time period disclosure. The notice
required pursuant to paragraph
(b)(2)(i)(B) of this section must include
a reasonable date by which the borrower
should submit the documents and
information necessary to make the loss
mitigation application complete.
(3) Timelines. For purposes of this
section, timelines based on the
proximity of a foreclosure sale to the
receipt of a complete loss mitigation
application will be determined as of the
date a complete loss mitigation
application is received.
(c) * * *
(1) * * *
(ii) Provide the borrower with a notice
in writing stating the servicer’s
determination of which loss mitigation
options, if any, it will offer to the
borrower on behalf of the owner or
assignee of the mortgage. The servicer
shall include in this notice the amount
of time the borrower has to accept or
reject an offer of a loss mitigation
program as provided for in paragraph (e)
of this section, if applicable, and a
notification, if applicable, that the
borrower has the right to appeal the
denial of any loan modification option
as well as the amount of time the
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borrower has to file such an appeal and
any requirements for making an appeal
as provided for in paragraph (h) of this
section.
(2) * * *
(i) In general. Except as set forth in
paragraphs (c)(2)(ii) and (iii) of this
section, a servicer shall not evade the
requirement to evaluate a complete loss
mitigation application for all loss
mitigation options available to the
borrower by offering a loss mitigation
option based upon an evaluation of any
information provided by a borrower in
connection with an incomplete loss
mitigation application.
*
*
*
*
*
(iii) Payment forbearance.
Notwithstanding paragraph (c)(2)(i) of
this section, a servicer may offer a shortterm payment forbearance program to a
borrower based upon an evaluation of
an incomplete loss mitigation
application. A servicer offering such a
program to a borrower who has
submitted an incomplete loss mitigation
application must include in the notice
of incomplete application required
pursuant to paragraph (b)(2)(i)(B) of this
section a statement that:
(A) The servicer has received an
incomplete loss mitigation application,
and on the basis of that application the
servicer is offering a payment
forbearance program;
(B) Absent further action by the
borrower, the servicer will not review
the incomplete application for other loss
mitigation options; and
(C) If the borrower would like to be
considered for other loss mitigation
options, the borrower must notify the
servicer and submit the missing
documents and information required to
complete the loss mitigation
application.
(iv) Servicer creates reasonable
expectation that a loss mitigation
application is complete. If a servicer
creates a reasonable expectation that a
loss mitigation application is complete
but the servicer later discovers that the
application is incomplete, the servicer
shall treat the application as complete
as of the date the borrower had reason
to believe the application was complete
for purposes of paragraphs (f)(2) and (g)
of this section until the borrower has
been given a reasonable opportunity to
complete the loss mitigation
application.
(d) Denial of loan modification
options. If a borrower’s complete loss
mitigation application is denied for any
trial or permanent loan modification
option available to the borrower
pursuant to paragraph (c) of this section,
a servicer shall state in the notice sent
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to the borrower pursuant to paragraph
(c)(1)(ii) of this section the specific
reason or reasons for the servicer’s
determination for each such trial or
permanent loan modification option,
and a notification that the borrower was
not evaluated on other criteria (if
applicable).
*
*
*
*
*
(f) * * *
(1) Pre-foreclosure review period. A
servicer shall not make the first notice
or filing required by applicable law for
any judicial or non-judicial foreclosure
process unless:
(i) A borrower’s mortgage loan
obligation is more than 120 days
delinquent;
(ii) The foreclosure is based on a
borrower’s violation of a due-on-sale
clause; or
(iii) The servicer is joining the
foreclosure action of a subordinate
lienholder.
*
*
*
*
*
(h) * * *
(4) Appeal determination. Within 30
days of a borrower making an appeal,
the servicer shall provide a notice to the
borrower stating the servicer’s
determination of whether the servicer
will offer the borrower a loss mitigation
option based upon the appeal, and, if
applicable, how long the borrower has
to accept or reject such an offer or a
prior offer of a loss mitigation option, as
provided for in this paragraph. A
servicer may require that a borrower
accept or reject an offer of a loss
mitigation option after an appeal no
earlier than 14 days after the servicer
provides the notice to a borrower. A
servicer’s determination under this
paragraph is not subject to any further
appeal.
*
*
*
*
*
(j) Small servicer requirements. A
small servicer shall be subject to the
prohibition on foreclosure referral in
paragraph (f)(1) of this section. A small
servicer shall not make the first notice
or filing required by applicable law for
any judicial or non-judicial foreclosure
process and shall not move for
foreclosure judgment or order of sale, or
conduct a foreclosure sale, if a borrower
is performing pursuant to the terms of
an agreement on a loss mitigation
option.
■ 10. Appendix MS–3 to Part 1024, as
amended February 14, 2013, at 78 FR
10695, effective January 10, 2014, is
amended by:
■ a. Revising the entry for MS–3(D) in
the table of contents at the beginning of
the appendix, and
■ b. Revising the heading of MS–3(D).
The amendments read as follows:
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Appendix MS–3 to Part 1024
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MS–3(D)—Model Form for Renewal or
Replacement of Force-Placed Insurance
Notice Containing Information Required By
§ 1024.37(e)(2)
*
*
*
*
*
11. In Supplement I to Part 1024, as
amended February 14, 2013, at 78 FR
10695, effective January 10, 2014,:
■ a. Under Section 1024.17 the heading
for 17(k)(5)(ii) is revised.
■ b. Under Section 1024.33—Mortgage
Servicing Transfers:
■ i. Under Paragraph 33(a) Servicing
Disclosure Statement, paragraph 1 is
revised.
■ ii. Under Paragraph 33(c)(1) Payments
not considered late, paragraph 2 is
revised.
■ c. Under Section 1024.35—Error
Resolution Procedures, Paragraph 35(c),
paragraph 2 is revised.
■ d. Under Section 1024.36—Request
for Information, Paragraph 36(b),
paragraph 2 is revised.
■ e. The heading for Section 1024.41 is
revised.
■ f. Under Section 1024.41, Loss
Mitigation Procedures;
■ i. Paragraphs 41(b)(2), 41(b)(3),
41(c)(2)(iii), and 41(c)(2)(iv) are added.
■ ii. The heading for paragraphs 41(c) is
revised.
■ iii. Under newly designated 41(c),
paragraph (c)(2)(iii) is added.
■ iv. The heading Paragraph 41(d)(1) is
removed.
■ v. Under paragraph 41(d), paragraph
3 is redesignated as Paragraph(c)(1),
paragraph 4, and paragraph 4 is
redesignated as paragraph 3.
■ vii. Under paragraph 41(d), paragraph
4 is added.
■ viii. Under paragraph 41(f), new
paragraph 1 is added.
■
Supplement I to Part 1024—Official
Bureau Interpretations
*
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*
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*
Subpart B—Mortgage Settlement and Escrow
Accounts
*
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*
Section 1024.17—Escrow Accounts
17(k)(5)(ii) Inability to disburse funds.
*
*
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*
Subpart C—Mortgage Servicing
*
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*
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*
Section 1024.33—Mortgage Servicing
Transfers
*
*
*
*
*
33(a) Servicing disclosure statement.
1. Terminology. Although the servicing
disclosure statement must be clear and
conspicuous pursuant to § 1024.32(a),
§ 1024.33(a) does not set forth any specific
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rules for the format of the statement, and the
specific language of the servicing disclosure
statement in appendix MS–1 is not required
to be used. The model format may be
supplemented with additional information
that clarifies or enhances the model language.
*
*
*
*
*
33(c) Borrower payments during transfer
of servicing.
33(c)(1) Payments not considered late.
1. * * *
2. Compliance with § 1024.39. A transferee
servicer’s compliance with § 1024.39 during
the 60-day period beginning on the effective
date of a servicing transfer does not
constitute treating a payment as late for
purposes of § 1024.33(c)(1).
Section 1024.35
Procedures
Error Resolution
*
*
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*
35(c) Contact information for borrowers
to assert errors
*
*
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*
*
2. Notice of an exclusive address. A notice
establishing an address that a borrower must
use to assert an error may be included with
a different disclosure, such as on a notice of
transfer, periodic statement, or coupon book.
The notice is subject to the clear and
conspicuous requirement in § 1024.32(a)(1).
If a servicer establishes an address that a
borrower must use to assert an error, a
servicer must provide that address to the
borrower in any communication in which the
servicer provides the borrower with an
address for assistance from the servicer.
*
*
*
*
*
Section 1024.36
Requests for Information
*
*
*
*
*
36(b) Contact information for borrowers
to request information
1. * * *
2. Notice of an exclusive address. A notice
establishing an address that a borrower must
use to request information may be included
with a different disclosure, such as on a
notice of transfer, periodic statement, or
coupon book. The notice is subject to the
clear and conspicuous requirement in
§ 1024.32(a)(1). If a servicer establishes an
address that a borrower must use to request
information, a servicer must provide that
address to the borrower in any
communication in which the servicer
provides the borrower with an address for
assistance from the servicer.
*
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*
Section 1024.41—Loss Mitigation Procedures.
41(b) Receipt of loss mitigation
application
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41(b)(2) Review of loss mitigation
application submission
41(b)(2)(i) Requirements
Paragraph 41 (b)(2)(i)(B)
1. Notification of complete application.
Even if a servicer has informed a borrower
that an application is complete (or notified
the borrower of specific information
necessary to complete an incomplete
application), if the servicer determines, in the
course of evaluating the loss mitigation
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application submitted by the borrower, that
additional information is required, the
servicer must request the additional
information from a borrower pursuant to the
§ 1024.41(b)(1) obligation to exercise
reasonable diligence in obtaining such
documents and information.
2. Effect on timelines. Except as provided
in § 1024.41(c)(2)(iv), the provisions and
timelines triggered by a complete loss
mitigation application in § 1024.41 will not
be triggered by an incomplete application,
regardless of whether a servicer has sent a
§ 1024.41(b)(2)(i)(B) notification incorrectly
informing the borrower that the loss
mitigation application is complete or
otherwise given the borrower reason to
believe the application is complete.
41(b)(2)(ii) Time period disclosure
1. Reasonable date factors. Section
1024.41(b)(2)(ii) requires that a notice
informing a borrower that a loss mitigation
application is incomplete must include a
reasonable date by which the borrower
should submit the documents and
information necessary to make the loss
mitigation application complete. In
determining a reasonable date, a servicer
should select the deadline that preserves the
maximum borrower rights under § 1024.41,
except when doing so would be
impracticable. Thus, in setting a date, the
factors listed below should be considered (if
the date of a foreclosure sale is not known,
a servicer may use a reasonable estimate of
when a foreclosure sale may be scheduled):
i. The date by which any document or
information submitted by a borrower will be
considered stale or invalid pursuant to any
requirements applicable to any loss
mitigation option available to the borrower;
ii. The date that is the 120th day of the
borrower’s delinquency;
iii. The date that is 90 days before a
foreclosure sale;
iv. The date that is 38 days before a
foreclosure sale.
41(b)(3) Timelines
1. Foreclosure sale not scheduled. If no
foreclosure sale has been scheduled as of the
date that a complete loss mitigation
application is received, the application shall
be treated as if it were received at least 90
days before a scheduled foreclosure sale.
2. Foreclosure sale re-scheduled. These
timelines established as of the receipt of a
complete loss mitigation application shall
remain in effect, even if a foreclosure sale is
later re-scheduled to occur earlier or later.
41(c) Evaluation of loss mitigation
applications
*
*
*
*
*
41(c)(2) Incomplete loss mitigation
application evaluation
41(c)(2)(iii) Payment forbearance
1. Short-term payment forbearance
program. The exemption in
§ 1024.41(c)(2)(iii) applies to a short-term
payment forbearance program. A payment
forbearance program is a loss mitigation
option for which a servicer allows a borrower
to forgo making certain payments or portions
of payments for a period of time. A shortterm payment forbearance program allows
the forbearance of payments due over periods
of no more than two months. Such a program
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would be short-term regardless of the amount
of time a servicer allows the borrower to
make up the missing payments. The
examples below illustrate how the length of
a payment forbearance program is calculated
for purposes of § 1024.41(c)(2)(iii).
i. A servicer allows a borrower to forgo
payment for January, February and March,
and the borrower must make these payments
in addition to the April payment at the time
the April payment is due. This is a threemonth forbearance program and thus would
not be considered short-term.
ii. A servicer allows a borrower to forgo
payment for January and February, and the
borrower must make the January and
February payments in addition to the March
payment, at the time the March payment is
due. This is a two-month forbearance
program, and thus would be considered
short-term.
iii. A servicer allows a borrower to forgo
payment for January and February. These
payments are spread over the next six
months, and the borrower will make larger
payments for March through August. This is
a two-month forbearance program, and thus
would be considered short-term.
iv. A servicer allows a borrower to forgo
payment for January and February. These
payments are added to the last monthly
payment at the end of the loan obligation.
This is a two-month forbearance program,
and thus would be considered short-term.
2. Payment forbearance and incomplete
applications. Section 1024.41(c)(2)(iii) allows
a servicer to offer a borrower a short-term
payment forbearance program based on an
evaluation of an incomplete loss mitigation
application. Such an incomplete loss
mitigation application is still subject to the
other obligations in § 1024.41, including the
obligation in § 1024.41(b)(2) to review the
application to determine if it is complete, the
obligation in § 1024.41(b)(1) to exercise
reasonable diligence in obtaining documents
and information to complete a loss mitigation
application, and the obligation to provide the
borrower with the § 1024.41(b)(2)(ii) notice
that the servicer acknowledges the receipt of
the application and has determined the
application is incomplete (and any other
information required to be in such a notice).
3. Payment forbearance and complete
applications. Even if a servicer offers a
borrower a payment forbearance program
after an evaluation of an incomplete loss
mitigation application, the servicer must still
comply with all other requirements in
§ 1024.41 on receipt of a borrower’s
submission of a complete loss mitigation
application.
41(c)(2)(iv) Servicer creates reasonable
expectation that a loss mitigation application
is complete.
1. Reasonable expectation. A servicer
creates a reasonable expectation that a loss
mitigation application is complete when:
i. The servicer notifies the borrower in the
§ 1024.41(b)(2)(i)(B) notice that the servicer
has determined the application is complete.
The borrower would have a reasonable
expectation upon receipt of the notice that
the application was complete as of the date
the application was submitted.
ii. The servicer notifies the borrower in the
§ 1024.41(b)(2)(i)(B) notice that the servicer
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has determined the application is incomplete
and identifies information and
documentation necessary to complete the
application, and the borrower provides all
the documents and information that were
listed as missing in that notice within a
reasonable time. The borrower would have a
reasonable expectation that the application
was complete as of the date the borrower
submitted all the documents and information
that were listed as missing.
2. Reasonable opportunity. Section
1024.41(c)(2)(iv) requires a servicer to treat as
complete an application that the servicer has
created a reasonable expectation is complete
until a borrower has been given a reasonable
opportunity to complete the loss mitigation
application. A reasonable opportunity
requires the servicer to notify the borrower of
what information and documentation is
missing, and afford the borrower sufficient
time to gather the information and/or
documentation necessary to complete the
application and submit it to the servicer. The
amount of time that is sufficient for this
purpose will depend on the facts and
circumstances.
41(d) Denial of loan modification options
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4. Reasons listed. A servicer is required to
disclose the actual reason or reasons for the
denial. If a servicer’s systems establish a
hierarchy of eligibility criteria and reach the
first criterion that causes a denial but do not
evaluate the borrower based on additional
criteria, a servicer complies with the rule by
providing only the reason or reasons with
respect to which the borrower was actually
evaluated as well as notification that the
borrower was not evaluated on other criteria.
A servicer is not required to determine or
disclose whether a borrower would have
been denied on the basis of additional
criteria if such criteria were not actually
considered.
41(f) Prohibition on foreclosure referral
1. Prohibited activities. Section 1024.41(f)
prohibits a servicer from making the first
notice or filing required by applicable law for
any judicial or non-judicial foreclosure
process under certain circumstances.
Whether a document is considered the first
notice or filing is determined under
applicable State law. Specifically, a
document is considered the first notice or
filing if it would be used by the servicer as
evidence of compliance with foreclosure
practices required pursuant to State law, but
is not considered the first notice or filing if
it is used solely for other purposes. Thus, a
servicer is not prohibited from attempting to
collect payments, sending periodic
statements, sending breach letters, or
engaging in any other activity during the preforeclosure review period, so long as such
documents or activity would not be used as
evidence of complying with requirements
applicable pursuant to State law in
connection with a foreclosure process, and
are not banned by other applicable law (e.g.,
the Fair Debt Collection Practices Act or
bankruptcy law).
*
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*
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*
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PART 1026—TRUTH IN LENDING
(REGULATION Z)
12. The authority citation for part
1026 continues to read as follows:
■
Authority: 12 U.S.C. 2601, 2603–2605,
2607, 2609, 2617, 5511, 5512, 5532, 5581; 15
U.S.C. 1601 et seq.
*
*
*
*
*
Subpart C—Closed-End Credit
13. Section 1026.23 is amended by
revising paragraph (a)(3)(ii) to read as
follows:
■
§ 1026.23
Right of rescission.
(a) * * *
(3) * * *
(ii) For purposes of this paragraph
(a)(3), the term ‘‘material disclosures’’
means the required disclosures of the
annual percentage rate, the finance
charge, the amount financed, the total of
payments, the payment schedule, and
the disclosures and limitations referred
to in §§ 1026.32(c) and (d) and
1026.43(g).
*
*
*
*
*
Subpart E—Special Rules for Certain
Home Mortgage Transactions
14. Section 1026.31, as amended
January 31, 2013, at 78 FR 6856,
effective January 10, 2014, is amended
by revising paragraphs (h)(1)(iii)(A) and
(h)(2)(iii)(A) to read as follows:
■
§ 1026.31
General rules.
*
*
*
*
*
(h) * * *
(1) * * *
(iii) * * *
(A) Make the loan or credit plan
satisfy the requirements of 15 U.S.C.
1631–1651; or
*
*
*
*
*
(2) * * *
(iii) * * *
(A) Make the loan or credit plan
satisfy the requirements of 15 U.S.C.
1631–1651; or
*
*
*
*
*
■ 15. Section 1026.32 is amended by:
■ a. Revising paragraph (a)(2)(iii), as
amended January 31, 2013, at 78 FR
6856, effective January 10, 2014;
■ b. Revising paragraph (b)(1)(ii), as
amended June 2, 2013, at 78 FR 35430,
effective January 10, 2014;
■ c. Revising paragraph (b)(1)(vi), as
amended January 30, 2013, at 78 FR
6408, effective January 10, 2014;
■ d. Revising paragraph (b)(2)(ii), as
amended June 12, 2013, at 78 FR 35430,
effective January 10, 2014; and
■ e. Revising paragraphs (b)(2)(vi),
(b)(6)(ii), and (d)(1)(ii)(C), as amended
January 31, 2013, at 78 FR 6856,
effective January 10, 2014.
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The revisions read as follows:
§ 1026.32 Requirements for high-cost
mortgages.
(a) * * *
(2) * * *
(iii) A transaction originated by a
Housing Finance Agency, where the
Housing Finance Agency is the creditor
for the transaction; or
(b) * * *
(1) * * *
(ii) All compensation paid directly or
indirectly by a consumer or creditor to
a loan originator, as defined in
§ 1026.36(a)(1), that can be attributed to
that transaction at the time the interest
rate is set unless:
(A) That compensation is paid by a
consumer to a mortgage broker, as
defined in § 1026.36(a)(2), and already
has been included in points and fees
under paragraph (b)(1)(i) of this section;
(B) That compensation is paid by a
mortgage broker, as defined in
§ 1026.36(a)(2), to a loan originator that
is an employee of the mortgage broker;
(C) That compensation is paid by a
creditor to a loan originator that is an
employee of the creditor; or
(D) That compensation is paid by a
retailer of manufactured homes to its
employee.
*
*
*
*
*
(vi) The total prepayment penalty, as
defined in paragraph (b)(6)(i) or (ii) of
this section, as applicable, incurred by
the consumer if the consumer refinances
the existing mortgage loan, or terminates
an existing open-end credit plan in
connection with obtaining a new
mortgage loan, with the current holder
of the existing loan or plan, a servicer
acting on behalf of the current holder,
or an affiliate of either.
*
*
*
*
*
(b) * * *
(2) * * *
*
*
*
*
*
(ii) All compensation paid directly or
indirectly by a consumer or creditor to
a loan originator, as defined in
§ 1026.36(a)(1), that can be attributed to
that transaction at the time the interest
rate is set unless:
(A) That compensation is paid by a
consumer to a mortgage broker, as
defined in § 1026.36(a)(2), and already
has been included in points and fees
under paragraph (b)(2)(i) of this section;
(B) That compensation is paid by a
mortgage broker, as defined in
§ 1026.36(a)(2), to a loan originator that
is an employee of the mortgage broker;
(C) That compensation is paid by a
creditor to a loan originator that is an
employee of the creditor; or
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(D) That compensation is paid by a
retailer of manufactured homes to its
employee.
*
*
*
*
*
(vi) The total prepayment penalty, as
defined in paragraph (b)(6)(i) or (ii) of
this section, as applicable, incurred by
the consumer if the consumer refinances
an existing closed-end credit transaction
with an open-end credit plan, or
terminates an existing open-end credit
plan in connection with obtaining a new
open-end credit plan, with the current
holder of the existing transaction or
plan, a servicer acting on behalf of the
current holder, or an affiliate of either;
*
*
*
*
*
(6) * * *
(ii) Open-end credit. For an open-end
credit plan, prepayment penalty means
a charge imposed by the creditor if the
consumer terminates the open-end
credit plan prior to the end of its term,
other than a waived, bona fide thirdparty charge that the creditor imposes if
the consumer terminates the open-end
credit plan sooner than 36 months after
account opening.
*
*
*
*
*
(d) Limitations. A high-cost mortgage
shall not include the following terms:
(1) * * *
(ii) * * *
(C) A loan that meets the criteria set
forth in §§ 1026.43(f)(1)(i) through (vi)
and 1026.43(f)(2), or the conditions set
forth in § 1026.43(e)(6).
*
*
*
*
*
■ 16. Section 1026.35 is amended by
revising paragraphs (b)(2)(i)(D),
(b)(2)(iii)(A), and (b)(2)(iii)(D)(1) to read
as follows:
§ 1026.35 Requirements for higher-priced
mortgage loans.
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*
*
*
*
*
(b) * * *
(2) * * *
(i) * * *
(D) A reverse mortgage transaction
subject to § 1026.33.
*
*
*
*
*
(iii) * * *
(A) During any of the three preceding
calendar years, the creditor extended
more than 50 percent of its total covered
transactions, as defined by
§ 1026.43(b)(1), secured by a first lien,
on properties that are located in
counties that are either ‘‘rural’’ or
‘‘underserved,’’ as set forth in paragraph
(b)(2)(iv) of this section;
*
*
*
*
*
(D) * * *
(1) Escrow accounts established for
first-lien higher-priced mortgage loans
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on or after April 1, 2010, and before
January 1, 2014; or
*
*
*
*
*
■ 17. Section 1026.36, as amended
February 15, 2013, at 78 FR 11280,
effective January 10, 2014, is amended
by revising paragraphs (a)(1)(i)(A) and
(B), adding paragraph (a)(6), and
revising paragraphs (b), (f)(3)(i)
introductory text, (f)(3)(ii), (i), and (j)(2)
to read as follows:
§ 1026.36 Prohibited acts or practices and
certain requirements for credit secured by
a dwelling.
(a) * * *
(1) * * *
(i) * * *
(A) A person who does not take a
consumer credit application or offer or
negotiate credit terms available from a
creditor to that consumer selected based
on the consumer’s financial
characteristics, but who performs purely
administrative or clerical tasks on behalf
of a person who does engage in such
activities.
(B) An employee of a manufactured
home retailer who does not take a
consumer credit application, offer or
negotiate credit terms available from a
creditor to that consumer selected based
on the consumer’s financial
characteristics, or advise a consumer on
particular credit terms available from a
creditor to that consumer selected based
on the consumer’s financial
characteristics.
*
*
*
*
*
(6) Credit terms. For purposes of this
section, the term ‘‘credit terms’’
includes rates, fees, and other costs.
*
*
*
*
*
(b) Scope. Paragraphs (c)(1) and (2) of
this section apply to closed-end
consumer credit transactions secured by
a consumer’s principal dwelling.
Paragraph (c)(3) of this section applies
to a consumer credit transaction secured
by a dwelling. Paragraphs (d) through (i)
of this section apply to closed-end
consumer credit transactions secured by
a dwelling. This section does not apply
to a home equity line of credit subject
to § 1026.40, except that paragraphs (h)
and (i) of this section apply to such
credit when secured by the consumer’s
principal dwelling and paragraph (c)(3)
applies to such credit when secured by
a dwelling. Paragraphs (d) through (i) of
this section do not apply to a loan that
is secured by a consumer’s interest in a
timeshare plan described in 11 U.S.C.
101(53D).
*
*
*
*
*
(f) * * *
(3) * * *
(i) Obtain for any individual whom
the loan originator organization hired on
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39937
or after January 1, 2014 (or whom the
loan originator organization hired before
this date but for whom there were no
applicable statutory or regulatory
background standards in effect at the
time of hire or before January 1, 2014,
used to screen the individual) and for
any individual regardless of when hired
who, based on reliable information
known to the loan originator
organization, likely does not meet the
standards under § 1026.36(f)(3)(ii),
before the individual acts as a loan
originator in a consumer credit
transaction secured by a dwelling:
*
*
*
*
*
(ii) Determine on the basis of the
information obtained pursuant to
paragraph (f)(3)(i) of this section and
any other information reasonably
available to the loan originator
organization, for any individual whom
the loan originator organization hired on
or after January 1, 2014 (or whom the
loan originator organization hired before
this date but for whom there were no
applicable statutory or regulatory
background standards in effect at the
time of hire or before January 1, 2014,
used to screen the individual) and for
any individual regardless of when hired
who, based on reliable information
known to the loan originator
organization, likely does not meet the
standards under this paragraph (f)(3)(ii),
before the individual acts as a loan
originator in a consumer credit
transaction secured by a dwelling, that
the individual loan originator:
*
*
*
*
*
(i) Prohibition on financing credit
insurance. (1) A creditor may not
finance, directly or indirectly, any
premiums or fees for credit insurance in
connection with a consumer credit
transaction secured by a dwelling
(including a home equity line of credit
secured by the consumer’s principal
dwelling). This prohibition does not
apply to credit insurance for which
premiums or fees are calculated and
paid in full on a monthly basis.
(2) For purposes of this paragraph (i):
(i) ‘‘Credit insurance’’:
(A) Means credit life, credit disability,
credit unemployment, or credit property
insurance, or any other accident, loss-of
income, life, or health insurance, or any
payments directly or indirectly for any
debt cancellation or suspension
agreement or contract, but
(B) Excludes credit unemployment
insurance for which the unemployment
insurance premiums are reasonable, the
creditor receives no direct or indirect
compensation in connection with the
unemployment insurance premiums,
and the unemployment insurance
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premiums are paid pursuant to a
separate insurance contract and are not
paid to an affiliate of the creditor;
(ii) A creditor finances premiums or
fees for credit insurance if it provides a
consumer the right to defer payment of
a credit insurance premium or fee owed
by the consumer; and
(iii) Credit insurance premiums or
fees are calculated on a monthly basis
if they are determined mathematically
by multiplying a rate by the actual
monthly outstanding balance.
*
*
*
*
*
(j) * * *
(2) For purposes of this paragraph (j),
‘‘depository institution’’ has the
meaning in section 1503(3) of the SAFE
Act, 12 U.S.C. 5102(3). For purposes of
this paragraph (j), ‘‘subsidiary’’ has the
meaning in section 3 of the Federal
Deposit Insurance Act, 12 U.S.C. 1813.
*
*
*
*
*
■ 18. Appendix H to Part 1026, as
amended February 14, 2013, at 78 FR
10901, effective January 10, 2014, is
amended by:
■ a. Revising the entry for H–30(C) in
the table of contents at the beginning of
the appendix, and
■ b. Revising the heading of H–30(C).
The revision reads as follows:
Appendix H to Part 1026—Closed-End
Model Forms and Clauses
*
*
*
*
*
H–30(C) Sample Form of Periodic
Statement for a Payment-Option Loan
*
*
*
*
*
19. In Supplement I to Part 1026:
a. Under Section 1026.25—Record
Retention, under Paragraph 25(c)(2)
Records related to requirements for loan
originator compensation, as amended
February 15, 2013, at 78 FR 11280,
effective January 10, 2014, paragraph 1
is revised.
■ b. Under Section 1026.32
Requirements for High Cost Mortgages:
■ i. Under Paragraph 32(b)(1), as
amended January 30, 2013, at 78 FR
6408, effective January 10, 2014,
paragraph 2 is added.
■ ii. Under Paragraph 32(b)(1)(ii), as
amended June 12, 2013, at 78 FR 35430,
effective January 10, 2014, paragraph 5
is added.
■ iii. Paragraph 32(b)(2), as amended
January 30, 2013, at 78 FR 6408,
effective January 10, 2014, and
paragraph 1 are added.
■ iv. Under Paragraph 32(b)(2)(i), as
amended January 30, 2013, at 78 FR
6408, effective January 10, 2014,
paragraph 1 is revised.
■ v. Under Paragraph 32(b)(2)(i)(D), as
amended January 30, 2013, at 78 FR
6408, effective January 10, 2014,
paragraph 1 is revised.
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■
■
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vi. Under Paragraph 32(d)(8)(ii), as
amended January 30, 2013, at 78 FR
6408, effective January 10, 2014,
paragraph 1 is revised.
■ c. Under Section 1026.34—Prohibited
Acts or Practices in Connection with
High—Cost Mortgages, under Paragraph
34(a)(5)(v), as amended January 30,
2013, at 78 FR 6408, effective January
10, 2014, paragraph 1 is revised.
■ d. Under Section 1026.35—
Requirements for Higher-Priced
Mortgage Loans
■ i. Under Paragraph 35(b)(2)(iii),
paragraph 1 is revised.
■ ii. Under Paragraph 35(b)(2)(iii)(D(1),
paragraph 1 is revised.
■ e. Under Section 1026.36—Prohibited
Acts or Practices in Connection With
Credit Secured by a Dwelling
■ i. Under Paragraph 36(a), as amended
February 14, 2013, at 78 FR 11280,
effective January 10, 2014, paragraphs 1,
4, and 5 are revised.
■ ii. Under Paragraph 36(b), as
amended February 14, 2013, at 78 FR
11280, effective January 10, 2014,
paragraph 1 is revised.
■ iii. Under Paragraph 36(d)(1), as
amended February 14, 2013, at 78 FR
11280, effective January 10, 2014,
paragraphs 1, 3, and 6 are revised.
■ iv. Under Paragraph 36(f)(3)(i), as
amended February 14, 2013, at 78 FR
11280, effective January 10, 2014,
paragraphs 1 and 2 are revised.
■ v. Under Paragraph 36(f)(3)(ii), as
amended February 14, 2013, at 78 FR
11280, effective January 10, 2014,
paragraphs 1and 2 are revised.
■ f. Under Section 1026.41—Periodic
Statements for Residential Mortgage
Loans
■ i. Under Paragraph 41(b), as amended
February 14, 2013, at 78 FR 10901,
effective January 10, 2014, paragraph 1
is revised.
■ ii. Under Paragraph 41(d), as
amended February 14, 2013, at 78 FR
10901, effective January 10, 2014,
paragraph 3 is revised.
■ iii. Under Paragraph 41(d)(4), as
amended February 14, 2013, at 78 FR
10901, effective January 10, 2014,
paragraph 1 is revised.
■ iv. Under Paragraph 41(e)(3), as
amended February 14, 2013, at 78 FR
10901, effective January 10, 2014,
paragraph 1 is revised.
■ v. Under Paragraph 41(e)(4)(iii), as
amended February 14, 2013, at 78 FR
10901, effective January 10, 2014,
paragraph 1 is revised.
The revisions read as follows:
■
Supplement I to Part 1026—Official
Interpretations
*
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*
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Subpart D—Miscellaneous
Section 1026.25
Record Retention
*
*
*
*
*
25(c) Records related to certain
requirements for mortgage loans.
25(c)(2) Records related to requirements
for loan originator compensation.
1. * * *
i. Records sufficient to evidence payment
and receipt of compensation. Records are
sufficient to evidence payment and receipt of
compensation if they demonstrate the
following facts: The nature and amount of the
compensation; that the compensation was
paid, and by whom; that the compensation
was received, and by whom; and when the
payment and receipt of compensation
occurred. The compensation agreements
themselves are to be retained in all
circumstances consistent with
§ 1026.25(c)(2)(i). The additional records that
are sufficient necessarily will vary on a caseby-case basis depending on the facts and
circumstances, particularly with regard to the
nature of the compensation. For example, if
the compensation is in the form of a salary,
records to be retained might include copies
of required filings under the Internal
Revenue Code that demonstrate the amount
of the salary. If the compensation is in the
form of a contribution to or a benefit under
a designated tax-advantaged plan, records to
be maintained might include copies of
required filings under the Internal Revenue
Code or other applicable Federal law relating
to the plan, copies of the plan and
amendments thereto in which individual
loan originators participate and the names of
any loan originators covered by the plan, or
determination letters from the Internal
Revenue Service regarding the plan. If the
compensation is in the nature of a
commission or bonus, records to be retained
might include a settlement agent ‘‘flow of
funds’’ worksheet or other written record or
a creditor closing instructions letter directing
disbursement of fees at consummation.
Where a loan originator is a mortgage broker,
a disclosure of compensation or broker
agreement required by applicable State law
that recites the broker’s total compensation
for a transaction is a record of the amount
actually paid to the loan originator in
connection with the transaction, unless
actual compensation deviates from the
amount in the disclosure or agreement.
Where compensation has been decreased to
defray the cost, in whole or part, of an
unforeseen increase in an actual settlement
cost over an estimated settlement cost
disclosed to the consumer pursuant to
section 5(c) of RESPA (or omitted from that
disclosure), records to be maintained are
those documenting the decrease in
compensation and reasons for it.
ii. Compensation agreement. For purposes
of § 1026.25(c)(2), a compensation agreement
includes any agreement, whether oral,
written, or based on a course of conduct that
establishes a compensation arrangement
between the parties (e.g., a brokerage
agreement between a creditor and a mortgage
broker or provisions of employment contracts
between a creditor and an individual loan
originator employee addressing payment of
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compensation). Where a compensation
agreement is oral or based on a course of
conduct and cannot itself be maintained, the
records to be maintained are those, if any,
evidencing the existence or terms of the oral
or course of conduct compensation
agreement. Creditors and loan originators are
free to specify what transactions are governed
by a particular compensation agreement as
they see fit. For example, they may provide,
by the terms of the agreement, that the
agreement governs compensation payable on
transactions consummated on or after some
future effective date (in which case, a prior
agreement governs transactions
consummated in the meantime). For
purposes of applying the record retention
requirement to transaction-specific
commissions, the relevant compensation
agreement for a given transaction is the
agreement pursuant to which compensation
for that transaction is determined.
*
*
*
*
*
Subpart E—Special Rules for Certain Home
Mortgage Transactions
*
*
*
*
*
Section 1026.32
Mortgages
Requirements for High-Cost
*
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32(b)
*
*
*
*
Definitions.
*
*
*
Paragraph 32(b)(1)
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2. Charges paid by parties other than the
consumer. Under § 1026.32(b)(1), points and
fees may include charges paid by third
parties in addition to charges paid by the
consumer. Specifically, charges paid by third
parties that fall within the definition of
points and fees set forth in § 1026.32(b)(1)(i)
through (vi) are included in points and fees.
i. Examples—included in points and fees.
A creditor’s origination charge paid by a
consumer’s employer on the consumer’s
behalf that is included in the finance charge
as defined in § 1026.4(a) or (b), must be
included in points and fees under
§ 1026.32(b)(1)(i), unless other exclusions
under § 1026.4 or § 1026.32(b)(1)(i)(A)
through (F) apply. In addition, consistent
with comment 32(b)(1)(i)–1, a third-party
payment of an item excluded from the
finance charge under a provision of § 1026.4,
while not included in the total points and
fees under § 1026.32(b)(1)(i), may be
included under § 1026.32(b)(1)(ii) through
(vi). For example, a payment by a third party
of a creditor-imposed fee for an appraisal
performed by an employee of the creditor is
included in points and fees under
§ 1026.32(b)(1)(iii). See comment 32(b)(1)(i).
ii. Examples—not included in points and
fees. A charge paid by a third party is not
included in points and fees under
§ 1026.32(b)(1)(i) if the exclusions to points
and fees in § 1026.32(b)(1)(i)(A) through (F)
apply. For example, certain bona fide thirdparty charges not retained by the creditor,
loan originator, or an affiliate of either are
excluded from points and fees under
§ 1026.32(b)(1)(i)(D), regardless of whether
those charges are paid by a third party or the
consumer.
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iii. Seller’s points. Seller’s points, as
described in § 1026.4(c)(5) and commentary,
are excluded from the finance charge and
thus are not included in points and fees
under § 1026.32(b)(1)(i). However, charges
paid by the seller for items listed in
§ 1026.32(b)(1)(ii) through (vi) are included
in points and fees.
iv. Creditor-paid charges. Charges that are
paid by the creditor, other than loan
originator compensation paid by the creditor
that is required to be included in points and
fees under § 1026.32(b)(1)(ii), are excluded
from points and fees. See
§ 1026.32(b)(1)(i)(A).
*
*
*
*
*
Paragraph 32(b)(1)(ii)
*
*
*
*
*
5. Loan originator compensation—
calculating loan originator compensation in
manufactured home transactions. i. If a
manufactured home retailer qualifies as a
loan originator under § 1026.36(a)(1), then
compensation that is paid by a consumer or
creditor to the retailer for loan origination
activities and that can be attributed to the
transaction at the time the interest rate is set
must be included in points and fees. For
example, assume a manufactured home
retailer takes a residential mortgage loan
application and is entitled to receive at
consummation a $1,000 commission from the
creditor for taking the mortgage loan
application. The $1,000 commission is loan
originator compensation that must be
included in points and fees.
ii. The sales price of the manufactured
home does not include loan originator
compensation that can be attributed to the
transaction at the time the interest rate is set
and therefore is not included in points and
fees under § 1026.32(b)(1)(ii).
iii. As provided in § 1026.32(b)(1)(ii)(D),
compensation paid by a manufactured home
retailer to its employees is not included in
points and fees under § 1026.32(b)(1)(ii).
*
*
*
*
*
bona fide third-party charges from points and
fees.
*
*
*
*
*
Paragraph 32(d)(8)(ii).
1. Failure to meet repayment terms. A
creditor may terminate a loan or open-end
credit agreement and accelerate the balance
when the consumer fails to meet the
repayment terms resulting in a default in
payment under the agreement; a creditor may
do so, however, only if the consumer actually
fails to make payments resulting in a default
in the agreement. For example, a creditor
may not terminate and accelerate if the
consumer, in error, sends a payment to the
wrong location, such as a branch rather than
the main office of the creditor. If a consumer
files for or is placed in bankruptcy, the
creditor may terminate and accelerate under
§ 1026.32(d)(8)(ii) if the consumer fails to
meet the repayment terms resulting in a
default of the agreement. Section
1026.32(d)(8)(ii) does not override any State
or other law that requires a creditor to notify
a consumer of a right to cure, or otherwise
places a duty on the creditor before it can
terminate a
*
*
*
*
*
Section 1026.34 Prohibited Acts or
Practices in Connection With High-Cost
Mortgages
*
*
*
*
*
34(a)(5) Pre-Loan Counseling
*
*
*
*
*
Paragraph 34(a)(5)(v) Counseling fees.
1. Financing. Section 1026.34(a)(5)(v) does
not prohibit a creditor from financing the
counseling fee as part of the transaction for
a high-cost mortgage, if the fee is a bona fide
third-party charge as provided by
§ 1026.32(b)(1)(i)(D) and (b)(2)(i)(D).
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Section 1026.35 Requirements for HigherPriced Mortgage Loans
Paragraph 32(b)(2)
1. See comment 32(b)(1)–2 for guidance
concerning the inclusion in points and fees
of charges paid by parties other than the
consumer.
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Paragraph 35(b)(2)(iii)
1. Requirements for exemption. Under
§ 1026.35(b)(2)(iii), except as provided in
§ 1026.35(b)(2)(v), a creditor need not
establish an escrow account for taxes and
insurance for a higher-priced mortgage loan,
provided the following four conditions are
satisfied when the higher-priced mortgage
loan is consummated:
i. During any of the three preceding
calendar years, more than 50 percent of the
creditor’s total first-lien covered transactions,
as defined in § 1026.43(b)(1), are secured by
properties located in counties that are either
‘‘rural’’ or ‘‘underserved,’’ as set forth in
§ 1026.35(b)(2)(iv). Pursuant to that section, a
creditor may rely as a safe harbor on a list
of counties published by the Bureau to
determine whether counties in the United
States are rural or underserved for a
particular calendar year. Thus, for example,
if a creditor originated 90 covered
transactions, as defined by § 1026.43(b)(1),
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Paragraph 32(b)(2)(i).
1. Finance charge. The points and fees
calculation under § 1026.32(b)(2) generally
does not include items that are included in
the finance charge but that are not known
until after account opening, such as
minimum monthly finance charges or
charges based on account activity or
inactivity. Transaction fees also generally are
not included in the points and fees
calculation, except as provided in
§ 1026.32(b)(2)(vi). See comments 32(b)(1)–1
and 32(b)(1)(i)–1 for additional guidance
concerning the calculation of points and fees.
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Paragraph 32(b)(2)(i)(D)
1. For purposes of § 1026.32(b)(2)(i)(D), the
term loan originator means a loan originator
as that term is defined in § 1026.36(a)(1),
without regard to § 1026.36(a)(2). See
comments 32(b)(1)(i)(D)–1 through –4 for
further guidance concerning the exclusion of
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secured by a first lien, during 2011, 2012, or
2013, the creditor meets this condition for an
exemption in 2014 if at least 46 of those
transactions in one of those three calendar
years are secured by first liens on properties
that are located in such counties.
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Paragraph 35(b)(2)(iii)(D)(1)
1. Exception for certain accounts. Escrow
accounts established for first-lien higherpriced mortgage loans on or after April 1,
2010, and before January 1, 2014, are not
counted for purposes of
§ 1026.35(b)(2)(iii)(D). On and after January 1,
2014, creditors, together with their affiliates,
that establish new escrow accounts, other
than those described in
§ 1026.35(b)(2)(iii)(D)(2), do not qualify for
the exemption provided under
§ 1026.35(b)(2)(iii). Creditors, together with
their affiliates, that continue to maintain
escrow accounts established between April 1,
2010, and January 1, 2014, still qualify for the
exemption provided under
§ 1026.35(b)(2)(iii) so long as they do not
establish new escrow accounts for
transactions consummated on or after
January 1, 2014, other than those described
in § 1026.35(b)(2)(iii)(D)(2), and they
otherwise qualify under § 1026.35(b)(2)(iii).
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Section 1026.36—Prohibited Acts or
Practices in Connection With Credit Secured
by a Dwelling
36(a) Definitions.
1. Meaning of loan originator. i. General. A.
Section 1026.36(a) defines the set of activities
or services any one of which, if done for or
in the expectation of compensation or gain,
makes the person doing such activities or
performing such services a loan originator,
unless otherwise excluded. The scope of
activities covered by the term loan originator
includes:
1. Referring a consumer to any person who
participates in the origination process as a
loan originator. Referring includes any oral or
written action directed to a consumer that
can affirmatively influence the consumer to
select a particular loan originator or creditor
to obtain an extension of credit when the
consumer will pay for such credit. See
comment 36(a)–4 with respect to certain
activities that do not constitute referring.
2. Arranging a credit transaction, including
initially contacting and orienting the
consumer to a particular loan originator’s or
creditor’s origination process or particular
credit terms that are or may be available to
that consumer selected based on the
consumer’s financial characteristics, assisting
the consumer to apply for credit, taking an
application, offering particular credit terms
to the consumer selected based on the
consumer’s financial characteristics,
negotiating credit terms, or otherwise
obtaining or making an extension of credit.
3. Assisting a consumer in obtaining or
applying for consumer credit by advising on
particular credit terms that are or may be
available to that consumer based on the
consumer’s financial characteristics, filling
out an application form, preparing
application packages (such as a credit
application or pre-approval application or
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supporting documentation), or collecting
application and supporting information on
behalf of the consumer to submit to a loan
originator or creditor. A person who, acting
on behalf of a loan originator or creditor,
collects information or verifies information
provided by the consumer, such as by asking
the consumer for documentation to support
the information the consumer provided or for
the consumer’s authorization to obtain
supporting documents from third parties, is
not collecting information on behalf of the
consumer. See also comment 36(a)–4.i
through iv with respect to application-related
administrative and clerical tasks and
comment 36(a)–1.v with respect to thirdparty advisors.
4. Presenting particular credit terms for the
consumer’s consideration that are selected
based on the consumer’s financial
characteristics, or communicating with a
consumer for the purpose of reaching a
mutual understanding about prospective
credit terms.
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4. * * *
i. Application-related administrative and
clerical tasks. The definition of loan
originator does not include a loan originator’s
or creditor’s employee (or agent or
contractor) who provides a credit application
form from the entity for which the person
works to the consumer for the consumer to
complete or, without assisting the consumer
in completing the credit application,
processing or analyzing the information, or
discussing particular credit terms or
particular credit products available from a
creditor to that consumer selected based on
the consumer’s financial characteristics,
deliver the credit application from a
consumer to a loan originator or creditor. A
person does not assist the consumer in
completing the application if the person
explains to the consumer filling out the
application the contents of the application or
where particular consumer information is to
be provided, or generally describes the credit
application process to a consumer without
discussion of particular credit terms or
particular products available from a creditor
to that consumer selected based on the
consumer’s financial characteristics.
ii. Responding to consumer inquiries and
providing general information. The definition
of loan originator does not include persons
who:
A. * * *
B. As employees (or agents or contractors)
of a creditor or loan originator, provide loan
originator or creditor contact information to
a consumer, provided that the person does
not discuss particular credit terms that are or
may be available from a creditor to that
consumer selected based on the consumer’s
financial characteristics and does not direct
the consumer, based on his or her assessment
of the consumer’s financial characteristics, to
a particular loan originator or particular
creditor seeking to originate credit
transactions to consumers with those
financial characteristics;
C. Describe other product-related services
(for example, persons who describe optional
monthly payment methods via telephone or
via automatic account withdrawals, the
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availability and features of online account
access, the availability of 24-hour customer
support, or free mobile applications to access
account information); or
D. * * *
iii. Loan processing. The definition of loan
originator does not include persons who,
acting on behalf of a loan originator or a
creditor:
A. * * *
B. * * *
C. Coordinate consummation of the credit
transaction or other aspects of the credit
transaction process, including by
communicating with a consumer about
process deadlines and documents needed at
consummation, provided that any
communication that includes a discussion
about credit terms available from a creditor
to that consumer selected based on the
consumer’s financial characteristics only
confirms credit terms already agreed to by
the consumer;
iv. Underwriting, credit approval, and
credit pricing. The definition of loan
originator does not include persons who:
A. * * *
B. Approve particular credit terms or set
particular credit terms available from a
creditor to that consumer selected based on
the consumer’s financial characteristics in
offer or counter-offer situations, provided
that only a loan originator communicates to
or with the consumer regarding these credit
terms, an offer, or provides or engages in
negotiation, a counter-offer, or approval
conditions; or
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5. Compensation.
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iv. Amounts for charges for services that
are not loan origination activities. A. * * *
B. Compensation includes any salaries,
commissions, and any financial or similar
incentive to an individual loan originator,
regardless of whether it is labeled as payment
for services that are not loan origination
activities.
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36(b) Scope.
1. Scope of coverage. Section 1026.36(c)(1)
and (c)(2) applies to closed-end consumer
credit transactions secured by a consumer’s
principal dwelling. Section 1026.36(c)(3)
applies to a consumer credit transaction,
including home equity lines of credit under
§ 1026.40, secured by a consumer’s dwelling.
Paragraphs (h) and (i) of § 1026.36 apply to
home equity lines of credit under § 1026.40
secured by a consumer’s principal dwelling.
Paragraphs (d), (e), (f), (g), (h), and (i) of
§ 1026.36 apply to closed-end consumer
credit transactions secured by a dwelling.
Closed-end consumer credit transactions
include transactions secured by first or
subordinate liens, and reverse mortgages that
are not home equity lines of credit under
§ 1026.40. See § 1026.36(b) for additional
restrictions on the scope of § 1026.36, and
§§ 1026.1(c) and 1026.3(a) and corresponding
commentary for further discussion of
extensions of credit subject to Regulation Z.
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36(d) Prohibited payments to loan
originators.
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36(d)(1) Payments based on a term of a
transaction.
1. * * *
ii. Single or multiple transactions. The
prohibition on payment and receipt of
compensation under § 1026.36(d)(1)(i)
encompasses compensation that directly or
indirectly is based on the terms of a single
transaction of a single individual loan
originator, the terms of multiple transactions
by that single individual loan originator, or
the terms of multiple transactions by
multiple individual loan originators.
Compensation to an individual loan
originator that is based upon profits
determined with reference to a mortgagerelated business is considered compensation
that is based on the terms of multiple
transactions by multiple individual loan
originators. For clarification about the
exceptions permitting compensation based
upon profits determined with reference to
mortgage-related business pursuant to either
a designated tax-advantaged plan or a nondeferred profits-based compensation plan,
see comment 36(d)(1)–3. For clarification
about ‘‘mortgage-related business,’’ see
comments 36(d)(1)–3.v.B and –3.v.E.
A. Assume that a creditor pays a bonus to
an individual loan originator out of a bonus
pool established with reference to the
creditor’s profits and the profits are
determined with reference to the creditor’s
revenue from origination of closed-end
consumer credit transactions secured by a
dwelling. In such instance, the bonus is
considered compensation that is based on the
terms of multiple transactions by multiple
individual loan originators. Therefore, the
bonus is prohibited under § 1026.36(d)(1)(i),
unless it is otherwise permitted under
§ 1026.36(d)(1)(iv).
B. Assume that an individual loan
originator’s employment contract with a
creditor guarantees a quarterly bonus in a
specified amount conditioned upon the
individual loan originator meeting certain
performance benchmarks (e.g., volume of
originations monthly). A bonus paid
following the satisfaction of those contractual
conditions is not directly or indirectly based
on the terms of a transaction by an individual
loan originator, the terms of multiple
transactions by that individual loan
originator, or the terms of multiple
transactions by multiple individual loan
originators under § 1026.36(d)(1)(i) as
clarified by this comment 36(d)(1)–1.ii,
because the creditor is obligated to pay the
bonus, in the specified amount, regardless of
the terms of transactions of the individual
loan originator or multiple individual loan
originators and the effect of those terms of
multiple transactions on the creditor’s
profits. Because this type of bonus is not
directly or indirectly based on the terms of
multiple transactions by multiple individual
loan originators, as described in
§ 1026.36(d)(1)(i) (as clarified by this
comment 36(d)(1)–1.ii), it is not subject to the
10-percent total compensation limit
described in § 1026.36(d)(1)(iv)(B)(1).
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D. The fees and charges described above in
paragraphs B and C can only be a term of a
transaction if the fees or charges are required
to be disclosed in the Good Faith Estimate,
the HUD–1, or the HUD–1A (and
subsequently in any integrated disclosures
promulgated by the Bureau under TILA
section 105(b) (15 U.S.C. 1604(b)) and RESPA
section 4 (12 U.S.C. 2603) as amended by
sections 1098 and 1100A of the Dodd-Frank
Act).
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3. Interpretation of § 1026.36(d)(1)(iii) and
(iv). Subject to certain restrictions,
§ 1026.36(d)(1)(iii) and § 1026.36(d)(1)(iv)
permit contributions to or benefits under
designated tax-advantaged plans and
compensation under a non-deferred profitsbased compensation plan even if the
contributions, benefits, or compensation,
respectively, are based on the terms of
multiple transactions by multiple individual
loan originators.
i. Designated tax-advantaged plans.
Section 1026.36(d)(1)(iii) permits an
individual loan originator to receive, and a
person to pay, compensation in the form of
contributions to a defined contribution plan
or benefits under a defined benefit plan
provided the plan is a designated taxadvantaged plan (as defined in
§ 1026.36(d)(1)(iii)), even if contributions to
or benefits under such plans are directly or
indirectly based on the terms of multiple
transactions by multiple individual loan
originators. In the case of a designated taxadvantaged plan that is a defined
contribution plan, § 1026.36(d)(1)(iii) does
not permit the contribution to be directly or
indirectly based on the terms of that
individual loan originator’s transactions. A
defined contribution plan has the meaning
set forth in Internal Revenue Code section
414(i), 26 U.S.C. 414(i). A defined benefit
plan has the meaning set forth in Internal
Revenue Code section 414(j), 26 U.S.C. 414(j).
ii. Non-deferred profits-based
compensation plans. As used in
§ 1026.36(d)(1)(iv), a ‘‘non-deferred profitsbased compensation plan’’ is any
compensation arrangement where an
individual loan originator may be paid
variable, additional compensation based in
whole or in part on the mortgage-related
business profits of the person paying the
compensation, any affiliate, or a business
unit within the organizational structure of
the person or the affiliate, as applicable (i.e.,
depending on the level within the person’s
or affiliate’s organization at which the nondeferred profits-based compensation plan is
established). A non-deferred profits-based
compensation plan does not include a
designated tax-advantaged plan or other
forms of deferred compensation that are not
designated tax-advantaged plans, such as
those created pursuant to Internal Revenue
Code section 409A, 26 U.S.C. 409A. Thus, if
contributions to or benefits under a
designated tax-advantaged plan or
compensation under another form of deferred
compensation plan are determined with
reference to the mortgage-related business
profits of the person making the contribution,
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then the contribution, benefits, or other
compensation, as applicable, are not
permitted by § 1026.36(d)(1)(iv) (although, in
the case of contributions to or benefits under
a designated tax-advantaged plan, the
benefits or contributions may be permitted by
§ 1026.36(d)(1)(iii)). Under a non-deferred
profits-based compensation plan, the
individual loan originator may, for example,
be paid directly in cash, stock, or other nondeferred compensation, and the
compensation under the non-deferred profitsbased compensation plan may be determined
by a fixed formula or may be at the discretion
of the person (e.g., the person may elect not
to pay compensation under a non-deferred
profits-based compensation plan in a given
year), provided the compensation is not
directly or indirectly based on the terms of
the individual loan originator’s transactions.
As used in § 1026.36(d)(1)(iv) and this
commentary, non-deferred profits-based
compensation plans include, without
limitation, bonus pools, profits pools, bonus
plans, and profit-sharing plans.
Compensation under a non-deferred profitsbased compensation plan could include,
without limitation, annual or periodic
bonuses, or awards of merchandise, services,
trips, or similar prizes or incentives where
the bonuses, contributions, or awards are
determined with reference to the profitability
of the person, business unit, or affiliate, as
applicable. As used in § 1026.36(d)(1)(iv) and
this commentary, a business unit is a
division, department, or segment within the
overall organizational structure of the person
or the person’s affiliate that performs discrete
business functions and that the person or the
affiliate treats separately for accounting or
other organizational purposes. For example,
a creditor that pays its individual loan
originators bonuses at the end of a calendar
year based on the creditor’s average net
return on assets for the calendar year is
operating a non-deferred profits-based
compensation plan under § 1026.36(d)(1)(iv).
A bonus that is paid to an individual loan
originator from a source other than a nondeferred profits-based compensation plan (or
a deferred compensation plan where the
bonus is determined with reference to
mortgage-related business profits), such as a
retention bonus budgeted for in advance or
a performance bonus paid out of a bonus
pool set aside at the beginning of the
company’s annual accounting period as part
of the company’s operating budget, does not
violate the prohibition on payment of
compensation based on the terms of multiple
transactions by multiple individual loan
originators under § 1026.36(d)(1)(i), as
clarified by comment 36(d)(1)–1.ii; therefore,
§ 1026.36(d)(1)(iv) does not apply to such
bonuses.
iii. Compensation that is not directly or
indirectly based on the terms of multiple
transactions by multiple individual loan
originators. The compensation arrangements
addressed in § 1026.36(d)(1)(iii) and (iv) are
permitted even if they are directly or
indirectly based on the terms of multiple
transactions by multiple individual loan
originators. See comment 36(d)(1)–1 for
additional interpretation. If a loan originator
organization’s revenues are exclusively
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derived from transactions subject to
§ 1026.36(d) (whether paid by creditors,
consumers, or both) and that loan originator
organization pays its individual loan
originators a bonus under a non-deferred
profits-based compensation plan, the bonus
is not directly or indirectly based on the
terms of multiple transactions by multiple
individual loan originators if
§ 1026.36(d)(1)(i) is otherwise complied with.
iv. Compensation based on terms of an
individual loan originator’s transactions.
Under both § 1026.36(d)(1)(iii), with regard to
contributions made to a defined contribution
plan that is a designated tax-advantaged plan,
and § 1026.36(d)(1)(iv)(A), with regard to
compensation under a non-deferred profitsbased compensation plan, the payment of
compensation to an individual loan
originator may not be directly or indirectly
based on the terms of that individual loan
originator’s transaction or transactions.
Consequently, for example, where an
individual loan originator makes loans that
vary in their interest rate spread, the
compensation payment may not take into
account the average interest rate spread on
the individual loan originator’s transactions
during the relevant calendar year.
v. Compensation under non-deferred
profits-based compensation plans. Assuming
that the conditions in § 1026.36(d)(1)(iv)(A)
are met, § 1026.36(d)(1)(iv)(B)(1) permits
certain compensation to an individual loan
originator under a non-deferred profits-based
compensation plan. Specifically, if the
compensation is determined with reference
to the profits of the person from mortgagerelated business, compensation under a nondeferred profits-based compensation plan is
permitted provided the compensation does
not, in the aggregate, exceed more than 10
percent of the individual loan originator’s
total compensation corresponding to the time
period for which compensation under the
non-deferred profits-based compensation
plan is paid. The compensation restrictions
under § 1026.36(d)(1)(iv)(B)(1) are sometimes
referred to in this commentary as the ‘‘10percent total compensation limit or the ‘‘10percent limit.’’
A. Total compensation. For purposes of
§ 1026.36(d)(1)(iv)(B)(1), the individual loan
originator’s total compensation consists of
the sum total of: (1) All wages and tips
reportable for Medicare tax purposes in box
5 on IRS form W–2 (or, if the individual loan
originator is an independent contractor,
reportable compensation on IRS form 1099–
MISC) that are actually paid during the
relevant time period (regardless of when the
wages and tips are earned), except for any
compensation under a non-deferred profitsbased compensation plan that is earned
during a different time period (see comment
36(d)(1)–3.v.C); (2) at the election of the
person paying the compensation, all
contributions that are actually made during
the relevant time period by the creditor or
loan originator organization to the individual
loan originator’s accounts in designated taxadvantaged plans that are defined
contribution plans (regardless of when the
contributions are earned); and (3) at the
election of the person paying the
compensation, all compensation under a
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non-deferred profits-based compensation
plan that is earned during the relevant time
period, regardless of whether the
compensation is actually paid during that
time period (see comment 36(d)(1)–3.v.C). If
an individual loan originator has some
compensation that is reportable on the W–2
and some that is reportable on the 1099–
MISC, the total compensation is the sum total
of what is reportable on each of the two
forms.
B. Profits of the Person. Under
§ 1026.36(d)(1)(iv), a plan is a non-deferred
profits-based compensation plan if
compensation is paid, based in whole or in
part, on the profits of the person paying the
compensation. As used in § 1026.36(d)(1)(iv),
‘‘profits of the person’’ include, as applicable
depending on where the non-deferred profitsbased compensation plan is set, the profits of
the person, the business unit to which the
individual loan originators are assigned for
accounting or other organizational purposes,
or any affiliate of the person. Profits from
mortgage-related business are profits
determined with reference to revenue
generated from transactions subject to
§ 1026.36(d). Pursuant to § 1026.36(b) and
comment 36(b)–1, § 1026.36(d) applies to
closed-end consumer credit transactions
secured by dwellings. This revenue includes,
without limitation, and as applicable based
on the particular sources of revenue of the
person, business unit, or affiliate, origination
fees and interest associated with dwellingsecured transactions for which individual
loan originators working for the person were
loan originators, income from servicing of
such transactions, and proceeds of secondary
market sales of such transactions. If the
amount of the individual loan originator’s
compensation under non-deferred profitsbased compensation plans paid for a time
period does not, in the aggregate, exceed 10
percent of the individual loan originator’s
total compensation corresponding to the
same time period, compensation under nondeferred profits-based compensation plans
may be paid under § 1026.36(d)(1)(iv)(B)(1)
regardless of whether or not it was
determined with reference to the profits of
the person from mortgage-related business.
C. Time period for which the compensation
under the non-deferred profits-based
compensation plan is paid and to which the
total compensation corresponds. Under
§ 1026.36(d)(1)(iv)(B)(1), determination of
whether payment of compensation under a
non-deferred profits-based compensation
plan complies with the 10-percent limit
requires a calculation of the ratio of the
compensation under the non-deferred profitsbased compensation plan (i.e., the
compensation subject to the 10-percent limit)
and the total compensation corresponding to
the relevant time period. For compensation
subject to the 10-percent limit, the relevant
time period is the time period for which a
person makes reference to profits in
determining the compensation (i.e., when the
compensation was earned). It does not matter
whether the compensation is actually paid
during that particular time period. For total
compensation, the relevant time period is the
same time period, but only certain types of
compensation may be included in the total
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compensation amount for that time period
(see comment 36(d)(1)–3.v.A). For example,
assume that during calendar year 2014 a
creditor pays an individual loan originator
compensation in the following amounts:
$80,000 in commissions based on the
individual loan originator’s performance and
volume of loans generated during the
calendar year; and $10,000 in an employer
contribution to a designated tax-advantaged
defined contribution plan on behalf of the
individual loan originator. The creditor
desires to pay the individual loan originator
a year-end bonus of $10,000 under a nondeferred profits-based compensation plan.
The commissions are paid and employer
contributions to the designated taxadvantaged defined contribution plan are
made during calendar year 2014, but the
year-end bonus will be paid in January 2015.
For purposes of the 10-percent total
compensation limit, the year-end bonus is
counted toward the 10-percent limit for
calendar year 2014, even though it is not
actually paid until 2015. Therefore, for
calendar year 2014 the individual loan
originator’s compensation that is subject to
the 10-percent limit would be $10,000 (i.e.,
the year-end bonus) and the total
compensation would be $100,000 (i.e., the
sum of the commissions, the designated taxadvantaged plan contribution (assuming the
creditor elects to include it in total
compensation for calendar year 2014), and
the bonus (assuming the creditor elects to
include it in total compensation for calendar
year 2014)); the bonus would be permissible
under § 1026.36(d)(1)(iv) because it does not
exceed 10 percent of total compensation. The
determination of total compensation
corresponding to 2014 also would not take
into account any compensation subject to the
10-percent limit that is actually paid in 2014
but is earned during a different calendar year
(e.g., an annual bonus determined with
reference to mortgage-related business profits
for calendar year 2013 that is paid in January
2014). If the employer contribution to the
designated tax-advantaged plan is earned in
2014 but actually made in 2015, however, it
may not be included in total compensation
for 2014. A company, business unit, or
affiliate, as applicable, may pay
compensation subject to the 10-percent limit
during different time periods falling within
its annual accounting period for keeping
records and reporting income and expenses,
which may be a calendar year or a fiscal year
depending on the annual accounting period.
In such instances, however, the 10-percent
limit applies both as to each time period and
cumulatively as to the annual accounting
period. For example, assume that a creditor
uses a calendar-year accounting period. If the
creditor pays an individual loan originator a
bonus at the end of each quarter under a nondeferred profits-based compensation plan,
the payment of each quarterly bonus is
subject to the 10-percent limit measured with
respect to each quarter. The creditor can also
pay an annual bonus under the non-deferred
profits-based compensation plan that does
not exceed the difference of 10 percent of the
individual loan originator’s total
compensation corresponding to the calendar
year and the aggregate amount of the
quarterly bonuses.
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D. Awards of merchandise, services, trips,
or similar prizes or incentives. If any
compensation paid to an individual loan
originator under § 1026.36(d)(1)(iv) consists
of an award of merchandise, services, trips,
or similar prize or incentive, the cash value
of the award is factored into the calculation
of the 10-percent total compensation limit.
For example, during a given calendar year,
individual loan originator A and individual
loan originator B are each employed by a
creditor and paid $40,000 in salary, and
$45,000 in commissions. The creditor also
contributes $5,000 to a designated taxadvantaged defined contribution plan for
each individual loan originator during that
calendar year, which the creditor elects to
include in the total compensation amount.
Neither individual loan originator is paid any
other form of compensation by the creditor.
In December of the calendar year, the creditor
rewards both individual loan originators for
their performance during the calendar year
out of a bonus pool established with
reference to the profits of the mortgage
origination business unit. Individual loan
originator A is paid a $10,000 cash bonus,
meaning that individual loan originator A’s
total compensation is $100,000 (assuming the
creditor elects to include the bonus in the
total compensation amount). Individual loan
originator B is paid a $7,500 cash bonus and
awarded a vacation package with a cash
value of $3,000, meaning that individual loan
originator B’s total compensation is $100,500
(assuming the creditor elects to include the
reward in the total compensation amount).
Under § 1026.36(d)(1)(iv)(B)(1), individual
loan originator A’s $10,000 bonus is
permissible because the bonus would not
constitute more than 10 percent of the
individual loan originator A’s total
compensation for the calendar year. The
creditor may not pay individual loan
originator B the $7,500 bonus and award the
vacation package, however, because the total
value of the bonus and the vacation package
would be $10,500, which is greater than 10
percent (10.45 percent) of individual loan
originator B’s total compensation for the
calendar year. One way to comply with
§ 1026.36(d)(1)(iv)(B)(1) would be if the
amount of the bonus were reduced to $7,000
or less or the vacation package were
structured such that its cash value would be
$2,500 or less.
E. Compensation determined only with
reference to non-mortgage-related business
profits. Compensation under a non-deferred
profits-based compensation plan is not
subject to the 10-percent total compensation
limit under § 1026.36(d)(1)(iv)(B)(1) if the
non-deferred profits-based compensation
plan is determined with reference only to
profits from business other than mortgagerelated business, as determined in
accordance with reasonable accounting
principles. Reasonable accounting principles
reflect an accurate allocation of revenues,
expenses, profits, and losses among the
person, any affiliate of the person, and any
business units within the person or affiliates,
and are consistent with the accounting
principles applied by the person, the affiliate,
or the business unit with respect to, as
applicable, its internal budgeting and
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auditing functions and external reporting
requirements. Examples of external reporting
and filing requirements that may be
applicable to creditors and loan originator
organizations are Federal income tax filings,
Federal securities law filings, or quarterly
reporting of income, expenses, loan
origination activity, and other information
required by government-sponsored
enterprises. As used in
§ 1026.36(d)(1)(iv)(B)(1), profits means
positive profits or losses avoided or
mitigated.
F. Additional examples. 1. Assume that,
during a given calendar year, a loan
originator organization pays an individual
loan originator employee $40,000 in salary
and $125,000 in commissions, and makes a
contribution of $15,000 to the individual
loan originator’s 401(k) plan. At the end of
the year, the loan originator organization
wishes to pay the individual loan originator
a bonus based on a formula involving a
number of performance metrics, to be paid
out of a profit pool established at the level
of the company but that is determined in part
with reference to the profits of the company’s
mortgage origination unit. Assume that the
loan originator organization derives revenues
from sources other than transactions covered
by § 1026.36(d). In this example, the
performance bonus would be directly or
indirectly based on the terms of multiple
individual loan originators’ transactions as
described in § 1026.36(d)(1)(i), because it is
being determined with reference to profits
from mortgage-related business. Assume,
furthermore, that the loan originator
organization elects to include the bonus in
the total compensation amount for the
calendar year. Thus, the bonus is permissible
under § 1026.36(d)(1)(iv)(B)(1) if it does not
exceed 10 percent of the loan originator’s
total compensation, which in this example
consists of the individual loan originator’s
salary, commissions, contribution to the
401(k) plan (if the loan originator
organization elects to include the
contribution in the total compensation
amount), and the performance bonus.
Therefore, if the loan originator organization
elects to include the 401(k) contribution in
total compensation for these purposes, the
loan originator organization may pay the
individual loan originator a performance
bonus of up to $20,000 (i.e., 10 percent of
$200,000 in total compensation). If the loan
originator organization does not include the
401(k) contribution in calculating total
compensation, or the 401(k) contribution is
actually made in January of the following
calendar year (in which case it cannot be
included in total compensation for the initial
calendar year), the bonus may be up to
$18,333.33. If the loan originator organization
includes neither the 401(k) contribution nor
the performance bonus in the total
compensation amount, the bonus may not
exceed $16,500.
2. Assume that the compensation during a
given calendar year of an individual loan
originator employed by a creditor consists of
only salary and commissions, and the
individual loan originator does not
participate in a designated tax-advantaged
defined contribution plan. Assume further
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39943
that the creditor uses a calendar-year
accounting period. At the end of the calendar
year, the creditor pays the individual loan
originator two bonuses: A ‘‘performance’’
bonus based on the individual loan
originator’s aggregate loan volume for a
calendar year that is paid out of a bonus pool
determined with reference to the profitability
of the mortgage origination business unit,
and a year-end ‘‘holiday’’ bonus in the same
amount to all company employees that is
paid out of a company-wide bonus pool.
Because the performance bonus is paid out
of a bonus pool that is determined with
reference to the profitability of the mortgage
origination business unit, it is compensation
that is determined with reference to
mortgage-related business profits, and the
bonus is therefore subject to the 10-percent
total compensation limit. If the companywide bonus pool from which the ‘‘holiday’’
bonus is paid is derived in part from profits
of the creditor’s mortgage origination
business unit, then the combination of the
‘‘holiday’’ bonus and the performance bonus
is subject to the 10-percent total
compensation limit. The ‘‘holiday’’ bonus is
not subject to the 10-percent total
compensation limit if the bonus pool is
determined with reference only to the profits
of business units other than the mortgage
origination business unit, as determined in
accordance with reasonable accounting
principles. If the ‘‘performance’’ bonus and
the ‘‘holiday’’ bonus in the aggregate do not
exceed 10 percent of the individual loan
originator’s total compensation, the bonuses
may be paid under § 1026.36(d)(1)(iv)(B)(1)
without the necessity of determining from
which bonus pool they were paid or whether
they were determined with reference to the
profits of the creditor’s mortgage origination
business unit.
G. Reasonable reliance by individual loan
originator on accounting or statement by
person paying compensation. An individual
loan originator is deemed to comply with its
obligations regarding receipt of compensation
under § 1026.36(d)(1)(iv)(B)(1) if the
individual loan originator relies in good faith
on an accounting or a statement provided by
the person who determined the individual
loan originator’s compensation under a nondeferred profits-based compensation plan
pursuant to § 1026.36(d)(1)(iv)(B)(1) and
where the statement or accounting is
provided within a reasonable time period
following the person’s determination.
vi. Individual loan originators who
originate ten or fewer transactions. Assuming
that the conditions in § 1026.36(d)(1)(iv)(A)
are met, § 1026.36(d)(1)(iv)(B)(2) permits
compensation to an individual loan
originator under a non-deferred profits-based
compensation plan even if the payment or
contribution is directly or indirectly based on
the terms of multiple individual loan
originators’ transactions if the individual is a
loan originator (as defined in
§ 1026.36(a)(1)(i)) for ten or fewer
consummated transactions during the 12month period preceding the compensation
determination. For example, assume a loan
originator organization employs two
individual loan originators who originate
transactions subject to § 1026.36 during a
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given calendar year. Both employees are
individual loan originators under
§ 1026.36(a)(1)(ii), but only one of them
(individual loan originator B) acts as a loan
originator in the normal course of business,
while the other (individual loan originator A)
is called upon to do so only occasionally and
regularly performs other duties (such as
serving as a manager). In January of the
following calendar year, the loan originator
organization formally determines the
financial performance of its mortgage
business for the prior calendar year. Based on
that determination, the loan originator
organization on February 1 decides to pay a
bonus to the individual loan originators out
of a company bonus pool. Assume that,
between February 1 of the prior calendar year
and January 31 of the current calendar year,
individual loan originator A was the loan
originator for eight consummated
transactions, and individual loan originator B
was the loan originator for 15 consummated
transactions. The loan originator organization
may award the bonus to individual loan
originator A under § 1026.36(d)(1)(iv)(B)(2).
The loan originator organization may not
award the bonus to individual loan originator
B relying on the exception under
§ 1026.36(d)(1)(iv)(B)(2) because it would not
apply, although it could award a bonus
pursuant to the 10-percent total
compensation limit under
§ 1026.36(d)(1)(iv)(B)(1) if the requirements
of that provision are complied with.
*
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6. Periodic changes in loan originator
compensation and terms of transactions.
Section 1026.36 does not limit a creditor or
other person from periodically revising the
compensation it agrees to pay a loan
originator. However, the revised
compensation arrangement must not result in
payments to the loan originator that are based
on the terms of a credit transaction. A
creditor or other person might periodically
review factors such as loan performance,
transaction volume, as well as current market
conditions for originator compensation, and
prospectively revise the compensation it
agrees to pay to a loan originator. For
example, assume that during the first six
months of the year, a creditor pays $3,000 to
a particular loan originator for each loan
delivered, regardless of the terms of the
transaction. After considering the volume of
business produced by that originator, the
creditor could decide that as of July 1, it will
pay $3,250 for each loan delivered by that
particular originator, regardless of the terms
of the transaction. No violation occurs even
if the loans made by the creditor after July
1 generally carry a higher interest rate than
loans made before that date, to reflect the
higher compensation.
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36(f) Loan originator qualification
requirements.
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Paragraph 36(f)(3).
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Paragraph 36(f)(3)(i).
1. Criminal and credit histories. Section
1026.36(f)(3)(i) requires the loan originator
organization to obtain, for any of its
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individual loan originator employees who is
not required to be licensed and is not
licensed as a loan originator pursuant to the
SAFE Act, a criminal background check, a
credit report, and information related to any
administrative, civil, or criminal
determinations by any government
jurisdiction. The requirement applies to
individual loan originator employees who
were hired on or after January 1, 2014 (or
whom the loan originator organization hired
before this date but for whom there were no
applicable statutory or regulatory background
standards in effect at the time of hire or
before January 1, 2014, used to screen the
individual). A credit report may be obtained
directly from a consumer reporting agency or
through a commercial service. A loan
originator organization with access to the
NMLSR can meet the requirement for the
criminal background check by reviewing any
criminal background check it receives upon
compliance with the requirement in 12 CFR
1007.103(d)(1) and can meet the requirement
to obtain information related to any
administrative, civil, or criminal
determinations by any government
jurisdiction by obtaining the information
through the NMLSR. Loan originator
organizations that do not have access to these
items through the NMLSR may obtain them
by other means. For example, a criminal
background check may be obtained from a
law enforcement agency or commercial
service. Information on any past
administrative, civil, or criminal findings
(such as from disciplinary or enforcement
actions) may be obtained from the individual
loan originator.
2. Retroactive obtaining of information not
required. Section 1026.36(f)(3)(i) does not
require the loan originator organization to
obtain the covered information for an
individual whom the loan originator
organization hired as a loan originator before
January 1, 2014, and screened under
applicable statutory or regulatory background
standards in effect at the time of hire.
However, if the individual subsequently
ceases to be employed as a loan originator by
that loan originator organization, and later
resumes employment as a loan originator by
that loan originator organization (or any other
loan originator organization), the loan
originator organization is subject to the
requirements of § 1026.36(f)(3)(i).
whom the loan originator organization hired
before this date but for whom there were no
applicable statutory or regulatory background
standards in effect at the time of hire or
before January 1, 2014, used to screen the
individual).
2. Retroactive determinations not required.
Section 1026.36(f)(3)(ii) does not require the
loan originator organization to review the
covered information and make the required
determinations for an individual whom the
loan originator organization hired as a loan
originator on or before January 1, 2014 and
screened under applicable statutory or
regulatory background standards in effect at
the time of hire. However, if the individual
subsequently ceases to be employed as a loan
originator by that loan originator
organization, and later resumes employment
as a loan originator by that loan originator
organization (or any other loan originator
organization), the loan originator
organization employing the individual is
subject to the requirements of
§ 1026.36(f)(3)(ii).
*
*
*
*
*
*
Paragraph 36(f)(3)(ii).
1. Scope of review. Section 1026.36(f)(3)(ii)
requires the loan originator organization to
review the information that it obtains under
§ 1026.36(f)(3)(i) and other reasonably
available information to determine whether
the individual loan originator meets the
standards in § 1026.36(f)(3)(ii). Other
reasonably available information includes
any information the loan originator
organization has obtained or would obtain as
part of a reasonably prudent hiring process,
including information obtained from
application forms, candidate interviews,
other reliable information and evidence
provided by a candidate, and reference
checks. The requirement applies to
individual loan originator employees who
were hired on or after January 1, 2014 (or
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Section 1026.41—Periodic Statements for
Residential Mortgage Loans
*
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41(b) Timing of the periodic statement.
1. Reasonably prompt time. Section
1026.41(b) requires that the periodic
statement be delivered or placed in the mail
no later than a reasonably prompt time after
the payment due date or the end of any
courtesy period. Delivering, emailing or
placing the periodic statement in the mail
within four days of the close of the courtesy
period of the previous billing cycle generally
would be considered reasonably prompt.
*
*
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*
*
41(d) Content and layout of the periodic
statement.
*
*
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*
*
3. Terminology. A servicer may use
terminology other than that found on the
sample periodic statements in appendix H–
30, so long as the new terminology is
commonly understood. For example,
servicers may take into consideration
regional differences in terminology and refer
to the account for the collection of taxes and
insurance, referred to in § 1026.41(d) as the
‘‘escrow account,’’ as an ‘‘impound account.’’
*
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*
41(d)(4) Transaction Activity.
1. Meaning. Transaction activity includes
any transaction that credits or debits the
amount currently due. This is the same
amount that is required to be disclosed under
§ 1026.41(d)(1)(iii). Examples of such
transactions include, without limitation:
*
*
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*
41(e)(3) Coupon book exemption.
1. Fixed rate. For guidance on the meaning
of ‘‘fixed rate’’ for purpose of § 1026.41(e)(3),
see § 1026.18(s)(7)(iii) and its commentary.
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41(e)(4) Small servicers.
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41(e)(4)(iii) Small servicer determination.
1. Loans obtained by merger or acquisition.
Any mortgage loans obtained by a servicer or
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an affiliate as part of a merger or acquisition,
or as part of the acquisition of all of the assets
or liabilities of a branch office of a creditor,
should be considered mortgage loans for
which the servicer or an affiliate is the
creditor to which the mortgage loan is
initially payable. A branch office means
either an office of a depository institution
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that is approved as a branch by a Federal or
State supervisory agency or an office of a forprofit mortgage lending institution (other
than a depository institution) that takes
applications from the public for mortgage
loans.
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Dated: June 24, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial
Protection.
[FR Doc. 2013–15466 Filed 6–27–13; 4:15 pm]
BILLING CODE 4810–AM–P
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]]>Agencies
[Federal Register Volume 78, Number 127 (Tuesday, July 2, 2013)]
[Proposed Rules]
[Pages 39901-39945]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15466]
[[Page 39901]]
Vol. 78
Tuesday,
No. 127
July 2, 2013
Part IV
Bureau of Consumer Financial Protection
-----------------------------------------------------------------------
12 CFR Parts 1002, 1024, and 1026
Amendments to the 2013 Mortgage Rules Under the Equal Credit
Opportunity Act (Regulation B), Real Estate Settlement Procedures Act
(Regulation X), and the Truth in Lending Act (Regulation Z); Proposed
Rule
Federal Register / Vol. 78 , No. 127 / Tuesday, July 2, 2013 /
Proposed Rules
[[Page 39902]]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Parts 1002, 1024, and 1026
[Docket No. CFPB-2013-0018]
RIN 3170-AA37
Amendments to the 2013 Mortgage Rules Under the Equal Credit
Opportunity Act (Regulation B), Real Estate Settlement Procedures Act
(Regulation X), and the Truth in Lending Act (Regulation Z)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Proposed rule with request for public comment.
-----------------------------------------------------------------------
SUMMARY: This rule proposes amendments to certain mortgage rules issued
by the Bureau of Consumer Financial Protection (Bureau) in January
2013. These proposed amendments focus primarily on clarifying,
revising, or amending provisions on loss mitigation procedures under
Regulation X's servicing provisions, amounts counted as loan originator
compensation to retailers of manufactured homes and their employees for
purposes of applying points and fees thresholds under the Home
Ownership and Equity Protection Act and the qualified mortgage rules in
Regulation Z, exemptions available to creditors that operate
predominantly in ``rural or underserved'' areas for various purposes
under the mortgage regulations, application of the loan originator
compensation rules to bank tellers and similar staff, and the
prohibition on creditor-financed credit insurance. The Bureau also is
proposing to adjust the effective dates for certain provisions of the
loan originator compensation rules. In addition, the Bureau is
proposing technical and wording changes for clarification purposes to
Regulations B, X, and Z.
DATES: Comments must be received on or before July 22, 2013.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2013-
0018 or RIN 3170-AA37, by any of the following methods:
Electronic: https://www.regulations.gov. Follow the
instructions for submitting comments.
Mail/Hand Delivery/Courier: Monica Jackson, Office of the
Executive Secretary, Consumer Financial Protection Bureau, 1700 G
Street NW., Washington, DC 20552.
Instructions: All submissions should include the agency name and
docket number or Regulatory Information Number (RIN) for this
rulemaking. Because paper mail in the Washington, DC area and at the
Bureau is subject to delay, commenters are encouraged to submit
comments electronically. In general, all comments received will be
posted without change to https://www.regulations.gov. In addition,
comments will be available for public inspection and copying at 1700 G
Street NW., Washington, DC 20552, on official business days between the
hours of 10 a.m. and 5 p.m. Eastern Time. You can make an appointment
to inspect the documents by telephoning (202) 435-7275.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Sensitive personal information, such as account numbers or social
security numbers, should not be included. Comments generally will not
be edited to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Whitney Patross, Attorney; Richard
Arculin, Michael Silver, and Daniel Brown, Counsels; Marta Tanenhaus,
Mark Morelli, Senior Counsels and Paul Ceja, Senior Counsel and Special
Advisor, Office of Regulations, at (202) 435-7700.
SUPPLEMENTARY INFORMATION:
I. Summary of Proposed Rule
In January 2013, the Bureau issued several final rules concerning
mortgage markets in the United States (2013 Title XIV Final Rules),
pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank Act), Public Law 111-203, 124 Stat. 1376 (2010).\1\
---------------------------------------------------------------------------
\1\ Specifically, on January 10, 2013, the Bureau issued Escrow
Requirements Under the Truth in Lending Act (Regulation Z), 78 FR
4726 (Jan. 30, 2013) (2013 Escrows Final Rule), High-Cost Mortgage
and Homeownership Counseling Amendments to the Truth in Lending Act
(Regulation Z) and Homeownership Counseling Amendments to the Real
Estate Settlement Procedures Act (Regulation X), 78 FR 6856 (Jan.
31, 2013) (2013 HOEPA Final Rule), and Ability to Repay and
Qualified Mortgage Standards Under the Truth in Lending Act
(Regulation Z), 78 FR 6407 (Jan. 30, 2013) (2013 ATR Final Rule).
The Bureau concurrently issued a proposal to amend the 2013 ATR
Final Rule, which was finalized on May 29, 2013. See 78 FR 6621
(Jan. 10, 2013) and 78 FR 35430 (June 12, 2013). On January 17,
2013, the Bureau issued the Real Estate Settlement Procedures Act
(Regulation X) and Truth in Lending Act (Regulation Z) Mortgage
Servicing Final Rules, 78 FR 10901 (Regulation Z) (Feb. 14, 2013)
and 78 FR 10695 (Regulation X) (Feb. 14, 2013) (2013 Mortgage
Servicing Final Rules). On January 18, 2013, the Bureau issued the
Disclosure and Delivery Requirements for Copies of Appraisals and
Other Written Valuations Under the Equal Credit Opportunity Act
(Regulation B), 78 FR 7215 (Jan. 31, 2013) (2013 ECOA Final Rule)
and, jointly with other agencies, issued Appraisals for Higher-
Priced Mortgage Loans (Regulation Z), 78 FR 10367 (Feb. 13, 2013).
On January 20, 2013, the Bureau issued the Loan Originator
Compensation Requirements under the Truth in Lending Act (Regulation
Z), 78 FR 11279 (Feb. 15, 2013) (2013 Loan Originator Compensation
Final Rule).
---------------------------------------------------------------------------
This document proposes several amendments to the provisions adopted
by the 2013 Title XIV Final Rules to clarify or revise regulatory
provisions and official interpretations primarily relating to the 2013
Mortgage Servicing Final Rules and the 2013 Loan Originator
Compensation Final Rule, as described further below. This document also
proposes modifications to the effective dates for provisions adopted by
the 2013 Loan Originator Compensation Final Rule, and certain technical
corrections and minor refinements to Regulations B, X, and Z.
Specifically, the Bureau is proposing several modifications to the
Regulation X loss mitigation provisions adopted by the 2013 Mortgage
Servicing Final Rules, in Sec. 1024.41. Two of the revisions concern
the requirement in Sec. 1024.41(b)(2)(i) that servicers review a
borrower's loss mitigation application within five days and provide a
notice to the borrower acknowledging receipt and informing the borrower
whether the application is complete or incomplete. If the servicer does
not deem the application complete, the servicer's notice must also list
the missing items and direct the borrower to provide the information by
the earliest remaining date of four possible timeframes. The proposed
changes would provide servicers more flexibility with regard to setting
and describing the date by which borrowers should supply missing
information and would set forth requirements and procedures for a
servicer to follow in the event that an application is later found by
the servicer to be missing information or documentation necessary to
the evaluation process. Another proposed modification would provide
servicers more flexibility in providing short-term payment forbearance
plans based on an evaluation of an incomplete loss mitigation
application. Other clarifications and revisions would address the
content of notices required under Sec. 1024.41(c)(1)(ii) and (d),
which inform borrowers of the outcomes of their evaluation for loss
mitigation and any appeal filed by the borrower. In addition, the
proposed amendments would address the appropriate timelines to apply
where a foreclosure sale has not been scheduled at the time the
borrower submits a loss mitigation application or when a foreclosure
sale is rescheduled, what actions are permitted while the general ban
on proceeding to foreclosure before a borrower is 120
[[Page 39903]]
days delinquent is in effect, and the application of the 120-day
prohibition to foreclosures for certain reasons other than nonpayment.
Second, the Bureau is proposing clarifications and revisions to the
definition of points and fees for purposes of the qualified mortgage
points and fees cap and the high-cost mortgage points and fees
threshold, as adopted in the 2013 ATR Final Rule and the 2013 HOEPA
Final Rule, respectively. In particular, the Bureau is proposing to add
commentary to Sec. 1026.32(b)(1)(ii) to clarify for retailers of
manufactured homes and their employees what compensation must be
counted as loan originator compensation and thus included in the points
and fees thresholds.
Third, the Bureau is proposing to revise two exceptions available
under the 2013 Title XIV Final Rules to small creditors operating in
predominantly ``rural'' or ``underserved'' areas while the Bureau re-
examines the underlying definitions of ``rural'' or ``underserved''
over the next two years, as it recently announced it would do in
Ability-to-Repay and Qualified Mortgage Standards Under the Truth in
Lending Act (Regulation Z) (May 2013 ATR Final Rule).\2\ First, the
Bureau is proposing to extend an exception to the general prohibition
on balloon features for high-cost mortgages under Sec.
1026.32(d)(1)(ii)(C) to allow all small creditors, regardless of
whether they operate predominantly in ``rural'' or ``underserved''
areas, to continue originating balloon high-cost mortgages if the loans
meet the requirements for qualified mortgages under Sec. Sec.
1026.43(e)(6) or 1026.43(f). In addition, the Bureau is proposing to
amend an exemption from the requirement to establish escrow accounts
for higher-priced mortgage loans under the Sec. 1026.35(b)(2)(iii)(A)
for small creditors that extend more than 50 percent of their total
covered transactions secured by a first lien in ``rural'' or
``underserved'' counties during the preceding calendar year. To prevent
creditors that qualified for the exemption in 2013 from losing
eligibility in 2014 or 2015 because of changes in which counties are
considered rural while the Bureau is re-evaluating the underlying
definition of ``rural,'' the Bureau is proposing to amend this
provision to allow creditors to qualify for the exemption if they
extended more than 50 percent of their total covered transactions in
rural or underserved counties in any of the previous three calendar
years (assuming the other criteria for eligibility are also met).
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\2\ 78 FR 35430 (May 29, 2013)
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Fourth, the Bureau is proposing revisions, as well as general
technical and wording changes to various provisions of the 2013 Loan
Originator Compensation Final Rule in Sec. 1026.36. These include
revising the definition of ``loan originator'' in the regulatory text
and commentary, such as provisions addressing when employees (or
contractors or agents) of a creditor or loan originator in certain
administrative or clerical roles (e.g., tellers or greeters) may become
``loan originators'' and thus subject to the rule, upon providing
contact information or credit applications for loan originators or
creditors to consumers. It also proposes a number of clarifications to
the commentary on prohibited payments to loan originators.
Fifth, the Bureau is proposing to clarify and revise two aspects of
the rules implementing the Dodd-Frank Act prohibition on creditors
financing credit insurance premiums in connection with certain consumer
credit transactions secured by a dwelling. The Bureau is proposing to
add new Sec. 1026.36(i)(2)(ii) to clarify what constitutes financing
of such premiums by a creditor. The Bureau also is proposing to add new
Sec. 1026.36(i)(2)(iii) to clarify when credit insurance premiums are
considered to be calculated and paid on a monthly basis, for purposes
of the statutory exclusion from the prohibition for certain credit
insurance premium calculation and payment arrangements.
Sixth, the Bureau is proposing to make certain provisions under the
2013 Loan Originator Compensation Final Rule take effect on January 1,
2014, rather than January 10, 2014, as originally provided. The
affected provisions would be the amendments to or additions of (as
applicable) Sec. 1026.25(c)(2) (record retention), Sec. 1026.36(a)
(definitions), Sec. 1026.36(b) (scope), Sec. 1026.36(d)
(compensation), Sec. 1026.36(e) (anti-steering), Sec. 1026.36(f)
(qualifications), and Sec. 1026.36(j) (compliance policies and
procedures for depository institutions). The Bureau believes that this
change would facilitate compliance because these provisions largely
focus on compensation plan structures, registration and licensing, and
hiring and training requirements that are often structured on an annual
basis and typically do not vary from transaction to transaction. The
Bureau is also seeking comment on whether to adjust the date for
implementation of the ban on financing credit insurance under Sec.
1026.36(i), which the Bureau temporarily delayed and extended to
January 10, 2014, to provide additional guidance on the issues
discussed above. See Loan Originator Compensation Requirements under
the Truth in Lending Act (Regulation Z); Prohibition on Financing
Credit Insurance Premiums; Delay of Effective Date (2013 Effective Date
Final Rule).\3\
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\3\ 78 FR 32547 (May 31, 2013).
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In addition to the proposed clarifications and amendments to
Regulations X and Z discussed above, the Bureau is proposing technical
corrections and minor clarifications to wording throughout Regulations
B, X, and Z that are generally not substantive in nature.
II. Background
A. Title XIV Rulemakings Under the Dodd-Frank Act
In response to an unprecedented cycle of expansion and contraction
in the mortgage market that sparked the most severe U.S. recession
since the Great Depression, Congress passed the Dodd-Frank Act, which
was signed into law on July 21, 2010. Pub. L. 111-203, 124 Stat. 1376
(2010). In the Dodd-Frank Act, Congress established the Bureau and,
under sections 1061 and 1100A, generally consolidated the rulemaking
authority for Federal consumer financial laws, including the Equal
Credit Opportunity Act (ECOA), Truth in Lending Act (TILA), and Real
Estate Settlement Procedures Act (RESPA), in the Bureau.\4\ At the same
time, Congress significantly amended the statutory requirements
governing mortgage practices with the intent to restrict the practices
that contributed to and exacerbated the crisis. Under the statute, most
of these new requirements would have taken effect automatically on
January 21, 2013, if the Bureau had not issued implementing regulations
by that date.\5\ To avoid uncertainty and potential disruption in the
national mortgage market at a time of economic vulnerability, the
Bureau issued several final rules in a span of less than two weeks in
January 2013 to implement these new statutory provisions and provide
for an orderly transition.
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\4\ Sections 1011 and 1021 of the Dodd-Frank Act, in title X,
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. Section 1029 of the Dodd-Frank Act excludes from this
transfer of authority, subject to certain exceptions, any rulemaking
authority over a motor vehicle dealer that is predominantly engaged
in the sale and servicing of motor vehicles, the leasing and
servicing of motor vehicles, or both. 12 U.S.C. 5519.
\5\ Dodd-Frank Act section 1400(c), 15 U.S.C. 1601 note.
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[[Page 39904]]
On January 10, 2013, the Bureau issued the 2013 ATR Final Rule, the
2013 Escrows Final Rule, and the 2013 HOEPA Final Rule. On January 17,
2013, the Bureau issued the 2013 Mortgage Servicing Final Rules. On
January 18, 2013, the Bureau issued Appraisals for Higher-Priced
Mortgage Loans (Regulation Z) \6\ (issued jointly with other agencies)
and the 2013 ECOA Final Rule. On January 20, 2013, the Bureau issued
the 2013 Loan Originator Compensation Final Rule. Most of these rules
will become effective on January 10, 2014.
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\6\ 78 FR 10367.
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Concurrent with the 2013 ATR Final Rule, on January 10, 2013, the
Bureau issued Proposed Amendments to the Ability to Repay Standards
Under the Truth in Lending Act (Regulation Z) (2013 ATR Concurrent
Proposal), which the Bureau finalized on May 29, 2013 (May 2013 ATR
Final Rule).\7\
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\7\ 78 FR 6622; 78 FR 35430.
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B. Implementation Initiative for New Mortgage Rules
On February 13, 2013, the Bureau announced an initiative to support
implementation of its new mortgage rules (Implementation Plan),\8\
under which the Bureau would work with the mortgage industry and other
stakeholders to ensure that the new rules can be implemented accurately
and expeditiously. The Implementation Plan includes: (1) Coordination
with other agencies, including to develop consistent, updated
examination procedures; (2) publication of plain-language guides to the
new rules; (3) publication of additional corrections and clarifications
of the new rules, as needed; (4) publication of readiness guides for
the new rules; and (5) education of consumers on the new rules.
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\8\ Consumer Financial Protection Bureau Lays Out Implementation
Plan for New Mortgage Rules. Press Release. Feb. 13, 2013.
---------------------------------------------------------------------------
This proposal concerns additional clarifications and revisions to
the new rules. The purpose of these updates is to address important
questions raised by industry, consumer groups, or other agencies.
Priority for this set of updates has been given to issues that are
important to a large number of stakeholders and critically affect loan
originators' and mortgage servicers' implementation decisions.
Additional updates will be issued as appropriate.
III. Legal Authority
The Bureau is issuing this proposed rule pursuant to its authority
under ECOA, TILA, RESPA, and the Dodd-Frank Act. Section 1061 of the
Dodd-Frank Act transferred to the Bureau the ``consumer financial
protection functions'' previously vested in certain other Federal
agencies, including the Federal Reserve Board and the Department of
Housing and Urban Development. The term ``consumer financial protection
function'' 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.'' \9\ Section 1061 of the
Dodd-Frank Act also transferred to the Bureau all of HUD's consumer
protections functions relating to RESPA.\10\ Title X of the Dodd-Frank
Act, including section 1061 of the Dodd-Frank Act, along with ECOA,
TILA, RESPA, and certain subtitles and provisions of title XIV of the
Dodd-Frank Act, are Federal consumer financial laws.\11\
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\9\ 12 U.S.C. 5581(a)(1).
\10\ Public Law 111-203, 124 Stat. 1376, section 1061(b)(7); 12
U.S.C. 5581(b)(7).
\11\ 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 TILA), Dodd-Frank
section 1400(b), 15 U.S.C. 1601 note (defining ``enumerated consumer
laws'' to include certain subtitles and provisions of Title XIV).
---------------------------------------------------------------------------
A. 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).
B. RESPA
Section 19(a) of RESPA, 12 U.S.C. 2617(a), authorizes the Bureau to
prescribe such rules and regulations, to make such interpretations, and
to grant such reasonable exemptions for classes of transactions, as may
be necessary to achieve the purposes of RESPA, which includes its
consumer protection purposes. In addition, section 6(j)(3) of RESPA, 12
U.S.C. 2605(j)(3), authorizes the Bureau to establish any requirements
necessary to carry out section 6 of RESPA, and section 6(k)(1)(E) of
RESPA, 12 U.S.C. 2605(k)(1)(E), authorizes the Bureau to prescribe
regulations that are appropriate to carry out RESPA's consumer
protection purposes. As identified in the 2013 RESPA Servicing Final
Rule, the consumer protection purposes of RESPA include responding to
borrower requests and complaints in a timely manner, maintaining and
providing accurate information, helping borrowers avoid unwarranted or
unnecessary costs and fees, and facilitating review for foreclosure
avoidance options.
C. TILA
Section 105(a) of TILA, 15 U.S.C. 1604(a), authorizes the Bureau to
prescribe regulations to carry out the purposes of TILA. Under section
105(a), such regulations may contain such additional requirements,
classifications, differentiations, or other provisions, and may provide
for such adjustments and exceptions for all or any class of
transactions, as in the judgment of the Bureau are necessary or proper
to effectuate the purposes of TILA, to prevent circumvention or evasion
thereof, or to facilitate compliance therewith. A purpose of TILA is
``to assure a meaningful disclosure of credit terms so that the
consumer will be able to compare more readily the various credit terms
available to him and avoid the uninformed use of credit.'' TILA section
102(a), 15 U.S.C. 1601(a). In particular, it is a purpose of TILA
section 129C, as amended by the Dodd-Frank Act, to assure that
consumers are offered and receive residential mortgage loans on terms
that reasonably reflect their ability to repay the loans and that are
understandable and not unfair, deceptive, and abusive. Section 105(f)
of TILA, 15 U.S.C. 1604(f), authorizes the Bureau to exempt from all or
part of TILA any class of transactions if the Bureau determines that
TILA coverage does not provide a meaningful benefit to consumers in the
form of useful information or protection. Under TILA section
103(bb)(4), the Bureau may adjust the definition of points and fees for
purposes of that threshold to include such charges that the Bureau
determines to be appropriate.
TILA section 129C(b)(3)(B)(i) provides the Bureau with authority to
prescribe regulations that revise, add to, or subtract from the
criteria that define a qualified mortgage upon a finding that such
regulations are necessary or proper to ensure that responsible,
affordable mortgage credit remains available to consumers in a manner
consistent with the purposes of the ability-to-repay requirements; or
are necessary and appropriate to effectuate the purposes of
[[Page 39905]]
the ability-to-repay requirements, to prevent circumvention or evasion
thereof, or to facilitate compliance with TILA sections 129B and 129C.
15 U.S.C. 1639c(b)(3)(B)(i). In addition, TILA section 129C(b)(3)(A)
requires the Bureau to prescribe regulations to carry out the purposes
of the qualified mortgage provisions, such as to ensure that
responsible and affordable mortgage credit remains available to
consumers in a manner consistent with the purposes of TILA section
129C. 15 U.S.C. 1639c(b)(3)(A).
D. The Dodd-Frank Act
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). Title X of the Dodd-Frank Act is a Federal consumer
financial law. Accordingly, the Bureau is exercising its authority
under the Dodd-Frank Act section 1022(b) to prescribe rules that carry
out the purposes and objectives of ECOA, RESPA, TILA, title X, and the
enumerated subtitles and provisions of title XIV of the Dodd-Frank Act,
and prevent evasion of those laws.
Section 1032(a) of the Dodd-Frank Act provides that the Bureau
``may prescribe rules to ensure that the features of any consumer
financial product or service, both initially and over the term of the
product or service, are fully, accurately, and effectively disclosed to
consumers in a manner that permits consumers to understand the costs,
benefits, and risks associated with the product or service, in light of
the facts and circumstances.'' 12 U.S.C. 5532(a). The authority granted
to the Bureau in Dodd-Frank Act section 1032(a) is broad, and empowers
the Bureau to prescribe rules regarding the disclosure of the
``features'' of consumer financial products and services generally.
Accordingly, the Bureau may prescribe rules containing disclosure
requirements even if other Federal consumer financial laws do not
specifically require disclosure of such features.
Dodd-Frank Act section 1032(c) provides that, in prescribing rules
pursuant to Dodd-Frank Act section 1032, the Bureau ``shall consider
available evidence about consumer awareness, understanding of, and
responses to disclosures or communications about the risks, costs, and
benefits of consumer financial products or services.'' 12 U.S.C.
5532(c). Accordingly, in proposing provisions authorized under Dodd-
Frank Act section 1032(a), the Bureau has considered available studies,
reports, and other evidence about consumer awareness, understanding of,
and responses to disclosures or communications about the risks, costs,
and benefits of consumer financial products or services.
The Bureau is proposing to amend rules finalized in January 2013
that implement certain Dodd-Frank Act provisions. In particular, the
Bureau is proposing to amend regulatory provisions adopted by the 2013
ECOA Final Rule, the 2013 Mortgage Servicing Final Rules, the 2013
HOEPA Final Rule, the 2013 Escrows Final Rule, the 2013 Loan Originator
Compensation Final Rule, and the 2013 ATR Final Rule.
IV. Proposed Effective Dates
A. For Provisions Other Than Those Related to the 2013 Loan Originator
Compensation Final Rule or the 2013 Escrows Final Rule
In enacting the Dodd-Frank Act, Congress significantly amended the
statutory requirements governing a number of mortgage practices. Under
the Dodd-Frank Act, most of these new requirements would have taken
effect automatically on January 21, 2013, if the Bureau had not issued
implementing regulations by that date.\12\ Where the Bureau was
required to prescribe implementing regulations, the Dodd-Frank Act
further provided that those regulations must take effect not later than
12 months after the date of the regulations' issuance in final
form.\13\ The Bureau issued the 2013 Title XIV Final Rules in January
2013 to implement these new statutory provisions and provide for an
orderly transition. To allow the mortgage industry sufficient time to
comply with the new rules, the Bureau established January 10, 2014--one
year after issuance of the earliest of the 2013 Title XIV Final Rules--
as the baseline effective date for nearly all of the new requirements.
In the preamble to certain of the various 2013 Title XIV Final Rules,
the Bureau further specified that the new regulations would apply to
transactions for which applications were received on or after January
10, 2014.
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\12\ Dodd-Frank Act section 1400(c)(3), 15 U.S.C. 1601 note.
\13\ Dodd-Frank Act section 1400(c)(1)(B), 15 U.S.C. 1601 note.
---------------------------------------------------------------------------
Except for the amendments regarding the 2013 Loan Originator
Compensation Final Rule and the 2013 Escrows Final Rule discussed
below, the Bureau proposes an effective date of January 10, 2014 for
the proposals in this document. The Bureau believes that having a
consistent effective date across most of the 2013 Title XIV Final Rules
will facilitate compliance. The Bureau requests public comment on this
proposed effective date, including on any suggested alternatives.
B. For Provisions Related to the 2013 Escrows Final Rule
While the Bureau established January 10, 2014 as the baseline
effective date for most of the 2013 Title XIV Final Rules, the Bureau
identified certain provisions that it believed did not present
significant implementation burdens for industry, including amendments
to Sec. 1026.35 adopted by the 2013 Escrows Final Rule. For these
provisions, the Bureau set an earlier effective date of June 1, 2013.
As discussed in the section-by-section analysis below, the Bureau
is now proposing to amend one such provision, Sec.
1026.35(b)(2)(iii)(A), which provides an exemption from the higher-
priced mortgage loan escrow requirement to creditors that extend more
than 50 percent of their total covered transactions secured by a first
lien in ``rural'' or ``underserved'' counties during the preceding
calendar year and also meet other small creditor criteria, and do not
otherwise escrow loans serviced by themselves or an affiliate. In light
of recent changes to which counties meet the definition of ``rural,''
the Bureau is proposing to amend this provision to prevent creditors
that qualified for the exemption in 2013 from losing eligibility in
2014 or 2015 because of these changes. The Bureau is proposing to amend
this provision to allow creditors to qualify for the exemption if they
qualified in any of the previous three calendar years (assuming the
other criteria for eligibility are also met). In addition, the Bureau
is proposing to amend Sec. 1026.35(b)(2)(iii)(D)(1) to prevent
creditors that were previously ineligible for the exemption, but may
now qualify in light of the proposed changes, from losing eligibility
because they had established escrow accounts for first-lien higher-
priced mortgage loans (for which applications were received after June
1, 2013), as required when the final rule took effect and prior to the
proposed amendments taking effect.
Because the Sec. 1026.35(b)(2)(iii) exemption applies based on a
calendar year, the Bureau believes it is appropriate to set a January
1, 2014 effective date for these provisions. The Bureau notes that a
January 1, 2014 effective date is more beneficial to industry, because
the amendment
[[Page 39906]]
would only expand eligibility for the exemption--thus an effective date
of January 1, 2014, as opposed to January 10, 2014, would mean that
creditors are able to take advantage of this expanded exemption
earlier. The Bureau thus proposes that the amendments to Sec.
1026.35(b)(2)(iii) and its commentary take effect for applications
received on or after January 1, 2014. The Bureau invites comment on
this approach, and specifically whether an effective date for
transactions where applications were received on or after January 1,
2014 is appropriate, in light of the proposed changes to the calendar
year exemption under Sec. 1026.35(b)(2)(iii).
C. For Provisions Related to the 2013 Loan Originator Compensation
Final Rule
The proposed effective date for certain provisions in this proposal
related to the 2013 Loan Originator Compensation Final Rule is January
1, 2014 for the reasons discussed below.
V. Proposal To Change the Effective Date of the 2013 Loan Originator
Compensation Rule
As described above, the Bureau established January 10, 2014 as the
baseline effective date for nearly all of the provisions in the 2013
Title XIV Final Rules, including most provisions of the 2013 Loan
Originator Compensation Final Rule. The Bureau believed that having a
consistent effective date across nearly all of the 2013 Title XIV Final
Rules would facilitate compliance. However, the Bureau identified a few
provisions that it believed did not present significant implementation
burdens for industry, including Sec. 1026.36(h) on mandatory
arbitration clauses and waivers of certain consumer rights and Sec.
1026.36(i) on financing credit insurance, as adopted by the 2013 Loan
Originator Compensation Final Rule. For these provisions, the Bureau
set an earlier effective date of June 1, 2013.\14\
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\14\ After interpretive issues were raised concerning the credit
insurance provision as discussed further below, the Bureau
temporarily delayed and extended the effective date for Sec.
1026.36(i) in the 2013 Effective Date Final Rule until January 10,
2014. 78 FR 32547 (May 31, 2013).
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Since issuing the 2013 Loan Originator Compensation Final Rule in
January, the Bureau has received a number of questions about transition
issues, particularly with regard to application of provisions under
Sec. 1026.36(d) that generally prohibit basing loan originator
compensation on transaction terms but permit creditors to award non-
deferred profits-based compensation determined with reference to
profits from mortgage-related business so long as the compensation does
not exceed 10 percent of the loan originators' total compensation or
the loan originator does not engage in more than a specified number of
transactions within a 12-month period. For instance, the Bureau has
received inquiries about when the 2013 Loan Originator Compensation
Final Rule permits creditors and loan originator organizations to begin
taking into account transactions for purposes of paying compensation
under a non-deferred profits-based compensation plan pursuant to Sec.
1026.36(d)(1)(iv)(B)(1) (i.e., the 10-percent total compensation limit,
or the 10-percent limit). The Bureau also believes that, given the
current effective date, some creditors and loan originator
organizations intending to pay compensation under a non-deferred
profits-based compensation plan pursuant to Sec.
1026.36(d)(1)(iv)(B)(1) might believe that they must undertake a
separate accounting for the period from January 1 through January 9,
2014, given that the effective date is January 10, 2014, and is tied to
when applications are received.
While the profits-based compensation provisions present relatively
complicated transition issues, the Bureau is also conscious of the fact
that most other provisions in the 2013 Loan Originator Compensation
Final Rule are simpler to implement because they largely recodify and
clarify existing requirements that were previously adopted by the
Federal Reserve Board in 2010 with regard to loan originator
compensation, and by various agencies under the Secure and Fair
Enforcement for Mortgage Licensing Act of 2008, 12 U.S.C. 5106-5116
(SAFE Act), with regard to loan originator qualification requirements.
The provisions are also focused on compensation plan structures,
registration and licensing, and hiring and training requirements that
are often structured on an annual basis and typically do not vary from
transaction to transaction.
For all of these reasons, the Bureau proposes moving the general
effective date for most provisions adopted by the 2013 Loan Originator
Compensation Final Rule to January 1, 2014. Although that would shorten
the implementation period by nine days, the Bureau believes that the
change would actually facilitate compliance and reduce implementation
burden by providing a cleaner transition period that more closely
aligns with changes to employers' annual compensation structures and
registration, licensing, and training requirements. In addition,
because elements of the 2013 Loan Originator Compensation Final Rule
concerning retention of records, definitions, scope, and implementing
procedures affect multiple provisions, the Bureau is proposing to make
the change with regard to the bulk of the 2013 Loan Originator
Compensation Final Rule as described further below, rather than
attempting to treat individual provisions in isolation. Finally, the
Bureau is also proposing changes, discussed below, to the effective
date for provisions on financing of credit insurance under Sec.
1026.36(i), in connection with proposing further clarifications and
guidance on the Dodd-Frank Act requirements related to that provision.
These proposed clarifications and amendments to the effective date
require only minimal revisions to the rule text and commentary. They
primarily would be reflected in the Dates caption and discussion of
effective dates in the Supplementary Information of a rule finalizing
this proposal. As amended by the Dodd-Frank Act, TILA section 105(a),
15 U.S.C. 1604(a), directs the Bureau to prescribe regulations to carry
out the purposes of TILA, and provides that such regulations may
contain additional requirements, classifications, differentiations, or
other provisions, and may provide for such adjustments and exceptions
for all or any class of transactions, that the Bureau judges are
necessary or proper to effectuate the purposes of TILA, to prevent
circumvention or evasion thereof, or to facilitate compliance. Further,
under Dodd-Frank Act section 1022(b)(1), 15 U.S.C. 5512(b)(1), the
Bureau has general authority 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. The Bureau is proposing to change the
effective date of the 2013 Loan Originator Compensation Final Rule with
respect to those provisions described above pursuant to its TILA
section 105(a) and Dodd-Frank Act section 1022(b)(1) authority.
The Bureau believes these changes would facilitate compliance and
help ensure that the 2013 Loan Originator Compensation Final Rule does
not have adverse unintended consequences. The Bureau requests public
comment on these proposed effective dates, including on any suggested
alternatives.
1. Effective Date for Amendments to Sec. 1026.36(d)
The Bureau is proposing three specific changes to the effective
date for
[[Page 39907]]
the amendments to Sec. 1026.36(d). First, the Bureau is proposing that
the provisions of the 2013 Loan Originator Compensation Final Rule
revising Sec. 1026.36(d) would be effective January 1, 2014, not
January 10, 2014. The Bureau is concerned that an effective date of
January 10, 2014, for the revisions to Sec. 1026.36(d) may result in
creditors and loan originator organizations believing that they have to
account separately for the period from January 1 through January 9,
2014, when applying the new compensation restrictions under Sec.
1026.36(d) (for example, if a creditor wishes to pay individual loan
originators through non-deferred profits-based compensation plans
pursuant to Sec. 1026.36(d)(1)(iv), or if a loan originator
organization wishes to pay to an individual loan originator
compensation pursuant to Sec. 1026.36(d)(2)(i)(C)). The Bureau
recognizes that this proposal would make certain aspects of the 2013
Loan Originator Compensation Final Rule effective nine days earlier
than originally stated, meaning that creditors and loan originator
organizations would have a slightly shorter implementation period. On
balance, however, the Bureau believes this proposed change will ease
compliance burdens for creditors and loan originator organizations by
eliminating any concern about a need for separate accountings as
described above. As noted above, the Bureau is also proposing to change
the effective date for the addition of Sec. 1026.25(c)(2) (records
retention) from January 10, 2014, to January 1, 2014. This proposed
change dovetails with the proposal to change the effective date of
Sec. 1026.36(d) to January 1, 2014, to ensure that records on
compensation paid between January 1 and January 10, 2014, are properly
maintained.
Second, the Bureau is proposing that the revisions to Sec.
1026.36(d) (other than the addition of Sec. 1026.36(d)(1)(iii), as
discussed below) would apply to transactions that are consummated and
for which the creditor or loan originator organization paid
compensation on or after January 1, 2014. The Bureau believes applying
the effective date for the revisions to Sec. 1026.36(d) based on
application receipt, rather than based on transaction consummation and
compensation payment, could present compliance challenges. This
proposed change would permit transactions to be taken into account for
purposes of compensating individual loan originators under the
exceptions set forth in Sec. 1026.36(d)(1)(iv) if the transactions
were consummated and compensation was paid to the individual loan
originator on or after January 1, 2014, even if the applications for
those transactions were received prior to January 1, 2014. The Bureau
believes this clarification, in conjunction with the proposed change to
the effective date for the revisions to Sec. 1026.36(d) described
above, will reduce compliance burdens on creditors and loan originator
organizations by allowing them to take into account all transactions
consummated in 2014 (and for which compensation is paid to individual
loan originators in 2014) for purposes of paying compensation under
Sec. 1026.36(d)(1)(iv) that is earned in 2014. This proposed revision
will also allow the consumer-paid compensation restrictions and
exceptions thereto in the revisions to Sec. 1026.36(d)(2) to be
effective upon the consummation of any transaction where such
compensation is paid in 2014 even if the application for that
transaction was received in 2013. Making this proposed clarification
would eliminate the concern that creditors and loan originator
organizations would potentially have to undertake separate accountings
depending on when the applications for the transactions were
received.\15\
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\15\ The Bureau recognizes that, under this proposed revision,
creditors and loan originator organizations would still have to
account separately for compensation under a non-deferred profits-
based compensation plan that is paid in 2014 but is earned in 2013
(e.g., a year-end bonus paid in January 2014 based on profits of a
creditor's mortgage-related business during calendar year 2013).
This approach is consistent with how compensation under a non-
deferred profits-based compensation plan is treated generally for
purposes of the 10-percent limit calculation under Sec.
1026.36(d)(1)(iv)(B)(1) (i.e., non-deferred profits-based
compensation that is earned during one time period but is actually
paid during a second time period is excluded from the total
compensation amount for the second time period, and may be included
in total compensation for the first time period). See comment
36(d)(1)-3.v.C, as proposed to be revised.
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For example, assume a creditor utilizes a calendar-year accounting
method and wishes, pursuant to the exception for non-deferred profits-
based compensation in Sec. 1026.36(d)(1)(iv)(B)(1), to pay a bonus to
an individual loan originator with reference to the profits of the
creditor's mortgage-related business during the first quarter of
calendar year 2014. In applying the 10-percent limit under Sec.
1026.36(d)(1)(iv)(B)(1) to determine the maximum permissible amount of
the quarterly bonus, a creditor could have interpreted the 2013 Loan
Originator Compensation Final Rule's effective date provision to mean
that it would have to account separately for transactions that were
consummated in 2014 but where the applications were received in 2013
(i.e., by not counting them in the calculation of the 10-percent limit
for the first quarter of 2014). The Bureau's proposal would alleviate
this concern by allowing the creditor to calculate the bonus with
reference to the creditor's mortgage-related business profits during
the first quarter of 2014 without having to inquire into the particular
details about the transactions on whose terms the compensation was
based, such as when the applications for those transactions were
received.
Third, the Bureau is proposing that the provisions of Sec.
1026.36(d)(1)(iii), which pertain to contributions to or benefits under
designated tax-advantaged plans for individual loan originators, would
apply to transactions for which the creditor or loan originator
organization paid compensation on or after January 1, 2014, regardless
of when the transactions were consummated or their applications were
received. These changes regarding the effective date for the revisions
to Sec. 1026.36(d)(1)(iii) more clearly reflect the Bureau's intent to
permit payment of compensation related to designated tax-advantaged
plans during both 2013 (as explained in CFPB Bulletin 2012-2 clarifying
current Sec. 1026.36(d)(1)) \16\ and thereafter (under the 2013 Loan
Originator Compensation Final Rule). Without this proposed change, the
Bureau believes there could be uncertainty about whether the
clarification in the Bulletin, new Sec. 1026.36(d)(1)(iii), or neither
would apply if a creditor or loan originator organization wished to pay
compensation in 2014 in the form of contributions to or benefits under
designated tax-advantaged plans where the compensation was determined
based on the terms of transactions consummated during 2013.
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\16\ The Bureau explained in the Supplementary Information to
the 2013 Loan Originator Compensation Final Rule that it issued CFPB
Bulletin 2012-2 (the Bulletin) to address questions regarding the
application of Sec. 1026.36(d)(1) to ``Qualified Plans'' (as
defined in the Bulletin). The Bureau noted in that Supplementary
Information that until the final rule takes effect, the
clarifications in CFPB Bulletin 2012-2 remain in effect and that the
Bureau interprets ``Qualified Plan'' as used in the Bulletin to
include the designated tax-advantaged plans described in the final
rule.
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In addition to the three specific changes to the effective date
described above, the Bureau solicits comment generally on whether the
proposed changes to the effective date for the amendments to Sec.
1026.36(d) are appropriate or whether other approaches should be
considered. In particular, the Bureau solicits comment on whether the
amendments to
[[Page 39908]]
Sec. 1026.36(d) should take effect on January 1, 2014, and apply to
all payments of compensation made on or after that date, regardless of
the date of consummation of the transactions on whose terms the
compensation was based. The Bureau believes such an approach would
create a bright line that the payment of compensation on or after
January 1, 2014, would be subject to the new rule. However, this
approach could raise complexity about how the new rule would apply to
payments under non-deferred profits-based compensation plans pursuant
to Sec. 1026.36(d)(1)(iv)(B)(1) made on or after January 1, 2014,
where the compensation payments are based on the terms of transactions
consummated in 2013, prior to the effect of the new rule.\17\ This
approach also could incentivize creditors and loan originator
organizations to structure their compensation programs for 2013 to pay
non-deferred profits-based compensation earned during 2013 in early
2014, rather than in 2013 when the current rule would remain in effect
(although the Bureau also notes that the 10-percent limit would set an
upper limit on such behavior).
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\17\ For example, the 2013 Loan Originator Compensation Final
Rule revised Sec. 1026.36(d)(1)(i) and comment 36(d)(1)-2 to
clarify how to determine whether a factor is a proxy for a term of a
transaction, and Sec. 1026.36(d)(1)(ii) now contains a definition
of ``term of a transaction.'' Thus, there is a question as to
whether, with respect to payments under a non-deferred profits-based
compensation plan pursuant to Sec. 1026.36(d)(1)(iv)(B)(1), a
creditor or loan originator organization would have to apply the new
proxy provisions and definition of a term of a transaction
retroactively in assessing whether compensation based on
transactions consummated in 2013 can be paid in 2014.
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2. Effective Dates for Amendments to or Additions of Sec. 1026.36(a),
(b), (e), (f), (g), and (j)
Rather than implementing the proposed change in effective dates for
Sec. 1026.36(d) in isolation, the Bureau is also proposing to make the
amendments to or additions of (as applicable) Sec. 1026.36(a)
(definitions), Sec. 1026.36(b) (scope), Sec. 1026.36(e) (anti-
steering provisions), Sec. 1026.36(f) (loan originator qualification
requirements) and Sec. 1026.36(j) (compliance policies and procedures
for depository institutions) take effect on January 1, 2014. The Bureau
is proposing not to tie the effective date to the receipt of a
particular loan application, but rather to a date certain. Because
these provisions rely on a common set of definitions and in some cases
cross reference each other,\18\ the Bureau is proposing to make them
effective on January 1, 2014, and without reference to receipt of
applications to avoid a potential incongruity among the effective dates
of those substantive provisions and the effective dates of the
regulatory definitions and scope provisions supporting those
substantive provisions. Thus, the Bureau believes this proposed
revision would facilitate compliance.
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\18\ For example, Sec. 1026.36(j) requires that depository
institutions establish written policies and procedures reasonably
designed to ensure and monitor compliance with Sec. 1026.36(d),
(e), (f), and (g).
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The Bureau is not, however, proposing to adjust the effective date
for Sec. 1026.36(g), which requires that loan originators' names and
identifier numbers be provided on certain loan documentation, except to
clarify and confirm that the provision takes effect with regard to any
application received on or after January 10, 2014, by a creditor or a
loan originator organization. Because this provision requires
modifications to documentation for individual loans and the systems
that generate such documentation, the Bureau believes it is appropriate
to have it take effect with the other 2013 Title XIV Final Rules that
affect individual loan processing.
3. Effective Date for Sec. 1026.36(i)
As discussed in the 2013 Effective Date Final Rule and below, the
Bureau initially adopted a June 1, 2013 effective date for Sec.
1026.36(i), but later delayed the provision's effective date to January
10, 2014, while the Bureau considered addressing interpretive questions
concerning the provision's applicability to transactions other than
those in which a lump-sum premium is added to the loan amount at
consummation. As discussed in the section-by-section analysis below,
the Bureau is now proposing amendments to Sec. 1026.36(i), which will
not be finalized until the Bureau has appropriately considered public
comments and issued a final rule. The Bureau believes that creditors
will need time to adjust certain credit insurance premium billing
practices once the clarifications are finalized. However, the Bureau
believes that the January 10, 2014 effective date adopted in the 2013
Effective Date Final Rule will allow sufficient time for compliance.
This is consistent with the generally applicable effective date for the
2013 Title XIV Final Rules, including for several provisions the Bureau
is proposing to amend through this notice. The Bureau requests comment
on whether the effective date for Sec. 1026.36(i) may be set earlier
than January 10, 2014, upon finalization of any clarifications and
amendments, and still permit sufficient time for creditors to adjust
credit insurance premium practices as necessary.
VI. Section-by-Section Analysis
A. Regulation B
Section 1002.14 Rules on Providing Appraisals and Other Valuations
14(b) Definitions
14(b)(3) Valuation
The Bureau is proposing to amend commentary to Sec. 1002.14 to
clarify the definition of ``valuation'' as adopted by the 2013 ECOA
Final Rule. Dodd-Frank Act section 1744 amended ECOA by, among other
things, defining ``valuation'' to include any estimate of the value of
the dwelling developed in connection with a creditor's decisions to
provide credit. See ECOA section 701(e)(6). Similarly, the 2013 ECOA
Final Rule adopted Sec. 1002.14(b)(3), which defines ``valuation'' as
any estimate of the value of a dwelling developed in connection with an
application for credit. Consistent with these provisions, the Bureau
intended the term ``valuation'' to refer only to an estimate for
purposes of the 2013 ECOA Final Rule's newly adopted provisions.
However, the 2013 ECOA Final Rule added two comments that refer to a
valuation as an appraiser's estimate or opinion of the value of the
property: Comment 14(b)(3)-1.i, which gives examples of ``valuations,''
as defined by Sec. 1002.14(b)(3); and comment 14(b)(3)-3.v, which
provides examples of documents that discuss or restate a valuation of
an applicant's property but nevertheless do not constitute
``valuations'' under Sec. 1002.14(b)(3).
The Bureau did not intend by these two comments to alter the
meaning of ``valuation'' to become inconsistent with ECOA section
701(e)(6) and Sec. 1002.14(b)(3). Accordingly, the Bureau proposes to
clarify comments 14(b)(3)-1.i and 14(b)(3)-3.v by removing the words
``or opinion'' from their texts.
B. Regulation X
General--Technical Corrections
In addition to the proposed clarifications and amendments to
Regulation X discussed below, the Bureau is proposing technical
corrections and minor wording adjustments for the purpose of clarity
throughout Regulation X that are not substantive in nature. The Bureau
is proposing such technical and wording clarifications to regulatory
text in Sec. Sec. 1024.30, 1024.39, and 1024.41; and to commentary to
Sec. Sec. 1024.17, 1024.33 and 1024.41.
[[Page 39909]]
Sections 1024.35 and .36, Error Resolution Procedures and Requests for
Information
The Bureau is proposing minor amendments to the error resolution
and request for information provisions of Regulation X, adopted by the
2013 Mortgage Servicing Final Rules. The error resolution procedures
largely parallel the information request procedures (particularly in
the areas in which amendments are proposed); thus the two sections are
discussed together below. Section 1024.35 implements section 6(k)(1)(C)
of RESPA, and Sec. 1024.36 implements section 6(k)(1)(D) of RESPA. To
the extent the requirements under Sec. Sec. 1024.35 and 1024.36 are
applicable to qualified written requests, these provisions also
implement sections 6(e) and 6(k)(1)(B) of RESPA. As discussed in part V
(Legal Authority), the Bureau proposes these amendments pursuant to its
authority under RESPA sections 6(j), 6(k)(1)(E) and 19(a). As explained
in more detail below, these amendments are necessary and appropriate to
achieve the consumer protection purposes of RESPA, including ensuring
responsiveness to consumer requests and complaints and the provision
and maintenance of accurate and relevant information.
35(c) and 36(b), Contact Information for Borrowers To Assert Errors and
Information Requests
The Bureau is proposing to amend the commentary to Sec. 1024.35(c)
and Sec. 1024.36(b) with respect to disclosure of the exclusive
address (if a servicer chooses to establish one) when a servicer
discloses contact information to the borrower for the purpose of
assistance from the servicer. Section 1024.35(c) states that a servicer
may, by written notice provided to a borrower, establish an address
that a borrower must use to submit a notice of error to a servicer in
accordance with the procedures set forth in Sec. 1024.35. Comment
35(c)-2 clarifies that, if a servicer establishes any such exclusive
address, the servicer must provide that address to the borrower in any
communication in which the servicer provides the borrower with contact
information for assistance from the servicer. Similarly, Sec.
1024.36(b) states that a servicer may, by written notice provided to a
borrower, establish an address that a borrower must use to submit
information requests to a servicer in accordance with the procedures
set forth in Sec. 1024.36. Comment 36(b)-2 clarifies that, if a
servicer establishes any such exclusive address, a servicer must
provide that address to the borrower in any communication in which the
servicer provides the borrower with contact information for assistance
from the servicer.
The Bureau is concerned that comments 35(c)-2 and 36(b)-2 could be
interpreted more broadly than the Bureau had intended. Section
1024.35(c) and comment 35(c)-2, as well as Sec. 1024.36(b) and comment
36(b)-2, are intended to inform borrowers of the correct address for
the borrower to use for purposes of submitting notices of error or
information requests, so that borrowers do not inadvertently send these
communications to other non-designated servicer addresses (which would
not provide the protections afforded by Sec. Sec. 1024.35 and 1024.36,
respectively). If interpreted literally, the existing comments would
require the servicer to include the designated address for notices of
error and requests for information when any contact information for the
servicer is given to the borrower. However, if the servicer is merely
including a phone number or web address (without a mailing address),
there is no risk of the borrower mailing a notice of error or
information request to a wrong address. Thus it would be unnecessary to
mandate that the servicer provide the designated address every time a
phone number or web address is given. The Bureau does not intend that
the servicer be required to inform the borrower of the designated
address in all communications with borrowers where any contact
information whatsoever for assistance from the servicer is provided.
Accordingly, the Bureau is proposing to amend comment 35(c)-2 to
provide that, if a servicer establishes a designated error resolution
address, the servicer must provide that address to a borrower in any
communication in which the servicer provides the borrower with an
address for assistance from the servicer. Similarly, the Bureau is
proposing to amend comment 36(b)-2 to provide that if a servicer
establishes a designated information request address, the servicer must
provide that address to a borrower in any communication in which the
servicer provides the borrower with an address for assistance from the
servicer. The Bureau requests comment regarding this proposed revision
to comments 35(c)-2 and 36(b)-2, and in particular about whether these
updated comments appropriately clarify when the address must be
disclosed.
35(g) and 36(f) Requirements Not Applicable
35(g)(1)(iii)(B) and 36(f)(1)(v)(B)
The Bureau is proposing amendments to Sec. 1024.35(g)(1)(iii)(B)
(untimely notices of error) and Sec. 1024.36(f)(1)(v)(B) (untimely
requests for information). Section 1024.35(g)(1)(iii)(B) provides that
a notice of error is untimely if it is delivered to the servicer more
than one year after a mortgage loan balance was paid in full.
Similarly, Sec. 1024.36(f)(1)(v)(B) provides that an information
request is untimely if it is delivered to the servicer more than one
year after a mortgage loan balance was paid in full.
The Bureau is proposing to replace the references to the date a
mortgage loan balance is paid in full to the date the mortgage loan is
discharged. This change would specifically address circumstances in
which a loan is terminated without being paid in full, for example,
because it was discharged through foreclosure or deed in lieu of
foreclosure. This change would also align more closely with the Sec.
1024.38(c)(1) record retention requirements, which require a servicer
to retain records that document actions taken with respect to a
borrower's mortgage loan account only until one year after the date a
mortgage loan is discharged. The Bureau requests comment regarding
these proposed changes.
Section 1024.41 Loss Mitigation Procedures
As discussed in part V (Legal Authority), the Bureau proposes
amendments to Sec. 1024.41 pursuant to its authority under sections
6(j)(3), 6(k)(1)(E), and 19(a) of RESPA. The Bureau believes that these
proposed amendments are necessary to achieve the consumer protection
purposes of RESPA, including to facilitate the evaluation of borrowers
for foreclosure avoidance options. Further, the proposed amendments
implement, in part, a servicer's obligation to take timely action to
correct errors relating to avoiding foreclosure under section
6(k)(1)(C) of RESPA by establishing servicer duties and procedures that
must be followed where appropriate to avoid errors with respect to
foreclosure. In addition, the Bureau relies on its authority pursuant
to section 1022(b) of the Dodd-Frank Act to prescribe regulations
necessary or appropriate to carry out the purposes and objectives of
Federal consumer financial law, including the purpose and objectives
under sections 1021(a) and (b) of the Dodd-Frank Act. The Bureau
[[Page 39910]]
additionally relies on its authority under section 1032(a) of the Dodd-
Frank Act, which authorizes the Bureau to prescribe rules to ensure
that the features of any consumer financial product or service both
initially and over the terms of the product or service, are fully,
accurately, and effectively disclosed to consumers in a manner that
permits consumers to understand the costs, benefits, and risks
associated with the product or service, in light of the facts and
circumstances.
41(b) Receipt of a Loss Mitigation Application
41(b)(2) Review of Loss Mitigation Application Submission
41(b)(2)(i) Requirements
The Bureau is proposing to amend the commentary to Sec.
1024.41(b)(2)(i) to clarify servicers' obligations with respect to
providing notices to borrowers regarding the review of loss mitigation
applications. Section 1024.41(b)(2)(i) requires a servicer that
receives a loss mitigation application 45 days or more before a
foreclosure sale to review and evaluate the application promptly and
determine, based on that review, whether the application is complete or
incomplete.\19\ If the application is incomplete, the servicer must
also determine what additional documentation and information are
required to make it complete. The servicer then must notify the
borrower within five days (excluding legal public holidays, Saturdays
and Sundays) that the servicer acknowledges receipt of the application,
and that the servicer has determined that the loss mitigation
application is either complete or incomplete. If an application is
incomplete, the notice must state the additional documents and
information that the borrower must submit to make the loss mitigation
application complete. In addition, servicers are obligated under Sec.
1024.41(b)(1) to exercise reasonable diligence in obtaining documents
and information necessary to complete an incomplete application, which
may require, when appropriate, the servicer to contact the borrower and
request such information as illustrated in comment 41(b)(1)-4.i.
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\19\ A ``complete loss mitigation application'' is defined in
Sec. 1024.41(b)(1) as ``an application in connection with which a
servicer has received all the information the servicer requires from
a borrower in evaluating applications for the loss mitigation
options available to the borrower.''
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The Bureau believes that additional commentary is warranted to
address situations in which a servicer determines additional
information from the borrower is needed to complete an evaluation of a
loss mitigation application after either (1) the servicer has provided
notice to the borrower informing the borrower that the loss mitigation
application is complete, or (2) the servicer has provided notice to the
borrower identifying specific information or documentation necessary to
complete the application and the borrower has furnished that
documentation or information. The notice required by Sec.
1024.41(b)(2)(i)(B) is intended to provide the borrower with timely
notification that a loss mitigation application was received and either
is considered complete by the servicer or is considered incomplete and
that the borrower is required to take further action for the servicer
to evaluate the loss mitigation application. The Bureau has received
repeated questions concerning circumstances in which a borrower submits
information that appears facially complete based on an initial review
by the servicer, but the servicer, upon further evaluation, determines
that it does not in fact have enough information to evaluate the
borrower for a loss mitigation option pursuant to requirements imposed
by an investor or guarantor of a mortgage loan. The Bureau is very
conscious of concerns that servicers have prolonged loss mitigation
processes by incomplete and inadequate document reviews that lead to
repeated requests for supplemental information, and designed the rule
to ensure an adequate up-front review. At the same time, the Bureau
does not believe it is in the best interest of borrowers or servicers
to create a system that leads to borrower applications being denied
solely because they contain inadequate information and the servicer
believes it may not request the additional information needed.
The Bureau is therefore proposing three provisions to address these
concerns. First, the Bureau is proposing new comment 41(b)(2)(i)(B)-1
to clarify that, notwithstanding that a servicer has informed a
borrower that an application is complete (or notified the borrower of
specific information necessary to complete an incomplete application),
a servicer must request additional information from a borrower if the
servicer determines, in the course of evaluating the loss mitigation
application submitted by the borrower, that additional information is
required.
Second, the Bureau is proposing new comment 41(b)(2)(i)(B)-2, to
clarify that except as provided in Sec. 1024.41(c)(2)(iv), the
provisions and timelines triggered by a complete loss mitigation
application in Sec. 1024.41 are not triggered by an incomplete
application. An application is considered complete only when a servicer
has received all the information the servicer requires from a borrower
in evaluating applications for the loss mitigation options available to
the borrower, regardless of whether the servicer has sent a Sec.
1024.41(b)(2)(i)(B) notification incorrectly informing the borrower
that the loss mitigation application is complete or incorrectly
informed the borrower of the information necessary to complete such
application. The Bureau notes that the proposed clarifications do not
allow servicers to inform borrowers that facially incomplete
applications are complete or to incorrectly describe the information
necessary to complete an application. Servicers are required under
Sec. 1024.41(b)(2)(i)(A) to review a loss mitigation application to
determine whether it is complete or incomplete. In addition, servicers
are subject to the Sec. 1024.38(b)(2)(iv) requirement to have policies
and procedures reasonably designed to achieve the objectives of
identifying documents and information that a borrower is required to
submit to complete an otherwise incomplete loss mitigation application,
and servicers are obligated under Sec. 1024.41(b)(1) to exercise
reasonable diligence in obtaining documents and information necessary
to complete an incomplete application.
Third, as described more fully below, the Bureau is proposing new
Sec. 1024.41(c)(2)(iv) to require that, if a servicer creates a
reasonable expectation that a loss mitigation application is complete
but later discovers information is missing, the servicer must treat the
application as complete for certain purposes until the borrower has
been given a reasonable opportunity to complete the loss mitigation
application. The Bureau believes the proposed rule would mitigate
potential risks to consumers that could arise through a loss mitigation
process prolonged by incomplete and inadequate document reviews and
repeated requests for supplemental information. The Bureau believes
these new provisions will provide flexibility to servicers who make
good faith mistakes in conducting up-front reviews of loss mitigation
applications for completeness, while ensuring that borrowers do not
lose the protections under the rule due to such mistakes and that
servicers have incentives to conduct rigorous up-front review of loss
mitigation applications. However, the Bureau requests comment regarding
whether proposed comments 41(b)(2)(i)(B)-1 and -2, in connection
[[Page 39911]]
with proposed Sec. 1024.41(c)(2)(iv), adequately balance the consumer
interests in receipt of accurate notices. The Bureau also seeks comment
regarding whether further provisions would be warranted to protect
borrowers' interests in reducing dual tracking and prolonged loss
mitigation processing, and avoiding application denials for lack of
adequate information, while also providing servicers strong incentives
to conduct rigorous up-front reviews and appropriate flexibility in the
event of good-faith and clerical mistakes in conducting such reviews.
41(b)(2)(ii) Time Period Disclosure
The Bureau is proposing to amend the Sec. 1024.41(b)(2)(ii) time
period disclosure requirement, which requires a servicer to provide a
date by which a borrower should submit any missing documents and
information necessary to make a loss mitigation application complete.
Section 1024.41(b)(2)(ii) requires a servicer to provide in the notice
required pursuant to Sec. 1024.41(b)(2)(i)(B) the earliest remaining
of four specific dates set forth in Sec. 1024.41(b)(2)(ii). The four
dates set forth in Sec. 1024.41(b)(2)(ii) are: (1) The date by which
any document or information submitted by a borrower will be considered
stale or invalid pursuant to any requirements applicable to any loss
mitigation option available to the borrower; (2) the date that is the
120th day of the borrower's delinquency; (3) the date that is 90 days
before a foreclosure sale; and (4) the date that is 38 days before a
foreclosure sale.
In general, many of the protections afforded to a borrower by Sec.
1024.41 are dependent on a borrower submitting a complete loss
mitigation application a certain amount of time before a foreclosure
sale, and such protections decrease as a foreclosure sale approaches.
It is therefore in the interest of borrowers to complete loss
mitigation applications as early in the delinquency and foreclosure
process as possible. However, even if a borrower does not complete a
loss mitigation application sufficiently early in the process to secure
all the protections available under Sec. 1024.41, that borrower may
still benefit from some of the protections afforded. Borrowers should
not be discouraged from completing loss mitigation applications merely
because they cannot complete a loss mitigation application by the date
that would be most advantageous in terms of securing the protections
available under Sec. 1024.41. Accordingly, the goal of Sec.
1024.41(b)(2)(ii) is to inform borrowers of the time by which they
should complete their loss mitigation applications to receive the
greatest set of protections available, without discouraging later
efforts if any such timeline is not met. The Bureau notes Sec.
1024.41(b)(2)(ii) requires servicers to inform borrowers of the date by
which the borrower should make the loss mitigation application
complete, as opposed to the date by which the borrower must make the
loss mitigation application complete.
The Bureau believes based on communications with consumer
advocates, servicers, and trade associations that the requirement in
Sec. 1024.41(b)(2)(ii) may be over-prescriptive and may prevent a
servicer from having the flexibility to suggest an appropriate date by
which a borrower should complete a loss mitigation application. For
example, if a borrower submits a loss mitigation application on the
114th day of delinquency, the servicer would have to inform him or her
by the 119th day that the borrower should complete the loss mitigation
application by the 120th day under the current provision. A borrower is
unlikely to be able to assemble the missing information within one day,
and would be better served by being advised to complete the loss
mitigation application by a reasonable later date that would afford the
borrower the benefits of the rule as well as enough time to gather the
information.
In response to these concerns, and in accordance with the goals of
the provision, the Bureau is proposing to amend the requirement in
Sec. 1024.41(b)(2)(ii). Specifically, the Bureau proposes to replace
the requirement that a servicer disclose the earliest remaining date of
the four specific dates set forth in Sec. 1024.41(b)(2)(ii) with a
more flexible requirement that a servicer determine and disclose a
reasonable date by which the borrower should submit the documents and
information necessary to make the loss mitigation application complete.
The Bureau proposes to clarify this amendment in proposed comment
41(b)(2)(ii)-1, which would clarify that, in determining a reasonable
date, a servicer should select the deadline that preserves the maximum
borrower rights under Sec. 1024.41, except when doing so would be
impracticable. Proposed comment 41(b)(2)(ii)-1 would further clarify
that a servicer should consider the four deadlines previously set forth
in Sec. 1024.41(b)(2)(ii) as factors in selecting a reasonable date.
Proposed comment 41(b)(2)(ii)-1 also would clarify that if a
foreclosure sale is not scheduled, for the purposes of determining a
reasonable date, a servicer may make a reasonable estimate of when a
foreclosure sale may be scheduled. This proposal is intended to provide
appropriate flexibility while also requiring that servicers consider
the impact of the various timing requirements set forth in Sec.
1024.41. The Bureau requests comment regarding the proposed revision to
Sec. 1024.41(b)(2)(ii).
41(b)(3) Timelines
The Bureau is proposing to add a new provision in Sec.
1024.41(b)(3) addressing the timelines when no foreclosure sale is
scheduled as of the date a complete loss mitigation application is
received or a foreclosure sale is rescheduled after receipt of a
complete application. As discussed above, Sec. 1024.41 is structured
to provide different procedural rights to borrowers and impose
different requirements on servicers depending on the number of days
remaining until a foreclosure sale is scheduled to occur, as of the
time that a complete loss mitigation application is received. In
particular, Sec. 1024.41(e)(1) requires that, if a complete loss
mitigation application is received 90 days or more before a foreclosure
sale, a servicer may require that a borrower accept or reject an offer
of a loss mitigation option no earlier than 14 days after the servicer
provides the offer. Similarly, Sec. 1024.41(h) provides borrowers with
a right to appeal a denial of a loan modification option when a
complete loss mitigation application is received 90 days or more in
advance of a foreclosure sale. Alternatively, Sec. 1024.41(e)(1)
provides that if a complete loss mitigation application is received
less than 90 but more than 37 days before a foreclosure sale, a
servicer may require that a borrower accept or reject an offer of a
loss mitigation option no earlier than seven days after the servicer
provides such offer, and under Sec. 1024.41(h), the borrower does not
have a right to appeal denial of a loan modification option in this
circumstance. Likewise, the prohibition on foreclosure sales in Sec.
1024.41(g) sets limitations on a servicer's ability to move for
judgment or order of sale or to conduct a foreclosure sale when a
complete application is received more than 37 days before a foreclosure
sale.
However, the provisions of Sec. 1024.41 do not expressly address
situations in which a foreclosure sale is rescheduled, or has not yet
been scheduled at the time a complete loss mitigation application is
received. Since issuance of the final rule, the Bureau has received
questions about the applicability of the timing provisions in such
scenarios. Specifically, industry stakeholders have asked whether it is
appropriate to use
[[Page 39912]]
estimated dates of foreclosure where a foreclosure sale has not been
scheduled at the time a complete loss mitigation application is
received, and have requested guidance on how to apply the timelines if
no foreclosure is scheduled as of the date a complete loss mitigation
application is received, but a foreclosure sale is subsequently
scheduled less than 90 days after receipt of such application, or if a
foreclosure sale has been scheduled for less than 90 days after a
complete application is received, but is then postponed to a date that
is 90 days or more after the receipt date.
The Bureau believes guidance in such situations is appropriate, and
is proposing in Sec. 1024.41(b)(3) to provide that, for purposes of
Sec. 1024.41, timelines based on the proximity of a foreclosure sale
to the receipt of a complete loss mitigation application will be
determined as of the date a complete loss mitigation application is
received. Proposed comment 41(b)(3)-1 would clarify that if a
foreclosure sale has not yet been scheduled as of the date that a
complete loss mitigation application is received, the application shall
be treated as if it were received at least 90 days before a foreclosure
sale. Proposed comment 41(b)(3)-2 would clarify that such timelines
would remain in effect even if at a later date, a foreclosure sale was
rescheduled.
The Bureau believes this approach would provide certainty to both
servicers and borrowers as well as ensure that borrowers receive the
broadest protections available under the rule in situations in which a
foreclosure sale has not been scheduled at the time a borrower submits
a complete loss mitigation application. The Bureau considered proposing
a rule that would vary the applicable timelines depending on the number
of days remaining until foreclosure sale at the time that a foreclosure
sale is in fact scheduled even when the scheduling (or rescheduling)
occurs after a complete loss mitigation application is received. Such
an approach would have some advantages to both servicers (in reducing
the risk of foreclosure sale delays compared to categorically applying
the procedures applicable to applications received at least 90 days
before a scheduled foreclosure sale when no foreclosure sale has yet
been scheduled when a complete loss mitigation application is received)
and to consumers (in providing appeal rights if a sale is initially
scheduled to occur less than 90 days after receipt of a completed
application but is later delayed). However, the Bureau was concerned
that such a rule would have a number of disadvantages. First, it would
add significant complexity and uncertainty to the existing timelines
under the regulation. Second, it could create incentives for servicers
to draw out their evaluation processes in the hope that a foreclosure
sale would be scheduled in the intervening period, and disincentives
for servicers to push off a previously scheduled foreclosure sale.
Third, it could potentially create borrower confusion if changes to the
timelines were permitted to occur after the servicer has provided the
borrower with the notice required under Sec. 1024.41(c)(1)(ii)
explaining whether the loss mitigation application has been approved
and laying out applicable timelines for follow-up. Similarly, the
Bureau was concerned that allowing servicers to estimate foreclosure
dates where a complete loss mitigation application is received before a
foreclosure sale is scheduled would be imprecise--the Bureau believes
it is necessary to clearly define what rights a borrower is entitled to
and does not believe it is appropriate for a borrower's rights to turn
on an estimated date.
Thus, on balance, the Bureau believes that a straightforward rule
under which deadlines are calculated as of the date of receipt of a
complete loss mitigation application, and a complete loss mitigation
application is treated as having been received 90 days or more before a
foreclosure sale if no sale is scheduled as of the date the application
is received, may be preferable because it would provide industry and
borrowers with clarity regarding its application, without the
unnecessary complexity that may arise from an approach where the
timelines would vary based on the number of days remaining before a
later-scheduled foreclosure sale and whether a notice has already been
provided to the borrower. The Bureau recognizes that the proposed rule
might in some cases require a servicer to delay a foreclosure sale to
adhere to the specified time for the borrower to respond to a loss
mitigation offer and to appeal the servicer's denial of a loan
modification option, where applicable. However, the Bureau believes
that, in most circumstances, a foreclosure sale that is not scheduled
at the time a complete application is received is unlikely to be
subsequently scheduled to occur less than 90 days after the receipt
date. The Bureau requests comment and supporting data regarding
circumstances in which this may occur. Additionally, the Bureau
believes borrowers should not lose certain protections of the rule
because a servicer quickly schedules a foreclosure sale, particularly
when a borrower has been informed by either the Sec. 1024.41(c)(1)(ii)
notice or the Sec. 1024.41(h)(4) notice that he or she has such
rights. The Bureau seeks comment on this provision addressing the
calculation of timelines as of the date a complete loss mitigation
application is received, or a scheduled foreclosure sale is
subsequently rescheduled after receipt of a complete loss mitigation
application. In particular the Bureau seeks comment as to whether the
alternative approach that would vary the applicable timelines depending
on the number of days remaining until foreclosure sale at the time that
a foreclosure sale is in fact scheduled or subsequently rescheduled
would be preferable and whether there are additional situations in
which application of the timelines should be clarified or modified.
41(c) Evaluation of Loss Mitigation Applications
41(c)(1) Complete Loss Mitigation Application
41(c)(1)(ii)
The Bureau is proposing to amend Sec. 1024.41(c)(1)(ii) to state
explicitly that the notice required by Sec. 1024.41(c)(1)(ii) must
state the deadline for accepting or rejecting a servicer's offer of a
loss mitigation option, in addition to the requirements currently in
Sec. 1024.41(d)(2) to specify, where applicable, that the borrower may
appeal the servicer's denial of a loan modification option, the
deadline for doing so, and any requirements for making an appeal. The
Bureau intended that the Sec. 1024.41(c)(1)(ii) notice would specify
the time and procedures for the borrower to accept or to reject the
servicer's offer, in accordance with the timing requirements specified
in Sec. 1024.41(e). Indeed, Sec. 1024.41(e)(2) provides both that the
servicer may deem the borrower to have rejected the offer if the
borrower does not respond within the timelines specified under Sec.
1024.41(e)(1) and that the servicer must give the borrower a reasonable
opportunity to complete documentation necessary to accept the offer if
the borrower does not follow the specified procedures but begins making
payments in accordance with the offer by the deadline specified in
Sec. 1024.41(e)(1). The Bureau is therefore proposing to amend Sec.
1024.41(c)(1)(ii) to state explicitly that the notice provided to the
borrower under the provision must state the date and procedures by
which the borrower is required to respond to an offer of a loss
mitigation option, in addition to the information regarding appeals
currently required to be
[[Page 39913]]
included in such notices under Sec. 1024.41(d)(2).
41(c)(2) Incomplete Loss Mitigation Application Evaluation
41(c)(2)(iii) Payment Forbearance
The Bureau is proposing to modify the requirement in Sec.
1024.41(c)(2) to allow servicers to offer certain short-term
forbearances to borrowers, notwithstanding the prohibition on servicers
offering a loss mitigation option to a borrower based on the review of
an incomplete loss mitigation application. The Bureau had intentionally
drafted Sec. 1024.41 with broad definitions of ``loss mitigation
option'' and ``loss mitigation application,'' to provide a streamlined
process in which a borrower will be evaluated for all available loss
mitigation options at the same time, rather than having to apply
multiple times to be evaluated for different options one at a time.
Since publication of the final rule, however, both industry and
consumer advocates have raised questions and concerns about how the
rule applies in situations in which a borrower merely needs and
requests short-term forbearance. For instance, a number of servicers
have inquired about whether the rule would prevent them from granting a
borrower's request for waiver of late fees or other short-term relief
after a natural disaster until the borrower submits all information
necessary for evaluation of the borrower for long-term loss mitigation
options. Additionally, both consumer advocates and servicers have
raised concerns about whether a borrower's request for short-term
relief would later preclude a borrower from invoking the protections
afforded by the rule if the borrower encounters a significant change in
circumstances that warrants long-term loss mitigation alternatives.
The Bureau is very conscious of the difficulties involved in
distinguishing short-term forbearance programs from other types of loss
mitigation and of the fact that some servicers have significantly
exacerbated borrowers' financial difficulties in the past by using
short-term forbearance programs inappropriately instead of reviewing
the borrowers for long-term options. Nevertheless, the Bureau believes
that it may be possible to revise the rule to facilitate appropriate
use of short-term payment forbearance programs without creating undue
risk for borrowers who need to be evaluated for a full range of loss
mitigation alternatives.
At the outset, the Bureau notes that it does not construe the
existing rule to require that servicers obtain a complete loss
mitigation application prior to exercising their discretion to waive
late fees. Additionally the Bureau notes that a servicer may offer any
borrower any loss mitigation option if the borrower has not submitted a
loss mitigation application or if the option is not based on an
evaluation of information submitted by the borrower in connection with
a loss mitigation application, as clarified in existing comment
41(c)(2)(i)-1.
With regard to short-term forbearance programs that involve more
than simply waiving late fees, such as where a servicer allows a
borrower to forgo making two payments and then to catch up by spreading
the cost over the next year, the Bureau believes that the issues raised
by various stakeholders can most appropriately be addressed by
providing more flexibility to servicers to provide such relief
notwithstanding that a borrower has submitted an incomplete loss
mitigation application. Thus, the Bureau is not proposing to change the
current definition of loss mitigation option, which includes all
forbearance programs, but rather to relax the prohibition in Sec.
1024.41(c)(2)(i) against evading the requirement to evaluate a
borrower's complete loss mitigation application for all loss mitigation
options available to the borrower by offering a loss mitigation option
based upon an evaluation of an incomplete loss mitigation application.
Specifically, the Bureau is proposing to add Sec. 1024.41(c)(2)(iii)
to provide that a servicer may offer a short-term payment forbearance
program to a borrower based upon an evaluation of an incomplete loss
mitigation application.
The proposed exemption in Sec. 1024.41(c)(2)(iii) would apply only
to short-term payment forbearance programs. Proposed comment
41(c)(2)(iii)-1 states that a payment forbearance program is a loss
mitigation option for which a servicer allows a borrower to forgo
making certain payments for a period of time. Payment forbearance
programs are usually offered when a borrower is having a short-term
difficulty brought on, for example, a natural disaster. In such cases,
the servicer offers a short-term payment forbearance arrangement to
assist the borrower in managing the hardship. The Bureau believes it is
appropriate for servicers to have the flexibility to offer short-term
payment forbearance programs prior to receiving a complete loss
mitigation application for all available loss mitigation options.
Proposed comment 41(c)(2)(iii)-1 also would explain how to
determine whether a particular payment forbearance program is ``short-
term.'' Specifically, it would provide that short-term programs allow
the forbearance of payments due over periods of up to two months. Thus,
if a borrower is allowed to forgo making payments due in January and
February, but must make the monthly obligation due in March, such a
program would be considered a two-month program. The proposed comment
clarifies this would be considered a two-month payment forbearance,
regardless of the amount of time the servicer provides the borrower to
make up the forborne payments, and provides examples illustrating this
principle. Different payment forbearance programs may have the borrower
make up the payments at the end of the forbearance period, spread over
a certain period of time (for example, over the next 12 payments) or
may make the forgone payments due when the loan matures. The Bureau
believes these all would be considered two-month payment forbearance
programs despite the different repayment time periods because, under
all of these scenarios, the borrower would resume making regular
payments in March.
The Bureau notes that, under the proposed approach, servicers that
receive a request for a short-term payment forbearance and grant such
requests would remain subject to the requirements triggered by the
receipt of a loss mitigation application in Sec. 1024.41. Thus, as
explained in proposed comment 41(c)(2)(iii)-2, if a servicer offers a
payment forbearance program based on an incomplete loss mitigation
application, the servicer is still required to review the application
for completeness, to send the Sec. 1024.41(b)(2)(i)(B) notice to
inform the borrower whether the application is complete or incomplete,
and if incomplete what documents or additional information are
required, and to use due diligence to complete the loss mitigation
application. If a borrower submits a complete application, the servicer
must evaluate it for all available loss mitigation options. The Bureau
believes that maintaining these requirements is important to ensure
that borrowers are not inappropriately diverted into short-term
forbearance programs without access to the full protections of the
regulation. At the same time, if a borrower in fact does not want an
evaluation for long-term options, the borrower will simply fail to
provide the additional information necessary to submit a complete
application and the servicer will therefore not be required to conduct
a full assessment for all options.
[[Page 39914]]
To ensure that a borrower who is receiving an offer of short-term
payment forbearance program understands the options available, proposed
Sec. 1024.41(c)(2)(iii) would require a servicer offering a short-term
payment forbearance program to a borrower based on an incomplete loss
mitigation application to include in the Sec. 1024.41(b)(2)(i)(B)
notice additional information, specifically that: (1) The servicer has
received an incomplete loss mitigation application and on the basis of
that application the servicer is offering a short-term payment
forbearance program; (2) absent further action by the borrower, the
servicer will not be reviewing the incomplete application for other
loss mitigation options; and (3) if the borrower would like to be
considered for other loss mitigation options, he or she must submit the
missing documents and information required to complete the loss
mitigation application. The Bureau believes that providing this more
specific information, coupled with the proposed amendments under Sec.
1024.41(c)(2)(iii), is critical to ensure that the rule provides both
flexibility to servicers and borrowers to avoid unwarranted delays and
paperwork where short-term forbearance is appropriate and a safeguard
against the misuse of short-term forbearance to avoid addressing long-
term problems. For example, suppose a borrower submits information in
connection with a request for a payment forbearance program, but such
information is not a complete loss mitigation application as defined in
Sec. 1024.41(b)(1). Under proposed Sec. 1024.41(c)(2)(iii), the
servicer would be able to offer the borrower a payment forbearance
program. However, the servicer would have to send the notice required
by Sec. 1024.41(b)(2)(i)(B) notifying the borrower that his or her
loss mitigation application is incomplete and stating the additional
documents and information the borrower must submit to make the loss
mitigation application complete. The borrower then would have the
information needed to complete the loss mitigation application if he or
she would like a full review for all loss mitigation options. However,
if the borrower feels the payment forbearance program is sufficient, he
or she would be able to decline to complete the loss mitigation
application and the full Sec. 1024.41 procedures would not be
triggered.
Finally, the Bureau proposes comment 41(c)(2)(iii)-3 clarifying
servicers' obligations on receipt of a complete loss mitigation
application. The proposed comment states that, notwithstanding that a
servicer offers a borrower a payment forbearance program after an
evaluation of an incomplete loss mitigation application, a servicer
must still comply with all requirements in Sec. 1024.41 on receipt of
a borrowers submission of a complete loss mitigation application. This
comment is intended to clarify that, even though payment forbearance
may be offered as short-term assistance to a borrower, a borrower is
still entitled to submit a complete loss mitigation application and
receive an evaluation of such application for all available loss
mitigation options. Although payment forbearance may assist a borrower
with a short-term hardship, a borrower should not be precluded from
demonstrating a long-term inability to afford a mortgage, and being
considered for long-term solutions, such as a loan modification, when
that may be appropriate.
Accordingly, the Bureau proposes to amend the loss mitigation
provisions in Sec. 1024.41 by adding new Sec. 1024.41(c)(2)(iii) and
new comments 41(c)(2)(iii)-1, -2, and -3. The Bureau requests comment
regarding all aspects of these proposed provisions, and in particular
on whether the proposed amendments appropriately address concerns
regarding servicers' ability to work with borrowers by offering payment
forbearance programs as appropriate, pending receipt and evaluation of
complete loss mitigation applications. Additionally, the Bureau
requests comment as to whether short-term forbearance programs are
appropriately defined and whether it might be appropriate to develop
tailored definitions to address specific situations such as programs
offered to victims of natural disasters or unemployment. Further, the
Bureau seeks comment as to whether it would be helpful to require that
additional language be added to the Sec. 1024.41(b)(2)(i)(B) notice
when a servicer is offering a short-term payment forbearance program
based on an incomplete loss mitigation application to encourage a
borrower to assess realistically whether he or she is encountering
short-term or long-term problems and to complete a loss mitigation
application as appropriate. Finally, the Bureau seeks comment on
whether additional safeguards would be appropriate or necessary to
provide flexibility for appropriate use of short-term forbearance
programs without creating loopholes for abuse or disincentives to long-
term loss mitigation activities.
41(c)(2)(iv) Servicer Creates Reasonable Expectation That a Loss
Mitigation Application Is Complete
As discussed above, the Bureau is proposing new Sec.
1024.41(c)(2)(iv) which states that if a servicer creates a reasonable
expectation that a loss mitigation application is complete but later
discovers that the application is incomplete, the servicer shall treat
the application as complete as of the date the borrower had reason to
believe the application was complete for purposes of applying
paragraphs (f)(2) and (g) until the borrower has been given a
reasonable opportunity to complete the loss mitigation application.
This provision is designed to work in connection with proposed new
comments 41(b)(2)(i)-1 and -2 as discussed above to address scenarios
when a servicer determines that an application the servicer determined
to be complete or to be missing particular information in fact is
lacking additional information needed for evaluation.
The Bureau has received questions about the impact of an error in
the notice required by Sec. 1024.41(b)(2)(i)(B), particularly in light
of the short time period the servicer has to review the information
submitted by the borrower. As discussed above the Bureau recognizes
that, in certain circumstances, a borrower may submit information that
appears facially complete, or that appears to be missing only specific
information, but that a servicer, upon further evaluation, may
determine that additional information is needed in order for the
servicer to evaluate the borrower for all available loss mitigation
options. The proposed commentary to Sec. 1024.41(b)(2)(i) is intended
to clarify that servicers are required to obtain the missing
information in such situations. Proposed Sec. 1024.41(c)(2)(iv) is
intended to protect borrowers while a servicer requests the missing
information.
Proposed comment 41(c)(2)(iv)-1 would clarify that a servicer
creates a reasonable expectation that a loss mitigation application is
complete when the servicer notifies the borrower in the Sec.
1024.41(b)(2)(i)(B) notice that the application is complete or when the
servicer notifies the borrower in the Sec. 1024.41(b)(2)(i)(B) notice
that certain items are missing and the borrower provides all the
missing documents and information. The Bureau believes that a borrower
would have a reasonable expectation that his or her loss mitigation
application was complete in either of these situations.
Where a servicer creates a reasonable expectation that a loss
mitigation
[[Page 39915]]
application is complete but later discovers that the application is
incomplete, proposed Sec. 1024.41(c)(2)(iv) would provide that the
servicer shall treat the application as complete for certain purposes
until the borrower has been given a reasonable opportunity to supply
the missing information necessary to complete the loss mitigation
application. Specifically, under this provision, the servicer would
need to treat the application as complete for purposes of the
foreclosure referral ban in Sec. 1024.41(f)(2) and the foreclosure
sale limitations in Sec. 1024.41(g). Proposed Sec. 1024.41(c)(2)(iv)
would ensure that servicers that make good faith mistakes in making
initial determinations of completeness need not be considered in
violation of the rule, and that borrowers do not lose protections under
the rule due to such mistake. The Bureau believes that, once a borrower
is given reason to believe he or she has the benefit of certain
protections (which are triggered by submission of a complete loss
mitigation application), if the servicer discovers that an application
is incomplete, the borrower should have a reasonable opportunity to
complete the application before losing the benefit of such protections.
Proposed comment 41(c)(2)(iv)-2 gives guidance on what would be a
reasonable opportunity for the borrower to complete a loss mitigation
application. The comment states that a reasonable opportunity requires
that the borrower be notified of what information is missing and be
given sufficient time to gather the information and submit it to the
servicer. The amount of time that is sufficient for this purpose will
depend on the facts and circumstances.
The Bureau believes proposed Sec. 1024.41(c)(2)(iv) would provide
incentives to servicers to conduct rigorous up-front reviews, while
providing servicers the ability to correct a good-faith mistake or
clerical error. Further, servicers seeking relief under the provision
need only give borrowers a reasonable opportunity to provide the
missing information, thus allowing a servicer to continue the
foreclosure process if a borrower does not provide such information.
The Bureau seeks comment on all aspects of this proposed provision. In
particular, the Bureau seeks comment as to if the additional
information is supplied by the borrower, should the application be
considered complete as of the date the borrower was given a reasonable
belief it was complete, or as of the date it was actually completed.
Additionally the Bureau seeks comment as to if other measures would be
necessary or useful to clarify servicer obligations and risks regarding
the Sec. 1024.41(b)(2)(i)(B) notice.
Section 1024.41(d) Denial of Loan Modification Options
As discussed above, the Bureau is proposing to move the substance
of Sec. 1024.41(d)(2) to Sec. 1024.41(c)(1)(ii). Therefore, the
Bureau is proposing to re-codify Sec. 1024.41(d)(1) as Sec.
1024.41(d) and to re-designate the corresponding commentary
accordingly.
The Bureau is also proposing to clarify the requirement in Sec.
1024.41(d)(1), re-codified as Sec. 1024.41(d), that a servicer must
disclose the reasons for the denial of any trial or permanent loan
modification option available to the borrower. The Bureau believes it
is appropriate to clarify that the requirement to disclose the reasons
for denial focuses on only those determinations actually made by the
servicer and does not require a servicer to continue evaluating
additional factors after a decision has been established. Thus, when a
servicer's automated system uses a program that considers a borrower
for a loan modification by proceeding through a series of questions and
ends the process if the consumer is denied, the servicer need not
modify the system to continue evaluating the borrower under additional
criteria. For example, suppose a borrower must meet qualifications A,
B, and C to receive a loan modification, but the borrower does not meet
any of these qualifications. A servicer's system may start by asking if
the borrower meets qualification A, and on the failure of that
qualification end the analysis for that specific loan modification
option. If a servicer were required to disclose all potential reasons
why the borrower may have been denied for that loan modification option
(i.e., A, B, and C), it would need to consider a lengthy series of
hypothetical scenarios: For example, if the borrower had met
qualification A, would the borrower also have met qualification B? The
Bureau did not intend such a requirement, which it believes would be
potentially burdensome.
The Bureau instead intended to require only the disclosure of the
actual reason or reasons on which the borrower was evaluated and
denied. Accordingly, the Bureau is proposing to amend Sec. 1024.41(d)
to require that a denial notice provided by the servicer must state the
``specific reason or reasons'' for the denial and also, where
applicable, disclose that the borrower was not evaluated based on other
criteria. The Bureau believes that this additional information will
help borrowers understand the status of their application and the fact
that they were not fully evaluated under all factors (where
applicable). The Bureau is also proposing new comment 41(d)-4 stating
that, if a servicer's system reaches the first issue that causes a
denial but does not evaluate borrowers for additional factors, a
servicer need only provide the reason or reasons actually considered.
Amended Sec. 1024.41(d) would also require that the notice must state
the servicer did not evaluate the borrower on other criteria. The
notice is not required to list such criteria. Thus, a servicer would
not be required to consider hypothetical situations to compile a
complete list of potential reasons for denial of the loan modification
option, but a borrower would not be given the false impression that the
denial reason stated is the only grounds on which he or she might have
been denied. The Bureau believes this proposed amendment appropriately
balances potential concerns about compliance challenges with concerns
about informing borrowers about the status of their applications and
about information that is relevant to potential appeals. The Bureau
seeks comment on this proposed amendment to the denial notification
requirement.
41(f) Prohibition on Foreclosure Referral
The Bureau is proposing new comment 41(f)-1 to clarify what
servicer actions are prohibited during the pre-foreclosure review
period. Section 1024.41(f) prohibits a servicer from making the first
notice or filing required by applicable law for any judicial or non-
judicial foreclosure process unless a borrower's mortgage loan is more
than 120 days delinquent; a servicer is also prohibited from making
such a notice or filing while a borrower's complete loss mitigation
application is being evaluated. The Bureau has received numerous
questions about what is prohibited. Specifically, the Bureau has been
asked if the first notice or filing includes the breach letters
required by Fannie Mae (typically required at 60 days delinquency).
Additionally, the Bureau has been asked if the phrase ``first notice or
filing'' has the same interpretation as the Federal Housing
Administration (FHA) uses to define the ``first public action,'' which
marks the initiation of the foreclosure process (which includes filing
a complaint or petition, recording a notice of default or publication
of a notice of sale, but not merely posting a notice on the property).
In light of the requests for clarification of what is allowed under
[[Page 39916]]
this provision, the Bureau believes additional guidance is appropriate.
The Bureau notes that the foreclosure process is a matter of State
law, and is addressed differently in each State. Thus, the first notice
or filing required by applicable law will be determined based on State
law. In general, once a loan is delinquent, a servicer continues
collection activity and will begin early intervention outreach. The
Bureau believes that servicers frequently use demand or breach letters
to notify borrowers of their delinquency at this stage. It is at this
point that the Fannie Mae breach letter would typically be sent. At
some point, many servicers will internally refer the loan to a
foreclosure department or will send the loan to a foreclosure attorney.
The formal foreclosure process will begin, generally, with a notice of
default mailed to the borrower in a non-judicial State or with the
onset of a legal action in a judicial State. It is at this point that
the ``first public action,'' as FHA defines it, would typically occur.
The Bureau designed the pre-foreclosure review period to mitigate
the harms of dual tracking, by giving borrowers the opportunity to
submit a complete loss mitigation application and have it considered
without the pressure imposed by an active foreclosure process. Once a
formal foreclosure process has begun, there is both more potential
confusion on the part of borrowers due to dual tracking between
foreclosure procedures and loss mitigation applications, and there is
more pressure on the servicer to comply with State requirements and
owner/investor requirements and expectations to complete the
foreclosure process in a timely fashion. The Bureau is concerned that
defining ``first notice or filing'' to match the terms used by the FHA
and Fannie Mae for purposes of managing their foreclosure processes
would be inconsistent with the intent behind the pre-foreclosure review
period under 1024.41(f). In particular, the Bureau is concerned that
the FHA ``first public action'' requirement could occur significantly
later in the foreclosure process than the Bureau had intended under the
``first notice or filing'' standard because the term ``first public
action,'' as defined by FHA, does not encompass notices to the
borrower. The Bureau believes that interpreting the term ``first notice
or filing'' consistent with the term ``first public action'' would
allow activity the rule intended to delay until after the pre-
foreclosure review period.
The Bureau notes that the rule does not prohibit servicers from
engaging in collection activity or communication with the borrower; in
fact, other provisions of the rules affirmatively require that periodic
statements with delinquency information be sent and that the servicer
must engage in early intervention activities. The Bureau believes it
would be appropriate for a servicer to send a breach letter at day 60,
if the letter were sent for the general purpose of notifying the
borrower of his or her delinquency and encouraging discussions about
potential cures and loss mitigation options. However, to the extent
that the servicer is sending a breach letter at day 60 with the purpose
of serving as the formal notification of default to begin foreclosure
proceedings in a non-judicial State, that is the type of activity that
the rule was intended to delay until after the pre-foreclosure review
period. The Bureau is therefore proposing a new comment to clarify what
is prohibited under Sec. 1024.41(f). Proposed comment 41(f)-1 would
state that whether a document is considered the first notice or filing
is determined according to applicable State law. A document that would
be used as evidence of compliance with foreclosure practices required
pursuant to State law is considered the first notice or filing, and a
servicer thus is prohibited from filing such a document during the pre-
foreclosure review period. Documents that would not be used in this
fashion are not considered the first notice or filing. Thus, a servicer
is not prohibited from attempting to collect the debt, sending periodic
statements, sending breach letters or any other activity during the
pre-foreclosure review period, so long as such documents would not be
used as evidence of complying with requirements applicable pursuant to
State law in connection with a foreclosure process, and are not banned
by other applicable law (e.g., the Fair Debt Collection Practices Act
or bankruptcy law). Instead, the Bureau expects that, when a State
requires the first step to begin the formal foreclosure process is that
a notice of default must be mailed to the borrower, such a notice would
be sent after the expiration of the pre-foreclosure review period
because earlier notices could not be used for such purposes consistent
with the regulation.
Thus, under proposed comment 41(f)-1, to comply with the
requirements of Sec. 1024.41(f), any document that would be used as
evidence of compliance with a State law requirement to initiate the
foreclosure process by providing the borrower with a notice of default
must be provided after the pre-foreclosure review period required by
Sec. 1024.41(f). If a State law process mandates a notice to a
borrower of the availability of mediation and such notice is a
necessary prerequisite under State law to commence the foreclosure
process, that notice is included in the definition of first notice or
filing for the purposes of Sec. 1024.41.
The Bureau acknowledges that the provisions of Sec. 1024.41 extend
the timeline of a foreclosure by an additional 120 days. While the
proposed clarifications may highlight that existing state procedures in
connection with the Bureau's rule may create delays in the foreclosure
process that are longer than 120 days, the Bureau notes this is not a
new delay imposed by the proposed clarifications. The Bureau seeks to
establish a rule that balances protecting consumers and encouraging
communication between borrowers and servicers. The proposed rule would
protect consumers by giving effect to the provisions in Sec. 1024.41
intended to ensure a borrower is given sufficient time to submit a
complete loss mitigation application and a servicer has time to work
with the borrower without the pressure of a foreclosure practice. The
rule would encourage communication by allowing the servicer to engage
in any activity not being used as a prerequisite to State foreclosure
practices. Further, the Bureau seeks to establish a workable rule that
will clearly define what is and is not allowed, a goal that is
complicated in light of both the varying foreclosure laws of different
states, and the fact that a notice to the borrower may be sent for
multiple reasons. The Bureau believes the proposed clarifications best
balance these goals, but seeks comment on this topic.
41(f)(1) Pre-Foreclosure Review Period
The Bureau is proposing to amend the prohibition on referral to
foreclosure until after the 120th day of delinquency by limiting the
foreclosure ban in two scenarios: when the foreclosure is based on a
borrower's violation of a due-on-sale clause, and when the servicer is
joining the foreclosure action of a subordinate lienholder. Section
1024.41(f)(1) requires a 120-day pre-foreclosure review period; A
servicer may not make the first notice or filing required by applicable
law for any judicial or non-judicial foreclosure process unless a
borrower's mortgage loan obligation is more than 120 days delinquent.
This review period is intended to ensure a borrower's loss mitigation
application may be submitted and reviewed without the pressure of an
active foreclosure process and to mitigate some of the consumer harms
associated with dual tracking. However,
[[Page 39917]]
the Bureau notes that there may be some circumstances where a servicer
forecloses for reasons that do not involve a borrower's delinquency. In
such scenarios, the Bureau acknowledges the protections for delinquent
borrowers may not be appropriate or necessary. For example, if a
borrower were current on his or her loan but transferred the property
to another party (in breach of the loan contract), the rationale for
the pre-foreclosure review of loss mitigation applications would not be
applicable. Similarly, if a borrower were current on his or her first
lien but was delinquent on a second lien mortgage, and the servicer for
the second lien began a foreclosure action, it would be appropriate for
the servicer of the first lien to join the foreclosure action,
regardless of the fact that the borrower is current on the first lien
mortgage.
The Bureau believes it may be appropriate to include an exemption
to the 120-day pre-foreclosure review period in certain scenarios and
is proposing to amend Sec. 1024.41(f)(1) to include exclusions to the
120-day foreclosure ban when the foreclosure is based on a borrower's
violation of a due-on-sale clause or when the servicer is joining the
foreclosure action of a subordinate lienholder. The Bureau seeks
comment on the proposed changes. Additionally, the Bureau seeks comment
on whether other scenarios would appropriately be exempted from the
120-day foreclosure ban and on whether the exemption is appropriate in
situations in which a borrower has submitted a complete loss mitigation
application
41(h) Appeal Process
41(h)(4) Appeal Determination
The Bureau is proposing to amend Sec. 1024.41(h)(4) to provide
expressly that the notice informing a borrower of the determination of
his or her appeal must also state the amount of time the borrower has
to accept or reject an offer of a loss mitigation option after the
notice is provided to the borrower. For the reasons discussed in the
section-by-section analysis of Sec. 1024.41(c)(1)(ii), which would
require the Sec. 1024.41(b)(2)(i)(B) notice to include how long the
borrower has to accept or reject an offer of a loss mitigation option,
the Bureau believes it is important that borrowers be informed of their
rights. The Bureau believes that a borrower who is offered a loss
mitigation option should be informed of how long he or she has to
accept that option regardless of whether the option is being offered in
response to an initial evaluation of a loss mitigation application or
after the conclusion of an appeal. The Bureau seeks comment on this
amendment.
41(j) Prohibition on Foreclosure Referral
As discussed above, the Bureau is proposing to amend the
prohibition on referral to foreclosure until after the 120th day of
delinquency by limiting the foreclosure ban in two situations: when the
foreclosure is based on a borrower's violation of a due-on-sale clause
and when the servicer is joining the foreclosure action of a
subordinate lienholder. For the same reasons, the Bureau believes it
would be appropriate to make corresponding amendments to the provision
in Sec. 1024.41(j) prohibiting a small servicer from making the first
notice or filing required by applicable law for any judicial or non-
judicial foreclosure process unless a borrower's mortgage loan
obligation is more than 120 days delinquent. Thus, the Bureau is
proposing to amend Sec. 1024.41(j) to allow foreclosure before the
120th day of delinquency when the foreclosure is based on a borrower's
violation of a due-on-sale clause and when the servicer is joining the
foreclosure action of a subordinate lienholder, by incorporating a
cross-reference to Sec. 10124.41(f)(1). The Bureau seeks comment on
this amendment.
C. Regulation Z
General--Technical Corrections
In addition to the proposed clarifications and amendments to
Regulation Z discussed below, the Bureau is also proposing technical
corrections and minor clarifications to wording throughout Regulation Z
that are not substantive in nature. The Bureau is proposing such
technical and wording clarifications to regulatory text in Sec. Sec.
1026.23, 1026.31, 1026.32, 1026.35, and 1026.36 and to commentary to
Sec. Sec. 1026.25, 1026.32, 1026.34, 1026.36, and 1026.41.
Section 1026.23 Right of Rescission
23(a) Consumer's Right To Rescind
23(a)(3)(ii)
The Bureau is proposing to amend Sec. 1026.23(a)(3)(ii) to update
a cross-reference within that section from Sec. 1026.35(e)(2), as
adopted by the Bureau's Amendments to the 2013 Escrows Final Rule under
the Truth in Lending Act (Regulation Z) (May 2013 Escrows Final
Rule),\20\ to Sec. 1026.43(g). The cross-reference in the Amendments
to the 2013 Escrows Final Rule under the Truth in Lending Act
(Regulation Z) is the correct cross-reference during the time period
that rule will be in effect for transactions where applications are
received on or after June 1, 2013, but prior to January 10, 2014. For
transactions where applications are received on or after January 10,
2014, the correct cross-reference will be to Sec. 1026.43(g). For this
reason, the Bureau is proposing to remove the cross-reference to Sec.
1026.35(e)(2) and replace it with a cross-reference to Sec.
1026.43(g).
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\20\ 78 FR 30739 (May 23, 2013).
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Section 1026.32 Requirements for High-Cost Mortgages
32(b) Definitions
Two of the Bureau's 2013 Title XIV Final Rules--the 2013 ATR Final
Rule and the 2013 HOEPA Final Rule--contain provisions that relate to a
transaction's ``points and fees.'' \21\ Specifically, Sec.
1026.43(e)(2)(iii), as adopted by the 2013 ATR Final Rule, sets forth a
cap on points and fees for a closed-end credit transaction to acquire
qualified mortgage status. In addition, Sec. 1026.32(a)(1)(ii), as
adopted by the 2013 HOEPA Final Rule, sets forth a points and fees
coverage threshold for both closed- and open-end credit
transactions.\22\ These two final rules also adopted definitions of
points and fees for closed- and open-end credit transactions.
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\21\ See 78 FR 6407; 78 FR 6856. The Bureau also addressed
points and fees in the May 2013 ATR Final Rule. See 78 FR 35430.
\22\ Section 1026.43(b)(9) provides that, for the qualified
mortgage points and fees cap, ``points and fees'' has the same
meaning as in Sec. 1026.32(b)(1).
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Section 1026.32(b)(1) defines ``points and fees'' for closed-end
credit transactions, for purposes of both the qualified mortgage points
and fees cap and the high-cost mortgage coverage threshold. Section
1026.32(b)(1)(i) defines points and fees for closed-end credit
transactions to include all items included in the finance charge as
specified under Sec. 1026.4(a) and (b), with the exception of certain
items specifically excluded under Sec. 1026.32(b)(1)(i)(A) through
(F). These excluded items include interest or time-price differential;
certain types and amounts of mortgage insurance premiums; certain bona
fide third-party charges not retained by the creditor, loan originator
or an affiliate of either; and certain bona fide discount points paid
by the consumer. Section 1026.32(b)(1)(ii) through (vi) lists certain
other items that are specifically included in points and fees,
including compensation paid directly or indirectly by a consumer or
creditor to a loan originator; certain real-estate related items listed
in Sec. 1026.4(c)(7); premiums
[[Page 39918]]
for various forms of credit insurance, including credit life, credit
disability, credit unemployment and credit property insurance; the
maximum prepayment penalty, as defined in Sec. 1026.32(b)(6)(i), that
may be charged or collected under the terms of the mortgage loan; and
the total prepayment penalty as defined in Sec. 1026.32(b)(6)(i)
incurred by the consumer if the consumer refinances an existing
mortgage loan with the current holder of the existing loan (or a
servicer acting on behalf of the current holder, or an affiliate of
either).
Section 1026.32(b)(2), which defines points and fees for open-end
credit plans for purposes of the high-cost mortgage thresholds,
essentially follows the inclusions and exclusions set out in Sec.
1026.32(b)(1) for closed-end transactions, with several modifications
and additional inclusions related to fees charged for open-end credit
plans.
32(b)(1)
The Bureau is proposing to add new commentary to Sec.
1026.32(b)(1) to clarify when charges paid by parties other than the
consumer, including third parties, are included in points and fees.
Prior to the Dodd-Frank Act, TILA section 103(aa)(1)(B) provided that a
mortgage is subject to the restrictions and requirements of HOEPA if
the total points and fees ``payable by the consumer at or before
closing'' (emphasis added) exceed the threshold amount. However,
section 1431(a) of the Dodd-Frank Act amended the points and fees
coverage test to provide in TILA section 103(bb)(1)(A)(ii) that a
mortgage is a high-cost mortgage if the total points and fees ``payable
in connection with the transaction'' (emphasis added) exceed newly
established thresholds. Similarly, TILA section 129C(b)(2)(A)(vii)
provides that points and fees ``payable in connection with the loan''
(emphasis added) are included in the points and fees calculation for
qualified mortgages.
The Bureau believes that additional clarification concerning the
treatment of charges paid by parties other than the consumer, including
third parties, for purposes of inclusion in or exclusion from points
and fees would be beneficial to consumers and creditors and facilitate
compliance with the rule. Specifically, the Bureau is proposing to add
new comment 32(b)(1)-2 to clarify the treatment of charges imposed in
connection with a closed-end credit transaction that are paid by a
party to the transaction other than the consumer, for purposes of
determining whether that charge is included in points and fees as
defined in Sec. 1026.32(b)(1). The proposed comment states that
charges paid by third parties that fall within the definition of points
and fees set forth in Sec. 1026.32(b)(1)(i) through (vi) are included
in points and fees, and provides examples of third-party payments that
are included and excluded. In discussing included charges, the proposed
comment notes that a third-party payment of an item excluded from the
finance charge under a provision of Sec. 1026.4, while not included in
points and fees under Sec. 1026.32(b)(1)(i), may be included under
Sec. 1026.32(b)(1)(ii) through (vi). In discussing excluded charges,
the proposed comment states that a charge paid by a third party is not
included in points and fees under Sec. 1026.32(b)(1)(i) as a component
of the finance charge if any of the exclusions from points and fees in
Sec. 1026.32(b)(1)(i)(A) through (F) applies.
The proposed comment also discusses the treatment of ``seller's
points,'' as described in Sec. 1026.4(c)(5) and commentary. The
proposed comment states that seller's points are excluded from the
finance charge and thus are not included in points and fees under Sec.
1026.32(b)(1)(i), but also notes that charges paid by the seller may be
included in points and fees if the charges are for items in Sec.
1026.32(b)(1)(ii) through (vi). Finally the proposed comment restates
for clarification purposes that, pursuant to Sec. 1026.32(b)(1)(i)(A)
and (ii), charges that are paid by the creditor, other than loan
originator compensation paid by the creditor that is required to be
included in points and fees under Sec. 1026.32(b)(1)(ii), are excluded
from points and fees. To the extent that the creditor recovers the cost
of such charges from the consumer, the cost is recovered through the
interest rate, which is excluded from points and fees under Sec.
1026.32(b)(1)(i)(A). Section 1026.32(b)(1)(i) and (A) implements
section 103(bb)(4)(A) of TILA to include in points and fees ``[a]ll
items included in the finance charge under 1026.4(a) and (b)'' but
specifically excludes ``interest and time-price differential.'' Under
Sec. 1026.32(b)(1)(ii), however, compensation paid by the creditor to
loan originators, other than employees of the creditor, is included in
points and fees.
The Bureau believes this clarification of the treatment of charges
paid by parties other than the consumer for points and fees purposes is
consistent with the amendment to TILA made by section 1431(a) of the
Dodd-Frank Act, discussed above.
32(b)(1)(ii) and 32(b)(2)(ii)
Section 1431(c)(1)(B) of the Dodd-Frank Act requires that points
and fees include ``all compensation paid directly or indirectly by a
consumer or creditor to a mortgage originator from any source . . . .
'' TILA section 103(bb)(4). The 2013 ATR Final Rule implemented this
statutory provision in amended Sec. 1026.32(b)(1)(ii), which provides
that, for both the qualified mortgage points and fees limits and the
high-cost mortgage points and fees threshold, points and fees include
all compensation paid directly or indirectly by a consumer or creditor
to a loan originator, as defined in Sec. 1026.36(a)(1), that can be
attributed to the transaction at the time the interest rate is set. The
2013 HOEPA Final Rule implemented Sec. 1026.32(b)(2)(ii), which
provides the same standard for including loan originator compensation
in points and fees for open-end credit plans (i.e., a home equity line
of credit, or HELOC). Concurrent with the 2013 ATR Final Rule, the
Bureau also issued the 2013 ATR Concurrent Proposal, which, among other
things, proposed certain clarifications for calculating loan originator
compensation for points and fees. The Bureau finalized the 2013 ATR
Concurrent Proposal in the May 2013 ATR Final Rule, which further
amended Sec. 1026.32(b)(1)(ii) to exclude certain types of loan
originator compensation from points and fees. In particular, the May
2013 ATR Final Rule excludes from points and fees loan originator
compensation paid by a consumer to a mortgage broker when that payment
has already been counted toward the points and fees thresholds as part
of the finance charge under Sec. 1026.32(b)(1)(i). See Sec.
1026.32(b)(1)(ii)(A). It also excludes from points and fees
compensation paid by a mortgage broker to an employee of the mortgage
broker because that compensation is already included in points and fees
as loan originator compensation paid by the consumer or the creditor to
the mortgage broker. See Sec. 1026.32(b)(1)(ii)(B). In addition, the
May 2013 ATR Final Rule excludes from points and fees compensation paid
by a creditor to its loan officers. See Sec. 1026.32(b)(1)(ii)(C).
The 2013 ATR Concurrent Proposal had requested comment on whether
additional adjustment of the rules or additional commentary is
necessary to clarify any overlapping definitions between the points and
fees provisions in the 2013 ATR Final Rule and the 2013 HOEPA Final
Rule and the provisions adopted by the 2013 Loan Originator
Compensation Final Rule. In particular, the Bureau sought comment
[[Page 39919]]
on whether additional guidance would be useful regarding persons who
are ``loan originators'' under Sec. 1026.36(a)(1) but are not employed
by a creditor or mortgage broker, such as employees of a retailer of
manufactured homes.
In response to the 2013 ATR Concurrent Proposal, several industry
and nonprofit commenters requested clarification of what compensation
must be included in points and fees in connection with transactions
involving manufactured homes. First, they requested additional guidance
on what activities would cause a manufactured home retailer and its
employees to qualify as loan originators. Second, they requested
additional guidance on what compensation paid to manufactured home
retailers and their employees would be counted as loan originator
compensation and included in points and fees. The Bureau believes it is
appropriate to provide additional opportunity for public comment on
these issues. Accordingly, rather than provide additional guidance in
the May 2013 ATR Final Rule, the Bureau noted that it would propose and
seek comment on additional guidance.
The 2013 Loan Originator Compensation Final Rule had provided
additional guidance on what activities would cause such a retailer and
its employees to qualify as loan originators in light of language from
the Dodd-Frank Act creating an exception from the definition of loan
originator for employees of manufactured home retailers that engage in
certain limited activities. See Sec. 1026.36(a)(1)(i)(B) and comments
36(a)-1.i.A and 36(a)-4. Commenters responding to the 2013 ATR
Concurrent Proposal nevertheless argued that it remains unclear what
activities a retailer and its employees could engage in without
qualifying as loan originators and causing their compensation to be
included in points and fees. Industry commenters also noted that,
because a creditor has limited knowledge of and control over the
activities of a manufactured home retailer and its employees, it would
be difficult for the creditor to know whether the retailer and its
employees had engaged in activities that would require their
compensation to be included in points and fees. Industry commenters
therefore urged the Bureau to adopt a bright-line rule under which
compensation would be included in points and fees only if paid to an
employee of a creditor or a mortgage broker.
As noted in the May 2013 ATR Final Rule, the Bureau does not
believe it is appropriate to use its exception authority to exclude
from points and fees all compensation that may be paid to a
manufactured home retailer. As a general matter, to the extent that the
consumer or creditor is paying the retailer for loan origination
activities, the retailer is functioning as a mortgage broker and
compensation for the retailer's loan origination activities should be
captured in points and fees. As discussed below, the Bureau is
proposing to clarify what compensation must be included in points and
fees. As discussed in the Supplementary Information describing proposed
revisions and clarifications to the rule text and commentary defining
``loan originator,'' the Bureau is also proposing to clarify the
circumstances in which employees of manufactured home retailers are
loan originators, including a revision to Sec. 1026.36(a)(i)(B). In
addition, the Bureau is continuing to conduct outreach with the
manufactured home industry and other interested parties to address
concerns about what activities are permissible for a retailer and its
employees without causing them to qualify as loan originators.
Industry commenters responding to the 2013 ATR Concurrent Proposal
also requested that the Bureau clarify what compensation must be
included in points and fees when a retailer and its employees qualify
as loan originators. They argued that it is not clear whether the sales
price received by the retailer or the sales commission received by the
retailer's employee should be considered, at least in part, loan
originator compensation. They urged the Bureau to clarify that
compensation paid to a retailer and its employees in connection with
the sale of a manufactured home should not be counted as loan
originator compensation.
Under Sec. 1026.32(b)(1)(ii), loan originator compensation is
included in points and fees only if it can be attributed to a
transaction at the time the interest rate is set. The Bureau believes
that the sales price would not include compensation that is paid for
loan origination activities and that can be attributed to a specific
transaction. The sales price of a manufactured home allows manufactured
home retailers to recover their costs (including the costs of
compensating salespersons and other employees) and earn a profit. The
Bureau does not believe that manufactured home retailers charge a
different sales price depending on whether or not the retailer engages
in loan origination activities for that particular transaction. If the
retailer does not increase the price to obtain compensation for loan
origination activities, then it does not appear that the sales price
would include loan originator compensation that could be attributed to
that particular transaction.
The Bureau acknowledges that it is theoretically possible that the
sales price could include loan originator compensation that could be
attributed to a particular transaction at the time the interest rate is
set and that therefore should be included in points and fees. One
approach for calculating loan originator compensation for manufactured
home transactions would be to compare the sales price in a transaction
in which the retailer engaged in loan origination activities and the
sales prices in transactions in which the retailer did not do so (such
as in cash transactions or in transactions in which the consumer
arranged credit through another party). To the extent that there is a
higher sales price in the transaction in which the retailer engaged in
loan origination activities, then the difference in sales prices could
be counted as loan originator compensation that can be attributed to
that transaction and that therefore should be included in points and
fees.
However, the Bureau does not believe that it is workable for the
creditor to use this comparative sales price approach to determine
whether the sales price includes loan originator compensation that must
be included in points and fees. The creditor is responsible for
calculating loan originator compensation to be included in points and
fees for the qualified mortgage and high-cost mortgage points and fees
thresholds. Accordingly, under the comparative sales price approach,
the creditor would have to analyze a manufactured home retailer's
prices to determine if there were differences in the prices that would
have to be included in points and fees as loan originator compensation.
This would appear to be an extremely difficult analysis for the
creditor to perform. Not only would the creditor have to compare the
sales prices from numerous transactions, it would have to determine
whether any differences between the sales prices can be attributed to
the loan origination activities of the retailer and not to other
factors.
As noted above, the Bureau does not believe that the sales price of
a manufactured home includes loan originator compensation that can be
attributed to a particular transaction. Moreover, the Bureau does not
believe it is practicable for the creditor to attempt to analyze the
sales price to determine if it does in fact include loan originator
compensation that can be attributed to a particular transaction and
[[Page 39920]]
therefore must be included in points and fees. Accordingly, the Bureau
is proposing guidance providing that the sales price of a manufactured
home does not include loan originator compensation that can be
attributed to the transaction at the time the interest rate is set and
that the sales price therefore does not include loan originator
compensation that must be included in points and fees under Sec.
1026.32(b)(1)(ii). The Bureau requests comment on this proposed
guidance. In addition, the Bureau requests comment on whether the sales
price of a manufactured home does include loan originator compensation
that can be attributed to the transaction at the time the interest rate
is set, and, if so, whether there are practicable ways for a creditor
to measure that compensation so that it could be included in points and
fees.
With respect to employees of manufactured home retailers, the
Bureau notes that the May 2013 ATR Final Rule added Sec.
1026.32(b)(1)(ii)(B), which excludes from points and fees compensation
paid by mortgage brokers to their loan originator employees. It appears
to the Bureau that when an employee of a retailer would qualify as a
loan originator, the retailer also would qualify as a loan originator
and therefore would qualify as a mortgage broker. If the retailer
qualifies as a mortgage broker, any compensation paid by the retailer
to the employee would be excluded from points and fees under Sec.
1026.32(b)(1)(ii)(B).
The Bureau notes, however, that if there were instances in which an
employee of a manufactured home retailer would qualify as a loan
originator but the retailer would not, the exclusion from points and
fees in Sec. 1026.32(b)(1)(ii)(B) for compensation paid to an employee
of a mortgage broker would not apply because the retailer would not be
a mortgage broker. Nevertheless, the Bureau believes it may still be
appropriate to exclude such compensation paid to an employee of a
manufactured home retailer. As noted by some commenters responding to
the 2013 ATR Concurrent Proposal, it may be difficult for creditors to
determine whether employees of a manufactured home retailer have
engaged in loan origination activities and, if so, what compensation
they received for doing so. The Bureau understands that a retailer
typically pays a sales commission to its employees, so it may be
difficult for a creditor to know whether a retailer has paid any
compensation to its employees for loan origination activities, as
distinct from compensation for sales activities.\23\ Accordingly, to
prevent any such uncertainty, the Bureau is proposing new Sec.
1026.32(b)(1)(ii)(D), which excludes from points and fees all
compensation paid by manufactured home retailers to their employees.
The Bureau requests comment on this proposed exclusion. The Bureau also
requests comment on whether there are instances in which an employee of
a manufactured home retailer would qualify as a loan originator but the
retailer would not qualify as a loan originator.
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\23\ Commenters asserted that creditors may presume that the
sales commissions should be treated as loan originator compensation
and include such payments in points and fees. They maintain that
doing so would prevent most loans from staying under the qualified
mortgage points and fees limits and would cause many loans to exceed
the high-cost mortgage points and fees thresholds.
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The Bureau notes that it is proposing to exclude from points and
fees only compensation that is paid by a manufactured home retailer to
its employees. To the extent that an employee of a manufactured home
retailer receives from another source (such as the creditor) loan
originator compensation that can be attributed to the transaction at
the time the interest rate is set, then that compensation must be
included in points and fees.
As noted above, the Bureau is proposing new Sec.
1026.32(b)(1)(ii)(D), which excludes from points and fees all
compensation paid by manufactured home retailers to their employees.
The Bureau is also proposing new Sec. 1026.32(b)(2)(ii)(D), which
provides that, for open-end credit plans, compensation paid by
manufactured home retailers to their employees is excluded from points
and fees for purposes of the high-cost mortgage points and fees
threshold.
The Bureau is also proposing new comment 32(b)(1)(ii)-5, which
explains what compensation is included in loan originator compensation
that must be included in points and fees for manufactured home
transactions. Proposed comment 32(b)(1)(ii)-5.i states that, if a
manufactured home retailer receives compensation for loan origination
activities and such compensation can be attributed to the transaction
at the time the interest rate is set, then such compensation is loan
originator compensation that is included in points and fees. Proposed
comment 32(b)(1)(ii)-5.ii specifies that the sales price of the
manufactured home does not include loan originator compensation that
can be attributed to the transaction at the time the interest rate is
set and therefore is not included in points and fees. Proposed comment
32(b)(1)(ii)-5.iii specifies that, consistent with new Sec.
1026.32(b)(1)(ii)(D), compensation paid by a manufactured home retailer
to its employees is not included in points and fees.
The Bureau is proposing new Sec. 1026.32(b)(1)(ii)(D) and
(b)(2)(ii)(D) pursuant to its authority under TILA section 105(a) to
make such adjustments and exceptions for any class of transactions as
the Bureau finds necessary or proper to facilitate compliance with TILA
and to effectuate the purposes of TILA, including the purposes of TILA
section 129C of ensuring that consumers are offered and receive
residential mortgage loans that reasonably reflect their ability to
repay the loans. The Bureau's understanding of this purpose is informed
by the findings related to the purposes of section 129C of ensuring
that responsible, affordable mortgage credit remains available to
consumers. The Bureau believes that using its TILA exception
authorities will facilitate compliance with the points and fees
regulatory regime by not requiring creditors to investigate the
manufactured housing retailer's employee compensation practices, and by
making sure that all creditors apply the provision consistently. It
will also effectuate the purposes of TILA by helping to keep mortgage
loans available and affordable by ensuring that they are subject to the
appropriate regulatory framework with respect to qualified mortgages
and the high-cost mortgage threshold. The Bureau is also invoking its
authority under TILA section 129C(b)(3)(B) to revise, add to, or
subtract from the criteria that define a qualified mortgage consistent
with applicable standards. For the reasons explained above, the Bureau
has determined that it is necessary and proper to ensure that
responsible, affordable mortgage credit remains available to consumers
in a manner consistent with the purposes of TILA section 129C and
necessary and appropriate to effectuate the purposes of this section
and to facilitate compliance with section 129C. With respect to its use
of TILA section 129C(b)(3)(B), the Bureau believes this authority
includes adjustments and exceptions to the definitions of the criteria
for qualified mortgages and that it is consistent with the purpose of
facilitating compliance to extend use of this authority to the points
and fees definitions for high-cost mortgage in order to preserve the
consistency of the qualified mortgage and high-cost mortgage
definitions. As
[[Page 39921]]
noted above, by helping to ensure that the points and fees calculation
is not artificially inflated, the Bureau is helping to ensure that
responsible, affordable mortgage credit remains available to consumers.
The Bureau also has considered the factors in TILA section 105(f)
and has concluded that, for the reasons discussed above, the proposed
exemption is appropriate under that provision. Pursuant to TILA section
105(f), the Bureau may exempt by regulation from all or part of this
title all or any class of transactions for which in the determination
of the Bureau coverage does not provide a meaningful benefit to
consumers in the form of useful information or protection. In
determining which classes of transactions to exempt, the Bureau must
consider certain statutory factors. For the reasons discussed above,
the Bureau is proposing to exclude from points and fees compensation
paid by a retailer of manufactured homes to its employees because
including such compensation in points and fees does not provide a
meaningful benefit to consumers. The Bureau believes that the proposed
exemption is appropriate for all affected consumers to which the
proposed exemption applies, regardless of their other financial
arrangements and financial sophistication and the importance of the
loan to them. Similarly, the Bureau believes that the proposed
exemption is appropriate for all affected loans covered under the
proposed exemption, regardless of the amount of the loan and whether
the loan is secured by the principal residence of the consumer.
Furthermore, the Bureau believes that, on balance, the proposed
exemption will simplify the credit process without undermining the goal
of consumer protection, denying important benefits to consumers, or
increasing the expense of the credit process.
The Bureau also concludes that, to the extent that it determines
that it would be appropriate to adopt a regulatory provision that
excludes from points and fees any loan originator compensation in the
sales price of a manufactured home, such an exclusion also would be
appropriate under TILA section 105(f). The Bureau believes that
including such compensation in points and fees does not provide a
meaningful benefit to consumers. The Bureau believes that such an
exemption would be appropriate for all affected consumers to which the
exemption would apply, regardless of their other financial arrangements
and financial sophistication and the importance of the loan to them.
Similarly, the Bureau believes that the exemption would be appropriate
for all affected loans, regardless of the amount of the loan and
whether the loan is secured by the principal residence of the consumer.
Furthermore, the Bureau believes that, on balance, the exemption would
simplify the credit process without undermining the goal of consumer
protection, denying important benefits to consumers, or increasing the
expense of the credit process.
32(b)(1)(vi) and 32(b)(2)(vi)
The Bureau is proposing changes to Sec. 1026.32(b)(1)(vi) and
(2)(vi) to harmonize more fully the definitions of ``total prepayment
penalty'' adopted in these two sections with the statutory requirement
implemented by them. Section 1026.32(b)(1)(vi) and (2)(vi) implements
section 1431(c) of the Dodd-Frank Act, which added new TILA section
103(bb)(4)(F). That provision requires that points and fees include
``all prepayment fees or penalties that are incurred by the consumer if
the loan refinances a previous loan made or currently held by the same
creditor or an affiliate of the creditor.'' As adopted by the 2013 ATR
Final Rule, Sec. 1026.32(b)(1)(vi) implements this provision as it
relates to closed-end credit transactions, and provides that points and
fees must include ``[t]he total prepayment penalty, as defined in
paragraph (b)(6)(i) of this section, incurred by the consumer if the
consumer refinances the existing mortgage loan with the current holder
of the existing loan, a servicer acting on behalf of the current
holder, or an affiliate of either.'' As adopted by the 2013 HOEPA Final
Rule, Sec. 1026.32(b)(2)(vi) implements this provision as it relates
to open-end credit plans (i.e., a home equity line of credit, or
HELOC), and provides that points and fees must include ``[t]he total
prepayment penalty, as defined in paragraph (b)(6)(ii) of this section,
incurred by the consumer if the consumer refinances an existing closed-
end credit transaction with an open-end credit plan, or terminates an
existing open-end credit plan in connection with obtaining a new
closed- or open-end credit transaction, with the current holder of the
existing plan, a servicer acting on behalf of the current holder, or an
affiliate of either.''
The Bureau intended these provisions to work in the same manner for
closed-end and open-end credit transactions: To include in points and
fees any prepayment charges triggered by the refinancing of an existing
loan or termination of a HELOC by obtaining a new credit transaction
with the current holder of the existing closed-end mortgage loan or
open-end credit plan. The Bureau believes that additional clarification
as to when prepayment penalties are included in points and fees in
connection with the refinancing of a closed-end mortgage loan or the
termination and replacement of a HELOC with the holder of the existing
loan or HELOC would be beneficial.
The Bureau is proposing changes to Sec. 1026.32(b)(1)(vi) and
(2)(vi) to clarify both provisions' application. Specifically, the
Bureau is proposing to state expressly that Sec. 1026.32(b)(1)(vi)
applies to instances where the consumer takes out a closed-end mortgage
loan to pay off and terminate an existing open-end credit plan held by
the same creditor and the plan imposes a prepayment penalty (as defined
in Sec. 1026.32(b)(6)(ii)) on the consumer. The Bureau also is
proposing to strike from Sec. 1026.32(b)(2)(vi) the reference to
obtaining a new closed-end credit transaction because Sec.
1026.32(b)(2)(vi) relates to points and fees only for open-end credit
plans and Sec. 1026.32(b)(1)(vi) would apply instead. The Bureau is
also proposing to insert in Sec. 1026.32(b)(2)(vi) a reference to
Sec. 1026.32(b)(6)(i), the definition of prepayment penalties for
closed-end credit transactions, to clarify that this definition applies
in calculating the prepayment penalties included where a consumer
refinances a closed-end mortgage loan with a HELOC with the creditor
holding the closed-end mortgage loan (i.e., the closed-end mortgage
loan's prepayment penalties are included in calculating points and fees
for the HELOC). The Bureau believes that these changes are consistent
with the statutory provision implemented by this section and clarify
the Bureau's intended application of Sec. 1026.32(b)(1)(vi) and
(2)(vi).
32(b)(2)
The Bureau is proposing the addition of a new comment 32(b)(2)-1
that directs readers for further guidance on the inclusion of charges
paid by parties other than the consumer in points and fees for open-end
credit plans to proposed comment 32(b)(1)-2 on closed-end credit
transactions.
32(d) Limitations
32(d)(1)
32(d)(1)(ii) Exceptions
32(d)(1)(ii)(C)
The Bureau is proposing to revise the exception to the prohibition
on balloon payments for high-cost mortgages in Sec.
1026.32(d)(1)(ii)(c) for transactions that satisfy the criteria set
forth in Sec. 1026.43(f), which implements a Dodd-
[[Page 39922]]
Frank Act provision that allows certain balloon-payment mortgages made
by small creditors operating predominantly in ``rural or underserved
areas'' to be accorded status as qualified mortgages under the 2013 ATR
Final Rule. The Bureau has received extensive comment on the
definitions of ``rural'' and ``underserved'' that it adopted for
purposes of Sec. 1026.43(f) and certain other purposes in the 2013
Title XIV Final Rules, and recently announced that it would reexamine
those definitions over the next two years to determine whether further
adjustments are appropriate particularly in light of access to credit
concerns.\24\ The Bureau also amended the 2013 ATR Final Rule to add
Sec. 1026.43(e)(6) to allow small creditors during the period from
January 10, 2014, to January 10, 2016, to make balloon-payment
qualified mortgages even if they do not operate predominantly in rural
or underserved areas.\25\ In light of those actions, the Bureau is
proposing to revise Sec. 1026.32(d)(1)(ii)(c) to expand the exception
to the prohibition on balloon payments for high-cost mortgages for
transactions that satisfy the criteria in either Sec. 1026.43(f) or
(e)(6).
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\24\ See e.g., U.S. Consumer Fin Prot. Bureau, Clarification of
the 2013 Escrows Final Rule (May 16, 2013), available at https://www.consumerfinance.gov/blog/clarification-of-the-2013-escrows-final-rule/.
\25\ Specifically, in the May 2013 ATR Final Rule, the Bureau
adopted Sec. 1026.43(e)(6), which provided for a temporary balloon-
payment qualified mortgage that requires all of the same criteria be
satisfied as the balloon-payment qualified mortgage definition in
Sec. 1026.43(f) except the requirement that the creditor extend
more than 50 percent of its total first-lien covered transactions in
counties that are ``rural'' or ``underserved.'' This temporary
balloon-payment qualified mortgage would sunset, however, after
January 10, 2016. As discussed in the section-by-section analysis of
Sec. 1026.43(e)(6) in the May 2013 ATR Final Rule, the Bureau
adopted this two-year transition period for small creditors to roll
over existing balloon-payment loans as qualified mortgages, even if
they do not operate predominantly in rural or underserved areas,
because the Bureau believes it is necessary to preserve access to
responsible, affordable mortgage credit for some consumers. The
Bureau also noted that, during the two-year period for which Sec.
1026.43(e)(6) is in place, the Bureau intends to review whether the
definitions of ``rural'' and ``underserved'' should be adjusted
further and to explore how it can best facilitate the transition of
small creditors that do not operate predominantly in rural or
underserved areas from balloon-payment loans to adjustable-rate
mortgages. 78 FR 35430.
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The balloon qualified mortgage provision in Sec. 1026.43(f)
implements a Dodd-Frank Act provision that appears to have been
designed to promote access to credit. The Dodd-Frank Act generally
prohibits balloon-payment loans from being accorded qualified mortgage
status, but Congress appears to have been concerned that small
creditors in rural areas might have sufficient difficulty converting
from balloon-payment loans to adjustable rate mortgages that they would
curtail mortgage lending if they could not obtain qualified mortgage
status for their balloon-payment loans. As adopted in the 2013 ATR
Final Rule, the exemption is available to creditors that extended more
than 50 percent of their total covered transactions secured by a first
lien in ``rural'' or ``underserved'' counties during the preceding
calendar year.
Because commenters raised similar concerns about the prohibition in
HOEPA on high-cost mortgages having balloon-payment features, the
Bureau decided in the 2013 HOEPA Final Rule to adopt Sec.
1026.32(d)(1)(ii)(C) to allow balloon-payment features on loans that
met the qualified mortgage requirements. The Bureau stated that, in its
view, (1) allowing creditors in certain rural or underserved areas to
extend high-cost mortgages with balloon payments will benefit consumers
by expanding access to credit in these areas, and also will facilitate
compliance for creditors who make these loans; and (2) allowing
creditors that make high-cost mortgages in rural or underserved areas
to originate loans with balloon payments if they satisfy the same
criteria promotes consistency between the 2013 HOEPA Final Rule and the
2013 ATR Final Rule, and thereby facilitates compliance for creditors
that operate in these areas.
Because the Bureau has now decided to allow small creditors an
additional two years to transition from balloon-payment loans to other
products while it reevaluates the definitions of ``rural'' and
``underserved,'' the Bureau believes it is appropriate to carry over
the flexibility provided by the revised May 2013 ATR Final Rule into
the HOEPA balloon loan provisions. Accordingly, the Bureau is proposing
to amend Sec. 1026.32(d)(1)(ii)(C) to include the Sec. 1026.43(e)(6)
exception. The Bureau is proposing to expand this exception pursuant to
its authority under TILA section 129(p)(1), which grants it authority
to exempt specific mortgage products or categories from any or all of
the prohibitions specified in TILA section 129(c) through (i) if the
Bureau finds that the exemption is in the interest of the borrowing
public and will apply only to products that maintain and strengthen
homeownership and equity protections.
The Bureau believes expanding the balloon-payment exception for
high-cost mortgages to allow certain small creditors operating in areas
that do not qualify as ``rural'' or ``underserved'' to continue to
originate high-cost mortgages with balloon payments is in the interest
of the borrowing public and will strengthen homeownership and equity
protection. The Bureau believes allowing greater access to credit in
remote areas that nevertheless may not meet the definitions of
``rural'' or ``underserved'' while creditors transition to adjustable
rate mortgages (or the Bureau reconsiders those definitions) will help
those consumers who otherwise may be able to obtain credit only from a
limited number of creditors. Further, it will do so in a manner that
balances consumer protections with access to credit. In the Bureau's
view, concerns about potentially abusive practices that may accompany
balloon payments will be curtailed by the additional requirements set
forth in Sec. 1026.43(e)(6) and (f). Creditors that make these high-
cost mortgages will be required to verify that the loans also satisfy
the additional criteria discussed above, including some specific
criteria required for qualified mortgages. Further, creditors that make
balloon-payment high-cost mortgages under this exception will be
required to hold the high-cost mortgages in portfolio for a specified
time, which the Bureau believes also decreases the risk of abusive
lending practices. Accordingly, for these reasons and for the purpose
of consistency between the two rulemakings, the Bureau is proposing to
amend the 2013 HOEPA Final Rule to include an exception to the Sec.
1026.32(d)(1) balloon-payment restriction for high-cost mortgages where
the creditor satisfies the conditions set forth in Sec. Sec.
1026.43(f)(1)(i) through (vi) and 1026.43(f)(2) or the conditions set
forth in Sec. 1026.43(e)(6).
Section 1026.35 Requirements for Higher-Priced Mortgage Loans
35(b) Escrow Accounts
35(b)(2) Exemptions
35(b)(2)(iii)
35(b)(2)(iii)(A)
The Bureau is proposing to revise the exemption provided by Sec.
1026.35(b)(2)(iii) to the general requirement that creditors establish
an escrow account for first lien higher-priced mortgage loans where a
small creditor operates predominantly in rural or underserved areas and
meets various other criteria. The Bureau has received extensive comment
on the definitions of ``rural'' and ``underserved'' that it adopted for
purposes of Sec. 1026.35(b)(2) and certain other purposes in the 2013
Title XIV Final Rules and recently announced that it would re-examine
those definitions over the next two years
[[Page 39923]]
to determine whether further adjustments are appropriate particularly
in light of access to credit concerns. In light of that coming re-
examination, the Bureau is proposing to revise Sec. 1026.35(b) and its
commentary to minimize volatility in the definitions while they are
being re-evaluated.
The exemption in Sec. 1026.35(b)(2)(iii) implements a Dodd-Frank
Act provision that appears to have been designed to promote access to
credit by exempting small creditors in rural areas that might have
sufficient difficulty maintaining escrow accounts that they would
curtail making higher-priced mortgage loans rather than trigger the
escrow account requirement. As adopted in the 2013 Escrows Final Rule,
and as amended by the Amendments to the 2013 Escrows Final Rule,\26\
the exemption is available to creditors that extended more than 50
percent of their total covered transactions secured by a first lien on
properties that are located in ``rural'' or ``underserved'' counties
during the preceding calendar year. In general, a county's status as
``rural'' is defined in relation to Urban Influence Codes (UICs)
established by the United States Department of Agriculture's Economic
Research Service. Due to updated information from the 2010 Census,
however, the list of ``rural'' counties will change between 2013 and
2014, with a small number of new counties meeting the definition of
rural and approximately 82 counties no longer meeting that definition.
The Bureau estimates that approximately 200-300 otherwise eligible
creditors during 2013 could lose their eligibility for 2014 solely
because of changes in the status of the counties in which they operate
(assuming the geographical distribution of their mortgage originations
does not change significantly over the relevant period).\27\ In light
of the Bureau's intent to review whether the definitions of ``rural''
and ``underserved'' should be adjusted further during the two-year
transition period for balloon-payment mortgages discussed above, the
Bureau also believes that subjecting small creditors that make higher-
priced mortgage loans to such volatility in their eligibility for the
exemption from the escrows requirement in the meanwhile could create
significant burden for such creditors with little meaningful benefit to
consumers in return.
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\26\ 78 FR 30739 (May 23, 2013).
\27\ The extent of such volatility in the transition from 2012
rural/non-rural status (for purposes of eligibility for the
exemption during 2013) to 2013 rural/non-rural status (for purposes
of eligibility for the exemption during 2014) is likely far greater
than during other year-to-year transitions. This is due to the fact
that this first year-to-year transition under the Bureau's ``rural''
definition happens to coincide with the redesignation by the USDA's
Economic Research Service of U.S. counties' urban influence codes,
on which the ``rural'' definition is generally based. This
redesignation occurs only decennially, based on the most recent
census data. Nevertheless, for purposes of eligibility for the
exemption during 2013 and 2014, the volatility is significant--just
as creditors are first attempting to apply the exemption's criteria.
---------------------------------------------------------------------------
Accordingly, the Bureau is proposing to revise Sec.
1026.35(b)(2)(iii)(A) to provide that, to qualify for the exemption, a
creditor must have extended more than 50 percent of its total covered
transactions secured by a first lien on properties located in ``rural''
or ``underserved'' counties during any of the preceding three calendar
years. As proposed, the provision thus would prevent a creditor from
losing eligibility for the exemption under the ``rural or underserved''
element of the test unless it has failed to exceed the 50-percent
threshold three years in a row.
As discussed above in the section-by-section analysis of Sec.
1026.32(d)(1)(ii)(C), the Bureau also is proposing to modify the
exception from the prohibition on balloon payments for high-cost
mortgages in that section. Section 1026.32(d)(1)(ii)(C) provides an
exception to the general prohibition on balloon payments for high-cost
mortgages for balloon-payment qualified mortgages made by certain
creditors operating predominantly in ``rural'' or ``underserved''
areas. Believing that the same rationale for allowing balloon-payment
qualified mortgages made by creditors in rural or underserved areas
applies to high-cost mortgages, the Bureau adopted the Sec.
1026.32(d)(1)(ii)(C) exception in the 2013 HOEPA Final Rule. As
explained above, the Bureau believes the same underlying rationale for
the two-year transition period for balloon-payment qualified mortgages
described above applies equally to the Sec. 1026.32(d)(1)(ii)(C)
exception from the high-cost mortgage balloon prohibition. Accordingly,
the Bureau believes it is appropriate to extend this temporary
framework to Sec. 1026.32(d)(1)(ii)(C) and therefore is proposing to
amend Sec. 1026.32(d)(1)(ii)(C) to include loans meeting the criteria
under Sec. 1026.43(e)(6). Thus, for both balloon-payment qualified
mortgages and for the high-cost mortgage balloon prohibition, the
Bureau has adopted or is now proposing to adopt a two-year transition
period during which the special treatment of balloon-payment loans does
not depend on the creditor operating predominantly in rural or
underserved areas.
The Bureau considered taking the same approach with regard to the
escrow requirement but concluded ultimately that a smaller adjustment
was appropriate. Because higher-priced mortgage loans are already
subject to an escrow requirement, all creditors are currently required
to maintain escrow accounts for such loans. Implementation of the Dodd-
Frank Act exemption will thus reduce burden for some creditors, but
does not impose different requirements than the status quo except as to
the length of time that an escrow account must be maintained. This is
fundamentally different than the ability-to-repay and high-cost
mortgage requirements, which would prohibit new balloon-payment loans
from being accorded qualified mortgage status or from being made going
forward absent implementation of the special exemptions. In addition,
the Bureau may change the definition of rural or underserved areas as
the result of its re-examination process, but does not anticipate
lifting the requirement that creditors operate predominantly in rural
or underserved areas to qualify for the exemption because Congress
specifically contemplated that limitation on the escrows exemption.
Accordingly, the Bureau believes it is appropriate to leave the
definition in place, but to prevent volatility in the definition from
negatively impacting creditors who have fallen within the existing
definition while the Bureau re-evaluates the underlying definitions.
The Bureau believes that, as with the other two balloon-payment
provisions for which the Bureau believes two-year transition periods
are appropriate, this amendment will benefit consumers by expanding
access to credit in certain areas that met the definitions of ``rural''
or ``underserved'' at some time in the preceding three calendar years
and also will facilitate compliance for creditors that make these
loans. The Bureau also believes that the proposed amendment will
promote additional consistency between the 2013 HOEPA Final Rule, the
2013 ATR Final Rule, and the 2013 Escrows Final Rule, thereby
facilitating compliance for affected creditors.
The Bureau notes that the mechanics of proposed Sec.
1026.35(b)(2)(iii)(A) differ slightly from the express transition
period ending on January 10, 2016, under Sec. 1026.43(e)(6). Thus,
this proposed amendment would not parallel the same transition period
precisely, as does proposed Sec. 1026.32(d)(1)(ii)(C), which simply
would incorporate Sec. 1026.43(e)(6)'s conditions by cross-reference.
Instead, proposed Sec. 1026.35(b)(2)(iii)(A) would approximate a two-
year transition period by extending from one to three
[[Page 39924]]
years the time for which a creditor, once eligible for the exemption,
cannot lose that eligibility because of changes in the rural (or
underserved) status of the counties in which the creditor operates.
Because the 2013 Escrows Final Rule took effect on June 1, 2013, the
escrows provisions already have begun operating over seven months
earlier than the provisions adopted by the 2013 HOEPA and ATR Final
Rules (which take effect on January 10, 2014). Thus, whereas the two
balloon-payment provisions specifically last through January 10, 2016,
the escrows-requirement exemption would guarantee eligibility (for a
creditor that is eligible during 2013) through 2015. Thus, the proposed
Sec. 1026.35(b)(2)(iii) exemption would approximately, though not
exactly, track the extension of the balloon exemption for qualified
mortgages under Sec. 1026.43(e)(6), and the proposed extension of the
HOEPA balloon exemption under proposed Sec. 1026.32(d)(1)(ii)(C).
In addition to the proposed changes discussed above, the Bureau
also is proposing to amend Sec. 1026.35(b)(2)(iii)(D)(1) and its
commentary to conform to the proposed expansion of the exemption to
creditors that may meet the section 35(b)(2)(iii)(A) criteria for
calendar year 2014 based on loans made in ``rural'' or ``underserved''
counties in calendar year 2011, but not 2012 or 2013. Section Sec.
1026.35(b)(2)(iii)(D)(1) currently prohibits any creditor from availing
itself of the exemption if it maintains escrow accounts for any
extensions of consumer credit secured by real property or a dwelling
that it or its affiliate currently service, unless the escrow accounts
were established for first-lien higher-priced mortgage loans on or
after April 1, 2010, and before June 1, 2013, or were established after
consummation as an accommodation for distressed consumers. With respect
to loans where escrows were established on or after April 1, 2010, and
before June 1, 2013, the Supplementary Information to the 2013 Escrows
Final Rule explained that the Bureau believes creditors should not be
penalized for compliance with the then current regulation, which would
have required any such loans to be escrowed after April 1, 2010, and
prior to June 1, 2013--the date the exemption took effect.
The Bureau understands that creditors who did not make more than 50
percent of their first-lien higher-priced mortgage loans in ``rural''
or ``underserved'' counties in calendar year 2012 would have been
ineligible for the exemption for calendar year 2013, and thus would
have been required under Sec. 1026.35(a) to escrow any higher-priced
mortgage loans those creditors made after June 1, 2013. However, it is
possible in light of the proposed amendments that some of these same
creditors may have met this criteria during calendar year 2011--and
thus, should the Bureau finalize the proposal and allow creditors to
qualify for the exemption (assuming they satisfy the other conditions
set forth in Sec. 1026.35(b)(2)(iii)(B), (C), and (D))--such creditors
may qualify for the exemption in 2014. However, there would be one
barrier: For applications received on or after June 1, 2013, but before
the date the proposed amendment takes effect (as proposed, January 1,
2014), such a creditor who made a first-lien higher-priced mortgage
loan would have been required to escrow that loan, and thus would be
deemed ineligible under Sec. 1026.35(b)(2)(iii)(D).
The Bureau does not believe that such creditors should lose the
exemption because they were ineligible prior to the proposed amendment
taking effect and thus made loans with escrows from June 1, 2013,
through December 31, 2013. As the Bureau discussed in the Supplementary
Information to the final rule, the Bureau believes creditors should not
be penalized for compliance with the current regulation. The Bureau
thus believes it is appropriate to amend Sec. 1026.35(b)(2)(iii)(D)(1)
and comment 35(b)(2)(iii)-1.iv to exclude escrow accounts established
after April 1, 2010 and before January 1, 2014. The Bureau invites
comment on this approach, and specifically whether an effective date
for transactions where applications were received on or after January
1, 2014 is appropriate, in light of the proposed change to the calendar
year exemption under Sec. 1026.35(b)(2)(iii).
Section 1026.36 Loan Originator Compensation
36(a) Definitions
The Bureau is proposing several clarifications, revisions, and
amendments to Sec. 1026.36(a) and associated commentary to resolve
inconsistencies in wording, to conform the comments to the intended
operation of the regulation text, and to address issues raised during
the regulatory implementation process. The Bureau proposes these
changes pursuant to its TILA section 105(a) and Dodd-Frank Act section
1022(b)(1) authority.
References to Credit Terms
The Bureau is proposing to amend Sec. 1026.36(a) and its
commentary to clarify the meaning of ``credit terms'' in those
provisions. For example, Sec. 1026.36(a)(1)(i)(A) excludes from the
definition of ``loan originator'' persons--i.e., a loan originator's or
creditor's employees (or agents or contractors thereof) engaged in
certain administrative and clerical tasks that are not considered to be
loan originator activity under the rules. To be eligible for the
exclusion, the person must not, among other things, offer or negotiate
``credit terms available from a creditor.'' Likewise, comment 36(a)-
4.i. provides that the definition of loan originator does not include
persons who, among other things, do not discuss ``specific credit terms
or products available from a creditor with the consumer.'' Similarly,
comment 36(a)-4.ii.B provides that the definition of loan originator
does not include an employee of a creditor or loan originator who
provides loan originator or creditor contact information to a consumer,
provided the employee does not, among other things, ``discuss
particular credit terms available from a creditor.'' See also Sec.
1026.36(a)(1)(i)(B) and comments 36(a)-1.i.A.2 through -1.i.A.4 (other
similar references to credit terms). As discussed below, the Bureau is
proposing to revise comment 36(a)-4.ii.B to clarify that it applies to
loan originator or creditor agents and contractors as well as
employees.
The Bureau intended the references to ``credit terms'' in these
provisions to refer to particular credit terms that are or may be made
available to the consumer in light of the consumer's financial
characteristics. The Bureau believes that, when a loan originator's or
creditor's employee (or agent or contractor thereof) is offering or
discussing particular credit terms selected based on his or her
assessment of the consumer's financial characteristics, the person is
acting in the role of a loan originator. However, this does not extend
to a person's discussion of general credit terms that a creditor makes
available and advertises to the public at large, such as where such
person merely states: ``We offer rates as low as 3% to qualified
consumers.''
In light of inquiries from loan originators and creditors, the
Bureau is concerned that the term ``credit terms'' could be construed
too broadly and thus render any person that provides such general
information a loan originator. This was not the Bureau's intent.
Accordingly, the Bureau is proposing to revise Sec.
1026.36(a)(1)(i)(A) and (B), and comments 36(a)-1 and -4 to address
several inconsistencies regarding the meaning of ``credit terms'' to
clarify that any such activity must relate to
[[Page 39925]]
``particular credit terms that are or may be available from a creditor
to that consumer selected based on the consumer's financial
characteristics,'' not credit terms generally. Thus, a person who
discusses with a consumer that, based on the consumer's financial
characteristics, a creditor should be able to offer the consumer an
interest rate of 3%, would be considered a loan originator. However, a
person who merely states general information such as ``we offer rates
as low as 3% to qualified consumers'' would not be considered a loan
originator under the proposed rule because the person is not offering
particular credit terms that are or may be available to that consumer
selected based on the consumer's financial characteristics. In
addition, for clarification purposes the Bureau is proposing to move a
parenthetical that explains ``credit terms'' includes rates, fees, and
other costs to new Sec. 1026.36(a)(1)(i)(6).
The Bureau believes these changes better align the scope of the
loan originator definition with the intended scope of the 2013 Loan
Originator Compensation Final Rule. The Bureau solicits comment on
whether additional guidance concerning the meaning of particular credit
terms that are or may be made available to the consumer in light of the
consumer's financial characteristics is necessary, and if so, what
clarifications would be helpful.
Application-Related Administrative and Clerical Tasks
Comment 36(a)-4.i provides that the definition of loan originator
does not include persons who (1) At the request of the consumer,
provide an application form to the consumer; (2) accept a completed
application form from the consumer; or (3) without assisting the
consumer in completing the application, processing or analyzing the
information, or discussing specific credit terms or products available
from a creditor with the consumer, deliver the application to a loan
originator or creditor.
The Bureau is proposing to revise comment 36(a)-4.i to provide that
the definition of loan originator does not include a person who, acting
in his or her capacity as an employee (or agent or contractor),
provides a credit application form from the entity for whom the person
works to the consumer for the consumer to complete. In such a case,
provided that the person does not assist the consumer in completing the
application or otherwise influence his or her decision, the Bureau
believes the person is performing an administrative task, not acting as
a loan originator by engaging in a referral to a particular creditor or
loan originator or assisting a consumer in obtaining or applying to
obtain credit. As also discussed below with respect to persons who
provide creditor or loan originator contact information, the Bureau
believes ambiguity regarding the meaning of ``in response to a
consumer's request'' could cause unnecessary compliance challenges.
Moreover, the Bureau notes that classifying such individuals as loan
originators would subject them to the requirements applicable to loan
originators with, in the Bureau's view, little appreciable benefit for
consumers in situations where the person is providing a credit
application from the entity for whom the person works. The Bureau
proposes to revise comment 36(a)-4.i accordingly, including removing
the condition that the provision of the application must be ``at the
request of the consumer.''
As a result of these proposed revisions, employees (or agents or
contractors) of manufactured home retailers who provide a credit
application form from one particular creditor or loan originator
organization that is not the entity for which they work would not
qualify for the exclusion in Sec. 1026.36(a)(1)(i)(B), but those who
simply provide a credit application form from the entity for which they
work would potentially be eligible for the exclusion if other
conditions are met. An employee of a manufactured home retailer who
simply provides a credit application form from one particular creditor
or loan originator organization that is its employer would potentially
be eligible for the exclusion in Sec. 1026.36(a)(1)(i)(B). An agent or
contractor of a manufactured home retailer who simply provides a credit
application form from one particular creditor or loan originator
organization it works for as agent or contractor would potentially be
eligible for the exclusion discussed in comment 36(a)-4.i. The
revisions would also clarify that someone who merely delivers a
completed credit application form from the consumer to a creditor or
loan originator would potentially be eligible for the exclusion if
other conditions are met but would remove language that could have been
misinterpreted to suggest that someone who accepts an application in
the sense of taking or helping the consumer complete an application
could be eligible for the exclusion.
Responding to Consumer Inquiries and Providing General Information
Employees (or agents or contractors) of a creditor or loan
originator who provide loan originator or creditor contact information.
Comment 36(a)-4.ii.B provides that the definition of loan originator
does not include persons who, acting as employees of a creditor or loan
originator, provide loan originator or creditor contact information to
a consumer in response to the consumer's request, provided that the
employee does not discuss particular credit terms available from a
creditor and does not direct the consumer, based on the employee's
assessment of the consumer's financial characteristics, to a particular
loan originator or creditor seeking to originate particular credit
transactions to consumers with those financial characteristics. Similar
to the clarifications regarding credit terms discussed above, the
Bureau also is proposing to clarify that comment 36(a)-4.ii.B applies
to loan originator or creditor agents and contractors as well as
employees. The Bureau notes this is consistent with comments 36(a)-
1.i.B and 36(a)-4.
In addition to making conforming technical revisions, the Bureau is
proposing to remove the requirement that creditor or loan originator
contact information must be provided ``in response to the consumer's
request'' for the exclusion to apply. The Bureau has received many
inquiries on this topic from stakeholders expressing concern that,
absent a clarifying amendment, the rule could be interpreted to require
tellers, greeters, or other such employees (or contractors or agents)
to be classified as loan originators for merely providing contact
information to a consumer who did not clearly or explicitly ask for it.
Stakeholders have further asserted that such persons should not be
considered loan originators when their conduct is limited to following
a script prompting them to ask whether the consumer is interested in a
mortgage loan and the tellers are not able to engage in any independent
assessment of the consumer. Moreover, stakeholders have asserted it
would be very costly to implement the training and certification
requirements under Regulation Z as amended by the 2013 Loan Originator
Compensation Final Rule for employers with large numbers of
administrative staff who interact with consumers on a day-to-day basis
in the manner described.
In light of these concerns, the Bureau is proposing a limited
expansion of the existing exclusion that does not require the consumer
to initiate a request for loan originator or creditor contact
information as a prerequisite to its availability. The Bureau
understands that basing the exclusion on the
[[Page 39926]]
consumer requesting contact information could cause those who work for
creditor or loan originator organizations in administrative or clerical
roles (e.g., tellers) to be treated as loan originators when simply
attempting to explain generally what financing products the entity for
which the person works offers. The Bureau also believes ambiguity
regarding the meaning of ``in response to a consumer's request'' could
cause unnecessary compliance challenges. In such instances, the Bureau
does not believe tellers or other such staff should be considered loan
originators for merely providing loan originator or creditor contact
information to the consumer, provided that the person does not discuss
particular credit terms available from a creditor to the consumer and
does not direct the consumer, based on his or her assessment of the
consumer's financial characteristics, to a particular loan originator
or creditor seeking to originate credit transactions to consumers with
those financial characteristics. The Bureau also notes that classifying
such individuals as loan originators would subject them to the
requirements applicable to loan originators with, in the Bureau's view,
little appreciable benefit for consumers.
Accordingly, the Bureau is proposing to remove the qualifying
phrase ``in response to the consumer's request'' from comment 36(a)-
4.ii.B. However, the Bureau is not proposing to exclude from the
definition of ``loan originator'' employees (or agents or contractors)
of creditors and loan originator organizations who, in the course of
providing loan originator or creditor contact information to the
consumer, direct that consumer to a particular loan originator or
particular creditor based on his or her assessment of the consumer's
financial characteristics or discuss particular credit terms available
from a creditor to the consumer. These actions can influence the credit
terms that the consumer ultimately obtains, and the Bureau continues to
believe these actions should result in application of the requirements
imposed by the rule on loan originators. The Bureau believes this
proposed amendment should enable creditors and loan originators to
implement the rule with respect to persons acting under the controlled
circumstances specified by the comment while still mitigating harmful
steering outcomes the Bureau intended for the rule to address.
Describing other product-related services. Comment 36(a)-4.ii.C
provides that the definition of loan originator does not include
persons who describe other product-related services. The Bureau is
proposing to amend this comment to provide examples of persons who
describe other product-related services. The proposed new examples
include persons who describe optional monthly payment methods via
telephone or via automatic account withdrawals, the availability and
features of online account access, the availability of 24-hour customer
support, or free mobile applications to access account information. In
addition, the proposed amendment to comment 36(a)-4.iii.C would clarify
that persons who perform the administrative task of coordinating the
closing process are excluded, whereas persons who arrange credit
transactions are not excluded.
Amounts for Charges for Services That Are Not Loan Origination
Activities. Comment 36(a)-5.iv.B provides that compensation includes
any salaries, commissions, and any financial or similar incentive,
regardless of whether it is labeled as payment for services that are
not loan origination activities. The Bureau is proposing to revise this
comment to provide that compensation includes any salaries,
commissions, and any financial or similar incentive ``to an individual
loan originator,'' regardless of whether it is labeled as payment for
services that are not loan origination activities. The proposed wording
change conforms this provision to the other provisions in comment
36(a)-5.iv that permit compensation paid to a loan originator
organization under certain circumstances for services it performs that
are not loan originator activities. The Bureau requests comment on
these proposed clarifications generally and on whether other
clarifications to comments 36(a)-4 and 36(a)-5 should be considered.
36(b) Scope
The Bureau is proposing to revise the scope of provisions in Sec.
1026.36(b) to reflect the applicability of the servicing provisions in
Sec. 1026.36(c) regarding payment processing, pyramiding late fees,
and payoff statements as modified by the 2013 TILA Servicing Final
Rule.\28\ Current Sec. 1026.36(b) and comment 36(b)-1 (relocated from
Sec. 1026.36(f) and comment 36-1, respectively, by the 2013 Loan
Originator Compensation Final Rule) provide that Sec. 1026.36(c)
applies to closed-end consumer credit transactions secured by a
consumer's principal dwelling. The new payment processing provisions in
Sec. 1026.36(c)(1) and the restrictions on pyramiding late fees in
Sec. 1026.36(c)(2) both apply to consumer credit transactions secured
by a consumer's principal dwelling. The new payoff statement provisions
in Sec. 1026.36(c)(3), however, apply more broadly to consumer credit
transactions secured by a dwelling.
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\28\ Among other things, the 2013 TILA Servicing Final Rule
implemented TILA sections 129F and 129G added by section 1464 of the
Dodd-Frank Act. The requirements in TILA section 129F concerning
prompt crediting of payments apply to consumer credit transactions
secured by a consumer's principal dwelling. The requirements in TILA
section 129G concerning payoff statements apply to creditors or
servicers of a home loan. The 2013 TILA Servicing Final Rule,
however, did not substantively revise the existing late fee
pyramiding requirement in Sec. 1026.36(c) but instead redesignated
the requirement as new paragraph 36(c)(2) to accommodate the
regulatory provisions implementing TILA sections 129F and 129G.
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The proposal would revise Sec. 1026.36(b) and comment 36(b)-1 to
state that Sec. 1026.36(c)(1) and (c)(2) apply to consumer credit
transactions secured by a consumer's principal dwelling. The proposed
revisions also would provide that Sec. 1026.36(c)(3) applies to a
consumer credit transaction secured by a dwelling (even if it is not
the consumer's principal dwelling).
The Bureau is proposing these revisions to Sec. 1026.36(b) and
comment 36(b)-1 to conform them to modifications made to Sec.
1026.36(c) by the 2013 Servicing Final Rules that changed the
applicability of certain provisions in Sec. 1026.36(c). The Bureau
believes the proposed revisions are necessary to reflect the
applicability of the provisions in Sec. 1026.36(c) as modified by the
2013 Servicing Final Rules.
The Bureau seeks comment on these proposed revisions generally. The
Bureau also invites comment on whether additional revisions to Sec.
1026.36(b) and comment 36(b)-1 should be considered to clarify further
the applicability of the provisions in Sec. 1026.36(c) as modified by
the 2013 Servicing Final Rules.
36(d) Prohibited Payments to Loan Originators
36(d)(1) Payments Based on a Term of the Transaction
36(d)(1)(i)
The Bureau is proposing to revise comments 36(d)(1)-1.ii and
36(d)(1)-1.iii.D, which interpret Sec. 1026.36(d)(1)(i)-(ii), to
improve the consistency of the wording across the regulatory text and
commentary, and provide further interpretation of the intended meaning
of the regulatory text.
36(d)(1)(iii)
The Bureau is proposing to revise the portions of comment 36(d)(1)-
3 that interpret Sec. 1026.36(d)(1)(iii) to improve the consistency of
the wording across
[[Page 39927]]
the regulatory text and commentary, and provide further interpretation
of the intended meaning of the regulatory text.
36(d)(1)(iv)
The Bureau is proposing revisions to the portions of comment
36(d)(1)-3 that interpret Sec. 1026.36(d)(1)(iv). Section
1026.36(d)(1)(iv) permits, under certain circumstances, the payment of
compensation under a non-deferred profits-based compensation plan to an
individual loan originator even if the compensation is directly or
indirectly based on the terms of multiple transactions by multiple
individual loan originators. Section 1026.36(d)(1)(iv)(B)(1) permits
this compensation if it does not exceed 10 percent of the individual
loan originator's total compensation corresponding to the time period
for which the compensation under a non-deferred profits-based
compensation plan is paid. Comments 36(d)(1)-3.ii through -3.v further
interpret Sec. 1026.36(d)(1)(iv)(B)(1). Section
1026.36(d)(1)(iv)(B)(2) permits this type of compensation if the
individual loan originator is a loan originator for ten or fewer
consummated transactions during the 12-month period preceding the
compensation determination. Comment 36(d)(1)-3.vi further interprets
Sec. 1026.36(d)(1)(iv)(B)(2).
The Bureau is proposing to amend comment 36(d)(1)-3 to improve the
consistency of the wording across the regulatory text and commentary,
provide further interpretation as to the intended meaning of the
regulatory text in Sec. 1026.36(d)(1)(iv), and ensure that the
examples included in the commentary accurately reflect the
interpretations of the regulatory text contained elsewhere in the
commentary. These proposed amendments include clarifying in comment
36(d)(1)-3.vi that, for purposes of determining whether an individual
loan originator was the loan originator for ten or fewer transactions,
only consummated transactions are counted, consistent with Sec.
1026.36(d)(1)(iv)(B)(2). Nearly all of the proposed revisions address
the commentary sections that interpret the meaning of Sec.
1026.36(d)(1)(iv)(B)(1) (i.e., setting forth the 10-percent total
compensation limit) and not Sec. 1026.36(d)(1)(iv)(B)(2).
The Bureau is proposing more extensive clarifications to two
comments interpreting Sec. 1026.36(d)(1). First, the Bureau proposes
to revise comment 36(d)(1)-3.v.A, which clarifies the meaning of
``total compensation'' as used in Sec. 1026.36(d)(1)(iv)(B)(1). The
proposed revisions clarify that the first component of total
compensation--all wages and tips reportable for Medicare tax purposes
in box 5 on IRS form W-2 (or IRS form 1099-MISC, as applicable)--
includes all such wages and tips that are actually paid during the
relevant time period regardless of when they are earned, except for any
compensation under a non-deferred profits-based compensation plan that
is earned during a different time period. The Bureau is proposing these
changes to comment 36(d)(1)-3.v.A in conjunction with proposed
revisions, described below, to comment 36(d)(1)-3.v.C. The proposed
revisions to the two comments cumulatively are intended to provide a
more precise interpretation of the following language in Sec.
1026.36(d)(1)(iv)(B)(1): ``total compensation corresponding to the time
period for which the compensation under the non-deferred profits-based
compensation plan is paid.'' In particular, the Bureau believes that it
is important to state more expressly in the commentary that
compensation under a non-deferred profits-based compensation plan that
is paid during a particular time period but is earned during a
different time period (e.g., a bonus made with reference to mortgage-
related business profits for a calendar year that is paid in January of
the following calendar year) is excluded from the total compensation
amount for the particular time period in which the payment is made.
This concept is discussed in an example in comment 36(d)(1)-3.v.C, but
the Bureau is concerned that failing to highlight the concept more
generally could lead to the language being misinterpreted to apply only
to the facts in the example.
The Bureau is also proposing additional language in comment
36(d)(1)-3.v.A to make clearer that compensation under the non-deferred
profits-based compensation plan that is earned during a particular time
period can be included in the total compensation amount for that time
period at the election of the party paying the compensation. This
interpretation of the meaning of ``total compensation'' was implied in
several examples in the commentary to Sec. 1026.36(d)(1)(iv)(B)(1)
(e.g., comment 36(d)(1)-3.v.F.1); in this proposal, it is made more
explicit.\29\ The Bureau also is proposing to clarify that, if the
person elects to include in total compensation the amount of any
creditor or loan originator organization contributions to accounts of
individual loan originators in designated tax-advantaged plans that are
defined contribution plans, the contributions must be actually made
during the relevant time period (rather than earned during that time
period but made during a different time period). The Bureau believes
that these changes would facilitate compliance.
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\29\ The Bureau included these commentary provisions in the 2013
Loan Originator Compensation Final Rule based on its belief that
creditors and loan originator organizations paying non-deferred
profits-based compensation under Sec. 1026.36(d)(1)(iv)(B)(1) would
potentially benefit from having the discretion to include the non-
deferred profits-based compensation in the total compensation
amount, which, if done, would increase the amount of non-deferred
profits-based compensation that can be paid under the 10-percent
limit (although this would make the calculation of total
compensation somewhat more complex). The Bureau similarly provided
discretion to creditors and loan originator organizations to include
in total compensation the amount of any contributions by the
creditor or loan originator organization to the individual loan
originator's accounts in designated tax-advantaged plans that are
defined contribution plans. The Bureau believes the potential
marginal increase in the non-deferred profits-based compensation
that can be paid under Sec. 1026.36(d)(1)(iv)(B)(1) as a result of
including these components of compensation in the total compensation
amount does not raise a significant risk of steering incentives. See
comment 36(d)(1)-3.v.F, as proposed to be revised, for an example of
where including non-deferred profits-based compensation in total
compensation affects the amount of non-deferred profits-based
compensation that can be paid.
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Furthermore, the Bureau is proposing to revise comment 36(d)(1)-
3.v.C to clarify the meaning of ``time period'' in Sec.
1026.36(d)(1)(iv)(B)(1). The Bureau is concerned that comment 36(d)(1)-
3.v.C inadvertently conflates the two relevant time periods to be used
for the 10-percent limit calculation: The time period for compensation
under the non-deferred profits-based compensation plan, and the time
period for the total compensation. The proposed revisions would clarify
that: (1) The relevant time period for compensation paid under the non-
deferred profits-based compensation plan is the time period for which a
person makes reference to profits in determining the compensation
(i.e., when the compensation was earned); and (2) the relevant time
period for the total compensation is the same time period, but only
certain types of compensation may be included in the total compensation
amount for that time period, as explained in comment 36(d)(1)-3.v.A.
Collectively, the proposed revisions to comments 36(d)(1)-3.v.A and
-3.v.C are intended to clarify that, while the time period used to
determine both elements of the 10-percent limit ratio is the same: (1)
The non-deferred profits-based compensation for the time period is
whatever such compensation was earned during that time period,
regardless of when it was actually paid; and (2) compensation that is
actually paid during the time period, regardless of when it was earned,
generally will be
[[Page 39928]]
included in the amount of total compensation for that time period, but
whether the compensation is included ultimately depends on the type of
compensation. The proposal also revises the examples in comment
36(d)(1)-3.v.C to reflect the proposed changes to comment 36(d)(1)-
3.v.A and, to allay potential confusion about when the provisions take
effect, remove reference to calendar year 2013. See part IV of this
Supplementary Information for discussion more generally of the Bureau's
proposed changes to the effective date for the provisions of Sec.
1026.36(d)(1). The Bureau believes these changes would facilitate
compliance.
36(f) Loan Originator Qualification Requirements
36(f)(3)
The Bureau is proposing to change the dates referenced in Sec.
1026.36(f)(3)(i) and (f)(3)(ii) and its associated commentary from
January 10, 2014, to January 1, 2014. These proposed changes coincide
with the proposed revision of the effective date for Sec. 1026.36(f).
See part IV of the Supplementary Information for a discussion of the
effective date for Sec. 1026.36(f).
36(i) Prohibition on Financing Credit Insurance
The Bureau is proposing to amend Sec. 1026.36(i) to clarify the
scope of the prohibition on a creditor financing, directly or
indirectly, any premiums for credit insurance in connection with a
consumer credit transaction secured by a dwelling. Dodd-Frank Act
section 1414 added TILA section 129C(d), which generally prohibits a
creditor from financing premiums or fees for credit insurance in
connection with a closed-end consumer credit transaction secured by a
dwelling, or an extension of open-end consumer credit secured by the
consumer's principal dwelling. The prohibition applies to credit life,
credit disability, credit unemployment, credit property insurance, and
other similar products, including debt cancellation and debt suspension
contracts (defined collectively as ``credit insurance'' for purposes of
this discussion). The same provision, however, excludes from the
prohibition credit insurance premiums or fees that are ``calculated and
paid in full on a monthly basis.''
Section 1026.36(i) as Adopted in the 2013 Loan Originator Compensation
Final Rule
In the 2013 Loan Originator Compensation Final Rule, the Bureau
implemented this prohibition by adopting the statutory provision
without substantive change, in Sec. 1026.36(i). The final rule
provided an effective date of June 1, 2013 for Sec. 1026.36(i), and
clarified that the provision applies to transactions for which a
creditor received an application on or after that date.\30\
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\30\ 78 FR at 11390.
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In the preamble to the final rule, the Bureau responded to public
comments on the regulatory text that the Bureau had included in its
proposal. The public comments included requests from consumer groups
for clarification on the applicability of the regulatory prohibition to
certain factual scenarios where credit insurance premiums are charged
periodically, rather than as a lump-sum that is added to the loan
amount at consummation. In particular, they requested clarification on
the meaning of the exclusion from the prohibition for credit insurance
premiums or fees that are ``calculated and paid in full on a monthly
basis.'' The Bureau did not receive any public comments from the credit
insurance industry. The Bureau received a limited number of comments
from creditors concerning the general prohibition, but these comments
did not address specifically the applicability of the exclusion from
the prohibition for premiums that are calculated and paid in full on a
monthly basis.
In their comments, the consumer groups described two practices that
they believed should be prohibited by the regulatory provision. First,
they described a practice in which some creditors charge credit
insurance premiums on a monthly basis but add those premiums to the
consumer's outstanding principal. They stated that this practice does
not meet the requirement that, to be excluded from the prohibition,
premiums must be ``paid in full on a monthly basis.'' They also stated
that this practice constitutes ``financing'' of credit insurance
premiums, which is prohibited by the provision. Second, the consumer
groups described a practice in which credit insurance premiums are
charged to the consumer on a ``levelized'' basis, meaning that the
premiums remain the same each month, even as the consumer pays down the
outstanding balance of the loan. They stated that this practice does
not meet the condition of the exclusion that premiums must be
``calculated . . . on a monthly basis,'' and therefore violates the
statutory prohibition. In the preamble of the final rule, the Bureau
stated that it agreed that these practices do not meet the condition of
the exclusion and violate the prohibition on creditors financing credit
insurance premiums.
Outreach during implementation period following publication of the
final rule. After publication of the final rule, representatives of
credit unions and credit insurers expressed concern to the Bureau about
these statements in the preamble of the final rule. Credit union
representatives questioned whether adding monthly premiums to a
consumer's loan balance should necessarily be considered prohibited
``financing'' of the credit insurance premiums and indicated that, if
it is considered financing, they would not be able to adjust their data
processing systems before the June 1, 2013 effective date.
Credit insurance company representatives stated that level and
levelized credit insurance premiums are in fact ``calculated . . . on a
monthly basis.'' (They use the term ``levelized'' premiums to refer to
a flat monthly payment that is derived from a decreasing monthly
premium payment arrangement and use the term ``level'' premium to refer
to premiums for which there is no decreasing monthly premium payment
arrangement available, such as for level mortgage life insurance.) The
companies asserted that levelized premiums are, in fact, ``calculated .
. . on a monthly basis,'' because an actuarially derived rate is
multiplied by a fixed monthly principal and interest payment to derive
the monthly insurance premium. They also asserted that level premiums
are ``calculated . . . on a monthly basis'' because an actuarially
derived rate is multiplied by the consumer's original loan amount to
derive the monthly insurance premium. Accordingly, they urged that
level and levelized credit insurance premiums should be excluded from
the prohibition on creditors financing credit insurance premiums so
long as they are also paid in full on a monthly basis. Industry
representatives have further stated that even if the Bureau concludes
that level or levelized credit insurance premiums are not
``calculated'' on a monthly basis within the meaning of the exclusion
from the prohibition, they are not ``financed'' by a creditor and thus
are not prohibited by the statutory provision.
Delay of Sec. 1026.36(i) Effective Date
In light of these concerns, and the Bureau's belief that, if the
effective date were not delayed, creditors could face uncertainty about
whether and under what circumstances credit insurance premiums may be
charged periodically in connection with covered consumer credit
transactions secured by a
[[Page 39929]]
dwelling, the Bureau issued the 2013 Effective Date Final Rule delaying
the June 1, 2013 effective date of Sec. 1026.36(i) to January 10,
2014.\31\ In that final rule, the Bureau stated its belief that this
uncertainty could result in a substantial compliance burden to
industry. However, the Bureau also stated that it would revisit the
effective date of the provision in this proposal.
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\31\ 78 FR 32547 (May 31, 2013).
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Proposed Amendments to Sec. 1026.36(i)
The Bureau is now, as contemplated in the 2013 Effective Date Final
Rule, proposing amendments to Sec. 1026.36(i) to clarify the scope of
the prohibition on a creditor financing, directly or indirectly, any
premiums for credit insurance in connection with a consumer credit
transaction secured by a dwelling. The Bureau believes from
communications with consumer advocates, creditors, and trade
associations that its statement in the final rule in response to
consumer group public comments may have been overbroad and left
ambiguity about when a creditor violates the prohibition on financing
credit insurance premiums.
As an initial, interpretive matter, the Bureau believes it is
important to highlight the structure of Sec. 1026.36(i). First,
although the heading of the statutory prohibition emphasizes the
prohibition on financing ``single-premium'' credit insurance, which
historically has been accomplished by adding a lump-sum premium to the
consumer's loan balance at consummation, the provision more broadly
prohibits a creditor from ``financing'' credit insurance premiums
``directly or indirectly'' in connection with a covered consumer credit
transaction secured by a dwelling. That is, it generally prohibits a
creditor from financing credit insurance premiums at any time, not just
at consummation. The Bureau is proposing to clarify the scope of the
prohibition by striking the term ``single-premium'' from the Sec.
1026.36(i) heading, and by adding redesignated Sec. 1026.36(i)(2)(ii),
as discussed below. Second, ``credit insurance for which premiums or
fees are calculated and paid in full on a monthly basis'' is excluded
from the general prohibition. However, the mere fact that, under a
particular premium calculation and payment arrangement, credit
insurance premiums do not meet the conditions of the exclusion that
they be ``calculated and paid in full on a monthly basis'' does not
mean that a creditor is necessarily financing them in violation of the
prohibition. For example, it is possible that credit insurance premiums
could be calculated and paid in full by a consumer directly to a credit
insurer on a quarterly basis with no indicia that the creditor is
financing the premiums. The Bureau is proposing to clarify the scope of
this exclusion by adding Sec. 1026.36(i)(2)(iii), as discussed below.
``Financing'' credit insurance. The Bureau believes that practices
that constitute ``financing'' of credit insurance premiums or fees by a
creditor are generally equivalent to an extension of credit to a
consumer with respect to payment of the credit insurance premiums or
fees. Under Sec. 1026.2(a)(14), credit means ``the right to defer
payment of debt or to incur debt and defer its payment.'' Accordingly,
as discussed above, financing of credit insurance premiums is not
limited to addition of a single, lump-sum premium to the loan amount by
the creditor at consummation. The Bureau believes that a creditor also
finances credit insurance premiums within the meaning of the
prohibition when it provides a consumer the right to defer payment of
premiums or fees at other times, including when it adds a monthly
credit insurance premium to the consumer's principal balance.
Accordingly, the Bureau proposes to add redesignated Sec.
1026.36(i)(2)(ii), which clarifies that a creditor finances credit
insurance premiums or fees when it provides a consumer the right to
defer payment of a credit insurance premium or fee owed by the
consumer. However, the Bureau invites public comment on whether this
clarification is appropriate. For example, the Bureau does not believe
that a brief delay in receipt of the consumer's premium or fee, such as
might happen preceding a death or period of employment that the credit
insurance is intended to cover, should cause immediate cancellation of
the credit insurance. The Bureau also does not believe that refraining
from cancelling or causing cancellation of credit insurance in such
circumstances means that a creditor has provided the consumer a right
to defer payment of the premium or fee, but the Bureau invites public
comment on consequences of defining the term ``finances'' as proposed.
In addition, some creditors have suggested that they may, as a purely
mechanical matter, add a monthly credit insurance premium to the
principal balance shown on a monthly statement but then subtract the
premium from the principal balance immediately or as soon as the
premium or fee is paid. Furthermore, under a provision of Regulation X
(12 CFR 1024.17(f)(4), a creditor servicing a loan and escrowing credit
insurance premiums may permit a consumer to make additional monthly
deposits over one or more months to eliminate an escrow deficiency, and
if the deficiency is greater than or equal to one month's escrow
payment, cannot require elimination of the deficiency faster than
through two or more equal monthly payments. Accordingly, the Bureau
solicits comment on whether a creditor should instead be considered to
have financed credit insurance premiums or fees only if it charges a
``finance charge,'' as defined in Sec. 1026.4(a), on or in connection
with the credit insurance premium or fee.
Calculated and paid in full on a monthly basis. The Bureau proposes
to clarify in Sec. 1026.36(i)(2)(iii) that credit insurance premiums
or fees are calculated on a monthly basis if they are determined
mathematically by multiplying a rate by the monthly outstanding balance
(e.g., the loan balance following the consumer's most recent monthly
payment). As discussed above, Sec. 1026.36(i) excludes from the
prohibition on a creditor financing credit insurance premiums or fees
any ``credit insurance for which premiums or fees are calculated and
paid in full on a monthly basis.'' Although it has considered the
concerns raised by industry following the issuance of the final rule,
the Bureau continues to believe that the more straightforward
interpretation of the statutory language regarding a premium or fee
that is ``calculated . . . on a monthly basis'' is a premium or fee
that declines as the consumer pays down the outstanding principal
balance. Credit insurance with this feature is often referred to as a
``monthly outstanding balance,'' or M.O.B. credit insurance product.
Level or levelized premiums or fees that are calculated by multiplying
a rate by the initial loan amount or by a fixed monthly principal and
interest payment are not calculated ``on a monthly basis'' in any
meaningful way because the factors in the calculation do not change
monthly (in contrast to the M.O.B. credit insurance product).
Accordingly, under the proposed clarification, credit insurance cannot
be categorically excluded from the scope of the prohibition on the
ground that it is ``calculated and fully paid on a monthly basis'' if
its premium or fee does not decline as the consumer pays down the
outstanding principal balance. The Bureau notes that even if a
particular premium calculation and payment arrangement provides for
credit insurance premiums to be calculated on a monthly basis within
the meaning of the proposed clarification, it must also
[[Page 39930]]
provide for the premiums to be paid in full on a monthly basis (rather
than added to principal, for example) to be categorically excluded from
Sec. 1026.36(i).
Financed by the creditor. The Bureau notes that the scope of the
prohibition only extends to credit insurance premiums financed by the
creditor. Thus, while a monthly credit insurance premium or fee that
does not decline as the consumer pays down the outstanding principal
balance may not be categorically excluded from the prohibition's scope
as ``calculated and fully paid on a monthly basis,'' a creditor only
violates the prohibition if the creditor finances the credit insurance
premium or fee.
Accordingly, the Bureau's statement implying in the final rule that
levelized credit insurance premiums amount to a violation of the
prohibition appears to have been overbroad. For example, credit
insurance companies have described creditors as acting as passive
conduits collecting and transmitting monthly premiums from the consumer
to a credit insurer, rather than advancing funds to an insurer and
collecting them subsequently from the consumer. Under such a scenario,
the Bureau believes that a creditor would not likely be providing a
consumer the right to defer payment of a credit insurance premium or
fee owed by the consumer within the meaning of the proposal, as
discussed above. Similarly, under an alternative interpretation that a
creditor ``finances'' credit insurance only if it charges a ``finance
charge'' on or in connection with the credit insurance premium or fee,
as discussed above, a creditor that acts merely as a passive conduit
for the payment of credit insurance premiums and fees to a credit
insurer would not likely be charging such a finance charge. On the
other hand, a creditor that does not act merely as a passive conduit,
but instead achieves a levelized premium by deferring payments, or
portions of payments, due to a credit insurer for a monthly outstanding
balance credit insurance product (or by imposing a finance charge
incident to such deferment, under the alternative interpretation
discussed above) would likely be considered to be financing the credit
insurance premiums or fees.
The Bureau invites public comment on the extent to which creditors
act other than as passive conduits in a manner that would constitute
financing of credit insurance premiums or fees. The Bureau specifically
invites public comment on what actions by a creditor should or should
not be considered financing of debt cancellation or suspension contract
fees, when the creditor is a party to the debt cancellation or
suspension contract and payments for principal, interest, and the debt
cancellation or suspension contract are retained by the creditor.
VI. Section 1022(b)(2) of the Dodd-Frank Act
A. Overview
In developing the proposed rule, the Bureau has considered the
potential benefits, costs, and impacts.\32\ The Bureau requests comment
on the preliminary analysis presented below as well as submissions of
additional data that could inform the Bureau's analysis of the
benefits, costs, and impacts. The Bureau has consulted, or offered to
consult with, the prudential regulators, SEC, HUD, FHFA, the Federal
Trade Commission, and the Department of the Treasury, including
regarding consistency with any prudential, market, or systemic
objectives administered by such agencies.
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\32\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
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 Dodd-Frank Act; and the impact on consumers
in rural areas.
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As noted above, the proposed amendments focus primarily on
clarifying or revising provisions on (1) Loss mitigation procedures
under Regulation X's servicing provisions; (2) amounts counted as loan
originator compensation to retailers of manufactured homes and their
employees for purposes of applying points and fees thresholds under
HOEPA and the qualified mortgage rules in Regulation Z; (3)
determination of which creditors operate predominantly in ``rural'' or
``underserved'' areas for various purposes under the mortgage
regulations; (4) application of the loan originator compensation rules
to bank tellers and similar staff; and (5) the prohibition on creditor-
financed credit insurance. The Bureau also is proposing to adjust the
effective dates for certain provisions adopted by the 2013 Loan
Originator Compensation Final Rule and proposing technical and wording
changes for clarification purposes to Regulations B, X, and Z.
B. Potential Benefits and Costs to Consumers and Covered Persons
The Bureau believes that, compared to the baseline established by
the final rules issued in January 2013,\33\ the primary benefit of most
of the provisions of the proposed rule to both consumers and covered
persons is an increase in clarity and precision of the regulations and
an accompanying reduction in compliance costs.
---------------------------------------------------------------------------
\33\ 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.
---------------------------------------------------------------------------
As described above, the proposed modifications to the Regulation X
loss mitigation provisions would help servicers by providing clarity as
to what is required by certain provisions of the rule, including a
servicer's responsibility when it determines that a loss mitigation
application that appeared facially complete in fact is lacking
information necessary to complete review, how timelines are calculated
when a foreclosure sale has not been scheduled or is rescheduled, and
the actions prohibited during the pre-foreclosure review period.
In addition, the Bureau proposed modifications to the Regulation X
loss mitigation provisions, which include allowing servicers more
flexibility regarding the disclosure of a date by which a borrower
should complete an incomplete loss mitigation application; allowing
servicers to accommodate borrowers in need of immediate, short-term
relief by offering short-term payment forbearance based on the
evaluation of an incomplete loss mitigation application; the disclosure
of certain information in the notices informing borrowers of the
decisions of the evaluation of a loss mitigation application; and
allowing servicers to foreclose before the 120th day of delinquency
when the foreclosure is based on a borrower's violation of a due-on-
sale clause or a subordinate lien is foreclosing.
The Bureau believes that servicers and consumers will benefit from
these amendments because they will provide increased clarity, in part
through reduced implementation costs. Further, the Bureau believes the
proposed modifications to the loss mitigation rules would only
minimally increase costs to servicers, and in many instances would
reduce servicer burden. These modifications would improve the loss
mitigation process for servicers by allowing them to provide more
practical deadlines for borrowers to complete loss mitigation
applications, and by allowing servicers to offer a short-term payment
forbearance program based on an incomplete application. Further, the
proposal would provide servicers a reasonable mechanism to seek
additional information in situations in which a facially complete loss
mitigation application is later
[[Page 39931]]
determined to lack information that is critical to completion of the
servicer's review, while providing appropriate protections for
consumers to minimize dual tracking and provide strong incentives for
servicers to conduct rigorous up-front reviews.
The Bureau believes the proposed modifications to the servicing
final rule should generally benefit borrowers by encouraging servicers
to disclose to borrowers more useful information regarding the deadline
to submit loss mitigation applications and to offer short-term
forbearance without requiring borrowers to submit complete loss
mitigation applications. The Bureau believes that such modifications
could result in some cost to consumers if a servicer's mistake in the
Sec. 1024.41(b)(1)(i)(B) notice were to prolong or delay the loss
mitigation process. However, the Bureau has sought to minimize this
potential cost by providing incentives for servicers to conduct
rigorous upfront review and preserving certain of the protections under
the rule for borrowers in the event of servicer mistakes. The proposed
amendments would impose some costs on consumers by making it easier for
servicers to foreclose during the first 120 days of delinquency for
certain reasons other than nonpayment of a debt.
The Bureau does not currently have data regarding the incidence of
the situations specifically covered by these provisions, e.g. how often
servicers make mistakes regarding whether an application is complete or
the information necessary to complete an incomplete application, and
therefore cannot quantify these benefits. However, the nature of the
benefits and costs of specific timelines, procedures and disclosures
was considered in detail in the discussion of benefits, costs, and
impacts in part VII of the 2013 Mortgage Servicing Final Rules.
Two of the proposed sets of modifications to the Regulation Z
provisions involve loan originator compensation. The Bureau is
proposing to clarify for retailers of manufactured homes and their
employees what compensation can be attributed to a transaction at the
time the interest rate is set and must be included in the points and
fees thresholds for qualified mortgages and high-cost mortgages under
HOEPA. As discussed above, the proposal would exclude from points and
fees of loan originator compensation paid by a retailer of manufactured
homes to its employees and would clarify that the sales price of a
manufactured home does not include loan originator compensation that
must be included in points and fees. Both of these proposed changes
would reduce the burden for creditors in manufactured home transactions
by eliminating the need for them to attempt to determine what, if any,
retailer employee compensation and what, if any, part of the sales
price would count as loan originator compensation that must be included
in points and fees. As a result, this amendment is likely to lower
slightly the amount of money counted toward the points and fees
thresholds on the covered loans. As a result, keeping all other
provisions of a given loan fixed, this will result in a greater number
of loans to be eligible to be qualified mortgages. For such loans, the
costs of origination may be slightly lower as a result of the slightly
decreased liability for the lender and any assignees and for possibly
decreased compliance costs. Consumers may benefit from slightly
increased access to credit and lower costs on the affected loans,
however these consumers will also not have the added consumer
protections that accompany loans made under the general ability-to-
repay provisions. The lower amount of points and fees may also lead
fewer loans to be above the points and fees triggers for high-cost
mortgages under HOEPA: This should make these loans both more available
and offered at a lower cost to consumers, though consumers will not
have the added consumer protections that apply to high-cost mortgages.
A more detailed discussion of these effects is contained in the
discussion of benefits, costs, and impacts in part VII of the 2013 ATR
Final Rule and the 2013 HOEPA Final Rule.
The Bureau also is proposing to revise when employees (or agents or
contractors) of a creditor or loan originator in certain administrative
or clerical roles (e.g., tellers or greeters) may become ``loan
originators'' under the 2013 Loan Originator Compensation Rule, and
therefore subject to that Rule's requirements applicable to loan
originators, such as qualification requirements and restrictions on
certain compensation practices. As noted above, classifying such
individuals as loan originators would subject them to the requirements
applicable to loan originators with, in the Bureau's view, little
appreciable benefit for consumers. Removing them from this
classification should lower compliance costs including those related to
SAFE Act training, certification requirements, and compensation
restrictions.
The proposed provisions regarding credit insurance would clarify
what constitutes financing of such premiums by a creditor, and is
therefore generally prohibited under the Dodd-Frank Act. The proposal
would also clarify when credit insurance premiums are considered to be
calculated and paid on a monthly basis for purposes of a statutory
exclusion from the prohibition for certain credit insurance premium
calculation and payment arrangements.
As noted earlier, the Bureau believes that language in the preamble
to the 2013 Loan Originator Compensation Final Rule led to some
confusion among creditors and credit insurance providers regarding
whether credit insurance products were prohibited under the rule based
on how their premiums are calculated. The Bureau is now proposing to
clarify that the prohibition only extends to creditors financing credit
insurance premiums, and providing additional guidance on what
constitutes creditor financing and what is excluded from the
prohibition. The Bureau believes that increased clarity regarding the
application of the rule to certain products--particularly to insurance
with ``level'' or ``levelized'' premiums--should benefit both creditors
and providers of credit insurance products.
The proposal would also make two adjustments to provisions that
provide certain exceptions for creditors operating predominantly in
``rural'' or ``underserved'' areas during the next two years, while the
Bureau reexamines the definition of ``rural'' or ``underserved'' as it
recently announced in the May 2013 ATR Final Rule. Specifically, the
proposal would extend an exception to the general prohibition on
balloon features for high-cost mortgages under the 2013 HOEPA Final
Rule that is available to certain loans made by small creditors who
operate predominantly in rural or underserved areas temporarily to all
small creditors, regardless of their geographic operations. The
proposal would also amend an exemption from the requirement to maintain
escrows for higher-priced mortgage loans under the 2013 Escrow Final
Rule that is available to small creditors that extended more than 50
percent of their total covered transactions secured by a first lien in
``rural'' or ``underserved'' counties during the preceding calendar
year to allow small creditors to qualify for the exemption if they made
more than 50 percent of their covered transactions in ``rural'' or
``underserved'' counties during any of the previous three calendar
years.
As noted above, the Bureau believes expanding the balloon-payment
exception for high-cost mortgages to allow certain small creditors
operating
[[Page 39932]]
in areas that do not qualify as ``rural'' or ``underserved'' to
continue to originate certain high-cost mortgages with balloon payments
during the next two years will benefit creditors who might be unable to
convert to offering adjustable rate mortgages by the time the final
rules take effect in January 2014. The proposal would also promote
consistency between HOEPA requirements and the May 2013 ATR Final Rule,
thereby facilitating compliance for creditors. The Bureau believes that
the proposal would also benefit consumers by increasing access to
credit relative to the 2013 HOEPA Final Rule. Although balloon loans
can in some cases increase risks for consumers, the Bureau believes
that those risks are appropriately mitigated in these circumstances
because the balloon loans must meet the requirements for qualified
mortgages in order to qualify for the exception. This includes certain
restrictions on the amount of up-front points and fees and various loan
features, as well as a requirement that the loans be held on portfolio
by the small creditor. These requirements reduce the risk of
potentially abusive lending practices and provide strong incentives for
the creditor to underwrite the loan appropriately.
The amendment to the qualifications for the exemption from the
escrow requirements should minimize the disruptions from any changes in
the categorization of certain counties while the Bureau is reevaluating
the underlying definitions. This in turn should lower compliance costs
for certain creditors during the interim period. Consumers may benefit
from greater access to credit and lower costs, but in return would not
receive the benefits of an escrow account. A more detailed discussion
of these effects is contained in the discussion of benefits, costs, and
impacts in part VII of the 2013 Escrows Final Rule.
C. Impact on Depository Institutions and Credit Unions With $10 Billion
or Less in Total Assets, As Described in Section 1026; the Impact of
the Provisions on Consumers in Rural Areas; Impact on Access to
Consumer Financial Products and Services
The proposed rule is generally not expected to have a differential
impact on depository institutions and credit unions with $10 billion or
less in total assets as described in section 1026. The exceptions are
those provisions related to the definition of rural and underserved
which directly impact entities with under $2 billion in total assets.
The proposed rule may have some differential impacts on consumers in
rural areas. To the extent that manufactured housing loans, higher-
priced mortgage loans, high-cost loans or balloon loans are more
prevalent in these areas, the relevant provisions may have slightly
greater impacts. As discussed above, costs for creditors in these areas
should be reduced; consumers should benefit from increased access to
credit and lower costs, though they will not have access to the
heightened protections afforded by various provisions. Given the nature
and limited scope of the changes in the proposed rule, the Bureau does
not believe that the proposed rule would reduce consumers' access to
consumer products and services.
VII. Regulatory Flexibility Act Analysis
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.\34\ These analyses must
``describe the impact of the proposed rule on small entities.'' \35\ An
IRFA or FRFA is not required if the agency certifies that the rule will
not have a significant economic impact on a substantial number of small
entities,\36\ or if the agency considers a series of closely related
rules as one rule for purposes of complying with the IRFA or FRFA
requirements.\37\ 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.\38\
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\34\ 5 U.S.C. 601 et. seq.
\35\ 5 U.S.C. 603(a). For purposes of assessing the impacts of
the proposed 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).
\36\ 5 U.S.C. 605(b).
\37\ 5 U.S.C. 605(c).
\38\ 5 U.S.C. 609.
---------------------------------------------------------------------------
This rulemaking is part of a series of rules that have revised and
expanded the regulatory requirements for entities that originate or
service mortgage loans. As noted above, in January, 2013, the Bureau
issued the 2013 ATR Final Rule, 2013 Escrows Final Rule, 2013 HOEPA
Final Rule, 2013 Mortgage Servicing Final Rules, and the 2013 Loan
Originator Compensation Final Rule. Since January 2013, the Bureau also
has issued the May 2013 ATR Final Rule, Amendments to the 2013 Escrows
Final Rule, and the 2013 Effective Date Final Rule, along with Proposed
Amendments to the 2013 Mortgage Rules under the Real Estate Settlement
Procedures Act (Regulation X) and Truth in Lending Act (Regulation
Z).\39\ The Supplementary Information to each of these rules set forth
the Bureau's analyses and determinations under the RFA with respect to
those rules. Because these rules qualify as ``a series of closely
related rules,'' for purposes of the RFA, the Bureau relies on those
analyses and determines that it has met or exceeded the IRFA
requirement.
---------------------------------------------------------------------------
\39\ 78 FR 25638 (May 2, 2013).
---------------------------------------------------------------------------
In the alternative, the Bureau also concludes that the proposed
rule, if adopted, would not have a significant impact on a substantial
number of small entities. As noted, the proposal generally clarifies
the existing rule and to the extent any changes are substantive, these
changes would not have a material impact on small entities. The
provisions related to servicing do not apply to many small entities
under the small servicer exemption (and to the extent that they do,
small entities will benefit from the same increased flexibility under
the proposed provisions as other servicers), while the provisions
related to loan officer compensation and the ``rural'' and
``underserved'' definitions lower the regulatory burden and possible
compliance costs for affected entities. Therefore, the undersigned
certifies that the proposed rule, if adopted, would not have a
significant impact on a substantial number of small entities.
VIII. Paperwork Reduction Act
This proposed rule would amend 12 CFR Part 1002 (Regulation B)
which implements the Equal Credit Opportunity Act, 12 CFR Part 1026
(Regulation Z), which implements the Truth in Lending Act (TILA), and
12 CFR Part 1024 (Regulation X), which implements the Real Estate
Settlement Procedures Act (RESPA). Regulations B, Z and X currently
contain collections of information approved by OMB. The Bureau's OMB
control number for Regulation B is 3170-0013, for Regulation Z is 3170-
0015 and for Regulation X is 3170-0016. However, the Bureau has
determined that this proposed rule would not materially alter these
collections of information or
[[Page 39933]]
impose any new recordkeeping, reporting, or disclosure requirements on
the public that would constitute collections of information requiring
approval under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.
Comments on this determination may be submitted to the Bureau as
instructed in the ADDRESSES section of this notice and to the attention
of the Paperwork Reduction Act Officer.
List of Subjects
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.
12 CFR Part 1024
Condominiums, Consumer protection, Housing, Mortgage servicing,
Mortgages, Reporting and recordkeeping.
12 CFR Part 1026
Advertising, Consumer protection, Credit, Credit unions, Mortgages,
National banks, Reporting and recordkeeping requirements, Savings
associations, Truth in lending.
Authority and Issuance
For the reasons set forth in the preamble, the Bureau proposes to
amend 12 CFR parts 1002, 1024, and 1026 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. Appendix A to Part 1002 is amended by revising paragraph 2.d to read
as follows:
Appendix A to Part 1002--Federal Agencies To Be Listed in Adverse
Action Notices
* * * * *
2. * * *
d. Federal Credit Unions: National Credit Union Administration,
Office of Consumer Protection, 1775 Duke Street, Alexandria, VA
22314.
* * * * *
0
3. In Supplement I to Part 1002, under Section 1002.14, under Paragraph
14(b)(3) Valuation, as amended January 31, 2013, at 78 FR 6407,
effective January 18, 2014, paragraphs 1.i and 3.v are revised to read
as follows:
Supplement I to Part 1002--Official Interpretations
* * * * *
Section 1002.14 Rules on Providing Appraisals and Valuations
* * * * *
14(b)(3) Valuation.
1. * * *
i. A report prepared by an appraiser (whether or not licensed or
certified) including the appraiser's estimate of the property's
value.
* * * * *
3. * * *
v. Reports reflecting property inspections that do not provide
an estimate of the value of the property and are not used to develop
an estimate of the value of the property.
* * * * *
PART 1024--REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)
0
4. The authority citation for part 1024 continues to read as follows:
Authority: 12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5532,
5581.
Subpart A--General
0
5. Section 1024.30, as amended February 14, 2013, at 78 FR 10695,
effective January 10, 2014, is amended by revising paragraph (a) to
read as follows:
Sec. 1024.30 Scope.
(a) In general. Except as provided in paragraphs (b) and (c) of
this section, this subpart applies to any mortgage loan, as that term
is defined in Sec. 1024.31.
* * * * *
0
6. Section 1024.35, as amended February 14, 2013, at 78 FR 10695,
effective January 10, 2014, is amended by revising paragraph
(g)(1)(iii)(B) to read as follows:
Sec. 1024.35 Error resolution procedures.
* * * * *
(g) * * *
(1) * * *
(iii) * * *
(B) The mortgage loan is discharged.
* * * * *
0
7. Section 1024.36, as amended February 14, 2013, at 78 FR 10695,
effective January 10, 2014, is amended by revising paragraph
(f)(1)(v)(B) to read as follows:
Sec. 1024.36 Requests for information.
* * * * *
(f) * * *
(1) * * *
(v) * * *
(B) The mortgage loan is discharged.
* * * * *
0
8. Section 1024.39, as amended February 14, 2013, at 78 FR 10695,
effective January 10, 2014, is amended by revising paragraphs (b)(1)
and (3) to read as follows:
Sec. 1024.39 Early intervention requirements for certain borrowers.
* * * * *
(b) Written notice. (1) Notice required. Except as otherwise
provided in this section, a servicer shall provide to a delinquent
borrower a written notice with the information set forth in paragraph
(b)(2) of this section not later than the 45th day of the borrower's
delinquency. A servicer is not required to provide the written notice
more than once during any 180-day period.
* * * * *
(3) Model clauses. Model clauses MS-4(A), MS-4(B), and MS-4(C), in
appendix MS-4 to this part may be used to comply with the requirements
of this paragraph (b).
* * * * *
0
9. Section 1024.41, as amended February 14, 2013, at 78 FR 10695,
effective January 10, 2014, is amended by revising paragraphs
(b)(2)(ii), (c)(1)(ii), (c)(2)(i), (d), (f)(1), (h)(4), (j) and adding
paragraphs (b)(3), (c)(2)(iii), and (c)(2)(iv) to read as follows:
Sec. 1024.41 Loss mitigation procedures.
* * * * *
(b) * * *
(2) * * *
(ii) Time period disclosure. The notice required pursuant to
paragraph (b)(2)(i)(B) of this section must include a reasonable date
by which the borrower should submit the documents and information
necessary to make the loss mitigation application complete.
(3) Timelines. For purposes of this section, timelines based on the
proximity of a foreclosure sale to the receipt of a complete loss
mitigation application will be determined as of the date a complete
loss mitigation application is received.
(c) * * *
(1) * * *
(ii) Provide the borrower with a notice in writing stating the
servicer's determination of which loss mitigation options, if any, it
will offer to the borrower on behalf of the owner or assignee of the
mortgage. The servicer shall include in this notice the amount of time
the borrower has to accept or reject an offer of a loss mitigation
program as provided for in paragraph (e) of this section, if
applicable, and a notification, if applicable, that the borrower has
the right to appeal the denial of any loan modification option as well
as the amount of time the
[[Page 39934]]
borrower has to file such an appeal and any requirements for making an
appeal as provided for in paragraph (h) of this section.
(2) * * *
(i) In general. Except as set forth in paragraphs (c)(2)(ii) and
(iii) of this section, a servicer shall not evade the requirement to
evaluate a complete loss mitigation application for all loss mitigation
options available to the borrower by offering a loss mitigation option
based upon an evaluation of any information provided by a borrower in
connection with an incomplete loss mitigation application.
* * * * *
(iii) Payment forbearance. Notwithstanding paragraph (c)(2)(i) of
this section, a servicer may offer a short-term payment forbearance
program to a borrower based upon an evaluation of an incomplete loss
mitigation application. A servicer offering such a program to a
borrower who has submitted an incomplete loss mitigation application
must include in the notice of incomplete application required pursuant
to paragraph (b)(2)(i)(B) of this section a statement that:
(A) The servicer has received an incomplete loss mitigation
application, and on the basis of that application the servicer is
offering a payment forbearance program;
(B) Absent further action by the borrower, the servicer will not
review the incomplete application for other loss mitigation options;
and
(C) If the borrower would like to be considered for other loss
mitigation options, the borrower must notify the servicer and submit
the missing documents and information required to complete the loss
mitigation application.
(iv) Servicer creates reasonable expectation that a loss mitigation
application is complete. If a servicer creates a reasonable expectation
that a loss mitigation application is complete but the servicer later
discovers that the application is incomplete, the servicer shall treat
the application as complete as of the date the borrower had reason to
believe the application was complete for purposes of paragraphs (f)(2)
and (g) of this section until the borrower has been given a reasonable
opportunity to complete the loss mitigation application.
(d) Denial of loan modification options. If a borrower's complete
loss mitigation application is denied for any trial or permanent loan
modification option available to the borrower pursuant to paragraph (c)
of this section, a servicer shall state in the notice sent to the
borrower pursuant to paragraph (c)(1)(ii) of this section the specific
reason or reasons for the servicer's determination for each such trial
or permanent loan modification option, and a notification that the
borrower was not evaluated on other criteria (if applicable).
* * * * *
(f) * * *
(1) Pre-foreclosure review period. A servicer shall not make the
first notice or filing required by applicable law for any judicial or
non-judicial foreclosure process unless:
(i) A borrower's mortgage loan obligation is more than 120 days
delinquent;
(ii) The foreclosure is based on a borrower's violation of a due-
on-sale clause; or
(iii) The servicer is joining the foreclosure action of a
subordinate lienholder.
* * * * *
(h) * * *
(4) Appeal determination. Within 30 days of a borrower making an
appeal, the servicer shall provide a notice to the borrower stating the
servicer's determination of whether the servicer will offer the
borrower a loss mitigation option based upon the appeal, and, if
applicable, how long the borrower has to accept or reject such an offer
or a prior offer of a loss mitigation option, as provided for in this
paragraph. A servicer may require that a borrower accept or reject an
offer of a loss mitigation option after an appeal no earlier than 14
days after the servicer provides the notice to a borrower. A servicer's
determination under this paragraph is not subject to any further
appeal.
* * * * *
(j) Small servicer requirements. A small servicer shall be subject
to the prohibition on foreclosure referral in paragraph (f)(1) of this
section. A small servicer shall not make the first notice or filing
required by applicable law for any judicial or non-judicial foreclosure
process and shall not move for foreclosure judgment or order of sale,
or conduct a foreclosure sale, if a borrower is performing pursuant to
the terms of an agreement on a loss mitigation option.
0
10. Appendix MS-3 to Part 1024, as amended February 14, 2013, at 78 FR
10695, effective January 10, 2014, is amended by:
0
a. Revising the entry for MS-3(D) in the table of contents at the
beginning of the appendix, and
0
b. Revising the heading of MS-3(D).
The amendments read as follows:
Appendix MS-3 to Part 1024
* * * * *
MS-3(D)--Model Form for Renewal or Replacement of Force-Placed
Insurance Notice Containing Information Required By Sec.
1024.37(e)(2)
* * * * *
0
11. In Supplement I to Part 1024, as amended February 14, 2013, at 78
FR 10695, effective January 10, 2014,:
0
a. Under Section 1024.17 the heading for 17(k)(5)(ii) is revised.
0
b. Under Section 1024.33--Mortgage Servicing Transfers:
0
i. Under Paragraph 33(a) Servicing Disclosure Statement, paragraph 1 is
revised.
0
ii. Under Paragraph 33(c)(1) Payments not considered late, paragraph 2
is revised.
0
c. Under Section 1024.35--Error Resolution Procedures, Paragraph 35(c),
paragraph 2 is revised.
0
d. Under Section 1024.36--Request for Information, Paragraph 36(b),
paragraph 2 is revised.
0
e. The heading for Section 1024.41 is revised.
0
f. Under Section 1024.41, Loss Mitigation Procedures;
0
i. Paragraphs 41(b)(2), 41(b)(3), 41(c)(2)(iii), and 41(c)(2)(iv) are
added.
0
ii. The heading for paragraphs 41(c) is revised.
0
iii. Under newly designated 41(c), paragraph (c)(2)(iii) is added.
0
iv. The heading Paragraph 41(d)(1) is removed.
0
v. Under paragraph 41(d), paragraph 3 is redesignated as
Paragraph(c)(1), paragraph 4, and paragraph 4 is redesignated as
paragraph 3.
0
vii. Under paragraph 41(d), paragraph 4 is added.
0
viii. Under paragraph 41(f), new paragraph 1 is added.
Supplement I to Part 1024--Official Bureau Interpretations
* * * * *
Subpart B--Mortgage Settlement and Escrow Accounts
* * * * *
Section 1024.17--Escrow Accounts
17(k)(5)(ii) Inability to disburse funds.
* * * * *
Subpart C--Mortgage Servicing
* * * * *
Section 1024.33--Mortgage Servicing Transfers
* * * * *
33(a) Servicing disclosure statement.
1. Terminology. Although the servicing disclosure statement must
be clear and conspicuous pursuant to Sec. 1024.32(a), Sec.
1024.33(a) does not set forth any specific
[[Page 39935]]
rules for the format of the statement, and the specific language of
the servicing disclosure statement in appendix MS-1 is not required
to be used. The model format may be supplemented with additional
information that clarifies or enhances the model language.
* * * * *
33(c) Borrower payments during transfer of servicing.
33(c)(1) Payments not considered late.
1. * * *
2. Compliance with Sec. 1024.39. A transferee servicer's
compliance with Sec. 1024.39 during the 60-day period beginning on
the effective date of a servicing transfer does not constitute
treating a payment as late for purposes of Sec. 1024.33(c)(1).
Section 1024.35 Error Resolution Procedures
* * * * *
35(c) Contact information for borrowers to assert errors
* * * * *
2. Notice of an exclusive address. A notice establishing an
address that a borrower must use to assert an error may be included
with a different disclosure, such as on a notice of transfer,
periodic statement, or coupon book. The notice is subject to the
clear and conspicuous requirement in Sec. 1024.32(a)(1). If a
servicer establishes an address that a borrower must use to assert
an error, a servicer must provide that address to the borrower in
any communication in which the servicer provides the borrower with
an address for assistance from the servicer.
* * * * *
Section 1024.36 Requests for Information
* * * * *
36(b) Contact information for borrowers to request information
1. * * *
2. Notice of an exclusive address. A notice establishing an
address that a borrower must use to request information may be
included with a different disclosure, such as on a notice of
transfer, periodic statement, or coupon book. The notice is subject
to the clear and conspicuous requirement in Sec. 1024.32(a)(1). If
a servicer establishes an address that a borrower must use to
request information, a servicer must provide that address to the
borrower in any communication in which the servicer provides the
borrower with an address for assistance from the servicer.
* * * * *
Section 1024.41--Loss Mitigation Procedures.
41(b) Receipt of loss mitigation application
* * * * *
41(b)(2) Review of loss mitigation application submission
41(b)(2)(i) Requirements
Paragraph 41 (b)(2)(i)(B)
1. Notification of complete application. Even if a servicer has
informed a borrower that an application is complete (or notified the
borrower of specific information necessary to complete an incomplete
application), if the servicer determines, in the course of
evaluating the loss mitigation application submitted by the
borrower, that additional information is required, the servicer must
request the additional information from a borrower pursuant to the
Sec. 1024.41(b)(1) obligation to exercise reasonable diligence in
obtaining such documents and information.
2. Effect on timelines. Except as provided in Sec.
1024.41(c)(2)(iv), the provisions and timelines triggered by a
complete loss mitigation application in Sec. 1024.41 will not be
triggered by an incomplete application, regardless of whether a
servicer has sent a Sec. 1024.41(b)(2)(i)(B) notification
incorrectly informing the borrower that the loss mitigation
application is complete or otherwise given the borrower reason to
believe the application is complete.
41(b)(2)(ii) Time period disclosure
1. Reasonable date factors. Section 1024.41(b)(2)(ii) requires
that a notice informing a borrower that a loss mitigation
application is incomplete must include a reasonable date by which
the borrower should submit the documents and information necessary
to make the loss mitigation application complete. In determining a
reasonable date, a servicer should select the deadline that
preserves the maximum borrower rights under Sec. 1024.41, except
when doing so would be impracticable. Thus, in setting a date, the
factors listed below should be considered (if the date of a
foreclosure sale is not known, a servicer may use a reasonable
estimate of when a foreclosure sale may be scheduled):
i. The date by which any document or information submitted by a
borrower will be considered stale or invalid pursuant to any
requirements applicable to any loss mitigation option available to
the borrower;
ii. The date that is the 120th day of the borrower's
delinquency;
iii. The date that is 90 days before a foreclosure sale;
iv. The date that is 38 days before a foreclosure sale.
41(b)(3) Timelines
1. Foreclosure sale not scheduled. If no foreclosure sale has
been scheduled as of the date that a complete loss mitigation
application is received, the application shall be treated as if it
were received at least 90 days before a scheduled foreclosure sale.
2. Foreclosure sale re-scheduled. These timelines established as
of the receipt of a complete loss mitigation application shall
remain in effect, even if a foreclosure sale is later re-scheduled
to occur earlier or later.
41(c) Evaluation of loss mitigation applications
* * * * *
41(c)(2) Incomplete loss mitigation application evaluation
41(c)(2)(iii) Payment forbearance
1. Short-term payment forbearance program. The exemption in
Sec. 1024.41(c)(2)(iii) applies to a short-term payment forbearance
program. A payment forbearance program is a loss mitigation option
for which a servicer allows a borrower to forgo making certain
payments or portions of payments for a period of time. A short-term
payment forbearance program allows the forbearance of payments due
over periods of no more than two months. Such a program would be
short-term regardless of the amount of time a servicer allows the
borrower to make up the missing payments. The examples below
illustrate how the length of a payment forbearance program is
calculated for purposes of Sec. 1024.41(c)(2)(iii).
i. A servicer allows a borrower to forgo payment for January,
February and March, and the borrower must make these payments in
addition to the April payment at the time the April payment is due.
This is a three-month forbearance program and thus would not be
considered short-term.
ii. A servicer allows a borrower to forgo payment for January
and February, and the borrower must make the January and February
payments in addition to the March payment, at the time the March
payment is due. This is a two-month forbearance program, and thus
would be considered short-term.
iii. A servicer allows a borrower to forgo payment for January
and February. These payments are spread over the next six months,
and the borrower will make larger payments for March through August.
This is a two-month forbearance program, and thus would be
considered short-term.
iv. A servicer allows a borrower to forgo payment for January
and February. These payments are added to the last monthly payment
at the end of the loan obligation. This is a two-month forbearance
program, and thus would be considered short-term.
2. Payment forbearance and incomplete applications. Section
1024.41(c)(2)(iii) allows a servicer to offer a borrower a short-
term payment forbearance program based on an evaluation of an
incomplete loss mitigation application. Such an incomplete loss
mitigation application is still subject to the other obligations in
Sec. 1024.41, including the obligation in Sec. 1024.41(b)(2) to
review the application to determine if it is complete, the
obligation in Sec. 1024.41(b)(1) to exercise reasonable diligence
in obtaining documents and information to complete a loss mitigation
application, and the obligation to provide the borrower with the
Sec. 1024.41(b)(2)(ii) notice that the servicer acknowledges the
receipt of the application and has determined the application is
incomplete (and any other information required to be in such a
notice).
3. Payment forbearance and complete applications. Even if a
servicer offers a borrower a payment forbearance program after an
evaluation of an incomplete loss mitigation application, the
servicer must still comply with all other requirements in Sec.
1024.41 on receipt of a borrower's submission of a complete loss
mitigation application.
41(c)(2)(iv) Servicer creates reasonable expectation that a loss
mitigation application is complete.
1. Reasonable expectation. A servicer creates a reasonable
expectation that a loss mitigation application is complete when:
i. The servicer notifies the borrower in the Sec.
1024.41(b)(2)(i)(B) notice that the servicer has determined the
application is complete. The borrower would have a reasonable
expectation upon receipt of the notice that the application was
complete as of the date the application was submitted.
ii. The servicer notifies the borrower in the Sec.
1024.41(b)(2)(i)(B) notice that the servicer
[[Page 39936]]
has determined the application is incomplete and identifies
information and documentation necessary to complete the application,
and the borrower provides all the documents and information that
were listed as missing in that notice within a reasonable time. The
borrower would have a reasonable expectation that the application
was complete as of the date the borrower submitted all the documents
and information that were listed as missing.
2. Reasonable opportunity. Section 1024.41(c)(2)(iv) requires a
servicer to treat as complete an application that the servicer has
created a reasonable expectation is complete until a borrower has
been given a reasonable opportunity to complete the loss mitigation
application. A reasonable opportunity requires the servicer to
notify the borrower of what information and documentation is
missing, and afford the borrower sufficient time to gather the
information and/or documentation necessary to complete the
application and submit it to the servicer. The amount of time that
is sufficient for this purpose will depend on the facts and
circumstances.
41(d) Denial of loan modification options
* * * * *
4. Reasons listed. A servicer is required to disclose the actual
reason or reasons for the denial. If a servicer's systems establish
a hierarchy of eligibility criteria and reach the first criterion
that causes a denial but do not evaluate the borrower based on
additional criteria, a servicer complies with the rule by providing
only the reason or reasons with respect to which the borrower was
actually evaluated as well as notification that the borrower was not
evaluated on other criteria. A servicer is not required to determine
or disclose whether a borrower would have been denied on the basis
of additional criteria if such criteria were not actually
considered.
41(f) Prohibition on foreclosure referral
1. Prohibited activities. Section 1024.41(f) prohibits a
servicer from making the first notice or filing required by
applicable law for any judicial or non-judicial foreclosure process
under certain circumstances. Whether a document is considered the
first notice or filing is determined under applicable State law.
Specifically, a document is considered the first notice or filing if
it would be used by the servicer as evidence of compliance with
foreclosure practices required pursuant to State law, but is not
considered the first notice or filing if it is used solely for other
purposes. Thus, a servicer is not prohibited from attempting to
collect payments, sending periodic statements, sending breach
letters, or engaging in any other activity during the pre-
foreclosure review period, so long as such documents or activity
would not be used as evidence of complying with requirements
applicable pursuant to State law in connection with a foreclosure
process, and are not banned by other applicable law (e.g., the Fair
Debt Collection Practices Act or bankruptcy law).
* * * * *
PART 1026--TRUTH IN LENDING (REGULATION Z)
0
12. The authority citation for part 1026 continues to read as follows:
Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 5511,
5512, 5532, 5581; 15 U.S.C. 1601 et seq.
* * * * *
Subpart C--Closed-End Credit
0
13. Section 1026.23 is amended by revising paragraph (a)(3)(ii) to read
as follows:
Sec. 1026.23 Right of rescission.
(a) * * *
(3) * * *
(ii) For purposes of this paragraph (a)(3), the term ``material
disclosures'' means the required disclosures of the annual percentage
rate, the finance charge, the amount financed, the total of payments,
the payment schedule, and the disclosures and limitations referred to
in Sec. Sec. 1026.32(c) and (d) and 1026.43(g).
* * * * *
Subpart E--Special Rules for Certain Home Mortgage Transactions
0
14. Section 1026.31, as amended January 31, 2013, at 78 FR 6856,
effective January 10, 2014, is amended by revising paragraphs
(h)(1)(iii)(A) and (h)(2)(iii)(A) to read as follows:
Sec. 1026.31 General rules.
* * * * *
(h) * * *
(1) * * *
(iii) * * *
(A) Make the loan or credit plan satisfy the requirements of 15
U.S.C. 1631-1651; or
* * * * *
(2) * * *
(iii) * * *
(A) Make the loan or credit plan satisfy the requirements of 15
U.S.C. 1631-1651; or
* * * * *
0
15. Section 1026.32 is amended by:
0
a. Revising paragraph (a)(2)(iii), as amended January 31, 2013, at 78
FR 6856, effective January 10, 2014;
0
b. Revising paragraph (b)(1)(ii), as amended June 2, 2013, at 78 FR
35430, effective January 10, 2014;
0
c. Revising paragraph (b)(1)(vi), as amended January 30, 2013, at 78 FR
6408, effective January 10, 2014;
0
d. Revising paragraph (b)(2)(ii), as amended June 12, 2013, at 78 FR
35430, effective January 10, 2014; and
0
e. Revising paragraphs (b)(2)(vi), (b)(6)(ii), and (d)(1)(ii)(C), as
amended January 31, 2013, at 78 FR 6856, effective January 10, 2014.
The revisions read as follows:
Sec. 1026.32 Requirements for high-cost mortgages.
(a) * * *
(2) * * *
(iii) A transaction originated by a Housing Finance Agency, where
the Housing Finance Agency is the creditor for the transaction; or
(b) * * *
(1) * * *
(ii) All compensation paid directly or indirectly by a consumer or
creditor to a loan originator, as defined in Sec. 1026.36(a)(1), that
can be attributed to that transaction at the time the interest rate is
set unless:
(A) That compensation is paid by a consumer to a mortgage broker,
as defined in Sec. 1026.36(a)(2), and already has been included in
points and fees under paragraph (b)(1)(i) of this section;
(B) That compensation is paid by a mortgage broker, as defined in
Sec. 1026.36(a)(2), to a loan originator that is an employee of the
mortgage broker;
(C) That compensation is paid by a creditor to a loan originator
that is an employee of the creditor; or
(D) That compensation is paid by a retailer of manufactured homes
to its employee.
* * * * *
(vi) The total prepayment penalty, as defined in paragraph
(b)(6)(i) or (ii) of this section, as applicable, incurred by the
consumer if the consumer refinances the existing mortgage loan, or
terminates an existing open-end credit plan in connection with
obtaining a new mortgage loan, with the current holder of the existing
loan or plan, a servicer acting on behalf of the current holder, or an
affiliate of either.
* * * * *
(b) * * *
(2) * * *
* * * * *
(ii) All compensation paid directly or indirectly by a consumer or
creditor to a loan originator, as defined in Sec. 1026.36(a)(1), that
can be attributed to that transaction at the time the interest rate is
set unless:
(A) That compensation is paid by a consumer to a mortgage broker,
as defined in Sec. 1026.36(a)(2), and already has been included in
points and fees under paragraph (b)(2)(i) of this section;
(B) That compensation is paid by a mortgage broker, as defined in
Sec. 1026.36(a)(2), to a loan originator that is an employee of the
mortgage broker;
(C) That compensation is paid by a creditor to a loan originator
that is an employee of the creditor; or
[[Page 39937]]
(D) That compensation is paid by a retailer of manufactured homes
to its employee.
* * * * *
(vi) The total prepayment penalty, as defined in paragraph
(b)(6)(i) or (ii) of this section, as applicable, incurred by the
consumer if the consumer refinances an existing closed-end credit
transaction with an open-end credit plan, or terminates an existing
open-end credit plan in connection with obtaining a new open-end credit
plan, with the current holder of the existing transaction or plan, a
servicer acting on behalf of the current holder, or an affiliate of
either;
* * * * *
(6) * * *
(ii) Open-end credit. For an open-end credit plan, prepayment
penalty means a charge imposed by the creditor if the consumer
terminates the open-end credit plan prior to the end of its term, other
than a waived, bona fide third-party charge that the creditor imposes
if the consumer terminates the open-end credit plan sooner than 36
months after account opening.
* * * * *
(d) Limitations. A high-cost mortgage shall not include the
following terms:
(1) * * *
(ii) * * *
(C) A loan that meets the criteria set forth in Sec. Sec.
1026.43(f)(1)(i) through (vi) and 1026.43(f)(2), or the conditions set
forth in Sec. 1026.43(e)(6).
* * * * *
0
16. Section 1026.35 is amended by revising paragraphs (b)(2)(i)(D),
(b)(2)(iii)(A), and (b)(2)(iii)(D)(1) to read as follows:
Sec. 1026.35 Requirements for higher-priced mortgage loans.
* * * * *
(b) * * *
(2) * * *
(i) * * *
(D) A reverse mortgage transaction subject to Sec. 1026.33.
* * * * *
(iii) * * *
(A) During any of the three preceding calendar years, the creditor
extended more than 50 percent of its total covered transactions, as
defined by Sec. 1026.43(b)(1), secured by a first lien, on properties
that are located in counties that are either ``rural'' or
``underserved,'' as set forth in paragraph (b)(2)(iv) of this section;
* * * * *
(D) * * *
(1) Escrow accounts established for first-lien higher-priced
mortgage loans on or after April 1, 2010, and before January 1, 2014;
or
* * * * *
0
17. Section 1026.36, as amended February 15, 2013, at 78 FR 11280,
effective January 10, 2014, is amended by revising paragraphs
(a)(1)(i)(A) and (B), adding paragraph (a)(6), and revising paragraphs
(b), (f)(3)(i) introductory text, (f)(3)(ii), (i), and (j)(2) to read
as follows:
Sec. 1026.36 Prohibited acts or practices and certain requirements
for credit secured by a dwelling.
(a) * * *
(1) * * *
(i) * * *
(A) A person who does not take a consumer credit application or
offer or negotiate credit terms available from a creditor to that
consumer selected based on the consumer's financial characteristics,
but who performs purely administrative or clerical tasks on behalf of a
person who does engage in such activities.
(B) An employee of a manufactured home retailer who does not take a
consumer credit application, offer or negotiate credit terms available
from a creditor to that consumer selected based on the consumer's
financial characteristics, or advise a consumer on particular credit
terms available from a creditor to that consumer selected based on the
consumer's financial characteristics.
* * * * *
(6) Credit terms. For purposes of this section, the term ``credit
terms'' includes rates, fees, and other costs.
* * * * *
(b) Scope. Paragraphs (c)(1) and (2) of this section apply to
closed-end consumer credit transactions secured by a consumer's
principal dwelling. Paragraph (c)(3) of this section applies to a
consumer credit transaction secured by a dwelling. Paragraphs (d)
through (i) of this section apply to closed-end consumer credit
transactions secured by a dwelling. This section does not apply to a
home equity line of credit subject to Sec. 1026.40, except that
paragraphs (h) and (i) of this section apply to such credit when
secured by the consumer's principal dwelling and paragraph (c)(3)
applies to such credit when secured by a dwelling. Paragraphs (d)
through (i) of this section do not apply to a loan that is secured by a
consumer's interest in a timeshare plan described in 11 U.S.C.
101(53D).
* * * * *
(f) * * *
(3) * * *
(i) Obtain for any individual whom the loan originator organization
hired on or after January 1, 2014 (or whom the loan originator
organization hired before this date but for whom there were no
applicable statutory or regulatory background standards in effect at
the time of hire or before January 1, 2014, used to screen the
individual) and for any individual regardless of when hired who, based
on reliable information known to the loan originator organization,
likely does not meet the standards under Sec. 1026.36(f)(3)(ii),
before the individual acts as a loan originator in a consumer credit
transaction secured by a dwelling:
* * * * *
(ii) Determine on the basis of the information obtained pursuant to
paragraph (f)(3)(i) of this section and any other information
reasonably available to the loan originator organization, for any
individual whom the loan originator organization hired on or after
January 1, 2014 (or whom the loan originator organization hired before
this date but for whom there were no applicable statutory or regulatory
background standards in effect at the time of hire or before January 1,
2014, used to screen the individual) and for any individual regardless
of when hired who, based on reliable information known to the loan
originator organization, likely does not meet the standards under this
paragraph (f)(3)(ii), before the individual acts as a loan originator
in a consumer credit transaction secured by a dwelling, that the
individual loan originator:
* * * * *
(i) Prohibition on financing credit insurance. (1) A creditor may
not finance, directly or indirectly, any premiums or fees for credit
insurance in connection with a consumer credit transaction secured by a
dwelling (including a home equity line of credit secured by the
consumer's principal dwelling). This prohibition does not apply to
credit insurance for which premiums or fees are calculated and paid in
full on a monthly basis.
(2) For purposes of this paragraph (i):
(i) ``Credit insurance'':
(A) Means credit life, credit disability, credit unemployment, or
credit property insurance, or any other accident, loss-of income, life,
or health insurance, or any payments directly or indirectly for any
debt cancellation or suspension agreement or contract, but
(B) Excludes credit unemployment insurance for which the
unemployment insurance premiums are reasonable, the creditor receives
no direct or indirect compensation in connection with the unemployment
insurance premiums, and the unemployment insurance
[[Page 39938]]
premiums are paid pursuant to a separate insurance contract and are not
paid to an affiliate of the creditor;
(ii) A creditor finances premiums or fees for credit insurance if
it provides a consumer the right to defer payment of a credit insurance
premium or fee owed by the consumer; and
(iii) Credit insurance premiums or fees are calculated on a monthly
basis if they are determined mathematically by multiplying a rate by
the actual monthly outstanding balance.
* * * * *
(j) * * *
(2) For purposes of this paragraph (j), ``depository institution''
has the meaning in section 1503(3) of the SAFE Act, 12 U.S.C. 5102(3).
For purposes of this paragraph (j), ``subsidiary'' has the meaning in
section 3 of the Federal Deposit Insurance Act, 12 U.S.C. 1813.
* * * * *
0
18. Appendix H to Part 1026, as amended February 14, 2013, at 78 FR
10901, effective January 10, 2014, is amended by:
0
a. Revising the entry for H-30(C) in the table of contents at the
beginning of the appendix, and
0
b. Revising the heading of H-30(C).
The revision reads as follows:
Appendix H to Part 1026--Closed-End Model Forms and Clauses
* * * * *
H-30(C) Sample Form of Periodic Statement for a Payment-Option
Loan
* * * * *
0
19. In Supplement I to Part 1026:
0
a. Under Section 1026.25--Record Retention, under Paragraph 25(c)(2)
Records related to requirements for loan originator compensation, as
amended February 15, 2013, at 78 FR 11280, effective January 10, 2014,
paragraph 1 is revised.
0
b. Under Section 1026.32 Requirements for High Cost Mortgages:
0
i. Under Paragraph 32(b)(1), as amended January 30, 2013, at 78 FR
6408, effective January 10, 2014, paragraph 2 is added.
0
ii. Under Paragraph 32(b)(1)(ii), as amended June 12, 2013, at 78 FR
35430, effective January 10, 2014, paragraph 5 is added.
0
iii. Paragraph 32(b)(2), as amended January 30, 2013, at 78 FR 6408,
effective January 10, 2014, and paragraph 1 are added.
0
iv. Under Paragraph 32(b)(2)(i), as amended January 30, 2013, at 78 FR
6408, effective January 10, 2014, paragraph 1 is revised.
0
v. Under Paragraph 32(b)(2)(i)(D), as amended January 30, 2013, at 78
FR 6408, effective January 10, 2014, paragraph 1 is revised.
0
vi. Under Paragraph 32(d)(8)(ii), as amended January 30, 2013, at 78 FR
6408, effective January 10, 2014, paragraph 1 is revised.
0
c. Under Section 1026.34--Prohibited Acts or Practices in Connection
with High--Cost Mortgages, under Paragraph 34(a)(5)(v), as amended
January 30, 2013, at 78 FR 6408, effective January 10, 2014, paragraph
1 is revised.
0
d. Under Section 1026.35--Requirements for Higher-Priced Mortgage Loans
0
i. Under Paragraph 35(b)(2)(iii), paragraph 1 is revised.
0
ii. Under Paragraph 35(b)(2)(iii)(D(1), paragraph 1 is revised.
0
e. Under Section 1026.36--Prohibited Acts or Practices in Connection
With Credit Secured by a Dwelling
0
i. Under Paragraph 36(a), as amended February 14, 2013, at 78 FR 11280,
effective January 10, 2014, paragraphs 1, 4, and 5 are revised.
0
ii. Under Paragraph 36(b), as amended February 14, 2013, at 78 FR
11280, effective January 10, 2014, paragraph 1 is revised.
0
iii. Under Paragraph 36(d)(1), as amended February 14, 2013, at 78 FR
11280, effective January 10, 2014, paragraphs 1, 3, and 6 are revised.
0
iv. Under Paragraph 36(f)(3)(i), as amended February 14, 2013, at 78 FR
11280, effective January 10, 2014, paragraphs 1 and 2 are revised.
0
v. Under Paragraph 36(f)(3)(ii), as amended February 14, 2013, at 78 FR
11280, effective January 10, 2014, paragraphs 1and 2 are revised.
0
f. Under Section 1026.41--Periodic Statements for Residential Mortgage
Loans
0
i. Under Paragraph 41(b), as amended February 14, 2013, at 78 FR 10901,
effective January 10, 2014, paragraph 1 is revised.
0
ii. Under Paragraph 41(d), as amended February 14, 2013, at 78 FR
10901, effective January 10, 2014, paragraph 3 is revised.
0
iii. Under Paragraph 41(d)(4), as amended February 14, 2013, at 78 FR
10901, effective January 10, 2014, paragraph 1 is revised.
0
iv. Under Paragraph 41(e)(3), as amended February 14, 2013, at 78 FR
10901, effective January 10, 2014, paragraph 1 is revised.
0
v. Under Paragraph 41(e)(4)(iii), as amended February 14, 2013, at 78
FR 10901, effective January 10, 2014, paragraph 1 is revised.
The revisions read as follows:
Supplement I to Part 1026--Official Interpretations
* * * * *
Subpart D--Miscellaneous
Section 1026.25 Record Retention
* * * * *
25(c) Records related to certain requirements for mortgage
loans.
25(c)(2) Records related to requirements for loan originator
compensation.
1. * * *
i. Records sufficient to evidence payment and receipt of
compensation. Records are sufficient to evidence payment and receipt
of compensation if they demonstrate the following facts: The nature
and amount of the compensation; that the compensation was paid, and
by whom; that the compensation was received, and by whom; and when
the payment and receipt of compensation occurred. The compensation
agreements themselves are to be retained in all circumstances
consistent with Sec. 1026.25(c)(2)(i). The additional records that
are sufficient necessarily will vary on a case-by-case basis
depending on the facts and circumstances, particularly with regard
to the nature of the compensation. For example, if the compensation
is in the form of a salary, records to be retained might include
copies of required filings under the Internal Revenue Code that
demonstrate the amount of the salary. If the compensation is in the
form of a contribution to or a benefit under a designated tax-
advantaged plan, records to be maintained might include copies of
required filings under the Internal Revenue Code or other applicable
Federal law relating to the plan, copies of the plan and amendments
thereto in which individual loan originators participate and the
names of any loan originators covered by the plan, or determination
letters from the Internal Revenue Service regarding the plan. If the
compensation is in the nature of a commission or bonus, records to
be retained might include a settlement agent ``flow of funds''
worksheet or other written record or a creditor closing instructions
letter directing disbursement of fees at consummation. Where a loan
originator is a mortgage broker, a disclosure of compensation or
broker agreement required by applicable State law that recites the
broker's total compensation for a transaction is a record of the
amount actually paid to the loan originator in connection with the
transaction, unless actual compensation deviates from the amount in
the disclosure or agreement. Where compensation has been decreased
to defray the cost, in whole or part, of an unforeseen increase in
an actual settlement cost over an estimated settlement cost
disclosed to the consumer pursuant to section 5(c) of RESPA (or
omitted from that disclosure), records to be maintained are those
documenting the decrease in compensation and reasons for it.
ii. Compensation agreement. For purposes of Sec. 1026.25(c)(2),
a compensation agreement includes any agreement, whether oral,
written, or based on a course of conduct that establishes a
compensation arrangement between the parties (e.g., a brokerage
agreement between a creditor and a mortgage broker or provisions of
employment contracts between a creditor and an individual loan
originator employee addressing payment of
[[Page 39939]]
compensation). Where a compensation agreement is oral or based on a
course of conduct and cannot itself be maintained, the records to be
maintained are those, if any, evidencing the existence or terms of
the oral or course of conduct compensation agreement. Creditors and
loan originators are free to specify what transactions are governed
by a particular compensation agreement as they see fit. For example,
they may provide, by the terms of the agreement, that the agreement
governs compensation payable on transactions consummated on or after
some future effective date (in which case, a prior agreement governs
transactions consummated in the meantime). For purposes of applying
the record retention requirement to transaction-specific
commissions, the relevant compensation agreement for a given
transaction is the agreement pursuant to which compensation for that
transaction is determined.
* * * * *
Subpart E--Special Rules for Certain Home Mortgage Transactions
* * * * *
Section 1026.32 Requirements for High-Cost Mortgages
* * * * *
32(b) Definitions.
* * * * *
Paragraph 32(b)(1)
* * * * *
2. Charges paid by parties other than the consumer. Under Sec.
1026.32(b)(1), points and fees may include charges paid by third
parties in addition to charges paid by the consumer. Specifically,
charges paid by third parties that fall within the definition of
points and fees set forth in Sec. 1026.32(b)(1)(i) through (vi) are
included in points and fees.
i. Examples--included in points and fees. A creditor's
origination charge paid by a consumer's employer on the consumer's
behalf that is included in the finance charge as defined in Sec.
1026.4(a) or (b), must be included in points and fees under Sec.
1026.32(b)(1)(i), unless other exclusions under Sec. 1026.4 or
Sec. 1026.32(b)(1)(i)(A) through (F) apply. In addition, consistent
with comment 32(b)(1)(i)-1, a third-party payment of an item
excluded from the finance charge under a provision of Sec. 1026.4,
while not included in the total points and fees under Sec.
1026.32(b)(1)(i), may be included under Sec. 1026.32(b)(1)(ii)
through (vi). For example, a payment by a third party of a creditor-
imposed fee for an appraisal performed by an employee of the
creditor is included in points and fees under Sec.
1026.32(b)(1)(iii). See comment 32(b)(1)(i).
ii. Examples--not included in points and fees. A charge paid by
a third party is not included in points and fees under Sec.
1026.32(b)(1)(i) if the exclusions to points and fees in Sec.
1026.32(b)(1)(i)(A) through (F) apply. For example, certain bona
fide third-party charges not retained by the creditor, loan
originator, or an affiliate of either are excluded from points and
fees under Sec. 1026.32(b)(1)(i)(D), regardless of whether those
charges are paid by a third party or the consumer.
iii. Seller's points. Seller's points, as described in Sec.
1026.4(c)(5) and commentary, are excluded from the finance charge
and thus are not included in points and fees under Sec.
1026.32(b)(1)(i). However, charges paid by the seller for items
listed in Sec. 1026.32(b)(1)(ii) through (vi) are included in
points and fees.
iv. Creditor-paid charges. Charges that are paid by the
creditor, other than loan originator compensation paid by the
creditor that is required to be included in points and fees under
Sec. 1026.32(b)(1)(ii), are excluded from points and fees. See
Sec. 1026.32(b)(1)(i)(A).
* * * * *
Paragraph 32(b)(1)(ii)
* * * * *
5. Loan originator compensation--calculating loan originator
compensation in manufactured home transactions. i. If a manufactured
home retailer qualifies as a loan originator under Sec.
1026.36(a)(1), then compensation that is paid by a consumer or
creditor to the retailer for loan origination activities and that
can be attributed to the transaction at the time the interest rate
is set must be included in points and fees. For example, assume a
manufactured home retailer takes a residential mortgage loan
application and is entitled to receive at consummation a $1,000
commission from the creditor for taking the mortgage loan
application. The $1,000 commission is loan originator compensation
that must be included in points and fees.
ii. The sales price of the manufactured home does not include
loan originator compensation that can be attributed to the
transaction at the time the interest rate is set and therefore is
not included in points and fees under Sec. 1026.32(b)(1)(ii).
iii. As provided in Sec. 1026.32(b)(1)(ii)(D), compensation
paid by a manufactured home retailer to its employees is not
included in points and fees under Sec. 1026.32(b)(1)(ii).
* * * * *
Paragraph 32(b)(2)
1. See comment 32(b)(1)-2 for guidance concerning the inclusion
in points and fees of charges paid by parties other than the
consumer.
* * * * *
Paragraph 32(b)(2)(i).
1. Finance charge. The points and fees calculation under Sec.
1026.32(b)(2) generally does not include items that are included in
the finance charge but that are not known until after account
opening, such as minimum monthly finance charges or charges based on
account activity or inactivity. Transaction fees also generally are
not included in the points and fees calculation, except as provided
in Sec. 1026.32(b)(2)(vi). See comments 32(b)(1)-1 and 32(b)(1)(i)-
1 for additional guidance concerning the calculation of points and
fees.
* * * * *
Paragraph 32(b)(2)(i)(D)
1. For purposes of Sec. 1026.32(b)(2)(i)(D), the term loan
originator means a loan originator as that term is defined in Sec.
1026.36(a)(1), without regard to Sec. 1026.36(a)(2). See comments
32(b)(1)(i)(D)-1 through -4 for further guidance concerning the
exclusion of bona fide third-party charges from points and fees.
* * * * *
Paragraph 32(d)(8)(ii).
1. Failure to meet repayment terms. A creditor may terminate a
loan or open-end credit agreement and accelerate the balance when
the consumer fails to meet the repayment terms resulting in a
default in payment under the agreement; a creditor may do so,
however, only if the consumer actually fails to make payments
resulting in a default in the agreement. For example, a creditor may
not terminate and accelerate if the consumer, in error, sends a
payment to the wrong location, such as a branch rather than the main
office of the creditor. If a consumer files for or is placed in
bankruptcy, the creditor may terminate and accelerate under Sec.
1026.32(d)(8)(ii) if the consumer fails to meet the repayment terms
resulting in a default of the agreement. Section 1026.32(d)(8)(ii)
does not override any State or other law that requires a creditor to
notify a consumer of a right to cure, or otherwise places a duty on
the creditor before it can terminate a
* * * * *
Section 1026.34 Prohibited Acts or Practices in Connection With
High-Cost Mortgages
* * * * *
34(a)(5) Pre-Loan Counseling
* * * * *
Paragraph 34(a)(5)(v) Counseling fees.
1. Financing. Section 1026.34(a)(5)(v) does not prohibit a
creditor from financing the counseling fee as part of the
transaction for a high-cost mortgage, if the fee is a bona fide
third-party charge as provided by Sec. 1026.32(b)(1)(i)(D) and
(b)(2)(i)(D).
* * * * *
Section 1026.35 Requirements for Higher-Priced Mortgage Loans
* * * * *
35(b) Escrow accounts.
* * * * *
35(b)(2) Exemptions.
* * * * *
Paragraph 35(b)(2)(iii)
1. Requirements for exemption. Under Sec. 1026.35(b)(2)(iii),
except as provided in Sec. 1026.35(b)(2)(v), a creditor need not
establish an escrow account for taxes and insurance for a higher-
priced mortgage loan, provided the following four conditions are
satisfied when the higher-priced mortgage loan is consummated:
i. During any of the three preceding calendar years, more than
50 percent of the creditor's total first-lien covered transactions,
as defined in Sec. 1026.43(b)(1), are secured by properties located
in counties that are either ``rural'' or ``underserved,'' as set
forth in Sec. 1026.35(b)(2)(iv). Pursuant to that section, a
creditor may rely as a safe harbor on a list of counties published
by the Bureau to determine whether counties in the United States are
rural or underserved for a particular calendar year. Thus, for
example, if a creditor originated 90 covered transactions, as
defined by Sec. 1026.43(b)(1),
[[Page 39940]]
secured by a first lien, during 2011, 2012, or 2013, the creditor
meets this condition for an exemption in 2014 if at least 46 of
those transactions in one of those three calendar years are secured
by first liens on properties that are located in such counties.
* * * * *
Paragraph 35(b)(2)(iii)(D)(1)
1. Exception for certain accounts. Escrow accounts established
for first-lien higher-priced mortgage loans on or after April 1,
2010, and before January 1, 2014, are not counted for purposes of
Sec. 1026.35(b)(2)(iii)(D). On and after January 1, 2014,
creditors, together with their affiliates, that establish new escrow
accounts, other than those described in Sec.
1026.35(b)(2)(iii)(D)(2), do not qualify for the exemption provided
under Sec. 1026.35(b)(2)(iii). Creditors, together with their
affiliates, that continue to maintain escrow accounts established
between April 1, 2010, and January 1, 2014, still qualify for the
exemption provided under Sec. 1026.35(b)(2)(iii) so long as they do
not establish new escrow accounts for transactions consummated on or
after January 1, 2014, other than those described in Sec.
1026.35(b)(2)(iii)(D)(2), and they otherwise qualify under Sec.
1026.35(b)(2)(iii).
* * * * *
Section 1026.36--Prohibited Acts or Practices in Connection With
Credit Secured by a Dwelling
36(a) Definitions.
1. Meaning of loan originator. i. General. A. Section 1026.36(a)
defines the set of activities or services any one of which, if done
for or in the expectation of compensation or gain, makes the person
doing such activities or performing such services a loan originator,
unless otherwise excluded. The scope of activities covered by the
term loan originator includes:
1. Referring a consumer to any person who participates in the
origination process as a loan originator. Referring includes any
oral or written action directed to a consumer that can affirmatively
influence the consumer to select a particular loan originator or
creditor to obtain an extension of credit when the consumer will pay
for such credit. See comment 36(a)-4 with respect to certain
activities that do not constitute referring.
2. Arranging a credit transaction, including initially
contacting and orienting the consumer to a particular loan
originator's or creditor's origination process or particular credit
terms that are or may be available to that consumer selected based
on the consumer's financial characteristics, assisting the consumer
to apply for credit, taking an application, offering particular
credit terms to the consumer selected based on the consumer's
financial characteristics, negotiating credit terms, or otherwise
obtaining or making an extension of credit.
3. Assisting a consumer in obtaining or applying for consumer
credit by advising on particular credit terms that are or may be
available to that consumer based on the consumer's financial
characteristics, filling out an application form, preparing
application packages (such as a credit application or pre-approval
application or supporting documentation), or collecting application
and supporting information on behalf of the consumer to submit to a
loan originator or creditor. A person who, acting on behalf of a
loan originator or creditor, collects information or verifies
information provided by the consumer, such as by asking the consumer
for documentation to support the information the consumer provided
or for the consumer's authorization to obtain supporting documents
from third parties, is not collecting information on behalf of the
consumer. See also comment 36(a)-4.i through iv with respect to
application-related administrative and clerical tasks and comment
36(a)-1.v with respect to third-party advisors.
4. Presenting particular credit terms for the consumer's
consideration that are selected based on the consumer's financial
characteristics, or communicating with a consumer for the purpose of
reaching a mutual understanding about prospective credit terms.
* * * * *
4. * * *
i. Application-related administrative and clerical tasks. The
definition of loan originator does not include a loan originator's
or creditor's employee (or agent or contractor) who provides a
credit application form from the entity for which the person works
to the consumer for the consumer to complete or, without assisting
the consumer in completing the credit application, processing or
analyzing the information, or discussing particular credit terms or
particular credit products available from a creditor to that
consumer selected based on the consumer's financial characteristics,
deliver the credit application from a consumer to a loan originator
or creditor. A person does not assist the consumer in completing the
application if the person explains to the consumer filling out the
application the contents of the application or where particular
consumer information is to be provided, or generally describes the
credit application process to a consumer without discussion of
particular credit terms or particular products available from a
creditor to that consumer selected based on the consumer's financial
characteristics.
ii. Responding to consumer inquiries and providing general
information. The definition of loan originator does not include
persons who:
A. * * *
B. As employees (or agents or contractors) of a creditor or loan
originator, provide loan originator or creditor contact information
to a consumer, provided that the person does not discuss particular
credit terms that are or may be available from a creditor to that
consumer selected based on the consumer's financial characteristics
and does not direct the consumer, based on his or her assessment of
the consumer's financial characteristics, to a particular loan
originator or particular creditor seeking to originate credit
transactions to consumers with those financial characteristics;
C. Describe other product-related services (for example, persons
who describe optional monthly payment methods via telephone or via
automatic account withdrawals, the availability and features of
online account access, the availability of 24-hour customer support,
or free mobile applications to access account information); or
D. * * *
iii. Loan processing. The definition of loan originator does not
include persons who, acting on behalf of a loan originator or a
creditor:
A. * * *
B. * * *
C. Coordinate consummation of the credit transaction or other
aspects of the credit transaction process, including by
communicating with a consumer about process deadlines and documents
needed at consummation, provided that any communication that
includes a discussion about credit terms available from a creditor
to that consumer selected based on the consumer's financial
characteristics only confirms credit terms already agreed to by the
consumer;
iv. Underwriting, credit approval, and credit pricing. The
definition of loan originator does not include persons who:
A. * * *
B. Approve particular credit terms or set particular credit
terms available from a creditor to that consumer selected based on
the consumer's financial characteristics in offer or counter-offer
situations, provided that only a loan originator communicates to or
with the consumer regarding these credit terms, an offer, or
provides or engages in negotiation, a counter-offer, or approval
conditions; or
* * * * *
5. Compensation.
* * * * *
iv. Amounts for charges for services that are not loan
origination activities. A. * * *
B. Compensation includes any salaries, commissions, and any
financial or similar incentive to an individual loan originator,
regardless of whether it is labeled as payment for services that are
not loan origination activities.
* * * * *
36(b) Scope.
1. Scope of coverage. Section 1026.36(c)(1) and (c)(2) applies
to closed-end consumer credit transactions secured by a consumer's
principal dwelling. Section 1026.36(c)(3) applies to a consumer
credit transaction, including home equity lines of credit under
Sec. 1026.40, secured by a consumer's dwelling. Paragraphs (h) and
(i) of Sec. 1026.36 apply to home equity lines of credit under
Sec. 1026.40 secured by a consumer's principal dwelling. Paragraphs
(d), (e), (f), (g), (h), and (i) of Sec. 1026.36 apply to closed-
end consumer credit transactions secured by a dwelling. Closed-end
consumer credit transactions include transactions secured by first
or subordinate liens, and reverse mortgages that are not home equity
lines of credit under Sec. 1026.40. See Sec. 1026.36(b) for
additional restrictions on the scope of Sec. 1026.36, and
Sec. Sec. 1026.1(c) and 1026.3(a) and corresponding commentary for
further discussion of extensions of credit subject to Regulation Z.
* * * * *
[[Page 39941]]
36(d) Prohibited payments to loan originators.
* * * * *
36(d)(1) Payments based on a term of a transaction.
1. * * *
ii. Single or multiple transactions. The prohibition on payment
and receipt of compensation under Sec. 1026.36(d)(1)(i) encompasses
compensation that directly or indirectly is based on the terms of a
single transaction of a single individual loan originator, the terms
of multiple transactions by that single individual loan originator,
or the terms of multiple transactions by multiple individual loan
originators. Compensation to an individual loan originator that is
based upon profits determined with reference to a mortgage-related
business is considered compensation that is based on the terms of
multiple transactions by multiple individual loan originators. For
clarification about the exceptions permitting compensation based
upon profits determined with reference to mortgage-related business
pursuant to either a designated tax-advantaged plan or a non-
deferred profits-based compensation plan, see comment 36(d)(1)-3.
For clarification about ``mortgage-related business,'' see comments
36(d)(1)-3.v.B and -3.v.E.
A. Assume that a creditor pays a bonus to an individual loan
originator out of a bonus pool established with reference to the
creditor's profits and the profits are determined with reference to
the creditor's revenue from origination of closed-end consumer
credit transactions secured by a dwelling. In such instance, the
bonus is considered compensation that is based on the terms of
multiple transactions by multiple individual loan originators.
Therefore, the bonus is prohibited under Sec. 1026.36(d)(1)(i),
unless it is otherwise permitted under Sec. 1026.36(d)(1)(iv).
B. Assume that an individual loan originator's employment
contract with a creditor guarantees a quarterly bonus in a specified
amount conditioned upon the individual loan originator meeting
certain performance benchmarks (e.g., volume of originations
monthly). A bonus paid following the satisfaction of those
contractual conditions is not directly or indirectly based on the
terms of a transaction by an individual loan originator, the terms
of multiple transactions by that individual loan originator, or the
terms of multiple transactions by multiple individual loan
originators under Sec. 1026.36(d)(1)(i) as clarified by this
comment 36(d)(1)-1.ii, because the creditor is obligated to pay the
bonus, in the specified amount, regardless of the terms of
transactions of the individual loan originator or multiple
individual loan originators and the effect of those terms of
multiple transactions on the creditor's profits. Because this type
of bonus is not directly or indirectly based on the terms of
multiple transactions by multiple individual loan originators, as
described in Sec. 1026.36(d)(1)(i) (as clarified by this comment
36(d)(1)-1.ii), it is not subject to the 10-percent total
compensation limit described in Sec. 1026.36(d)(1)(iv)(B)(1).
iii. * * *
* * * * *
D. The fees and charges described above in paragraphs B and C
can only be a term of a transaction if the fees or charges are
required to be disclosed in the Good Faith Estimate, the HUD-1, or
the HUD-1A (and subsequently in any integrated disclosures
promulgated by the Bureau under TILA section 105(b) (15 U.S.C.
1604(b)) and RESPA section 4 (12 U.S.C. 2603) as amended by sections
1098 and 1100A of the Dodd-Frank Act).
* * * * *
3. Interpretation of Sec. 1026.36(d)(1)(iii) and (iv). Subject
to certain restrictions, Sec. 1026.36(d)(1)(iii) and Sec.
1026.36(d)(1)(iv) permit contributions to or benefits under
designated tax-advantaged plans and compensation under a non-
deferred profits-based compensation plan even if the contributions,
benefits, or compensation, respectively, are based on the terms of
multiple transactions by multiple individual loan originators.
i. Designated tax-advantaged plans. Section 1026.36(d)(1)(iii)
permits an individual loan originator to receive, and a person to
pay, compensation in the form of contributions to a defined
contribution plan or benefits under a defined benefit plan provided
the plan is a designated tax-advantaged plan (as defined in Sec.
1026.36(d)(1)(iii)), even if contributions to or benefits under such
plans are directly or indirectly based on the terms of multiple
transactions by multiple individual loan originators. In the case of
a designated tax-advantaged plan that is a defined contribution
plan, Sec. 1026.36(d)(1)(iii) does not permit the contribution to
be directly or indirectly based on the terms of that individual loan
originator's transactions. A defined contribution plan has the
meaning set forth in Internal Revenue Code section 414(i), 26 U.S.C.
414(i). A defined benefit plan has the meaning set forth in Internal
Revenue Code section 414(j), 26 U.S.C. 414(j).
ii. Non-deferred profits-based compensation plans. As used in
Sec. 1026.36(d)(1)(iv), a ``non-deferred profits-based compensation
plan'' is any compensation arrangement where an individual loan
originator may be paid variable, additional compensation based in
whole or in part on the mortgage-related business profits of the
person paying the compensation, any affiliate, or a business unit
within the organizational structure of the person or the affiliate,
as applicable (i.e., depending on the level within the person's or
affiliate's organization at which the non-deferred profits-based
compensation plan is established). A non-deferred profits-based
compensation plan does not include a designated tax-advantaged plan
or other forms of deferred compensation that are not designated tax-
advantaged plans, such as those created pursuant to Internal Revenue
Code section 409A, 26 U.S.C. 409A. Thus, if contributions to or
benefits under a designated tax-advantaged plan or compensation
under another form of deferred compensation plan are determined with
reference to the mortgage-related business profits of the person
making the contribution, then the contribution, benefits, or other
compensation, as applicable, are not permitted by Sec.
1026.36(d)(1)(iv) (although, in the case of contributions to or
benefits under a designated tax-advantaged plan, the benefits or
contributions may be permitted by Sec. 1026.36(d)(1)(iii)). Under a
non-deferred profits-based compensation plan, the individual loan
originator may, for example, be paid directly in cash, stock, or
other non-deferred compensation, and the compensation under the non-
deferred profits-based compensation plan may be determined by a
fixed formula or may be at the discretion of the person (e.g., the
person may elect not to pay compensation under a non-deferred
profits-based compensation plan in a given year), provided the
compensation is not directly or indirectly based on the terms of the
individual loan originator's transactions. As used in Sec.
1026.36(d)(1)(iv) and this commentary, non-deferred profits-based
compensation plans include, without limitation, bonus pools, profits
pools, bonus plans, and profit-sharing plans. Compensation under a
non-deferred profits-based compensation plan could include, without
limitation, annual or periodic bonuses, or awards of merchandise,
services, trips, or similar prizes or incentives where the bonuses,
contributions, or awards are determined with reference to the
profitability of the person, business unit, or affiliate, as
applicable. As used in Sec. 1026.36(d)(1)(iv) and this commentary,
a business unit is a division, department, or segment within the
overall organizational structure of the person or the person's
affiliate that performs discrete business functions and that the
person or the affiliate treats separately for accounting or other
organizational purposes. For example, a creditor that pays its
individual loan originators bonuses at the end of a calendar year
based on the creditor's average net return on assets for the
calendar year is operating a non-deferred profits-based compensation
plan under Sec. 1026.36(d)(1)(iv). A bonus that is paid to an
individual loan originator from a source other than a non-deferred
profits-based compensation plan (or a deferred compensation plan
where the bonus is determined with reference to mortgage-related
business profits), such as a retention bonus budgeted for in advance
or a performance bonus paid out of a bonus pool set aside at the
beginning of the company's annual accounting period as part of the
company's operating budget, does not violate the prohibition on
payment of compensation based on the terms of multiple transactions
by multiple individual loan originators under Sec.
1026.36(d)(1)(i), as clarified by comment 36(d)(1)-1.ii; therefore,
Sec. 1026.36(d)(1)(iv) does not apply to such bonuses.
iii. Compensation that is not directly or indirectly based on
the terms of multiple transactions by multiple individual loan
originators. The compensation arrangements addressed in Sec.
1026.36(d)(1)(iii) and (iv) are permitted even if they are directly
or indirectly based on the terms of multiple transactions by
multiple individual loan originators. See comment 36(d)(1)-1 for
additional interpretation. If a loan originator organization's
revenues are exclusively
[[Page 39942]]
derived from transactions subject to Sec. 1026.36(d) (whether paid
by creditors, consumers, or both) and that loan originator
organization pays its individual loan originators a bonus under a
non-deferred profits-based compensation plan, the bonus is not
directly or indirectly based on the terms of multiple transactions
by multiple individual loan originators if Sec. 1026.36(d)(1)(i) is
otherwise complied with.
iv. Compensation based on terms of an individual loan
originator's transactions. Under both Sec. 1026.36(d)(1)(iii), with
regard to contributions made to a defined contribution plan that is
a designated tax-advantaged plan, and Sec. 1026.36(d)(1)(iv)(A),
with regard to compensation under a non-deferred profits-based
compensation plan, the payment of compensation to an individual loan
originator may not be directly or indirectly based on the terms of
that individual loan originator's transaction or transactions.
Consequently, for example, where an individual loan originator makes
loans that vary in their interest rate spread, the compensation
payment may not take into account the average interest rate spread
on the individual loan originator's transactions during the relevant
calendar year.
v. Compensation under non-deferred profits-based compensation
plans. Assuming that the conditions in Sec. 1026.36(d)(1)(iv)(A)
are met, Sec. 1026.36(d)(1)(iv)(B)(1) permits certain compensation
to an individual loan originator under a non-deferred profits-based
compensation plan. Specifically, if the compensation is determined
with reference to the profits of the person from mortgage-related
business, compensation under a non-deferred profits-based
compensation plan is permitted provided the compensation does not,
in the aggregate, exceed more than 10 percent of the individual loan
originator's total compensation corresponding to the time period for
which compensation under the non-deferred profits-based compensation
plan is paid. The compensation restrictions under Sec.
1026.36(d)(1)(iv)(B)(1) are sometimes referred to in this commentary
as the ``10-percent total compensation limit or the ``10-percent
limit.''
A. Total compensation. For purposes of Sec.
1026.36(d)(1)(iv)(B)(1), the individual loan originator's total
compensation consists of the sum total of: (1) All wages and tips
reportable for Medicare tax purposes in box 5 on IRS form W-2 (or,
if the individual loan originator is an independent contractor,
reportable compensation on IRS form 1099-MISC) that are actually
paid during the relevant time period (regardless of when the wages
and tips are earned), except for any compensation under a non-
deferred profits-based compensation plan that is earned during a
different time period (see comment 36(d)(1)-3.v.C); (2) at the
election of the person paying the compensation, all contributions
that are actually made during the relevant time period by the
creditor or loan originator organization to the individual loan
originator's accounts in designated tax-advantaged plans that are
defined contribution plans (regardless of when the contributions are
earned); and (3) at the election of the person paying the
compensation, all compensation under a non-deferred profits-based
compensation plan that is earned during the relevant time period,
regardless of whether the compensation is actually paid during that
time period (see comment 36(d)(1)-3.v.C). If an individual loan
originator has some compensation that is reportable on the W-2 and
some that is reportable on the 1099-MISC, the total compensation is
the sum total of what is reportable on each of the two forms.
B. Profits of the Person. Under Sec. 1026.36(d)(1)(iv), a plan
is a non-deferred profits-based compensation plan if compensation is
paid, based in whole or in part, on the profits of the person paying
the compensation. As used in Sec. 1026.36(d)(1)(iv), ``profits of
the person'' include, as applicable depending on where the non-
deferred profits-based compensation plan is set, the profits of the
person, the business unit to which the individual loan originators
are assigned for accounting or other organizational purposes, or any
affiliate of the person. Profits from mortgage-related business are
profits determined with reference to revenue generated from
transactions subject to Sec. 1026.36(d). Pursuant to Sec.
1026.36(b) and comment 36(b)-1, Sec. 1026.36(d) applies to closed-
end consumer credit transactions secured by dwellings. This revenue
includes, without limitation, and as applicable based on the
particular sources of revenue of the person, business unit, or
affiliate, origination fees and interest associated with dwelling-
secured transactions for which individual loan originators working
for the person were loan originators, income from servicing of such
transactions, and proceeds of secondary market sales of such
transactions. If the amount of the individual loan originator's
compensation under non-deferred profits-based compensation plans
paid for a time period does not, in the aggregate, exceed 10 percent
of the individual loan originator's total compensation corresponding
to the same time period, compensation under non-deferred profits-
based compensation plans may be paid under Sec.
1026.36(d)(1)(iv)(B)(1) regardless of whether or not it was
determined with reference to the profits of the person from
mortgage-related business.
C. Time period for which the compensation under the non-deferred
profits-based compensation plan is paid and to which the total
compensation corresponds. Under Sec. 1026.36(d)(1)(iv)(B)(1),
determination of whether payment of compensation under a non-
deferred profits-based compensation plan complies with the 10-
percent limit requires a calculation of the ratio of the
compensation under the non-deferred profits-based compensation plan
(i.e., the compensation subject to the 10-percent limit) and the
total compensation corresponding to the relevant time period. For
compensation subject to the 10-percent limit, the relevant time
period is the time period for which a person makes reference to
profits in determining the compensation (i.e., when the compensation
was earned). It does not matter whether the compensation is actually
paid during that particular time period. For total compensation, the
relevant time period is the same time period, but only certain types
of compensation may be included in the total compensation amount for
that time period (see comment 36(d)(1)-3.v.A). For example, assume
that during calendar year 2014 a creditor pays an individual loan
originator compensation in the following amounts: $80,000 in
commissions based on the individual loan originator's performance
and volume of loans generated during the calendar year; and $10,000
in an employer contribution to a designated tax-advantaged defined
contribution plan on behalf of the individual loan originator. The
creditor desires to pay the individual loan originator a year-end
bonus of $10,000 under a non-deferred profits-based compensation
plan. The commissions are paid and employer contributions to the
designated tax-advantaged defined contribution plan are made during
calendar year 2014, but the year-end bonus will be paid in January
2015. For purposes of the 10-percent total compensation limit, the
year-end bonus is counted toward the 10-percent limit for calendar
year 2014, even though it is not actually paid until 2015.
Therefore, for calendar year 2014 the individual loan originator's
compensation that is subject to the 10-percent limit would be
$10,000 (i.e., the year-end bonus) and the total compensation would
be $100,000 (i.e., the sum of the commissions, the designated tax-
advantaged plan contribution (assuming the creditor elects to
include it in total compensation for calendar year 2014), and the
bonus (assuming the creditor elects to include it in total
compensation for calendar year 2014)); the bonus would be
permissible under Sec. 1026.36(d)(1)(iv) because it does not exceed
10 percent of total compensation. The determination of total
compensation corresponding to 2014 also would not take into account
any compensation subject to the 10-percent limit that is actually
paid in 2014 but is earned during a different calendar year (e.g.,
an annual bonus determined with reference to mortgage-related
business profits for calendar year 2013 that is paid in January
2014). If the employer contribution to the designated tax-advantaged
plan is earned in 2014 but actually made in 2015, however, it may
not be included in total compensation for 2014. A company, business
unit, or affiliate, as applicable, may pay compensation subject to
the 10-percent limit during different time periods falling within
its annual accounting period for keeping records and reporting
income and expenses, which may be a calendar year or a fiscal year
depending on the annual accounting period. In such instances,
however, the 10-percent limit applies both as to each time period
and cumulatively as to the annual accounting period. For example,
assume that a creditor uses a calendar-year accounting period. If
the creditor pays an individual loan originator a bonus at the end
of each quarter under a non-deferred profits-based compensation
plan, the payment of each quarterly bonus is subject to the 10-
percent limit measured with respect to each quarter. The creditor
can also pay an annual bonus under the non-deferred profits-based
compensation plan that does not exceed the difference of 10 percent
of the individual loan originator's total compensation corresponding
to the calendar year and the aggregate amount of the quarterly
bonuses.
[[Page 39943]]
D. Awards of merchandise, services, trips, or similar prizes or
incentives. If any compensation paid to an individual loan
originator under Sec. 1026.36(d)(1)(iv) consists of an award of
merchandise, services, trips, or similar prize or incentive, the
cash value of the award is factored into the calculation of the 10-
percent total compensation limit. For example, during a given
calendar year, individual loan originator A and individual loan
originator B are each employed by a creditor and paid $40,000 in
salary, and $45,000 in commissions. The creditor also contributes
$5,000 to a designated tax-advantaged defined contribution plan for
each individual loan originator during that calendar year, which the
creditor elects to include in the total compensation amount. Neither
individual loan originator is paid any other form of compensation by
the creditor. In December of the calendar year, the creditor rewards
both individual loan originators for their performance during the
calendar year out of a bonus pool established with reference to the
profits of the mortgage origination business unit. Individual loan
originator A is paid a $10,000 cash bonus, meaning that individual
loan originator A's total compensation is $100,000 (assuming the
creditor elects to include the bonus in the total compensation
amount). Individual loan originator B is paid a $7,500 cash bonus
and awarded a vacation package with a cash value of $3,000, meaning
that individual loan originator B's total compensation is $100,500
(assuming the creditor elects to include the reward in the total
compensation amount). Under Sec. 1026.36(d)(1)(iv)(B)(1),
individual loan originator A's $10,000 bonus is permissible because
the bonus would not constitute more than 10 percent of the
individual loan originator A's total compensation for the calendar
year. The creditor may not pay individual loan originator B the
$7,500 bonus and award the vacation package, however, because the
total value of the bonus and the vacation package would be $10,500,
which is greater than 10 percent (10.45 percent) of individual loan
originator B's total compensation for the calendar year. One way to
comply with Sec. 1026.36(d)(1)(iv)(B)(1) would be if the amount of
the bonus were reduced to $7,000 or less or the vacation package
were structured such that its cash value would be $2,500 or less.
E. Compensation determined only with reference to non-mortgage-
related business profits. Compensation under a non-deferred profits-
based compensation plan is not subject to the 10-percent total
compensation limit under Sec. 1026.36(d)(1)(iv)(B)(1) if the non-
deferred profits-based compensation plan is determined with
reference only to profits from business other than mortgage-related
business, as determined in accordance with reasonable accounting
principles. Reasonable accounting principles reflect an accurate
allocation of revenues, expenses, profits, and losses among the
person, any affiliate of the person, and any business units within
the person or affiliates, and are consistent with the accounting
principles applied by the person, the affiliate, or the business
unit with respect to, as applicable, its internal budgeting and
auditing functions and external reporting requirements. Examples of
external reporting and filing requirements that may be applicable to
creditors and loan originator organizations are Federal income tax
filings, Federal securities law filings, or quarterly reporting of
income, expenses, loan origination activity, and other information
required by government-sponsored enterprises. As used in Sec.
1026.36(d)(1)(iv)(B)(1), profits means positive profits or losses
avoided or mitigated.
F. Additional examples. 1. Assume that, during a given calendar
year, a loan originator organization pays an individual loan
originator employee $40,000 in salary and $125,000 in commissions,
and makes a contribution of $15,000 to the individual loan
originator's 401(k) plan. At the end of the year, the loan
originator organization wishes to pay the individual loan originator
a bonus based on a formula involving a number of performance
metrics, to be paid out of a profit pool established at the level of
the company but that is determined in part with reference to the
profits of the company's mortgage origination unit. Assume that the
loan originator organization derives revenues from sources other
than transactions covered by Sec. 1026.36(d). In this example, the
performance bonus would be directly or indirectly based on the terms
of multiple individual loan originators' transactions as described
in Sec. 1026.36(d)(1)(i), because it is being determined with
reference to profits from mortgage-related business. Assume,
furthermore, that the loan originator organization elects to include
the bonus in the total compensation amount for the calendar year.
Thus, the bonus is permissible under Sec. 1026.36(d)(1)(iv)(B)(1)
if it does not exceed 10 percent of the loan originator's total
compensation, which in this example consists of the individual loan
originator's salary, commissions, contribution to the 401(k) plan
(if the loan originator organization elects to include the
contribution in the total compensation amount), and the performance
bonus. Therefore, if the loan originator organization elects to
include the 401(k) contribution in total compensation for these
purposes, the loan originator organization may pay the individual
loan originator a performance bonus of up to $20,000 (i.e., 10
percent of $200,000 in total compensation). If the loan originator
organization does not include the 401(k) contribution in calculating
total compensation, or the 401(k) contribution is actually made in
January of the following calendar year (in which case it cannot be
included in total compensation for the initial calendar year), the
bonus may be up to $18,333.33. If the loan originator organization
includes neither the 401(k) contribution nor the performance bonus
in the total compensation amount, the bonus may not exceed $16,500.
2. Assume that the compensation during a given calendar year of
an individual loan originator employed by a creditor consists of
only salary and commissions, and the individual loan originator does
not participate in a designated tax-advantaged defined contribution
plan. Assume further that the creditor uses a calendar-year
accounting period. At the end of the calendar year, the creditor
pays the individual loan originator two bonuses: A ``performance''
bonus based on the individual loan originator's aggregate loan
volume for a calendar year that is paid out of a bonus pool
determined with reference to the profitability of the mortgage
origination business unit, and a year-end ``holiday'' bonus in the
same amount to all company employees that is paid out of a company-
wide bonus pool. Because the performance bonus is paid out of a
bonus pool that is determined with reference to the profitability of
the mortgage origination business unit, it is compensation that is
determined with reference to mortgage-related business profits, and
the bonus is therefore subject to the 10-percent total compensation
limit. If the company-wide bonus pool from which the ``holiday''
bonus is paid is derived in part from profits of the creditor's
mortgage origination business unit, then the combination of the
``holiday'' bonus and the performance bonus is subject to the 10-
percent total compensation limit. The ``holiday'' bonus is not
subject to the 10-percent total compensation limit if the bonus pool
is determined with reference only to the profits of business units
other than the mortgage origination business unit, as determined in
accordance with reasonable accounting principles. If the
``performance'' bonus and the ``holiday'' bonus in the aggregate do
not exceed 10 percent of the individual loan originator's total
compensation, the bonuses may be paid under Sec.
1026.36(d)(1)(iv)(B)(1) without the necessity of determining from
which bonus pool they were paid or whether they were determined with
reference to the profits of the creditor's mortgage origination
business unit.
G. Reasonable reliance by individual loan originator on
accounting or statement by person paying compensation. An individual
loan originator is deemed to comply with its obligations regarding
receipt of compensation under Sec. 1026.36(d)(1)(iv)(B)(1) if the
individual loan originator relies in good faith on an accounting or
a statement provided by the person who determined the individual
loan originator's compensation under a non-deferred profits-based
compensation plan pursuant to Sec. 1026.36(d)(1)(iv)(B)(1) and
where the statement or accounting is provided within a reasonable
time period following the person's determination.
vi. Individual loan originators who originate ten or fewer
transactions. Assuming that the conditions in Sec.
1026.36(d)(1)(iv)(A) are met, Sec. 1026.36(d)(1)(iv)(B)(2) permits
compensation to an individual loan originator under a non-deferred
profits-based compensation plan even if the payment or contribution
is directly or indirectly based on the terms of multiple individual
loan originators' transactions if the individual is a loan
originator (as defined in Sec. 1026.36(a)(1)(i)) for ten or fewer
consummated transactions during the 12-month period preceding the
compensation determination. For example, assume a loan originator
organization employs two individual loan originators who originate
transactions subject to Sec. 1026.36 during a
[[Page 39944]]
given calendar year. Both employees are individual loan originators
under Sec. 1026.36(a)(1)(ii), but only one of them (individual loan
originator B) acts as a loan originator in the normal course of
business, while the other (individual loan originator A) is called
upon to do so only occasionally and regularly performs other duties
(such as serving as a manager). In January of the following calendar
year, the loan originator organization formally determines the
financial performance of its mortgage business for the prior
calendar year. Based on that determination, the loan originator
organization on February 1 decides to pay a bonus to the individual
loan originators out of a company bonus pool. Assume that, between
February 1 of the prior calendar year and January 31 of the current
calendar year, individual loan originator A was the loan originator
for eight consummated transactions, and individual loan originator B
was the loan originator for 15 consummated transactions. The loan
originator organization may award the bonus to individual loan
originator A under Sec. 1026.36(d)(1)(iv)(B)(2). The loan
originator organization may not award the bonus to individual loan
originator B relying on the exception under Sec.
1026.36(d)(1)(iv)(B)(2) because it would not apply, although it
could award a bonus pursuant to the 10-percent total compensation
limit under Sec. 1026.36(d)(1)(iv)(B)(1) if the requirements of
that provision are complied with.
* * * * *
6. Periodic changes in loan originator compensation and terms of
transactions. Section 1026.36 does not limit a creditor or other
person from periodically revising the compensation it agrees to pay
a loan originator. However, the revised compensation arrangement
must not result in payments to the loan originator that are based on
the terms of a credit transaction. A creditor or other person might
periodically review factors such as loan performance, transaction
volume, as well as current market conditions for originator
compensation, and prospectively revise the compensation it agrees to
pay to a loan originator. For example, assume that during the first
six months of the year, a creditor pays $3,000 to a particular loan
originator for each loan delivered, regardless of the terms of the
transaction. After considering the volume of business produced by
that originator, the creditor could decide that as of July 1, it
will pay $3,250 for each loan delivered by that particular
originator, regardless of the terms of the transaction. No violation
occurs even if the loans made by the creditor after July 1 generally
carry a higher interest rate than loans made before that date, to
reflect the higher compensation.
* * * * *
36(f) Loan originator qualification requirements.
* * * * *
Paragraph 36(f)(3).
* * * * *
Paragraph 36(f)(3)(i).
1. Criminal and credit histories. Section 1026.36(f)(3)(i)
requires the loan originator organization to obtain, for any of its
individual loan originator employees who is not required to be
licensed and is not licensed as a loan originator pursuant to the
SAFE Act, a criminal background check, a credit report, and
information related to any administrative, civil, or criminal
determinations by any government jurisdiction. The requirement
applies to individual loan originator employees who were hired on or
after January 1, 2014 (or whom the loan originator organization
hired before this date but for whom there were no applicable
statutory or regulatory background standards in effect at the time
of hire or before January 1, 2014, used to screen the individual). A
credit report may be obtained directly from a consumer reporting
agency or through a commercial service. A loan originator
organization with access to the NMLSR can meet the requirement for
the criminal background check by reviewing any criminal background
check it receives upon compliance with the requirement in 12 CFR
1007.103(d)(1) and can meet the requirement to obtain information
related to any administrative, civil, or criminal determinations by
any government jurisdiction by obtaining the information through the
NMLSR. Loan originator organizations that do not have access to
these items through the NMLSR may obtain them by other means. For
example, a criminal background check may be obtained from a law
enforcement agency or commercial service. Information on any past
administrative, civil, or criminal findings (such as from
disciplinary or enforcement actions) may be obtained from the
individual loan originator.
2. Retroactive obtaining of information not required. Section
1026.36(f)(3)(i) does not require the loan originator organization
to obtain the covered information for an individual whom the loan
originator organization hired as a loan originator before January 1,
2014, and screened under applicable statutory or regulatory
background standards in effect at the time of hire. However, if the
individual subsequently ceases to be employed as a loan originator
by that loan originator organization, and later resumes employment
as a loan originator by that loan originator organization (or any
other loan originator organization), the loan originator
organization is subject to the requirements of Sec.
1026.36(f)(3)(i).
* * * * *
Paragraph 36(f)(3)(ii).
1. Scope of review. Section 1026.36(f)(3)(ii) requires the loan
originator organization to review the information that it obtains
under Sec. 1026.36(f)(3)(i) and other reasonably available
information to determine whether the individual loan originator
meets the standards in Sec. 1026.36(f)(3)(ii). Other reasonably
available information includes any information the loan originator
organization has obtained or would obtain as part of a reasonably
prudent hiring process, including information obtained from
application forms, candidate interviews, other reliable information
and evidence provided by a candidate, and reference checks. The
requirement applies to individual loan originator employees who were
hired on or after January 1, 2014 (or whom the loan originator
organization hired before this date but for whom there were no
applicable statutory or regulatory background standards in effect at
the time of hire or before January 1, 2014, used to screen the
individual).
2. Retroactive determinations not required. Section
1026.36(f)(3)(ii) does not require the loan originator organization
to review the covered information and make the required
determinations for an individual whom the loan originator
organization hired as a loan originator on or before January 1, 2014
and screened under applicable statutory or regulatory background
standards in effect at the time of hire. However, if the individual
subsequently ceases to be employed as a loan originator by that loan
originator organization, and later resumes employment as a loan
originator by that loan originator organization (or any other loan
originator organization), the loan originator organization employing
the individual is subject to the requirements of Sec.
1026.36(f)(3)(ii).
* * * * *
Section 1026.41--Periodic Statements for Residential Mortgage Loans
* * * * *
41(b) Timing of the periodic statement.
1. Reasonably prompt time. Section 1026.41(b) requires that the
periodic statement be delivered or placed in the mail no later than
a reasonably prompt time after the payment due date or the end of
any courtesy period. Delivering, emailing or placing the periodic
statement in the mail within four days of the close of the courtesy
period of the previous billing cycle generally would be considered
reasonably prompt.
* * * * *
41(d) Content and layout of the periodic statement.
* * * * *
3. Terminology. A servicer may use terminology other than that
found on the sample periodic statements in appendix H-30, so long as
the new terminology is commonly understood. For example, servicers
may take into consideration regional differences in terminology and
refer to the account for the collection of taxes and insurance,
referred to in Sec. 1026.41(d) as the ``escrow account,'' as an
``impound account.''
* * * * *
41(d)(4) Transaction Activity.
1. Meaning. Transaction activity includes any transaction that
credits or debits the amount currently due. This is the same amount
that is required to be disclosed under Sec. 1026.41(d)(1)(iii).
Examples of such transactions include, without limitation:
* * * * *
41(e)(3) Coupon book exemption.
1. Fixed rate. For guidance on the meaning of ``fixed rate'' for
purpose of Sec. 1026.41(e)(3), see Sec. 1026.18(s)(7)(iii) and its
commentary.
* * * * *
41(e)(4) Small servicers.
* * * * *
41(e)(4)(iii) Small servicer determination.
1. Loans obtained by merger or acquisition. Any mortgage loans
obtained by a servicer or
[[Page 39945]]
an affiliate as part of a merger or acquisition, or as part of the
acquisition of all of the assets or liabilities of a branch office
of a creditor, should be considered mortgage loans for which the
servicer or an affiliate is the creditor to which the mortgage loan
is initially payable. A branch office means either an office of a
depository institution that is approved as a branch by a Federal or
State supervisory agency or an office of a for-profit mortgage
lending institution (other than a depository institution) that takes
applications from the public for mortgage loans.
* * * * *
Dated: June 24, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2013-15466 Filed 6-27-13; 4:15 pm]
BILLING CODE 4810-AM-P
