Appraisals for Higher-Priced Mortgage Loans-Supplemental Proposal, 48547-48589 [2013-17086]

Download as PDF Vol. 78 Thursday, No. 153 August 8, 2013 Part II Department of the Treasury Office of the Comptroller of the Currency 12 CFR Part 34 Board of Governors of the Federal Reserve System 12 CFR Part 226 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Bureau of Consumer Financial Protection 12 CFR Part 1026 Appraisals for Higher-Priced Mortgage Loans—Supplemental Proposal; Proposed Rule VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\08AUP2.SGM 08AUP2 48548 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Part 34 [Docket No. OCC–2013–0009] RIN 1557–AD70 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 12 CFR Part 226 [Docket No. R–1443] RIN 7100–AD90 BUREAU OF CONSUMER FINANCIAL PROTECTION 12 CFR Part 1026 [Docket No. CFPB–2013–0020] RIN 3170–AA11 Appraisals for Higher-Priced Mortgage Loans—Supplemental Proposal Board of Governors of the Federal Reserve System (Board); Bureau of Consumer Financial Protection (Bureau); Federal Deposit Insurance Corporation (FDIC); Federal Housing Finance Agency (FHFA); National Credit Union Administration (NCUA); and Office of the Comptroller of the Currency, Treasury (OCC). ACTION: Proposed rule; request for public comment. AGENCIES: The Board, Bureau, FDIC, FHFA, NCUA, and OCC (collectively, the Agencies) are proposing to amend Regulation Z, which implements the Truth in Lending Act (TILA), and the official interpretation to the regulation. This proposal relates to a final rule issued by the Agencies on January 18, 2013 (2013 Interagency Appraisals Final Rule or Final Rule), which goes into effect on January 18, 2014. The Final Rule implements a provision added to TILA by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act or Act) requiring appraisals for ‘‘higher-risk mortgages.’’ For certain mortgages with an annual percentage rate that exceeds the average prime offer rate by a specified percentage, the Final Rule requires creditors to obtain an appraisal or appraisals meeting certain specified standards, provide applicants with a notification regarding the use of the appraisals, and give applicants a copy of the written appraisals used. The Agencies are proposing amendments to the Final Rule implementing these mstockstill on DSK4VPTVN1PROD with PROPOSALS2 SUMMARY: VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 requirements; specifically, the Agencies are proposing exemptions from the rules for: transactions secured by existing manufactured homes and not land; certain ‘‘streamlined’’ refinancings; and transactions of $25,000 or less. DATES: Comments must be received on or before September 9, 2013, except that comments on the Paperwork Reduction Act analysis in part VIII of the Supplementary Information must be received on or before October 7, 2013. ADDRESSES: Interested parties are encouraged to submit written comments jointly to all of the Agencies. Commenters are encouraged to use the title ‘‘Appraisals for Higher-Priced Mortgage Loans—Supplemental Proposal’’ to facilitate the organization and distribution of comments among the Agencies. Commenters also are encouraged to identify the number of the specific question for comment to which they are responding. Interested parties are invited to submit written comments to: Board: You may submit comments, identified by Docket No. R–1443 or RIN 7100–AD90, by any of the following methods: • Agency Web site: http:// www.federalreserve.gov. Follow the instructions for submitting comments at http://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm. • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • Email: regs.comments@federalreserve.gov. Include the docket number in the subject line of the message. • Fax: (202) 452–3819 or (202) 452– 3102. • Mail: Address to Robert deV. Frierson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW., Washington, DC 20551. All public comments will be made available on the Board’s Web site at http://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room MP– 500 of the Board’s Martin Building (20th and C Streets NW., Washington, DC 20551) between 9:00 a.m. and 5:00 p.m. on weekdays. Bureau: You may submit comments, identified by Docket No. CFPB–2013– 0020 or RIN 3170–AA11, by any of the following methods: PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 • Electronic: http:// www.regulations.gov. Follow the instructions for submitting comments. • Mail: Monica Jackson, Office of the Executive Secretary, Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20552. • Hand Delivery/Courier in Lieu of Mail: Monica Jackson, Office of the Executive Secretary, Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20552. All submissions must include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. In general, all comments received will be posted without change to http:// 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 will not be edited to remove any identifying or contact information. FDIC: You may submit comments by any of the following methods: • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • Agency Web site: http:// www.FDIC.gov/regulations/laws/ federal/propose.html. • Mail: Robert E. Feldman, Executive Secretary, Attention: Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, DC 20429. • Hand Delivered/Courier: The guard station at the rear of the 550 17th Street Building (located on F Street), on business days between 7:00 a.m. and 5:00 p.m. • Email: comments@FDIC.gov. Comments submitted must include ‘‘FDIC’’ and ‘‘Truth in Lending Act (Regulation Z).’’ Comments received will be posted without change to http://www.FDIC.gov/regulations/laws/ federal/propose.html, including any personal information provided. FHFA: You may submit your comments, identified by regulatory information number (RIN) 2590–AA58, by any of the following methods: • Email: Comments to Alfred M. Pollard, General Counsel, may be sent by email to RegComments@fhfa.gov. E:\FR\FM\08AUP2.SGM 08AUP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules Please include ‘‘RIN 2590–AA58’’ in the subject line of the message. • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. If you submit your comment to the Federal eRulemaking Portal, please also send it by email to FHFA at RegComments@fhfa.gov to ensure timely receipt by the Agency. Please include ‘‘RIN 2590–AA58’’ in the subject line of the message. • Hand Delivered/Courier: The hand delivery address is: Alfred M. Pollard, General Counsel, Attention: Comments/ RIN 2590–AA58, Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., Washington, DC 20024. The package should be logged in at the Guard Desk, First Floor, on business days between 9 a.m. and 5 p.m. • U.S. Mail, United Parcel Service, Federal Express, or Other Mail Service: The mailing address for comments is: Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590–AA58, Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., Washington, DC 20024. Copies of all comments will be posted without change, including any personal information you provide, such as your name, address, email address, and phone number, on the FHFA Internet Web site at http://www.fhfa.gov. In addition, copies of all comments received will be available for examination by the public on business days between the hours of 10 a.m. and 3 p.m., Eastern Time, at the Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., Washington, DC 20024. To make an appointment to inspect comments, please call the Office of General Counsel at (202) 649–3804. NCUA: You may submit comments, identified by RIN 3133–AE21, by any of the following methods (Please send comments by one method only): • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • NCUA Web site: http:// www.ncua.gov/Legal/Regs/Pages/ PropRegs.aspx. Follow the instructions for submitting comments. • Email: Address to regcomments@ncua.gov. Include ‘‘[Your name] Comments on Appraisals for Higher-Priced Mortgage Loans— Supplemental Proposal’’ in the email subject line. • Fax: (703) 518–6319. Use the subject line described above for email. • Mail: Address to Mary Rupp, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 • Hand Delivery/Courier in Lieu of Mail: Same as mail address. You can view all public comments on NCUA’s Web site at http:// www.ncua.gov/Legal/Regs/Pages/ PropRegs.aspx as submitted, except for those we cannot post for technical reasons. NCUA will not edit or remove any identifying or contact information from the public comments submitted. You may inspect paper copies of comments in NCUA’s law library at 1775 Duke Street, Alexandria, Virginia 22314, by appointment weekdays between 9:00 a.m. and 3:00 p.m. To make an appointment, call (703) 518– 6546 or send an email to OGCMail@ncua.gov. OCC: Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments by the Federal eRulemaking Portal or email, if possible. Please use the title ‘‘Appraisals for Higher-Priced Mortgage Loans— Supplemental Proposal’’ to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods: • Federal eRulemaking Portal— ‘‘regulations.gov’’: Go to http:// www.regulations.gov. Enter ‘‘Docket ID OCC–2013–0009’’ in the Search Box and click ‘‘Search’’. Results can be filtered using the filtering tools on the left side of the screen. Click on ‘‘Comment Now’’ to submit public comments. • Click on the ‘‘Help’’ tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for submitting public comments. • Email: regs.comments@occ.treas.gov. • Mail: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 400 7th Street SW., Suite 3E–218, Mail Stop 9W–11, Washington, DC 20219. • Hand Delivery/Courier: 400 7th Street SW., Suite 3E–218, Mail Stop 9W–11, Washington, DC 20219. • Fax: (571) 465–4326. Instructions: You must include ‘‘OCC’’ as the agency name and ‘‘Docket ID OCC–2013–0009’’ in your comment. In general, OCC will enter all comments received into the docket and publish them on the Regulations.gov Web site without change, including any business or personal information that you provide such as name and address information, email addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 48549 you consider confidential or inappropriate for public disclosure. You may review comments and other related materials that pertain to this rulemaking action by any of the following methods: • Viewing Comments Electronically: Go to http://www.regulations.gov. Enter ‘‘Docket ID OCC–2013–0009’’ in the Search box and click ‘‘Search.’’ Comments can be filtered by Agency using the filtering tools on the left side of the screen. • Click on the ‘‘Help’’ tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for viewing public comments, viewing other supporting and related materials, and viewing the docket after the close of the comment period. • Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC, 400 7th Street SW., Washington, DC. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 649–6700. Upon arrival, visitors will be required to present valid government-issued photo identification and to submit to security screening in order to inspect and photocopy comments. Docket: You may also view or request available background documents and project summaries using the methods described above. FOR FURTHER INFORMATION CONTACT: Board: Lorna Neill or Mandie Aubrey, Counsels, Division of Consumer and Community Affairs, at (202) 452–3667, Carmen Holly, Supervisory Financial Analyst, Division of Banking Supervision and Regulation, at (202) 973–6122, or Kara Handzlik, Counsel, Legal Division, (202) 452–3852, Board of Governors of the Federal Reserve System, Washington, DC 20551. Bureau: Owen Bonheimer, Counsel, or William W. Matchneer, Senior Counsel, Division of Research, Markets, and Regulations, Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20552, at (202) 435– 7000. FDIC: Beverlea S. Gardner, Senior Examination Specialist, Risk Management Section, at (202) 898–3640, Sandra S. Barker, Senior Policy Analyst, Division of Consumer Protection, at (202) 898–3615, Mark Mellon, Counsel, Legal Division, at (202) 898–3884, Kimberly Stock, Counsel, Legal Division, at (202) 898–3815, or Benjamin Gibbs, Senior Regional Attorney, at (678) 916–2458, Federal Deposit Insurance Corporation, 550 17th St. NW., Washington, DC 20429. E:\FR\FM\08AUP2.SGM 08AUP2 48550 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 FHFA: Susan Cooper, Senior Policy Analyst, (202) 649–3121, Lori Bowes, Policy Analyst, Office of Housing and Regulatory Policy, (202) 649–3111, Ming-Yuen Meyer-Fong, Assistant General Counsel, Office of General Counsel, (202) 649–3078, Federal Housing Finance Agency, 400 Seventh Street SW., Washington, DC, 20024. NCUA: John Brolin and Pamela Yu, Staff Attorneys, or Frank Kressman, Associate General Counsel, Office of General Counsel, at (703) 518–6540, or Vincent Vieten, Program Officer, Office of Examination and Insurance, at (703) 518–6360, or 1775 Duke Street, Alexandria, Virginia, 22314. OCC: Robert L. Parson, Appraisal Policy Specialist, (202) 649–6423, G. Kevin Lawton, Appraiser (Real Estate Specialist), (202) 649–7152, Carolyn B. Engelhardt, Bank Examiner (Risk Specialist—Credit), (202) 649–6404, Charlotte M. Bahin, Senior Counsel or Mitchell Plave, Special Counsel, Legislative & Regulatory Activities Division, (202) 649–5490, Krista LaBelle, Special Counsel, Community and Consumer Law Division, (202) 649– 6350, or 400 Seventh Street SW., Washington DC 20219. SUPPLEMENTARY INFORMATION: I. Summary of the Proposed Rule As discussed in detail under part II of this Supplementary Information, section 1471 of the Dodd-Frank Act created new TILA section 129H, which establishes special appraisal requirements for ‘‘higher-risk mortgages.’’ 15 U.S.C. 1639h. The Agencies adopted the 2013 Interagency Appraisals Final Rule to implement these requirements (adopting the term ‘‘higher-priced mortgage loans’’ (HPMLs) instead of ‘‘higher-risk mortgages’’). The Agencies believe that several additional exemptions from the new appraisal rules may be appropriate. Specifically, the Agencies are proposing an exemption for transactions secured by an existing manufactured home and not land, certain types of refinancings, and transactions of $25,000 or less (indexed for inflation). The Agencies solicit comment on these proposed exemptions. In addition, the Agencies are proposing a different definition of ‘‘business day’’ than the definition used in the Final Rule, as well as a few nonsubstantive technical corrections. A. Proposed Exemption for Transactions Secured Solely by an Existing Manufactured Home and Not Land The Agencies propose to exempt transactions secured solely by an existing (used) manufactured home and not land from the HPML appraisal requirements, but seek comment on VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 whether an alternative valuation type should be required. The Agencies propose to retain coverage of loans secured by existing manufactured homes and land. The Agencies also propose to retain the exemption for transactions secured by new manufactured homes, but are seeking further comment on the scope of this exemption and whether certain conditions on the exemption might be appropriate. B. Proposed Exemption for Certain Refinancings The Agencies are also proposing to exempt from the HPML appraisal rules certain types of refinancings with characteristics common to refinance products often referred to as ‘‘streamlined’’ refinances. Specifically, the Agencies propose to exempt an extension of credit that is a refinancing where the owner or guarantor of the refinance loan is the current owner or guarantor of the existing obligation. In addition, the periodic payments under the refinance loan must not result in negative amortization, cover only interest on the loan, or result in a balloon payment. Finally, the proceeds from the refinance loan may only be used to pay off the outstanding principal balance on the existing obligation and to pay closing or settlement charges. C. Proposed Exemption for Extensions of Credit of $25,000 or Less Finally, the Agencies are also proposing an exemption from the HPML appraisal rules for extensions of credit of $25,000 or less, indexed every year for inflation. D. Effective Date The Agencies intend that exemptions adopted as a result of this supplemental proposal will be effective on January 18, 2014, the same date on which the Final Rule will become effective. In the section-by-section analysis below, the Agencies request comment on a number of conditions that might be appropriate to require creditors to meet to qualify for the proposed exemptions. If the Agencies adopt any conditions on an exemption, the Agencies will consider establishing a later effective date for those conditions, to allow creditors sufficient time to adjust their compliance systems, if necessary. Question 1: The Agencies request comment on the need for a later effective date for any condition on a proposed exemption discussed in the section-by-section analysis below, and the appropriate effective date for those conditions. PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 II. Background In general, the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., seeks to promote the informed use of consumer credit by requiring disclosures about its costs and terms, as well as other information. TILA requires additional disclosures for loans secured by consumers’ homes and permits consumers to rescind certain transactions that involve their principal dwelling. For most types of creditors, TILA directs the Bureau to prescribe regulations to carry out the purposes of the law and specifically authorizes the Bureau to issue regulations that contain such classifications, differentiations, or other provisions, or that provide for such adjustments and exceptions for any class of transactions, that in the Bureau’s judgment are necessary or proper to effectuate the purposes of TILA, or prevent circumvention or evasion of TILA.1 15 U.S.C. 1604(a). For most types of creditors and most provisions of the TILA, TILA is implemented by the Bureau’s Regulation Z. See 12 CFR part 1026. Official Interpretations provide guidance to creditors in applying the rules to specific transactions and interpret the requirements of the regulation. See 12 CFR part 1026, Supp. I. However, as explained in the Final Rule, the new appraisal section of TILA addressed in the Final Rule (TILA section 129H, 15 U.S.C. 1639h) is implemented not only for all affected creditors by the Bureau’s Regulation Z, but also by OCC regulations and the Board’s Regulation Z (for creditors overseen by the OCC and the Board, respectively). See 12 CFR parts 34 and 164 (OCC regulations) and part 226 (the Board’s Regulation Z); see also § 1026.35(c)(7) and 78 FR 10368, 10415 (Feb. 13, 2013). The Bureau’s, the OCC’s and the Board’s versions of the 2013 Interagency Appraisals Final Rule and corresponding official interpretations are substantively identical. The FDIC, NCUA, and FHFA adopted the Bureau’s version of the regulations under the Final Rule.2 The Dodd-Frank Act 3 was signed into law on July 21, 2010. Section 1471 of the Dodd-Frank Act’s Title XIV, Subtitle 1 For motor vehicle dealers as defined in section 1029 of the Dodd-Frank Act, TILA directs the Board to prescribe regulations to carry out the purposes of TILA and authorizes the Board to issue regulations. 15 U.S.C. 5519; 15 U.S.C. 1604(i). 2 See NCUA: 12 CFR 722.3; FHFA: 12 CFR part 1222. The FDIC adopted the Bureau’s version of the regulations, but did not adopt a cross-reference to the Bureau’s regulations in FDIC regulations. See 78 FR 10368, 10370 (Feb. 13, 2013). 3 Public Law 111–203, 124 Stat. 1376 (DoddFrank Act). E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 F (Appraisal Activities), added TILA section 129H, 15 U.S.C. 1639h, which establishes appraisal requirements that apply to ‘‘higher-risk mortgages.’’ Specifically, new TILA section 129H prohibits a creditor from extending credit in the form of a ‘‘higher-risk mortgage’’ loan to any consumer without first: • Obtaining a written appraisal performed by a certified or licensed appraiser who conducts an appraisal that includes a physical inspection of the interior of the property and is performed in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP) and title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), and the regulations prescribed thereunder. • Obtaining an additional appraisal from a different certified or licensed appraiser if the ‘‘higher-risk mortgage’’ finances the purchase or acquisition of a property from a seller at a higher price than the seller paid, within 180 days of the seller’s purchase or acquisition. The additional appraisal must include an analysis of the difference in sale prices, changes in market conditions, and any improvements made to the property between the date of the previous sale and the current sale. A creditor that extends a ‘‘higher-risk mortgage’’ must also: • Provide the applicant, at the time of the initial mortgage application, with a statement that any appraisal prepared for the mortgage is for the sole use of the creditor, and that the applicant may choose to have a separate appraisal conducted at the applicant’s expense. • Provide the applicant with one copy of each appraisal conducted in accordance with TILA section 129H without charge, at least three days prior to the transaction closing date. New TILA section 129H(f) defines a ‘‘higher-risk mortgage’’ with reference to the annual percentage rate (APR) for the transaction. A ‘‘higher-risk mortgage’’ is a ‘‘residential mortgage loan’’4 secured by a principal dwelling with an APR that exceeds the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set— • By 1.5 or more percentage points, for a first lien residential mortgage loan 4 See Dodd-Frank Act section 1401; TILA section 103(cc)(5), 15 U.S.C. 1602(cc)(5) (defining ‘‘residential mortgage loan’’). New TILA section 103(cc)(5) defines the term ‘‘residential mortgage loan’’ as any consumer credit transaction that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or on residential real property that includes a dwelling, other than a consumer credit transaction under an open-end credit plan. 15 U.S.C. 1602(cc)(5). VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 with an original principal obligation amount that does not exceed the amount for ‘‘jumbo’’ loans (i.e., the maximum limitation on the original principal obligation of a mortgage in effect for a residence of the applicable size, as of the date of the interest rate set, pursuant to the sixth sentence of section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454)); • By 2.5 or more percentage points, for a first lien residential mortgage ‘‘jumbo’’ loan (i.e., having an original principal obligation amount that exceeds the amount for the maximum limitation on the original principal obligation of a mortgage in effect for a residence of the applicable size, as of the date of the interest rate set, pursuant to the sixth sentence of section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454)); or • By 3.5 or more percentage points, for a subordinate lien residential mortgage loan. The definition of ‘‘higher-risk mortgage’’ expressly excludes ‘‘qualified mortgages,’’ as defined in TILA section 129C, and ‘‘reverse mortgage loans that are qualified mortgages,’’ as defined in TILA section 129C. 15 U.S.C. 1639c. The Agencies published proposed regulations for public comment on September 5, 2012, that would implement these higher-risk mortgage appraisal provisions (2012 Interagency Appraisals Proposed Rule or 2012 Proposed Rule). 77 FR 54722 (Sept. 5, 2012). The Agencies issued the 2013 Interagency Appraisals Final Rule on January 18, 2013. The Final Rule was published in the Federal Register on February 13, 2013, and is effective on January 18, 2014. See 78 FR 10368 (Feb. 13, 2013). III. Summary of the 2013 Interagency Appraisals Final Rule A. Loans Covered To implement the statutory definition of ‘‘higher-risk mortgage,’’ the Final Rule used the term ‘‘higher-priced mortgage loan’’ or HPML, a term already in use under the Bureau’s Regulation Z with a meaning substantially similar to the meaning of ‘‘higher-risk mortgage’’ in the Dodd-Frank Act. In response to commenters, the Agencies used the term HPML to refer generally to the loans that could be subject to the Final Rule because they are closed-end credit and meet the statutory rate triggers, but the Agencies separately exempted several types of HPML transactions from the rule. The term ‘‘higher-risk mortgage’’ encompasses a closed-end consumer credit transaction secured by a principal dwelling with an APR exceeding certain PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 48551 statutory thresholds. These rate thresholds are substantially similar to rate triggers that have been in use under Regulation Z for HPMLs.5 Specifically, consistent with TILA section 129H, a loan is an HPML under the Final Rule if the APR exceeds the APOR by 1.5 percentage points for first-lien conventional or conforming loans, 2.5 percentage points for first-lien jumbo loans, and 3.5 percentage points for subordinate-lien loans.6 Consistent with TILA, the Final Rule exempts ‘‘qualified mortgages’’ from the requirements of the rule. Qualified mortgages are defined in § 1026.43(e) of the Bureau’s final rule implementing the Dodd-Frank Act’s ability-to-repay requirements in TILA section 129C (2013 ATR Final Rule).7 15 U.S.C. 1639c. In addition, the Interagency Appraisals Final Rule excludes from its coverage the following classes of loans: (1) Transactions secured by a new manufactured home; (2) transactions secured by a mobile home, boat, or trailer; (3) transactions to finance the initial construction of a dwelling; (4) loans with maturities of 12 months or less, if the purpose of the loan is a ‘‘bridge’’ loan connected with the acquisition of a dwelling intended to become the consumer’s principal dwelling; and (5) reverse mortgage loans. B. Requirements That Apply to All Appraisals Performed for Non-Exempt HPMLs Consistent with TILA, the Final Rule allows a creditor to originate an HPML that is not exempt from the Final Rule only if the following conditions are met: • The creditor obtains a written appraisal; • The appraisal is performed by a certified or licensed appraiser; and • The appraiser conducts a physical property visit of the interior of the property. Also consistent with TILA, the following requirements also apply with respect to HPMLs subject to the Final Rule: • At application, the consumer must be provided with a statement regarding the purpose of the appraisal, that the 5 Added to Regulation Z by the Board pursuant to the Home Ownership and Equity Protection Act of 1994 (HOEPA), the HPML rules address unfair or deceptive practices in connection with subprime mortgages. See 73 FR 44522, July 30, 2008; 12 CFR 1026.35. 6 The existing HPML rules apply the 2.5 percent over APOR trigger for jumbo loans only with respect to a requirement to establish escrow accounts. See 12 CFR 1026.35(b)(3)(v). 7 78 FR 6408 (Jan. 30, 2013). E:\FR\FM\08AUP2.SGM 08AUP2 48552 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules creditor will provide the applicant a copy of any written appraisal, and that the applicant may choose to have a separate appraisal conducted for the applicant’s own use at his or her own expense; and • The consumer must be provided with a free copy of any written appraisals obtained for the transaction at least three business days before consummation. mstockstill on DSK4VPTVN1PROD with PROPOSALS2 C. Requirement To Obtain an Additional Appraisal in Certain HPML Transactions In addition, the Final Rule implements the Act’s requirement that the creditor of a ‘‘higher-risk mortgage’’ obtain an additional written appraisal, at no cost to the borrower, when the loan will finance the purchase of the consumer’s principal dwelling and there has been an increase in the purchase price from a prior acquisition that took place within 180 days of the current purchase. TILA section 129H(b)(2)(A), 15 U.S.C. 1639h(b)(2)(A). In the Final Rule, using their exemption authority, the Agencies set thresholds for the increase that will trigger an additional appraisal. An additional appraisal will be required for an HPML (that is not otherwise exempt) if either: • The seller is reselling the property within 90 days of acquiring it and the resale price exceeds the seller’s acquisition price by more than 10 percent; or • The seller is reselling the property within 91 to 180 days of acquiring it and the resale price exceeds the seller’s acquisition price by more than 20 percent. The additional written appraisal, from a different licensed or certified appraiser, generally must include the following information: an analysis of the difference in sale prices (i.e., the sale price paid by the seller and the acquisition price of the property as set forth in the consumer’s purchase agreement), changes in market conditions, and any improvements made to the property between the date of the previous sale and the current sale. Finally, in the Final Rule the Agencies expressed their intention to publish a supplemental proposal to request comment on possible exemptions for ‘‘streamlined’’ refinance programs and smaller dollar loans, as well as loans secured by certain other property types, such as existing manufactured homes. See 78 FR 10368, 10370 (Feb. 13, 2013). Accordingly, the Agencies are publishing this Proposed Rule. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 IV. Legal Authority TILA section 129H(b)(4)(A), added by the Dodd-Frank Act, authorizes the Agencies jointly to prescribe regulations implementing section 129H. 15 U.S.C. 1639h(b)(4)(A). In addition, TILA section 129H(b)(4)(B) grants the Agencies the authority jointly to exempt, by rule, a class of loans from the requirements of TILA section 129H(a) or section 129H(b) if the Agencies determine that the exemption is in the public interest and promotes the safety and soundness of creditors. 15 U.S.C. 1639h(b)(4)(B). V. Section-by-Section Analysis For ease of reference, unless otherwise noted, the Supplementary Information refers to the section numbers of the proposed provisions that would be published in the Bureau’s Regulation Z at 12 CFR 1026.35(c). As explained in the Final Rule, separate versions of the regulations and accompanying commentary were issued as part of the Final Rule by the OCC, the Board, and the Bureau, respectively. 78 FR 10367, 10415 (Feb. 13, 2013). No substantive difference among the three sets of rules was intended. The NCUA and FHFA adopted the rules as published in the Bureau’s Regulation Z at 12 CFR 1026.35(a) and (c), by crossreferencing these rules in 12 CFR 722.3 and 12 CFR Part 1222, respectively. The FDIC adopted the rules as published in the Bureau’s Regulation Z at 12 CFR 1026.35(a) and (c), but did not crossreference the Bureau’s Regulation Z. Accordingly, in this Federal Register notice, the proposed provisions are separately published in the HPML appraisal regulations of the OCC, the Board, and the Bureau. No substantive difference among the three sets of proposed rules is intended. Section 1026.2 Definitions and Rules of Construction 2(a) Definitions 2(a)(6) Business Day The term ‘‘business day’’ is used with respect to two requirements in the Final Rule. First, the Final Rule requires the creditor to provide the consumer with a disclosure that ‘‘shall be delivered or placed in the mail not later than the third business day after the creditor receives the consumer’s application for a higher-priced mortgage loan’’ subject to § 1026.35(c). § 1026.35(c)(5)(i) and (ii). Second, the Final Rule requires the creditor to provide to the consumer a copy of each written appraisal obtained under the Final Rule ‘‘[n]o later than three business days prior to PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 consummation of the loan.’’ § 1026.35(6)(i) and (ii). The Agencies propose to define ‘‘business day’’ in the Final Rule to mean ‘‘all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year’s Day, the Birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.’’ § 1026.2(a)(6). The Agencies propose this definition for consistency with disclosure timing requirements under both the existing Regulation Z mortgage disclosure timing requirements and the Bureau’s proposed rules for combined mortgages disclosures under TILA and the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. 2601 et seq. (2012 TILA–RESPA Proposed Rule). See § 1026.19(a)(1)(ii) and (a)(2); see also 77 FR 51116 (Aug. 23, 2012) (e.g., proposed § 1026.19(e)(1)(iii) (early mortgage disclosures) and (f)(1)(ii) (final mortgage disclosures). Under existing Regulation Z, early disclosures must be delivered or placed in the mail not later than the seventh business day before consummation of the transaction; if the disclosures need to be corrected, the consumer must receive corrected disclosures no later than three business days before consummation (the consumer is deemed to have received the corrected disclosures three business days after they are mailed or delivered). See § 1026.19(a)(2)(i)–(ii). For these purposes, ‘‘business day’’ is defined as quoted previously. One reason that the Agencies propose to align the definition of ‘‘business day’’ under the Final Rule with the definition of ‘‘business day’’ for these disclosures is to avoid the creditor having to provide the copy of the appraisal under the HPML rules and corrected Regulation Z disclosures at different times (because different definitions of ‘‘business day’’ would apply).8 The proposed definition of ‘‘business day’’ is also intended to align with the definition of ‘‘business day’’ for the timing requirements of mortgage disclosures under the 2012 TILA– RESPA Proposal. See proposed § 1026.2(a)(6). The 2012 TILA–RESPA Proposal would require the creditor to deliver the early mortgage disclosures ‘‘not later than the third business day after the creditor receives the 8 If the Agencies do not adopt the proposed definition of ‘‘business day,’’ the definition that would apply would be ‘‘a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions.’’ § 1026.2(a)(6). E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules consumer’s application.’’ Proposed § 1026.19(e)(1)(iii). The 2012 TILA– RESPA Proposal would require the final mortgage disclosures ‘‘not later than three business days before consummation.’’ Proposed § 1026.19(f)(1)(ii). For these purposes, ‘‘business day’’ would be defined as the Agencies propose to define ‘‘business day’’ in the Final Rule. If the Bureau adopts this aspect of the 2012 TILA–RESPA Proposal, then using the proposed definition of ‘‘business day’’ in the Final Rule would ensure that the HPML appraisal notice and the early mortgage disclosures have to be provided at the same time (no later than three ‘‘business days’’ after the creditor receives the consumer’s application). This would also ensure that the copy of the HPML appraisal and the final mortgage disclosures have to be provided at the same time (no later than three ‘‘business days’’ before consummation). The Agencies believe that this alignment will facilitate compliance and reduce consumer confusion by reducing the number of disclosures that consumers might receive at different times. Section 1026.35 Requirements for Higher-Priced Mortgage Loans 35(c) Appraisals for Higher-Priced Mortgage Loans 35(c)(2) Exemptions mstockstill on DSK4VPTVN1PROD with PROPOSALS2 35(c)(2)(i) Qualified Mortgages By statute, qualified mortgages ‘‘as defined in [TILA] section 129C’’ are exempt from the special appraisal rules for ‘‘higher-risk mortgages.’’ 15 U.S.C. 1639c; TILA section 129H(f)(1), 15 U.S.C. 1639h(f)(1). The Agencies implemented this exemption in the Interagency Appraisals Final Rule by cross-referencing § 1026.43(e), the definition of qualified mortgage issued by the Bureau in its 2013 ATR Final Rule. See § 1026.35(c)(2)(i). The Bureau defined qualified mortgage under authority granted to the Bureau to issue ability-to-repay rules and define qualified mortgage. See, e.g., TILA section 129C(a)(1), (b)(3)(A), and (b)(3)(B)(i), 15 U.S.C. 1639c(a)(1), (b)(3)(A), and (b)(3)(B)(i). To align the regulation with the statute, the Agencies propose to revise the cross-referenced definition of qualified mortgage to include all qualified mortgages ‘‘as defined pursuant to TILA section 129C.’’ 15 U.S.C. 1639c. In addition to authority granted to the Bureau, TILA section 129C grants authority to the U.S. Department of Housing and Urban VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 Development (HUD), U.S. Department of Veterans Affairs (VA), U.S. Department of Agriculture (USDA), and the Rural Housing Service (RHS), which is a part of USDA, to define the types of loans ‘‘insure[d], guarantee[d], or administer[ed]’’ by those agencies, respectively, that are qualified mortgages. TILA section 129H(b)(3)(B)(ii), 15 U.S.C. 1639h(b)(3)(B)(ii). The Agencies recognize that HUD, VA, USDA, and RHS may issue rules defining qualified mortgages pursuant to their TILA section 129C authority. Therefore, the Agencies propose to expand the definition of qualified mortgages that are exempt from the HPML appraisal rules to cover qualified mortgages as defined by HUD, VA, USDA, and RHS. 15 U.S.C. 1639c. Question 2: The Agencies request comment on this proposed revision. 35(c)(2)(ii) 35(c)(2)(ii)(A) Loans Secured by a New Manufactured Home In the Final Rule, the Agencies exempted several classes of loans from the HPML appraisal rules, including transactions secured by a ‘‘new manufactured home.’’ 9 § 1026.35(c)(2)(ii). The exemption for transactions secured by a new manufactured home applies regardless of whether the transaction is also secured by the land on which it is sited. See comment 35(c)(2)(ii)–1. The reasons for the exemption were discussed in the Final Rule.10 The Agencies’ general rationale was that alternative means for valuing new manufactured homes exist that, based upon the Agencies’ understanding of historical practice, appeared more appropriate for these types of transactions. The Final Rule did not address loans secured by ‘‘existing’’ (used) manufactured homes, which are, therefore, subject to the appraisal requirements unless the Agencies adopt an exemption. The Agencies propose to retain the exemption for transactions secured by new manufactured homes in renumbered § 1026.35(c)(2)(ii)(A), but are seeking further comment on the scope of this exemption and whether certain conditions on the exemption might be 9 The Final Rule also exempts qualified mortgages; reverse mortgage loans; transactions secured by a mobile home, boat, or trailer; transactions to finance the initial construction of a dwelling; and loans with maturities of 12 months or less, if the purpose of the loan is a ‘‘bridge’’ loan connected with the acquisition of a dwelling intended to become the consumer’s principal dwelling. See § 1026.35(c)(2). 10 78 FR 10368, 10379–80 (Feb. 13, 2013). PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 48553 appropriate. The Agencies further propose to re-number and revise comment 35(c)(2)(ii)–1 as proposed comment 35(c)(2)(ii)(A)–1. The proposed revisions to this comment are for clarity only; no substantive change is intended. Loans secured solely by a new manufactured home and not land. As noted previously, the Final Rule exempted HPMLs secured solely by a new manufactured home and not land from the HPML appraisal rules—thus, the Final Rule applies no valuation requirement to these transactions. Question 3: However, based on additional research and outreach, the Agencies seek comment on whether consumers in these transactions would benefit by receiving from the creditor a unit value estimate from an objective third-party source, such as an independent cost guide. Since the Final Rule was issued, consumer advocates have expressed concerns that some transactions in the lending channel for new home-only (chattel) transactions can result in consumers owing more than the manufactured home is worth. For this type of loan, consumer and affordable housing advocates assert that networks of manufacturers, broker/dealers, and lenders are common, and that these parties can coordinate sales prices and loan terms to increase manufacturer, dealer, and lender profits, even where this leads to loan amounts that exceed the collateral value. Advocates have raised concerns that, where the original loan amount exceeds the collateral value and the consumer is unaware of this fact, the consumer is often unprepared for difficulties that can arise when seeking to refinance or sell the home at a later date. They have also noted that that chattel manufactured home loan transactions tend to have much higher rates than conventional mortgage loans.11 Some consumer advocates have suggested that giving the consumer third-party information about the unit value could be helpful in educating the consumer, particularly as to the risk that the loan amount might exceed the collateral value, and might prompt the consumer to ask questions about the transaction. Consumer 11 See, e.g., Howard Baker and Robin LeBaron, Fair Mortgage Collaborative, Toward a Sustainable and Responsible Expansion of Affordable Mortgages for Manufactured Homes (March 2013) at 10 (reporting that ‘‘[c]hattel loans typically feature higher interest rates than mortgages: current rates range between 6% and 14%, depending on the borrower’s credit history and the size of the downpayment, compared to 2.5% to 5% for mortgages at the present time.’’). This report is available at http://cfed.org/assets/pdfs/IM_HOME_ Loan_Data_Collection_Project_Report.pdf. E:\FR\FM\08AUP2.SGM 08AUP2 48554 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 advocates and other outreach participants had questions about the accuracy of available cost services for estimating the unit value of new manufactured homes. They asserted, for example, that where a manufactured home will be sited can have a major impact on the value of the home and that cost services do not in all cases sufficiently account for that aspect of the value.12 Nonetheless, some advocates expressed the view that giving the consumer some cost estimate would be beneficial. Based on input from lenders and manufactured home valuation providers, the Agencies understand that in new home-only transactions, thirdparty cost services are not typically used to value the property. Instead, many creditors use the manufacturer’s invoice, or wholesale unit price, and lend a percentage of that amount, which might exceed 100 percent to reflect, for example, a dealer mark-up and siting costs. As discussed in the Supplementary Information to the Proposed Rule, outreach participants have indicated that this practice— similar to that sometimes used for automobiles—is longstanding in new manufactured home transactions.13 Lenders asserted that this method saves costs for consumers and creditors and has been found to be reasonably effective and accurate for purposes of ensuring a safe and sound loan. Question 4: In light of additional concerns expressed about valuations in new manufactured home chattel transactions, the Agencies request comment on whether it may be appropriate to condition the exemption from the HPML appraisal requirements on the creditor providing the consumer with a third-party estimate of the manufactured home unit cost. Question 5: If so, the Agencies request comment on which third-party estimate(s) should be used for this purpose. Question 6: The Agencies also request comment on when this information should be required to be provided.14 12 The National Automobile Dealers Association (NADA) Manufactured Housing Cost Guide provides for adjustments based on, among other factors, the state in which the home is located and the quality of the land-lease community in which the home is located, if applicable. See NADAguides.com Value Report, available at www.nadaguides.com/Manufactured-Homes/ images/forms/MHOnlineSample.pdf. 13 See 77 FR 54722, 54732–33 (Sept. 5, 2012). 14 Unless the manufactured home alone, without land, is titled as real property under state law, loans secured solely by a manufactured home are not subject to the early disclosure requirements under Regulation Z, 12 CFR 1026.19, because they are not subject to RESPA. See § 1026.19(a)(1)(i) and 12 CFR 1024.2 (defining ‘‘federally related mortgage loan’’ VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 Question 7: The Agencies request comment on whether the consumer typically receives unit cost information in a new manufactured home chattel transaction and what, if any, cost information from an independent third party source might be reasonably available to creditors, reliable, and useful to a consumer. Question 8: The Agencies further request comment on the utility of thirdparty unit cost information to consumers in these transactions (even if the creditor is using a different method to value the home). Question 9: The Agencies understand that the location of the property can impact the value of the home, even if the property on which the unit is sited is not owned by the consumer, and seek more information about the impact on home value of a unit’s location and whether cost services are available that account adequately for differences in location. Question 10: The Agencies further request comment on whether readilyaccessible, publicly-available information exists that consumers could use to determine whether their loan amount exceeds the collateral value in a new manufactured home chattel transaction, and whether consumers are generally aware of this information.15 Question 11: Finally, the Agencies request comment on potential burdens and costs of imposing this condition on the exemption, and any implications for consumer access to credit (again, noting that any of these loans that are qualified mortgages are exempt under the separate exemption for qualified mortgages, § 1026.35(c)(2)(i)). Loans secured by a new manufactured home and land. Since issuing the Final Rule, the Agencies have obtained additional information on valuation methods for manufactured homes. Appraisers and state appraiser boards consulted in outreach efforts confirmed that USPAP-compliant real property appraisals with interior inspections are possible and conducted with at least to include only loans secured by residential real property). Therefore, the Agencies believe that in some chattel transactions, the time between application and consummation may be relatively short. 15 The Bureau’s new Regulation B valuation disclosure rules under the Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691 et seq. (2013 ECOA Valuations Rule), consistent with current ECOA Regulation B, does not provide for the consumer to receive a copy of the manufacturer’s invoice. See 12 CFR 1002.14(c) and comment 14(c)–2.iii (current Regulation B); see also 78 FR 7216 (Jan. 31, 2013) (issuing new 12 CFR 1002.14(b)(3) and comment 1002.14(b)(3)–3.iv, with an effective date of January 18, 2014). PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 some regularity in these transactions.16 The Agencies understand that these appraisals value the land and the home together as a package based upon comparable transactions that have been exposed to the open market (as would be done with a site-built home or any other existing home).17 They also can document additional value based on siting costs and the home’s location, and in some cases can identify visible discrepancies between the manufacturer’s specifications and the actual home once it is sited. In addition, USPAP-compliant real property appraisals are regularly conducted for all transactions under federal government agency and government-sponsored enterprise (GSE) manufactured home loan programs.18 HUD Title II program standards, for example, which apply to transactions secured by a manufactured home and land titled together as real property, require USPAP-compliant appraisals.19 A representative of manufactured home appraisers and a manufactured home community development financial institution (CDFI) representative stated that they conduct appraisals for loans secured by a new manufactured home and land before the home is sited based on plans and specifications for the new home. An interior property inspection occurs once the home is sited (although the CDFI representative indicated that it did not always use a state-certified or -licensed appraiser for the final inspection). These outreach participants suggested that, in their experience, qualified certified- or -licensed appraisers are not unduly 16 Comments on the Proposed Rule from a large real estate agent trade association also suggested that exempting these transactions may not be appropriate. 17 See, e.g., Texas Appraiser Licensing and Certification Board, ‘‘Assemblage As Applied to Manufactured Housing,’’ available at http:// www.talcb.state.tx.us/pdf/USPAP/AssemblageAs AppliedToMfdHousing.pdf. 18 See, e.g., HUD: 24 CFR 203.5(e); HUD Handbook 4150.2, Valuations for Analysis for Home Mortgage Insurance for Single Family One- to FourUnit Dwellings (HUD Handbook 4150.2), chapter 8.4 and App. D; USDA: 7 CFR 3550.62(a) and 3550.73; USDA Direct Single Family Housing Loans and Grants Field Office Handbook (USDA Handbook), chapters 5.16 and, 9.18; VA: VA Lenders Handbook, VA Pamphlet 26–7 (VA Handbook), chapters 7.11, 11.3, and 11.4; Fannie Mae: Fannie Mae Single Family 2013 Selling Guide B5–2.2–04, Manufactured Housing Appraisal Requirements (04/01/2009); Freddie Mac: Freddie Mac Single Family Seller/Servicer Guide, H33: Manufactured Homes/H33.6: Appraisal requirements (02/10/12). 19 Title II appraisal standards are available in HUD Handbook 4150.2. For supplemental standards for manufactured housing, see HUD Handbook 4150.2, chapters 8–1 through 8–4. The valuation protocol in Appendix D of HUD Handbook 4150.2 calls for a certification that the appraisal is USPAP compliant (page D–9). E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 difficult to find to perform these appraisals.20 In commenting on the Proposed Rule and in outreach, lenders have raised concerns that comparable sales (‘‘comparables’’) of other manufactured homes can be particularly difficult to find. The Agencies understand that this can be a barrier to obtaining a manufactured home appraisal, especially in certain loan programs that require appraisals of manufactured homes to use a certain number of manufactured home comparables and have other restrictions on the comparables that may be used.21 The Agencies note, however, that USPAP does not require that manufactured home comparables be used. USPAP allows the appraiser to use site-built or other types of home construction as comparables with adjustments where necessary.22 A current version of the Appraisal Institute seminar on manufactured housing appraisals confirms that when necessary, USPAP appraisals can use non-manufactured homes as comparables, making adjustments where needed.23 Based on their experience, an appraiser representative and a manufactured home CDFI representative in informal outreach with the Agencies stated that comparable properties have not been unduly difficult to find, even in rural areas. Question 12: Based on this information, the Agencies request comment and information concerning whether to require USPAP-compliant appraisals with interior property inspections conducted by a statelicensed or -certified appraiser for HPMLs secured by both a new manufactured home and land. 20 For HUD-insured loans secured by real property—a manufactured home and lot together— the Federal Housing Administration (FHA) requires creditors to use a HUD Title II Roster appraiser that can certify to prior experience appraising manufactured homes as real property. See HUD Title I Letter 481, Appendix 10–5. 21 See Robin LeBaron, FAIR MORTGAGE COLLABORATIVE, Real Homes, Real Value: Challenges, Issues and Recommendations Concerning Real Property Appraisals of Manufactured Homes (Dec. 2012) at 19–28. This report is available at http://cfed.org/assets/pdfs/ Appraising_Manufacture_Housing.pdf. 22 See HUD Handbook 4150.2, chapter 8.4 (providing the following instructions on appraisals for manufactured homes insured under HUD’s Title II program: ‘‘If there are no manufactured housing sales within a reasonable distance from the subject property, use conventionally built homes. Make the appropriate and justifiable adjustments for size, site, construction materials, quality, etc. As a point of reference, sales data for manufactured homes can usually be found in local transaction records.’’). 23 See Appraisal Institute, ‘‘Appraising Manufactured Housing—Seminar Handbook,’’ Doc. PS009SH–F (2008) at Part 8, 8–110. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 Question 13: The Agencies also seek comment on whether some other valuation method should be required as a condition of the exemption from the HPML appraisal requirements. At the same time, the Agencies believe that questions remain about the impact on the industry and consumers of requiring USPAP-compliant real property appraisals with interior inspections in transactions secured by a new manufactured home and land for which these types of appraisals are not already required. For example, manufactured home lenders commented on the Proposed Rule and shared in subsequent outreach that they typically do not conduct an interior inspection appraisal of a new manufactured home, but use other methods, such as relying on the manufacturer’s invoice for the new home and conducting a separate, USPAP-compliant appraisal of the land.24 Thus, requiring a USPAPcompliant appraisal with an interior inspection could require systems changes for some manufactured home lenders. If the USPAP-compliant appraisal with an interior inspection required under the Final Rule were more expensive than existing methods, then imposing the requirements of the Final Rule on these transactions would lead to additional costs that could be passed on in whole or in part to consumers. Question 14: Accordingly, the Agencies request data on the extent to which a USPAP-compliant real property appraisal with an interior property inspection would be of comparable cost to, or more or less expensive than, a USPAP-compliant appraisal of a lot combined with an invoice price for the home unit. Question 15: The Agencies also request comment on the potential burdens on creditors and consumers and any potential reduction in access to credit that might result from imposing requirement for a USPAP-compliant appraisal with an interior property inspection on all manufactured home creditors of loans secured by both a new manufactured home and land. In this regard, the Agencies ask commenters to bear in mind that any of these transactions that are qualified mortgages are exempt from the HPML appraisal requirements under the separate exemption for qualified mortgages. See § 1026.35(c)(2)(i). Question 16: Finally, the Agencies request comment on whether and the 24 Some consumer and affordable housing advocates and appraisers in outreach have expressed the view that separately valuing the component parts of a manufactured home plus land transaction can result in material inaccuracies. PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 48555 extent to which consumers in these transactions typically receive information about the value of their land and home and, if so, what information is received. 35(c)(2)(ii)(B) Loans Secured Solely by an Existing Manufactured Home and Not Land In new § 1026.35(c)(2)(ii)(B), the Agencies propose to exempt transactions secured solely by an existing (used) manufactured home and not land from the HPML appraisal requirements. Proposed comment 35(c)(2)(ii)(B)-1 would clarify that an HPML secured by a manufactured home and not land would not be subject to the appraisal requirements of § 1026.35(c), regardless of whether the home is titled as realty by operation of state law. The Agencies recognize that in certain states residential structures such as manufactured homes may be deemed real property, even though they are not titled together with the land.25 The Agencies believe that the barriers discussed in more detail below to producing USPAP-compliant real property appraisals with interior property inspections for manufactured homes in home-only transactions are the same regardless of whether a jurisdiction categorizes the manufactured home as personal property (chattel) or real property. Question 17: The Agencies request comment on this view and approach. The Agencies also considered an exemption for loans secured by both an existing manufactured home and land, but are not proposing an exemption for these HPMLs. A discussion of the proposed treatment of both types of loans (secured solely by an existing manufactured home and secured by an existing manufactured home plus land) is below. Loans secured solely by an existing manufactured home and not land. The Agencies propose an exemption for transactions secured solely by an existing manufactured home and not land based on additional research and outreach. For the loans secured solely by an existing manufactured home and not land, the Agencies understand that current valuation practices generally do not involve using a state-certified or -licensed appraiser to perform a USPAPand FIRREA-compliant real property appraisal with an interior property inspection, as required under TILA section 129H and the Final Rule. 15 U.S.C. 1639h. Outreach to manufactured home lenders indicated that they 25 See, E:\FR\FM\08AUP2.SGM N.H. Rev. Stat. Ann Sec. 477:44 (2013). 08AUP2 48556 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 typically obtain replacement cost estimates derived from nationallypublished cost services, taking into account the age (to derive depreciated values) and regional location of the home. One cost service adjustment form often used for this purpose also allows for an adjustment based upon the quality of the land-lease community where the property is located (if applicable).26 Lenders have indicated that this method saves costs for consumers and creditors and has been found to be reasonably effective and accurate for purposes of ensuring a safe and sound loan. In addition, lender commenters on the Proposed Rule raised concerns about the availability of data on comparable sales that may be used by appraisers for loans secured by an existing manufactured home and not land. They indicated that data from used manufactured home sales not involving land (usually titled as personal property) are not currently recorded in multiple listing services of most states, for example, so an appraiser’s ability to obtain information on comparable manufactured homes without land is more limited than in real estate transactions. A provider of manufactured home valuation services subsequently confirmed to the Agencies that manufactured home sales information is generally not available through standard real estate data sources. The Agencies also understand that, in many states, appraisers are not currently required to be licensed or certified in order to perform personal property appraisals. Accordingly, the Agencies believe that an exemption for these transactions from the HPML appraisal rules would be in the public interest because it would facilitate continued consumer access to HPML financing for existing manufactured homes, which are an important source of affordable housing.27 The Agencies believe that this exemption also would promote the safety and soundness of creditors, because creditors would be able to continue using currently prevalent valuation methods, which can facilitate offering products that they have relied on to ensure profitability and product diversity to mitigate risk. 26 See NADA, Manufactured Housing Cost Guide, available at NADAguides.com Value Report, available at www.nadaguides.com/ManufacturedHomes/images/forms/MHOnlineSample.pdf. 27 See generally, Howard Baker and Robin LeBaron, FAIR MORTGAGE COLLABORATIVE, Toward a Sustainable and Responsible Expansion of Affordable Mortgages for Manufactured Homes (March 2013) at 9. This report is available at http:// cfed.org/assets/pdfs/IM_HOME_Loan_Data_ Collection_Project_Report.pdf. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 At the same time, consumer and affordable housing advocates have raised concerns about consumers borrowing more money than the home is worth in these transactions, which, as noted, also tend to have much higher rates than conventional loans secured by site-built homes.28 The Agencies generally believe that consumers and creditors benefit when an accurate valuation is obtained for a credit transaction secured by the consumer’s home. The Agencies further recognize that a manufactured home that has been previously occupied is subject to depreciation and might have wear and tear or other physical changes that can make the property value more difficult to assess than that of a new manufactured home.29 The value of the home also may have changed as a result of changes in the broader housing market. Question 18: The Agencies request comment on whether the proposed exemption should be conditioned on the creditor obtaining an alternative valuation (i.e., a valuation other than a USPAP- and FIRREA-compliant real property appraisal with an interior property inspection) that is tailored to estimating the value of an existing manufactured home without land and providing a copy of it to the consumer. The Agencies believe that an exemption conditioned in this way may be in keeping with the intent behind TILA section 129H to ensure that consumers have access to information about the value of the home that would secure the loan before entering into an HPML. See TILA section 129H(c), 15 U.S.C. 1639h(c) (requiring a creditor to provide the applicant with a copy of any appraisal obtained under TILA section 129H). Question 19: To inform the Agencies in considering this condition, the Agencies request information on whether creditors typically obtain valuations for loans secured solely by an existing manufactured home and not land and, if so, what types of valuations they obtain. Question 20: The Agencies also seek commenters’ views on the efficacy and accuracy of any prevailing valuation 28 See, e.g., Howard Baker and Robin LeBaron, FAIR MORTGAGE COLLABORATIVE, Toward a Sustainable and Responsible Expansion of Affordable Mortgages for Manufactured Homes (March 2013) at 10. 29 The Agencies understand that appraisers typically limit their valuations to clearly visible features or physical changes to the home that can impact value. Detailed examinations of wear and tear are the purview of home inspections, which generally are the responsibility of the consumer to obtain. PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 methods used for these loans. Some of these methods are discussed below. As noted, the Agencies are aware that HUD has property valuation standards for HUD-insured loans secured by an existing manufactured home and not land.30 In addition, for appraisals of manufactured homes ‘‘classified as personal property,’’ HUD standards call for, among other requirements, the use of ‘‘an independent fee appraiser who has been certified by NADA to use NADA’s National Appraisal System.’’ 31 Specifically, among other requirements, creditors of these types of HUD-insured loans must obtain an appraisal reflecting the retail value of comparable manufactured homes in similar condition and in the same geographic area.32 Relevant HUD appraisal requirements for these loans also include specifications for appraiser qualifications, information that the creditor must provide to the appraiser, and the creditor’s review of the appraisal.33 The Agencies have concerns, however, that appraisers trained to conduct the types of appraisals required by HUD for its Title I program may be limited, but seek information on the availability of individuals to perform appraisals compliant with HUD Title I standards. USPAP Standards 7 and 8 for personal property provide guidance for appraising personal property based on several approaches—the sales comparison approach, cost approach, and income approach—which are to be used as the appraiser determines necessary to produce a credible appraisal.34 The Agencies are aware that there are comparable-based methods of valuing existing manufactured homes without land other than the method prescribed for the HUD Title I program. In addition, for the cost approach, cost services are available for creditors to consult and make adjustments based on several factors (which might differ depending on the cost service used), such as the property age, condition, the 30 See HUD Title I Letter 481 (Aug. 14, 2009), Appendices 8–9, C, and 10–5. The Agencies note that the HUD Title I program appraisal requirements are for determining eligibility for insurance that benefits the creditor. 31 See HUD Title I Letter 481 (Aug. 14, 2009), Appendices 8–9, C, and 10–5, issued pursuant to authority granted to HUD under section 2(b)(10) of the National Housing Act, 12 U.S.C. 1703(b)(10). The Agencies understand that the NADA National Appraisal System is an appraisal method involving both the comparable sales and the cost approach. 32 See id. 33 See id. VA and USDA manufactured home programs do not involve transactions secured solely by a manufactured home and not land; thus, these programs do not incorporate special requirements for valuing these types of properties. 34 See, e.g., USPAP Standards Rule 7–4. E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 land-lease community, and the home’s geographic location.35 These resources enable the creditor to obtain a depreciated replacement cost for an existing manufactured home. Question 21: The Agencies request comment on whether, to obtain the proposed exemption from the HPML appraisal rules for HPMLs secured by an existing manufactured home without land, a creditor should have to comply with the appraisal requirements for a manufactured home classified as personal property under HUD’s Title I Manufactured Home Loan Insurance Program, or similar requirements involving comparable sales. Question 22: In this regard, the Agencies also seek additional comment and information on the availability of: (1) Comparable sales data for appraisers to use in an appraisal of a manufactured home alone, without land; and (2) statecertified or -licensed appraisers to appraise these properties. Question 23: The Agencies also request comment on whether the proposed exemption would appropriately be conditioned on the creditor obtaining, and providing to the consumer, a valuation of the dwelling that uses an independently published cost guide with appropriate adjustments for factors such as home condition, accessories, location, and community features, as applicable. Question 24: The Agencies request comment on whether use of a cost service with adjustments generally involves a physical inspection of the property, who conducts that physical inspection, and whether any condition on the proposed exemption allowing use of a cost service estimate with adjustments should require a physical inspection of the unit. Question 25: In addition, the Agencies seek comment on whether an appropriate condition for an exemption from the HPML appraisal rules would be more generally that the creditor have obtained and provided to the consumer an appraisal compliant with USPAP Standards 7 and 8 for personal property. The Agencies are considering whether it would be appropriate to provide the creditor with more than one option for 35 See, e.g., NADAguides.com Value Report, available at www.nadaguides.com/ManufacturedHomes/images/forms/MHOnlineSample.pdf; see also Fannie Mae Single Family 2013 Selling Guide B5–2.2–04, Manufactured Housing Appraisal Requirements (04/01/2009) and Freddie Mac Single Family Seller/Servicer Guide, H33: Manufactured Homes/H33.6: Appraisal requirements (02/10/12) (referencing the NADA Manufactured Housing Appraisal Guide® and the Marshall & Swift® Residential Cost Handbook as resources for manufactured home cost information). VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 obtaining an alternative valuation as a condition of this exemption. Loans secured by an existing manufactured home and land. The Agencies considered also exempting transactions that are secured by both an existing manufactured home and land. However, at this stage, the Agencies believe that an exemption for these transactions from the USPAP-compliant real property appraisal standards in the Final Rule would not be in the public interest and promote the safety and soundness of creditors. As discussed in the section-by-section analysis of § 1026.35(c)(2)(ii)(A), federal government and GSE manufactured home loan programs generally require compliance with USPAP real property appraisal standards for appraisals in connection with transactions secured by both a manufactured home and land. The Agencies believe that these requirements may reflect that conducting a USPAP-compliant appraisal following USPAP Standards 1 and 2 for real property appraisals are feasible for existing manufactured homes together with land. This view was affirmed by several participants in informal outreach with experience in the area of manufactured home loan appraisals, who indicated that USPAPcompliant real property appraisals with an interior inspection are feasible and performed with regularity in these types of transactions. For these reasons, the Agencies are not proposing to exempt loans secured by an existing manufactured home and land from the HPML appraisal requirements. The Agencies note that some commenters on the Proposed Rule recommended that the Agencies exempt these types of ‘‘land/home’’ transactions.36 Question 26: The Agencies request further comment whether to exempt these transactions and, if so, why an exemption would be in the public interest and promote the safety and soundness of creditors. 35(c)(2)(vii) Certain Refinancings The Agencies are also proposing to exempt from the HPML appraisal rules certain types of refinancings with characteristics common to refinance products often referred to as ‘‘streamlined’’ refinances. Specifically, the Agencies propose to exempt an extension of credit that is a refinancing where the owner or guarantor of the refinance loan is the current owner or guarantor of the existing obligation. In 36 See PO 00000 addition, the regular periodic payments under the refinance loan must not result in negative amortization, cover only interest on the loan, or result in a balloon payment. Finally, the proceeds from the refinance loan may be used solely to pay off the outstanding principal balance on the existing obligation and to pay closing or settlement charges. As discussed more fully below, the Agencies believe that this exemption would be in the public interest and promote the safety and soundness of creditors. The following discussion of this proposed exemption includes a description of ‘‘streamlined’’ refinancing programs; a summary of the comments regarding an exemption for refinancings received on the 2012 Interagency Appraisals Proposed Rule; and an explanation of the requirements of, and conditions on, the proposed exemption. Background In an environment of historically low interest rates, the federal government has supported ‘‘streamlined’’ refinance programs as a way to promote the ongoing recovery of the consumer mortgage market. Notably, the Home Affordable Refinance Program (HARP) was introduced by the U.S. Treasury Department in 2009 to provide refinance relief options to consumers following the steep decline in housing prices as a result of the financial crisis. The HARP program was expanded in 2011 and is currently set to expire in 2015. Federal government agencies—HUD, VA, and USDA—as well as the GSEs have developed ‘‘streamlined’’ refinance programs to address consumer, creditor and investor risks.37 These programs enable many consumers to refinance the balance of those mortgages through an abbreviated application and underwriting process.38 Under these 37 Under existing GSE ‘‘streamlined’’ refinance programs, Freddie Mac and Fannie Mae purchase and guarantee ‘‘streamlined’’ refinance loans for consumers under HARP (whose existing loans have loan-to-value ratios (LTVs) over 80 percent) as well as for consumers whose existing loans have LTVs at or below 80 percent. 38 See Fannie Mae Single Family Selling Guide, chapter B5–5, section B5–5.2 (Refi Plus® and DU Refi Plus® loans); Freddie Mac Single Family Seller/Servicer Guide, chapters A24, B24, and C24 (Relief Refinance® Loans); HUD Handbook 4155.1, chapters 3.C and 6.C (Streamline Refinances) and Title I Appendix 11–3 (manufactured home streamline refinances); USDA Rural Development Admin. Notice 4615 (Rural Refinance Pilot); and VA Lenders Handbook, chapter 6 (Interest Rate Reduction Refinance Loans, or IRRRLs). Creditworthiness evaluations generally are not required for Refi Plus, Relief Refinance, HUD Streamline Refinance, or IRRRL loans unless borrower monthly payments would increase by 20 78 FR 10368, 10379–80 (Feb. 13, 2013). Frm 00011 Fmt 4701 Sfmt 4702 48557 E:\FR\FM\08AUP2.SGM Continued 08AUP2 48558 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 programs, consumers with little or no equity in their homes,39 as well as consumers with significant equity in their homes,40 can restructure their mortgage debt, often at lower interest rates or payment amounts than under their existing loans.41 Valuation requirements of ‘‘streamlined’’ refinance programs. The ‘‘streamlined’’ underwriting for certain refinancings often, but not always, does not include a USPAP-compliant appraisal with an interior-inspection appraisal. One reason for this is that, in currently prevailing ‘‘streamlined’’ refinance programs, the value of the property securing the existing and refinance obligations is not considered to determine borrower eligibility for the refinance. The owner or guarantor of the existing loan retains the credit risk, and the ‘‘streamlined’’ refinance does not change the collateral component of that risk. For ‘‘streamlined’’ refinances where the LTV exceeds or nearly exceeds 100 percent, the principal concern is not whether the creditor or investor could in the near term recoup the mortgage amount by foreclosing upon and selling the securing property. The immediate goals for these loans are to secure payment relief for the borrower and thereby avoid default and foreclosure; to allow the borrower to take advantage of lower interest rates; or to restructure their mortgage obligation to build equity more quickly—all of which reduce risk for creditors and investors and benefit consumers. However, a valuation—usually through an automated valuation model percent or more. See HUD Handbook 4155.1, chapter 6.C.2.d; Fannie Mae Single Family Selling Guide, chapter B5–5, section B5–5.2 (Refi Plus and DU Refi Plus loans); Freddie Mac Single Family Seller/Servicer Guide, chapters A24, B24, and C24; VA Lenders Handbook, chapter 6.1.c. 39 For example, HARP supports refinancing through the GSEs for borrowers whose LTV exceeds 80 percent and whose existing loans were consummated on or before May 31, 2009. See http://www.makinghomeaffordable.gov/programs/ lower-rates/Pages/harp.aspx. 40 See, e.g., Freddie Mac 2011 Annual Report at Table 52, reporting that the majority of Freddie Mac funding for Relief Refinances in 2011 was for borrowers with LTVs at or below 80%. This report is available at http://www.freddiemac.com/ investors/er/pdf/10k_030912.pdf. 41 Over two million streamlined refinance transactions occurred under FHA and GSE programs in 2012 (including both HPML and nonHPML refinances). According to public data recently reported by FHFA, 1,803,980 streamlined refinance loans occurred under Fannie Mae or Freddie Mac streamlined refinance programs. See FHFA Refinance Report for February 2013, available at http://www.fhfa.gov/webfiles/25164/ Feb13RefiReportFinal.pdf. The Agencies estimate, based upon data received from FHA during outreach to prepare this proposal, that the FHA insured 378,000 loans under its ‘‘Streamline’’ program in 2012. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 (AVM)—may be obtained to estimate LTV for determining the appropriate securitization pool for the loan. LTV as determined by this valuation can also affect the terms offered to the consumer. Sometimes an appraisal is required when the property is not standardized, or the current holder of the loan does not have what it deems to be sufficient information about the property in its databases. Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac each have ‘‘streamlined’’ refinance programs: Fannie Mae DU (‘‘Desktop Underwriter®’’) Refi Plus and Refi Plus® and Freddie Mac Relief Refinance-Same Servicer/Open Access®. Under these programs, Fannie Mae must hold both the old and new loan, as must Freddie Mac under its program. An appraisal is not required when the GSEs are confident in an estimate of value, which is then provided to lenders originating loans under these programs.42 HUD/FHA. The HUD ‘‘Streamline’’ Refinance program administered by the Federal Housing Administration (FHA) permits but generally does not require a creditor to obtain an appraisal.43 The Agencies understand that almost all FHA ‘‘streamlined’’ refinances are done without requiring an appraisal.44 The FHA program does not require an alternative valuation type for transactions that do not have appraisals. VA and USDA. VA and USDA programs do not require appraisals. The FHA, VA, and USDA streamline refinance programs also do not require an alternative valuation type for transactions that do not have appraisals. Private ‘‘streamlined’’ refinance programs. The Agencies also believe that private creditors may offer ‘‘streamlined’’ refinance programs for borrowers meeting certain eligibility requirements. Question 27: The Agencies seek comment and relevant data on how often private creditors obtain alternative valuation estimates in these transactions (i.e., streamlined refinances outside of the government agency and GSE 42 For GSE ‘‘streamlined’’ refinance transactions purchased in 2012 at LTVs of above 80 percent, AVM estimates were obtained for approximately 81 percent and appraisals (either interior inspection or exterior-only) were obtained for approximately 19 percent. For GSE ‘‘streamlined’’ refinance transactions purchased in 2012 at LTVs of 80 percent or below, AVM estimates were obtained for approximately 87 and appraisals (either interior inspection or exterior-only) were obtained for approximately 13 percent. 43 See, e.g., HUD Handbook 4155.1, chapter 6.C.1. 44 According to data from FHA, in calendar year 2012, only 1.1 percent of FHA streamline refinances required an appraisal. PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 programs discussed above) when no appraisal is conducted.45 Public Comments on the 2012 Proposed Rule A number of commenters on the 2012 Proposed Rule—a trade association representing community banks, a credit union association, a bank, and GSEs— recommended that the Agencies exempt refinancings. Some of these commenters expressed a view that the Dodd-Frank Act’s ‘‘higher-risk mortgage’’ appraisal rules were not appropriate for refinancings designed to move a borrower into a more stable mortgage product with affordable payments. These types of refinancings often involve an abbreviated or ‘‘streamlined’’ underwriting process to facilitate the reduction of risks that the existing loan may pose for the consumer, the primary market creditor, and secondary market investors. Commenters pointed out, among other things, that these types of refinancings can be important credit risk management tools in the primary and secondary markets, and can reduce foreclosures, stabilize communities, and stimulate the economy. GSE commenters indicated that in many cases loans originated under federal government ‘‘streamlined’’ refinance programs do not require appraisals and asserted that doing so would interfere with these programs. Consumer advocates did not comment on the 2012 Proposed Rule, but in subsequent informal outreach with the Agencies for this proposal, expressed concerns about not requiring appraisals in HPML ‘‘streamlined’’ refinance programs. They expressed the view that a quality appraisal that is also required to be made available to the consumer can be a tool to prevent fraud in refinance transactions. They also pointed out instances in which an appraisal on a refinance transaction revealed appraisal fraud on the original purchase transaction. Question 28: The Agencies invite further comment on these and related concerns, and appropriate means of addressing these concerns as part of this rulemaking. 45 In general, FIRREA regulations governing appraisal requirements permit the use of an ‘‘evaluation’’ (or in the case of NCUA, a ‘‘written estimate of market value’’) rather than an appraisal in same-creditor refinances that involve no new monies except to pay reasonable closing costs and, in the case of the NCUA, no obvious and material change in market conditions or physical adequacy of the collateral. See OCC: 12 CFR 34.43 and 164.3; Board: 12 CFR 225.63; FDIC: 12 CFR 323.3; NCUA: 12 CFR 722.3. See also OCC, Board, FDIC, NCUA, Interagency Appraisal and Evaluation Guidelines, App. A–5, 75 FR 77450, 77466–67 (Dec. 10, 2010). E:\FR\FM\08AUP2.SGM 08AUP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules Discussion The Agencies decline to propose an exemption for all refinance loans, as a few commenters suggested. The appraisal rules in TILA Section 129H apply to ‘‘residential mortgage loans’’ that are higher-priced and secured by the consumer’s principal dwelling. TILA section 129H(f), 15 U.S.C. 1639h(f). The term ‘‘residential mortgage loan’’ includes refinance loans.46 Accordingly, the Agencies believe that an exemption for all HPML refinances would be overbroad. For example, in refinances involving additional cash out to the consumer, consumer equity in the home can decrease significantly, increasing risks, so the Agencies do not believe an exemption from this rule would be appropriate. The Agencies do, however, believe that a narrower exemption for certain types of HPML refinance loans, generally consistent with the program criteria for ‘‘streamlined’’ refinances under GSE and federal government agency programs, would be in the public interest and promote the safety and soundness of creditors. The Agencies recognize that, by reducing the risk of foreclosures and helping borrowers better afford their mortgages, ‘‘streamlined’’ refinancing programs can contribute to stabilizing communities and the economy, both now and in the future. ‘‘Streamlined’’ HPML refinances can help borrowers who are at risk of default in the near future, as well as those who might not default in the near term, but could significantly benefit by refinancing into a lower rate mortgage for considerable cost savings over time. The Agencies also recognize that ‘‘streamlined’’ refinancing programs assist creditors and secondary market investors in managing credit risks. Originating HPML refinances that are beneficial to consumers can be important to creditors to ensure the continuing performance of loans on their books and to strengthen customer relations. For investors holding these loans, the ‘‘streamlined’’ refinances can reduce financial risks associated with potential defaults and foreclosures. The Agencies believe that an exemption from the HPML appraisal rules for certain HPML refinances would ensure that the time and cost generated by new appraisal 46 ‘‘The term ‘residential mortgage loan’ means any consumer credit transaction that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or on residential real property that includes a dwelling, other than a consumer credit transaction under an open end credit plan . . .’’ TILA section 103(cc)(5), 15 U.S.C. 1602(cc)(5). VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 requirements are not introduced into HPML transactions that are not qualified mortgages but that are part of programs to help consumers avoid defaults and improve their financial positions, and help creditors and investors avoid losses and mitigate credit risk. As discussed previously, the Agencies understand that, under the ‘‘streamlined’’ underwriting standards for several government and GSE refinancing programs, a full interior inspection appraisal is often not required. One reason for this is that the current value of the property securing the existing and refinance obligations generally is not considered to determine borrower eligibility for the refinance. The owner or guarantor of the existing loan retains the credit risk, and the ‘‘streamlined’’ refinance does not change the collateral component of that risk. In a ‘‘streamlined refinance,’’ the principal concern is not valuing the collateral to determine whether the creditor or investor could in the near term recoup the mortgage amount by foreclosing upon and selling the securing property if necessary. Goals for these loan programs include securing payment relief for the borrower and thereby avoid default and foreclosure; allowing the borrower to take advantage of lower interest rates; and enabling the borrower to restructure his or her mortgage obligation to build equity more quickly—all of which reduce risk of default and thereby promote the safety and soundness of creditors and investors and benefit consumers. Relationship to the 2013 ATR Final Rule. Under the Bureau’s 2013 ATR Final Rule, loans eligible to be purchased, guaranteed, or insured by Fannie Mae, Freddie Mac, HUD, VA, USDA, or RHS are subject to the general ability-to-repay rules (found in § 1026.43(c)). See § 1026.43(e)(4)(ii). However, if they meet certain criteria,47 they are considered ‘‘qualified mortgages’’ entitled to either a presumption of compliance or a safe harbor ensuring compliance with the general ability-to-repay rules, depending on the loan’s interest rate.48 See 47 See § 1026.43(e)(4)(i)(A) (cross-referencing § 1026.43(e)(2)(i) through (iii), which require that the loan not result in negative amortization or provide for interest-only or balloon payments; limit the loan term at 30 years; and cap points and fees to three percent of the loan amount (with a higher cap for loans under $100,000). 48 Creditors making qualified mortgages that are ‘‘higher-priced’’ are entitled to a rebuttal presumption of compliance with the general abilityto-repay rules, while creditors making qualified mortgages that are not ‘‘higher-priced’’ are entitled to a safe harbor of compliance. A ‘‘higher-priced covered transaction’’ under the Bureau’s 2013 ATR PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 48559 § 1026.43(e)(1), (e)(4). (Of course, they also can be ‘‘qualified mortgages’’ if they meet all the ability-to-repay criteria under the general definition of ‘‘qualified mortgage’’ See § 1026.43(e)(2).) As qualified mortgages, they are exempt from the HPML appraisal rules. See § 1026.35(c)(2)(i). However, the Agencies believe that the separate exemption for certain refinances from the HPML appraisal requirement proposed in § 1026.35(c)(2)(vii) may be needed. First, the 2013 ATR Final Rule limits the qualified mortgage status of loans purchased or guaranteed by Fannie Mae and Freddie Mac under the special rules of § 1026.43(e)(4). However, these loans will not be eligible to be qualified mortgages if consummated on or after January 10, 2021, unless they meet the general definition of a qualified mortgage in § 1026.43(e)(2). See § 1026.43(c)(4)(iii)(B). For loans eligible to be insured or guaranteed under a HUD, VA, USDA, or RHA program, the qualified mortgage status conferred under § 1026.43(e)(4)(i) would be replaced for each type of loan when those agencies respectively issue rules defining a qualified mortgage based on each agency’s own programs. See § 1026.43(e)(4)(iii)(A); see also TILA section 129C(b)(3)(ii), 15 U.S.C. 1639c(b)(3)(ii). Second, the Agencies believe that many private ‘‘streamlined’’ mortgage programs are likely to have similar benefits to consumers, creditors, and credit markets as those under GSE and government agency programs. However, not all private ‘‘streamlined’’ refinances that are HPMLs will be qualified mortgages because some could exceed the 43 percent debt-to-income ratio cap or fail to meet other qualified mortgage conditions. See, e.g., § 1026.42(e)(2). The Agencies believe that an exemption for not only GSE and government agency ‘‘streamlined’’ refinances, but also refinance loans under proprietary ‘‘streamlined’’ refinance programs, may be warranted. The Agencies considered limiting an exemption from the HPML appraisal rules for private ‘‘streamlined’’ refinances to refinances of non-standard to standard mortgages that would qualify for an exemption from the ability-to-repay rules under new § 1026.43(d) of the 2013 ATR Final Rule is a transaction covered by the general abilityto-repay rules ‘‘with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for a first-lien covered transaction, or by 3.5 or more percentage points for a subordinate-lien covered transaction.’’ § 1026.43(b)(4). E:\FR\FM\08AUP2.SGM 08AUP2 48560 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Rule. However, the Agencies believe that the refinances exempt from the ability-to-repay rules under § 1026.43(d) include a universe of refinances that is narrower than the Agencies believe desirable for an exemption from the HPML appraisal rules. For example, to qualify for the ability-to-repay exemption as a refinance under § 1026.43(d), the existing obligation must be an adjustable-rate mortgage (ARM), an interest-only loan, or a negative amortization loan. See § 1026.43(d)(1)(i). In addition, among other conditions, the creditor must have considered whether the refinance loan ‘‘likely will prevent a default by the consumer on the non-standard mortgage once the loan is recast’’ out of the introductory rate under an ARM or higher payments under an interest-only or negative amortization loan. See § 1026.43(d)(3)(ii). However, the Agencies believe that ‘‘streamlined’’ refinance programs can benefit consumers and promote the safety and soundness of financial institutions even where the consumer is not at risk of imminent default. Definition of ‘‘refinancing.’’ Proposed § 1026.35(c)(2)(vii) defines a ‘‘refinancing’’ to mean ‘‘refinancing’’ in § 1026.20(a).49 However, in contrast to the definition of ‘‘refinancing’’ under § 1026.20(a), a ‘‘refinancing’’ under proposed § 1026.35(c)(2)(vii) does not restrict who the creditor is for either the refinancing or the existing obligation. Commentary to § 1026.20(a) clarifies that a ‘‘refinancing’’ under § 1026.20(a) includes ‘‘only refinancings undertaken by the original creditor or a holder or servicer of the original obligation.’’ See comment 20(a)–5. By contrast, the proposed exemption allows a different creditor to extend the refinance loan, as long as the owner or guarantor remains the same on both the existing loan and the refinance. This aspect of the proposal is discussed more fully below. 35(c)(2)(vii)(A) Same owner or guarantor. Consistent with ‘‘streamlined’’ refinance programs discussed previously, proposed § 1026.35(c)(2)(vii)(A) requires that, for the exemption for certain refinancings to apply, the owner or guarantor of the refinance loan must be the current owner or guarantor of the existing obligation. The Agencies propose to include this requirement as a condition of obtaining the refinance loan exemption from the HPML appraisal rules because the Agencies believe that this restriction is important to promote 49 See § 1026.20(a) for the definition of ‘‘refinancing.’’ VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 the safety and soundness of financial institutions and in turn benefits the public. The proposed rule uses the terms ‘‘owner or guarantor’’ rather than the term ‘‘holder’’ to clarify that the proposed regulation refers to the entity that either owns the credit risk because the loan is held in its portfolio or that guarantees the credit risk on a loan held in an asset-backed securitization. For example, assume Fannie Mae holds an existing obligation in its portfolio, which is then refinanced under one of Fannie Mae’s ‘‘streamlined’’ refinance programs into a loan with a better rate and lower payments for the consumer. Fannie Mae might then decide to place the new refinance loan into a pool of loans guaranteed by Fannie Mae; in this case, Fannie Mae would technically be the guarantor, not the ‘‘owner.’’ However, under the proposal, the refinance would meet the condition of proposed § 1026.35(c)(2)(vii)(A)(1) because the owner or guarantor remains the same on the refinance loan as on the existing obligation. Proposed comment 35(c)(2)(vii)(A)–1 clarifies that the term ‘‘owner’’ in § 1026.35(c)(2)(vii)(A) refers to an entity that owns and holds a loan in its portfolio. This comment would further clarify that ‘‘owner’’ does not refer to an investor in a mortgage-backed security. This proposed clarification is intended to ensure that creditors do not have to look to the individual owners of mortgage-backed securities to determine the same-owner status. The rationale for the same-owner requirement is not based upon the pooled mortgage situation where more than one investor holds an indirect interest in a loan through ownership of a mortgagebacked security. Accordingly, this comment also clarifies that the term ‘‘guarantor’’ in proposed § 1026.35(c)(2)(vii)(A)(1) refers to the entity that guarantees the credit risk on a loan held by the entity in a mortgagebacked security. The Agencies believe that conditioning the exemption on the owner or guarantor remaining the same helps to promote the safety and soundness of creditors. This includes situations in which the refinancing creditor either owns the existing loan or has arranged to transfer the loan to a GSE or other entity that owns the existing loan. In these cases, the owner or guarantor of the refinance already holds the credit risk. In addition, the owner or guarantor of the existing obligation may have familiarity with the property or relevant market conditions as a result of having evaluated property value documents when taking on the PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 original credit risk, as well as ongoing portfolio monitoring. By contrast, when the owner or guarantor of the ‘‘streamlined’’ refinance is not also the owner or guarantor of the existing loan, then the ‘‘streamlined’’ refinance involves new risk to the owner or guarantor of the ‘‘streamlined’’ refinance, whose safety and soundness would therefore be better served by a USPAP-compliant appraisal with an interior inspection.50 The Agencies generally believe that the ‘‘same owner or guarantor’’ criterion for the proposed exemption makes it unnecessary to require that the creditor (which is not necessarily the owner of the loan) also be the same for both the existing obligation and the refinance loan. If consumers can shop for a ‘‘streamlined’’ refinancing among multiple creditors without having to obtain an appraisal, they may be able to obtain better rates and terms. As a general matter, the purpose of the exemption for certain refinance transactions is to facilitate transactions that can be beneficial to borrowers even though they are higher-priced loans. When the consumer is not obtaining additional funds to increase the amount of the debt, and the entity that will own or guaranty the refinance loan is already the credit risk holder on the existing loan, there may be insufficient benefit from obtaining a new appraisal to warrant the additional cost. Questions have been raised, however, about whether safety and soundness issues might arise in some situations that would warrant an appraisal, even when the risk holder will remain the same. Specifically, in some private refinance transactions, the originating creditor for the refinance loan may be assuming ‘‘put-back’’ risk. This risk may be lessened if the holder or guarantor is a federal agency or GSE that operates under guidelines that limit the put-back risk for the originator. Question 29: Accordingly, the Agencies solicit comment on the 50 Legislative history of the Dodd-Frank Act also suggests that Congress believed that certain underwriting requirements were not necessary in refinances where the holder of the credit risk remains the same: ‘‘However, certain refinance loans, such as VA-guaranteed mortgages refinanced under the VA Interest Rate Reduction Loan Program or the FHA streamlined refinance program, which are rate-term refinance loans and are not cash-out refinances, may be made without fully reunderwriting the borrower. . . . It is the conferees’ intent that the Federal Reserve Board and the CFPB use their rulemaking authority . . . to extend the same benefit for conventional streamlined refinance programs where the party making the refinance loan already owns the credit risk. This will enable current homeowners to take advantage of current loan interest rates to refinance their mortgages.’’ Statement of Sen. Dodd, 156 Cong. Rec. S5928 (July 15, 2010). E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules circumstances in which the originator’s assumption of put-back risk raises safety and soundness concerns that weigh in favor of requiring the originator to obtain a USPAP-compliant appraisal with an interior property inspection for a ‘‘streamlined’’ refinance loan. Question 30: The Agencies also seek information on the valuation practices of private creditors for refinanced loans where the private owner or guarantor remains the same and the loans are not sold to a GSE or insured or guaranteed by a federal government agency, including how often no valuation is obtained.51 35(c)(2)(vii)(B) Prohibition on certain risky features. Proposed § 1026.35(c)(2)(vii)(B) would require that a refinancing eligible for an exemption from the HPML appraisal rules not allow for negative amortization (‘‘cause the principal balance to increase’’), interest-only payments (‘‘allow the consumer to defer repayment of principal’’), or a balloon payment, as defined in § 1026.18(s)(5)(i).52 Proposed comment 35(c)(2)(vii)(B)–1 would state that, under § 1026.35(c)(2)(vii)(D), a refinancing must provide for regular periodic payments that do not: result in an increase of the principal balance (negative amortization), allow the consumer to defer repayment of principal (see comment 43(e)(2)(i)–2), or result in a balloon payment. The comment would thus clarify that the terms of the legal obligation must require the consumer to make payments of principal and interest on a monthly or other periodic basis that will repay the loan amount over the loan term. The comment would further state that, except for payments resulting from any interest rate changes after consummation in an adjustable-rate or step-rate mortgage, the periodic payments must be substantially equal. The comment would cross-reference comment 43(c)(5)(i)–4 of the Bureau’s 2013 ATR Final Rule for an explanation of the term ‘‘substantially equal.’’ 53 The mstockstill on DSK4VPTVN1PROD with PROPOSALS2 51 See OCC: 12 CFR 34.43 and 164.3; Board: 12 CFR 225.63; FDIC: 12 CFR 323.3; NCUA: 12 CFR 722.3. See also OCC, Board, FDIC, NCUA, Interagency Appraisal and Evaluation Guidelines, App. A–5, 75 FR 77450, 77466–67 (Dec. 10, 2010). 52 Section 1026.18(s)(5)(i) defines ‘‘balloon payment’’ as ‘‘a payment that is more than two times a regular periodic payment.’’ 53 Comment 43(c)(5)(i)–4 states as follows: ‘‘In determining whether monthly, fully amortizing payments are substantially equal, creditors should disregard minor variations due to paymentschedule irregularities and odd periods, such as a long or short first or last payment period. That is, monthly payments of principal and interest that VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 comment would also clarify that a single payment transaction is not a refinancing meeting the requirements of § 1026.35(c)(2)(vii) because it does not require ‘‘regular periodic payments.’’ The information provided by a USPAP-compliant real property appraisal with an interior property inspection may be particularly important for creditors and consumer where these features are present. For example, additional equity may be needed to support a loan with negative amortization, and the risk of default might be higher for loans with interestonly and balloon payment features. The Agencies recognize that consumers who need immediate relief from payments that they cannot afford might benefit in the near term by refinancing into a loan that allows interest-only payments for a period of time. However, the Agencies believe that a reliable valuation of the collateral is important when the consumer will not be building any equity for a period of time. In that situation, the consumer and credit risk holder may be more vulnerable should the property decline in value than they would be if the consumer were paying some principal as well.54 The Agencies also recognize that, in most cases, balloon payment mortgages are originated with the expectation that a consumer will be able to refinance the loan when the balloon payment comes due. These loans are made for a number of reasons, such as to control interest rate risk for the creditor or as a wealth management tool, usually for higherasset consumers. Regardless of why a balloon mortgage is made, however, there is always risk that a consumer will not be able to either independently make the balloon payment or refinance, with significant consequences if repay the loan amount over the loan term need not be equal, but the monthly payments should be substantially the same without significant variation in the monthly combined payments of both principal and interest. For example, where no two monthly payments vary from each other by more than 1 percent (excluding odd periods, such as a long or short first or last payment period), such monthly payments would be considered substantially equal for purposes of this section. In general, creditors should determine whether the monthly, fully amortizing payments are substantially equal based on guidance provided in § 1026.17(c)(3) (discussing minor variations), and § 1026.17(c)(4)(i) through (iii) (discussing paymentschedule irregularities and measuring odd periods due to a long or short first period) and associated commentary.’’ 54 The Agencies acknowledge that these increased risks may be lower where the interest-only period is relatively short (such as one or two years), because the payments in the early years of a mortgage are heavily weighted toward interest; thus the consumer would be paying down little principal even in making fully amortizing payments. PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 48561 something unexpected happens and the consumer cannot do so. To protect the creditor’s safety and soundness, the creditor should have a firm understanding of the value of the collateral and the trajectory of property values in the area in making a balloon mortgage. This can help the creditor adjust loan and payment terms to mitigate default risk, which benefits both the creditor and the consumer. The Agencies note that the GSE and government ‘‘streamlined’’ refinance programs described above do not allow these features, in part because helping a consumer pay off debt more quickly is one of the goals of these programs.55 In addition, the prohibition on risky features for this proposed exemption is consistent with provisions in the DoddFrank Act reflecting congressional concerns about these loan terms. For example, in Dodd-Frank Act provisions regarding exemptions from certain ability-to-repay requirements for refinancings under HUD, VA, USDA, and RHS programs, Congress similarly required that the refinance loan be fully amortizing and prohibited balloon payments.56 The proposal is also consistent with a provision in the Bureau’s 2013 ATR Final Rule that exempts from all ability-to-repay requirements the refinancing of a ‘‘nonstandard mortgage’’ into a ‘‘standard mortgage.’’ See § 1026.43(d). To be eligible for this exemption from the ability-to-repay rules, the refinance loan must, among other criteria, not allow for negative amortization, interest-only payments, or a balloon payment. See § 1026.43(d)(1)(ii). Further, no GSE or federal government agency ‘‘streamlined’’ refinance program allows these features. The Agencies believe that these statutory provisions and program restrictions reflect a judgment on the part of Congress, government agencies, and the GSEs that refinances with negative amortization, interest-only payment features, or balloon payments may increase risks to consumers and creditors. 55 See, e.g., Fannie Mae, ‘‘Home Affordable Refinance (DU Refi Plus and Refi Plus) FAQs’’ (June 7, 2013) at 11 (describing options for meeting the requirement that the refinance provide a borrower benefit); Freddie Mac, ‘‘Freddie Mac Relief Refinance MortgagesSM—Open Access Eligibility Requirements’’ (January 2013) at 1 (describing options for meeting the requirement that the refinance provide a borrower benefit). 56 See Dodd-Frank Act section 1411(a)(2), TILA section 129C(a)(5)(E) and (F), 15 U.S.C. 1639c(a)(5)(E) and (F). TILA section 129C(a)(5) authorizes HUD, VA, USDA, and RHS to exempt ‘‘refinancings under a streamlined refinancing’’ from the Act’s income verification requirement of the ability-to-repay rules. 15 U.S.C. 1639c(a)(5). See also TILA section 129c(a)(4), 15 U.S.C. 1639c(a)(4). E:\FR\FM\08AUP2.SGM 08AUP2 48562 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 In sum, the Agencies are concerned that negative amortization, interest-only payments, and balloon payments are loan features that may increase a loan’s risk to consumers as well as to primary and secondary mortgage markets. 57 Thus, in the Agencies’ view, permitting these non-qualified mortgage HPML refinances to proceed without USPAPcompliant real property appraisals with interior inspections would not be consistent with the Agencies’ exemption authority, which permits exemptions only if they promote the safety and soundness of creditors and are in the public interest. Question 31: The Agencies request comment on whether prohibiting the regular periodic payments on the refinance loan from resulting in negative amortization, payment of only interest, or a balloon payment is an appropriate condition for an exemption from the HPML appraisal rules for ‘‘streamlined’’ refinances. 35(c)(2)(vii)(C) No cash out. Proposed § 1026.35(c)(2)(vii)(C) would require that the proceeds from a refinancing eligible for an exemption from the HPML appraisal rules be used for only two purposes: (1) To pay off the outstanding principal balance on the existing first-lien mortgage obligation; and (2) to pay closing or settlement charges required to be disclosed under RESPA. Proposed comment 35(c)(2)(vii)(C)–1 would state that the exemption for a refinancing under § 1026.35(c)(2)(vii) is available only if the proceeds from the refinancing are used exclusively for two purposes: paying off the consumer’s existing first-lien mortgage obligation and paying for closing costs, including paying escrow amounts required at or before closing. According to this comment, if the proceeds of a refinancing are used for other purposes, such as to pay off other liens or to provide additional cash to the consumer for discretionary spending, the transaction does not qualify for the refinancing exemption from the HPML appraisal rules under § 1026.35(c)(2)(vii). The Agencies also view the proposed limitation on the use of the refinance loan’s proceeds as necessary to ensure that the principal balance of the loan does not increase, or increases only minimally. This in turn helps ensure that the consumer is not losing significant additional equity and that 57 See also OCC, Board, FDIC, NCUA, ‘‘Interagency Guidance on Nontraditional Mortgage Product Risks,’’ 71 FR 58609 (Oct. 4, 2006). VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 the holder of the credit risk is not taking on significant new risk, in which case a full interior inspection appraisal to assess the change in risk could be beneficial to both parties. The Agencies also note that limiting the use of proceeds to allow for no extra cash out for the consumer other than closing costs is consistent with prevailing ‘‘streamlined’’ refinance programs.58 It is also consistent with the exemption from the Bureau’s ability-torepay rules for refinances of ‘‘nonstandard mortgages’’ into ‘‘standard mortgages.’’ 59 See § 1026.43(d)(1)(ii)(E). The Agencies believe that consistency across mortgage rules can help facilitate compliance and ease compliance burden. Question 32: The Agencies request comment on this proposed condition on the ‘‘streamlined’’ refinance exemption, and whether other protections are warranted to ensure that the loan’s principal balance and overall costs to the consumer do not materially increase. Question 33: In this regard, the Agencies specifically seek comment on whether the Agencies should require that financed points and fees on the refinance loan not exceed a certain percent, such as the percentage caps for points and fees on qualified mortgages. See § 1026.43(e)(3); see also § 1026.43(d)(1)(ii)(B) (capping points and fees for refinances of ‘‘non-standard mortgages’’ into ‘‘standard mortgages’’ exempt from ability-to-repay requirements). For example, the Agencies heard from consumer advocates that frequent, serial refinancing with higher points and fees could lead to a significant loss of equity, and increased exposure for creditors, that would warrant a new appraisal for the same or similar reasons that an appraisal would be important where additional cash out is obtained. Additional condition: obtaining an alternative valuation and providing a copy to the consumer. Question 34: The Agencies also seek comment on whether the exemption for refinance loans should be conditioned on the creditor obtaining an alternative valuation (i.e., a valuation other than a FIRREA- and USPAP-compliant real property appraisal with an interior inspection) and providing a copy to the consumer three days before consummation. In requesting comment on this issue, the Agencies note that the purpose of TILA section 129H is, in part, to protect consumers by ensuring that they receive a copy of an appraisal with an interior property inspection of the home before entering into a HPML that is not a qualified mortgage. 15 U.S.C. 1639h. Specifically, TILA section 129H mandates providing a copy of an appraisal with an interior property inspection for HPMLs that are not exempt from the appraisal requirements, three days before closing, with no option to waive this right. See TILA section 129H(c), 15 U.S.C. 1639h(c).60 The Agencies’ Final Rule implements these requirements. See § 1026.35(c)(6). A refinanced mortgage loan is a significant financial commitment: For example, the refinance loan can have an extended term, typically as long as 30 or 40 years; the refinance loan can be an adjustable-rate mortgage that creates interest rate risk in the future; the refinance loan may actually have increased payments (for example, if the term of the new loan is shorter); and a ‘‘streamlined’’ refinance transaction has transaction costs. Question 35: Because refinances do involve potential risks and costs, the Agencies seek comment on whether conditioning the proposed exemption on creditors obtaining an alternative valuation and giving a copy to the consumer would better position consumers to consider alternatives to refinancing, and whether consumers seeking refinances typically need or want to consider alternatives. These alternatives might include, among others, remaining in the home with the existing loan; refinancing through a different program that would involve underwriting, potentially at a better rate or other improved terms; seeking a possible loan modification; or selling the home. Question 36: The Agencies seek comment and relevant data on whether this additional condition would be necessary. In this regard, the Agencies understand that some type of estimate of value is typically developed in a 58 See, e.g., Fannie Mae Single Family Selling Guide, chapter B5–5, Section B5–5.2; Freddie Mac Single Family Seller/Servicer Guide, chapters A24, B24 and C24. 59 Under the 2013 ATR Final Rule, a refinance loan or ‘‘standard mortgage’’ is one for which, among other criteria, the proceeds from the loan are used solely for the following purposes: (1) To pay off the outstanding principal balance on the nonstandard mortgage; and (2) to pay closing or settlement charges required to be disclosed under RESPA. See § 1026.43(d)(1)(ii)(E). 60 A similar requirement under ECOA permits the consumer to waive the right to receive a copy of valuations or appraisals in connection with an application for a first-lien mortgage secured by a dwelling no later than three days before closing. The consumer may not, however, waive the right to receive copies of valuations or appraisals altogether. See ECOA section 701(e)(2), 15 U.S.C. 1691(e)(2). Regulations implementing this provision were adopted by the Bureau earlier this year in the 2013 ECOA Valuations Rule. See 78 FR 7216 (Jan. 31, 2013); Regulation B, 12 CFR 1002.14(a)(1). PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 ‘‘streamlined’’ refinance transaction. For example, for any loan not eligible for a federal government program or to be sold to a GSE, federally-regulated depositories have to obtain either an ‘‘evaluation’’ or an appraisal for a refinance transaction.61 In addition, as of January 2014, amendments to ECOA, implemented by the Bureau in revised Regulation B, will require all creditors to provide to credit applicants free copies of appraisals and other written valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling.62 See 12 CFR 1002.14(a)(1); 78 FR 7216 (Jan. 31, 2013) (2013 ECOA Valuations Final Rule). The copies must be provided to the applicant promptly upon completion or three business days before consummation. See id. Regulation B defines ‘‘valuation’’ to mean ‘‘any estimate of the value of a dwelling developed in connection with an application for credit.’’ 63 Id. § 1002.14(b)(3). The Agencies recognize, however, that estimates of value might not always be required by federal law or investors. For example, certain non-depositories and depositories are not subject to the appraisal and evaluation requirements that apply to depositories under FIRREA, and might not obtain a valuation on a ‘‘no cash out’’ refinance. Question 37: The Agencies request comment generally on the extent to which either appraisals or other valuation tools such as AVMs or broker price opinions are used in connection with ‘‘streamlined’’ refinances by nondepositories in particular. Question 38: The Agencies also seek comment on whether additional criteria or guidance would be needed to describe the type of home value estimate that a creditor would have to obtain and provide to the consumer and, if so, what the additional criteria or guidance should address. Other conditions. The Agencies are not proposing additional conditions in 61 See OCC: 12 CFR 34.43 and 164.3; Board: 12 CFR 225.63; FDIC: 12 CFR 323.3; NCUA: 12 CFR 722.3. See also OCC, Board, FDIC, NCUA, Interagency Appraisal and Evaluation Guidelines, 75 FR 77450, 77458–61 and App. A, 77465–68 (Dec. 10, 2010). In addition, as noted (see infra note 42), data on GSE ‘‘streamlined’’ refinances indicates that either an AVM or an appraisal (interior inspection or exterior-only) was obtained for all ‘‘streamlined’’ refinances purchased by the GSEs in 2012. 62 All refinances proposed for an exemption would be first-lien mortgage loans. 63 ‘‘Valuation’’ is separately defined in Regulation Z, § 1026.42(b)(3). That definition does not include AVMs, however, which was deemed appropriate for purposes of the appraisal independence rules under § 1026.42. Here, however, the Agencies believe that an estimate of value provided to the consumer could appropriately include an AVM. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 the regulation text on the types of refinancings eligible for the exemption from the HPML appraisal rules. In this way, the Agencies seek to maintain flexibility for government agencies, GSEs, and private creditors to adapt and change their borrower eligibility requirements and other requirements for ‘‘streamlined’’ HPML refinances to address changing market environments and factors that may be unique to their programs. At this time the Agencies do not see the need to impose conditions that address borrower eligibility, such as requiring that the borrower have been on-time with payments on the existing mortgage for a certain period of time. For example, some ‘‘streamlined’’ refinance programs currently require that borrower eligibility criteria be met, such as that the consumer have been current on the existing obligation for a certain period of time.64 Some of these programs also provide that certain benefits must be present in the transaction, such a lower monthly payment or lower interest rate. For this proposed exemption from the HPML appraisal requirements for refinances, the Agencies are not proposing to impose conditions that address borrower eligibility or to define what types of benefits must result from the transaction. The Agencies believe that it is unclear how the need for a particular type of appraisal (versus some other type of valuation that the creditor may perform under other regulations or its own policies) relates to borrower eligibility requirements or the existence of a borrower benefit in the new transaction. Question 39: However, the Agencies request comment on whether the Agencies should adopt additional criteria for HPML ‘‘streamlined’’ refinancings that would be exempt from the HPML appraisal rules, including, but not limited to, requirements regarding whether the consumer has an on-time payment history and whether consumer ‘‘benefits’’ exist as part of the refinance transaction. The Agencies request that commenters supporting inclusion of these types of criteria explain why and comment on what the parameters of an on-time payment 64 See also 2013 ATR Final Rule § 1026.43(d)(2)(iv) and (v). The exemption from the ability-to-repay rules for refinances of ‘‘nonstandard mortgages’’ into ‘‘standard mortgages’’ under the 2013 ATR Final Rule requires that, among other conditions: (1) The consumer made no more than one payment more than 30 days late on the non-standard mortgage in 12-month period before applying for the standard mortgage; and (2) the consumer made no payments more than 30 days late in the six-month period before applying for the standard mortgage. See § 1026.43(d)(2)(iv) and (v). PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 48563 history should be and how ‘‘benefit’’ should be defined. Conclusion For the reasons discussed previously, the Agencies believe that an exemption from the HPML appraisal rules for refinances under the proposed conditions would be ‘‘in the public interest and promotes the safety and soundness of creditors.’’ TILA section 129H(b)(4)(B), 15 U.S.C. 1639h(b)(4)(B). The Agencies believe that an exemption from the HPML appraisal rules for these loans would ensure that the time and cost of new appraisal requirements are not introduced into non-qualified mortgage HPML transactions that are part of programs designed to help consumers avoid defaults and improve their financial positions, and help creditors and investors avoid losses and mitigate credit risk. The Agencies further believe that the exemption is appropriately narrow in scope to capture the types of refinancings that Congress has generally expressed an intent to facilitate, without being overbroad by exempting all HPML refinances from the HPML appraisal rules. See, e.g., TILA sections 129C(a)(5) and (6), 15 U.S.C. 1639c(a)(5) and (6).65 35(c)(viii) Extensions of Credit for $25,000 or Less The Agencies are also proposing an exemption from the HPML appraisal rules for extensions of credit of $25,000 or less, indexed every year for inflation. In the 2012 Proposed Rule, the Agencies requested comment on exemptions from the final rule that would be appropriate. In response, several commenters recommended an exemption for smaller dollar loans. These commenters generally believed that interior inspection appraisals on these loans would significantly raise total costs as a proportion of the loan and thus potentially be detrimental to consumers. Public Comments on the 2012 Proposed Rule Commenters on the 2012 Proposed Rule that indicated support for a smaller dollar loan exemption included a state credit union association, representatives of six banks, two manufactured housing trade associations, a national community development organization, and two individuals. No comments received opposed an exemption for smaller dollar loans, though no comments were received from consumers or consumer advocates. 65 See also Statement of Sen. Dodd, 156 Cong. Rec. S5928 (July 15, 2010). E:\FR\FM\08AUP2.SGM 08AUP2 48564 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 The commenters on this issue shared concerns that requiring an appraisal for smaller dollar residential mortgage loans would result in excessive costs to consumers without sufficient offsetting benefits. Some asserted that applying the HPML appraisal rules to smaller loans might disproportionately burden smaller institutions and potentially reduce access to credit for their consumers. In outreach since the Final Rule was issued, however, a consumer advocacy group expressed the view that low- to moderate-income (LMI) consumers obtaining or refinancing loans secured by lower-value homes may have a particular need for the protections of the HPML appraisal rules. During informal outreach with the Agencies for this proposal, consumer advocates expressed the view that requiring quality appraisals for smaller dollar loans, and requiring that they be provided to the consumer, can help prevent the kinds of appraisal fraud that can lead to consumers borrowing more money than is supported by the equity in their home or taking out loans that are otherwise not appropriate for them. Regarding the appropriate threshold for a smaller loan exemption, the comments varied widely. One individual commenter suggested that a smaller dollar loan amount appropriate for an exemption from the final rule would be $10,000 or less. A comment letter from a community bank indicated that a $25,000 home improvement loan might not be an appropriate transaction type to cover in a final rule; this commenter asserted that to avoid the burden and expense to the consumer of the HPML appraisal rules, a community bank would have to lower its rates on smaller loans to below HPML levels, which could make them unprofitable.66 A national manufactured housing trade association asserted that the median price of a manufactured home is $27,000 67 and that, relative to these 66 This comment was filed before the Agencies had finalized exemptions from the HPML appraisal rules, including the exemption for ‘‘qualified mortgages.’’ See § 1026.35(c)(2); see also 2013 ATR Final Rule (defining ‘‘qualified mortgage’’ at § 1026.42(e)). 67 The trade association’s estimate of median manufactured home prices was based on the U.S. Census Bureau’s 2009 American Housing Survey. According to the 2011 American Housing Survey, the median purchase price of all existing occupied manufactured homes is $30,000 (median value selfreported by respondents also is the same). See http://factfinder2.census.gov/faces/tableservices/ jsf/pages/productview.xhtml?pid=AHS_2011_ C13OO&prodType=table. However, this median price reflects purchases that may have occurred as much as a decade earlier (see id. for acquisition dates). The average price of manufactured homes purchased more recently is higher; as of March VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 small loan amounts, the cost of a traditional interior inspection appraisal is ‘‘extremely expensive’’ and could reduce manufactured home lending. Similarly, a bank representative asserted that when the purchase price is $30,000, for example, the cost of a traditional appraisal is ‘‘substantial.’’ Comments from a community bank representative, the community development organization, and another individual indicated that loans of $50,000 or less might be appropriately exempted. A state bank commenter suggested that loans of $100,000 or less should be exempt. Finally, a state manufactured housing trade association recommended exempting manufactured home loans under $125,000. Discussion The Agencies are concerned that the potential burden and expense of imposing the HPML appraisal requirements on HPMLs of $25,000 or less (that are not qualified mortgages) will outweigh potential consumer protection benefits in many cases. The primary concern is the expense to the consumer of an interior inspection appraisal, which could be significant and unduly burdensome to consumers of smaller loans. Thus, an appraisal requirement could hamper consumers’ use of smaller home equity loans for home improvements, educational or medical expenses, and debt consolidation.68 The interior inspection appraisal requirement also may pose an additional cost for consumers who seek to purchase lower-dollar homes (using HPMLs that are not qualified mortgages); these tend to be LMI consumers who are less able to afford extra financing costs than higherincome consumers. In addition, the Agencies believe that the proposed exemption can facilitate creditors’ ability to meet consumers’ smaller dollar credit needs. This could in turn promote the soundness of an institution’s operations by supporting 2013, the average price was $62,400. See http:// www.census.gov/construction/mhs/mhsindex.html. 68 The Agencies recognize that, absent an exemption for smaller dollar loans from the HPML appraisal rules (which apply solely to closed-end loans), consumers might have the option of borrowing a home equity line of credit (HELOC) rather than a closed-end home equity loan (HEL) to avoid the costs of an appraisal. However, the Agencies are aware that HELs and HELOCs are not in all cases readily interchangeable. HELs and HELOCs are different product types used by consumers for different purposes; they also present different risks for creditors. As a consequence, they are priced differently and are subject to different sets of rules. See, e.g., § 1026.42(a)(1) (implementing a statutory exemption for HELOCs from TILA’s ability-to-repay rules; see TILA sections 103(cc)(5) and 129C(a)(1), 15 U.S.C. 1602(cc)(5) and 1639c(a)(1)). PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 profitability and an institution’s ability to spread risk over a variety of products. Public comments on the 2012 Proposed Rule suggested that applying the rule to smaller dollar loans might affect smaller institutions in particular, and that for these institutions the reduction in costs and burdens associated with this exemption would be most beneficial. Question 40: The Agencies seek data from commenters on this point. Finally, the Agencies believe that creditors would generally be better able to absorb losses that might be associated with a loan of $25,000 or less than with, for example, a typical home purchase loan, which is several times larger than a $25,000 loan.69 $25,000 threshold. A $25,000 threshold is within the range of thresholds recommended by proponents of a smaller dollar loan exemption in their comments on the 2012 Proposed Rule, noted previously. In light of public comments, the Agencies examined data submitted under the Home Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801 et seq., as one reference point for informing an exemption for smaller dollar loans. A subordinate-lien home improvement loan is one example of a loan type for which, in the Agencies’ view, an interior inspection appraisal might be burdensome on a consumer without sufficient off-setting consumer protection or safety and soundness benefits.70 Based on HMDA data, the Agencies found that in 2009, the mean loan size for subordinate-lien home improvement loans that were HPMLs was $26,000 and the median loan size for this category of loans was $17,000.71 In 2010, the mean loan size was $24,900 for subordinate-lien home improvement loans that were HPMLs and the median loan size for this category of loans was $19,000.72 In 2011, the corresponding loan sizes for subordinate-lien home improvement 69 Based on HMDA data, for example, the mean loan size in 2011 for a first-lien, home purchase HPML secured by a one- to four-family site-built property was $141,600; the median loan size for this category of loans was 109,000. See Robert B. Avery, Neil Bhutta, Kenneth B. Brevoort, and Glenn Canner, ‘‘The Mortgage Market in 2011: Highlights from the Data Reported under the Home Mortgage Disclosure Act,’’ Table 10, FR Bulletin, Vol. 98, no. 6 (Dec. 2012) http://www.federalreserve.gov/pubs/ bulletin/2012/PDF/2011_HMDA.pdf. 70 Consumer advocates have expressed concerns to the Agencies that home improvement loans can be part of schemes that are abusive to consumers in some cases, such as when little or no work or substandard work is performed. Whether an appraisal requirement could be used to combat these abuses is unclear. 71 See Federal Financial Institutions Examination Council (FFIEC), Home Mortgage Disclosure Act (HMDA), http://www.ffiec.gov/Hmda/default.htm. 72 See id. E:\FR\FM\08AUP2.SGM 08AUP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules loans that were HPMLs were $26,500 (mean) and $20,000 (median).73 The Agencies recognize that loan types other than home improvement loans would qualify for the proposed exemption and that other data and considerations may be relevant to determining the appropriate threshold. Question 41: The Agencies are proposing a threshold for a smaller dollar loan exemption of $25,000 or less, but request comment on whether a lower or higher threshold is appropriate and, if so, why. The Agencies strongly encourage commenters to offer data to support their view of an appropriate threshold. Annual adjustment for inflation. The Agencies also propose to adjust the threshold for inflation every year, based on the percentage increase of Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI–W). Thus, under the proposal, if the CPI–W decreases in an annual period, the percentage increase would be zero, and the dollar amount threshold for the exemption would not change. The Agencies note that inflation adjustments for other thresholds in Regulation Z are also annual, and believe that consistency across mortgage rules can facilitate compliance.74 Question 42: The Agencies request comment on whether the threshold for a smaller dollar loan exemption should be adjusted periodically for inflation and whether the period for adjustments should be one year or some other period. In comments 35(c)(2)(viii)–1, –2, and –3, the Agencies propose to provide the threshold amount and additional guidance on applying it. Proposed comment 35(c)(2)(viii)–1 sets forth the applicable threshold to be updated every year. This comment states that, for purposes of § 1026.35(c)(2)(viii), the threshold amount in effect during a particular one-year period is the amount stated in comment 35(c)(2)(viii) for that period. The comment states that the threshold amount is adjusted effective January 1 of every year by the percentage increase in the CPI–W that was in effect on the preceding June 1. The comment goes on to state that every year, the comment will be amended to provide the threshold amount for the upcoming one-year period after the annual percentage change in the CPI–W that was in effect on June 1 becomes available. The comment states that any 73 See id. 12 CFR 1026.3(b) (exempting from Regulation Z for loans over the applicable threshold dollar amount, adjusted annually); 12 CFR 1026.32(a)(1)(ii) (setting the points and fees trigger for high-cost mortgages, adjusted annually). 74 See VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 increase in the threshold amount will be rounded to the nearest $100 increment, and provides the following examples: if the percentage increase in the CPI–W would result in a $950 increase in the threshold amount, the threshold amount will be increased by $1,000. However, if the percentage increase in the CPI–W would result in a $949 increase in the threshold amount, the threshold amount will be increased by $900. Finally, the comment states that, from January 18, 2014, through December 31, 2014, the threshold amount is $25,000. Proposed comment 35(c)(2)(viii)–2 states that a transaction meets the condition for an exemption under § 1026.35(c)(2)(viii) if the creditor makes an extension of credit at consummation that is equal to or below the threshold amount in effect at the time of consummation. Proposed comment 35(c)(2)(viii)–3 clarifies that a transaction does not meet the condition for an exemption under § 1026.35(c)(2)(viii) merely because it is used to satisfy and replace an existing exempt loan, unless the amount of the new extension of credit is equal to or less than the applicable threshold amount. As an example, the comment assumes a closed-end loan that qualified for an exemption under § 1026.35(c)(2)(viii) at consummation in year one is refinanced in year ten and that the new loan amount is greater than the threshold amount in effect in year ten. The comment states that, in these circumstances, the creditor must comply with all of the applicable requirements of § 1026.35(c) with respect to the year ten transaction if the original loan is satisfied and replaced by the new loan, unless another exemption from the requirements of § 1026.35(c) applies. The comment cross-references § 1026.35(c)(2) and § 1026.35(c)(4)(vii) for other exemptions from the HPML appraisal rules. Additional Condition: Providing a Copy of a Valuation to the Consumer. Question 43: The Agencies seek comment on whether certain conditions should be placed on the proposed exemption from the HPML appraisal requirements for loans of $25,000 or less. In particular, the Bureau has concerns that, as a result of borrowing so-called ‘‘smaller’’ dollar home purchase or home equity loans, some consumers may be at risk of high LTVs, including LTVs that lead to going ‘‘underwater’’— owing more than their home is worth. Data suggest that many existing homes are worth under $25,000 and that many consumers with lower value homes are PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 48565 underwater or nearly underwater.75 In addition, based upon HMDA data, more than half of subordinate liens originated in 2011 were at or below $25,000.76 Studies suggest that subordinate-lien loans and other forms of equity extraction can make consumers more likely to default, as they reduce the amount of equity in the home and raise LTVs.77 Receiving a written valuation might be helpful in informing a consumer’s decision to take the loan by making the consumer better aware of how the value of the home compares to the amount that the consumer might borrow. Question 44: The Agencies seek comment on the risks that smaller dollar loans could lead to high LTV or ‘‘underwater’’ loans without the knowledge of the consumer, including whether these risks outweigh the burden to the consumer of added appraisal costs and transaction time in covered transactions. See § 1026.35(c)(2) for additional exemptions. Question 45: The Agencies also request comment on protections that may reduce these risks if loans of $25,000 or less are generally exempt from the HPML requirement for a USPAP-compliant appraisal with an interior inspection. Question 46: In particular, the Agencies request comment on whether the exemption should be conditioned on the creditor providing the consumer with any estimate of the value of the home that the creditor relied on in making the credit decision.78 75 As of 2011, approximately 2.8 million homes had a value of less than $20,000. See 2011 American Housing Survey, ‘‘Value, Purchase Price, and Source of Down Payment—Owner Occupied Units (NATIONAL),’’ available at http://fact finder2.census.gov/faces/tableservices/jsf/pages/ productview.xhtml?pid=AHS_2011_C13OO&prod Type=table. A recent study shows that at the end of 2012, 10.4 million properties with a residential mortgage (21.5 percent of residential properties with a mortgage) were in ‘‘negative equity’’ and an additional 11.3 million had less than 20 percent equity. This study also suggests that negative equity is greater with smaller home values (i.e., below $200,000). See Core Logic Press Release and Negative Equity Report Q4 2012 (Mar. 19, 2013) available at http://www.corelogic.com. 76 See FFIEC, HMDA, http://www.ffiec.gov/ Hmda/default.htm. 77 See, e.g., Steven Laufer, ‘‘Equity Extraction and Mortgage Default,’’ Financial and Economics Discussion Series, Federal Reserve Board Division of Research & Statistics and Monetary Affairs (2013–30), available at http://www.federal reserve.gov/pubs/feds/2013/201330/201330pap.pdf. See also, e.g., Michael LaCour-Little, California State University-Fullerton, Eric Rosenblatt and Vincent Yao, Fannie Mae, ‘‘A Close Look at Recent Southern California Foreclosures,’’ (May 23, 2009), available at http://www.areuea.org/conferences/ papers/download.phtml?id=2133. 78 Subordinate-lien loans are not covered by ECOA’s requirement that the creditor provide the E:\FR\FM\08AUP2.SGM Continued 08AUP2 48566 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 35(c)(6) Copy of Appraisals mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Question 47: To inform the Agencies’ consideration of this condition, the Agencies seek data from commenters on the extent to which creditors anticipate originating HPMLs of $25,000 or less that are not qualified mortgages. Question 48: The Agencies also seek comment on the extent to which creditors typically obtain an estimate of the value of the home to calculate the LTV or combined LTV (CLTV) associated with a transaction of $25,000 or less. The Agencies note that FIRREA’s appraisal and evaluation regulations apply to federally-regulated depositories, but that certain nondepositories and depositories are not subject to FIRREA.79 Question 49: In addition, the Agencies request comment on whether and what guidance would be needed regarding the type and quality of valuation that would meet the condition (or, if the creditor obtained more than one valuation, which valuation the creditor should provide). Question 50: The Agencies further request comment on whether other limitations on the exemption might be more appropriate. One alternative might be to limit the exemption to loans that do not bring the consumer’s CLTV over a certain threshold. The Agencies seek comment on what an appropriate threshold would be and the valuation sources on which a creditor should appropriately rely to calculate CLTV for this alternative limitation on the exemption. Question 51: The Agencies request comment and data on whether adding these or similar criteria to qualify for a smaller dollar exemption is an appropriate and adequate means for addressing the concerns raised about high LTV lending. Question 52: Finally, the Agencies also seek comment and data on whether these conditions would likely result in creditors of smaller dollar HPMLs (that are not exempt as qualified mortgages) deciding to forego the exemption and charge the consumer for an appraisal, offer the consumer an open-end home equity product instead (which is not covered by the HPML appraisal rules), or not offer a loan at all. VI. Bureau’s Dodd-Frank Act Section 1022(b)(2) Analysis 80 In developing this supplemental proposal, the Bureau has considered potential benefits, costs, and impacts to consumers and covered persons.81 In addition, the Bureau has consulted, or offered to consult with HUD and the Federal Trade Commission, including regarding consistency with any prudential, market, or systemic objectives administered by such agencies. The Bureau also held discussions with or solicited feedback from the USDA, RHS, and VA regarding the potential impacts of this supplemental proposal on their loan programs. In this supplemental proposal, the Agencies are proposing to exempt three additional classes of HPMLs from the 2013 Interagency Appraisals Final Rule: (1) Certain refinance HPMLs whose proceeds are used exclusively to satisfy an existing first-lien loan and to pay for closing costs; (2) new HPMLs that have a principal amount of $25,000 or less (indexed to inflation); and (3) HPMLs secured by existing manufactured homes but not land. As discussed in the section-by-section analysis, the Agencies also are seeking comment on whether to place conditions on these proposed exemptions that would ensure the consumer receives a copy of a home value estimate in transactions covered by the exemptions. The Bureau will further consider the benefits, costs and impacts of the proposed provisions and asks interested consumer with a copy of valuations and appraisals obtained in connection with an application. See 15 U.S.C. 1691(e)(1), implemented by the 2013 ECOA Valuations Rule at 12 U.S.C. 1002.14 (eff. Jan. 18, 2014). Thus, the consumer of a subordinate-lien smaller dollar loan would not have a right to receive valuations from the creditor under ECOA. 79 See OCC: 12 CFR 34.43 and 164.3; Board: 12 CFR 225.63; FDIC: 12 CFR 323.3; NCUA: 12 CFR 722.3. See also OCC, Board, FDIC, NCUA, Interagency Appraisal and Evaluation Guidelines, App. A–5, 75 FR 77450, 77466–67 (Dec. 10, 2010). 80 The analysis and views in this Part VI reflect those of the Bureau only, and not necessarily those of all of the Agencies. 81 Specifically, Section 1022(b)(2)(A) calls for the Bureau to consider the potential benefits and costs of a regulation to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services; the impact on depository institutions and credit unions with $10 billion or less in total assets as described in section 1026 of the Act; and the impact on consumers in rural areas. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 35(c)(6)(ii) Timing In the Final Rule, comment 35(c)(6)(ii)–2 provides that, for appraisals prepared by the creditor’s internal appraisal staff, the date that a consumer receives a copy of an appraisal as required under § 1026.35(c)(6) is the date on which the appraisal is completed. The Agencies propose to delete this comment as unnecessary, because the relevant timing requirement is based on when the creditor provides the appraisal, not when the consumer receives it. See § 1026.35(c)(6)(i). PO 00000 Frm 00020 Fmt 4701 Sfmt 4702 parties to provide general information, data, research results and other information that may inform the analysis of the benefits, costs, and impacts. A. Potential Benefits and Costs to Consumers and Covered Persons This analysis considers the benefits, costs, and impacts of the key provisions of the Interagency Appraisals Supplemental Proposal relative to the baseline provided by existing law, including the 2013 Interagency Appraisals Final Rule and the Bureau’s ATR Rules.82 The Bureau has relied on a variety of data sources to analyze the potential benefits, costs and impacts of the proposed rule.83 However, in some instances, the requisite data are not available or are quite limited. Data with which to quantify the benefits of the proposed rule are particularly limited. As a result, portions of this analysis rely in part on general economic principles to provide a qualitative discussion of the benefits, costs, and impacts of the rule. The primary source of data used in this analysis is data collected under the Home Mortgage Disclosure Act (HMDA). The empirical analysis generally uses 2011 data, including from the 4th quarter 2011 bank and thrift Call Reports,84 the 4th quarter 2011 credit 82 The Bureau has discretion in future rulemakings to choose the most appropriate baseline for that particular rulemaking. 83 The estimates in this analysis are based upon data and statistical analyses performed by the Bureau. To estimate counts and properties of mortgages for entities that do not report under the Home Mortgage Disclosure Act (HMDA), the Bureau has matched HMDA data to Call Report data and National Mortgage Licensing System (NMLS) and has statistically projected estimated loan counts for those depository institutions that do not report these data either under HMDA or on the NCUA call report. The Bureau has projected originations of HPMLs in a similar fashion for depositories that do not report HMDA. These projections use Poisson regressions that estimate loan volumes as a function of an institution’s total assets, employment, mortgage holdings, and geographic presence. Neither HMDA nor the Call Report data have loan level estimates of debt-to-income (DTI) ratios that, in some cases, determine whether a loan is a qualified mortgage. To estimate these figures, the Bureau has matched the HMDA data to data on the historic-loan-performance (HLP) dataset provided by the FHFA. This allows estimation of coefficients in a prohibit model to predict DTI using loan amount, income, and other variables. This model is then used to estimate DTI for loans in HMDA. 84 Every national bank, State member bank, and insured nonmember bank is required by its primary Federal regulator to file consolidated Reports of Condition and Income, also known as Call Report data, for each quarter as of the close of business on the last day of each calendar quarter (the report date). The specific reporting requirements depend upon the size of the bank and whether it has any foreign offices. For more information, see http:// www2.fdic.gov/call_tfr_rpts/. E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules union call reports from the NCUA, and de-identified data from the National Mortgage Licensing System (NMLS) Mortgage Call Reports (MCR) 85 for the 4th quarter of 2011 also were used to identify financial institutions and their characteristics. Most of the analysis relies on a dataset that merges this depository institution financial data from Call Reports with the data from HMDA including HPML counts that are created from the loan-level HMDA dataset. The unit of observation in this analysis is the entity: if there are multiple subsidiaries of a parent company, then their originations are summed and revenues are total revenues for all subsidiaries. Other portions of the analysis rely on property-level data regarding parcels and their related financing from DataQuick 86 Tabulations of the DataQuick data are used for estimation of the frequency of properties being sold within 180 days of a previous sale. In addition, in analyzing alternatives for the proposed exemption for certain refinances, the Bureau has considered data provided by FHFA and FHA regarding valuation practices under their streamlined refinance programs (and in particular regarding the frequency with which appraisals or automated valuations are conducted). These FHFA and FHA data are described below in greater detail. mstockstill on DSK4VPTVN1PROD with PROPOSALS2 1. Overview: Estimated Number of Covered HPMLs To estimate the number of additional HPMLs that could be exempted by the proposal, it is first necessary to recall the number of HPMLs that are covered 85 The NMLS is a national registry of nondepository financial institutions including mortgage loan originators. Portions of the registration information are public. The Mortgage Call Report data are reported at the institution level and include information on the number and dollar amount of loans originated, and the number and dollar amount of loans brokered. The Bureau noted in its summer 2012 mortgage proposals that it sought to obtain additional data to supplement its consideration of the rulemakings, including additional data from the NMLS and the NMLS Mortgage Call Report, loan file extracts from various lenders, and data from the pilot phases of the National Mortgage Database. Each of these data sources was not necessarily relevant to each of the rulemakings. The Bureau used the additional data from NMLS and NMLS Mortgage Call Report data to better corroborate its estimate the contours of the non-depository segment of the mortgage market. The Bureau has received loan file extracts from three lenders, but at this point, the data from one lender is not usable and the data from the other two is not sufficiently standardized nor representative to inform consideration of the Final Rule or this supplemental proposal. Additionally, the Bureau has thus far not yet received data from the National Mortgage Database pilot phases. 86 DataQuick is a database of property characteristics on more than 120 million properties and 250 million property transactions. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 by the Final Rule. The 2013 Interagency Appraisal Rule exempts all qualified mortgages under the Bureau’s 2013 ATR Final Rule. See § 1026.35(c)(2)(i).87 Therefore, the only additional loans that would be exempted by the proposed rule would be HPMLs that are not qualified mortgages. Under special temporary provisions in the Bureau’s 2013 ATR Final Rule, any loans eligible for purchase or guarantee by HUD, USDA, or VA (until they adopt their own qualified mortgage rules or 2021, whichever is earlier), or by GSEs (until 2021), generally would be qualified mortgages. See § 1026.43(e)(4). This temporary qualified mortgage definition incorporates the criteria in § 1026.43(e)(2)(i)–(iii)—a limit on the mortgage term of 30 years, regular periodic payments without changes in payment amounts except as part of an adjustable-rate or step-rate product, no negative amortization, no balloon payments except in certain cases, and a cap on points and with points and fees of three percent. The Bureau believes that virtually all transactions that are eligible for purchase, insurance, or guarantee by HUD, FHA, VA, or GSEs, as applicable, would meet these criteria. The Bureau requests additional data from commenters on the extent to which the three transaction types covered by this proposal may exceed the three percent cap on points and fees and therefore not satisfy the definition of a qualified mortgage.88 87 This exemption implemented the statute, which excluded qualified mortgages from the scope of the HPML appraisal requirements. 15 U.S.C. 1639h(f)(1). The Bureau notes, however, that in order for qualified mortgages to be eligible for the qualified residential mortgage (QRM) exemption from Dodd-Frank Act risk retention requirements, a USPAP appraisal would be required under rules proposed under other provisions of the Dodd-Frank Act. See Proposed Credit Retention Rule, 76 FR 24090, 24125 (April 29, 2011) (QRM Proposal ‘‘proposing that a QRM be supported by a written appraisal that conforms to generally accepted appraisal standards, as evidenced by [USPAP]’’ and other specified laws). 88 In the absence of data indicating otherwise, the Bureau believes few if any streamlined refinance HPMLs would fail to meet qualified mortgage definitions by virtue of having points and fees in excess of three percent. Indeed, points and fees on streamlined refinances may be lower than other mortgage loans because of the reduced complexity in refinance transactions generally and the further reduced complexity of the streamlined origination process. In addition, for HPMLs secured by existing manufactured homes, the Bureau believes that the points and fees threshold for qualified mortgages would be less likely to be exceeded, insofar as these transactions are less likely to include loan originator compensation to dealers or their employees, whose business focuses more on new manufactured homes. (In any event, the Bureau also has proposed comment 32(b)(1)(ii)–5 to the 2013 ATR Final Rule to clarify that the sales price for manufactured homes does not include points and fees, and that payments of the sales commission to dealer employees also does not count as points and PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 48567 The Bureau seeks data from commenters on this point. Accordingly, the Bureau believes that almost all if not all of the loans that would be exempted solely by virtue of the proposed exemptions would be transactions originated by private lenders for their own portfolio, which are not eligible for purchase, insurance, or guarantee by HUD, USDA, VA, or GSEs,89 and which also are not qualified mortgages under the general definition at § 1026.43(e)(2). This definition includes the criteria in § 1026.43(e)(2)(i)–(iii) discussed above as well as one additional criterion—a maximum debt-to-income ratio of 43 percent at § 1026.43(e)(2)(iv). As discussed in the Section 1022(b) analysis in the 2013 Final Interagency Appraisals Rule, the Bureau estimates, based upon 2011 HMDA data, that there were 26,000 HPMLs that would not have been qualified mortgages, 12,000 of which were purchase-money mortgages, 12,000 of which were first-lien transactions that were refinancings, and 2,000 of which were closed-end subordinate lien mortgages that were not part of a purchase transaction. For purposes of this Section 1022(b) analysis, the Bureau refers to these loans as ‘‘covered loans.’’ The impact on creditors and consumers of the proposed exemptions—which at most would exempt some of these estimated 26,000 covered loans annually—is discussed below. The impact of the proposed exemptions on creditors and consumers generally varies by exemption. It should be noted, however, that there are no mandatory costs imposed on creditors as a result of any of the proposed exemptions. Creditors are not required to utilize an exemption. Therefore, any associated burdens are also optional. Moreover, voluntary compliance costs should be minimal: Creditors complying with the 2013 Interagency Appraisals fees. See 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 issued June 24, 2013), available at http://files.consumerfinance.gov/f/ 201306_cfpb_proposed-modifications_mortgagerules.pdf. Finally, for smaller dollar closed-end dwelling-secured transactions, such as home equity loans up to $25,000, the Bureau has not identified data indicating that in the current market a significant number of these transactions have points and fees at the elevated levels for smaller loans in the 2013 ATR Final Rule. See § 1026.43(e)(3)(i)(C)– (E) (setting points and fees caps of eight percent for loans up to $12,500, $1,000 for loans from $12,500 up to $20,000, and five percent for loans from $20,000 up to $60,000). 89 Focusing on whether the loan is insured or guaranteed, instead of eligible for insurance or guarantee, is conservative; the qualified mortgage exemption, at § 1026.43(e)(4), is defined in terms of eligibility. E:\FR\FM\08AUP2.SGM 08AUP2 48568 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules Final Rule should be able to incorporate these exemptions into their underwriting process and personnel training with little additional cost. 2. Streamlined Refinances The Agencies are proposing to exempt first-lien refinances that satisfy certain restrictions, many of which are commonly referred to as ‘‘streamlined refinances.’’ As discussed in the preceding section-by-section analysis, the Agencies are seeking comment on whether this proposed exemption should be subject to the condition that the creditor obtain an estimate of the value of the dwelling that will secure the refinancing and provide a copy of it to the consumer before consummation. mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Background on Possible Condition on Proposed Exemption Before discussing the proposed exemption in detail, it would be useful to first discuss the request for comment on conditioning the exemption on obtaining and providing a home value estimate to the consumer. This condition would apply to any loan that is otherwise eligible for the streamlined refinance exemption and that is not exempt under another provision of the Final Rule, such as the exemption for qualified mortgages, § 1026.35(c)(2)(i). Other types of valuations 90 that are offered in the marketplace typically include exterior appraisals, automated valuation model (AVM) reports, and broker-price opinions, among others. Alternative forms of valuation might not be as accurate as a USPAP- and FIRREAcompliant appraisal with an interior inspection; for example, they might implicitly assume an interior of average quality. Nonetheless, the Bureau believes a valuation provides the consumer with more information with which to make decisions than no valuation. Obviously, more accurate valuations (including valuations that are more current and based upon more rigorous, validated methods) provide more meaningful information than less accurate valuations. However, the cost of providing this information also must be considered, particularly in a streamlined refinance transaction because the consumer already owns the home and thus the appraisal would not inform a home purchase decision. The Bureau estimates the cost of a full appraisal with an interior inspection to be approximately $350 in addition to the time required to obtain the 90 In this analysis under Section 1022(b) of the Dodd-Frank Act, the Bureau uses the term ‘‘valuation’’ generically to refer to any estimate of value of the dwelling. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 appraisal. For an alternative valuation method such as an AVM, the Bureau believes the cost may be as little as $5 and the time to obtain it may be only a few minutes.91 The Bureau seeks comment on the costs, benefits, and impacts of conditioning the proposed exemption on the requirement that the creditor obtain an estimate of value and provide a copy of it to the consumer. The Bureau also seeks data on the accuracy of AVMs relative to full interior appraisals. Discussion of Proposed Exemption In practice, the refinances eligible for the proposed exemption would fall into two categories. The first category is refinances held in the portfolios of private creditors or sold to a private investor that satisfy all of the criteria for an exempt refinance under proposed § 1026.35(c)(2)(vii). The second category is refinances under GSE, FHA, USDA, or VA programs that satisfy the proposed criteria. The Bureau believes that virtually all transactions in the second category (under any public refinance programs) already would be exempted from this rule by virtue of being qualified mortgages under § 1043(e)(4). As discussed in the section-by-section analysis above, however, under the 2013 ATR Final Rule streamlined refinances under GSE programs originated in or after 2021 would not be qualified mortgages if they do not meet all of the general criteria for a qualified mortgage in the 2013 ATR Final Rule, including debt-to-income limits. See § 1026.43(e)(2). Private Refinances Refinances originated by private creditors that are not eligible under public programs still could satisfy the criteria in the proposed exemption. The Bureau believes that the condition in the proposed exemption of no cash-out except for closing costs would be satisfied in most private HPML 91 Based upon research in anticipation of this proposal, the Bureau has not identified easilyaccessible public information on current pricing practices of AVM providers. The Bureau notes, however, that one GSE charges a flat fee of $20 per loan for a report that includes an estimated home value. This report is primarily a risk assessment tool to assist loan originators (http:// www.loanprospector.com/about/#howmuch). It provides many features, including a no-fee home estimate (http://www.freddiemac.com/hve/ faq.html#3). Given that the home estimate is not listed on the report’s Web page (http:// www.loanprospector.com/about/#howmuch), the Bureau assumes that the value of the estimate itself is relatively minor, in particular far less than $20 per loan. Even if the estimate itself is not available for a much lower price than $20, the price introduces competitive pressure that constrains other AVM providers from charging more for their services. PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 refinances. In the current market, cashout refinances have become less common.92 In addition, when the consumer’s existing loan is a ‘‘nonstandard’’ loan, creditors may seek to qualify for the exemption from the ability-to-repay rules of the 2013 ATR Final Rule for the refinance of a ‘‘nonstandard’’ mortgage into a ‘‘standard’’ mortgage. To qualify, the ‘‘standard’’ refinance must involve no cash out to the consumer: the proceeds may be used only to pay off the existing principal obligation and for closing costs. See § 1026.43(d)(1)(ii)(E). Thus, the Bureau believes that the most reasonable assumption is that lenders are unlikely to originate private cash-out HPML refinance mortgages that are not qualified mortgages. Moreover, the proposed exemption from this rule would reduce costs of the loan if an appraisal is not otherwise required, and therefore create an additional economic incentive to refinance without taking cash out. From the 2013 Interagency Appraisals Final Rule, Section 1022(b) Analysis, 78 FR 10419, the Bureau estimates that roughly 12,000 refinances were covered loans.93 Because the Bureau does not estimate that nonqualified mortgages will be originated under public programs, the Bureau estimates that these 12,000 covered loans would be private refinances. Some of these private refinances would be ineligible for the proposed exemption due to having a different holder/ guarantor, having negative amortization or interest-only features, or having balloon payments. The Bureau seeks data from commenters on how many of these private refinance loans would have these features. However, the Bureau believes that the vast majority of private refinance loans will not have these features. Accordingly, the Bureau believes this is a reasonable estimate of the number of refinance loans that would be covered by the proposed exemption. 92 See Fannie Mae Annual Report 2011, at 156, and Fannie Mae Annual Report 2012, at 127 (reporting that ‘‘cash out’’ refinances have been decreasing from 2009–2012, including for the conventional business, from 27% to 20% to 17% to 14% in these four years, just as other refinances have been increasing). See also American Housing Survey (2011), Table C–14b–OO (approximately 14% of homes with a refinance had obtained the refinance for purposes of receiving cash), available at http://factfinder2.census.gov/faces/tableservices/ jsf/pages/productview.xhtml?pid=AHS_2011_ C14BOO&prodType=table. 93 The actual number may be lower, however, to the extent any of these refinances do not meet the additional restriction in the proposed exemption— that the owner or guarantor of the new refinance loan is the same as the owner or guarantor of the existing loan being refinanced. E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 As indicated in the section-by-section analysis above, the Agencies are seeking data from commenters on the extent to which creditors obtain appraisals or other valuations in no-cash out portfolio refinances that are not originated under public programs. The Bureau also believes that conditioning the exemption on obtaining a valuation and providing a copy of it to the consumer would be consistent with existing industry valuation practices for private refinances. The Bureau believes that creditors that do not obtain an appraisal obtain an alternative valuation. For example, private streamlined refinance programs administered by banks, thrifts, or credit unions are subject to FIRREA regulations and the Interagency Appraisal and Evaluation Guidelines. Under these standards, the creditors must obtain ‘‘evaluations,’’ which can include (but not consist solely of) estimates from AVMs, to support streamlined refinances that are kept on their portfolio and are not backed by public programs.94 Because the Bureau understands that an ‘‘evaluation’’ must include an estimate of the property value, 75 FR 77450, 77461 (Dec. 10, 2010), creditors in these programs also would be required already to provide copies of these estimates to consumers under the Bureau’s 2013 ECOA Valuations Rule, 12 CFR 1002.14(a)(1). Public Program Refinances Including Streamlined Refinance Programs As mentioned above, in the short and medium term, the Bureau believes that no public program refinance loans will be covered loans because they will be exempt as qualified mortgages. Accordingly, the proposed exemption would only affect some of the HPML refinances under GSE programs starting in 2021 (and some HPML refinances under HUD, USDA, and VA programs at that time if those agencies have not already adopted their own qualified mortgage rules)—an impact that is too remote to quantify at this time as the state of the GSEs, the public refinance programs, and the market environment at that time is not possible to predict. Below, the Bureau analyzes the impact of the proposed exemption for certain refinances on covered persons and consumers. a. Covered Persons Any creditors originating refinances that are currently covered loans and 94 See OCC: 12 CFR 34.43(b); Board: 12 CFR 225.63(b); FDIC: 12 CFR 323.3(b) (FDIC); NCUA: 12 CFR 722.3(d); see also OCC, Board, FDIC, NCUA, Interagency Appraisal and Evaluation Guidelines, 75 FR 77450, 77461 (Dec. 10, 2010) (Parts XII–XIV). VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 which meet the criteria of the proposed exemption could choose to make use of the proposed exemption, which would reduce burden. In particular, these loans would not be subject to the estimated per-loan costs described in the 2013 Interagency Appraisals Final Rule.95 For these transactions, these creditors would not be required to spend time reviewing the appraisals conducted for conformity to this rule, and providing copies of those appraisals to applicants. The Bureau is requesting that commenters provide data on the rate at which appraisals and other valuations are conducted for private refinances. If the Bureau is able to obtain this additional information, it can better estimate the burden that would be reduced if the proposed exemption is finalized for private refinances. In addition, the Bureau believes that conditioning the proposed exemption on the creditor obtaining and providing the consumer with an alternative valuation would not significantly decrease the amount of burden relieved by the exemption. Such alternative valuations cost significantly less than full interior appraisals and, in many cases, already are required by regulations or are otherwise obtained under current industry practice and therefore subject to disclosure to the consumer under the Bureau’s 2013 ECOA Valuations Rule. According to the data that was provided to the Agencies by the FHFA, in 2012, all GSE streamlined refinance transactions have either an automated valuation estimate (more than 80%) or an appraisal performed (less than 20%). The Bureau also understands that the Agencies’ FIRREA regulations also generally mandate alternative valuation methods for streamlined refinances where appraisals are not used and the transaction is not sold to, guaranteed by, or insured by a government agency or GSE.96 A condition on the proposed exemption still could allow flexibility for creditors to determine the type of alternative valuation to provide; and just as Section 129H(d) of TILA notes that the appraisal required under the Dodd-Frank Act for covered HPMLs is for the creditor’s sole use, a condition would not necessarily prevent a creditor from informing the consumer that he or she uses the alternative valuation ‘‘at their own risk.’’ As noted in the sectionby-section analysis above, the Agencies seek comment on the extent to which creditors originating loans eligible for 95 See Section 1022(b) analysis, 78 FR 10418–21. OCC: 12 CFR 34.43(b); Board: 12 CFR 225.63(b); FDIC: 12 CFR 323.3(b) (FDIC); NCUA: 12 CFR 722.3(d). 96 See PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 48569 the proposed exemption obtain valuations currently. In any case, even if a condition were adopted, use of the proposed exemption would be voluntary. b. Consumers For those consumers whose HPML streamlined refinance would not have been a qualified mortgage (such as those HPMLs not associated with public programs and not otherwise meeting the general definition of qualified mortgage), the proposed exemption would ensure the rule—including its appraisal requirement—does not apply to their loan. This can result in several types of cost savings to consumers of these loans. First, as discussed in the in the 2013 Interagency Appraisals Final Rule, the Bureau believes the cost of appraisals—$350 on average—is generally passed on to consumers.97 In addition, streamlined refinance transactions may close more quickly without an appraisal, and recent data indicates that these refinances in the current rate environment have interest rates on average nearly two percent lower than the loan being refinanced.98 As a result, those consumers described above typically would save money because the transaction will not have to wait to close until an appraisal is conducted and reviewed: for example, if the consumer can close a refinance transaction two weeks earlier because a full appraisal is not performed, that will provide the consumer with an additional two weeks of payments at the reduced interest rate of the refinance loan. The exemption therefore may result in some reduced interest rate expenses for consumers seeking private streamlined refinance HPMLs that are not qualified mortgages and which would not have otherwise had an appraisal. The Bureau believes that the number of consumers affected by this benefit annually is quite small: Of the 12,000 estimated private refinances eligible for the exemption discussed above, only the fraction that would not otherwise have had an appraisal would benefit.99 97 Section 1022(b) Analysis, 78 FR 10420. Freddie Mac Press Release, ‘‘84 Percent of Refinancing Homeowners Maintain or Reduce Mortgage Debt in Fourth Quarter’’ (Feb. 4, 2013), available at http://freddiemac.mwnewsroom.com/ press-releases/84-percent-of-refinancinghomeowners-maintain-or-r-pinksheets-fmcc981668. See also Fannie Mae 2012 Annual Report at 11 (reporting $237 average decrease in monthly payment under Fannie Mae Refi Plus® program in fourth quarter 2012). 99 The Bureau does not have information indicating that there a significant number of other streamlined refinance HPMLs that are not otherwise qualified mortgages. 98 See E:\FR\FM\08AUP2.SGM 08AUP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 48570 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules The Bureau is uncertain, however, whether the proposed exemption would make it more likely that the transaction is consummated for these consumers. As noted above, when an appraisal is not conducted, an evaluation is generally required under FIRREA regulations for depository institutions. The Bureau does not believe, and had not identified any data indicating, that an appraisal is any more or less likely than an evaluation to cause a transaction to fail (for example because the valuation exceeds the price, or causes the loan to exceed any LTV limits). Accordingly, the Bureau requests data from commenters on whether the exemption would increase the likelihood of consummation for refinances eligible for the exemption. If the exemption made consummation of the transaction more likely for these consumers, the Bureau believes this would provide a benefit to these consumers whenever the refinance transaction is beneficial for the consumer. As discussed in the Bureau’s analysis under Section 1022 in the 2013 Interagency Appraisals Final Rule, in general, consumers who are borrowing HPMLs that are covered loans and who would not otherwise have appraisals conducted for the transaction could benefit from an appraisal being conducted.100 Benefits of appraisals in residential mortgage transactions generally can range from having a valuation that better accounts for the interior and exterior of their particular property, to having information that can be used to evaluate insurance coverage levels and real estate tax valuations, to being better informed as to the value of their property before making a final decision to enter into a new transaction, among others. Consumers who are better informed before consummating a streamlined refinance loan would be better able to assess their alternatives, which can include the following, among others: • Remaining in the home with the existing loan; • Refinancing through a different program at a better rate or other improved terms (such as not requiring mortgage insurance); 101 • Seeking a modification; • Selling the home; or • Negotiating with the servicer to provide the deed-in-lieu without defaulting, among others. 100 Section 1022(b) Analysis, 78 FR 10417–18. proposed exemption already excludes loans with terms that are generally viewed as reducing consumer protection, such as negative amortization, interest-only, or balloons. 101 The VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 applicable law is well below the cost of a USPAP-compliant appraisal. The Bureau seeks comment on these assumptions. As discussed in the section-by-section analysis above, the Agencies also are requesting comment on whether consumers would benefit from a condition on the exemption relating to the amount of transaction costs that can be charged. One of the principal reasons why an appraisal may be less important to a consumer in a streamlined refinance transaction is that, except for closing costs that may be financed by the loan, the consumer is not losing equity. This rationale appears to be strongest if the exemption cannot be used in refinance transactions that also finance high transaction costs, especially given that consumers can engage in serial refinancing. Serial refinancing at high points and fees that are financed can reduce a consumer’s equity as much if not more than a cashout refinance. Of course, in a refinance transaction, a consumer having better home value information through an appraisal will not affect the consumer’s decision of whether to buy the home in the first place. Nonetheless, when considering a refinance loan, the appraisal can inform the consumer with respect to options to pursue such as those listed above, which could be more beneficial or appropriate for the consumer than refinancing the loan.102 For example, if the appraisal establishes that the value of the dwelling is higher than otherwise estimated, the consumer’s cost of credit could decrease and the consumer might even be able to borrow at rates below HPML thresholds. On the other hand, if an appraisal establishes that the value of the dwelling is lower than otherwise estimated, the consumer might be better positioned to consider alternative options discussed above. The new appraisal also may alert the consumer, in some cases, to flaws or even to an inflated valuation in the original appraisal used to purchase the home. The cost to consumers of the proposed exemption therefore would be the loss of these potential benefits for the number of covered loans that would be newly-exempted by the proposed exemption and which would not have otherwise included an appraisal. As noted above, the Bureau estimates this would be very few transactions. Nonetheless, to mitigate the loss of potential benefits to consumers arising from not having an appraisal in an exempt refinance transaction, the Agencies are seeking comment on whether to condition the proposed exemption on the creditor obtaining and providing to the consumer an alternative valuation as a condition of the loan being eligible for the proposed streamlined refinance exemption. The Bureau believes that, in general, a consumer’s receipt of a home value estimate other than an appraisal can mitigate the information disadvantage when an appraisal is not obtained. More specifically, the Bureau believes that the cost of getting an AVM estimate is minimal and that it is already done as a standard business practice in many cases. Also, the Bureau believes that the cost of a broker price opinion (BPO) or any other reasonable valuation method that would be permitted under 3. Smaller Dollar Loans As discussed in the section-by-section analysis above, the Agencies are proposing to exempt HPMLs secured by new loans with principal amounts of $25,000 or less (indexed to inflation) from the HPML appraisal rules, while seeking comment on whether the threshold for the exemption should be different. The Agencies also are seeking comment on whether to condition this exemption on the creditor providing the consumer with a copy of a valuation, as described in more detail in the sectionby-section analysis above. The Bureau estimates the number of transactions potentially eligible for this exemption as follows: HMDA data for 2011 indicates there were approximately 25,000 HPMLs at or below $25,000 that were not insured or guaranteed by government agencies or purchased by the GSEs (so, not qualified mortgages on that basis). Of these, the Bureau estimates that 4,800 were HPMLs with debt-to-income above 43 percent (so they would not meet the more general definition of a qualified mortgage). Accordingly, the Bureau estimates that approximately 4,800 covered loans are originated annually in an amount up to $25,000.103 Of these estimated 4,800 covered loans at or below $25,000, the Bureau estimates that the types most 102 Indeed, unlike in a home purchase transaction, in a streamlined refinance transaction (unless the originating creditor on the new loan is the same as on the existing loan), the consumer has an absolute three-day right of rescission under Regulation Z, § 1026.23. This right underscores the need for consumers to be informed prior to its expiration. 103 As discussed above, the Bureau does not believe that a significant number of smaller dollar HPML would exceed the points and fees threshold in the 2013 ATR Final Rule, but is requesting data from commenters on this issue. If a significant number of smaller dollar HPMLs did exceed that threshold, then the number of loans eligible for the proposed exemption would increase. PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 affected by this proposed exemption, in that they would be unlikely to include appraisals if the exemption applies, would be home improvement loans, subordinate lien transactions not for home improvement purposes, and transactions secured by manufactured homes. The HPML appraisal rules could lead to significant changes in valuation methods used for these types of loans. For example, current practice includes appraisals for only an estimated five percent of subordinate lien transactions as explained in the 2013 Interagency Appraisals Final Rule.104 a. Covered Persons Creditors originating smaller dollar covered loans would experience some reduced burden as a result of the proposed exemption for HPMLs of $25,000 or less. If the proposed exemption were adopted, these loans would not be subject to the estimated per-loan costs described in the 2013 Interagency Appraisals Finale Rule.105 For these transactions, creditors would not need to spend time or resources on complying with the requirements in the HPML appraisal rules: Checking for applicability of the second appraisal requirement on a flipped property (in a purchase transaction) and paying for that appraisal when the requirement applies, obtaining and reviewing the appraisals conducted for conformity to this rule, providing a copy of the required disclosure, and providing copies of these appraisals to applicants. Creditors therefore may find it relatively easier to originate HPMLs that are eligible for this exemption, for example if they are not qualified mortgages. Even if the proposed exemption reduces the number of interior inspection appraisals conducted for smaller dollar HPMLs, the overall impact of this proposed exemption on creditors is likely minimal for most creditors given that only 4,800 such loans were made among 12,000 creditors. Finally, the Bureau does not estimate that the burden reduced by the exemption would be significantly lowered by conditioning the exemption on the creditor providing the consumer a copy of a valuation that the creditor relied on in extending credit. As noted above, for depository institutions and credit unions, FIRREA regulations generally require evaluations when an appraisal is not obtained because the transaction amount is below $250,000; thus, the Bureau estimates that most transactions of $25,000 involve a home 104 See 105 See 78 FR 10419. Section 1022(b) analysis, 78 FR 10418–21. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 estimate of some type. In first lien transactions, providing copies of valuations is already required under the 2013 ECOA Valuations Rule, so the condition would impose no added burden. See 12 CFR 1002.14(a)(1). For subordinate lien transactions, the cost of such a condition would not be more than the small cost of copying and mailing a valuation, or scanning and transmitting it electronically.106 The Bureau seeks data from commenters on the extent to which depository institutions, credit unions, and nondepository institutions obtain appraisals or other types of valuations in these transactions. b. Consumers For consumers who seek to borrow smaller dollar loans, such as home improvement loans and other subordinate lien transactions, and who are not able to obtain a qualified mortgage, the proposed exemption for smaller dollar HPMLs (at or less than $25,000) would provide some benefits. Industry practice prior to implementation of the 2013 Final Rule suggests that appraisals are not otherwise frequently done for home improvement and subordinate lien transactions.107 Thus, by not requiring an appraisal, the cost of which typically would be passed on to consumers, the proposed exemption could facilitate access to smaller dollar HPMLs that are not otherwise exempt from the HPML appraisal rules. Without an exemption, some consumers may try to avoid the cost of an appraisal by either not entering into a smaller dollar HPML (unless it is otherwise exempt from the rules, such as a qualified mortgage) or pursuing an alternative source of credit that is not subject to the rules, such as an open-end home equity line of credit. Under the proposed exemption, consumers in smaller dollar HPMLs (that are not otherwise exempt) would lose the benefits of the Final Rule, however. As discussed in the Bureau’s analysis under Section 1022 in the Final Rule, in general, consumers who are borrowing HPMLs could benefit from an appraisal. For HPMLs that are not purchase transactions, the general benefits discussed above may be relatively less valuable to the consumer in some cases, given the lower size of the loan and also the likelihood that the consumer already would have had an 106 Of course, this cost also would not be more than the cost of complying with the Final Rule without the proposed exemption, as the Final Rule requires providing a copy of an appraisal to the consumer in covered transactions. See § 1026.35(c)(6). 107 78 FR 10419. PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 48571 appraisal in the original purchase transaction. Nonetheless, having an appraisal could provide a particularly significant benefit to those consumers who are informed by the appraisal that they have significantly less equity in their home than they realize. A smaller dollar mortgage could push these consumers even further into negative equity, without the consumers realizing it. This effect is even more pronounced for consumers whose homes have lower value. All else equal, a $25,000 loan will pose greater risk to a consumer whose home is worth $20,000, than to a consumer whose house is worth $200,000. According to a periodic government survey, as of 2011 more than 2.75 million homes were worth less than $20,000, including a greater proportion of homes whose owners were below the poverty level or elderly.108 In addition, according to a recent study, as of the end of 2012, 10.4 million properties with a residential mortgage were in ‘‘negative equity’’ and an additional 11.3 million had less than 20 percent equity.109 In addition, some recent studies suggest that subordinate liens can increase the risk of default, as they reduce the amount of equity in the home.110 Moreover, based upon HMDA 108 See 2011 American Housing Survey, ‘‘Value, Purchase Price, and Source of Down Payment— Owner Occupied Units (NATIONAL),’’ C–13–OO, available at http://factfinder2.census.gov/faces/ tableservices/jsf/pages/productview.xhtml? pid=AHS_2011_C13OO&prodType=table. In addition, in seven metropolitan statistical areas, as of the end 2012 the median home value was less than $100,000. See National Association of Realtors® Median Sales Price of Existing SingleFamily Homes for Metropolitan Statistical Areas Q4 2012, available at http://www.realtor.org/sites/ default/files/reports/2013/embargoes/hai-metro-211-asdlp/metro-home-prices-q4-2012-single-family2013-02-11.pdf. 109 Core Logic Press Release and Negative Equity Report Q4 2012 (Mar. 19, 2013), available at http://www.corelogic.com. 110 See Steven Laufer, ‘‘Equity Extraction and Mortgage Default,’’ Financial and Economics Discussion Series Federal Reserve Board Division of Research & Statistics and Monetary Affairs (2013– 30), available at http://www.federalreserve.gov/ pubs/feds/2013/201330/201330pap.pdf. The study concludes, at 2, that ‘‘through cash-out refinances, second mortgages and home equity lines of credit, . . . homeowners [in the sample studied] had extracted much of the equity created by the rising value of their homes. As a result, their loan-to-value (LTV) ratios were on average more than 50 percentage points higher than they would have been without this additional borrowing and the majority had mortgage balances that exceeded the value of their homes.’’). See also Michael LaCourLittle, California State University-Fullerton, Eric Rosenblatt and Vincent Yao, Fannie Mae, ‘‘A Close Look at Recent Southern California Foreclosures,’’ (May 23, 2009) at 17 (finding that, based upon a sample of homes, the existence of a subordinate lien is correlated more strongly with default than whether the home was purchased in 2005–06 period), available at http://www.areuea.org/ conferences/papers/download.phtml?id=2133. E:\FR\FM\08AUP2.SGM 08AUP2 48572 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 data, more than half of subordinate liens originated in 2011 were at or below $25,000. Therefore, smaller dollar loans of $25,000 or less could still pose significant risks to consumers who own these lower-value homes or other homes that are highly leveraged, consuming most or all of any remaining equity. In some of those cases, knowledge of the current value of the home could prevent consumers from unwittingly using up too much equity in their homes or going underwater or going further underwater, which could make it more difficult for them to sell or refinance in the future. The Bureau therefore seeks comment on the extent to which smaller dollar loans of $25,000 or less are nonetheless higher LTV loans, for example resulting in combined loan-to-value of 90 percent or more.111 In addition, the section-bysection analysis above seeks comment on whether the exemption should include a condition—such as providing the consumer with a copy of a valuation relied upon by the creditor in the transaction; 112 the purpose of the condition would be to prevent consumers from entering into loans that unwittingly use up most or all of the equity in their homes and which also could impede their ability to refinance or sell their home in the future. In summary, the cost of the proposed exemption to consumers would be the loss of benefits generally associated with appraisals for the number of covered loans that would be newlyexempted by the proposed exemption for smaller dollar loans—that is, for an estimated 4,800 loans annually, assuming that none of these loans currently get full interior appraisals. This cost could be mitigated by conditioning the exemption in a manner that reduces the risk the consumer would unwitting borrow an amount that consumes available equity in the home. 111 See, e.g., GAO Report GAO/GCD–98–169, High Loan-to-Value Lending—Information on Loans Exceeding Home Value (Aug. 1998), available at http://www.gao.gov/assets/230/226291.pdf at 2 (‘‘data provided by a lender responsible for about one-third of HLTV lending showed that, in 1997, HLTV loans averaged about $30,000. The data also showed that the average contract interest rate was between 13 and 14 percent, with an average loan term of 25 years. The average combined indebtedness of the first mortgage and the HLTV loan represented about 110 percent of the borrower’s property value, although in some cases the combined loans reached or exceeded 125 percent of value.’’). 112 The consumer would not otherwise receive a copy of valuations for a subordinate lien transaction because the requirement to provide the consumer with a copy of valuations obtained in connection with an application for credit under Regulation B, 12 CFR 1002.14(a), does not apply to subordinatelien loans. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 4. Proposed Approach to Transactions Secured by Manufactured Homes As discussed in the section-by-section analysis above, the market for manufactured home loans can be classified according to collateral type: New home only, new home and land, existing home only, and existing home and land. The proposal seeks comment on whether changes are warranted to the exemption adopted 2013 Interagency Appraisals Final Rules regarding transactions secured by new homes. Such changes may include narrowing the exemption to apply only to transactions secured by a new manufactured home but not land. The proposal also seeks comment on conditioning the exemption for transactions secured by new manufactured homes on obtaining and providing the consumer with a home value estimate other than a USPAP- and FIRREA-compliant appraisal with an interior inspection prior to consummation. (The types of estimates that might satisfy such a condition are discussed in the section-by-section analysis above.) As also discussed in the section-by-section analysis above, the Agencies are proposing to exempt HPMLs secured by existing manufactured homes, and are seeking comment on conditioning this proposed exemption on obtaining and providing a home value estimate to the consumer. The Agencies’ proposed exemption for existing manufactured homes would not apply when land provides security; as indicated in the section-by-section analysis above, the Agencies believe that USPAP-compliant appraisals are feasible and commonly performed for these transactions. To assess the impact of the proposal’s provisions concerning manufactured housing, it is necessary to estimate the volume of transactions potentially affected, by collateral type. The Bureau’s analysis of 2011 HMDA data, matched with the historic loan performance (HLP) data from the FHFA, indicates that roughly eight percent of all manufactured home purchases were covered loans: HPMLs that were not qualified mortgages because the debt-toincome ratio exceeded 43 percent and the loan was not insured, guaranteed, or purchased by a federal government agency or GSE.113 Because HMDA data does not differentiate between transactions with each of the relevant collateral types, including new versus used, the Bureau is applying this ratio to each of the transaction types to derive the estimated number of covered loans below. Manufactured home loans of $25,000 or less also would be exempt PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 under the proposed smaller dollar exemption discussed above. For purposes of this discussion, however, the Bureau analyzes all manufactured home loans regardless of amount. Transactions financing the purchase of a new manufactured home. Census data reports shipment of approximately 51,000 new manufactured homes in 2011, with approximately 17 percent titled as real estate.114 For purposes of this analysis, the Bureau assumes that all of these homes were used as principal dwellings for consumers and that all of these purchases were financed. In addition, the Bureau believes that the proportion of homes titled as real estate is a reasonable estimate of the number of new manufactured home purchase transactions that are secured in part by land.115 The Bureau therefore estimates that based upon 2011 data approximately 42,400 new manufactured home sales were financed by chattel loans (which can include homes located on leased land such as in trailer parks and other land-lease communities) and 8,600 transactions were secured by new manufactured homes and land. Applying a factor of approximately eight percent, the Bureau estimates that, of these, almost 3,400 were chattel HPMLs that were not qualified mortgages, and almost 700 were land and home-secured HPMLs that were not qualified mortgages.116 Transactions financing the purchase of an existing manufactured home. Census data also reports an estimated 369,000 move-ins to owner-occupied manufactured homes in 2011.117 As noted above, approximately 51,000 new manufactured homes were shipped. Therefore, the Bureau estimates that approximately 318,000 existing manufactured homes were purchased in 2011. Again, the Bureau assumes that all of these purchases were financed. Further, based upon a review of nearly 114 See Cost & Size Comparisons: New Manufactured Homes, available at http:// www.census.gov/construction/mhs/pdf/ sitebuiltvsmh.pdf. 115 Only a few states provide for treating manufactured homes sited on leased land as real property. 116 This estimate would increase to the extent any other manufactured home purchase HPMLs would not be qualified mortgages solely because they exceed caps on points and fees in the Bureau’s ATR Rule. As noted in the footnote at the outset of the Section 1022 analysis above, however, the Bureau believes this is less likely based upon existing and potentially forthcoming clarifications on this issue. 117 The Census report refers to these homes as ‘‘manufactured/mobile homes’’, but the Census definitions note that all of these homes are ‘‘HUD Code homes’’, which is the fundamental characteristic of what are currently referred to as manufactured homes. E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules two decades of Census data on shipments of new manufactured homes, the Bureau estimates that approximately one third of the existing manufactured homes are titled as real property. Therefore, the Bureau estimates that approximately 105,000 purchases of existing manufactured homes also involved the acquisition of land which provided security for the purchase loan,118 while approximately 213,000 purchases were secured only by the manufactured home (chattel loans). Applying the same eight percent factor for other purchases discussed above, of these, approximately 17,000 were chattel HPMLs that were not qualified mortgages, and approximately 8,400 were land- and home-secured HPMLs that were not qualified mortgages. As with new homes, this estimate would increase to the extent that any other manufactured home purchase HPMLs would not be qualified mortgages solely because they exceed caps on points and fees in the Bureau’s 2013 ATR Rule. Refinances and home improvement loans on existing manufactured homes. The Bureau’s analysis of 2011 HMDA data, matched with the HLP data from the FHFA, indicates that, approximately, for every four covered purchase manufactured housing loans, there is one refinance or home improvement loan. Applying this factor of 4:1, approximately 4,300 (17,000/4) were chattel HPMLs that were not qualified mortgages, and approximately 2,100 (8,400/4) were land and homesecured HPMLs that were not qualified mortgages.119 a. Covered Persons Transactions Secured by New Manufactured Homes mstockstill on DSK4VPTVN1PROD with PROPOSALS2 The proposal seeks comment on narrowing the exemption adopted in the Final Rule to cover only transactions secured solely by a new manufactured home but not land. The proposal also seeks comment on conditioning the exemption for those transactions on providing to the consumer an estimate of the replacement cost of the new manufactured home, including any appropriate adjustments, using a thirdparty published cost service such as the 118 According to data provided by HUD for the fiscal year 2011, approximately 5,900 existing manufactured homes were purchased together with land under the FHA Title II program. 119 These estimates would increase to the extent any other manufactured home purchase HPMLs would not be qualified mortgages solely because they exceed caps on points and fees in the Bureau’s ATR Rule. As noted in the footnote at the outset of the Section 1022 analysis above, however, the Bureau believes this is less likely based proposed clarifications on this issue. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 NADAGuides.com Value Report 120 or other methods discussed in more detail in the section-by-section analysis. The proposal also seeks comment on maintaining the exemption for transactions secured by both new manufactured homes and land but conditioning that exemption on use of an alternative valuation method. If the exemption were narrowed to no longer cover HPMLs secured by both a new manufactured home and land, the creditor would need to obtain USPAPand FIRREA-compliant appraisal with an interior inspection in these transactions. The Bureau believes the cost of this appraisal is not likely to be significantly higher than the cost of current valuation practices in these transactions. As discussed in the section-by-section analysis above, the Bureau understands that GSE, HUD Title II, USDA, and VA manufactured housing finance programs all require USPAP-compliant appraisals on standard GSE forms for transactions secured by manufactured homes and land, and that thousands of these transactions occur each year in these programs, some at HPML rates. Even if a creditor’s appraisal does not meet the appraisal standards for these programs (for example, GSE requirements mandating a minimum number of manufactured homes be used as comparables), it still may comply with USPAP.121 In addition, based upon further research, the Bureau has confirmed that USPAP appraisals of manufactured homes and land cost approximately the same on average as USPAP appraisals of other types of homes and land titled together as real property.122 Moreover, information 120 A sample of this report, as noted in the section-by-section analysis, is available at http:// www.nadaguides.com/Manufactured-Homes/ images/forms/MHOnlineSample.pdf. 121 Outreach to a large appraiser trade association indicates that between 1998 and 2007 nearly 10,000 individuals took their in-person or online seminars on appraising manufactured housing. The current version of these seminar materials, as well as outreach to state appraisal boards and related research, confirms that when necessary USPAP appraisals can use non-manufactured homes as comparables, making adjustments where needed. Therefore, the Bureau does not believe that appraiser availability and appraisal feasibility should affect its cost estimates here. 122 For example, a survey in Texas—the state with the highest number of new manufactured home purchases—estimated that manufactured home appraisals cost approximately the same as singlefamily appraisals. See Texas A&M Univ. Real Estate Center, Univ. of Chicago, and Univ. of Houston, ‘‘The Texas Appraisers and Appraisal Management Company Survey’’ (Oct. 2012) at Table 2 (indicating that manufactured home appraisal costs cluster in the range of $351–400). In addition, in all nine Veterans Administration (VA) regions, VA appraiser fee schedules either do not separately break out the cost of manufactured home appraisals or provide PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 48573 obtained in outreach and research from a large manufactured housing lender and a large bank indicate that it is common to obtain at least an appraisal of the land in these transactions. The Bureau believes that the cost of a USPAP-complaint appraisal of a vacant lot is unlikely to cost more than the average $350 cost for a USPAPcompliant appraisal of a home. Therefore, based upon available information, the Bureau does not believe that narrowing the exemption to exclude these transactions is likely to lead to significant new costs for creditors. If the exemption were conditioned on obtaining an estimate of the value of the new manufactured home from a published cost service (such as a NADA Guide Valuation Report or a report from the Marshall & Swift Cost Estimator) and providing this to the consumer, the costs likely would be minimal. The Bureau has received information in outreach indicating that annual subscriptions to the NADA Guide may cost between $100 and $200 for an unlimited number of value reports, while similar unlimited-use subscriptions to the Marshall & Swift service may cost approximately $1,200. 123 In addition, for transactions secured by both a new manufactured home and land, if this condition also required obtaining an appraisal of the land, costs are unlikely to increase in many of these transactions because information obtained in outreach suggests appraisals of the land already are a common practice in these transactions. The Bureau seeks comment on the frequency with which the type of valuation information is described in this paragraph is obtained in a new manufactured home transaction. Finally, the proposal requests comment on whether any condition on the exemption also should call for the consumer to receive a copy of the valuation obtained before consummation. The Bureau does not believe this aspect of any condition on an exemption would add significant for fees that are the same or lower than singlefamily appraisals. 123 The average cost per-loan would therefore depending on the covered person’s total level of lending activity. This cost also could increase to the extent the condition were to require the creditor to gather information necessary to make adjustments to the estimate from the published cost service, such as information on the land lease community or location, or information necessary to confirm the accuracy of the estimate from the published cost service, such as verifying by interior inspection that the proper model was sited. The extent of cost increase generated by these steps would depend on how often they are performed under existing practice. E:\FR\FM\08AUP2.SGM 08AUP2 48574 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 burden. For first-lien transactions, delivery already would be required under Regulation B. See 12 CFR 1002.14(a)(1). For first- and subordinatelien transactions, transmission generally would occur electronically and the cost would be minimal, as discussed in the Bureau’s Section 1022(b) analysis in the Final Rule, 78 FR 10421. Transactions Secured by Existing Manufactured Homes and Not Land Creditors originating covered transactions secured by existing manufactured homes but not land that would be covered loans would experience some reduced burden as a result of the proposed exemption. In particular, these loans would not be subject to the estimated per-loan costs for a USPAP-complaint appraisal described in the 2013 Interagency Appraisals Final Rule.124 For these transactions, creditors also would not need to spend time or resources on complying with the requirements in the HPML appraisal rules: checking for applicability of the second appraisal requirement on a flipped property (in a purchase transaction) and paying for that appraisal when the requirement applies, obtaining and reviewing the appraisals conducted for conformity to this rule, and providing disclosures and appraisal report copies to applicants. USPAP-complaint appraisals may currently be conducted for transactions secured by existing manufactured homes but not land much less frequently than in connection with HPMLs overall. For example, the Bureau believes that USPAP is a set of standards typically followed by appraisers who are state-certified or licensed, and that state laws generally do not require certifications or licenses to appraise personal property. Therefore, even though USPAP includes standards for the appraisal of personal property, it is unclear that these standards are applied when individuals who are not state-licensed or statecertified value manufactured homes. Indeed, the Bureau believes that currently, in some transactions, lenders may simply prepare their own estimates of the value of the home without engaging a licensed or certified appraiser. As a result, for purposes of analyzing the benefits of the proposed exemption, the Bureau assumes that very few, if any, transactions secured by existing manufactured homes but not land include USPAP-compliant appraisals.125 124 See Section 1022(b) analysis, 78 FR 10418–21. to a provider of reports including comparables on existing manufactured homes in 125 Outreach VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 While the Bureau believes that this is a reasonable assumption, it seeks nationally-representative data from commenters on valuation practices for these transactions. Meanwhile, the estimated burden reduced as a result of this proposed exemption would be the difference between the cost of a USPAPcomplaint appraisal (which the Bureau assumes would be no more than the cost of an appraisal in a transaction secured by a site-built home, i.e., $350) and the cost of current valuation practices, such as obtaining an estimate from a published cost service or an evaluation in the case of financial institutions subject to FIRREA regulations. The Bureau believes that most lenders obtain estimates from published cost services in most if not all of these transactions, thus, the Bureau believes the burden reduction of the exemption would be approximately the same, regardless of whether the exemption were conditioned on the creditor obtaining an estimate based upon a published cost service.126 b. Consumers The Bureau believes that consumers using HPMLs that are not qualified mortgages in an amount over $25,000 to purchase, improve, or refinance any manufactured home generally would benefit as much as any other type of homeowner from an estimate of the value of the home, including an appraisal, in the ways discussed in the Bureau’s analysis under Section 1022 in the 2013 Interagency Appraisals Final Rule. In some cases, this benefit could be even greater; some recent data suggests the risk of negative equity may be as much as two times greater for owners of manufactured homes than for owners of other types of housing. One reason that negative equity may be a more acute risk in manufactured home transactions is that, according to research and outreach conducted by the Agencies, the loan amount can frequently exceed the collateral value from the outset of the transaction transactions secured by the home but not land indicates that they provide these reports to some of the lenders in the industry, and sell a total of approximately 3,000 reports at an average price of nearly $300. In addition, a large industry trade association also maintains a service that provides reports on comparables for manufactured homes located in larger lease communities. 126 The creditor also may have some pertransaction costs for obtaining information about the condition of the home, including through an inspection, used to develop the cost estimate. The Bureau believes, however, that it is standard industry practice for lenders to obtain information about the condition of the home as part of their underwriting process, whether by hiring a third party property inspector or obtaining photos of the home from the borrower. PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 without the consumer’s knowledge.127 Obtaining an appraisal, or in some cases an alternative valuation, can be an important means of informing the consumer (and creditor) of the equity position in the home at the time of consummation and preventing transactions where the consumer unknowingly begins home ownership in a negative equity position. This type of knowledge can be critical to making informed choices about what type of transactions to pursue. If a consumer who purchases a manufactured home has negative equity at the time of purchase (or a consumer who seeks to make home improvements has negative equity at the time of the improvements), this decreases the chance that the consumer will build equity for a significant period of time and, according to outreach with a consumer advocacy group, the consumer is more likely to face impediments when seeking to refinance the HPML (which in the case of chattel lending is more often at a high rate than loans for other types of housing) or sell the home (which can be an important loss mitigation option if the HPML becomes difficult to afford). Transactions Secured by New Manufactured Homes For HPMLs secured by new manufactured homes, as discussed in the section-by-section analysis above, the Agencies are seeking comment on options for ensuring the consumer is informed of the value of the dwelling serving as collateral—whether via narrowing or placing conditions on the exemption. If the exemption were narrowed to exclude transactions secured by both manufactured homes and land so that an appraisal is required and consumers receive an appraisal report copy, then, as noted above, information obtained in outreach suggests that the cost of the valuation (which typically is passed on to the consumer) would not necessarily increase relative to existing practice. Similarly, valuation costs would not necessarily increase if the exemption were conditioned on following an alternative practice, such as adding the appraised value of the land alone to the estimated value of the home using a cost approach, because that practice appears to be common currently. 127 See American Housing Survey, ‘‘Mortgage Characteristics—Owner Occupied Units (NATIONAL),’’ Table C14a–OO (2011) (as of 2011, 39% of manufactured homes had outstanding loanto-value (LTV) ratios of over 100%, while the overall rate for owner-occupied housing was only 19%), available at http://factfinder2.census.gov/ faces/tableservices/jsf/pages/product view.xhtml?pid=AHS_2011_C14AOO&prod Type=table. E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules Finally, for transactions secured by a new manufactured home but not land, published cost estimates are not likely to add a significant expense, as discussed above. Any of these options also would ensure that consumers are informed of an estimate of the value of the manufactured home. Otherwise, the manufacturer’s invoice may be the only document relating to the value of the home, and the consumer would not have a right to receive a copy of that document under the ECOA Valuations Rule.128 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Transactions Secured by Existing Manufactured Homes and Not Land For consumers seeking refinances or home improvement loans secured by existing manufactured homes, seeking to sell existing manufactured homes, or seeking to buy existing manufactured homes without using land as collateral for the transaction, the proposed exemption for transactions secured by existing manufactured homes but not land could provide a significant benefit if it would be difficult for a significant number of these transactions to be consummated without an exemption. The Bureau does not have information indicating that USPAP-complaint appraisals by state-certified or statelicensed appraisers for these transactions are common industry practice. In the section-by-section analysis above, the Agencies also have requested comment on how often statecertified or state-licensed appraisers are available to service these transactions. If such appraisers are not consistently available in these transactions, then without the exemption, buyers using HPMLs to purchase, and owners using HPMLs to refinance, existing manufactured homes without offering land as security could be faced with a significant barrier. Consumers selling their homes could be similarly affected because the Bureau believes that many buyers of these properties use HPMLs that are not qualified mortgages, which would make it difficult to find a buyer who could close the loan using an available valuation method. As discussed in the Bureau’s analysis under Section 1022 in the 2013 Interagency Appraisals Final Rule, in general, consumers who are borrowing HPMLs that are covered by the rule nonetheless could benefit if an appraisal can be conducted. If the proposed exemption is for transactions secured by existing manufactured homes and not 128 See 12 CFR 1002.14(a); comment 14(b)(3)–3.iv (clarifying that the manufacturer’s invoice is not a valuation that must be provided to the consumer under Regulation B). VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 land is adopted, these benefits could be lost if creditors do not obtain a reliable home estimate in the transaction.129 The Agencies therefore have sought comment on conditioning the proposed exemption on use of a different type of home estimate, such as an independent estimate based upon comparables (as is required in HUD Title I transactions) or an estimate from a published cost service is more likely to achieve all of these same benefits. At least the latter type of valuation appears to be more common for these types of transactions based upon industry comments on the 2012 Interagency Appraisals Proposal and further outreach and research in preparation for this proposal. As a result, the proposed exemption with such a condition would help to preserve access to credit for consumers seeking HPMLs secured by existing manufactured homes but not land (and not otherwise exempt as a qualified mortgage or in an amount of $25,000 or less) because the transactions could be supported not only by a market value (comparable-based) appraisal if available but also by an estimate from a published cost service. Allowing for a broader range of valuation options helps to ensure access to this type of credit for consumers who own or are seeking to buy existing manufactured homes without offering land as security for the transaction. As noted in the section-by-section analysis, consumer advocates in outreach raised questions about the accuracy of estimates derived from a published cost service such as the NADA Guide value report in part because this method of estimating home values does not analyze the market value of the home in the particular location based upon comparables. The Bureau notes, however, that one cost method—the NADAGuide.com Value Report—provides for adjustments based upon region and land-ease community which can take into account location factors. In addition, comparable-based estimates for existing manufactured homes can cost nearly $300 according to outreach to one provider, which the Bureau believes would be significantly more costly than an estimate based upon a published cost service. If such a valuation for a new manufactured home would be similarly priced, then it would be significantly more expensive than the cost estimate noted above (which can be used for new manufactured homes as well as existing manufactured homes). The Bureau believes that a lower-cost method would result in less cost passed along to the consumer. In any event, for 129 Section PO 00000 both new and existing manufactured homes, the Bureau requests data from commenters on the cost and accuracy of valuations developed from local market comparables, and valuations based upon published cost services that provide for adjustments such as those noted above. Transactions Secured by Existing Manufactured Homes and Land Finally, as noted above, the Bureau does not believe that continuing to require USPAP-compliant appraisals for transactions secured by existing manufactured homes and land would pose any significant impediment to these transactions, as the cost of the appraisal is on par with that of other homes and the process used of selecting and adjustment comparables also is standard. B. Potential Specific Impacts of the Supplemental Proposal 1. Potential Reduction in Access by Consumers to Consumer Financial Products or Services The proposed rule includes only exemptions. Exempting loans from the requirements of the HPML Appraisal Rule will not reduce access to credit. While the Agencies are seeking comment on whether to include certain conditions on these proposed exemptions as discussed in the sectionby-section analysis, these conditions would not reduce access to credit. The cost of complying with any conditions, if adopted, would not exceed the cost of complying with the HPML Appraisal Rule (which in turn could increase the cost of credit) because any exemptions are optional and thus cost or burdens of exemptions also are optional. In addition, as discussed above, the Agencies are seeking comment on whether to narrow the exemption for new manufactured homes and/or to include conditions on this exemption. The Bureau does not believe that requiring a USPAP- and FIRREAcompliant appraisal with an interior inspection for transactions secured by a new manufactured home and land or conditioning these or other new manufactured home transactions on the alternative valuation methods described above would reduce access to credit in these transactions. Such valuation methods at most would entail only slightly increased costs where different from existing methods, such that they do not carry the potential to impede access to credit. 1022(b) Analysis, 78 FR 10417–18. Frm 00029 Fmt 4701 Sfmt 4702 48575 E:\FR\FM\08AUP2.SGM 08AUP2 48576 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 2. Impact of the Proposed Rule on Depository Institutions and Credit Unions With $10 Billion or Less in Total Assets, as Described in Section 1026 of the Dodd-Frank Act Small depository banks and credit unions may originate loans of $25,000 or less more often, relative to their overall origination business, than other depository institutions (DIs) and credit unions. Therefore, relative to their overall origination business, these small depository banks and credit unions may experience relatively benefits from the proposed exemption for smaller dollar loans. These benefits would not be high in absolute dollar terms, however, because the number of transactions that would be uniquely exempted by the proposed small loan exemption is still relatively low—less than 5,000, as discussed above. Otherwise, the Bureau does not believe that the impact of the proposal would be substantially different for the DIs and credit unions with total assets below $10 billion than for larger DIs and credit unions. The Bureau has not identified data indicating that small depository institutions or small credit unions disproportionately engage in lending secured by manufactured homes. Finally, the Bureau has not identified data indicating that these institutions engage in streamlined refinances that would be newlyexempted by the proposed exemption at any greater rate than other financial institutions. The Bureau requests relevant data on the impact of the proposed rule on DIs and credit unions with total assets below $10 billion. mstockstill on DSK4VPTVN1PROD with PROPOSALS2 3. Impact of the Proposed Rule on Consumers in Rural Areas The Bureau understands that a significantly greater proportion of existing manufactured homes are located in rural areas compared to other single-family homes.130 Therefore, any impacts of the proposed exemption for 130 Census data from 2011 indicates that approximately 45 percent of owner-occupied manufactured homes are located outside of metropolitan statistical areas, compared with 21 percent of owner-occupied single-family homes. See U.S. Census Bureau, 2011 American Housing Survey, General Housing Data—Owner-Occupied Units (National), available at http://factfinder2.census.gov/faces/tableservices/jsf /pages/productview.xhtml?pid=AHS_2011_C01OO &prodType=table. See also Housing Assistance Council Rural Housing Research Note, ‘‘Improving HMDA: A Need to Better Understand Rural Mortgage Markets,’’ (Oct. 2010), available at http:// www.ruralhome.org/storage/documents/noteh mdasm.pdf. Industry comments on the 2012 Interagency Appraisals Proposed Rule noted that manufactured homes sited on land owned by the buyer are predominantly located in rural areas; one commenter estimated that 60 percent of manufactured homes are located in rural areas. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 transactions secured by these homes (but not land) would proportionally accrue more often to rural consumers. With respect to streamlined refinances, the Bureau does not believe that streamlined refinances are more or less common in rural areas. Accordingly, the Bureau currently believes that the proposed exemption for streamlined refinances would generate a similar benefit for consumers in rural areas as for consumers in non-rural areas. Finally, the Bureau does not believe the magnitude of the difference of the smaller dollar loans originated, between consumers in rural areas and not in rural areas, is significant. The Bureau requests comment and relevant data on the impact of the proposed rule on rural areas. VII. Regulatory Flexibility Act Board The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., requires an agency either to provide an initial regulatory flexibility analysis with a proposed rule or certify that the proposed rule will not have a significant economic impact on a substantial number of small entities. The proposed amendments apply to certain banks, other depository institutions, and non-bank entities that extend HPMLs.131 The Small Business Administration (SBA) establishes size standards that define which entities are small businesses for purposes of the RFA.132 The size standard to be considered a small business is: $175 million or less in assets for banks and other depository institutions; and $7 million or less in annual revenues for the majority of nonbank entities that are likely to be subject to the proposed regulations.133 Based on its analysis, and for the reasons stated below, the Board believes that the proposed rule will not have a significant economic impact on a substantial number of small entities. Nevertheless, the Board is publishing an initial regulatory flexibility analysis. The Board will, if necessary, conduct a final regulatory flexibility analysis after consideration of 131 For its RFA analysis, the Board considered all creditors to which the Final Rule applies. The Board’s Regulation Z at 12 CFR 226.43 applies to a subset of these creditors. See § 226.43(g). 132 U.S. Small Business Administration, Table of Small Business Size Standards Matched to North American Industry Classification System Codes, available at http://www.sba.gov/sites/default/files/ files/Size_Standards_Table.pdf. 133 The Board recognizes that the SBA’s revised size standards will be effective July 22, 2013 (see 78 FR 37409 (June 20, 2013)). The Board will update its regulatory flexibility analysis accordingly in its final rule. PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 comments received during the public comment period. The Board requests public comment on all aspects of this analysis. A. Reasons for the Proposed Rule This proposal relates to the 2013 Interagency Appraisals Final Rule, issued jointly by the Agencies on January 18, 2013, which goes into effect on January 18, 2014. See 78 FR 10368 (Feb. 13, 2013). The Final Rule implements a provision added to TILA by the Dodd-Frank Act requiring appraisals for ‘‘higher-risk mortgages.’’ For certain mortgages with an annual percentage rate that exceeds the APOR by a specified percentage (designated as ‘‘HPMLs’’ in the Final Rule), the Final Rule requires creditors, among other requirements, to obtain an appraisal or appraisals meeting certain specified standards, provide applicants with a notification regarding the use of the appraisals, and give applicants a copy of the written appraisals used. The definition of higher-risk mortgage in new TILA section 129H expressly excludes qualified mortgages, as defined in TILA section 129C, as well as openend mortgages reverse mortgage loans that are qualified mortgages as defined in TILA section 129C. The Agencies are now proposing amendments to the Final Rule to exempt the following transactions: (1) Transactions secured by existing manufactured homes and not land; (2) certain ‘‘streamlined’’ refinancings; and (3) transactions of $25,000 or less. The Agencies are also proposing to revise the Final Rule’s definition of ‘‘business day.’’ B. Statement of Objectives and Legal Basis As discussed above, section 1471 of the Dodd-Frank Act created new TILA section 129H, which establishes special appraisal requirements for ‘‘higher-risk mortgages.’’ 15 U.S.C. 1639h. The Final Rule implements these requirements and includes certain exemptions from the Rule’s requirements. The Agencies believe that several additional exemptions from the new appraisal rules may be appropriate. Specifically, the Agencies are proposing an exemption for transactions secured by an existing manufactured home (and not land), certain types of refinancings, and transactions of $25,000 or less (indexed for inflation). In addition, the Agencies are proposing to revise the Final Rule’s definition of ‘‘business day’’ for consistency with disclosure timing requirements under existing Regulation Z mortgage disclosure timing requirements and the Bureau’s proposed E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules rules for combined mortgage disclosures under TILA and the RESPA (2012 TILA–RESPA Proposed Rule). See § 1026.19(a)(1)(ii) and (a)(2); see also 77 FR 51116 (Aug. 23, 2012) (e.g., proposed § 1026.19(e)(1)(iii) (early mortgage disclosures) and (f)(1)(ii) (final mortgage disclosures). The legal basis for the proposed rule is TILA section 129H(b)(4). 15 U.S.C. 1639h(b)(4). TILA section 129H(b)(4)(A), added by the Dodd-Frank Act, authorizes the Agencies jointly to prescribe regulations implementing section 129H. 15 U.S.C. 1639h(b)(4)(A). In addition, TILA section 129H(b)(4)(B) grants the Agencies the authority jointly to exempt, by rule, a class of loans from the requirements of TILA section 129H(a) or section 129H(b) if the Agencies determine that the exemption is in the public interest and promotes the safety and soundness of creditors. 15 U.S.C. 1639h(b)(4)(B). C. Description of Small Entities to Which the Regulation Applies mstockstill on DSK4VPTVN1PROD with PROPOSALS2 The proposed rule applies to creditors that make HPMLs subject to 12 CFR 1026.35(c) (published by the Board in 12 CFR 226.43). In the Board’s Regulatory Flexibility Analysis for the Final Rule, the Board relied primarily on data provided by the Bureau to estimate the number of small entities that would be subject to the requirements of the rule.134 According to the data provided by the Bureau, approximately 3,466 commercial banks, 373 savings institutions, 3,240 credit unions, and 2,294 non-depository institutions are considered small entities and extend mortgages, and therefore are potentially subject to the Final Rule. Data currently available to the Board are not sufficient to estimate how many small entities that extend mortgages will be subject to 12 CFR 1026.35(c) (published by the Board in 12 CFR 226.43), given the range of exemptions provided in the Final Rule, including the exemption for qualified mortgages. Further, the number of these small entities that will make HPMLs that would qualify for the proposed exemptions is unknown. D. Projected Reporting, Recordkeeping and Other Compliance Requirements The proposed rule does not impose any new recordkeeping, reporting, or compliance requirements on small entities. The proposed rule would reduce the number of transactions that 134 See the Bureau’s Regulatory Flexibility Analysis in the Final Rule (78 FR 10368, 10424 (Feb. 13, 2013)). VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 48577 are subject to the requirements of the Final Rule. The Final Rule generally applies to creditors that make HPMLs subject to 12 CFR 1026.35(c) (published by the Board in 12 CFR 226.43), which are generally mortgages with an APR that exceeds the APOR by a specified percentage, subject to certain exemptions. The proposal would exempt three additional classes of HPMLs from the Final Rule: HPMLs secured by existing manufactured loans (but not land); certain refinance HPMLs whose proceeds are used exclusively to satisfy an existing first-lien loan and to pay for closing costs; and new HPMLs that have a principal amount of $25,000 or less (indexed to inflation). Accordingly, the proposal would decrease the burden on creditors by reducing the number of loan transactions that are subject to the Final Rule. agency certifies that the rule will not have a significant economic impact on a substantial number of small entities.137 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.138 An IRFA is not required for this proposal because if adopted it would not have a significant economic impact on a substantial number of small entities. The analysis below evaluates the potential economic impact of the proposed rule on small entities as defined by the RFA. The analysis generally examines the regulatory impact of the provisions of the proposed rule against the baseline of the Final Rule the Agencies issued on January 18, 2013. E. Identification of Duplicative, Overlapping, or Conflicting Federal Regulations The Board has not identified any Federal statutes or regulations that would duplicate, overlap, or conflict with the proposed revisions. A. Number and Classes of Affected Entities The proposed rule would apply to all creditors that extend closed-end credit secured by a consumer’s principal dwelling. All small entities that extend these loans are potentially subject to at least some aspects of the proposal. This proposal may impact small businesses, small nonprofit organizations, and small government jurisdictions. A ‘‘small business’’ is determined by application of SBA regulations and reference to the North American Industry Classification System (NAICS) classifications and size standards.139 Under such standards, depository institutions with $175 million or less in assets are considered small; other financial businesses are considered small if such entities have average annual receipts (i.e., annual revenues) that do not exceed $7 million. Thus, commercial banks, savings institutions, and credit unions with $175 million or less in assets are small businesses, while other creditors extending credit secured by real property or a dwelling are small businesses if average annual receipts do not exceed $7 million. The Bureau can identify through data under HMDA, Reports of Condition and Income (Call Reports), and data from the National Mortgage Licensing System (NMLS) the approximate numbers of small depository institutions that would be subject to the final rule. Origination data is available for entities that report in HMDA, NMLS or the credit union F. Discussion of Significant Alternatives The Board is not aware of any significant alternatives that would further minimize the economic impact of the proposed rule on small entities. The proposed rule would exempt three additional classes of HPMLs from the Final Rule and not impose any new recordkeeping, reporting, or compliance requirements on small entities. Bureau The 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.135 These analyses must ‘‘describe the impact of the proposed rule on small entities.’’ 136 An IRFA or FRFA is not required if the 135 5 U.S.C. 601 et seq. at 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. Id. at 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. Id. at 601(3). A ‘‘small organization’’ is any ‘‘not-for-profit enterprise which is independently owned and operated and is not dominant in its field.’’ Id. at 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. Id. at 601(5). 136 Id. PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 137 Id. at 605(b). at 609. 139 5 U.S.C. 601(3). The current SBA size standards are located on the SBA’s Web site at http://www.sba.gov/content/table-small-businesssize-standards. 138 Id. E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules call reports; for other entities, the Bureau has estimated their origination The provisions of the proposed rule all provide or modify exemptions from the HPML appraisal requirements. Measured against the baseline of the burdens imposed by the 2013 Interagency Appraisals Final Rule, the Bureau believes that these proposed provisions impose either no or insignificant additional burdens on small entities. The Bureau believes that these proposed provisions would reduce the burdens associated with implementation costs, additional valuation costs, and compliance costs stemming from the HPML appraisal requirements. The Bureau also notes that creditors voluntarily choose whether to avail themselves of the exemptions. mstockstill on DSK4VPTVN1PROD with PROPOSALS2 1. Exemption for Certain Transactions Secured by Manufactured Homes The proposed rule would exempt from the HPML appraisal requirements a transaction secured by an existing manufactured home and not land. This provision would remove certain burdens imposed by the Final Rule on small entities extending HPMLs covered by the final rule when they are secured solely by existing manufactured homes, VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 Counts of Creditors by Type. whether for refinance, home improvement, purchase transactions, or other purposes. The burdens removed would be those of providing a consumer notice, determining the applicability of the second appraisal requirement in purchase transactions, and obtaining, reviewing, and disclosing to consumers USPAP- and FIRREA-compliant appraisals. As discussed in the sectionby-section analysis above, the Agencies are seeking comment on whether, to be eligible for this burden-reducing exemption, the creditor should be required to obtain an estimate of the value of the home based upon a published cost service method, a method required under HUD Title I programs, or an otherwise USPAPcomplaint method, and provide a copy to the consumer no later than three business days before closing. The requirement of obtaining an alternative valuation to qualify for the exemption might result in relatively less regulatory burden reduction. However, the Bureau understands from outreach that at least a cost estimate is often obtained in these transactions and, in any event, even if such a condition were adopted in the Final Rule, the decision to obtain an alternative estimate would be voluntary under this rule and the Bureau presumes that a small entity would not do so unless the exemption provided a net burden reduction versus obtaining a USPAP appraisal. Thus, the Bureau believes that the creditors would still experience a significant benefit from the exemption, even with this additional requirement. The Bureau requests comment on the impact of this proposed exemption on small entities. The Bureau also requests comment on how the impact would change, if at all, if the Agencies included a condition that the creditor obtain an estimate of the value of the home and provide this to the consumer. As also discussed in the Bureau’s Section 1022(b) analysis and in the section-by-section analysis, the Agencies are seeking comment on whether to narrow the scope of the exemption for new manufactured homes, and thereby subject transactions secured by both a new manufactured home and land to the HPML appraisal rules in the Final Rule, or to a condition that another type of valuation be obtained. If so narrowed or conditioned, the exemption adopted in the 2013 Final Rule would no longer relieve as much burden in these transactions. included in the sources described above, but to the B. Impact of Proposed Exemptions 140 The Bureau assumes that creditors who originate chattel manufactured home loans are types of entities to which the proposed rule would apply: 140 activities using statistical projection methods. The following table provides the Bureau’s estimate of the number and extent commenters believe this is not the case, the Bureau seeks data from commenters on this point. PO 00000 Frm 00032 Fmt 4701 Sfmt 4702 E:\FR\FM\08AUP2.SGM 08AUP2 ep08au13.008</GPH> 48578 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules However, the Bureau believes it already is a common existing practice for creditors in these transactions to obtain either (1) an appraisal of the land and a separate estimate of the value of the home or (2) an appraisal of the land and home together. As discussed in the Section 1022 analysis above, the Bureau does not believe that there is a significant difference in cost between these methods. As also discussed in the Section 1022 analysis above, the Bureau does not believe there would be a significant cost to obtaining an estimate of the value of the home using a published cost service, including with adjustments. Accordingly, if the exemption from the requirement to obtain an appraisal were removed, or if the exemption were conditioned on obtaining an appraisal of the land and an estimate of the home using a published cost service, the Bureau does not believe these changes would impose significant economic impacts. Further, regardless, the requirements relating to ‘‘flipped’’ properties would not apply to a new home. Finally, as discussed in the Bureau’s Section 1022(b) analysis and in the section-by-section analysis, the Agencies are seeking comment on whether to require the creditor to provide the consumer with a cost estimate of the value of the new manufactured home in transactions that are secured by a new manufactured home but not land. If adopted, this condition would not significantly change the amount of burden reduced by the existing exemption in these transactions, which comprise the significant majority of transactions involving new manufactured homes. The Bureau believes that the cost of obtaining an estimate of the value of the new manufactured home using a thirdparty cost source, and making appropriate adjustments, would be significantly less than the cost of obtaining a USPAP-complaint appraisal. mstockstill on DSK4VPTVN1PROD with PROPOSALS2 2. Proposed Exemption for ‘‘Streamlined’’ Refinancing Programs The proposed rule would provide an exemption for any transaction that is a refinancing satisfying certain conditions. In brief, the proceeds of the loan may only be used to pay off an existing first lien loan and to pay closing or settlement charges is exempt from the HPML appraisal requirements, provided the new loan has the same owner or guarantor as the existing loan, and provided further that the new loan provides for periodic payments that do not cause the principal balance to increase, allow for deferment in VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 48579 payment of principal, or result in a balloon payment. This provision would remove the burden to small entities extending any HPMLs covered by the Final Rule under ‘‘streamlined’’ refinance programs of providing a consumer notice and obtaining, reviewing, and disclosing to consumers USPAP- and FIRREAcompliant appraisals. Under an alternative discussed in the section-bysection analysis above, to be eligible for this burden-reducing exemption, the creditor would need to obtain a valuation—which need not be a USPAPand FIRREA-compliant appraisal—and provide it to the consumer no later than three business days before closing. The regulatory burden reduction might be lower since a creditor would have to determine whether the refinancing loan is of the type that meets the exemption requirements. However, the Bureau believes that little if any additional time would be needed to make these determinations, as they depend upon basic information relating to the transaction that is typically already known to the creditor. Regulatory burden reduction might also be lower due to any additional condition the Agencies could adopt such as the condition of obtaining a valuation and providing it to the consumer, if one is not otherwise obtained through the normal creditor process as required by FIRREA regulations for some creditors and disclosed to the consumer as already required by the 2013 ECOA Valuations Rule. In either case, however, the decision to ensure eligibility for the exemption is voluntary and the Bureau presumes that a small entity would not do so unless the exemption provided a net burden reduction. The Bureau requests comment on the impact of this proposed exemption on small entities. presumes that a small entity would not do so unless the proposed exemption provided a net burden reduction. The Bureau requests comment on the impact of this proposed exemption on small entities. 3. Proposed Exemption for Smaller Dollar Loans The proposed rule would exempt from the HPML appraisal requirements loans equal to or less than $25,000, adjusted annually for inflation. This provision would remove burden imposed by the final rule on small entities extending any HPMLs covered by the final rule up to $25,000. Regulatory burden reduction might also be lower due to any additional condition the Agencies could adopt such as the condition of obtaining a valuation and/or providing the consumer with a copy of any valuation the creditor has obtained in connection with the application. However, the decision to ensure eligibility for the exemption is voluntary and the Bureau FDIC The RFA generally requires that, in connection with a notice of proposed rulemaking, an agency prepare and make available for public comment an initial regulatory flexibility analysis that describes the impact of a proposed rule on small entities.141 A regulatory flexibility analysis is not required, however, if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities (defined in regulations promulgated by the SBA to include banking organizations with total assets of less than or equal to $175 million) and publishes its certification and a short, explanatory statement in PO 00000 Frm 00033 Fmt 4701 Sfmt 4702 C. Conclusion Each element of this proposal would reduce economic burden for small entities. The proposed exemption for HPMLs secured by existing manufactured homes and not land would lessen any economic impact resulting from the HPML appraisal requirements. The proposed exemption for ‘‘streamlined’’ refinance HPMLs also would lessen any economic impact on small entities extending credit pursuant to those programs, particularly those relating to the refinancing of existing loans held on portfolio. The proposed exemption for smaller-dollar HPMLs similarly would lessen burden on small entities extending credit in the form of HPMLs up to the threshold amount. These impacts would be reduced to the extent the transactions are not already exempt from the Final Rule as qualified mortgages. While all of these proposed exemptions may entail additional recordkeeping costs, the Bureau believes that these costs are minimal and outweighed by the cost reductions resulting from the proposal. Small entities for which such cost reductions are outweighed by additional record keeping costs may choose not to utilize the proposed exemptions. Certification Accordingly, the undersigned certifies that if adopted this proposal would not have a significant economic impact on a substantial number of small entities. The Bureau requests comment on the analysis above and requests any relevant data. 141 See E:\FR\FM\08AUP2.SGM 5 U.S.C. 601 et seq. 08AUP2 48580 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 the Federal Register together with the rule. As of March 31, 2013, there were approximately 3,711 small FDICsupervised banks, which include 2,275 state nonmember banks and 158 statechartered savings banks. The FDIC analyzed the 2011 HMDA142 dataset to determine how many loans by FDICsupervised banks might qualify as HPMLs under section 129H of the TILA as added by section 1471 of the DoddFrank Act. This analysis reflects that only 70 FDIC-supervised banks originated at least 100 HPMLs, with only four banks originating more than 500 HPMLs. Further, the FDICsupervised banks that met the definition of a small entity originated on average less than 8 HPMLs of $25,000 or less each in 2011. The proposed rule relates to the 2013 Interagency Appraisals Final Rule, issued by the Agencies on January 18, 2013, which goes into effect on January 18, 2014. The 2013 Interagency Appraisals Final Rule requires that creditors satisfy the following requirements for each HPML they originate that is not exempt from the Final Rule: • The creditor must obtain a written appraisal; the appraisal must be performed by a certified or licensed appraiser; and the appraiser must conduct a physical property visit of the interior of the property. • At application, the consumer must be provided with a statement regarding the purpose of the appraisal, that the creditor will provide the applicant a copy of any written appraisal, and that the applicant may choose to have a separate appraisal conducted for the applicant’s own use at his or her own expense. • The consumer must be provided with a free copy of any written appraisals obtained for the transaction at least three (3) business days before consummation. • The creditor of an HPML must obtain an additional written appraisal, at no cost to the borrower, when the loan will finance the purchase of a consumer’s principal dwelling and there has been an increase in the purchase price from a prior acquisition that took place within 180 days of the current purchase. The Agencies are now proposing to amend the 2013 Interagency Appraisals Final Rule to provide the following changes and exemptions to requirements of the Final Rule: • To provide a different definition of ‘‘business day’’ than the definition used in the Final Rule, as well as a few nonsubstantive technical corrections. • To exempt transactions secured solely by an existing (used) manufactured home and not land. • To exempt certain types of refinancings with characteristics common to refinance products often referred to as ‘‘streamlined’’ refinances. • To exempt extensions of credit of $25,000 or less, indexed every year for inflation. The proposed rule would exempt certain transactions that qualify as HPMLs under the 2013 Interagency Appraisals Final Rule from the appraisal requirements of the Final Rule, resulting in reduced regulatory burden to FDICsupervised institutions that would have otherwise been required to obtain an appraisal and comply with the requirements for such HPML transactions. It is the opinion of the FDIC that the proposed rule will not have a significant economic impact on a substantial number of small entities that it regulates in light of the fact that: (1) The proposed rule would reduce regulatory burden on small institutions by exempting certain transactions from the requirements of the 2013 Interagency Appraisals Final Rule; and (2) the FDIC previously certified that the 2013 Interagency Appraisals Final Rule would not have a significant economic impact on a substantial number of small entities. Accordingly, the FDIC certifies that the proposed rule, if adopted in final form, would not have a significant economic impact on a substantial number of small entities. Therefore, a regulatory flexibility analysis is not required. Nonetheless, the FDIC seeks comment on whether the proposed rule, if adopted in final form, would impose undue burden on, or have unintended consequences for, small FDICsupervised institutions and whether there are ways such potential burden or consequences could be minimized in a manner consistent with section 129H of TILA. 142 The FDIC based its analysis on the HMDA data, as it provided a proxy for the characteristics of HPMLs. While the FDIC recognizes that fewer higher-price loans were generated in 2011, a more historical review is not possible because the average offer price (a key data element for this review) was not added until the fourth quarter of 2009. The FDIC also recognizes that the HMDA data provides information relative to mortgage lending in metropolitan statistical areas, but not in rural areas. FHFA The supplemental proposal to amend the 2013 Interagency Appraisals Final Rule applies only to institutions in the primary mortgage market that originate mortgage loans. FHFA’s regulated entities—Fannie Mae, Freddie Mac, and the Federal Home Loan Banks—operate VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 PO 00000 Frm 00034 Fmt 4701 Sfmt 4702 in the secondary mortgage markets. In addition, these entities do not come within the meaning of small entities as defined in the RFA. See 5 U.S.C. 601(6). NCUA The RFA generally requires that, in connection with a notice of proposed rulemaking, an agency prepare and make available for public comment an initial regulatory flexibility analysis that describes the impact of the proposed rule on small entities.143 A regulatory flexibility analysis is not required, however, if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities and publishes its certification and a short, explanatory statement in the Federal Register together with the rule. NCUA defines small entities as small credit unions having less than fifty million dollars in assets144 in contrast to the definition of small entities in the rules issued by the SBA, which include banking organizations with total assets of less than or equal to $175 million. However, for purposes of the 2013 Interagency Appraisals Final Rule and for consistency with the Agencies, NCUA reviewed the dataset for FICUs that met the small entity standard for banking organizations under the SBA’s regulations. As of March 31, 2012, there were approximately 6,060, FICUs with total assets of $175 million or less. Of the FICUs which reported 2010 HMDA data, 452 reported at least one HPML. The data reflects that only three FICUs originated at least 100 HPMLs, with no FICUs originating more than 500 HPMLs, and eighty-eight percent of reporting FICUs originating 10 HPMLs or less. Further, FICUs that met the SBA’s definition of a small entity originated an average of 4 HPML loans each in 2010. 145 The 2013 Interagency Appraisals Final Rule requires that creditors satisfy the following requirements for each HPML they originate that is not exempt from the Final Rule: • The creditor must obtain a written appraisal; the appraisal must be 143 See 5 U.S.C. 601 et seq. Interpretative Ruling and Policy Statement (IRPS) 87–2, 52 FR 35231 (Sept. 18, 1987); as amended by IRPS 03–2, 68 FR 31951 (May 29, 2003); and IRPS 13–1, 78 FR 4032, 4037 (Jan. 18, 2013). 145 With only a fraction of small FICUs reporting data to HMDA, NCUA also analyzed FICUs not observed in the HMDA data. Using the total number of real estate loans originated by FICUs with less than $175M in total assets, NCUA estimated the average number of HPMLs per real estate loan originated. Using this ratio to interpolate the likely number of HPML originations, the analysis suggests that small FICUs originate on average less than 2 HPML loans each year. 144 NCUA E:\FR\FM\08AUP2.SGM 08AUP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules performed by a certified or licensed appraiser; and the appraiser must conduct a physical property visit of the interior of the property. • At application, the consumer must be provided with a statement regarding the purpose of the appraisal, that the creditor will provide the applicant a copy of any written appraisal, and that the applicant may choose to have a separate appraisal conducted for the applicant’s own use at his or her own expense. • The consumer must be provided with a free copy of any written appraisals obtained for the transaction at least three (3) business days before consummation. • The creditor of an HPML must obtain an additional written appraisal, at no cost to the borrower, when the loan will finance the purchase of a consumer’s principal dwelling and there has been an increase in the purchase price from a prior acquisition that took place within 180 days of the current purchase. The Agencies are now proposing to amend the 2013 Interagency Appraisals Final Rule to provide the following changes and exemptions to requirements of the Final Rule: • To provide a different definition of ‘‘business day’’ than the definition used in the Final Rule, as well as a few nonsubstantive technical corrections. • To exempt transactions secured solely by an existing (used) manufactured home and not land from the HPML appraisal requirements. • To exempt from the HPML appraisal rules certain types of refinancings with characteristics common to refinance products often referred to as ‘‘streamlined’’ refinances. • To exempt from the HPML appraisal rules extensions of credit of $25,000 or less, indexed every year for inflation. As previously explained, the proposed rule would align the definition of ‘‘business day’’ under the Final Rule with the definition of ‘‘business day’’ for the required disclosures to, among other things, improve streamlining and consistency in Regulation Z disclosures by avoiding the creditor having to provide the copy of the appraisal under the HPML rules and corrected Regulation Z disclosures at different times (because different definitions of ‘‘business day’’ would apply). In addition, the proposed rule would exempt certain transactions that qualify as HPMLs under the 2013 Interagency Appraisal Final Rule from the requirements of the Final Rule, resulting in reduced regulatory burden to FICUs that would have otherwise VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 been required to obtain an appraisal and comply with the requirements for such HPML transactions. NCUA believes these proposed changes will only serve to lessen regulatory burdens imposed by the Final Rule. In light of the fact that few loans made by FICUs would qualify as HPMLs, the fact that the NCUA certified that the 2013 Interagency Appraisal Final Rule would not have a significant economic impact on a substantial number of small entities, and that the proposal would only further reduce any regulatory burdens imposed on small credit unions by the Final Rule, NCUA believes the proposed rule will not have a significant economic impact on small FICUs. For the reasons provided above, NCUA certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities. Accordingly, a regulatory flexibility analysis is not required. OCC Pursuant to section 605(b) of the RFA, 5 U.S.C. 605(b), the regulatory flexibility analysis otherwise required under section 603 of the RFA is not required if the agency certifies that the proposed rule will not, if promulgated, have a significant economic impact on a substantial number of small entities (defined for purposes of the RFA to include banks, savings institutions and other depository credit intermediaries with assets less than or equal to $500 million and trust companies with total assets of $35.5 million or less 146) and publishes its certification and a short, explanatory statement in the Federal Register along with its proposed rule. As described previously in this preamble, section 1471 of the DoddFrank Act establishes a new TILA section 129H, which sets forth appraisal requirements applicable to higher-risk mortgages (termed ‘‘higher-priced mortgage loans’’ or HPMLs in the 2013 Interagency Appraisals Final Rule). The statute expressly excludes from these appraisal requirements coverage of ‘‘qualified mortgages,’’ the terms of 146 ‘‘Based on the number of banks and their size (as of December 31, 2012) the OCC supervises 1,291 small entities. We base our estimate of the number of small entities on the SBA’s size thresholds for commercial banks and savings institutions, and trust companies, which are $500 million and $35.5 million, respectively. Consistent with the General Principles of Affiliation, 13 CFR 121.103(a), we count the assets of affiliated financial institutions when determining if we should classify a bank we supervise as a small entity. We use December 31, 2012, to determine size because a ‘‘financial institution’s assets are determined by averaging the assets reported on its four quarterly financial statements for the preceding year.’’ See footnote 8 of the U.S. Small Business Administration’s Table of Size Standards. PO 00000 Frm 00035 Fmt 4701 Sfmt 4702 48581 which have been established by the CFPB as an exemption from its new TILA mortgage ‘‘ability to repay’’ underwriting requirements rule. In addition, the Agencies may jointly exempt a class of loans from the requirements of the statute if the Agencies determine that the exemption is in the public interest and promotes the safety and soundness of creditors. The Agencies issued the Final Rule on January 18, 2013, which will be effective on January 18, 2014. Pursuant to the general exemption authority in the statute, the Final Rule exempts from coverage of the HPML appraisal rules the following transactions: Transactions secured by new manufactured homes; transactions secured by mobile homes, boats, or trailers; transactions to finance the initial construction of a dwelling; temporary or ‘‘bridge’’ loans with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months; and reverse mortgage loans. The Agencies are issuing this supplemental proposed rule to include three additional exemptions from the HPML appraisal requirements of section 129H of TILA: Transactions secured solely by an existing manufactured home and not land; certain ‘‘streamlined’’ refinancings; and extensions of credit of $25,000 or less, indexed every year for inflation. The OCC currently supervises 1,842 banks (1,204 commercial banks, 63 trust companies, 527 federal savings associations, and 48 branches or agencies of foreign banks). We estimate that less than 1,291 of the banks supervised by the OCC are currently originating one- to four-family residential mortgage loans that could be HPMLs. Approximately 867 OCC supervised banks are small entities based on the SBA’s definition of small entities for RFA purposes. Of these, the OCC estimates that 428 banks originate mortgages and therefore may be impacted by the proposed rule. The OCC classifies the economic impact of total costs on a bank as significant if the total costs in a single year are greater than 5 percent of total salaries and benefits, or greater than 2.5 percent of total non-interest expense. The OCC estimates that the average cost per small bank, if the proposed rule is promulgated, will be zero. The proposal does not impose new requirements on banks or include new mandates. The OCC assumes any costs (e.g., alternative valuations) or requirements that may be associated with the proposed exemptions will be less than the cost of E:\FR\FM\08AUP2.SGM 08AUP2 48582 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules compliance for a comparable loan under the Final Rule. Therefore, we believe the proposed rule will not have a significant economic impact on a substantial number of small entities. The OCC certifies that the proposed rule would not, if promulgated, have a significant economic impact on a substantial number of small entities. VIII. Paperwork Reduction Act mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Board, Bureau, FDIC, NCUA and OCC Certain provisions of the 2013 Interagency Appraisals Final Rule contain ‘‘collection of information’’ requirements within the meaning of the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501 et seq.). See 78 FR 10368, 10429 (Feb. 13, 2013). Under the PRA, the Agencies may not conduct or sponsor, and a person is not required to respond to, an information collection unless the information collection displays a valid Office of Management and Budget (OMB) control number. The information collection requirements contained in this joint notice of proposed rulemaking to amend the 2013 Final Rule have been submitted to OMB for review and approval by the Bureau, FDIC, NCUA, and OCC under section 3506 of the PRA and section 1320.11 of the OMB’s implementing regulations (5 CFR part 1320). The Board reviewed the proposed rule under the authority delegated to the Board by OMB. Title of Information Collection: HPML Appraisals. Frequency of Response: Event generated. Affected Public: Businesses or other for-profit and not-for-profit organizations.147 Bureau: Insured depository institutions with more than $10 billion in assets, their depository institution affiliates, and certain non-depository mortgage institutions.148 FDIC: Insured state non-member banks, insured state branches of foreign banks, and certain subsidiaries of these entities. OCC: National banks, Federal savings associations, Federal branches or agencies of foreign banks, or any operating subsidiary thereof. 147 The burdens on the affected public generally are divided in accordance with the Agencies’ respective administrative enforcement authority under TILA section 108, 15 U.S.C. 1607. 148 The Bureau and the Federal Trade Commission (FTC) generally both have enforcement authority over non-depository institutions for Regulation Z. Accordingly, for purposes of this PRA analysis, the Bureau has allocated to itself half of the Bureau’s estimated burden for non-depository mortgage institutions. The FTC is responsible for estimating and reporting to OMB its share of burden under this proposal. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 Board: State member banks, uninsured state branches and agencies of foreign banks. NCUA: Federally-insured credit unions. Abstract: The collection of information requirements in the 2013 Final Rule are found in paragraphs (c)(3)(i), (c)(3)(ii), (c)(4), (c)(5), and (c)(6) of 12 CFR 1026.35.149 This information is required to protect consumers and promote the safety and soundness of creditors making HPMLs subject to 12 CFR 1026.35(c). This information is used by creditors to evaluate real estate collateral securing HPMLs subject to 12 CFR 1026.35(c) and by consumers entering these transactions. The collections of information are mandatory for creditors making HPMLs subject to 12 CFR 1026.35(c). The 2013 Final Rule requires that, within three business days of application, a creditor provide a disclosure that informs consumers of the purpose of the appraisal, that the creditor will provide the consumer a copy of any appraisal, and that the consumer may choose to have a separate appraisal conducted at the expense of the consumer (Initial Appraisal Disclosure). See 12 CFR 1026.35(c)(5). If a loan is a HPML subject to 12 CFR 1026.35(c), then the creditor is required to obtain a written appraisal prepared by a certified or licensed appraiser who conducts a physical visit of the interior of the property that will secure the transaction (Written Appraisal), and provide a copy of the Written Appraisal to the consumer. See 12 CFR 1026.35(c)(3)(i) and (c)(6). To qualify for the safe harbor provided under the 2013 Final Rule, a creditor is required to review the Written Appraisal as specified in the text of the rule and Appendix N. See 12 CFR 1026.35(c)(3)(ii). A creditor is required to obtain an additional appraisal (Additional Written Appraisal) for a HPML that is subject to 12 CFR 1026.35(c) if (1) the seller acquired the property securing the loan 90 or fewer days prior to the date of the consumer’s agreement to acquire the property and the resale price exceeds the seller’s acquisition price by more than 10 percent; or (2) the seller acquired the property securing the loan 91 to 180 days prior to the date of the consumer’s agreement to acquire the 149 As explained in the section-by-section analysis, these requirements are also published in regulations of the OCC (12 CFR 34.203(c)(1), (c)(2), (d), (e) and (f)) and the Board (12 CFR 226.43(c)(1), (c)(2), (d), (e), and (f)). For ease of reference, this PRA analysis refers to the section numbers of the requirements as published in the Bureau’s Regulation Z at 12 CFR 1026.35(c). PO 00000 Frm 00036 Fmt 4701 Sfmt 4702 property and the resale price exceeds the seller’s acquisition price by more than 20 percent. See 12 CFR 1026.35(c)(4). The Additional Written Appraisal must meet the requirements described above and also analyze: (1) The difference between the price at which the seller acquired the property and the price the consumer agreed to pay; (2) changes in market conditions between the date the seller acquired the property and the date the consumer agreed to acquire the property; and (3) any improvements made to the property between the date the seller acquired the property and the date on which the consumer agreed to acquire the property. See 12 CFR 1026.35(c)(4)(iv). A creditor is also required to provide a copy of the Additional Written Appraisal to the consumer. 12 CFR 1026.35(c)(6). The requirements provided in the 2013 Final Rule were described in the PRA section of that rule. See 78 FR 10368, 10429 (February 13, 2013). As described in its section 1022 analysis in the 2013 Final Rule and in Table 3 to that rule, the estimated burdens allocated to the Bureau reflected an institution count based upon data that had been updated from the proposal stage and reduced to reflect those exemptions in the 2013 Final Rule for which the Bureau has identified data. As discussed in the 2013 Final Rule, the other Agencies did not adjust the calculations to account for the exempted transactions provided in the 2013 Final Rule. Accordingly, the estimated burden calculations in Table 3 in the 2013 Final Rule are overstated. Calculation of Estimated Burden As explained in the 2013 Final Rule, for the Initial Appraisal Disclosure, the creditor is required to provide a short, written disclosure within three days of application. Because the disclosure is classified as a warning label supplied by the Federal government, the Agencies have assigned it no burden for purposes of this PRA analysis.150 The estimated burden for the Written Appraisal requirements includes the creditor’s burden of reviewing the Written Appraisal in order to satisfy the safe harbor criteria set forth in the rule and providing a copy of the Written Appraisal to the consumer. Additionally, as discussed above, an Additional Written Appraisal containing additional analyses is required in certain circumstances. The 150 The public disclosure of information originally supplied by the Federal government to the recipient for the purpose of disclosure to the public is not included within the definition of ‘‘collection of information.’’ 5 CFR 1320.3(c)(2). E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules Additional Written Appraisal must meet the standards of the Written Appraisal. The Additional Written Appraisal is also required to be prepared by a certified or licensed appraiser different from the appraiser performing the Written Appraisal, and a copy of the Additional Written Appraisal must be provided to the consumer. The creditor must separately review the Additional Written Appraisal in order to qualify for the safe harbor provided in the 2013 Final Rule. The Agencies continue to estimate that respondents will take, on average, 15 minutes for each HPML that is subject to 12 CFR 1026.35(c) to review the Written Appraisal and to provide a copy of the Written Appraisal. The Agencies further continue to estimate that respondents will take, on average, 15 minutes for each HPML that is subject to 12 CFR 1026.35(c) to investigate and verify the need for an Additional Written Appraisal and, where necessary, an additional 15 minutes to review the Additional Written Appraisal and to provide a copy of the Additional Written Appraisal. For the small fraction of loans requiring an Additional Written Appraisal, the burden is similar to that of the Written Appraisal. The Agencies use the estimated burden from the PRA section of the 2013 Final Rule as the starting baseline for analyzing the impact the three exemptions in the proposal would have on PRA burden if adopted. The estimated number of appraisals per respondent for the FDIC, Board, OCC, 48583 covered by the proposed exemption for certain refinances), or smaller dollar loans (which cover many types of manufactured housing transactions).151 While covered HPMLs above smaller dollar levels that are secured by existing manufactured homes and not land may be newly-exempted, these transactions may need alternative valuations depending upon how the exemption is finalized. The Agencies therefore conservatively make no adjustment to the data in the first panel of Table 3 in the 2013 Final Rule as a result of that proposed exemption.152 The numbers above affect only the first panel in the Table 3 of the PRA section of the Final Rule. Refinances are not subject to the requirement to obtain an Additional Written Appraisal under the 2013 Final Rule, and it is conservatively assumed that none of the smaller dollar loans or the loans secured by manufactured homes sited on leased land were used to purchase homes being resold within 180 days with the requisite price increases to trigger that requirement (and thus the proposed exemptions for those loans will not reduce any burden associated with that requirement). Accordingly, only the first panel in Table 3 from the 2013 Final Rule is being updated and the estimates in the second and third panels remain the same. The updated table is reproduced below. The one-time costs are also not affected. The following table summarizes the resulting burden estimates. and NCUA respondents has been updated to account for the exemption for qualified mortgages adopted in the 2013 Final Rule, which had not been accounted for in the table published at that time, as discussed in the PRA section of the Final Rule. See 78 FR 10368, 10430–31 (February 13, 2013). In addition, the impact of the proposed rule has been considered as follows: First, the Agencies find that, currently, only a small minority of refinances involves cash out beyond the levels eligible for this proposed exemption, and as a result most refinance loans may qualify for this exemption. The Agencies therefore assume that the proposed exemption for certain refinances affects all the refinance loans discussed in the analysis under Section 1022(b)(2) of the 2013 Final Rule, and thus would eliminate all of the approximately 1,200 new appraisals that had been estimated to result from these refinances as a result of Final Rule (out of the 3,800 total new Written Appraisals estimated to occur in the Final Rule, or roughly 32%). Second, based on the HMDA 2011 data, the Agencies find that 12 percent of all HPMLs are under $25,000. The Agencies believe that this implies that there will be, proportionately, 12 percent fewer appraisals based on the exemption for small dollar loans. Third, the Agencies find that many of the transactions secured by existing manufactured homes and not land involve either refinances (all of which are conservatively assumed to be Estimated PRA Burden SUMMARY OF PRA BURDEN HOURS FOR INFORMATION COLLECTIONS IN HPML APPRAISALS FINAL RULE IF THE EXEMPTIONS IN THE SUPPLEMENTAL PROPOSAL ARE ADOPTED 153 Estimated number of respondents Estimated number of appraisals per respondent 154 Estimated burden hours per appraisal Estimated total annual burden hours [a] [b] [c] [d] = (a*b*c) Review and Provide a Copy of Written Appraisal mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Bureau: 155 156 157 158 Depository Inst. > $10 B in total assets + Depository Inst. Affiliates .................................................................................... Non-Depository Inst. and Credit Unions ................................... FDIC ......................................................................................... Board 160 ................................................................................... 151 In particular, the Bureau believes that a substantial proportion of the existing manufactured homes that are sold would be sold for less than $25,000. According to the Census Bureau 2011 American Housing Survey Table C–13–OO, the average value of existing manufactured homes is $30,000. See http://factfinder2.census.gov/faces/ tableservices/jsf/pages/productview.xhtml?pid= AHSl2011lC13OO&prodType = table. The estimate includes not only the value of the home, but also appears to include the value of the lot where the lot is also owned. According to the AHS VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 132 2,853 2,571 418 Survey, the term ‘‘value’’ is defined as ‘‘the respondent’s estimate of how much the property (house and lot) would sell for if it were for sale. Any nonresidential portions of the property, any rental units, and land cost of mobile homes, are excluded from the value. For vacant units, value represents the sales price asked for the property at the time of the interview, and may differ from the price at which the property is sold. In the publications, medians for value are rounded to the nearest dollar.’’ See http://www.census.gov/housing/ahs/ files/Appendix%20A.pdf. PO 00000 Frm 00037 Fmt 4701 Sfmt 4702 3.73 0.23 0. 0.18 0.25 0.25 0.25 0.25 123 159 82 93 19 152 The Bureau assumes that manufactured housing loans secured solely by a manufactured home and not land mortgages are reflected in the data provided by the institutions to the datasets that are used by the Bureau (Call Reports for Banks and Thrifts, Call Reports for Credit Unions, and NMLS’s Mortgage Call Reports), and thus are reflected in the Bureau’s loan projections utilized for the table below. The Bureau is asking for comment if any institutions believe that this is not the case. E:\FR\FM\08AUP2.SGM 08AUP2 48584 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules SUMMARY OF PRA BURDEN HOURS FOR INFORMATION COLLECTIONS IN HPML APPRAISALS FINAL RULE IF THE EXEMPTIONS IN THE SUPPLEMENTAL PROPOSAL ARE ADOPTED 153—Continued Estimated number of respondents Estimated number of appraisals per respondent 154 Estimated burden hours per appraisal Estimated total annual burden hours [a] [b] [c] [d] = (a*b*c) OCC .......................................................................................... NCUA ........................................................................................ 1,399 2,437 0.16 0.07 0.25 0.25 55 44 Total ................................................................................... 9,810 ............................ ............................ 416 Investigate and Verify Requirement for Additional Written Appraisal Bureau: Depository Inst. > $10 B in total assets + Depository Inst. Affiliates .................................................................................... Non-Depository Inst. and Credit Unions ................................... FDIC ......................................................................................... Board ........................................................................................ OCC .......................................................................................... NCUA ........................................................................................ 132 2,853 2,571 418 1,399 2,437 20.05 1.22 0.78 0.97 0.85 0.38 0.25 0.25 0.25 0.25 0.25 0.25 662 435 502 102 299 232 Total ................................................................................... 9,810 ............................ ............................ 2,232 Review and Provide a Copy of Additional Written Appraisal Bureau: Depository Inst. > $10 B in total assets + Depository Inst. Affiliates .................................................................................... Non-Depository Inst. and Credit Unions ................................... FDIC ......................................................................................... Board ........................................................................................ OCC .......................................................................................... NCUA ........................................................................................ 132 2,853 2,571 418 1,399 2,437 0.64 0.04 0.02 0.03 0.02 0.01 0.25 0.25 0.25 0.25 0.25 0.25 21 14 15 3 8 5 Total ................................................................................... 9,810 ............................ ............................ 66 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Notes: (1) Respondents include all institutions estimated to originate HPMLs that are subject to 12 CFR 1026.35(c). (2) There may be an additional ongoing burden of roughly 75 hours for privately-insured credit unions estimated to originate HPMLs that are subject to 12 CFR 1026.35(c). The Bureau will assume half of the burden for non-depository institutions and the privately-insured credit unions. 153 Some of the intermediate numbers are rounded, resulting in Estimated Total Annual Hours not precisely matching up with columns a, b, and c. 154 The ‘‘Estimated Number of Appraisals Per Respondent’’ reflects the estimated number of Written Appraisals and Additional Written Appraisals that will be performed solely to comply with the 2013 Final Rule. It does not include the number of appraisals that will continue to be performed under current industry practice, without regard to the Final Rule’s requirements. 155 The information collection requirements (ICs) in the 2013 Final Rule (and this proposed rule) will be incorporated with the Bureau’s existing collection associated with Truth in Lending Act (Regulation Z) 12 CFR 1026 (OMB No. 3170–0015/ 3170–0026). 156 The burden estimates allocated to the Bureau are updated using the data described in the Bureau’s section 1022 analysis in the 2013 Final Rule and in the Bureau’s section 1022 analysis above, including significant burden reductions after accounting for qualified mortgages that are exempt from the Final Rule, and burden reductions after accounting for loans in rural areas that are exempt from the Additional Written Appraisal requirement in the Final Rule. 157 There are 153 depository institutions (and their depository affiliates) that are subject to the Bureau’s administrative enforcement authority. In VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 addition, there are 146 privately-insured credit unions that are subject to the Bureau’s administrative enforcement authority. For purposes of this PRA analysis, the Bureau’s respondents under Regulation Z are 135 depository institutions that originate either open or closed-end mortgages; 77 privately-insured credit unions that originate either open or closed-end mortgages; and an estimated 2,787 non-depository institutions that are subject to the Bureau’s administrative enforcement authority. Unless otherwise specified, all references to burden hours and costs for the Bureau respondents for the collection under Regulation Z are based on a calculation that includes half of the burden for the estimated 2,787 non-depository institutions and 77 privately-insured credit unions. 158 The Bureau calculates its burden by including both HMDA reporting creditors and the HMDA nonreporting creditors, based on the 2012 counts. The other Agencies only report the burden for HMDA reporting creditors, based on the 2011 counts. 159 The Bureau assumes half of the burden for the non-depository mortgage institutions and the credit unions supervised by the Bureau. The FTC assumes the burden for the other half. 160 The ICs in the 2013 Final Rule will be incorporated with the Board’s Reporting, Recordkeeping, and Disclosure Requirements associated with Regulation Z (Truth in Lending), 12 CFR part 226, and Regulation AA (Unfair or Deceptive Acts or Practices), 12 CFR part 227 (OMB No. 7100–0199). The burden estimates provided in PO 00000 Frm 00038 Fmt 4701 Sfmt 4702 Finally, as explained in the PRA section of the 2013 Final Rule, respondents must also review the instructions and legal guidance associated with the Final Rule and train loan officers regarding the requirements of the Final Rule. The Agencies continue to estimate that these one-time costs are as follows: Bureau: 36,383 hours; FDIC: 10,284 hours; Board 3,344 hours; OCC: 19,586 hours; NCUA: 7,311 hours.161 The Agencies have a continuing interest in the public opinion of our collections of information. At any time, comments regarding the burden this proposed rule pertain only to the ICs associated with the Final Rule. 161 As discussed in the PRA section of the 2013 Final Rule, estimated one-time burden continues to be calculated assuming a fixed burden per institution to review the regulations and fixed burden per estimated loan officer in training costs. As a result of the different size and mortgage activities across institutions, the average perinstitution one-time burdens vary across the Agencies. See 78 FR 10368, 10432 (February 13, 2013). E:\FR\FM\08AUP2.SGM 08AUP2 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules estimate, or any other aspect of this collection of information, including suggestions for reducing the burden, may be sent to the OMB desk officer for the Agencies by mail to U.S. Office of Management and Budget, Office of Information and Regulatory Affairs, Washington, DC 20503, or by the internet to oira_submission@omb.eop.gov, with copies to the Agencies at the addresses listed in the ADDRESSES section of this SUPPLEMENTARY INFORMATION. FHFA The 2013 Final Rule and this proposal do not contain any collections of information applicable to the FHFA, requiring review by OMB under the PRA. Therefore, FHFA has not submitted any materials to OMB for review. Text of Proposed Revisions Certain conventions have been used to highlight the Federal Reserve System’s proposed revisions. New language is shown inside flbold-faced arrowsfi, while language that would be deleted is shown inside [bold-faced brackets]. List of Subjects 12 CFR Part 34 Appraisal, Appraiser, Banks, Banking, Consumer protection, Credit, Mortgages, National banks, Reporting and recordkeeping requirements, Savings associations, Truth in lending. 12 CFR Part 226 Advertising, Appraisal, Appraiser, Consumer protection, Credit, Federal Reserve System, Mortgages, Reporting and recordkeeping requirements, Truth in lending. 12 CFR Part 1026 Advertising, Appraisal, Appraiser, Banking, Banks, Consumer protection, Credit, Credit unions, Mortgages, National banks, Reporting and recordkeeping requirements, Savings associations, Truth in lending. mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Department of the Treasury Office of the Comptroller of the Currency Authority and Issuance For the reasons set forth in the preamble, the OCC proposes to amend 12 CFR Part 34, as previously amended at 78 FR 10368, 10432 (Feb. 13, 2013), effective January 18, 2014, as follows: VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 PART 34—REAL ESTATE LENDING AND APPRAISALS 1. The authority citation for part 34 continues to read as follows: ■ Authority: 12 U.S.C. 1 et seq., 25b, 29, 93a, 371, 1463, 1464, 1465, 1701j–3, 1828(o), 3331 et seq., 5101 et seq., 5412(b)(2)(B) and 15 U.S.C. 1639h. 2. Section 34.202 is amended by adding new paragraph (a) and redesignating current paragraphs (a) through (c) as paragraphs (b) through (d) as follows: ■ § 34.202 Definitions applicable to higher priced mortgage loans. * * * * * (a) Business day has the same meaning as in 12 CFR 1026.2(a)(6). * * * * * ■ 3. Section 34.203 is amended by revising paragraphs (b) introductory text, (b)(1), (b)(2), and (b)(5) and adding paragraphs (b)(2)(i), (b)(2)(ii), (b)(7) and (b)(8) as follows: § 34.203 Appraisalsfor higher-priced mortgage loans. * * * * * (b) Exemptions. The requirements in paragraphs (c) through (f) of this section do not apply to the following types of transactions: (1) A qualified mortgage pursuant to 15 U.S.C. 1639c; (2) A transaction: (i) Secured by a new manufactured home; or (ii) Secured solely by an existing manufactured home and not land. * * * * * (5) A loan with a maturity of 12 months or less, if the purpose of the loan is a ‘‘bridge’’ loan connected with the acquisition of a dwelling intended to become the consumer’s principal dwelling. * * * * * (7) An extension of credit that is a refinancing, as defined under 12 CFR 1026.20(a) except that the creditor need not be the original creditor or a holder or servicer of the original obligation, and that meets the following criteria: (i) The owner or guarantor of the refinance loan is the current owner or guarantor of the existing obligation; (ii) The regular periodic payments under the refinance loan do not: (A) Cause the principal balance to increase; (B) Allow the consumer to defer repayment of principal; or (C) Result in a balloon payment, as defined in 12 CFR 1026.18(s)(5)(i); and (iii) The proceeds from the refinance loan are used solely for the following purposes: PO 00000 Frm 00039 Fmt 4701 Sfmt 4702 48585 (A) To pay off the outstanding principal balance on the existing obligation; and (B) To pay closing or settlement charges required to be disclosed under the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq.; and (8) An extension of credit for which the amount of credit extended is equal to or less than the applicable threshold amount, which is adjusted every year to reflect increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, as applicable, and published in Appendix C to Subpart G—OCC Interpretations, see Section 34.203(b)(8) of Appendix C to Subpart G. * * * * * ■ 4. In Appendix C to Subpart G—OCC Interpretations: ■ a. Paragraph 34.203(b)(2) is redesignated Paragraph 34.203(b)(2)(i). ■ b. Under redesignated Paragraph 34.203(b)(2)(i), paragraph 1 is revised. ■ c. New Paragraph 34.203(b)(2)(ii) is added. ■ d. New Paragraph 34.203(b)(7) is added. ■ e. New Paragraph 34. 203(b)(8) is added. ■ f. Under Paragraph 34.203(f)(2), paragraph 2 is removed and current paragraph 3 is redesignated paragraph 2. The revisions read as follows: Appendix C to Subpart G—OCC Interpretations * * * * * 34.203(b) Exemptions. Paragraph 34.203(b)(2)(i). 1. Secured by new manufactured home. A higher-priced mortgage loan secured by a new manufactured home is not subject to the appraisal requirements of Subpart G, regardless of whether the transaction is also secured by the land on which it is sited is not a ‘‘higher-priced mortgage loan’’ subject to the appraisal requirements of Subpart G. Paragraph 34.203(b)(2)(ii). 1. Secured solely by an existing manufactured home and not land. A higherpriced mortgage loan secured by a manufactured home and not land is not subject to the appraisal requirements of Subpart G, regardless of whether the home is titled as realty by operation of state law. * * * * * Paragraph 34.203(b)(7). Paragraph 34.203(b)(7)(i). 1. Owner or guarantor. The term ‘‘owner’’ in § 34.203(b)(7)(i)(A) means an entity that owns and holds a loan in its portfolio. ‘‘Owner’’ does not refer to an investor in a mortgage-backed security. The term ‘‘guarantor’’ in § 34.203(b)(7)(i)(A)(1) refers to the entity that guarantees the credit risk on a loan that the entity holds in a mortgagebacked security. Paragraph 34.203(b)(7)(ii). 1. Regular periodic payments. Under § 34.203(b)(7)(ii), the regular periodic E:\FR\FM\08AUP2.SGM 08AUP2 mstockstill on DSK4VPTVN1PROD with PROPOSALS2 48586 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules payments on the refinance loan must not: result in an increase of the principal balance (negative amortization); allow the consumer to defer repayment of principal (see Official Staff Interpretations to the Bureau’s Regulation Z, comment 43(e)(2)(i)–2); or result in a balloon payment. Thus, the terms of the legal obligation must require the consumer to make payments of principal and interest on a monthly or other periodic basis that will repay the loan amount over the loan term. Except for payments resulting from any interest rate changes after consummation in an adjustable-rate or step-rate mortgage, the periodic payments must be substantially equal. For an explanation of the term ‘‘substantially equal,’’ see Official Staff Interpretations to the Bureau’s Regulation Z, comment 43(c)(5)(i)–4. In addition, a singlepayment transaction is not a refinancing meeting the requirements of § 34.203(b)(7) because it does not require ‘‘regular periodic payments.’’ Paragraph 34.203(b)(7)(iii). 1. Permissible use of proceeds. The exemption for a refinancing under § 34.203(b)(7) is available only if the proceeds from the refinancing are used exclusively for two purposes: paying off the consumer’s existing first-lien mortgage obligation and paying for closing costs, including paying escrow amounts required at or before closing. If the proceeds of a refinancing are used for other purposes, such as to pay off other liens or to provide additional cash to the consumer for discretionary spending, the transaction does not qualify for the exemption for a refinancing under § 34.203(b)(7) from the appraisal requirements in Subpart G. Paragraph 34.203(b)(8). 1. Threshold amount. For purposes of § 34.203(b)(8), the threshold amount in effect during a particular one-year period is the amount stated below for that period. The threshold amount is adjusted effective January 1 of every year by the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI–W) that was in effect on the preceding June 1. Every year, this comment will be amended to provide the threshold amount for the upcoming one-year period after the annual percentage change in the CPI–W that was in effect on June 1 becomes available. Any increase in the threshold amount will be rounded to the nearest $100 increment. For example, if the percentage increase in the CPI–W would result in a $950 increase in the threshold amount, the threshold amount will be increased by $1,000. However, if the percentage increase in the CPI–W would result in a $949 increase in the threshold amount, the threshold amount will be increased by $900. i. From January 18, 2014, through December 31, 2014, the threshold amount is $25,000. 2. Qualifying for exemption—in general. A transaction is exempt under § 34.203(b)(8) if the creditor makes an extension of credit at consummation that is equal to or below the threshold amount in effect at the time of consummation. 3. Qualifying for exemption—subsequent changes. A transaction does not meet the VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 condition for an exemption under § 34.203(b)(8) merely because it is used to satisfy and replace an existing exempt loan, unless the amount of the new extension of credit is equal to or less than the applicable threshold amount. For example, assume a closed-end loan that qualified for a § 34.203(b)(8) exemption at consummation in year one is refinanced in year ten and that the new loan amount is greater than the threshold amount in effect in year ten. In these circumstances, the creditor must comply with all of the applicable requirements of Subpart G with respect to the year ten transaction if the original loan is satisfied and replaced by the new loan, unless another exemption from the requirements of Subpart G applies. See § 34.203(b) and § 34.203(d)(7). * * * * * Board of Governors of the Federal Reserve System Authority and Issuance For the reasons stated above, the Board of Governors of the Federal Reserve System proposes to amend Regulation Z, 12 CFR Part 226, as previously amended at 78 FR 10368, 10437 (Feb. 13, 2013), effective January 18, 2014, as follows: PART 226—TRUTH IN LENDING ACT (REGULATION Z) 5. The authority citation for part 226 continues to read as follows: ■ Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), 1639(l), and 1639h; Pub. L. 111– 24 section 2, 123 Stat. 1734; Pub. L. 111–203, 124 Stat. 1376. 6. Section 226.2 is amended by revising paragraph (a)(6) as follows: ■ § 226.2—Definitions construction. and rules of (a) Definitions. For purposes of this part, the following definitions apply: * * * * * (6) Business day means a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions. However, for purposes of rescission under §§ 1026.15 and 1026.23, and for purposes of §§ 226.19(a)(1)(ii), 226.19(a)(2), 226.31, fl226.43, fiand 226.46(d)(4), the term means all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year’s Day, the Birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day. * * * * * ■ 7. Section 226.43 is amended by revising paragraph (b) as follows: PO 00000 Frm 00040 Fmt 4701 Sfmt 4702 § 226.43—Appraisals mortgage loans. * for higher-priced * * * * (b) Exemptions. The requirements in paragraphs [(c)(3) through (6)] fl(c) through (f)fi of this section do not apply to the following types of transactions: (1) A qualified mortgage as defined [in 12 CFR 1026.43(e)]flpursuant to 15 U.S.C. 1639cfi; (2) A transactionfl: (i) Sfi[s]ecured by a new manufactured home;fl or (ii) Secured solely by an existing manufactured home and not land.fi * * * * * (5) A loan with flafi maturity of 12 months or less, if the purpose of the loan is a ‘‘bridge’’ loan connected with the acquisition of a dwelling intended to become the consumer’s principal dwelling. * * * * * fl(7) An extension of credit that is a refinancing, as defined under 12 CFR 1026.20(a), except that the creditor need not be the original creditor or a holder or servicer of the original obligation, and that meets the following criteria: (i) The owner or guarantor of the refinance loan is the current owner or guarantor of the existing obligation; (ii) The regular periodic payments under the refinance loan do not: (A) Cause the principal balance to increase; (B) Allow the consumer to defer repayment of principal; or (C) Result in a balloon payment, as defined in 12 CFR 1026.18(s)(5)(i); and (iii) The proceeds from the refinance loan are used solely for the following purposes: (A) To pay off the outstanding principal balance on the existing obligation; and (B) To pay closing or settlement charges required to be disclosed under the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq.; and (8) An extension of credit for which the amount of credit extended is equal to or less than the applicable threshold amount, which is adjusted every year to reflect increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, as applicable, and published in the official staff commentary to this paragraph (b)(8).fi * * * * * ■ 8. In Supplement I to part 226, under Section 226.43—Appraisals for HigherPriced Mortgage Loans: ■ a. Paragraph 43(b)(2) is redesignated Paragraph 43(b)(2)(i). ■ b. Under redesignated Paragraph 43(b)(2)(i), paragraph 1 is revised. E:\FR\FM\08AUP2.SGM 08AUP2 48587 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules c. New Paragraph 43(b)(2)(ii) is added. ■ d. New Paragraph 43(b)(7) is added. ■ e. New Paragraph 43(b)(8) is added. ■ f. Under Paragraph 43(f)(2), paragraph 2 is removed and current paragraph 3 is redesignated as paragraph 2. The revisions read as follows: ■ Supplement I to Part 226—Official Interpretations * * * * * Section 226.43—Appraisals for Higher-Priced Mortgage Loans * * * * * 43(b) Exemptions. Paragraph 43(b)(2)fl(i)fi. 1. Secured by new manufactured home. A flhigher-priced mortgage loanfi[transaction] secured by a new manufactured homefl is not subject to the appraisal requirements of § 226.43, firegardless of whether the transaction is also secured by the land on which it is sited [is not a ‘‘higher-priced mortgage loan’’ subject to the appraisal requirements of § 226.43]. flParagraph 43(b)(2)(ii). 1. Secured solely by an existing manufactured home and not land. A higherpriced mortgage loan secured by a manufactured home and not land is not subject to the appraisal requirements of § 226.43, regardless of whether the home is titled as realty by operation of state law.fi mstockstill on DSK4VPTVN1PROD with PROPOSALS2 * * * * * fl Paragraph 43(b)(7). Paragraph 43(b)(7)(i). 1. Owner or guarantor. The term ‘‘owner’’ in § 226.43(b)(7)(i) means an entity that owns and holds a loan in its portfolio. ‘‘Owner’’ does not refer to an investor in a mortgagebacked security. The term ‘‘guarantor’’ in § 226.43(b)(7)(i) refers to the entity that guarantees the credit risk on a loan that the entity holds in a mortgage-backed security. PParagraph 43(b)(7)(ii). 1. Regular periodic payments. Under § 226.43(b)(7)(ii), the regular periodic payments on the refinance loan must not: Result in an increase of the principal balance (negative amortization); allow the consumer to defer repayment of principal (see Official Staff Interpretations to the Bureau’s Regulation Z, comment 43(e)(2)(i)–2); or result in a balloon payment. Thus, the terms of the legal obligation must require the consumer to make payments of principal and interest on a monthly or other periodic basis that will repay the loan amount over the loan term. Except for payments resulting from any interest rate changes after consummation in an adjustable-rate or step-rate mortgage, the periodic payments must be substantially equal. For an explanation of the term ‘‘substantially equal,’’ see Official Staff Interpretations to the Bureau’s Regulation Z, comment 43(c)(5)(i)–4. In addition, a singlepayment transaction is not a refinancing meeting the requirements of § 226.43(b)(7) because it does not require ‘‘regular periodic payments.’’ Paragraph 43(b)(7)(iii). 1. Permissible use of proceeds. The exemption for a refinancing under VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 § 226.43(b)(7) is available only if the proceeds from the refinancing are used exclusively for two purposes: Paying off the consumer’s existing first-lien mortgage obligation and paying for closing costs, including paying escrow amounts required at or before closing. If the proceeds of a refinancing are used for other purposes, such as to pay off other liens or to provide additional cash to the consumer for discretionary spending, the transaction does not qualify for the exemption for a refinancing under § 226.43(b)(7) from the appraisal requirements in § 226.43. Paragraph 43(b)(8). 1. Threshold amount. For purposes of § 226.43(b)(8), the threshold amount in effect during a particular one-year period is the amount stated below for that period. The threshold amount is adjusted effective January 1 of every year by the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI–W) that was in effect on the preceding June 1. Every year, this comment will be amended to provide the threshold amount for the upcoming one-year period after the annual percentage change in the CPI–W that was in effect on June 1 becomes available. Any increase in the threshold amount will be rounded to the nearest $100 increment. For example, if the percentage increase in the CPI–W would result in a $950 increase in the threshold amount, the threshold amount will be increased by $1,000. However, if the percentage increase in the CPI–W would result in a $949 increase in the threshold amount, the threshold amount will be increased by $900. i. From January 18, 2014, through December 31, 2014, the threshold amount is $25,000. 2. Qualifying for exemption—in general. A transaction is exempt under § 226.43(b)(8) if the creditor makes an extension of credit at consummation that is equal to or below the threshold amount in effect at the time of consummation. 3. Qualifying for exemption—subsequent changes. A transaction does not meet the condition for an exemption under § 226.43(b)(8) merely because it is used to satisfy and replace an existing exempt loan, unless the amount of the new extension of credit is equal to or less than the applicable threshold amount. For example, assume a closed-end loan that qualified for a § 226.43(b)(8) exemption at consummation in year one is refinanced in year ten and that the new loan amount is greater than the threshold amount in effect in year ten. In these circumstances, the creditor must comply with all of the applicable requirements of § 226.43 with respect to the year ten transaction if the original loan is satisfied and replaced by the new loan, unless another exemption from the requirements of § 226.43 applies. See § 226.43(b) and § 226.43(d)(7).fi * * * * * 43(f) Copy of appraisals. * * * * Frm 00041 * * * * Bureau of Consumer Financial Protection Authority and Issuance For the reasons stated above, the Bureau proposes to amend Regulation Z, 12 CFR part 1026, as previously amended, including on February 13, 2013 (78 FR 10368, 10442 (Feb. 13, 2013)), effective January 18, 2014, as follows: PART 1026—TRUTH IN LENDING ACT (REGULATION Z) 9. 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. 10. Section 1026.2 is amended by revising paragraph (a)(6) to read as follows: ■ § 1026.2—Definitions construction. and rules of (a) Definitions. For purposes of this part, the following definitions apply: * * * * * (6) Business day means a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions. However, for purposes of rescission under sections 1026.15 and 1026.23, and for purposes of sections 1026.19(a)(1)(ii), 1026.19(a)(2), 1026.31, 1026.35(c), and 1026.46(d)(4), the term means all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year’s Day, the Birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day. ■ 11. Section 1026.35 is amended by revising paragraphs (c) heading, (c)(2)(i), (c)(2)(ii), (c)(2)(v) and adding paragraphs (c)(2)(ii)(A), (c)(2)(ii)(B), (c)(2)(vii), and (c)(2)(viii) to read as follows: * § 1026.35—Requirements mortgage loans. * * * [2. ‘‘Receipt’’ of the appraisal. For appraisals prepared by the creditor’s internal PO 00000 * * * 43(f)(2) Timing. * appraisal staff, the date of ‘‘receipt’’ is the date on which the appraisal is completed.]. fl2fi[3]. No waiver. Regulation B, 12 CFR 1002.14(a)(1), allowing the consumer to waive the requirement that the appraisal copy be provided three business days before consummation, does not apply to higherpriced mortgage loans subject to § 226.43. A consumer of a higher-priced mortgage loan subject to § 226.43 may not waive the timing requirement to receive a copy of the appraisal under § 226.43(f)(1). Fmt 4701 Sfmt 4702 * * * * (c) Appraisals.* * * * * * * * E:\FR\FM\08AUP2.SGM 08AUP2 for higher-priced mstockstill on DSK4VPTVN1PROD with PROPOSALS2 48588 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules (2) * * * (i) A qualified mortgage as defined pursuant to 15 U.S.C. 1639c; (ii) A transaction: (A) Secured by a new manufactured home; or (B) Secured solely by an existing manufactured home and not land. * * * * * (v) A loan with a maturity of 12 months or less, if the purpose of the loan is a ‘‘bridge’’ loan connected with the acquisition of a dwelling intended to become the consumer’s principal dwelling. * * * * * (vii) An extension of credit that is a refinancing, as defined under § 1026.20(a) except that the creditor need not be the original creditor or a holder or servicer of the original obligation, and that meets the following criteria: (A) The owner or guarantor of the refinance loan is the current owner or guarantor of the existing obligation; (B) The regular periodic payments under the refinance loan do not: (1) Cause the principal balance to increase; (2) Allow the consumer to defer repayment of principal; or (3) Result in a balloon payment, as defined in § 1026.18(s)(5)(i); and (C) The proceeds from the refinance loan are used solely for the following purposes: (1) To pay off the outstanding principal balance on the existing obligation; and (2) To pay closing or settlement charges required to be disclosed under the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq.; and (viii) An extension of credit for which the amount of credit extended is equal to or less than the applicable threshold amount, which is adjusted every year to reflect increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, as applicable, and published in the official staff commentary to this paragraph (c)(2)(viii). * * * * * ■ 12. In Supplement I to part 1026, under Section 1026.35—Requirements for Higher-Priced Mortgage Loans: ■ a. Paragraph 35(c)(2)(ii) is redesignated Paragraph 35(c)(2)(ii)(A). ■ b. Under redesignated Paragraph 35(c)(2)(ii)(A), paragraph 1 is revised. ■ c. New Paragraph 35(c)(2)(ii)(B) is added. ■ d. New Paragraph 35(c)(2)(vii) is added. ■ e. New Paragraph 35(c)(2)(viii) is added. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 f. Under Paragraph 35(c)(6)(ii), paragraph 2 is removed and current paragraph 3 is redesignated paragraph 2. The revisions read as follows: ■ Supplement I to Part 1026—Official Interpretations * * * * * Section 1026.35—Requirements for HigherPriced Mortgage Loans * * * * * 35(c)(2) Exemptions Paragraph 35(c)(2)(ii)(A) 1. Secured by new manufactured home. A higher-priced mortgage loan secured by a new manufactured home is not subject to the appraisal requirements of § 1026.35(c), regardless of whether the transaction is also secured by the land on which it is sited. Paragraph 35(c)(2)(ii)(B) 1. Secured solely by an existing manufactured home and not land. A higherpriced mortgage loan secured by a manufactured home and not land is not subject to the appraisal requirements of § 1026.35(c), regardless of whether the home is titled as realty by operation of state law. * * * * * Paragraph 35(c)(2)(vii) Paragraph 35(c)(2)(vii)(A) 1. Owner or guarantor. The term ‘‘owner’’ in § 1026.35(c)(2)(vii)(A) means an entity that owns and holds a loan in its portfolio. ‘‘Owner’’ does not refer to an investor in a mortgage-backed security. The term ‘‘guarantor’’ in § 1026.35(c)(2)(vii)(A)(1) refers to the entity that guarantees the credit risk on a loan that the entity holds in a mortgage-backed security. Paragraph 35(c)(2)(vii)(B) 1. Regular periodic payments. Under § 1026.35(c)(2)(vii)(D), the regular periodic payments on the refinance loan must not: result in an increase of the principal balance (negative amortization); allow the consumer to defer repayment of principal (see comment 43(e)(2)(i)–2); or result in a balloon payment. Thus, the terms of the legal obligation must require the consumer to make payments of principal and interest on a monthly or other periodic basis that will repay the loan amount over the loan term. Except for payments resulting from any interest rate changes after consummation in an adjustablerate or step-rate mortgage, the periodic payments must be substantially equal. For an explanation of the term ‘‘substantially equal,’’ see comment 43(c)(5)(i)–4. In addition, a single-payment transaction is not a refinancing meeting the requirements of § 1026.35(c)(2)(vii) because it does not require ‘‘regular periodic payments.’’ Paragraph 35(c)(2)(vii)(C) 1. Permissible use of proceeds. The exemption for a refinancing under § 1026.35(c)(2)(vii) is available only if the proceeds from the refinancing are used exclusively for two purposes: Paying off the consumer’s existing first-lien mortgage PO 00000 Frm 00042 Fmt 4701 Sfmt 4702 obligation and paying for closing costs, including paying escrow amounts required at or before closing. If the proceeds of a refinancing are used for other purposes, such as to pay off other liens or to provide additional cash to the consumer for discretionary spending, the transaction does not qualify for the exemption for a refinancing under § 1026.35(c)(2)(vii) from the appraisal requirements in § 1026.35(c). Paragraph 35(c)(2)(viii) 1. Threshold amount. For purposes of § 1026.35(c)(2)(viii), the threshold amount in effect during a particular one-year period is the amount stated below for that period. The threshold amount is adjusted effective January 1 of every year by the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI–W) that was in effect on the preceding June 1. Every year, this comment will be amended to provide the threshold amount for the upcoming one-year period after the annual percentage change in the CPI–W that was in effect on June 1 becomes available. Any increase in the threshold amount will be rounded to the nearest $100 increment. For example, if the percentage increase in the CPI–W would result in a $950 increase in the threshold amount, the threshold amount will be increased by $1,000. However, if the percentage increase in the CPI–W would result in a $949 increase in the threshold amount, the threshold amount will be increased by $900. i. From January 18, 2014, through December 31, 2014, the threshold amount is $25,000. 2. Qualifying for exemption—in general. A transaction is exempt under § 1026.35(c)(2)(viii) if the creditor makes an extension of credit at consummation that is equal to or below the threshold amount in effect at the time of consummation. 3. Qualifying for exemption—subsequent changes. A transaction does not meet the condition for an exemption under § 1026.35(c)(2)(viii) merely because it is used to satisfy and replace an existing exempt loan, unless the amount of the new extension of credit is equal to or less than the applicable threshold amount. For example, assume a closed-end loan that qualified for a § 1026.35(c)(2)(viii) exemption at consummation in year one is refinanced in year ten and that the new loan amount is greater than the threshold amount in effect in year ten. In these circumstances, the creditor must comply with all of the applicable requirements of § 1026.35(c) with respect to the year ten transaction if the original loan is satisfied and replaced by the new loan, unless another exemption from the requirements of § 1026.35(c) applies. See § 1026.35(c)(2) and § 1026.35(c)(4)(vii). * E:\FR\FM\08AUP2.SGM * * 08AUP2 * * Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules mstockstill on DSK4VPTVN1PROD with PROPOSALS2 Dated: July 9, 2013. Thomas J. Curry, Comptroller of the Currency. By order of the Board of Governors of the Federal Reserve System, July 10, 2013. Robert deV. Frierson, Secretary of the Board. Dated: July 9, 2013. Richard Cordray, Director, Bureau of Consumer Financial Protection. By the National Credit Union Administration Board on July 9, 2013. Mary Rupp, Secretary of the Board. Dated at Washington, DC, this 9th day of July 2013. VerDate Mar<15>2010 18:08 Aug 07, 2013 Jkt 229001 By order of the Board of Directors. Federal Deposit Insurance Corporation. Robert E. Feldman, Executive Secretary. Dated: July 8, 2013. Edward J. DeMarco, Acting Director, Federal Housing Finance Agency. [FR Doc. 2013–17086 Filed 8–7–13; 8:45 am] BILLING CODE 6210–01–P; 4810–33–P; 4810–AM–P; 8070–01–P; 7590–01–P PO 00000 Frm 00043 Fmt 4701 Sfmt 9990 E:\FR\FM\08AUP2.SGM 08AUP2 48589

Agencies

[Federal Register Volume 78, Number 153 (Thursday, August 8, 2013)]
[Proposed Rules]
[Pages 48547-48589]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17086]



[[Page 48547]]

Vol. 78

Thursday,

No. 153

August 8, 2013

Part II





Department of the Treasury





Office of the Comptroller of the Currency





12 CFR Part 34





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Board of Governors of the Federal Reserve System

12 CFR Part 226





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Bureau of Consumer Financial Protection

12 CFR Part 1026





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Appraisals for Higher-Priced Mortgage Loans--Supplemental Proposal; 
Proposed Rule

Federal Register / Vol. 78 , No. 153 / Thursday, August 8, 2013 / 
Proposed Rules

[[Page 48548]]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 34

[Docket No. OCC-2013-0009]
RIN 1557-AD70

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Docket No. R-1443]
RIN 7100-AD90

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

[Docket No. CFPB-2013-0020]
RIN 3170-AA11


Appraisals for Higher-Priced Mortgage Loans--Supplemental 
Proposal

AGENCIES:  Board of Governors of the Federal Reserve System (Board); 
Bureau of Consumer Financial Protection (Bureau); Federal Deposit 
Insurance Corporation (FDIC); Federal Housing Finance Agency (FHFA); 
National Credit Union Administration (NCUA); and Office of the 
Comptroller of the Currency, Treasury (OCC).

ACTION: Proposed rule; request for public comment.

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SUMMARY: The Board, Bureau, FDIC, FHFA, NCUA, and OCC (collectively, 
the Agencies) are proposing to amend Regulation Z, which implements the 
Truth in Lending Act (TILA), and the official interpretation to the 
regulation. This proposal relates to a final rule issued by the 
Agencies on January 18, 2013 (2013 Interagency Appraisals Final Rule or 
Final Rule), which goes into effect on January 18, 2014. The Final Rule 
implements a provision added to TILA by the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (the Dodd-Frank Act or Act) 
requiring appraisals for ``higher-risk mortgages.'' For certain 
mortgages with an annual percentage rate that exceeds the average prime 
offer rate by a specified percentage, the Final Rule requires creditors 
to obtain an appraisal or appraisals meeting certain specified 
standards, provide applicants with a notification regarding the use of 
the appraisals, and give applicants a copy of the written appraisals 
used. The Agencies are proposing amendments to the Final Rule 
implementing these requirements; specifically, the Agencies are 
proposing exemptions from the rules for: transactions secured by 
existing manufactured homes and not land; certain ``streamlined'' 
refinancings; and transactions of $25,000 or less.

DATES: Comments must be received on or before September 9, 2013, except 
that comments on the Paperwork Reduction Act analysis in part VIII of 
the Supplementary Information must be received on or before October 7, 
2013.

ADDRESSES: Interested parties are encouraged to submit written comments 
jointly to all of the Agencies. Commenters are encouraged to use the 
title ``Appraisals for Higher-Priced Mortgage Loans--Supplemental 
Proposal'' to facilitate the organization and distribution of comments 
among the Agencies. Commenters also are encouraged to identify the 
number of the specific question for comment to which they are 
responding. Interested parties are invited to submit written comments 
to:
    Board: You may submit comments, identified by Docket No. R-1443 or 
RIN 7100-AD90, by any of the following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: regs.comments@federalreserve.gov. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Address to Robert deV. Frierson, Secretary, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW., Washington, DC 20551.
    All public comments will be made available on the Board's Web site 
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, comments 
will not be edited to remove any identifying or contact information. 
Public comments may also be viewed electronically or in paper in Room 
MP-500 of the Board's Martin Building (20th and C Streets NW., 
Washington, DC 20551) between 9:00 a.m. and 5:00 p.m. on weekdays.
    Bureau: You may submit comments, identified by Docket No. CFPB-
2013-0020 or RIN 3170-AA11, by any of the following methods:
     Electronic: http://www.regulations.gov. Follow the 
instructions for submitting comments.
     Mail: Monica Jackson, Office of the Executive Secretary, 
Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, 
DC 20552.
     Hand Delivery/Courier in Lieu of Mail: Monica Jackson, 
Office of the Executive Secretary, Bureau of Consumer Financial 
Protection, 1700 G Street NW., Washington, DC 20552.
    All submissions must include the agency name and docket number or 
Regulatory Information Number (RIN) for this rulemaking. In general, 
all comments received will be posted without change to http://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 will not be edited 
to remove any identifying or contact information.
    FDIC: You may submit comments by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th 
Street NW., Washington, DC 20429.
     Hand Delivered/Courier: The guard station at the rear of 
the 550 17th Street Building (located on F Street), on business days 
between 7:00 a.m. and 5:00 p.m.
     Email: comments@FDIC.gov.
    Comments submitted must include ``FDIC'' and ``Truth in Lending Act 
(Regulation Z).'' Comments received will be posted without change to 
http://www.FDIC.gov/regulations/laws/federal/propose.html, including 
any personal information provided.
    FHFA: You may submit your comments, identified by regulatory 
information number (RIN) 2590-AA58, by any of the following methods:
     Email: Comments to Alfred M. Pollard, General Counsel, may 
be sent by email to RegComments@fhfa.gov.

[[Page 48549]]

Please include ``RIN 2590-AA58'' in the subject line of the message.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comment to the Federal eRulemaking Portal, please also send it by email 
to FHFA at RegComments@fhfa.gov to ensure timely receipt by the Agency. 
Please include ``RIN 2590-AA58'' in the subject line of the message.
     Hand Delivered/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA58, 
Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., 
Washington, DC 20024. The package should be logged in at the Guard 
Desk, First Floor, on business days between 9 a.m. and 5 p.m.
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel, Attention: Comments/RIN 2590-AA58, Federal 
Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., 
Washington, DC 20024.
    Copies of all comments will be posted without change, including any 
personal information you provide, such as your name, address, email 
address, and phone number, on the FHFA Internet Web site at http://www.fhfa.gov. In addition, copies of all comments received will be 
available for examination by the public on business days between the 
hours of 10 a.m. and 3 p.m., Eastern Time, at the Federal Housing 
Finance Agency, Eighth Floor, 400 Seventh Street SW., Washington, DC 
20024. To make an appointment to inspect comments, please call the 
Office of General Counsel at (202) 649-3804.
    NCUA: You may submit comments, identified by RIN 3133-AE21, by any 
of the following methods (Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web site: http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx. Follow the instructions for submitting comments.
     Email: Address to regcomments@ncua.gov. Include ``[Your 
name] Comments on Appraisals for Higher-Priced Mortgage Loans--
Supplemental Proposal'' in the email subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier in Lieu of Mail: Same as mail 
address.
    You can view all public comments on NCUA's Web site at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as submitted, except for 
those we cannot post for technical reasons. NCUA will not edit or 
remove any identifying or contact information from the public comments 
submitted. You may inspect paper copies of comments in NCUA's law 
library at 1775 Duke Street, Alexandria, Virginia 22314, by appointment 
weekdays between 9:00 a.m. and 3:00 p.m. To make an appointment, call 
(703) 518-6546 or send an email to OGCMail@ncua.gov.
    OCC: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments by 
the Federal eRulemaking Portal or email, if possible. Please use the 
title ``Appraisals for Higher-Priced Mortgage Loans--Supplemental 
Proposal'' to facilitate the organization and distribution of the 
comments. You may submit comments by any of the following methods:
     Federal eRulemaking Portal--``regulations.gov'': Go to 
http://www.regulations.gov. Enter ``Docket ID OCC-2013-0009'' in the 
Search Box and click ``Search''. Results can be filtered using the 
filtering tools on the left side of the screen. Click on ``Comment 
Now'' to submit public comments.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting public comments.
     Email: regs.comments@occ.treas.gov.
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, 400 7th Street SW., Suite 
3E-218, Mail Stop 9W-11, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218, 
Mail Stop 9W-11, Washington, DC 20219.
     Fax: (571) 465-4326.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2013-0009'' in your comment. In general, OCC will enter 
all comments received into the docket and publish them on the 
Regulations.gov Web site without change, including any business or 
personal information that you provide such as name and address 
information, email addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not enclose any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this rulemaking action by any of the following methods:
     Viewing Comments Electronically: Go to http://www.regulations.gov. Enter ``Docket ID OCC-2013-0009'' in the Search 
box and click ``Search.'' Comments can be filtered by Agency using the 
filtering tools on the left side of the screen.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
viewing public comments, viewing other supporting and related 
materials, and viewing the docket after the close of the comment 
period.
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC, 400 7th Street SW., Washington, DC. 
For security reasons, the OCC requires that visitors make an 
appointment to inspect comments. You may do so by calling (202) 649-
6700. Upon arrival, visitors will be required to present valid 
government-issued photo identification and to submit to security 
screening in order to inspect and photocopy comments.
    Docket: You may also view or request available background documents 
and project summaries using the methods described above.

FOR FURTHER INFORMATION CONTACT:
    Board: Lorna Neill or Mandie Aubrey, Counsels, Division of Consumer 
and Community Affairs, at (202) 452-3667, Carmen Holly, Supervisory 
Financial Analyst, Division of Banking Supervision and Regulation, at 
(202) 973-6122, or Kara Handzlik, Counsel, Legal Division, (202) 452-
3852, Board of Governors of the Federal Reserve System, Washington, DC 
20551.
    Bureau: Owen Bonheimer, Counsel, or William W. Matchneer, Senior 
Counsel, Division of Research, Markets, and Regulations, Bureau of 
Consumer Financial Protection, 1700 G Street NW., Washington, DC 20552, 
at (202) 435-7000.
    FDIC: Beverlea S. Gardner, Senior Examination Specialist, Risk 
Management Section, at (202) 898-3640, Sandra S. Barker, Senior Policy 
Analyst, Division of Consumer Protection, at (202) 898-3615, Mark 
Mellon, Counsel, Legal Division, at (202) 898-3884, Kimberly Stock, 
Counsel, Legal Division, at (202) 898-3815, or Benjamin Gibbs, Senior 
Regional Attorney, at (678) 916-2458, Federal Deposit Insurance 
Corporation, 550 17th St. NW., Washington, DC 20429.

[[Page 48550]]

    FHFA: Susan Cooper, Senior Policy Analyst, (202) 649-3121, Lori 
Bowes, Policy Analyst, Office of Housing and Regulatory Policy, (202) 
649-3111, Ming-Yuen Meyer-Fong, Assistant General Counsel, Office of 
General Counsel, (202) 649-3078, Federal Housing Finance Agency, 400 
Seventh Street SW., Washington, DC, 20024.
    NCUA: John Brolin and Pamela Yu, Staff Attorneys, or Frank 
Kressman, Associate General Counsel, Office of General Counsel, at 
(703) 518-6540, or Vincent Vieten, Program Officer, Office of 
Examination and Insurance, at (703) 518-6360, or 1775 Duke Street, 
Alexandria, Virginia, 22314.
    OCC: Robert L. Parson, Appraisal Policy Specialist, (202) 649-6423, 
G. Kevin Lawton, Appraiser (Real Estate Specialist), (202) 649-7152, 
Carolyn B. Engelhardt, Bank Examiner (Risk Specialist--Credit), (202) 
649-6404, Charlotte M. Bahin, Senior Counsel or Mitchell Plave, Special 
Counsel, Legislative & Regulatory Activities Division, (202) 649-5490, 
Krista LaBelle, Special Counsel, Community and Consumer Law Division, 
(202) 649-6350, or 400 Seventh Street SW., Washington DC 20219.

SUPPLEMENTARY INFORMATION:

I. Summary of the Proposed Rule

    As discussed in detail under part II of this Supplementary 
Information, section 1471 of the Dodd-Frank Act created new TILA 
section 129H, which establishes special appraisal requirements for 
``higher-risk mortgages.'' 15 U.S.C. 1639h. The Agencies adopted the 
2013 Interagency Appraisals Final Rule to implement these requirements 
(adopting the term ``higher-priced mortgage loans'' (HPMLs) instead of 
``higher-risk mortgages''). The Agencies believe that several 
additional exemptions from the new appraisal rules may be appropriate. 
Specifically, the Agencies are proposing an exemption for transactions 
secured by an existing manufactured home and not land, certain types of 
refinancings, and transactions of $25,000 or less (indexed for 
inflation). The Agencies solicit comment on these proposed exemptions. 
In addition, the Agencies are proposing a different definition of 
``business day'' than the definition used in the Final Rule, as well as 
a few non-substantive technical corrections.

A. Proposed Exemption for Transactions Secured Solely by an Existing 
Manufactured Home and Not Land

    The Agencies propose to exempt transactions secured solely by an 
existing (used) manufactured home and not land from the HPML appraisal 
requirements, but seek comment on whether an alternative valuation type 
should be required.
    The Agencies propose to retain coverage of loans secured by 
existing manufactured homes and land. The Agencies also propose to 
retain the exemption for transactions secured by new manufactured 
homes, but are seeking further comment on the scope of this exemption 
and whether certain conditions on the exemption might be appropriate.

B. Proposed Exemption for Certain Refinancings

    The Agencies are also proposing to exempt from the HPML appraisal 
rules certain types of refinancings with characteristics common to 
refinance products often referred to as ``streamlined'' refinances. 
Specifically, the Agencies propose to exempt an extension of credit 
that is a refinancing where the owner or guarantor of the refinance 
loan is the current owner or guarantor of the existing obligation. In 
addition, the periodic payments under the refinance loan must not 
result in negative amortization, cover only interest on the loan, or 
result in a balloon payment. Finally, the proceeds from the refinance 
loan may only be used to pay off the outstanding principal balance on 
the existing obligation and to pay closing or settlement charges.

C. Proposed Exemption for Extensions of Credit of $25,000 or Less

    Finally, the Agencies are also proposing an exemption from the HPML 
appraisal rules for extensions of credit of $25,000 or less, indexed 
every year for inflation.

D. Effective Date

    The Agencies intend that exemptions adopted as a result of this 
supplemental proposal will be effective on January 18, 2014, the same 
date on which the Final Rule will become effective. In the section-by-
section analysis below, the Agencies request comment on a number of 
conditions that might be appropriate to require creditors to meet to 
qualify for the proposed exemptions. If the Agencies adopt any 
conditions on an exemption, the Agencies will consider establishing a 
later effective date for those conditions, to allow creditors 
sufficient time to adjust their compliance systems, if necessary.
    Question 1: The Agencies request comment on the need for a later 
effective date for any condition on a proposed exemption discussed in 
the section-by-section analysis below, and the appropriate effective 
date for those conditions.

II. Background

    In general, the Truth in Lending Act (TILA), 15 U.S.C. 1601 et 
seq., seeks to promote the informed use of consumer credit by requiring 
disclosures about its costs and terms, as well as other information. 
TILA requires additional disclosures for loans secured by consumers' 
homes and permits consumers to rescind certain transactions that 
involve their principal dwelling. For most types of creditors, TILA 
directs the Bureau to prescribe regulations to carry out the purposes 
of the law and specifically authorizes the Bureau to issue regulations 
that contain such classifications, differentiations, or other 
provisions, or that provide for such adjustments and exceptions for any 
class of transactions, that in the Bureau's judgment are necessary or 
proper to effectuate the purposes of TILA, or prevent circumvention or 
evasion of TILA.\1\ 15 U.S.C. 1604(a).
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    \1\ For motor vehicle dealers as defined in section 1029 of the 
Dodd-Frank Act, TILA directs the Board to prescribe regulations to 
carry out the purposes of TILA and authorizes the Board to issue 
regulations. 15 U.S.C. 5519; 15 U.S.C. 1604(i).
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    For most types of creditors and most provisions of the TILA, TILA 
is implemented by the Bureau's Regulation Z. See 12 CFR part 1026. 
Official Interpretations provide guidance to creditors in applying the 
rules to specific transactions and interpret the requirements of the 
regulation. See 12 CFR part 1026, Supp. I. However, as explained in the 
Final Rule, the new appraisal section of TILA addressed in the Final 
Rule (TILA section 129H, 15 U.S.C. 1639h) is implemented not only for 
all affected creditors by the Bureau's Regulation Z, but also by OCC 
regulations and the Board's Regulation Z (for creditors overseen by the 
OCC and the Board, respectively). See 12 CFR parts 34 and 164 (OCC 
regulations) and part 226 (the Board's Regulation Z); see also Sec.  
1026.35(c)(7) and 78 FR 10368, 10415 (Feb. 13, 2013). The Bureau's, the 
OCC's and the Board's versions of the 2013 Interagency Appraisals Final 
Rule and corresponding official interpretations are substantively 
identical. The FDIC, NCUA, and FHFA adopted the Bureau's version of the 
regulations under the Final Rule.\2\
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    \2\ See NCUA: 12 CFR 722.3; FHFA: 12 CFR part 1222. The FDIC 
adopted the Bureau's version of the regulations, but did not adopt a 
cross-reference to the Bureau's regulations in FDIC regulations. See 
78 FR 10368, 10370 (Feb. 13, 2013).
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    The Dodd-Frank Act \3\ was signed into law on July 21, 2010. 
Section 1471 of the Dodd-Frank Act's Title XIV, Subtitle

[[Page 48551]]

F (Appraisal Activities), added TILA section 129H, 15 U.S.C. 1639h, 
which establishes appraisal requirements that apply to ``higher-risk 
mortgages.'' Specifically, new TILA section 129H prohibits a creditor 
from extending credit in the form of a ``higher-risk mortgage'' loan to 
any consumer without first:
---------------------------------------------------------------------------

    \3\ Public Law 111-203, 124 Stat. 1376 (Dodd-Frank Act).
---------------------------------------------------------------------------

     Obtaining a written appraisal performed by a certified or 
licensed appraiser who conducts an appraisal that includes a physical 
inspection of the interior of the property and is performed in 
compliance with the Uniform Standards of Professional Appraisal 
Practice (USPAP) and title XI of the Financial Institutions Reform, 
Recovery, and Enforcement Act of 1989 (FIRREA), and the regulations 
prescribed thereunder.
     Obtaining an additional appraisal from a different 
certified or licensed appraiser if the ``higher-risk mortgage'' 
finances the purchase or acquisition of a property from a seller at a 
higher price than the seller paid, within 180 days of the seller's 
purchase or acquisition. The additional appraisal must include an 
analysis of the difference in sale prices, changes in market 
conditions, and any improvements made to the property between the date 
of the previous sale and the current sale.
A creditor that extends a ``higher-risk mortgage'' must also:
     Provide the applicant, at the time of the initial mortgage 
application, with a statement that any appraisal prepared for the 
mortgage is for the sole use of the creditor, and that the applicant 
may choose to have a separate appraisal conducted at the applicant's 
expense.
     Provide the applicant with one copy of each appraisal 
conducted in accordance with TILA section 129H without charge, at least 
three days prior to the transaction closing date.
    New TILA section 129H(f) defines a ``higher-risk mortgage'' with 
reference to the annual percentage rate (APR) for the transaction. A 
``higher-risk mortgage'' is a ``residential mortgage loan''\4\ secured 
by a principal dwelling with an APR that exceeds the average prime 
offer rate (APOR) for a comparable transaction as of the date the 
interest rate is set--
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    \4\ See Dodd-Frank Act section 1401; TILA section 103(cc)(5), 15 
U.S.C. 1602(cc)(5) (defining ``residential mortgage loan''). New 
TILA section 103(cc)(5) defines the term ``residential mortgage 
loan'' as any consumer credit transaction that is secured by a 
mortgage, deed of trust, or other equivalent consensual security 
interest on a dwelling or on residential real property that includes 
a dwelling, other than a consumer credit transaction under an open-
end credit plan. 15 U.S.C. 1602(cc)(5).
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     By 1.5 or more percentage points, for a first lien 
residential mortgage loan with an original principal obligation amount 
that does not exceed the amount for ``jumbo'' loans (i.e., the maximum 
limitation on the original principal obligation of a mortgage in effect 
for a residence of the applicable size, as of the date of the interest 
rate set, pursuant to the sixth sentence of section 305(a)(2) of the 
Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454));
     By 2.5 or more percentage points, for a first lien 
residential mortgage ``jumbo'' loan (i.e., having an original principal 
obligation amount that exceeds the amount for the maximum limitation on 
the original principal obligation of a mortgage in effect for a 
residence of the applicable size, as of the date of the interest rate 
set, pursuant to the sixth sentence of section 305(a)(2) of the Federal 
Home Loan Mortgage Corporation Act (12 U.S.C. 1454)); or
     By 3.5 or more percentage points, for a subordinate lien 
residential mortgage loan.
    The definition of ``higher-risk mortgage'' expressly excludes 
``qualified mortgages,'' as defined in TILA section 129C, and ``reverse 
mortgage loans that are qualified mortgages,'' as defined in TILA 
section 129C. 15 U.S.C. 1639c.
    The Agencies published proposed regulations for public comment on 
September 5, 2012, that would implement these higher-risk mortgage 
appraisal provisions (2012 Interagency Appraisals Proposed Rule or 2012 
Proposed Rule). 77 FR 54722 (Sept. 5, 2012). The Agencies issued the 
2013 Interagency Appraisals Final Rule on January 18, 2013. The Final 
Rule was published in the Federal Register on February 13, 2013, and is 
effective on January 18, 2014. See 78 FR 10368 (Feb. 13, 2013).

III. Summary of the 2013 Interagency Appraisals Final Rule

A. Loans Covered

    To implement the statutory definition of ``higher-risk mortgage,'' 
the Final Rule used the term ``higher-priced mortgage loan'' or HPML, a 
term already in use under the Bureau's Regulation Z with a meaning 
substantially similar to the meaning of ``higher-risk mortgage'' in the 
Dodd-Frank Act. In response to commenters, the Agencies used the term 
HPML to refer generally to the loans that could be subject to the Final 
Rule because they are closed-end credit and meet the statutory rate 
triggers, but the Agencies separately exempted several types of HPML 
transactions from the rule. The term ``higher-risk mortgage'' 
encompasses a closed-end consumer credit transaction secured by a 
principal dwelling with an APR exceeding certain statutory thresholds. 
These rate thresholds are substantially similar to rate triggers that 
have been in use under Regulation Z for HPMLs.\5\ Specifically, 
consistent with TILA section 129H, a loan is an HPML under the Final 
Rule if the APR exceeds the APOR by 1.5 percentage points for first-
lien conventional or conforming loans, 2.5 percentage points for first-
lien jumbo loans, and 3.5 percentage points for subordinate-lien 
loans.\6\
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    \5\ Added to Regulation Z by the Board pursuant to the Home 
Ownership and Equity Protection Act of 1994 (HOEPA), the HPML rules 
address unfair or deceptive practices in connection with subprime 
mortgages. See 73 FR 44522, July 30, 2008; 12 CFR 1026.35.
    \6\ The existing HPML rules apply the 2.5 percent over APOR 
trigger for jumbo loans only with respect to a requirement to 
establish escrow accounts. See 12 CFR 1026.35(b)(3)(v).
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    Consistent with TILA, the Final Rule exempts ``qualified 
mortgages'' from the requirements of the rule. Qualified mortgages are 
defined in Sec.  1026.43(e) of the Bureau's final rule implementing the 
Dodd-Frank Act's ability-to-repay requirements in TILA section 129C 
(2013 ATR Final Rule).\7\ 15 U.S.C. 1639c.
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    \7\ 78 FR 6408 (Jan. 30, 2013).
---------------------------------------------------------------------------

    In addition, the Interagency Appraisals Final Rule excludes from 
its coverage the following classes of loans:
    (1) Transactions secured by a new manufactured home;
    (2) transactions secured by a mobile home, boat, or trailer;
    (3) transactions to finance the initial construction of a dwelling;
    (4) loans with maturities of 12 months or less, if the purpose of 
the loan is a ``bridge'' loan connected with the acquisition of a 
dwelling intended to become the consumer's principal dwelling; and
    (5) reverse mortgage loans.

B. Requirements That Apply to All Appraisals Performed for Non-Exempt 
HPMLs

    Consistent with TILA, the Final Rule allows a creditor to originate 
an HPML that is not exempt from the Final Rule only if the following 
conditions are met:
     The creditor obtains a written appraisal;
     The appraisal is performed by a certified or licensed 
appraiser; and
     The appraiser conducts a physical property visit of the 
interior of the property.
    Also consistent with TILA, the following requirements also apply 
with respect to HPMLs subject to the Final Rule:
     At application, the consumer must be provided with a 
statement regarding the purpose of the appraisal, that the

[[Page 48552]]

creditor will provide the applicant a copy of any written appraisal, 
and that the applicant may choose to have a separate appraisal 
conducted for the applicant's own use at his or her own expense; and
     The consumer must be provided with a free copy of any 
written appraisals obtained for the transaction at least three business 
days before consummation.

C. Requirement To Obtain an Additional Appraisal in Certain HPML 
Transactions

    In addition, the Final Rule implements the Act's requirement that 
the creditor of a ``higher-risk mortgage'' obtain an additional written 
appraisal, at no cost to the borrower, when the loan will finance the 
purchase of the consumer's principal dwelling and there has been an 
increase in the purchase price from a prior acquisition that took place 
within 180 days of the current purchase. TILA section 129H(b)(2)(A), 15 
U.S.C. 1639h(b)(2)(A). In the Final Rule, using their exemption 
authority, the Agencies set thresholds for the increase that will 
trigger an additional appraisal. An additional appraisal will be 
required for an HPML (that is not otherwise exempt) if either:
     The seller is reselling the property within 90 days of 
acquiring it and the resale price exceeds the seller's acquisition 
price by more than 10 percent; or
     The seller is reselling the property within 91 to 180 days 
of acquiring it and the resale price exceeds the seller's acquisition 
price by more than 20 percent.
    The additional written appraisal, from a different licensed or 
certified appraiser, generally must include the following information: 
an analysis of the difference in sale prices (i.e., the sale price paid 
by the seller and the acquisition price of the property as set forth in 
the consumer's purchase agreement), changes in market conditions, and 
any improvements made to the property between the date of the previous 
sale and the current sale.
    Finally, in the Final Rule the Agencies expressed their intention 
to publish a supplemental proposal to request comment on possible 
exemptions for ``streamlined'' refinance programs and smaller dollar 
loans, as well as loans secured by certain other property types, such 
as existing manufactured homes. See 78 FR 10368, 10370 (Feb. 13, 2013). 
Accordingly, the Agencies are publishing this Proposed Rule.

IV. Legal Authority

    TILA section 129H(b)(4)(A), added by the Dodd-Frank Act, authorizes 
the Agencies jointly to prescribe regulations implementing section 
129H. 15 U.S.C. 1639h(b)(4)(A). In addition, TILA section 129H(b)(4)(B) 
grants the Agencies the authority jointly to exempt, by rule, a class 
of loans from the requirements of TILA section 129H(a) or section 
129H(b) if the Agencies determine that the exemption is in the public 
interest and promotes the safety and soundness of creditors. 15 U.S.C. 
1639h(b)(4)(B).

V. Section-by-Section Analysis

    For ease of reference, unless otherwise noted, the Supplementary 
Information refers to the section numbers of the proposed provisions 
that would be published in the Bureau's Regulation Z at 12 CFR 
1026.35(c). As explained in the Final Rule, separate versions of the 
regulations and accompanying commentary were issued as part of the 
Final Rule by the OCC, the Board, and the Bureau, respectively. 78 FR 
10367, 10415 (Feb. 13, 2013). No substantive difference among the three 
sets of rules was intended. The NCUA and FHFA adopted the rules as 
published in the Bureau's Regulation Z at 12 CFR 1026.35(a) and (c), by 
cross-referencing these rules in 12 CFR 722.3 and 12 CFR Part 1222, 
respectively. The FDIC adopted the rules as published in the Bureau's 
Regulation Z at 12 CFR 1026.35(a) and (c), but did not cross-reference 
the Bureau's Regulation Z.
    Accordingly, in this Federal Register notice, the proposed 
provisions are separately published in the HPML appraisal regulations 
of the OCC, the Board, and the Bureau. No substantive difference among 
the three sets of proposed rules is intended.

Section 1026.2 Definitions and Rules of Construction

2(a) Definitions
2(a)(6) Business Day
    The term ``business day'' is used with respect to two requirements 
in the Final Rule. First, the Final Rule requires the creditor to 
provide the consumer with a disclosure that ``shall be delivered or 
placed in the mail not later than the third business day after the 
creditor receives the consumer's application for a higher-priced 
mortgage loan'' subject to Sec.  1026.35(c). Sec.  1026.35(c)(5)(i) and 
(ii). Second, the Final Rule requires the creditor to provide to the 
consumer a copy of each written appraisal obtained under the Final Rule 
``[n]o later than three business days prior to consummation of the 
loan.'' Sec.  1026.35(6)(i) and (ii).
    The Agencies propose to define ``business day'' in the Final Rule 
to mean ``all calendar days except Sundays and the legal public 
holidays specified in 5 U.S.C. 6103(a), such as New Year's Day, the 
Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial 
Day, Independence Day, Labor Day, Columbus Day, Veterans Day, 
Thanksgiving Day, and Christmas Day.'' Sec.  1026.2(a)(6). The Agencies 
propose this definition for consistency with disclosure timing 
requirements under both the existing Regulation Z mortgage disclosure 
timing requirements and the Bureau's proposed rules for combined 
mortgages disclosures under TILA and the Real Estate Settlement 
Procedures Act (RESPA), 12 U.S.C. 2601 et seq. (2012 TILA-RESPA 
Proposed Rule). See Sec.  1026.19(a)(1)(ii) and (a)(2); see also 77 FR 
51116 (Aug. 23, 2012) (e.g., proposed Sec.  1026.19(e)(1)(iii) (early 
mortgage disclosures) and (f)(1)(ii) (final mortgage disclosures).
    Under existing Regulation Z, early disclosures must be delivered or 
placed in the mail not later than the seventh business day before 
consummation of the transaction; if the disclosures need to be 
corrected, the consumer must receive corrected disclosures no later 
than three business days before consummation (the consumer is deemed to 
have received the corrected disclosures three business days after they 
are mailed or delivered). See Sec.  1026.19(a)(2)(i)-(ii). For these 
purposes, ``business day'' is defined as quoted previously. One reason 
that the Agencies propose to align the definition of ``business day'' 
under the Final Rule with the definition of ``business day'' for these 
disclosures is to avoid the creditor having to provide the copy of the 
appraisal under the HPML rules and corrected Regulation Z disclosures 
at different times (because different definitions of ``business day'' 
would apply).\8\
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    \8\ If the Agencies do not adopt the proposed definition of 
``business day,'' the definition that would apply would be ``a day 
on which the creditor's offices are open to the public for carrying 
on substantially all of its business functions.'' Sec.  
1026.2(a)(6).
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    The proposed definition of ``business day'' is also intended to 
align with the definition of ``business day'' for the timing 
requirements of mortgage disclosures under the 2012 TILA-RESPA 
Proposal. See proposed Sec.  1026.2(a)(6). The 2012 TILA-RESPA Proposal 
would require the creditor to deliver the early mortgage disclosures 
``not later than the third business day after the creditor receives the

[[Page 48553]]

consumer's application.'' Proposed Sec.  1026.19(e)(1)(iii). The 2012 
TILA-RESPA Proposal would require the final mortgage disclosures ``not 
later than three business days before consummation.'' Proposed Sec.  
1026.19(f)(1)(ii). For these purposes, ``business day'' would be 
defined as the Agencies propose to define ``business day'' in the Final 
Rule.
    If the Bureau adopts this aspect of the 2012 TILA-RESPA Proposal, 
then using the proposed definition of ``business day'' in the Final 
Rule would ensure that the HPML appraisal notice and the early mortgage 
disclosures have to be provided at the same time (no later than three 
``business days'' after the creditor receives the consumer's 
application). This would also ensure that the copy of the HPML 
appraisal and the final mortgage disclosures have to be provided at the 
same time (no later than three ``business days'' before consummation). 
The Agencies believe that this alignment will facilitate compliance and 
reduce consumer confusion by reducing the number of disclosures that 
consumers might receive at different times.

Section 1026.35 Requirements for Higher-Priced Mortgage Loans

35(c) Appraisals for Higher-Priced Mortgage Loans
35(c)(2) Exemptions
35(c)(2)(i)
Qualified Mortgages
    By statute, qualified mortgages ``as defined in [TILA] section 
129C'' are exempt from the special appraisal rules for ``higher-risk 
mortgages.'' 15 U.S.C. 1639c; TILA section 129H(f)(1), 15 U.S.C. 
1639h(f)(1). The Agencies implemented this exemption in the Interagency 
Appraisals Final Rule by cross-referencing Sec.  1026.43(e), the 
definition of qualified mortgage issued by the Bureau in its 2013 ATR 
Final Rule. See Sec.  1026.35(c)(2)(i). The Bureau defined qualified 
mortgage under authority granted to the Bureau to issue ability-to-
repay rules and define qualified mortgage. See, e.g., TILA section 
129C(a)(1), (b)(3)(A), and (b)(3)(B)(i), 15 U.S.C. 1639c(a)(1), 
(b)(3)(A), and (b)(3)(B)(i).
    To align the regulation with the statute, the Agencies propose to 
revise the cross-referenced definition of qualified mortgage to include 
all qualified mortgages ``as defined pursuant to TILA section 129C.'' 
15 U.S.C. 1639c. In addition to authority granted to the Bureau, TILA 
section 129C grants authority to the U.S. Department of Housing and 
Urban Development (HUD), U.S. Department of Veterans Affairs (VA), U.S. 
Department of Agriculture (USDA), and the Rural Housing Service (RHS), 
which is a part of USDA, to define the types of loans ``insure[d], 
guarantee[d], or administer[ed]'' by those agencies, respectively, that 
are qualified mortgages. TILA section 129H(b)(3)(B)(ii), 15 U.S.C. 
1639h(b)(3)(B)(ii). The Agencies recognize that HUD, VA, USDA, and RHS 
may issue rules defining qualified mortgages pursuant to their TILA 
section 129C authority. Therefore, the Agencies propose to expand the 
definition of qualified mortgages that are exempt from the HPML 
appraisal rules to cover qualified mortgages as defined by HUD, VA, 
USDA, and RHS. 15 U.S.C. 1639c.
    Question 2: The Agencies request comment on this proposed revision.
35(c)(2)(ii)
35(c)(2)(ii)(A)
Loans Secured by a New Manufactured Home
    In the Final Rule, the Agencies exempted several classes of loans 
from the HPML appraisal rules, including transactions secured by a 
``new manufactured home.'' \9\ Sec.  1026.35(c)(2)(ii). The exemption 
for transactions secured by a new manufactured home applies regardless 
of whether the transaction is also secured by the land on which it is 
sited. See comment 35(c)(2)(ii)-1. The reasons for the exemption were 
discussed in the Final Rule.\10\ The Agencies' general rationale was 
that alternative means for valuing new manufactured homes exist that, 
based upon the Agencies' understanding of historical practice, appeared 
more appropriate for these types of transactions. The Final Rule did 
not address loans secured by ``existing'' (used) manufactured homes, 
which are, therefore, subject to the appraisal requirements unless the 
Agencies adopt an exemption.
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    \9\ The Final Rule also exempts qualified mortgages; reverse 
mortgage loans; transactions secured by a mobile home, boat, or 
trailer; transactions to finance the initial construction of a 
dwelling; and loans with maturities of 12 months or less, if the 
purpose of the loan is a ``bridge'' loan connected with the 
acquisition of a dwelling intended to become the consumer's 
principal dwelling. See Sec.  1026.35(c)(2).
    \10\ 78 FR 10368, 10379-80 (Feb. 13, 2013).
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    The Agencies propose to retain the exemption for transactions 
secured by new manufactured homes in re-numbered Sec.  
1026.35(c)(2)(ii)(A), but are seeking further comment on the scope of 
this exemption and whether certain conditions on the exemption might be 
appropriate. The Agencies further propose to re-number and revise 
comment 35(c)(2)(ii)-1 as proposed comment 35(c)(2)(ii)(A)-1. The 
proposed revisions to this comment are for clarity only; no substantive 
change is intended.
    Loans secured solely by a new manufactured home and not land. As 
noted previously, the Final Rule exempted HPMLs secured solely by a new 
manufactured home and not land from the HPML appraisal rules--thus, the 
Final Rule applies no valuation requirement to these transactions.
    Question 3: However, based on additional research and outreach, the 
Agencies seek comment on whether consumers in these transactions would 
benefit by receiving from the creditor a unit value estimate from an 
objective third-party source, such as an independent cost guide.
    Since the Final Rule was issued, consumer advocates have expressed 
concerns that some transactions in the lending channel for new home-
only (chattel) transactions can result in consumers owing more than the 
manufactured home is worth. For this type of loan, consumer and 
affordable housing advocates assert that networks of manufacturers, 
broker/dealers, and lenders are common, and that these parties can 
coordinate sales prices and loan terms to increase manufacturer, 
dealer, and lender profits, even where this leads to loan amounts that 
exceed the collateral value. Advocates have raised concerns that, where 
the original loan amount exceeds the collateral value and the consumer 
is unaware of this fact, the consumer is often unprepared for 
difficulties that can arise when seeking to refinance or sell the home 
at a later date. They have also noted that that chattel manufactured 
home loan transactions tend to have much higher rates than conventional 
mortgage loans.\11\ Some consumer advocates have suggested that giving 
the consumer third-party information about the unit value could be 
helpful in educating the consumer, particularly as to the risk that the 
loan amount might exceed the collateral value, and might prompt the 
consumer to ask questions about the transaction. Consumer

[[Page 48554]]

advocates and other outreach participants had questions about the 
accuracy of available cost services for estimating the unit value of 
new manufactured homes. They asserted, for example, that where a 
manufactured home will be sited can have a major impact on the value of 
the home and that cost services do not in all cases sufficiently 
account for that aspect of the value.\12\ Nonetheless, some advocates 
expressed the view that giving the consumer some cost estimate would be 
beneficial.
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    \11\ See, e.g., Howard Baker and Robin LeBaron, Fair Mortgage 
Collaborative, Toward a Sustainable and Responsible Expansion of 
Affordable Mortgages for Manufactured Homes (March 2013) at 10 
(reporting that ``[c]hattel loans typically feature higher interest 
rates than mortgages: current rates range between 6% and 14%, 
depending on the borrower's credit history and the size of the 
downpayment, compared to 2.5% to 5% for mortgages at the present 
time.''). This report is available at http://cfed.org/assets/pdfs/IM_HOME_Loan_Data_Collection_Project_Report.pdf.
    \12\ The National Automobile Dealers Association (NADA) 
Manufactured Housing Cost Guide provides for adjustments based on, 
among other factors, the state in which the home is located and the 
quality of the land-lease community in which the home is located, if 
applicable. See NADAguides.com Value Report, available at 
www.nadaguides.com/Manufactured-Homes/images/forms/MHOnlineSample.pdf.
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    Based on input from lenders and manufactured home valuation 
providers, the Agencies understand that in new home-only transactions, 
third-party cost services are not typically used to value the property. 
Instead, many creditors use the manufacturer's invoice, or wholesale 
unit price, and lend a percentage of that amount, which might exceed 
100 percent to reflect, for example, a dealer mark-up and siting costs. 
As discussed in the Supplementary Information to the Proposed Rule, 
outreach participants have indicated that this practice--similar to 
that sometimes used for automobiles--is longstanding in new 
manufactured home transactions.\13\ Lenders asserted that this method 
saves costs for consumers and creditors and has been found to be 
reasonably effective and accurate for purposes of ensuring a safe and 
sound loan.
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    \13\ See 77 FR 54722, 54732-33 (Sept. 5, 2012).
---------------------------------------------------------------------------

    Question 4: In light of additional concerns expressed about 
valuations in new manufactured home chattel transactions, the Agencies 
request comment on whether it may be appropriate to condition the 
exemption from the HPML appraisal requirements on the creditor 
providing the consumer with a third-party estimate of the manufactured 
home unit cost.
    Question 5: If so, the Agencies request comment on which third-
party estimate(s) should be used for this purpose.
    Question 6: The Agencies also request comment on when this 
information should be required to be provided.\14\
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    \14\ Unless the manufactured home alone, without land, is titled 
as real property under state law, loans secured solely by a 
manufactured home are not subject to the early disclosure 
requirements under Regulation Z, 12 CFR 1026.19, because they are 
not subject to RESPA. See Sec.  1026.19(a)(1)(i) and 12 CFR 1024.2 
(defining ``federally related mortgage loan'' to include only loans 
secured by residential real property). Therefore, the Agencies 
believe that in some chattel transactions, the time between 
application and consummation may be relatively short.
---------------------------------------------------------------------------

    Question 7: The Agencies request comment on whether the consumer 
typically receives unit cost information in a new manufactured home 
chattel transaction and what, if any, cost information from an 
independent third party source might be reasonably available to 
creditors, reliable, and useful to a consumer.
    Question 8: The Agencies further request comment on the utility of 
third-party unit cost information to consumers in these transactions 
(even if the creditor is using a different method to value the home).
    Question 9: The Agencies understand that the location of the 
property can impact the value of the home, even if the property on 
which the unit is sited is not owned by the consumer, and seek more 
information about the impact on home value of a unit's location and 
whether cost services are available that account adequately for 
differences in location.
    Question 10: The Agencies further request comment on whether 
readily-accessible, publicly-available information exists that 
consumers could use to determine whether their loan amount exceeds the 
collateral value in a new manufactured home chattel transaction, and 
whether consumers are generally aware of this information.\15\
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    \15\ The Bureau's new Regulation B valuation disclosure rules 
under the Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691 et 
seq. (2013 ECOA Valuations Rule), consistent with current ECOA 
Regulation B, does not provide for the consumer to receive a copy of 
the manufacturer's invoice. See 12 CFR 1002.14(c) and comment 14(c)-
2.iii (current Regulation B); see also 78 FR 7216 (Jan. 31, 2013) 
(issuing new 12 CFR 1002.14(b)(3) and comment 1002.14(b)(3)-3.iv, 
with an effective date of January 18, 2014).
---------------------------------------------------------------------------

    Question 11: Finally, the Agencies request comment on potential 
burdens and costs of imposing this condition on the exemption, and any 
implications for consumer access to credit (again, noting that any of 
these loans that are qualified mortgages are exempt under the separate 
exemption for qualified mortgages, Sec.  1026.35(c)(2)(i)).
    Loans secured by a new manufactured home and land. Since issuing 
the Final Rule, the Agencies have obtained additional information on 
valuation methods for manufactured homes.
    Appraisers and state appraiser boards consulted in outreach efforts 
confirmed that USPAP-compliant real property appraisals with interior 
inspections are possible and conducted with at least some regularity in 
these transactions.\16\ The Agencies understand that these appraisals 
value the land and the home together as a package based upon comparable 
transactions that have been exposed to the open market (as would be 
done with a site-built home or any other existing home).\17\ They also 
can document additional value based on siting costs and the home's 
location, and in some cases can identify visible discrepancies between 
the manufacturer's specifications and the actual home once it is sited.
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    \16\ Comments on the Proposed Rule from a large real estate 
agent trade association also suggested that exempting these 
transactions may not be appropriate.
    \17\ See, e.g., Texas Appraiser Licensing and Certification 
Board, ``Assemblage As Applied to Manufactured Housing,'' available 
at http://www.talcb.state.tx.us/pdf/USPAP/AssemblageAsAppliedToMfdHousing.pdf.
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    In addition, USPAP-compliant real property appraisals are regularly 
conducted for all transactions under federal government agency and 
government-sponsored enterprise (GSE) manufactured home loan 
programs.\18\ HUD Title II program standards, for example, which apply 
to transactions secured by a manufactured home and land titled together 
as real property, require USPAP-compliant appraisals.\19\
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    \18\ See, e.g., HUD: 24 CFR 203.5(e); HUD Handbook 4150.2, 
Valuations for Analysis for Home Mortgage Insurance for Single 
Family One- to Four-Unit Dwellings (HUD Handbook 4150.2), chapter 
8.4 and App. D; USDA: 7 CFR 3550.62(a) and 3550.73; USDA Direct 
Single Family Housing Loans and Grants Field Office Handbook (USDA 
Handbook), chapters 5.16 and, 9.18; VA: VA Lenders Handbook, VA 
Pamphlet 26-7 (VA Handbook), chapters 7.11, 11.3, and 11.4; Fannie 
Mae: Fannie Mae Single Family 2013 Selling Guide B5-2.2-04, 
Manufactured Housing Appraisal Requirements (04/01/2009); Freddie 
Mac: Freddie Mac Single Family Seller/Servicer Guide, H33: 
Manufactured Homes/H33.6: Appraisal requirements (02/10/12).
    \19\ Title II appraisal standards are available in HUD Handbook 
4150.2. For supplemental standards for manufactured housing, see HUD 
Handbook 4150.2, chapters 8-1 through 8-4. The valuation protocol in 
Appendix D of HUD Handbook 4150.2 calls for a certification that the 
appraisal is USPAP compliant (page D-9).
---------------------------------------------------------------------------

    A representative of manufactured home appraisers and a manufactured 
home community development financial institution (CDFI) representative 
stated that they conduct appraisals for loans secured by a new 
manufactured home and land before the home is sited based on plans and 
specifications for the new home. An interior property inspection occurs 
once the home is sited (although the CDFI representative indicated that 
it did not always use a state-certified or -licensed appraiser for the 
final inspection). These outreach participants suggested that, in their 
experience, qualified certified- or -licensed appraisers are not unduly

[[Page 48555]]

difficult to find to perform these appraisals.\20\
---------------------------------------------------------------------------

    \20\ For HUD-insured loans secured by real property--a 
manufactured home and lot together--the Federal Housing 
Administration (FHA) requires creditors to use a HUD Title II Roster 
appraiser that can certify to prior experience appraising 
manufactured homes as real property. See HUD Title I Letter 481, 
Appendix 10-5.
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    In commenting on the Proposed Rule and in outreach, lenders have 
raised concerns that comparable sales (``comparables'') of other 
manufactured homes can be particularly difficult to find. The Agencies 
understand that this can be a barrier to obtaining a manufactured home 
appraisal, especially in certain loan programs that require appraisals 
of manufactured homes to use a certain number of manufactured home 
comparables and have other restrictions on the comparables that may be 
used.\21\ The Agencies note, however, that USPAP does not require that 
manufactured home comparables be used. USPAP allows the appraiser to 
use site-built or other types of home construction as comparables with 
adjustments where necessary.\22\ A current version of the Appraisal 
Institute seminar on manufactured housing appraisals confirms that when 
necessary, USPAP appraisals can use non-manufactured homes as 
comparables, making adjustments where needed.\23\ Based on their 
experience, an appraiser representative and a manufactured home CDFI 
representative in informal outreach with the Agencies stated that 
comparable properties have not been unduly difficult to find, even in 
rural areas.
---------------------------------------------------------------------------

    \21\ See Robin LeBaron, FAIR MORTGAGE COLLABORATIVE, Real Homes, 
Real Value: Challenges, Issues and Recommendations Concerning Real 
Property Appraisals of Manufactured Homes (Dec. 2012) at 19-28. This 
report is available at http://cfed.org/assets/pdfs/Appraising_Manufacture_Housing.pdf.
    \22\ See HUD Handbook 4150.2, chapter 8.4 (providing the 
following instructions on appraisals for manufactured homes insured 
under HUD's Title II program: ``If there are no manufactured housing 
sales within a reasonable distance from the subject property, use 
conventionally built homes. Make the appropriate and justifiable 
adjustments for size, site, construction materials, quality, etc. As 
a point of reference, sales data for manufactured homes can usually 
be found in local transaction records.'').
    \23\ See Appraisal Institute, ``Appraising Manufactured 
Housing--Seminar Handbook,'' Doc. PS009SH-F (2008) at Part 8, 8-110.
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    Question 12: Based on this information, the Agencies request 
comment and information concerning whether to require USPAP-compliant 
appraisals with interior property inspections conducted by a state-
licensed or -certified appraiser for HPMLs secured by both a new 
manufactured home and land.
    Question 13: The Agencies also seek comment on whether some other 
valuation method should be required as a condition of the exemption 
from the HPML appraisal requirements.
    At the same time, the Agencies believe that questions remain about 
the impact on the industry and consumers of requiring USPAP-compliant 
real property appraisals with interior inspections in transactions 
secured by a new manufactured home and land for which these types of 
appraisals are not already required. For example, manufactured home 
lenders commented on the Proposed Rule and shared in subsequent 
outreach that they typically do not conduct an interior inspection 
appraisal of a new manufactured home, but use other methods, such as 
relying on the manufacturer's invoice for the new home and conducting a 
separate, USPAP-compliant appraisal of the land.\24\ Thus, requiring a 
USPAP-compliant appraisal with an interior inspection could require 
systems changes for some manufactured home lenders. If the USPAP-
compliant appraisal with an interior inspection required under the 
Final Rule were more expensive than existing methods, then imposing the 
requirements of the Final Rule on these transactions would lead to 
additional costs that could be passed on in whole or in part to 
consumers.
---------------------------------------------------------------------------

    \24\ Some consumer and affordable housing advocates and 
appraisers in outreach have expressed the view that separately 
valuing the component parts of a manufactured home plus land 
transaction can result in material inaccuracies.
---------------------------------------------------------------------------

    Question 14: Accordingly, the Agencies request data on the extent 
to which a USPAP-compliant real property appraisal with an interior 
property inspection would be of comparable cost to, or more or less 
expensive than, a USPAP-compliant appraisal of a lot combined with an 
invoice price for the home unit.
    Question 15: The Agencies also request comment on the potential 
burdens on creditors and consumers and any potential reduction in 
access to credit that might result from imposing requirement for a 
USPAP-compliant appraisal with an interior property inspection on all 
manufactured home creditors of loans secured by both a new manufactured 
home and land. In this regard, the Agencies ask commenters to bear in 
mind that any of these transactions that are qualified mortgages are 
exempt from the HPML appraisal requirements under the separate 
exemption for qualified mortgages. See Sec.  1026.35(c)(2)(i).
    Question 16: Finally, the Agencies request comment on whether and 
the extent to which consumers in these transactions typically receive 
information about the value of their land and home and, if so, what 
information is received.
35(c)(2)(ii)(B)
Loans Secured Solely by an Existing Manufactured Home and Not Land
    In new Sec.  1026.35(c)(2)(ii)(B), the Agencies propose to exempt 
transactions secured solely by an existing (used) manufactured home and 
not land from the HPML appraisal requirements. Proposed comment 
35(c)(2)(ii)(B)-1 would clarify that an HPML secured by a manufactured 
home and not land would not be subject to the appraisal requirements of 
Sec.  1026.35(c), regardless of whether the home is titled as realty by 
operation of state law. The Agencies recognize that in certain states 
residential structures such as manufactured homes may be deemed real 
property, even though they are not titled together with the land.\25\ 
The Agencies believe that the barriers discussed in more detail below 
to producing USPAP-compliant real property appraisals with interior 
property inspections for manufactured homes in home-only transactions 
are the same regardless of whether a jurisdiction categorizes the 
manufactured home as personal property (chattel) or real property.
---------------------------------------------------------------------------

    \25\ See, N.H. Rev. Stat. Ann Sec. 477:44 (2013).
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    Question 17: The Agencies request comment on this view and 
approach.
    The Agencies also considered an exemption for loans secured by both 
an existing manufactured home and land, but are not proposing an 
exemption for these HPMLs. A discussion of the proposed treatment of 
both types of loans (secured solely by an existing manufactured home 
and secured by an existing manufactured home plus land) is below.
    Loans secured solely by an existing manufactured home and not land. 
The Agencies propose an exemption for transactions secured solely by an 
existing manufactured home and not land based on additional research 
and outreach. For the loans secured solely by an existing manufactured 
home and not land, the Agencies understand that current valuation 
practices generally do not involve using a state-certified or -licensed 
appraiser to perform a USPAP- and FIRREA-compliant real property 
appraisal with an interior property inspection, as required under TILA 
section 129H and the Final Rule. 15 U.S.C. 1639h. Outreach to 
manufactured home lenders indicated that they

[[Page 48556]]

typically obtain replacement cost estimates derived from nationally-
published cost services, taking into account the age (to derive 
depreciated values) and regional location of the home. One cost service 
adjustment form often used for this purpose also allows for an 
adjustment based upon the quality of the land-lease community where the 
property is located (if applicable).\26\ Lenders have indicated that 
this method saves costs for consumers and creditors and has been found 
to be reasonably effective and accurate for purposes of ensuring a safe 
and sound loan.
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    \26\ See NADA, Manufactured Housing Cost Guide, available at 
NADAguides.com Value Report, available at www.nadaguides.com/Manufactured-Homes/images/forms/MHOnlineSample.pdf.
---------------------------------------------------------------------------

    In addition, lender commenters on the Proposed Rule raised concerns 
about the availability of data on comparable sales that may be used by 
appraisers for loans secured by an existing manufactured home and not 
land. They indicated that data from used manufactured home sales not 
involving land (usually titled as personal property) are not currently 
recorded in multiple listing services of most states, for example, so 
an appraiser's ability to obtain information on comparable manufactured 
homes without land is more limited than in real estate transactions. A 
provider of manufactured home valuation services subsequently confirmed 
to the Agencies that manufactured home sales information is generally 
not available through standard real estate data sources. The Agencies 
also understand that, in many states, appraisers are not currently 
required to be licensed or certified in order to perform personal 
property appraisals.
    Accordingly, the Agencies believe that an exemption for these 
transactions from the HPML appraisal rules would be in the public 
interest because it would facilitate continued consumer access to HPML 
financing for existing manufactured homes, which are an important 
source of affordable housing.\27\ The Agencies believe that this 
exemption also would promote the safety and soundness of creditors, 
because creditors would be able to continue using currently prevalent 
valuation methods, which can facilitate offering products that they 
have relied on to ensure profitability and product diversity to 
mitigate risk.
---------------------------------------------------------------------------

    \27\ See generally, Howard Baker and Robin LeBaron, FAIR 
MORTGAGE COLLABORATIVE, Toward a Sustainable and Responsible 
Expansion of Affordable Mortgages for Manufactured Homes (March 
2013) at 9. This report is available at http://cfed.org/assets/pdfs/IM_HOME_Loan_Data_Collection_Project_Report.pdf.
---------------------------------------------------------------------------

    At the same time, consumer and affordable housing advocates have 
raised concerns about consumers borrowing more money than the home is 
worth in these transactions, which, as noted, also tend to have much 
higher rates than conventional loans secured by site-built homes.\28\ 
The Agencies generally believe that consumers and creditors benefit 
when an accurate valuation is obtained for a credit transaction secured 
by the consumer's home. The Agencies further recognize that a 
manufactured home that has been previously occupied is subject to 
depreciation and might have wear and tear or other physical changes 
that can make the property value more difficult to assess than that of 
a new manufactured home.\29\ The value of the home also may have 
changed as a result of changes in the broader housing market.
---------------------------------------------------------------------------

    \28\ See, e.g., Howard Baker and Robin LeBaron, FAIR MORTGAGE 
COLLABORATIVE, Toward a Sustainable and Responsible Expansion of 
Affordable Mortgages for Manufactured Homes (March 2013) at 10.
    \29\ The Agencies understand that appraisers typically limit 
their valuations to clearly visible features or physical changes to 
the home that can impact value. Detailed examinations of wear and 
tear are the purview of home inspections, which generally are the 
responsibility of the consumer to obtain.
---------------------------------------------------------------------------

    Question 18: The Agencies request comment on whether the proposed 
exemption should be conditioned on the creditor obtaining an 
alternative valuation (i.e., a valuation other than a USPAP- and 
FIRREA-compliant real property appraisal with an interior property 
inspection) that is tailored to estimating the value of an existing 
manufactured home without land and providing a copy of it to the 
consumer.
    The Agencies believe that an exemption conditioned in this way may 
be in keeping with the intent behind TILA section 129H to ensure that 
consumers have access to information about the value of the home that 
would secure the loan before entering into an HPML. See TILA section 
129H(c), 15 U.S.C. 1639h(c) (requiring a creditor to provide the 
applicant with a copy of any appraisal obtained under TILA section 
129H).
    Question 19: To inform the Agencies in considering this condition, 
the Agencies request information on whether creditors typically obtain 
valuations for loans secured solely by an existing manufactured home 
and not land and, if so, what types of valuations they obtain.
    Question 20: The Agencies also seek commenters' views on the 
efficacy and accuracy of any prevailing valuation methods used for 
these loans. Some of these methods are discussed below.
    As noted, the Agencies are aware that HUD has property valuation 
standards for HUD-insured loans secured by an existing manufactured 
home and not land.\30\ In addition, for appraisals of manufactured 
homes ``classified as personal property,'' HUD standards call for, 
among other requirements, the use of ``an independent fee appraiser who 
has been certified by NADA to use NADA's National Appraisal System.'' 
\31\ Specifically, among other requirements, creditors of these types 
of HUD-insured loans must obtain an appraisal reflecting the retail 
value of comparable manufactured homes in similar condition and in the 
same geographic area.\32\ Relevant HUD appraisal requirements for these 
loans also include specifications for appraiser qualifications, 
information that the creditor must provide to the appraiser, and the 
creditor's review of the appraisal.\33\ The Agencies have concerns, 
however, that appraisers trained to conduct the types of appraisals 
required by HUD for its Title I program may be limited, but seek 
information on the availability of individuals to perform appraisals 
compliant with HUD Title I standards.
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    \30\ See HUD Title I Letter 481 (Aug. 14, 2009), Appendices 8-9, 
C, and 10-5. The Agencies note that the HUD Title I program 
appraisal requirements are for determining eligibility for insurance 
that benefits the creditor.
    \31\ See HUD Title I Letter 481 (Aug. 14, 2009), Appendices 8-9, 
C, and 10-5, issued pursuant to authority granted to HUD under 
section 2(b)(10) of the National Housing Act, 12 U.S.C. 1703(b)(10). 
The Agencies understand that the NADA National Appraisal System is 
an appraisal method involving both the comparable sales and the cost 
approach.
    \32\ See id.
    \33\ See id. VA and USDA manufactured home programs do not 
involve transactions secured solely by a manufactured home and not 
land; thus, these programs do not incorporate special requirements 
for valuing these types of properties.
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    USPAP Standards 7 and 8 for personal property provide guidance for 
appraising personal property based on several approaches--the sales 
comparison approach, cost approach, and income approach--which are to 
be used as the appraiser determines necessary to produce a credible 
appraisal.\34\ The Agencies are aware that there are comparable-based 
methods of valuing existing manufactured homes without land other than 
the method prescribed for the HUD Title I program. In addition, for the 
cost approach, cost services are available for creditors to consult and 
make adjustments based on several factors (which might differ depending 
on the cost service used), such as the property age, condition, the

[[Page 48557]]

land-lease community, and the home's geographic location.\35\ These 
resources enable the creditor to obtain a depreciated replacement cost 
for an existing manufactured home.
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    \34\ See, e.g., USPAP Standards Rule 7-4.
    \35\ See, e.g., NADAguides.com Value Report, available at 
www.nadaguides.com/Manufactured-Homes/images/forms/MHOnlineSample.pdf; see also Fannie Mae Single Family 2013 Selling 
Guide B5-2.2-04, Manufactured Housing Appraisal Requirements (04/01/
2009) and Freddie Mac Single Family Seller/Servicer Guide, H33: 
Manufactured Homes/H33.6: Appraisal requirements (02/10/12) 
(referencing the NADA Manufactured Housing Appraisal Guide[supreg] 
and the Marshall & Swift[supreg] Residential Cost Handbook as 
resources for manufactured home cost information).
---------------------------------------------------------------------------

    Question 21: The Agencies request comment on whether, to obtain the 
proposed exemption from the HPML appraisal rules for HPMLs secured by 
an existing manufactured home without land, a creditor should have to 
comply with the appraisal requirements for a manufactured home 
classified as personal property under HUD's Title I Manufactured Home 
Loan Insurance Program, or similar requirements involving comparable 
sales.
    Question 22: In this regard, the Agencies also seek additional 
comment and information on the availability of: (1) Comparable sales 
data for appraisers to use in an appraisal of a manufactured home 
alone, without land; and (2) state-certified or -licensed appraisers to 
appraise these properties.
    Question 23: The Agencies also request comment on whether the 
proposed exemption would appropriately be conditioned on the creditor 
obtaining, and providing to the consumer, a valuation of the dwelling 
that uses an independently published cost guide with appropriate 
adjustments for factors such as home condition, accessories, location, 
and community features, as applicable.
    Question 24: The Agencies request comment on whether use of a cost 
service with adjustments generally involves a physical inspection of 
the property, who conducts that physical inspection, and whether any 
condition on the proposed exemption allowing use of a cost service 
estimate with adjustments should require a physical inspection of the 
unit.
    Question 25: In addition, the Agencies seek comment on whether an 
appropriate condition for an exemption from the HPML appraisal rules 
would be more generally that the creditor have obtained and provided to 
the consumer an appraisal compliant with USPAP Standards 7 and 8 for 
personal property. The Agencies are considering whether it would be 
appropriate to provide the creditor with more than one option for 
obtaining an alternative valuation as a condition of this exemption.
    Loans secured by an existing manufactured home and land. The 
Agencies considered also exempting transactions that are secured by 
both an existing manufactured home and land. However, at this stage, 
the Agencies believe that an exemption for these transactions from the 
USPAP-compliant real property appraisal standards in the Final Rule 
would not be in the public interest and promote the safety and 
soundness of creditors. As discussed in the section-by-section analysis 
of Sec.  1026.35(c)(2)(ii)(A), federal government and GSE manufactured 
home loan programs generally require compliance with USPAP real 
property appraisal standards for appraisals in connection with 
transactions secured by both a manufactured home and land. The Agencies 
believe that these requirements may reflect that conducting a USPAP-
compliant appraisal following USPAP Standards 1 and 2 for real property 
appraisals are feasible for existing manufactured homes together with 
land. This view was affirmed by several participants in informal 
outreach with experience in the area of manufactured home loan 
appraisals, who indicated that USPAP-compliant real property appraisals 
with an interior inspection are feasible and performed with regularity 
in these types of transactions.
    For these reasons, the Agencies are not proposing to exempt loans 
secured by an existing manufactured home and land from the HPML 
appraisal requirements. The Agencies note that some commenters on the 
Proposed Rule recommended that the Agencies exempt these types of 
``land/home'' transactions.\36\
---------------------------------------------------------------------------

    \36\ See 78 FR 10368, 10379-80 (Feb. 13, 2013).
---------------------------------------------------------------------------

    Question 26: The Agencies request further comment whether to exempt 
these transactions and, if so, why an exemption would be in the public 
interest and promote the safety and soundness of creditors.
35(c)(2)(vii)
Certain Refinancings
    The Agencies are also proposing to exempt from the HPML appraisal 
rules certain types of refinancings with characteristics common to 
refinance products often referred to as ``streamlined'' refinances. 
Specifically, the Agencies propose to exempt an extension of credit 
that is a refinancing where the owner or guarantor of the refinance 
loan is the current owner or guarantor of the existing obligation. In 
addition, the regular periodic payments under the refinance loan must 
not result in negative amortization, cover only interest on the loan, 
or result in a balloon payment. Finally, the proceeds from the 
refinance loan may be used solely to pay off the outstanding principal 
balance on the existing obligation and to pay closing or settlement 
charges.
    As discussed more fully below, the Agencies believe that this 
exemption would be in the public interest and promote the safety and 
soundness of creditors. The following discussion of this proposed 
exemption includes a description of ``streamlined'' refinancing 
programs; a summary of the comments regarding an exemption for 
refinancings received on the 2012 Interagency Appraisals Proposed Rule; 
and an explanation of the requirements of, and conditions on, the 
proposed exemption.
Background
    In an environment of historically low interest rates, the federal 
government has supported ``streamlined'' refinance programs as a way to 
promote the ongoing recovery of the consumer mortgage market. Notably, 
the Home Affordable Refinance Program (HARP) was introduced by the U.S. 
Treasury Department in 2009 to provide refinance relief options to 
consumers following the steep decline in housing prices as a result of 
the financial crisis. The HARP program was expanded in 2011 and is 
currently set to expire in 2015.
    Federal government agencies--HUD, VA, and USDA--as well as the GSEs 
have developed ``streamlined'' refinance programs to address consumer, 
creditor and investor risks.\37\ These programs enable many consumers 
to refinance the balance of those mortgages through an abbreviated 
application and underwriting process.\38\ Under these

[[Page 48558]]

programs, consumers with little or no equity in their homes,\39\ as 
well as consumers with significant equity in their homes,\40\ can 
restructure their mortgage debt, often at lower interest rates or 
payment amounts than under their existing loans.\41\
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    \37\ Under existing GSE ``streamlined'' refinance programs, 
Freddie Mac and Fannie Mae purchase and guarantee ``streamlined'' 
refinance loans for consumers under HARP (whose existing loans have 
loan-to-value ratios (LTVs) over 80 percent) as well as for 
consumers whose existing loans have LTVs at or below 80 percent.
    \38\ See Fannie Mae Single Family Selling Guide, chapter B5-5, 
section B5-5.2 (Refi Plus[supreg] and DU Refi Plus[supreg] loans); 
Freddie Mac Single Family Seller/Servicer Guide, chapters A24, B24, 
and C24 (Relief Refinance[supreg] Loans); HUD Handbook 4155.1, 
chapters 3.C and 6.C (Streamline Refinances) and Title I Appendix 
11-3 (manufactured home streamline refinances); USDA Rural 
Development Admin. Notice 4615 (Rural Refinance Pilot); and VA 
Lenders Handbook, chapter 6 (Interest Rate Reduction Refinance 
Loans, or IRRRLs). Creditworthiness evaluations generally are not 
required for Refi Plus, Relief Refinance, HUD Streamline Refinance, 
or IRRRL loans unless borrower monthly payments would increase by 20 
percent or more. See HUD Handbook 4155.1, chapter 6.C.2.d; Fannie 
Mae Single Family Selling Guide, chapter B5-5, section B5-5.2 (Refi 
Plus and DU Refi Plus loans); Freddie Mac Single Family Seller/
Servicer Guide, chapters A24, B24, and C24; VA Lenders Handbook, 
chapter 6.1.c.
    \39\ For example, HARP supports refinancing through the GSEs for 
borrowers whose LTV exceeds 80 percent and whose existing loans were 
consummated on or before May 31, 2009. See http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx.
    \40\ See, e.g., Freddie Mac 2011 Annual Report at Table 52, 
reporting that the majority of Freddie Mac funding for Relief 
Refinances in 2011 was for borrowers with LTVs at or below 80%. This 
report is available at http://www.freddiemac.com/investors/er/pdf/10k_030912.pdf.
    \41\ Over two million streamlined refinance transactions 
occurred under FHA and GSE programs in 2012 (including both HPML and 
non-HPML refinances). According to public data recently reported by 
FHFA, 1,803,980 streamlined refinance loans occurred under Fannie 
Mae or Freddie Mac streamlined refinance programs. See FHFA 
Refinance Report for February 2013, available at http://www.fhfa.gov/webfiles/25164/Feb13RefiReportFinal.pdf. The Agencies 
estimate, based upon data received from FHA during outreach to 
prepare this proposal, that the FHA insured 378,000 loans under its 
``Streamline'' program in 2012.
---------------------------------------------------------------------------

    Valuation requirements of ``streamlined'' refinance programs. The 
``streamlined'' underwriting for certain refinancings often, but not 
always, does not include a USPAP-compliant appraisal with an interior-
inspection appraisal. One reason for this is that, in currently 
prevailing ``streamlined'' refinance programs, the value of the 
property securing the existing and refinance obligations is not 
considered to determine borrower eligibility for the refinance. The 
owner or guarantor of the existing loan retains the credit risk, and 
the ``streamlined'' refinance does not change the collateral component 
of that risk.
    For ``streamlined'' refinances where the LTV exceeds or nearly 
exceeds 100 percent, the principal concern is not whether the creditor 
or investor could in the near term recoup the mortgage amount by 
foreclosing upon and selling the securing property. The immediate goals 
for these loans are to secure payment relief for the borrower and 
thereby avoid default and foreclosure; to allow the borrower to take 
advantage of lower interest rates; or to restructure their mortgage 
obligation to build equity more quickly--all of which reduce risk for 
creditors and investors and benefit consumers.
    However, a valuation--usually through an automated valuation model 
(AVM)--may be obtained to estimate LTV for determining the appropriate 
securitization pool for the loan. LTV as determined by this valuation 
can also affect the terms offered to the consumer. Sometimes an 
appraisal is required when the property is not standardized, or the 
current holder of the loan does not have what it deems to be sufficient 
information about the property in its databases.
    Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac each have 
``streamlined'' refinance programs: Fannie Mae DU (``Desktop 
Underwriter[supreg]'') Refi Plus and Refi Plus[supreg] and Freddie Mac 
Relief Refinance-Same Servicer/Open Access[supreg]. Under these 
programs, Fannie Mae must hold both the old and new loan, as must 
Freddie Mac under its program. An appraisal is not required when the 
GSEs are confident in an estimate of value, which is then provided to 
lenders originating loans under these programs.\42\
---------------------------------------------------------------------------

    \42\ For GSE ``streamlined'' refinance transactions purchased in 
2012 at LTVs of above 80 percent, AVM estimates were obtained for 
approximately 81 percent and appraisals (either interior inspection 
or exterior-only) were obtained for approximately 19 percent. For 
GSE ``streamlined'' refinance transactions purchased in 2012 at LTVs 
of 80 percent or below, AVM estimates were obtained for 
approximately 87 and appraisals (either interior inspection or 
exterior-only) were obtained for approximately 13 percent.
---------------------------------------------------------------------------

    HUD/FHA. The HUD ``Streamline'' Refinance program administered by 
the Federal Housing Administration (FHA) permits but generally does not 
require a creditor to obtain an appraisal.\43\ The Agencies understand 
that almost all FHA ``streamlined'' refinances are done without 
requiring an appraisal.\44\ The FHA program does not require an 
alternative valuation type for transactions that do not have 
appraisals.
---------------------------------------------------------------------------

    \43\ See, e.g., HUD Handbook 4155.1, chapter 6.C.1.
    \44\ According to data from FHA, in calendar year 2012, only 1.1 
percent of FHA streamline refinances required an appraisal.
---------------------------------------------------------------------------

    VA and USDA. VA and USDA programs do not require appraisals. The 
FHA, VA, and USDA streamline refinance programs also do not require an 
alternative valuation type for transactions that do not have 
appraisals.
    Private ``streamlined'' refinance programs. The Agencies also 
believe that private creditors may offer ``streamlined'' refinance 
programs for borrowers meeting certain eligibility requirements.
    Question 27: The Agencies seek comment and relevant data on how 
often private creditors obtain alternative valuation estimates in these 
transactions (i.e., streamlined refinances outside of the government 
agency and GSE programs discussed above) when no appraisal is 
conducted.\45\
---------------------------------------------------------------------------

    \45\ In general, FIRREA regulations governing appraisal 
requirements permit the use of an ``evaluation'' (or in the case of 
NCUA, a ``written estimate of market value'') rather than an 
appraisal in same-creditor refinances that involve no new monies 
except to pay reasonable closing costs and, in the case of the NCUA, 
no obvious and material change in market conditions or physical 
adequacy of the collateral. See OCC: 12 CFR 34.43 and 164.3; Board: 
12 CFR 225.63; FDIC: 12 CFR 323.3; NCUA: 12 CFR 722.3. See also OCC, 
Board, FDIC, NCUA, Interagency Appraisal and Evaluation Guidelines, 
App. A-5, 75 FR 77450, 77466-67 (Dec. 10, 2010).
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Public Comments on the 2012 Proposed Rule
    A number of commenters on the 2012 Proposed Rule--a trade 
association representing community banks, a credit union association, a 
bank, and GSEs--recommended that the Agencies exempt refinancings. Some 
of these commenters expressed a view that the Dodd-Frank Act's 
``higher-risk mortgage'' appraisal rules were not appropriate for 
refinancings designed to move a borrower into a more stable mortgage 
product with affordable payments. These types of refinancings often 
involve an abbreviated or ``streamlined'' underwriting process to 
facilitate the reduction of risks that the existing loan may pose for 
the consumer, the primary market creditor, and secondary market 
investors. Commenters pointed out, among other things, that these types 
of refinancings can be important credit risk management tools in the 
primary and secondary markets, and can reduce foreclosures, stabilize 
communities, and stimulate the economy. GSE commenters indicated that 
in many cases loans originated under federal government ``streamlined'' 
refinance programs do not require appraisals and asserted that doing so 
would interfere with these programs.
    Consumer advocates did not comment on the 2012 Proposed Rule, but 
in subsequent informal outreach with the Agencies for this proposal, 
expressed concerns about not requiring appraisals in HPML 
``streamlined'' refinance programs. They expressed the view that a 
quality appraisal that is also required to be made available to the 
consumer can be a tool to prevent fraud in refinance transactions. They 
also pointed out instances in which an appraisal on a refinance 
transaction revealed appraisal fraud on the original purchase 
transaction.
    Question 28: The Agencies invite further comment on these and 
related concerns, and appropriate means of addressing these concerns as 
part of this rulemaking.

[[Page 48559]]

Discussion
    The Agencies decline to propose an exemption for all refinance 
loans, as a few commenters suggested. The appraisal rules in TILA 
Section 129H apply to ``residential mortgage loans'' that are higher-
priced and secured by the consumer's principal dwelling. TILA section 
129H(f), 15 U.S.C. 1639h(f). The term ``residential mortgage loan'' 
includes refinance loans.\46\ Accordingly, the Agencies believe that an 
exemption for all HPML refinances would be overbroad. For example, in 
refinances involving additional cash out to the consumer, consumer 
equity in the home can decrease significantly, increasing risks, so the 
Agencies do not believe an exemption from this rule would be 
appropriate.
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    \46\ ``The term `residential mortgage loan' means any consumer 
credit transaction that is secured by a mortgage, deed of trust, or 
other equivalent consensual security interest on a dwelling or on 
residential real property that includes a dwelling, other than a 
consumer credit transaction under an open end credit plan . . .'' 
TILA section 103(cc)(5), 15 U.S.C. 1602(cc)(5).
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    The Agencies do, however, believe that a narrower exemption for 
certain types of HPML refinance loans, generally consistent with the 
program criteria for ``streamlined'' refinances under GSE and federal 
government agency programs, would be in the public interest and promote 
the safety and soundness of creditors. The Agencies recognize that, by 
reducing the risk of foreclosures and helping borrowers better afford 
their mortgages, ``streamlined'' refinancing programs can contribute to 
stabilizing communities and the economy, both now and in the future. 
``Streamlined'' HPML refinances can help borrowers who are at risk of 
default in the near future, as well as those who might not default in 
the near term, but could significantly benefit by refinancing into a 
lower rate mortgage for considerable cost savings over time. The 
Agencies also recognize that ``streamlined'' refinancing programs 
assist creditors and secondary market investors in managing credit 
risks. Originating HPML refinances that are beneficial to consumers can 
be important to creditors to ensure the continuing performance of loans 
on their books and to strengthen customer relations. For investors 
holding these loans, the ``streamlined'' refinances can reduce 
financial risks associated with potential defaults and foreclosures.
    The Agencies believe that an exemption from the HPML appraisal 
rules for certain HPML refinances would ensure that the time and cost 
generated by new appraisal requirements are not introduced into HPML 
transactions that are not qualified mortgages but that are part of 
programs to help consumers avoid defaults and improve their financial 
positions, and help creditors and investors avoid losses and mitigate 
credit risk.
    As discussed previously, the Agencies understand that, under the 
``streamlined'' underwriting standards for several government and GSE 
refinancing programs, a full interior inspection appraisal is often not 
required. One reason for this is that the current value of the property 
securing the existing and refinance obligations generally is not 
considered to determine borrower eligibility for the refinance. The 
owner or guarantor of the existing loan retains the credit risk, and 
the ``streamlined'' refinance does not change the collateral component 
of that risk.
    In a ``streamlined refinance,'' the principal concern is not 
valuing the collateral to determine whether the creditor or investor 
could in the near term recoup the mortgage amount by foreclosing upon 
and selling the securing property if necessary. Goals for these loan 
programs include securing payment relief for the borrower and thereby 
avoid default and foreclosure; allowing the borrower to take advantage 
of lower interest rates; and enabling the borrower to restructure his 
or her mortgage obligation to build equity more quickly--all of which 
reduce risk of default and thereby promote the safety and soundness of 
creditors and investors and benefit consumers.
    Relationship to the 2013 ATR Final Rule. Under the Bureau's 2013 
ATR Final Rule, loans eligible to be purchased, guaranteed, or insured 
by Fannie Mae, Freddie Mac, HUD, VA, USDA, or RHS are subject to the 
general ability-to-repay rules (found in Sec.  1026.43(c)). See Sec.  
1026.43(e)(4)(ii). However, if they meet certain criteria,\47\ they are 
considered ``qualified mortgages'' entitled to either a presumption of 
compliance or a safe harbor ensuring compliance with the general 
ability-to-repay rules, depending on the loan's interest rate.\48\ See 
Sec.  1026.43(e)(1), (e)(4). (Of course, they also can be ``qualified 
mortgages'' if they meet all the ability-to-repay criteria under the 
general definition of ``qualified mortgage'' See Sec.  1026.43(e)(2).) 
As qualified mortgages, they are exempt from the HPML appraisal rules. 
See Sec.  1026.35(c)(2)(i).
---------------------------------------------------------------------------

    \47\ See Sec.  1026.43(e)(4)(i)(A) (cross-referencing Sec.  
1026.43(e)(2)(i) through (iii), which require that the loan not 
result in negative amortization or provide for interest-only or 
balloon payments; limit the loan term at 30 years; and cap points 
and fees to three percent of the loan amount (with a higher cap for 
loans under $100,000).
    \48\ Creditors making qualified mortgages that are ``higher-
priced'' are entitled to a rebuttal presumption of compliance with 
the general ability-to-repay rules, while creditors making qualified 
mortgages that are not ``higher-priced'' are entitled to a safe 
harbor of compliance. A ``higher-priced covered transaction'' under 
the Bureau's 2013 ATR Rule is a transaction covered by the general 
ability-to-repay rules ``with an annual percentage rate that exceeds 
the average prime offer rate for a comparable transaction as of the 
date the interest rate is set by 1.5 or more percentage points for a 
first-lien covered transaction, or by 3.5 or more percentage points 
for a subordinate-lien covered transaction.'' Sec.  1026.43(b)(4).
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    However, the Agencies believe that the separate exemption for 
certain refinances from the HPML appraisal requirement proposed in 
Sec.  1026.35(c)(2)(vii) may be needed. First, the 2013 ATR Final Rule 
limits the qualified mortgage status of loans purchased or guaranteed 
by Fannie Mae and Freddie Mac under the special rules of Sec.  
1026.43(e)(4). However, these loans will not be eligible to be 
qualified mortgages if consummated on or after January 10, 2021, unless 
they meet the general definition of a qualified mortgage in Sec.  
1026.43(e)(2). See Sec.  1026.43(c)(4)(iii)(B). For loans eligible to 
be insured or guaranteed under a HUD, VA, USDA, or RHA program, the 
qualified mortgage status conferred under Sec.  1026.43(e)(4)(i) would 
be replaced for each type of loan when those agencies respectively 
issue rules defining a qualified mortgage based on each agency's own 
programs. See Sec.  1026.43(e)(4)(iii)(A); see also TILA section 
129C(b)(3)(ii), 15 U.S.C. 1639c(b)(3)(ii).
    Second, the Agencies believe that many private ``streamlined'' 
mortgage programs are likely to have similar benefits to consumers, 
creditors, and credit markets as those under GSE and government agency 
programs. However, not all private ``streamlined'' refinances that are 
HPMLs will be qualified mortgages because some could exceed the 43 
percent debt-to-income ratio cap or fail to meet other qualified 
mortgage conditions. See, e.g., Sec.  1026.42(e)(2). The Agencies 
believe that an exemption for not only GSE and government agency 
``streamlined'' refinances, but also refinance loans under proprietary 
``streamlined'' refinance programs, may be warranted.
    The Agencies considered limiting an exemption from the HPML 
appraisal rules for private ``streamlined'' refinances to refinances of 
non-standard to standard mortgages that would qualify for an exemption 
from the ability-to-repay rules under new Sec.  1026.43(d) of the 2013 
ATR Final

[[Page 48560]]

Rule. However, the Agencies believe that the refinances exempt from the 
ability-to-repay rules under Sec.  1026.43(d) include a universe of 
refinances that is narrower than the Agencies believe desirable for an 
exemption from the HPML appraisal rules. For example, to qualify for 
the ability-to-repay exemption as a refinance under Sec.  1026.43(d), 
the existing obligation must be an adjustable-rate mortgage (ARM), an 
interest-only loan, or a negative amortization loan. See Sec.  
1026.43(d)(1)(i). In addition, among other conditions, the creditor 
must have considered whether the refinance loan ``likely will prevent a 
default by the consumer on the non-standard mortgage once the loan is 
recast'' out of the introductory rate under an ARM or higher payments 
under an interest-only or negative amortization loan. See Sec.  
1026.43(d)(3)(ii). However, the Agencies believe that ``streamlined'' 
refinance programs can benefit consumers and promote the safety and 
soundness of financial institutions even where the consumer is not at 
risk of imminent default.
    Definition of ``refinancing.'' Proposed Sec.  1026.35(c)(2)(vii) 
defines a ``refinancing'' to mean ``refinancing'' in Sec.  
1026.20(a).\49\ However, in contrast to the definition of 
``refinancing'' under Sec.  1026.20(a), a ``refinancing'' under 
proposed Sec.  1026.35(c)(2)(vii) does not restrict who the creditor is 
for either the refinancing or the existing obligation. Commentary to 
Sec.  1026.20(a) clarifies that a ``refinancing'' under Sec.  
1026.20(a) includes ``only refinancings undertaken by the original 
creditor or a holder or servicer of the original obligation.'' See 
comment 20(a)-5. By contrast, the proposed exemption allows a different 
creditor to extend the refinance loan, as long as the owner or 
guarantor remains the same on both the existing loan and the refinance. 
This aspect of the proposal is discussed more fully below.
---------------------------------------------------------------------------

    \49\ See Sec.  1026.20(a) for the definition of ``refinancing.''
---------------------------------------------------------------------------

35(c)(2)(vii)(A)
    Same owner or guarantor. Consistent with ``streamlined'' refinance 
programs discussed previously, proposed Sec.  1026.35(c)(2)(vii)(A) 
requires that, for the exemption for certain refinancings to apply, the 
owner or guarantor of the refinance loan must be the current owner or 
guarantor of the existing obligation. The Agencies propose to include 
this requirement as a condition of obtaining the refinance loan 
exemption from the HPML appraisal rules because the Agencies believe 
that this restriction is important to promote the safety and soundness 
of financial institutions and in turn benefits the public.
    The proposed rule uses the terms ``owner or guarantor'' rather than 
the term ``holder'' to clarify that the proposed regulation refers to 
the entity that either owns the credit risk because the loan is held in 
its portfolio or that guarantees the credit risk on a loan held in an 
asset-backed securitization. For example, assume Fannie Mae holds an 
existing obligation in its portfolio, which is then refinanced under 
one of Fannie Mae's ``streamlined'' refinance programs into a loan with 
a better rate and lower payments for the consumer. Fannie Mae might 
then decide to place the new refinance loan into a pool of loans 
guaranteed by Fannie Mae; in this case, Fannie Mae would technically be 
the guarantor, not the ``owner.'' However, under the proposal, the 
refinance would meet the condition of proposed Sec.  
1026.35(c)(2)(vii)(A)(1) because the owner or guarantor remains the 
same on the refinance loan as on the existing obligation. Proposed 
comment 35(c)(2)(vii)(A)-1 clarifies that the term ``owner'' in Sec.  
1026.35(c)(2)(vii)(A) refers to an entity that owns and holds a loan in 
its portfolio.
    This comment would further clarify that ``owner'' does not refer to 
an investor in a mortgage-backed security. This proposed clarification 
is intended to ensure that creditors do not have to look to the 
individual owners of mortgage-backed securities to determine the same-
owner status. The rationale for the same-owner requirement is not based 
upon the pooled mortgage situation where more than one investor holds 
an indirect interest in a loan through ownership of a mortgage-backed 
security. Accordingly, this comment also clarifies that the term 
``guarantor'' in proposed Sec.  1026.35(c)(2)(vii)(A)(1) refers to the 
entity that guarantees the credit risk on a loan held by the entity in 
a mortgage-backed security.
    The Agencies believe that conditioning the exemption on the owner 
or guarantor remaining the same helps to promote the safety and 
soundness of creditors. This includes situations in which the 
refinancing creditor either owns the existing loan or has arranged to 
transfer the loan to a GSE or other entity that owns the existing loan. 
In these cases, the owner or guarantor of the refinance already holds 
the credit risk. In addition, the owner or guarantor of the existing 
obligation may have familiarity with the property or relevant market 
conditions as a result of having evaluated property value documents 
when taking on the original credit risk, as well as ongoing portfolio 
monitoring. By contrast, when the owner or guarantor of the 
``streamlined'' refinance is not also the owner or guarantor of the 
existing loan, then the ``streamlined'' refinance involves new risk to 
the owner or guarantor of the ``streamlined'' refinance, whose safety 
and soundness would therefore be better served by a USPAP-compliant 
appraisal with an interior inspection.\50\
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    \50\ Legislative history of the Dodd-Frank Act also suggests 
that Congress believed that certain underwriting requirements were 
not necessary in refinances where the holder of the credit risk 
remains the same: ``However, certain refinance loans, such as VA-
guaranteed mortgages refinanced under the VA Interest Rate Reduction 
Loan Program or the FHA streamlined refinance program, which are 
rate-term refinance loans and are not cash-out refinances, may be 
made without fully reunderwriting the borrower. . . . It is the 
conferees' intent that the Federal Reserve Board and the CFPB use 
their rulemaking authority . . . to extend the same benefit for 
conventional streamlined refinance programs where the party making 
the refinance loan already owns the credit risk. This will enable 
current homeowners to take advantage of current loan interest rates 
to refinance their mortgages.'' Statement of Sen. Dodd, 156 Cong. 
Rec. S5928 (July 15, 2010).
---------------------------------------------------------------------------

    The Agencies generally believe that the ``same owner or guarantor'' 
criterion for the proposed exemption makes it unnecessary to require 
that the creditor (which is not necessarily the owner of the loan) also 
be the same for both the existing obligation and the refinance loan. If 
consumers can shop for a ``streamlined'' refinancing among multiple 
creditors without having to obtain an appraisal, they may be able to 
obtain better rates and terms.
    As a general matter, the purpose of the exemption for certain 
refinance transactions is to facilitate transactions that can be 
beneficial to borrowers even though they are higher-priced loans. When 
the consumer is not obtaining additional funds to increase the amount 
of the debt, and the entity that will own or guaranty the refinance 
loan is already the credit risk holder on the existing loan, there may 
be insufficient benefit from obtaining a new appraisal to warrant the 
additional cost.
    Questions have been raised, however, about whether safety and 
soundness issues might arise in some situations that would warrant an 
appraisal, even when the risk holder will remain the same. 
Specifically, in some private refinance transactions, the originating 
creditor for the refinance loan may be assuming ``put-back'' risk. This 
risk may be lessened if the holder or guarantor is a federal agency or 
GSE that operates under guidelines that limit the put-back risk for the 
originator.
    Question 29: Accordingly, the Agencies solicit comment on the

[[Page 48561]]

circumstances in which the originator's assumption of put-back risk 
raises safety and soundness concerns that weigh in favor of requiring 
the originator to obtain a USPAP-compliant appraisal with an interior 
property inspection for a ``streamlined'' refinance loan.
    Question 30: The Agencies also seek information on the valuation 
practices of private creditors for refinanced loans where the private 
owner or guarantor remains the same and the loans are not sold to a GSE 
or insured or guaranteed by a federal government agency, including how 
often no valuation is obtained.\51\
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    \51\ See OCC: 12 CFR 34.43 and 164.3; Board: 12 CFR 225.63; 
FDIC: 12 CFR 323.3; NCUA: 12 CFR 722.3. See also OCC, Board, FDIC, 
NCUA, Interagency Appraisal and Evaluation Guidelines, App. A-5, 75 
FR 77450, 77466-67 (Dec. 10, 2010).
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35(c)(2)(vii)(B)
    Prohibition on certain risky features. Proposed Sec.  
1026.35(c)(2)(vii)(B) would require that a refinancing eligible for an 
exemption from the HPML appraisal rules not allow for negative 
amortization (``cause the principal balance to increase''), interest-
only payments (``allow the consumer to defer repayment of principal''), 
or a balloon payment, as defined in Sec.  1026.18(s)(5)(i).\52\
---------------------------------------------------------------------------

    \52\ Section 1026.18(s)(5)(i) defines ``balloon payment'' as ``a 
payment that is more than two times a regular periodic payment.''
---------------------------------------------------------------------------

    Proposed comment 35(c)(2)(vii)(B)-1 would state that, under Sec.  
1026.35(c)(2)(vii)(D), a refinancing must provide for regular periodic 
payments that do not: result in an increase of the principal balance 
(negative amortization), allow the consumer to defer repayment of 
principal (see comment 43(e)(2)(i)-2), or result in a balloon payment. 
The comment would thus clarify that the terms of the legal obligation 
must require the consumer to make payments of principal and interest on 
a monthly or other periodic basis that will repay the loan amount over 
the loan term. The comment would further state that, except for 
payments resulting from any interest rate changes after consummation in 
an adjustable-rate or step-rate mortgage, the periodic payments must be 
substantially equal. The comment would cross-reference comment 
43(c)(5)(i)-4 of the Bureau's 2013 ATR Final Rule for an explanation of 
the term ``substantially equal.'' \53\ The comment would also clarify 
that a single payment transaction is not a refinancing meeting the 
requirements of Sec.  1026.35(c)(2)(vii) because it does not require 
``regular periodic payments.''
---------------------------------------------------------------------------

    \53\ Comment 43(c)(5)(i)-4 states as follows: ``In determining 
whether monthly, fully amortizing payments are substantially equal, 
creditors should disregard minor variations due to payment-schedule 
irregularities and odd periods, such as a long or short first or 
last payment period. That is, monthly payments of principal and 
interest that repay the loan amount over the loan term need not be 
equal, but the monthly payments should be substantially the same 
without significant variation in the monthly combined payments of 
both principal and interest. For example, where no two monthly 
payments vary from each other by more than 1 percent (excluding odd 
periods, such as a long or short first or last payment period), such 
monthly payments would be considered substantially equal for 
purposes of this section. In general, creditors should determine 
whether the monthly, fully amortizing payments are substantially 
equal based on guidance provided in Sec.  1026.17(c)(3) (discussing 
minor variations), and Sec.  1026.17(c)(4)(i) through (iii) 
(discussing payment-schedule irregularities and measuring odd 
periods due to a long or short first period) and associated 
commentary.''
---------------------------------------------------------------------------

    The information provided by a USPAP-compliant real property 
appraisal with an interior property inspection may be particularly 
important for creditors and consumer where these features are present. 
For example, additional equity may be needed to support a loan with 
negative amortization, and the risk of default might be higher for 
loans with interest-only and balloon payment features.
    The Agencies recognize that consumers who need immediate relief 
from payments that they cannot afford might benefit in the near term by 
refinancing into a loan that allows interest-only payments for a period 
of time. However, the Agencies believe that a reliable valuation of the 
collateral is important when the consumer will not be building any 
equity for a period of time. In that situation, the consumer and credit 
risk holder may be more vulnerable should the property decline in value 
than they would be if the consumer were paying some principal as 
well.\54\
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    \54\ The Agencies acknowledge that these increased risks may be 
lower where the interest-only period is relatively short (such as 
one or two years), because the payments in the early years of a 
mortgage are heavily weighted toward interest; thus the consumer 
would be paying down little principal even in making fully 
amortizing payments.
---------------------------------------------------------------------------

    The Agencies also recognize that, in most cases, balloon payment 
mortgages are originated with the expectation that a consumer will be 
able to refinance the loan when the balloon payment comes due. These 
loans are made for a number of reasons, such as to control interest 
rate risk for the creditor or as a wealth management tool, usually for 
higher-asset consumers. Regardless of why a balloon mortgage is made, 
however, there is always risk that a consumer will not be able to 
either independently make the balloon payment or refinance, with 
significant consequences if something unexpected happens and the 
consumer cannot do so. To protect the creditor's safety and soundness, 
the creditor should have a firm understanding of the value of the 
collateral and the trajectory of property values in the area in making 
a balloon mortgage. This can help the creditor adjust loan and payment 
terms to mitigate default risk, which benefits both the creditor and 
the consumer.
    The Agencies note that the GSE and government ``streamlined'' 
refinance programs described above do not allow these features, in part 
because helping a consumer pay off debt more quickly is one of the 
goals of these programs.\55\ In addition, the prohibition on risky 
features for this proposed exemption is consistent with provisions in 
the Dodd-Frank Act reflecting congressional concerns about these loan 
terms. For example, in Dodd-Frank Act provisions regarding exemptions 
from certain ability-to-repay requirements for refinancings under HUD, 
VA, USDA, and RHS programs, Congress similarly required that the 
refinance loan be fully amortizing and prohibited balloon payments.\56\ 
The proposal is also consistent with a provision in the Bureau's 2013 
ATR Final Rule that exempts from all ability-to-repay requirements the 
refinancing of a ``non-standard mortgage'' into a ``standard 
mortgage.'' See Sec.  1026.43(d). To be eligible for this exemption 
from the ability-to-repay rules, the refinance loan must, among other 
criteria, not allow for negative amortization, interest-only payments, 
or a balloon payment. See Sec.  1026.43(d)(1)(ii). Further, no GSE or 
federal government agency ``streamlined'' refinance program allows 
these features. The Agencies believe that these statutory provisions 
and program restrictions reflect a judgment on the part of Congress, 
government agencies, and the GSEs that refinances with negative 
amortization, interest-only payment features, or balloon payments may 
increase risks to consumers and creditors.
---------------------------------------------------------------------------

    \55\ See, e.g., Fannie Mae, ``Home Affordable Refinance (DU Refi 
Plus and Refi Plus) FAQs'' (June 7, 2013) at 11 (describing options 
for meeting the requirement that the refinance provide a borrower 
benefit); Freddie Mac, ``Freddie Mac Relief Refinance 
Mortgages\SM\--Open Access Eligibility Requirements'' (January 2013) 
at 1 (describing options for meeting the requirement that the 
refinance provide a borrower benefit).
    \56\ See Dodd-Frank Act section 1411(a)(2), TILA section 
129C(a)(5)(E) and (F), 15 U.S.C. 1639c(a)(5)(E) and (F). TILA 
section 129C(a)(5) authorizes HUD, VA, USDA, and RHS to exempt 
``refinancings under a streamlined refinancing'' from the Act's 
income verification requirement of the ability-to-repay rules. 15 
U.S.C. 1639c(a)(5). See also TILA section 129c(a)(4), 15 U.S.C. 
1639c(a)(4).

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[[Page 48562]]

    In sum, the Agencies are concerned that negative amortization, 
interest-only payments, and balloon payments are loan features that may 
increase a loan's risk to consumers as well as to primary and secondary 
mortgage markets. \57\ Thus, in the Agencies' view, permitting these 
non-qualified mortgage HPML refinances to proceed without USPAP-
compliant real property appraisals with interior inspections would not 
be consistent with the Agencies' exemption authority, which permits 
exemptions only if they promote the safety and soundness of creditors 
and are in the public interest.
---------------------------------------------------------------------------

    \57\ See also OCC, Board, FDIC, NCUA, ``Interagency Guidance on 
Nontraditional Mortgage Product Risks,'' 71 FR 58609 (Oct. 4, 2006).
---------------------------------------------------------------------------

    Question 31: The Agencies request comment on whether prohibiting 
the regular periodic payments on the refinance loan from resulting in 
negative amortization, payment of only interest, or a balloon payment 
is an appropriate condition for an exemption from the HPML appraisal 
rules for ``streamlined'' refinances.
35(c)(2)(vii)(C)
    No cash out. Proposed Sec.  1026.35(c)(2)(vii)(C) would require 
that the proceeds from a refinancing eligible for an exemption from the 
HPML appraisal rules be used for only two purposes: (1) To pay off the 
outstanding principal balance on the existing first-lien mortgage 
obligation; and (2) to pay closing or settlement charges required to be 
disclosed under RESPA.
    Proposed comment 35(c)(2)(vii)(C)-1 would state that the exemption 
for a refinancing under Sec.  1026.35(c)(2)(vii) is available only if 
the proceeds from the refinancing are used exclusively for two 
purposes: paying off the consumer's existing first-lien mortgage 
obligation and paying for closing costs, including paying escrow 
amounts required at or before closing. According to this comment, if 
the proceeds of a refinancing are used for other purposes, such as to 
pay off other liens or to provide additional cash to the consumer for 
discretionary spending, the transaction does not qualify for the 
refinancing exemption from the HPML appraisal rules under Sec.  
1026.35(c)(2)(vii).
    The Agencies also view the proposed limitation on the use of the 
refinance loan's proceeds as necessary to ensure that the principal 
balance of the loan does not increase, or increases only minimally. 
This in turn helps ensure that the consumer is not losing significant 
additional equity and that the holder of the credit risk is not taking 
on significant new risk, in which case a full interior inspection 
appraisal to assess the change in risk could be beneficial to both 
parties.
    The Agencies also note that limiting the use of proceeds to allow 
for no extra cash out for the consumer other than closing costs is 
consistent with prevailing ``streamlined'' refinance programs.\58\ It 
is also consistent with the exemption from the Bureau's ability-to-
repay rules for refinances of ``non-standard mortgages'' into 
``standard mortgages.'' \59\ See Sec.  1026.43(d)(1)(ii)(E). The 
Agencies believe that consistency across mortgage rules can help 
facilitate compliance and ease compliance burden.
---------------------------------------------------------------------------

    \58\ See, e.g., Fannie Mae Single Family Selling Guide, chapter 
B5-5, Section B5-5.2; Freddie Mac Single Family Seller/Servicer 
Guide, chapters A24, B24 and C24.
    \59\ Under the 2013 ATR Final Rule, a refinance loan or 
``standard mortgage'' is one for which, among other criteria, the 
proceeds from the loan are used solely for the following purposes: 
(1) To pay off the outstanding principal balance on the non-standard 
mortgage; and (2) to pay closing or settlement charges required to 
be disclosed under RESPA. See Sec.  1026.43(d)(1)(ii)(E).
---------------------------------------------------------------------------

    Question 32: The Agencies request comment on this proposed 
condition on the ``streamlined'' refinance exemption, and whether other 
protections are warranted to ensure that the loan's principal balance 
and overall costs to the consumer do not materially increase.
    Question 33: In this regard, the Agencies specifically seek comment 
on whether the Agencies should require that financed points and fees on 
the refinance loan not exceed a certain percent, such as the percentage 
caps for points and fees on qualified mortgages. See Sec.  
1026.43(e)(3); see also Sec.  1026.43(d)(1)(ii)(B) (capping points and 
fees for refinances of ``non-standard mortgages'' into ``standard 
mortgages'' exempt from ability-to-repay requirements). For example, 
the Agencies heard from consumer advocates that frequent, serial 
refinancing with higher points and fees could lead to a significant 
loss of equity, and increased exposure for creditors, that would 
warrant a new appraisal for the same or similar reasons that an 
appraisal would be important where additional cash out is obtained.
    Additional condition: obtaining an alternative valuation and 
providing a copy to the consumer.
    Question 34: The Agencies also seek comment on whether the 
exemption for refinance loans should be conditioned on the creditor 
obtaining an alternative valuation (i.e., a valuation other than a 
FIRREA- and USPAP-compliant real property appraisal with an interior 
inspection) and providing a copy to the consumer three days before 
consummation. In requesting comment on this issue, the Agencies note 
that the purpose of TILA section 129H is, in part, to protect consumers 
by ensuring that they receive a copy of an appraisal with an interior 
property inspection of the home before entering into a HPML that is not 
a qualified mortgage. 15 U.S.C. 1639h. Specifically, TILA section 129H 
mandates providing a copy of an appraisal with an interior property 
inspection for HPMLs that are not exempt from the appraisal 
requirements, three days before closing, with no option to waive this 
right. See TILA section 129H(c), 15 U.S.C. 1639h(c).\60\ The Agencies' 
Final Rule implements these requirements. See Sec.  1026.35(c)(6).
---------------------------------------------------------------------------

    \60\ A similar requirement under ECOA permits the consumer to 
waive the right to receive a copy of valuations or appraisals in 
connection with an application for a first-lien mortgage secured by 
a dwelling no later than three days before closing. The consumer may 
not, however, waive the right to receive copies of valuations or 
appraisals altogether. See ECOA section 701(e)(2), 15 U.S.C. 
1691(e)(2). Regulations implementing this provision were adopted by 
the Bureau earlier this year in the 2013 ECOA Valuations Rule. See 
78 FR 7216 (Jan. 31, 2013); Regulation B, 12 CFR 1002.14(a)(1).
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    A refinanced mortgage loan is a significant financial commitment: 
For example, the refinance loan can have an extended term, typically as 
long as 30 or 40 years; the refinance loan can be an adjustable-rate 
mortgage that creates interest rate risk in the future; the refinance 
loan may actually have increased payments (for example, if the term of 
the new loan is shorter); and a ``streamlined'' refinance transaction 
has transaction costs.
    Question 35: Because refinances do involve potential risks and 
costs, the Agencies seek comment on whether conditioning the proposed 
exemption on creditors obtaining an alternative valuation and giving a 
copy to the consumer would better position consumers to consider 
alternatives to refinancing, and whether consumers seeking refinances 
typically need or want to consider alternatives. These alternatives 
might include, among others, remaining in the home with the existing 
loan; refinancing through a different program that would involve 
underwriting, potentially at a better rate or other improved terms; 
seeking a possible loan modification; or selling the home.
    Question 36: The Agencies seek comment and relevant data on whether 
this additional condition would be necessary. In this regard, the 
Agencies understand that some type of estimate of value is typically 
developed in a

[[Page 48563]]

``streamlined'' refinance transaction. For example, for any loan not 
eligible for a federal government program or to be sold to a GSE, 
federally-regulated depositories have to obtain either an 
``evaluation'' or an appraisal for a refinance transaction.\61\
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    \61\ See OCC: 12 CFR 34.43 and 164.3; Board: 12 CFR 225.63; 
FDIC: 12 CFR 323.3; NCUA: 12 CFR 722.3. See also OCC, Board, FDIC, 
NCUA, Interagency Appraisal and Evaluation Guidelines, 75 FR 77450, 
77458-61 and App. A, 77465-68 (Dec. 10, 2010). In addition, as noted 
(see infra note 42), data on GSE ``streamlined'' refinances 
indicates that either an AVM or an appraisal (interior inspection or 
exterior-only) was obtained for all ``streamlined'' refinances 
purchased by the GSEs in 2012.
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    In addition, as of January 2014, amendments to ECOA, implemented by 
the Bureau in revised Regulation B, will require all creditors to 
provide to credit applicants free copies of appraisals and other 
written valuations developed in connection with an application for a 
loan to be secured by a first lien on a dwelling.\62\ See 12 CFR 
1002.14(a)(1); 78 FR 7216 (Jan. 31, 2013) (2013 ECOA Valuations Final 
Rule). The copies must be provided to the applicant promptly upon 
completion or three business days before consummation. See id. 
Regulation B defines ``valuation'' to mean ``any estimate of the value 
of a dwelling developed in connection with an application for credit.'' 
\63\ Id. Sec.  1002.14(b)(3).
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    \62\ All refinances proposed for an exemption would be first-
lien mortgage loans.
    \63\ ``Valuation'' is separately defined in Regulation Z, Sec.  
1026.42(b)(3). That definition does not include AVMs, however, which 
was deemed appropriate for purposes of the appraisal independence 
rules under Sec.  1026.42. Here, however, the Agencies believe that 
an estimate of value provided to the consumer could appropriately 
include an AVM.
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    The Agencies recognize, however, that estimates of value might not 
always be required by federal law or investors. For example, certain 
non-depositories and depositories are not subject to the appraisal and 
evaluation requirements that apply to depositories under FIRREA, and 
might not obtain a valuation on a ``no cash out'' refinance.
    Question 37: The Agencies request comment generally on the extent 
to which either appraisals or other valuation tools such as AVMs or 
broker price opinions are used in connection with ``streamlined'' 
refinances by non-depositories in particular.
    Question 38: The Agencies also seek comment on whether additional 
criteria or guidance would be needed to describe the type of home value 
estimate that a creditor would have to obtain and provide to the 
consumer and, if so, what the additional criteria or guidance should 
address.
    Other conditions. The Agencies are not proposing additional 
conditions in the regulation text on the types of refinancings eligible 
for the exemption from the HPML appraisal rules. In this way, the 
Agencies seek to maintain flexibility for government agencies, GSEs, 
and private creditors to adapt and change their borrower eligibility 
requirements and other requirements for ``streamlined'' HPML refinances 
to address changing market environments and factors that may be unique 
to their programs. At this time the Agencies do not see the need to 
impose conditions that address borrower eligibility, such as requiring 
that the borrower have been on-time with payments on the existing 
mortgage for a certain period of time.
    For example, some ``streamlined'' refinance programs currently 
require that borrower eligibility criteria be met, such as that the 
consumer have been current on the existing obligation for a certain 
period of time.\64\ Some of these programs also provide that certain 
benefits must be present in the transaction, such a lower monthly 
payment or lower interest rate. For this proposed exemption from the 
HPML appraisal requirements for refinances, the Agencies are not 
proposing to impose conditions that address borrower eligibility or to 
define what types of benefits must result from the transaction. The 
Agencies believe that it is unclear how the need for a particular type 
of appraisal (versus some other type of valuation that the creditor may 
perform under other regulations or its own policies) relates to 
borrower eligibility requirements or the existence of a borrower 
benefit in the new transaction.
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    \64\ See also 2013 ATR Final Rule Sec.  1026.43(d)(2)(iv) and 
(v). The exemption from the ability-to-repay rules for refinances of 
``non-standard mortgages'' into ``standard mortgages'' under the 
2013 ATR Final Rule requires that, among other conditions: (1) The 
consumer made no more than one payment more than 30 days late on the 
non-standard mortgage in 12-month period before applying for the 
standard mortgage; and (2) the consumer made no payments more than 
30 days late in the six-month period before applying for the 
standard mortgage. See Sec.  1026.43(d)(2)(iv) and (v).
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    Question 39: However, the Agencies request comment on whether the 
Agencies should adopt additional criteria for HPML ``streamlined'' 
refinancings that would be exempt from the HPML appraisal rules, 
including, but not limited to, requirements regarding whether the 
consumer has an on-time payment history and whether consumer 
``benefits'' exist as part of the refinance transaction. The Agencies 
request that commenters supporting inclusion of these types of criteria 
explain why and comment on what the parameters of an on-time payment 
history should be and how ``benefit'' should be defined.
Conclusion
    For the reasons discussed previously, the Agencies believe that an 
exemption from the HPML appraisal rules for refinances under the 
proposed conditions would be ``in the public interest and promotes the 
safety and soundness of creditors.'' TILA section 129H(b)(4)(B), 15 
U.S.C. 1639h(b)(4)(B). The Agencies believe that an exemption from the 
HPML appraisal rules for these loans would ensure that the time and 
cost of new appraisal requirements are not introduced into non-
qualified mortgage HPML transactions that are part of programs designed 
to help consumers avoid defaults and improve their financial positions, 
and help creditors and investors avoid losses and mitigate credit risk. 
The Agencies further believe that the exemption is appropriately narrow 
in scope to capture the types of refinancings that Congress has 
generally expressed an intent to facilitate, without being overbroad by 
exempting all HPML refinances from the HPML appraisal rules. See, e.g., 
TILA sections 129C(a)(5) and (6), 15 U.S.C. 1639c(a)(5) and (6).\65\
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    \65\ See also Statement of Sen. Dodd, 156 Cong. Rec. S5928 (July 
15, 2010).
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35(c)(viii)
Extensions of Credit for $25,000 or Less
    The Agencies are also proposing an exemption from the HPML 
appraisal rules for extensions of credit of $25,000 or less, indexed 
every year for inflation. In the 2012 Proposed Rule, the Agencies 
requested comment on exemptions from the final rule that would be 
appropriate. In response, several commenters recommended an exemption 
for smaller dollar loans. These commenters generally believed that 
interior inspection appraisals on these loans would significantly raise 
total costs as a proportion of the loan and thus potentially be 
detrimental to consumers.
Public Comments on the 2012 Proposed Rule
    Commenters on the 2012 Proposed Rule that indicated support for a 
smaller dollar loan exemption included a state credit union 
association, representatives of six banks, two manufactured housing 
trade associations, a national community development organization, and 
two individuals. No comments received opposed an exemption for smaller 
dollar loans, though no comments were received from consumers or 
consumer advocates.

[[Page 48564]]

    The commenters on this issue shared concerns that requiring an 
appraisal for smaller dollar residential mortgage loans would result in 
excessive costs to consumers without sufficient offsetting benefits. 
Some asserted that applying the HPML appraisal rules to smaller loans 
might disproportionately burden smaller institutions and potentially 
reduce access to credit for their consumers.
    In outreach since the Final Rule was issued, however, a consumer 
advocacy group expressed the view that low- to moderate-income (LMI) 
consumers obtaining or refinancing loans secured by lower-value homes 
may have a particular need for the protections of the HPML appraisal 
rules. During informal outreach with the Agencies for this proposal, 
consumer advocates expressed the view that requiring quality appraisals 
for smaller dollar loans, and requiring that they be provided to the 
consumer, can help prevent the kinds of appraisal fraud that can lead 
to consumers borrowing more money than is supported by the equity in 
their home or taking out loans that are otherwise not appropriate for 
them.
    Regarding the appropriate threshold for a smaller loan exemption, 
the comments varied widely. One individual commenter suggested that a 
smaller dollar loan amount appropriate for an exemption from the final 
rule would be $10,000 or less. A comment letter from a community bank 
indicated that a $25,000 home improvement loan might not be an 
appropriate transaction type to cover in a final rule; this commenter 
asserted that to avoid the burden and expense to the consumer of the 
HPML appraisal rules, a community bank would have to lower its rates on 
smaller loans to below HPML levels, which could make them 
unprofitable.\66\
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    \66\ This comment was filed before the Agencies had finalized 
exemptions from the HPML appraisal rules, including the exemption 
for ``qualified mortgages.'' See Sec.  1026.35(c)(2); see also 2013 
ATR Final Rule (defining ``qualified mortgage'' at Sec.  
1026.42(e)).
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    A national manufactured housing trade association asserted that the 
median price of a manufactured home is $27,000 \67\ and that, relative 
to these small loan amounts, the cost of a traditional interior 
inspection appraisal is ``extremely expensive'' and could reduce 
manufactured home lending. Similarly, a bank representative asserted 
that when the purchase price is $30,000, for example, the cost of a 
traditional appraisal is ``substantial.'' Comments from a community 
bank representative, the community development organization, and 
another individual indicated that loans of $50,000 or less might be 
appropriately exempted. A state bank commenter suggested that loans of 
$100,000 or less should be exempt. Finally, a state manufactured 
housing trade association recommended exempting manufactured home loans 
under $125,000.
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    \67\ The trade association's estimate of median manufactured 
home prices was based on the U.S. Census Bureau's 2009 American 
Housing Survey. According to the 2011 American Housing Survey, the 
median purchase price of all existing occupied manufactured homes is 
$30,000 (median value self-reported by respondents also is the 
same). See http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=AHS_2011_C13OO&prodType=table. 
However, this median price reflects purchases that may have occurred 
as much as a decade earlier (see id. for acquisition dates). The 
average price of manufactured homes purchased more recently is 
higher; as of March 2013, the average price was $62,400. See http://www.census.gov/construction/mhs/mhsindex.html.
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Discussion
    The Agencies are concerned that the potential burden and expense of 
imposing the HPML appraisal requirements on HPMLs of $25,000 or less 
(that are not qualified mortgages) will outweigh potential consumer 
protection benefits in many cases. The primary concern is the expense 
to the consumer of an interior inspection appraisal, which could be 
significant and unduly burdensome to consumers of smaller loans. Thus, 
an appraisal requirement could hamper consumers' use of smaller home 
equity loans for home improvements, educational or medical expenses, 
and debt consolidation.\68\ The interior inspection appraisal 
requirement also may pose an additional cost for consumers who seek to 
purchase lower-dollar homes (using HPMLs that are not qualified 
mortgages); these tend to be LMI consumers who are less able to afford 
extra financing costs than higher-income consumers.
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    \68\ The Agencies recognize that, absent an exemption for 
smaller dollar loans from the HPML appraisal rules (which apply 
solely to closed-end loans), consumers might have the option of 
borrowing a home equity line of credit (HELOC) rather than a closed-
end home equity loan (HEL) to avoid the costs of an appraisal. 
However, the Agencies are aware that HELs and HELOCs are not in all 
cases readily interchangeable. HELs and HELOCs are different product 
types used by consumers for different purposes; they also present 
different risks for creditors. As a consequence, they are priced 
differently and are subject to different sets of rules. See, e.g., 
Sec.  1026.42(a)(1) (implementing a statutory exemption for HELOCs 
from TILA's ability-to-repay rules; see TILA sections 103(cc)(5) and 
129C(a)(1), 15 U.S.C. 1602(cc)(5) and 1639c(a)(1)).
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    In addition, the Agencies believe that the proposed exemption can 
facilitate creditors' ability to meet consumers' smaller dollar credit 
needs. This could in turn promote the soundness of an institution's 
operations by supporting profitability and an institution's ability to 
spread risk over a variety of products. Public comments on the 2012 
Proposed Rule suggested that applying the rule to smaller dollar loans 
might affect smaller institutions in particular, and that for these 
institutions the reduction in costs and burdens associated with this 
exemption would be most beneficial.
    Question 40: The Agencies seek data from commenters on this point.
    Finally, the Agencies believe that creditors would generally be 
better able to absorb losses that might be associated with a loan of 
$25,000 or less than with, for example, a typical home purchase loan, 
which is several times larger than a $25,000 loan.\69\
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    \69\ Based on HMDA data, for example, the mean loan size in 2011 
for a first-lien, home purchase HPML secured by a one- to four-
family site-built property was $141,600; the median loan size for 
this category of loans was 109,000. See Robert B. Avery, Neil 
Bhutta, Kenneth B. Brevoort, and Glenn Canner, ``The Mortgage Market 
in 2011: Highlights from the Data Reported under the Home Mortgage 
Disclosure Act,'' Table 10, FR Bulletin, Vol. 98, no. 6 (Dec. 2012) 
http://www.federalreserve.gov/pubs/bulletin/2012/PDF/2011_HMDA.pdf.
---------------------------------------------------------------------------

    $25,000 threshold. A $25,000 threshold is within the range of 
thresholds recommended by proponents of a smaller dollar loan exemption 
in their comments on the 2012 Proposed Rule, noted previously. In light 
of public comments, the Agencies examined data submitted under the Home 
Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801 et seq., as one 
reference point for informing an exemption for smaller dollar loans. A 
subordinate-lien home improvement loan is one example of a loan type 
for which, in the Agencies' view, an interior inspection appraisal 
might be burdensome on a consumer without sufficient off-setting 
consumer protection or safety and soundness benefits.\70\ Based on HMDA 
data, the Agencies found that in 2009, the mean loan size for 
subordinate-lien home improvement loans that were HPMLs was $26,000 and 
the median loan size for this category of loans was $17,000.\71\ In 
2010, the mean loan size was $24,900 for subordinate-lien home 
improvement loans that were HPMLs and the median loan size for this 
category of loans was $19,000.\72\ In 2011, the corresponding loan 
sizes for subordinate-lien home improvement

[[Page 48565]]

loans that were HPMLs were $26,500 (mean) and $20,000 (median).\73\
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    \70\ Consumer advocates have expressed concerns to the Agencies 
that home improvement loans can be part of schemes that are abusive 
to consumers in some cases, such as when little or no work or 
substandard work is performed. Whether an appraisal requirement 
could be used to combat these abuses is unclear.
    \71\ See Federal Financial Institutions Examination Council 
(FFIEC), Home Mortgage Disclosure Act (HMDA), http://www.ffiec.gov/Hmda/default.htm.
    \72\ See id.
    \73\ See id.
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    The Agencies recognize that loan types other than home improvement 
loans would qualify for the proposed exemption and that other data and 
considerations may be relevant to determining the appropriate 
threshold.
    Question 41: The Agencies are proposing a threshold for a smaller 
dollar loan exemption of $25,000 or less, but request comment on 
whether a lower or higher threshold is appropriate and, if so, why. The 
Agencies strongly encourage commenters to offer data to support their 
view of an appropriate threshold.
    Annual adjustment for inflation. The Agencies also propose to 
adjust the threshold for inflation every year, based on the percentage 
increase of Consumer Price Index for Urban Wage Earners and Clerical 
Workers (CPI-W). Thus, under the proposal, if the CPI-W decreases in an 
annual period, the percentage increase would be zero, and the dollar 
amount threshold for the exemption would not change. The Agencies note 
that inflation adjustments for other thresholds in Regulation Z are 
also annual, and believe that consistency across mortgage rules can 
facilitate compliance.\74\
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    \74\ See 12 CFR 1026.3(b) (exempting from Regulation Z for loans 
over the applicable threshold dollar amount, adjusted annually); 12 
CFR 1026.32(a)(1)(ii) (setting the points and fees trigger for high-
cost mortgages, adjusted annually).
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    Question 42: The Agencies request comment on whether the threshold 
for a smaller dollar loan exemption should be adjusted periodically for 
inflation and whether the period for adjustments should be one year or 
some other period.
    In comments 35(c)(2)(viii)-1, -2, and -3, the Agencies propose to 
provide the threshold amount and additional guidance on applying it. 
Proposed comment 35(c)(2)(viii)-1 sets forth the applicable threshold 
to be updated every year. This comment states that, for purposes of 
Sec.  1026.35(c)(2)(viii), the threshold amount in effect during a 
particular one-year period is the amount stated in comment 
35(c)(2)(viii) for that period. The comment states that the threshold 
amount is adjusted effective January 1 of every year by the percentage 
increase in the CPI-W that was in effect on the preceding June 1. The 
comment goes on to state that every year, the comment will be amended 
to provide the threshold amount for the upcoming one-year period after 
the annual percentage change in the CPI-W that was in effect on June 1 
becomes available. The comment states that any increase in the 
threshold amount will be rounded to the nearest $100 increment, and 
provides the following examples: if the percentage increase in the CPI-
W would result in a $950 increase in the threshold amount, the 
threshold amount will be increased by $1,000. However, if the 
percentage increase in the CPI-W would result in a $949 increase in the 
threshold amount, the threshold amount will be increased by $900. 
Finally, the comment states that, from January 18, 2014, through 
December 31, 2014, the threshold amount is $25,000.
    Proposed comment 35(c)(2)(viii)-2 states that a transaction meets 
the condition for an exemption under Sec.  1026.35(c)(2)(viii) if the 
creditor makes an extension of credit at consummation that is equal to 
or below the threshold amount in effect at the time of consummation.
    Proposed comment 35(c)(2)(viii)-3 clarifies that a transaction does 
not meet the condition for an exemption under Sec.  1026.35(c)(2)(viii) 
merely because it is used to satisfy and replace an existing exempt 
loan, unless the amount of the new extension of credit is equal to or 
less than the applicable threshold amount. As an example, the comment 
assumes a closed-end loan that qualified for an exemption under Sec.  
1026.35(c)(2)(viii) at consummation in year one is refinanced in year 
ten and that the new loan amount is greater than the threshold amount 
in effect in year ten. The comment states that, in these circumstances, 
the creditor must comply with all of the applicable requirements of 
Sec.  1026.35(c) with respect to the year ten transaction if the 
original loan is satisfied and replaced by the new loan, unless another 
exemption from the requirements of Sec.  1026.35(c) applies. The 
comment cross-references Sec.  1026.35(c)(2) and Sec.  
1026.35(c)(4)(vii) for other exemptions from the HPML appraisal rules.
Additional Condition: Providing a Copy of a Valuation to the Consumer.
    Question 43: The Agencies seek comment on whether certain 
conditions should be placed on the proposed exemption from the HPML 
appraisal requirements for loans of $25,000 or less.
    In particular, the Bureau has concerns that, as a result of 
borrowing so-called ``smaller'' dollar home purchase or home equity 
loans, some consumers may be at risk of high LTVs, including LTVs that 
lead to going ``underwater''--owing more than their home is worth. Data 
suggest that many existing homes are worth under $25,000 and that many 
consumers with lower value homes are underwater or nearly 
underwater.\75\ In addition, based upon HMDA data, more than half of 
subordinate liens originated in 2011 were at or below $25,000.\76\ 
Studies suggest that subordinate-lien loans and other forms of equity 
extraction can make consumers more likely to default, as they reduce 
the amount of equity in the home and raise LTVs.\77\ Receiving a 
written valuation might be helpful in informing a consumer's decision 
to take the loan by making the consumer better aware of how the value 
of the home compares to the amount that the consumer might borrow.
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    \75\ As of 2011, approximately 2.8 million homes had a value of 
less than $20,000. See 2011 American Housing Survey, ``Value, 
Purchase Price, and Source of Down Payment--Owner Occupied Units 
(NATIONAL),'' available at http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=AHS_2011_C13OO&prodType=table. A recent study shows that at the end of 2012, 
10.4 million properties with a residential mortgage (21.5 percent of 
residential properties with a mortgage) were in ``negative equity'' 
and an additional 11.3 million had less than 20 percent equity. This 
study also suggests that negative equity is greater with smaller 
home values (i.e., below $200,000). See Core Logic Press Release and 
Negative Equity Report Q4 2012 (Mar. 19, 2013) available at http://www.corelogic.com.
    \76\ See FFIEC, HMDA, http://www.ffiec.gov/Hmda/default.htm.
    \77\ See, e.g., Steven Laufer, ``Equity Extraction and Mortgage 
Default,'' Financial and Economics Discussion Series, Federal 
Reserve Board Division of Research & Statistics and Monetary Affairs 
(2013-30), available at http://www.federalreserve.gov/pubs/feds/2013/201330/201330pap.pdf. See also, e.g., Michael LaCour-Little, 
California State University-Fullerton, Eric Rosenblatt and Vincent 
Yao, Fannie Mae, ``A Close Look at Recent Southern California 
Foreclosures,'' (May 23, 2009), available at http://www.areuea.org/conferences/papers/download.phtml?id=2133.
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    Question 44: The Agencies seek comment on the risks that smaller 
dollar loans could lead to high LTV or ``underwater'' loans without the 
knowledge of the consumer, including whether these risks outweigh the 
burden to the consumer of added appraisal costs and transaction time in 
covered transactions. See Sec.  1026.35(c)(2) for additional 
exemptions.
    Question 45: The Agencies also request comment on protections that 
may reduce these risks if loans of $25,000 or less are generally exempt 
from the HPML requirement for a USPAP-compliant appraisal with an 
interior inspection.
    Question 46: In particular, the Agencies request comment on whether 
the exemption should be conditioned on the creditor providing the 
consumer with any estimate of the value of the home that the creditor 
relied on in making the credit decision.\78\
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    \78\ Subordinate-lien loans are not covered by ECOA's 
requirement that the creditor provide the consumer with a copy of 
valuations and appraisals obtained in connection with an 
application. See 15 U.S.C. 1691(e)(1), implemented by the 2013 ECOA 
Valuations Rule at 12 U.S.C. 1002.14 (eff. Jan. 18, 2014). Thus, the 
consumer of a subordinate-lien smaller dollar loan would not have a 
right to receive valuations from the creditor under ECOA.

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[[Page 48566]]

    Question 47: To inform the Agencies' consideration of this 
condition, the Agencies seek data from commenters on the extent to 
which creditors anticipate originating HPMLs of $25,000 or less that 
are not qualified mortgages.
    Question 48: The Agencies also seek comment on the extent to which 
creditors typically obtain an estimate of the value of the home to 
calculate the LTV or combined LTV (CLTV) associated with a transaction 
of $25,000 or less. The Agencies note that FIRREA's appraisal and 
evaluation regulations apply to federally-regulated depositories, but 
that certain non-depositories and depositories are not subject to 
FIRREA.\79\
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    \79\ See OCC: 12 CFR 34.43 and 164.3; Board: 12 CFR 225.63; 
FDIC: 12 CFR 323.3; NCUA: 12 CFR 722.3. See also OCC, Board, FDIC, 
NCUA, Interagency Appraisal and Evaluation Guidelines, App. A-5, 75 
FR 77450, 77466-67 (Dec. 10, 2010).
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    Question 49: In addition, the Agencies request comment on whether 
and what guidance would be needed regarding the type and quality of 
valuation that would meet the condition (or, if the creditor obtained 
more than one valuation, which valuation the creditor should provide).
    Question 50: The Agencies further request comment on whether other 
limitations on the exemption might be more appropriate. One alternative 
might be to limit the exemption to loans that do not bring the 
consumer's CLTV over a certain threshold. The Agencies seek comment on 
what an appropriate threshold would be and the valuation sources on 
which a creditor should appropriately rely to calculate CLTV for this 
alternative limitation on the exemption.
    Question 51: The Agencies request comment and data on whether 
adding these or similar criteria to qualify for a smaller dollar 
exemption is an appropriate and adequate means for addressing the 
concerns raised about high LTV lending.
    Question 52: Finally, the Agencies also seek comment and data on 
whether these conditions would likely result in creditors of smaller 
dollar HPMLs (that are not exempt as qualified mortgages) deciding to 
forego the exemption and charge the consumer for an appraisal, offer 
the consumer an open-end home equity product instead (which is not 
covered by the HPML appraisal rules), or not offer a loan at all.
35(c)(6) Copy of Appraisals
35(c)(6)(ii) Timing
    In the Final Rule, comment 35(c)(6)(ii)-2 provides that, for 
appraisals prepared by the creditor's internal appraisal staff, the 
date that a consumer receives a copy of an appraisal as required under 
Sec.  1026.35(c)(6) is the date on which the appraisal is completed. 
The Agencies propose to delete this comment as unnecessary, because the 
relevant timing requirement is based on when the creditor provides the 
appraisal, not when the consumer receives it. See Sec.  
1026.35(c)(6)(i).

VI. Bureau's Dodd-Frank Act Section 1022(b)(2) Analysis \80\
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    \80\ The analysis and views in this Part VI reflect those of the 
Bureau only, and not necessarily those of all of the Agencies.
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    In developing this supplemental proposal, the Bureau has considered 
potential benefits, costs, and impacts to consumers and covered 
persons.\81\ In addition, the Bureau has consulted, or offered to 
consult with HUD and the Federal Trade Commission, including regarding 
consistency with any prudential, market, or systemic objectives 
administered by such agencies. The Bureau also held discussions with or 
solicited feedback from the USDA, RHS, and VA regarding the potential 
impacts of this supplemental proposal on their loan programs.
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    \81\ Specifically, Section 1022(b)(2)(A) calls for the Bureau to 
consider the potential benefits and costs of a regulation to 
consumers and covered persons, including the potential reduction of 
access by consumers to consumer financial products or services; the 
impact on depository institutions and credit unions with $10 billion 
or less in total assets as described in section 1026 of the Act; and 
the impact on consumers in rural areas.
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    In this supplemental proposal, the Agencies are proposing to exempt 
three additional classes of HPMLs from the 2013 Interagency Appraisals 
Final Rule: (1) Certain refinance HPMLs whose proceeds are used 
exclusively to satisfy an existing first-lien loan and to pay for 
closing costs; (2) new HPMLs that have a principal amount of $25,000 or 
less (indexed to inflation); and (3) HPMLs secured by existing 
manufactured homes but not land. As discussed in the section-by-section 
analysis, the Agencies also are seeking comment on whether to place 
conditions on these proposed exemptions that would ensure the consumer 
receives a copy of a home value estimate in transactions covered by the 
exemptions.
    The Bureau will further consider the benefits, costs and impacts of 
the proposed provisions and asks interested parties to provide general 
information, data, research results and other information that may 
inform the analysis of the benefits, costs, and impacts.

A. Potential Benefits and Costs to Consumers and Covered Persons

    This analysis considers the benefits, costs, and impacts of the key 
provisions of the Interagency Appraisals Supplemental Proposal relative 
to the baseline provided by existing law, including the 2013 
Interagency Appraisals Final Rule and the Bureau's ATR Rules.\82\
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    \82\ The Bureau has discretion in future rulemakings to choose 
the most appropriate baseline for that particular rulemaking.
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    The Bureau has relied on a variety of data sources to analyze the 
potential benefits, costs and impacts of the proposed rule.\83\ 
However, in some instances, the requisite data are not available or are 
quite limited. Data with which to quantify the benefits of the proposed 
rule are particularly limited. As a result, portions of this analysis 
rely in part on general economic principles to provide a qualitative 
discussion of the benefits, costs, and impacts of the rule.
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    \83\ The estimates in this analysis are based upon data and 
statistical analyses performed by the Bureau. To estimate counts and 
properties of mortgages for entities that do not report under the 
Home Mortgage Disclosure Act (HMDA), the Bureau has matched HMDA 
data to Call Report data and National Mortgage Licensing System 
(NMLS) and has statistically projected estimated loan counts for 
those depository institutions that do not report these data either 
under HMDA or on the NCUA call report. The Bureau has projected 
originations of HPMLs in a similar fashion for depositories that do 
not report HMDA. These projections use Poisson regressions that 
estimate loan volumes as a function of an institution's total 
assets, employment, mortgage holdings, and geographic presence. 
Neither HMDA nor the Call Report data have loan level estimates of 
debt-to-income (DTI) ratios that, in some cases, determine whether a 
loan is a qualified mortgage. To estimate these figures, the Bureau 
has matched the HMDA data to data on the historic-loan-performance 
(HLP) dataset provided by the FHFA.
    This allows estimation of coefficients in a prohibit model to 
predict DTI using loan amount, income, and other variables. This 
model is then used to estimate DTI for loans in HMDA.
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    The primary source of data used in this analysis is data collected 
under the Home Mortgage Disclosure Act (HMDA). The empirical analysis 
generally uses 2011 data, including from the 4th quarter 2011 bank and 
thrift Call Reports,\84\ the 4th quarter 2011 credit

[[Page 48567]]

union call reports from the NCUA, and de-identified data from the 
National Mortgage Licensing System (NMLS) Mortgage Call Reports (MCR) 
\85\ for the 4th quarter of 2011 also were used to identify financial 
institutions and their characteristics. Most of the analysis relies on 
a dataset that merges this depository institution financial data from 
Call Reports with the data from HMDA including HPML counts that are 
created from the loan-level HMDA dataset. The unit of observation in 
this analysis is the entity: if there are multiple subsidiaries of a 
parent company, then their originations are summed and revenues are 
total revenues for all subsidiaries.
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    \84\ Every national bank, State member bank, and insured 
nonmember bank is required by its primary Federal regulator to file 
consolidated Reports of Condition and Income, also known as Call 
Report data, for each quarter as of the close of business on the 
last day of each calendar quarter (the report date). The specific 
reporting requirements depend upon the size of the bank and whether 
it has any foreign offices. For more information, see http://www2.fdic.gov/call_tfr_rpts/.
    \85\ The NMLS is a national registry of non-depository financial 
institutions including mortgage loan originators. Portions of the 
registration information are public. The Mortgage Call Report data 
are reported at the institution level and include information on the 
number and dollar amount of loans originated, and the number and 
dollar amount of loans brokered. The Bureau noted in its summer 2012 
mortgage proposals that it sought to obtain additional data to 
supplement its consideration of the rulemakings, including 
additional data from the NMLS and the NMLS Mortgage Call Report, 
loan file extracts from various lenders, and data from the pilot 
phases of the National Mortgage Database. Each of these data sources 
was not necessarily relevant to each of the rulemakings. The Bureau 
used the additional data from NMLS and NMLS Mortgage Call Report 
data to better corroborate its estimate the contours of the non-
depository segment of the mortgage market. The Bureau has received 
loan file extracts from three lenders, but at this point, the data 
from one lender is not usable and the data from the other two is not 
sufficiently standardized nor representative to inform consideration 
of the Final Rule or this supplemental proposal. Additionally, the 
Bureau has thus far not yet received data from the National Mortgage 
Database pilot phases.
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    Other portions of the analysis rely on property-level data 
regarding parcels and their related financing from DataQuick \86\ 
Tabulations of the DataQuick data are used for estimation of the 
frequency of properties being sold within 180 days of a previous sale. 
In addition, in analyzing alternatives for the proposed exemption for 
certain refinances, the Bureau has considered data provided by FHFA and 
FHA regarding valuation practices under their streamlined refinance 
programs (and in particular regarding the frequency with which 
appraisals or automated valuations are conducted). These FHFA and FHA 
data are described below in greater detail.
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    \86\ DataQuick is a database of property characteristics on more 
than 120 million properties and 250 million property transactions.
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1. Overview: Estimated Number of Covered HPMLs
    To estimate the number of additional HPMLs that could be exempted 
by the proposal, it is first necessary to recall the number of HPMLs 
that are covered by the Final Rule. The 2013 Interagency Appraisal Rule 
exempts all qualified mortgages under the Bureau's 2013 ATR Final Rule. 
See Sec.  1026.35(c)(2)(i).\87\ Therefore, the only additional loans 
that would be exempted by the proposed rule would be HPMLs that are not 
qualified mortgages. Under special temporary provisions in the Bureau's 
2013 ATR Final Rule, any loans eligible for purchase or guarantee by 
HUD, USDA, or VA (until they adopt their own qualified mortgage rules 
or 2021, whichever is earlier), or by GSEs (until 2021), generally 
would be qualified mortgages. See Sec.  1026.43(e)(4). This temporary 
qualified mortgage definition incorporates the criteria in Sec.  
1026.43(e)(2)(i)-(iii)--a limit on the mortgage term of 30 years, 
regular periodic payments without changes in payment amounts except as 
part of an adjustable-rate or step-rate product, no negative 
amortization, no balloon payments except in certain cases, and a cap on 
points and with points and fees of three percent. The Bureau believes 
that virtually all transactions that are eligible for purchase, 
insurance, or guarantee by HUD, FHA, VA, or GSEs, as applicable, would 
meet these criteria. The Bureau requests additional data from 
commenters on the extent to which the three transaction types covered 
by this proposal may exceed the three percent cap on points and fees 
and therefore not satisfy the definition of a qualified mortgage.\88\
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    \87\ This exemption implemented the statute, which excluded 
qualified mortgages from the scope of the HPML appraisal 
requirements. 15 U.S.C. 1639h(f)(1). The Bureau notes, however, that 
in order for qualified mortgages to be eligible for the qualified 
residential mortgage (QRM) exemption from Dodd-Frank Act risk 
retention requirements, a USPAP appraisal would be required under 
rules proposed under other provisions of the Dodd-Frank Act. See 
Proposed Credit Retention Rule, 76 FR 24090, 24125 (April 29, 2011) 
(QRM Proposal ``proposing that a QRM be supported by a written 
appraisal that conforms to generally accepted appraisal standards, 
as evidenced by [USPAP]'' and other specified laws).
    \88\ In the absence of data indicating otherwise, the Bureau 
believes few if any streamlined refinance HPMLs would fail to meet 
qualified mortgage definitions by virtue of having points and fees 
in excess of three percent. Indeed, points and fees on streamlined 
refinances may be lower than other mortgage loans because of the 
reduced complexity in refinance transactions generally and the 
further reduced complexity of the streamlined origination process. 
In addition, for HPMLs secured by existing manufactured homes, the 
Bureau believes that the points and fees threshold for qualified 
mortgages would be less likely to be exceeded, insofar as these 
transactions are less likely to include loan originator compensation 
to dealers or their employees, whose business focuses more on new 
manufactured homes. (In any event, the Bureau also has proposed 
comment 32(b)(1)(ii)-5 to the 2013 ATR Final Rule to clarify that 
the sales price for manufactured homes does not include points and 
fees, and that payments of the sales commission to dealer employees 
also does not count as points and fees. See 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 issued June 24, 
2013), available at http://files.consumerfinance.gov/f/201306_cfpb_proposed-modifications_mortgage-rules.pdf. Finally, for 
smaller dollar closed-end dwelling-secured transactions, such as 
home equity loans up to $25,000, the Bureau has not identified data 
indicating that in the current market a significant number of these 
transactions have points and fees at the elevated levels for smaller 
loans in the 2013 ATR Final Rule. See Sec.  1026.43(e)(3)(i)(C)-(E) 
(setting points and fees caps of eight percent for loans up to 
$12,500, $1,000 for loans from $12,500 up to $20,000, and five 
percent for loans from $20,000 up to $60,000).
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    The Bureau seeks data from commenters on this point. Accordingly, 
the Bureau believes that almost all if not all of the loans that would 
be exempted solely by virtue of the proposed exemptions would be 
transactions originated by private lenders for their own portfolio, 
which are not eligible for purchase, insurance, or guarantee by HUD, 
USDA, VA, or GSEs,\89\ and which also are not qualified mortgages under 
the general definition at Sec.  1026.43(e)(2). This definition includes 
the criteria in Sec.  1026.43(e)(2)(i)-(iii) discussed above as well as 
one additional criterion--a maximum debt-to-income ratio of 43 percent 
at Sec.  1026.43(e)(2)(iv).
---------------------------------------------------------------------------

    \89\ Focusing on whether the loan is insured or guaranteed, 
instead of eligible for insurance or guarantee, is conservative; the 
qualified mortgage exemption, at Sec.  1026.43(e)(4), is defined in 
terms of eligibility.
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    As discussed in the Section 1022(b) analysis in the 2013 Final 
Interagency Appraisals Rule, the Bureau estimates, based upon 2011 HMDA 
data, that there were 26,000 HPMLs that would not have been qualified 
mortgages, 12,000 of which were purchase-money mortgages, 12,000 of 
which were first-lien transactions that were refinancings, and 2,000 of 
which were closed-end subordinate lien mortgages that were not part of 
a purchase transaction. For purposes of this Section 1022(b) analysis, 
the Bureau refers to these loans as ``covered loans.'' The impact on 
creditors and consumers of the proposed exemptions--which at most would 
exempt some of these estimated 26,000 covered loans annually--is 
discussed below.
    The impact of the proposed exemptions on creditors and consumers 
generally varies by exemption. It should be noted, however, that there 
are no mandatory costs imposed on creditors as a result of any of the 
proposed exemptions. Creditors are not required to utilize an 
exemption. Therefore, any associated burdens are also optional. 
Moreover, voluntary compliance costs should be minimal: Creditors 
complying with the 2013 Interagency Appraisals

[[Page 48568]]

Final Rule should be able to incorporate these exemptions into their 
underwriting process and personnel training with little additional 
cost.
2. Streamlined Refinances
    The Agencies are proposing to exempt first-lien refinances that 
satisfy certain restrictions, many of which are commonly referred to as 
``streamlined refinances.'' As discussed in the preceding section-by-
section analysis, the Agencies are seeking comment on whether this 
proposed exemption should be subject to the condition that the creditor 
obtain an estimate of the value of the dwelling that will secure the 
refinancing and provide a copy of it to the consumer before 
consummation.
Background on Possible Condition on Proposed Exemption
    Before discussing the proposed exemption in detail, it would be 
useful to first discuss the request for comment on conditioning the 
exemption on obtaining and providing a home value estimate to the 
consumer. This condition would apply to any loan that is otherwise 
eligible for the streamlined refinance exemption and that is not exempt 
under another provision of the Final Rule, such as the exemption for 
qualified mortgages, Sec.  1026.35(c)(2)(i). Other types of valuations 
\90\ that are offered in the marketplace typically include exterior 
appraisals, automated valuation model (AVM) reports, and broker-price 
opinions, among others. Alternative forms of valuation might not be as 
accurate as a USPAP- and FIRREA-compliant appraisal with an interior 
inspection; for example, they might implicitly assume an interior of 
average quality. Nonetheless, the Bureau believes a valuation provides 
the consumer with more information with which to make decisions than no 
valuation. Obviously, more accurate valuations (including valuations 
that are more current and based upon more rigorous, validated methods) 
provide more meaningful information than less accurate valuations. 
However, the cost of providing this information also must be 
considered, particularly in a streamlined refinance transaction because 
the consumer already owns the home and thus the appraisal would not 
inform a home purchase decision. The Bureau estimates the cost of a 
full appraisal with an interior inspection to be approximately $350 in 
addition to the time required to obtain the appraisal. For an 
alternative valuation method such as an AVM, the Bureau believes the 
cost may be as little as $5 and the time to obtain it may be only a few 
minutes.\91\ The Bureau seeks comment on the costs, benefits, and 
impacts of conditioning the proposed exemption on the requirement that 
the creditor obtain an estimate of value and provide a copy of it to 
the consumer. The Bureau also seeks data on the accuracy of AVMs 
relative to full interior appraisals.
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    \90\ In this analysis under Section 1022(b) of the Dodd-Frank 
Act, the Bureau uses the term ``valuation'' generically to refer to 
any estimate of value of the dwelling.
    \91\ Based upon research in anticipation of this proposal, the 
Bureau has not identified easily-accessible public information on 
current pricing practices of AVM providers. The Bureau notes, 
however, that one GSE charges a flat fee of $20 per loan for a 
report that includes an estimated home value. This report is 
primarily a risk assessment tool to assist loan originators (http://www.loanprospector.com/about/#howmuch). It provides many features, 
including a no-fee home estimate (http://www.freddiemac.com/hve/faq.html#3). Given that the home estimate is not listed on the 
report's Web page (http://www.loanprospector.com/about/#howmuch), 
the Bureau assumes that the value of the estimate itself is 
relatively minor, in particular far less than $20 per loan. Even if 
the estimate itself is not available for a much lower price than 
$20, the price introduces competitive pressure that constrains other 
AVM providers from charging more for their services.
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Discussion of Proposed Exemption
    In practice, the refinances eligible for the proposed exemption 
would fall into two categories. The first category is refinances held 
in the portfolios of private creditors or sold to a private investor 
that satisfy all of the criteria for an exempt refinance under proposed 
Sec.  1026.35(c)(2)(vii). The second category is refinances under GSE, 
FHA, USDA, or VA programs that satisfy the proposed criteria. The 
Bureau believes that virtually all transactions in the second category 
(under any public refinance programs) already would be exempted from 
this rule by virtue of being qualified mortgages under Sec.  
1043(e)(4). As discussed in the section-by-section analysis above, 
however, under the 2013 ATR Final Rule streamlined refinances under GSE 
programs originated in or after 2021 would not be qualified mortgages 
if they do not meet all of the general criteria for a qualified 
mortgage in the 2013 ATR Final Rule, including debt-to-income limits. 
See Sec.  1026.43(e)(2).
Private Refinances
    Refinances originated by private creditors that are not eligible 
under public programs still could satisfy the criteria in the proposed 
exemption. The Bureau believes that the condition in the proposed 
exemption of no cash-out except for closing costs would be satisfied in 
most private HPML refinances. In the current market, cash-out 
refinances have become less common.\92\ In addition, when the 
consumer's existing loan is a ``non-standard'' loan, creditors may seek 
to qualify for the exemption from the ability-to-repay rules of the 
2013 ATR Final Rule for the refinance of a ``non-standard'' mortgage 
into a ``standard'' mortgage. To qualify, the ``standard'' refinance 
must involve no cash out to the consumer: the proceeds may be used only 
to pay off the existing principal obligation and for closing costs. See 
Sec.  1026.43(d)(1)(ii)(E). Thus, the Bureau believes that the most 
reasonable assumption is that lenders are unlikely to originate private 
cash-out HPML refinance mortgages that are not qualified mortgages. 
Moreover, the proposed exemption from this rule would reduce costs of 
the loan if an appraisal is not otherwise required, and therefore 
create an additional economic incentive to refinance without taking 
cash out. From the 2013 Interagency Appraisals Final Rule, Section 
1022(b) Analysis, 78 FR 10419, the Bureau estimates that roughly 12,000 
refinances were covered loans.\93\ Because the Bureau does not estimate 
that non-qualified mortgages will be originated under public programs, 
the Bureau estimates that these 12,000 covered loans would be private 
refinances. Some of these private refinances would be ineligible for 
the proposed exemption due to having a different holder/guarantor, 
having negative amortization or interest-only features, or having 
balloon payments. The Bureau seeks data from commenters on how many of 
these private refinance loans would have these features. However, the 
Bureau believes that the vast majority of private refinance loans will 
not have these features. Accordingly, the Bureau believes this is a 
reasonable estimate of the number of refinance loans that would be 
covered by the proposed exemption.
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    \92\ See Fannie Mae Annual Report 2011, at 156, and Fannie Mae 
Annual Report 2012, at 127 (reporting that ``cash out'' refinances 
have been decreasing from 2009-2012, including for the conventional 
business, from 27% to 20% to 17% to 14% in these four years, just as 
other refinances have been increasing). See also American Housing 
Survey (2011), Table C-14b-OO (approximately 14% of homes with a 
refinance had obtained the refinance for purposes of receiving 
cash), available at http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=AHS_2011_C14BOO&prodType=table.
    \93\ The actual number may be lower, however, to the extent any 
of these refinances do not meet the additional restriction in the 
proposed exemption--that the owner or guarantor of the new refinance 
loan is the same as the owner or guarantor of the existing loan 
being refinanced.

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[[Page 48569]]

    As indicated in the section-by-section analysis above, the Agencies 
are seeking data from commenters on the extent to which creditors 
obtain appraisals or other valuations in no-cash out portfolio 
refinances that are not originated under public programs.
    The Bureau also believes that conditioning the exemption on 
obtaining a valuation and providing a copy of it to the consumer would 
be consistent with existing industry valuation practices for private 
refinances. The Bureau believes that creditors that do not obtain an 
appraisal obtain an alternative valuation. For example, private 
streamlined refinance programs administered by banks, thrifts, or 
credit unions are subject to FIRREA regulations and the Interagency 
Appraisal and Evaluation Guidelines. Under these standards, the 
creditors must obtain ``evaluations,'' which can include (but not 
consist solely of) estimates from AVMs, to support streamlined 
refinances that are kept on their portfolio and are not backed by 
public programs.\94\ Because the Bureau understands that an 
``evaluation'' must include an estimate of the property value, 75 FR 
77450, 77461 (Dec. 10, 2010), creditors in these programs also would be 
required already to provide copies of these estimates to consumers 
under the Bureau's 2013 ECOA Valuations Rule, 12 CFR 1002.14(a)(1).
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    \94\ See OCC: 12 CFR 34.43(b); Board: 12 CFR 225.63(b); FDIC: 12 
CFR 323.3(b) (FDIC); NCUA: 12 CFR 722.3(d); see also OCC, Board, 
FDIC, NCUA, Interagency Appraisal and Evaluation Guidelines, 75 FR 
77450, 77461 (Dec. 10, 2010) (Parts XII-XIV).
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Public Program Refinances Including Streamlined Refinance Programs
    As mentioned above, in the short and medium term, the Bureau 
believes that no public program refinance loans will be covered loans 
because they will be exempt as qualified mortgages. Accordingly, the 
proposed exemption would only affect some of the HPML refinances under 
GSE programs starting in 2021 (and some HPML refinances under HUD, 
USDA, and VA programs at that time if those agencies have not already 
adopted their own qualified mortgage rules)--an impact that is too 
remote to quantify at this time as the state of the GSEs, the public 
refinance programs, and the market environment at that time is not 
possible to predict.
    Below, the Bureau analyzes the impact of the proposed exemption for 
certain refinances on covered persons and consumers.
a. Covered Persons
    Any creditors originating refinances that are currently covered 
loans and which meet the criteria of the proposed exemption could 
choose to make use of the proposed exemption, which would reduce 
burden. In particular, these loans would not be subject to the 
estimated per-loan costs described in the 2013 Interagency Appraisals 
Final Rule.\95\ For these transactions, these creditors would not be 
required to spend time reviewing the appraisals conducted for 
conformity to this rule, and providing copies of those appraisals to 
applicants.
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    \95\ See Section 1022(b) analysis, 78 FR 10418-21.
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    The Bureau is requesting that commenters provide data on the rate 
at which appraisals and other valuations are conducted for private 
refinances. If the Bureau is able to obtain this additional 
information, it can better estimate the burden that would be reduced if 
the proposed exemption is finalized for private refinances.
    In addition, the Bureau believes that conditioning the proposed 
exemption on the creditor obtaining and providing the consumer with an 
alternative valuation would not significantly decrease the amount of 
burden relieved by the exemption. Such alternative valuations cost 
significantly less than full interior appraisals and, in many cases, 
already are required by regulations or are otherwise obtained under 
current industry practice and therefore subject to disclosure to the 
consumer under the Bureau's 2013 ECOA Valuations Rule. According to the 
data that was provided to the Agencies by the FHFA, in 2012, all GSE 
streamlined refinance transactions have either an automated valuation 
estimate (more than 80%) or an appraisal performed (less than 20%). The 
Bureau also understands that the Agencies' FIRREA regulations also 
generally mandate alternative valuation methods for streamlined 
refinances where appraisals are not used and the transaction is not 
sold to, guaranteed by, or insured by a government agency or GSE.\96\ A 
condition on the proposed exemption still could allow flexibility for 
creditors to determine the type of alternative valuation to provide; 
and just as Section 129H(d) of TILA notes that the appraisal required 
under the Dodd-Frank Act for covered HPMLs is for the creditor's sole 
use, a condition would not necessarily prevent a creditor from 
informing the consumer that he or she uses the alternative valuation 
``at their own risk.'' As noted in the section-by-section analysis 
above, the Agencies seek comment on the extent to which creditors 
originating loans eligible for the proposed exemption obtain valuations 
currently. In any case, even if a condition were adopted, use of the 
proposed exemption would be voluntary.
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    \96\ See OCC: 12 CFR 34.43(b); Board: 12 CFR 225.63(b); FDIC: 12 
CFR 323.3(b) (FDIC); NCUA: 12 CFR 722.3(d).
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b. Consumers
    For those consumers whose HPML streamlined refinance would not have 
been a qualified mortgage (such as those HPMLs not associated with 
public programs and not otherwise meeting the general definition of 
qualified mortgage), the proposed exemption would ensure the rule--
including its appraisal requirement--does not apply to their loan. This 
can result in several types of cost savings to consumers of these 
loans. First, as discussed in the in the 2013 Interagency Appraisals 
Final Rule, the Bureau believes the cost of appraisals--$350 on 
average--is generally passed on to consumers.\97\ In addition, 
streamlined refinance transactions may close more quickly without an 
appraisal, and recent data indicates that these refinances in the 
current rate environment have interest rates on average nearly two 
percent lower than the loan being refinanced.\98\ As a result, those 
consumers described above typically would save money because the 
transaction will not have to wait to close until an appraisal is 
conducted and reviewed: for example, if the consumer can close a 
refinance transaction two weeks earlier because a full appraisal is not 
performed, that will provide the consumer with an additional two weeks 
of payments at the reduced interest rate of the refinance loan. The 
exemption therefore may result in some reduced interest rate expenses 
for consumers seeking private streamlined refinance HPMLs that are not 
qualified mortgages and which would not have otherwise had an 
appraisal. The Bureau believes that the number of consumers affected by 
this benefit annually is quite small: Of the 12,000 estimated private 
refinances eligible for the exemption discussed above, only the 
fraction that would not otherwise have had an appraisal would 
benefit.\99\
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    \97\ Section 1022(b) Analysis, 78 FR 10420.
    \98\ See Freddie Mac Press Release, ``84 Percent of Refinancing 
Homeowners Maintain or Reduce Mortgage Debt in Fourth Quarter'' 
(Feb. 4, 2013), available at http://freddiemac.mwnewsroom.com/press-releases/84-percent-of-refinancing-homeowners-maintain-or-r-pinksheets-fmcc-981668. See also Fannie Mae 2012 Annual Report at 11 
(reporting $237 average decrease in monthly payment under Fannie Mae 
Refi Plus[supreg] program in fourth quarter 2012).
    \99\ The Bureau does not have information indicating that there 
a significant number of other streamlined refinance HPMLs that are 
not otherwise qualified mortgages.

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[[Page 48570]]

    The Bureau is uncertain, however, whether the proposed exemption 
would make it more likely that the transaction is consummated for these 
consumers. As noted above, when an appraisal is not conducted, an 
evaluation is generally required under FIRREA regulations for 
depository institutions. The Bureau does not believe, and had not 
identified any data indicating, that an appraisal is any more or less 
likely than an evaluation to cause a transaction to fail (for example 
because the valuation exceeds the price, or causes the loan to exceed 
any LTV limits). Accordingly, the Bureau requests data from commenters 
on whether the exemption would increase the likelihood of consummation 
for refinances eligible for the exemption. If the exemption made 
consummation of the transaction more likely for these consumers, the 
Bureau believes this would provide a benefit to these consumers 
whenever the refinance transaction is beneficial for the consumer.
    As discussed in the Bureau's analysis under Section 1022 in the 
2013 Interagency Appraisals Final Rule, in general, consumers who are 
borrowing HPMLs that are covered loans and who would not otherwise have 
appraisals conducted for the transaction could benefit from an 
appraisal being conducted.\100\ Benefits of appraisals in residential 
mortgage transactions generally can range from having a valuation that 
better accounts for the interior and exterior of their particular 
property, to having information that can be used to evaluate insurance 
coverage levels and real estate tax valuations, to being better 
informed as to the value of their property before making a final 
decision to enter into a new transaction, among others. Consumers who 
are better informed before consummating a streamlined refinance loan 
would be better able to assess their alternatives, which can include 
the following, among others:
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    \100\ Section 1022(b) Analysis, 78 FR 10417-18.
---------------------------------------------------------------------------

     Remaining in the home with the existing loan;
     Refinancing through a different program at a better rate 
or other improved terms (such as not requiring mortgage insurance); 
\101\
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    \101\ The proposed exemption already excludes loans with terms 
that are generally viewed as reducing consumer protection, such as 
negative amortization, interest-only, or balloons.
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     Seeking a modification;
     Selling the home; or
     Negotiating with the servicer to provide the deed-in-lieu 
without defaulting, among others.
    Of course, in a refinance transaction, a consumer having better 
home value information through an appraisal will not affect the 
consumer's decision of whether to buy the home in the first place. 
Nonetheless, when considering a refinance loan, the appraisal can 
inform the consumer with respect to options to pursue such as those 
listed above, which could be more beneficial or appropriate for the 
consumer than refinancing the loan.\102\
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    \102\ Indeed, unlike in a home purchase transaction, in a 
streamlined refinance transaction (unless the originating creditor 
on the new loan is the same as on the existing loan), the consumer 
has an absolute three-day right of rescission under Regulation Z, 
Sec.  1026.23. This right underscores the need for consumers to be 
informed prior to its expiration.
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    For example, if the appraisal establishes that the value of the 
dwelling is higher than otherwise estimated, the consumer's cost of 
credit could decrease and the consumer might even be able to borrow at 
rates below HPML thresholds. On the other hand, if an appraisal 
establishes that the value of the dwelling is lower than otherwise 
estimated, the consumer might be better positioned to consider 
alternative options discussed above. The new appraisal also may alert 
the consumer, in some cases, to flaws or even to an inflated valuation 
in the original appraisal used to purchase the home.
    The cost to consumers of the proposed exemption therefore would be 
the loss of these potential benefits for the number of covered loans 
that would be newly-exempted by the proposed exemption and which would 
not have otherwise included an appraisal. As noted above, the Bureau 
estimates this would be very few transactions.
    Nonetheless, to mitigate the loss of potential benefits to 
consumers arising from not having an appraisal in an exempt refinance 
transaction, the Agencies are seeking comment on whether to condition 
the proposed exemption on the creditor obtaining and providing to the 
consumer an alternative valuation as a condition of the loan being 
eligible for the proposed streamlined refinance exemption. The Bureau 
believes that, in general, a consumer's receipt of a home value 
estimate other than an appraisal can mitigate the information 
disadvantage when an appraisal is not obtained. More specifically, the 
Bureau believes that the cost of getting an AVM estimate is minimal and 
that it is already done as a standard business practice in many cases. 
Also, the Bureau believes that the cost of a broker price opinion (BPO) 
or any other reasonable valuation method that would be permitted under 
applicable law is well below the cost of a USPAP-compliant appraisal. 
The Bureau seeks comment on these assumptions.
    As discussed in the section-by-section analysis above, the Agencies 
also are requesting comment on whether consumers would benefit from a 
condition on the exemption relating to the amount of transaction costs 
that can be charged. One of the principal reasons why an appraisal may 
be less important to a consumer in a streamlined refinance transaction 
is that, except for closing costs that may be financed by the loan, the 
consumer is not losing equity. This rationale appears to be strongest 
if the exemption cannot be used in refinance transactions that also 
finance high transaction costs, especially given that consumers can 
engage in serial refinancing. Serial refinancing at high points and 
fees that are financed can reduce a consumer's equity as much if not 
more than a cash-out refinance.
3. Smaller Dollar Loans
    As discussed in the section-by-section analysis above, the Agencies 
are proposing to exempt HPMLs secured by new loans with principal 
amounts of $25,000 or less (indexed to inflation) from the HPML 
appraisal rules, while seeking comment on whether the threshold for the 
exemption should be different. The Agencies also are seeking comment on 
whether to condition this exemption on the creditor providing the 
consumer with a copy of a valuation, as described in more detail in the 
section-by-section analysis above. The Bureau estimates the number of 
transactions potentially eligible for this exemption as follows: HMDA 
data for 2011 indicates there were approximately 25,000 HPMLs at or 
below $25,000 that were not insured or guaranteed by government 
agencies or purchased by the GSEs (so, not qualified mortgages on that 
basis). Of these, the Bureau estimates that 4,800 were HPMLs with debt-
to-income above 43 percent (so they would not meet the more general 
definition of a qualified mortgage). Accordingly, the Bureau estimates 
that approximately 4,800 covered loans are originated annually in an 
amount up to $25,000.\103\ Of these estimated 4,800 covered loans at or 
below $25,000, the Bureau estimates that the types most

[[Page 48571]]

affected by this proposed exemption, in that they would be unlikely to 
include appraisals if the exemption applies, would be home improvement 
loans, subordinate lien transactions not for home improvement purposes, 
and transactions secured by manufactured homes. The HPML appraisal 
rules could lead to significant changes in valuation methods used for 
these types of loans. For example, current practice includes appraisals 
for only an estimated five percent of subordinate lien transactions as 
explained in the 2013 Interagency Appraisals Final Rule.\104\
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    \103\ As discussed above, the Bureau does not believe that a 
significant number of smaller dollar HPML would exceed the points 
and fees threshold in the 2013 ATR Final Rule, but is requesting 
data from commenters on this issue. If a significant number of 
smaller dollar HPMLs did exceed that threshold, then the number of 
loans eligible for the proposed exemption would increase.
    \104\ See 78 FR 10419.
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a. Covered Persons
    Creditors originating smaller dollar covered loans would experience 
some reduced burden as a result of the proposed exemption for HPMLs of 
$25,000 or less. If the proposed exemption were adopted, these loans 
would not be subject to the estimated per-loan costs described in the 
2013 Interagency Appraisals Finale Rule.\105\ For these transactions, 
creditors would not need to spend time or resources on complying with 
the requirements in the HPML appraisal rules: Checking for 
applicability of the second appraisal requirement on a flipped property 
(in a purchase transaction) and paying for that appraisal when the 
requirement applies, obtaining and reviewing the appraisals conducted 
for conformity to this rule, providing a copy of the required 
disclosure, and providing copies of these appraisals to applicants. 
Creditors therefore may find it relatively easier to originate HPMLs 
that are eligible for this exemption, for example if they are not 
qualified mortgages.
---------------------------------------------------------------------------

    \105\ See Section 1022(b) analysis, 78 FR 10418-21.
---------------------------------------------------------------------------

    Even if the proposed exemption reduces the number of interior 
inspection appraisals conducted for smaller dollar HPMLs, the overall 
impact of this proposed exemption on creditors is likely minimal for 
most creditors given that only 4,800 such loans were made among 12,000 
creditors.
    Finally, the Bureau does not estimate that the burden reduced by 
the exemption would be significantly lowered by conditioning the 
exemption on the creditor providing the consumer a copy of a valuation 
that the creditor relied on in extending credit. As noted above, for 
depository institutions and credit unions, FIRREA regulations generally 
require evaluations when an appraisal is not obtained because the 
transaction amount is below $250,000; thus, the Bureau estimates that 
most transactions of $25,000 involve a home estimate of some type. In 
first lien transactions, providing copies of valuations is already 
required under the 2013 ECOA Valuations Rule, so the condition would 
impose no added burden. See 12 CFR 1002.14(a)(1). For subordinate lien 
transactions, the cost of such a condition would not be more than the 
small cost of copying and mailing a valuation, or scanning and 
transmitting it electronically.\106\ The Bureau seeks data from 
commenters on the extent to which depository institutions, credit 
unions, and non-depository institutions obtain appraisals or other 
types of valuations in these transactions.
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    \106\ Of course, this cost also would not be more than the cost 
of complying with the Final Rule without the proposed exemption, as 
the Final Rule requires providing a copy of an appraisal to the 
consumer in covered transactions. See Sec.  1026.35(c)(6).
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b. Consumers
    For consumers who seek to borrow smaller dollar loans, such as home 
improvement loans and other subordinate lien transactions, and who are 
not able to obtain a qualified mortgage, the proposed exemption for 
smaller dollar HPMLs (at or less than $25,000) would provide some 
benefits. Industry practice prior to implementation of the 2013 Final 
Rule suggests that appraisals are not otherwise frequently done for 
home improvement and subordinate lien transactions.\107\ Thus, by not 
requiring an appraisal, the cost of which typically would be passed on 
to consumers, the proposed exemption could facilitate access to smaller 
dollar HPMLs that are not otherwise exempt from the HPML appraisal 
rules. Without an exemption, some consumers may try to avoid the cost 
of an appraisal by either not entering into a smaller dollar HPML 
(unless it is otherwise exempt from the rules, such as a qualified 
mortgage) or pursuing an alternative source of credit that is not 
subject to the rules, such as an open-end home equity line of credit.
---------------------------------------------------------------------------

    \107\ 78 FR 10419.
---------------------------------------------------------------------------

    Under the proposed exemption, consumers in smaller dollar HPMLs 
(that are not otherwise exempt) would lose the benefits of the Final 
Rule, however. As discussed in the Bureau's analysis under Section 1022 
in the Final Rule, in general, consumers who are borrowing HPMLs could 
benefit from an appraisal. For HPMLs that are not purchase 
transactions, the general benefits discussed above may be relatively 
less valuable to the consumer in some cases, given the lower size of 
the loan and also the likelihood that the consumer already would have 
had an appraisal in the original purchase transaction. Nonetheless, 
having an appraisal could provide a particularly significant benefit to 
those consumers who are informed by the appraisal that they have 
significantly less equity in their home than they realize. A smaller 
dollar mortgage could push these consumers even further into negative 
equity, without the consumers realizing it. This effect is even more 
pronounced for consumers whose homes have lower value. All else equal, 
a $25,000 loan will pose greater risk to a consumer whose home is worth 
$20,000, than to a consumer whose house is worth $200,000. According to 
a periodic government survey, as of 2011 more than 2.75 million homes 
were worth less than $20,000, including a greater proportion of homes 
whose owners were below the poverty level or elderly.\108\ In addition, 
according to a recent study, as of the end of 2012, 10.4 million 
properties with a residential mortgage were in ``negative equity'' and 
an additional 11.3 million had less than 20 percent equity.\109\ In 
addition, some recent studies suggest that subordinate liens can 
increase the risk of default, as they reduce the amount of equity in 
the home.\110\ Moreover, based upon HMDA

[[Page 48572]]

data, more than half of subordinate liens originated in 2011 were at or 
below $25,000.
---------------------------------------------------------------------------

    \108\ See 2011 American Housing Survey, ``Value, Purchase Price, 
and Source of Down Payment--Owner Occupied Units (NATIONAL),'' C-13-
OO, available at http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=AHS_2011_C13OO&prodType=table. In 
addition, in seven metropolitan statistical areas, as of the end 
2012 the median home value was less than $100,000. See National 
Association of Realtors[supreg] Median Sales Price of Existing 
Single-Family Homes for Metropolitan Statistical Areas Q4 2012, 
available at http://www.realtor.org/sites/default/files/reports/2013/embargoes/hai-metro-2-11-asdlp/metro-home-prices-q4-2012-single-family-2013-02-11.pdf.
    \109\ Core Logic Press Release and Negative Equity Report Q4 
2012 (Mar. 19, 2013), available at http://www.corelogic.com.
    \110\ See Steven Laufer, ``Equity Extraction and Mortgage 
Default,'' Financial and Economics Discussion Series Federal Reserve 
Board Division of Research & Statistics and Monetary Affairs (2013-
30), available at http://www.federalreserve.gov/pubs/feds/2013/201330/201330pap.pdf. The study concludes, at 2, that ``through 
cash-out refinances, second mortgages and home equity lines of 
credit, . . . homeowners [in the sample studied] had extracted much 
of the equity created by the rising value of their homes. As a 
result, their loan-to-value (LTV) ratios were on average more than 
50 percentage points higher than they would have been without this 
additional borrowing and the majority had mortgage balances that 
exceeded the value of their homes.''). See also Michael LaCour-
Little, California State University-Fullerton, Eric Rosenblatt and 
Vincent Yao, Fannie Mae, ``A Close Look at Recent Southern 
California Foreclosures,'' (May 23, 2009) at 17 (finding that, based 
upon a sample of homes, the existence of a subordinate lien is 
correlated more strongly with default than whether the home was 
purchased in 2005-06 period), available at http://www.areuea.org/conferences/papers/download.phtml?id=2133.
---------------------------------------------------------------------------

    Therefore, smaller dollar loans of $25,000 or less could still pose 
significant risks to consumers who own these lower-value homes or other 
homes that are highly leveraged, consuming most or all of any remaining 
equity. In some of those cases, knowledge of the current value of the 
home could prevent consumers from unwittingly using up too much equity 
in their homes or going underwater or going further underwater, which 
could make it more difficult for them to sell or refinance in the 
future. The Bureau therefore seeks comment on the extent to which 
smaller dollar loans of $25,000 or less are nonetheless higher LTV 
loans, for example resulting in combined loan-to-value of 90 percent or 
more.\111\ In addition, the section-by-section analysis above seeks 
comment on whether the exemption should include a condition--such as 
providing the consumer with a copy of a valuation relied upon by the 
creditor in the transaction; \112\ the purpose of the condition would 
be to prevent consumers from entering into loans that unwittingly use 
up most or all of the equity in their homes and which also could impede 
their ability to refinance or sell their home in the future.
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    \111\ See, e.g., GAO Report GAO/GCD-98-169, High Loan-to-Value 
Lending--Information on Loans Exceeding Home Value (Aug. 1998), 
available at http://www.gao.gov/assets/230/226291.pdf at 2 (``data 
provided by a lender responsible for about one-third of HLTV lending 
showed that, in 1997, HLTV loans averaged about $30,000. The data 
also showed that the average contract interest rate was between 13 
and 14 percent, with an average loan term of 25 years. The average 
combined indebtedness of the first mortgage and the HLTV loan 
represented about 110 percent of the borrower's property value, 
although in some cases the combined loans reached or exceeded 125 
percent of value.'').
    \112\ The consumer would not otherwise receive a copy of 
valuations for a subordinate lien transaction because the 
requirement to provide the consumer with a copy of valuations 
obtained in connection with an application for credit under 
Regulation B, 12 CFR 1002.14(a), does not apply to subordinate-lien 
loans.
---------------------------------------------------------------------------

    In summary, the cost of the proposed exemption to consumers would 
be the loss of benefits generally associated with appraisals for the 
number of covered loans that would be newly-exempted by the proposed 
exemption for smaller dollar loans--that is, for an estimated 4,800 
loans annually, assuming that none of these loans currently get full 
interior appraisals. This cost could be mitigated by conditioning the 
exemption in a manner that reduces the risk the consumer would 
unwitting borrow an amount that consumes available equity in the home.
4. Proposed Approach to Transactions Secured by Manufactured Homes
    As discussed in the section-by-section analysis above, the market 
for manufactured home loans can be classified according to collateral 
type: New home only, new home and land, existing home only, and 
existing home and land. The proposal seeks comment on whether changes 
are warranted to the exemption adopted 2013 Interagency Appraisals 
Final Rules regarding transactions secured by new homes. Such changes 
may include narrowing the exemption to apply only to transactions 
secured by a new manufactured home but not land. The proposal also 
seeks comment on conditioning the exemption for transactions secured by 
new manufactured homes on obtaining and providing the consumer with a 
home value estimate other than a USPAP- and FIRREA-compliant appraisal 
with an interior inspection prior to consummation. (The types of 
estimates that might satisfy such a condition are discussed in the 
section-by-section analysis above.) As also discussed in the section-
by-section analysis above, the Agencies are proposing to exempt HPMLs 
secured by existing manufactured homes, and are seeking comment on 
conditioning this proposed exemption on obtaining and providing a home 
value estimate to the consumer. The Agencies' proposed exemption for 
existing manufactured homes would not apply when land provides 
security; as indicated in the section-by-section analysis above, the 
Agencies believe that USPAP-compliant appraisals are feasible and 
commonly performed for these transactions.
    To assess the impact of the proposal's provisions concerning 
manufactured housing, it is necessary to estimate the volume of 
transactions potentially affected, by collateral type. The Bureau's 
analysis of 2011 HMDA data, matched with the historic loan performance 
(HLP) data from the FHFA, indicates that roughly eight percent of all 
manufactured home purchases were covered loans: HPMLs that were not 
qualified mortgages because the debt-to-income ratio exceeded 43 
percent and the loan was not insured, guaranteed, or purchased by a 
federal government agency or GSE.\113\ Because HMDA data does not 
differentiate between transactions with each of the relevant collateral 
types, including new versus used, the Bureau is applying this ratio to 
each of the transaction types to derive the estimated number of covered 
loans below. Manufactured home loans of $25,000 or less also would be 
exempt under the proposed smaller dollar exemption discussed above. For 
purposes of this discussion, however, the Bureau analyzes all 
manufactured home loans regardless of amount.
    Transactions financing the purchase of a new manufactured home. 
Census data reports shipment of approximately 51,000 new manufactured 
homes in 2011, with approximately 17 percent titled as real 
estate.\114\ For purposes of this analysis, the Bureau assumes that all 
of these homes were used as principal dwellings for consumers and that 
all of these purchases were financed. In addition, the Bureau believes 
that the proportion of homes titled as real estate is a reasonable 
estimate of the number of new manufactured home purchase transactions 
that are secured in part by land.\115\ The Bureau therefore estimates 
that based upon 2011 data approximately 42,400 new manufactured home 
sales were financed by chattel loans (which can include homes located 
on leased land such as in trailer parks and other land-lease 
communities) and 8,600 transactions were secured by new manufactured 
homes and land. Applying a factor of approximately eight percent, the 
Bureau estimates that, of these, almost 3,400 were chattel HPMLs that 
were not qualified mortgages, and almost 700 were land and home-secured 
HPMLs that were not qualified mortgages.\116\
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    \114\ See Cost & Size Comparisons: New Manufactured Homes, 
available at http://www.census.gov/construction/mhs/pdf/sitebuiltvsmh.pdf.
    \115\ Only a few states provide for treating manufactured homes 
sited on leased land as real property.
    \116\ This estimate would increase to the extent any other 
manufactured home purchase HPMLs would not be qualified mortgages 
solely because they exceed caps on points and fees in the Bureau's 
ATR Rule. As noted in the footnote at the outset of the Section 1022 
analysis above, however, the Bureau believes this is less likely 
based upon existing and potentially forthcoming clarifications on 
this issue.
---------------------------------------------------------------------------

    Transactions financing the purchase of an existing manufactured 
home. Census data also reports an estimated 369,000 move-ins to owner-
occupied manufactured homes in 2011.\117\ As noted above, approximately 
51,000 new manufactured homes were shipped. Therefore, the Bureau 
estimates that approximately 318,000 existing manufactured homes were 
purchased in 2011. Again, the Bureau assumes that all of these 
purchases were financed. Further, based upon a review of nearly

[[Page 48573]]

two decades of Census data on shipments of new manufactured homes, the 
Bureau estimates that approximately one third of the existing 
manufactured homes are titled as real property. Therefore, the Bureau 
estimates that approximately 105,000 purchases of existing manufactured 
homes also involved the acquisition of land which provided security for 
the purchase loan,\118\ while approximately 213,000 purchases were 
secured only by the manufactured home (chattel loans). Applying the 
same eight percent factor for other purchases discussed above, of 
these, approximately 17,000 were chattel HPMLs that were not qualified 
mortgages, and approximately 8,400 were land- and home-secured HPMLs 
that were not qualified mortgages. As with new homes, this estimate 
would increase to the extent that any other manufactured home purchase 
HPMLs would not be qualified mortgages solely because they exceed caps 
on points and fees in the Bureau's 2013 ATR Rule.
---------------------------------------------------------------------------

    \117\ The Census report refers to these homes as ``manufactured/
mobile homes'', but the Census definitions note that all of these 
homes are ``HUD Code homes'', which is the fundamental 
characteristic of what are currently referred to as manufactured 
homes.
    \118\ According to data provided by HUD for the fiscal year 
2011, approximately 5,900 existing manufactured homes were purchased 
together with land under the FHA Title II program.
---------------------------------------------------------------------------

    Refinances and home improvement loans on existing manufactured 
homes. The Bureau's analysis of 2011 HMDA data, matched with the HLP 
data from the FHFA, indicates that, approximately, for every four 
covered purchase manufactured housing loans, there is one refinance or 
home improvement loan. Applying this factor of 4:1, approximately 4,300 
(17,000/4) were chattel HPMLs that were not qualified mortgages, and 
approximately 2,100 (8,400/4) were land and home-secured HPMLs that 
were not qualified mortgages.\119\
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    \119\ These estimates would increase to the extent any other 
manufactured home purchase HPMLs would not be qualified mortgages 
solely because they exceed caps on points and fees in the Bureau's 
ATR Rule. As noted in the footnote at the outset of the Section 1022 
analysis above, however, the Bureau believes this is less likely 
based proposed clarifications on this issue.
---------------------------------------------------------------------------

a. Covered Persons
Transactions Secured by New Manufactured Homes
    The proposal seeks comment on narrowing the exemption adopted in 
the Final Rule to cover only transactions secured solely by a new 
manufactured home but not land. The proposal also seeks comment on 
conditioning the exemption for those transactions on providing to the 
consumer an estimate of the replacement cost of the new manufactured 
home, including any appropriate adjustments, using a third-party 
published cost service such as the NADAGuides.com Value Report \120\ or 
other methods discussed in more detail in the section-by-section 
analysis. The proposal also seeks comment on maintaining the exemption 
for transactions secured by both new manufactured homes and land but 
conditioning that exemption on use of an alternative valuation method.
---------------------------------------------------------------------------

    \120\ A sample of this report, as noted in the section-by-
section analysis, is available at http://www.nadaguides.com/Manufactured-Homes/images/forms/MHOnlineSample.pdf.
---------------------------------------------------------------------------

    If the exemption were narrowed to no longer cover HPMLs secured by 
both a new manufactured home and land, the creditor would need to 
obtain USPAP- and FIRREA-compliant appraisal with an interior 
inspection in these transactions. The Bureau believes the cost of this 
appraisal is not likely to be significantly higher than the cost of 
current valuation practices in these transactions. As discussed in the 
section-by-section analysis above, the Bureau understands that GSE, HUD 
Title II, USDA, and VA manufactured housing finance programs all 
require USPAP-compliant appraisals on standard GSE forms for 
transactions secured by manufactured homes and land, and that thousands 
of these transactions occur each year in these programs, some at HPML 
rates. Even if a creditor's appraisal does not meet the appraisal 
standards for these programs (for example, GSE requirements mandating a 
minimum number of manufactured homes be used as comparables), it still 
may comply with USPAP.\121\ In addition, based upon further research, 
the Bureau has confirmed that USPAP appraisals of manufactured homes 
and land cost approximately the same on average as USPAP appraisals of 
other types of homes and land titled together as real property.\122\ 
Moreover, information obtained in outreach and research from a large 
manufactured housing lender and a large bank indicate that it is common 
to obtain at least an appraisal of the land in these transactions. The 
Bureau believes that the cost of a USPAP-complaint appraisal of a 
vacant lot is unlikely to cost more than the average $350 cost for a 
USPAP-compliant appraisal of a home. Therefore, based upon available 
information, the Bureau does not believe that narrowing the exemption 
to exclude these transactions is likely to lead to significant new 
costs for creditors.
---------------------------------------------------------------------------

    \121\ Outreach to a large appraiser trade association indicates 
that between 1998 and 2007 nearly 10,000 individuals took their in-
person or online seminars on appraising manufactured housing. The 
current version of these seminar materials, as well as outreach to 
state appraisal boards and related research, confirms that when 
necessary USPAP appraisals can use non-manufactured homes as 
comparables, making adjustments where needed. Therefore, the Bureau 
does not believe that appraiser availability and appraisal 
feasibility should affect its cost estimates here.
    \122\ For example, a survey in Texas--the state with the highest 
number of new manufactured home purchases--estimated that 
manufactured home appraisals cost approximately the same as single-
family appraisals. See Texas A&M Univ. Real Estate Center, Univ. of 
Chicago, and Univ. of Houston, ``The Texas Appraisers and Appraisal 
Management Company Survey'' (Oct. 2012) at Table 2 (indicating that 
manufactured home appraisal costs cluster in the range of $351-400). 
In addition, in all nine Veterans Administration (VA) regions, VA 
appraiser fee schedules either do not separately break out the cost 
of manufactured home appraisals or provide for fees that are the 
same or lower than single-family appraisals.
---------------------------------------------------------------------------

    If the exemption were conditioned on obtaining an estimate of the 
value of the new manufactured home from a published cost service (such 
as a NADA Guide Valuation Report or a report from the Marshall & Swift 
Cost Estimator) and providing this to the consumer, the costs likely 
would be minimal. The Bureau has received information in outreach 
indicating that annual subscriptions to the NADA Guide may cost between 
$100 and $200 for an unlimited number of value reports, while similar 
unlimited-use subscriptions to the Marshall & Swift service may cost 
approximately $1,200. \123\ In addition, for transactions secured by 
both a new manufactured home and land, if this condition also required 
obtaining an appraisal of the land, costs are unlikely to increase in 
many of these transactions because information obtained in outreach 
suggests appraisals of the land already are a common practice in these 
transactions. The Bureau seeks comment on the frequency with which the 
type of valuation information is described in this paragraph is 
obtained in a new manufactured home transaction.
---------------------------------------------------------------------------

    \123\ The average cost per-loan would therefore depending on the 
covered person's total level of lending activity. This cost also 
could increase to the extent the condition were to require the 
creditor to gather information necessary to make adjustments to the 
estimate from the published cost service, such as information on the 
land lease community or location, or information necessary to 
confirm the accuracy of the estimate from the published cost 
service, such as verifying by interior inspection that the proper 
model was sited. The extent of cost increase generated by these 
steps would depend on how often they are performed under existing 
practice.
---------------------------------------------------------------------------

    Finally, the proposal requests comment on whether any condition on 
the exemption also should call for the consumer to receive a copy of 
the valuation obtained before consummation. The Bureau does not believe 
this aspect of any condition on an exemption would add significant

[[Page 48574]]

burden. For first-lien transactions, delivery already would be required 
under Regulation B. See 12 CFR 1002.14(a)(1). For first- and 
subordinate-lien transactions, transmission generally would occur 
electronically and the cost would be minimal, as discussed in the 
Bureau's Section 1022(b) analysis in the Final Rule, 78 FR 10421.
Transactions Secured by Existing Manufactured Homes and Not Land
    Creditors originating covered transactions secured by existing 
manufactured homes but not land that would be covered loans would 
experience some reduced burden as a result of the proposed exemption. 
In particular, these loans would not be subject to the estimated per-
loan costs for a USPAP-complaint appraisal described in the 2013 
Interagency Appraisals Final Rule.\124\ For these transactions, 
creditors also would not need to spend time or resources on complying 
with the requirements in the HPML appraisal rules: checking for 
applicability of the second appraisal requirement on a flipped property 
(in a purchase transaction) and paying for that appraisal when the 
requirement applies, obtaining and reviewing the appraisals conducted 
for conformity to this rule, and providing disclosures and appraisal 
report copies to applicants.
---------------------------------------------------------------------------

    \124\ See Section 1022(b) analysis, 78 FR 10418-21.
---------------------------------------------------------------------------

    USPAP-complaint appraisals may currently be conducted for 
transactions secured by existing manufactured homes but not land much 
less frequently than in connection with HPMLs overall. For example, the 
Bureau believes that USPAP is a set of standards typically followed by 
appraisers who are state-certified or licensed, and that state laws 
generally do not require certifications or licenses to appraise 
personal property. Therefore, even though USPAP includes standards for 
the appraisal of personal property, it is unclear that these standards 
are applied when individuals who are not state-licensed or state-
certified value manufactured homes. Indeed, the Bureau believes that 
currently, in some transactions, lenders may simply prepare their own 
estimates of the value of the home without engaging a licensed or 
certified appraiser.
    As a result, for purposes of analyzing the benefits of the proposed 
exemption, the Bureau assumes that very few, if any, transactions 
secured by existing manufactured homes but not land include USPAP-
compliant appraisals.\125\ While the Bureau believes that this is a 
reasonable assumption, it seeks nationally-representative data from 
commenters on valuation practices for these transactions. Meanwhile, 
the estimated burden reduced as a result of this proposed exemption 
would be the difference between the cost of a USPAP-complaint appraisal 
(which the Bureau assumes would be no more than the cost of an 
appraisal in a transaction secured by a site-built home, i.e., $350) 
and the cost of current valuation practices, such as obtaining an 
estimate from a published cost service or an evaluation in the case of 
financial institutions subject to FIRREA regulations. The Bureau 
believes that most lenders obtain estimates from published cost 
services in most if not all of these transactions, thus, the Bureau 
believes the burden reduction of the exemption would be approximately 
the same, regardless of whether the exemption were conditioned on the 
creditor obtaining an estimate based upon a published cost 
service.\126\
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    \125\ Outreach to a provider of reports including comparables on 
existing manufactured homes in transactions secured by the home but 
not land indicates that they provide these reports to some of the 
lenders in the industry, and sell a total of approximately 3,000 
reports at an average price of nearly $300. In addition, a large 
industry trade association also maintains a service that provides 
reports on comparables for manufactured homes located in larger 
lease communities.
    \126\ The creditor also may have some per-transaction costs for 
obtaining information about the condition of the home, including 
through an inspection, used to develop the cost estimate. The Bureau 
believes, however, that it is standard industry practice for lenders 
to obtain information about the condition of the home as part of 
their underwriting process, whether by hiring a third party property 
inspector or obtaining photos of the home from the borrower.
---------------------------------------------------------------------------

b. Consumers
    The Bureau believes that consumers using HPMLs that are not 
qualified mortgages in an amount over $25,000 to purchase, improve, or 
refinance any manufactured home generally would benefit as much as any 
other type of homeowner from an estimate of the value of the home, 
including an appraisal, in the ways discussed in the Bureau's analysis 
under Section 1022 in the 2013 Interagency Appraisals Final Rule. In 
some cases, this benefit could be even greater; some recent data 
suggests the risk of negative equity may be as much as two times 
greater for owners of manufactured homes than for owners of other types 
of housing. One reason that negative equity may be a more acute risk in 
manufactured home transactions is that, according to research and 
outreach conducted by the Agencies, the loan amount can frequently 
exceed the collateral value from the outset of the transaction without 
the consumer's knowledge.\127\ Obtaining an appraisal, or in some cases 
an alternative valuation, can be an important means of informing the 
consumer (and creditor) of the equity position in the home at the time 
of consummation and preventing transactions where the consumer 
unknowingly begins home ownership in a negative equity position. This 
type of knowledge can be critical to making informed choices about what 
type of transactions to pursue. If a consumer who purchases a 
manufactured home has negative equity at the time of purchase (or a 
consumer who seeks to make home improvements has negative equity at the 
time of the improvements), this decreases the chance that the consumer 
will build equity for a significant period of time and, according to 
outreach with a consumer advocacy group, the consumer is more likely to 
face impediments when seeking to refinance the HPML (which in the case 
of chattel lending is more often at a high rate than loans for other 
types of housing) or sell the home (which can be an important loss 
mitigation option if the HPML becomes difficult to afford).
---------------------------------------------------------------------------

    \127\ See American Housing Survey, ``Mortgage Characteristics--
Owner Occupied Units (NATIONAL),'' Table C14a-OO (2011) (as of 2011, 
39% of manufactured homes had outstanding loan-to-value (LTV) ratios 
of over 100%, while the overall rate for owner-occupied housing was 
only 19%), available at http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=AHS_2011_C14AOO&prodType=table.
---------------------------------------------------------------------------

Transactions Secured by New Manufactured Homes
    For HPMLs secured by new manufactured homes, as discussed in the 
section-by-section analysis above, the Agencies are seeking comment on 
options for ensuring the consumer is informed of the value of the 
dwelling serving as collateral--whether via narrowing or placing 
conditions on the exemption. If the exemption were narrowed to exclude 
transactions secured by both manufactured homes and land so that an 
appraisal is required and consumers receive an appraisal report copy, 
then, as noted above, information obtained in outreach suggests that 
the cost of the valuation (which typically is passed on to the 
consumer) would not necessarily increase relative to existing practice. 
Similarly, valuation costs would not necessarily increase if the 
exemption were conditioned on following an alternative practice, such 
as adding the appraised value of the land alone to the estimated value 
of the home using a cost approach, because that practice appears to be 
common currently.

[[Page 48575]]

    Finally, for transactions secured by a new manufactured home but 
not land, published cost estimates are not likely to add a significant 
expense, as discussed above. Any of these options also would ensure 
that consumers are informed of an estimate of the value of the 
manufactured home. Otherwise, the manufacturer's invoice may be the 
only document relating to the value of the home, and the consumer would 
not have a right to receive a copy of that document under the ECOA 
Valuations Rule.\128\
---------------------------------------------------------------------------

    \128\ See 12 CFR 1002.14(a); comment 14(b)(3)-3.iv (clarifying 
that the manufacturer's invoice is not a valuation that must be 
provided to the consumer under Regulation B).
---------------------------------------------------------------------------

Transactions Secured by Existing Manufactured Homes and Not Land
    For consumers seeking refinances or home improvement loans secured 
by existing manufactured homes, seeking to sell existing manufactured 
homes, or seeking to buy existing manufactured homes without using land 
as collateral for the transaction, the proposed exemption for 
transactions secured by existing manufactured homes but not land could 
provide a significant benefit if it would be difficult for a 
significant number of these transactions to be consummated without an 
exemption. The Bureau does not have information indicating that USPAP-
complaint appraisals by state-certified or state-licensed appraisers 
for these transactions are common industry practice. In the section-by-
section analysis above, the Agencies also have requested comment on how 
often state-certified or state-licensed appraisers are available to 
service these transactions. If such appraisers are not consistently 
available in these transactions, then without the exemption, buyers 
using HPMLs to purchase, and owners using HPMLs to refinance, existing 
manufactured homes without offering land as security could be faced 
with a significant barrier. Consumers selling their homes could be 
similarly affected because the Bureau believes that many buyers of 
these properties use HPMLs that are not qualified mortgages, which 
would make it difficult to find a buyer who could close the loan using 
an available valuation method.
    As discussed in the Bureau's analysis under Section 1022 in the 
2013 Interagency Appraisals Final Rule, in general, consumers who are 
borrowing HPMLs that are covered by the rule nonetheless could benefit 
if an appraisal can be conducted. If the proposed exemption is for 
transactions secured by existing manufactured homes and not land is 
adopted, these benefits could be lost if creditors do not obtain a 
reliable home estimate in the transaction.\129\ The Agencies therefore 
have sought comment on conditioning the proposed exemption on use of a 
different type of home estimate, such as an independent estimate based 
upon comparables (as is required in HUD Title I transactions) or an 
estimate from a published cost service is more likely to achieve all of 
these same benefits. At least the latter type of valuation appears to 
be more common for these types of transactions based upon industry 
comments on the 2012 Interagency Appraisals Proposal and further 
outreach and research in preparation for this proposal. As a result, 
the proposed exemption with such a condition would help to preserve 
access to credit for consumers seeking HPMLs secured by existing 
manufactured homes but not land (and not otherwise exempt as a 
qualified mortgage or in an amount of $25,000 or less) because the 
transactions could be supported not only by a market value (comparable-
based) appraisal if available but also by an estimate from a published 
cost service. Allowing for a broader range of valuation options helps 
to ensure access to this type of credit for consumers who own or are 
seeking to buy existing manufactured homes without offering land as 
security for the transaction.
---------------------------------------------------------------------------

    \129\ Section 1022(b) Analysis, 78 FR 10417-18.
---------------------------------------------------------------------------

    As noted in the section-by-section analysis, consumer advocates in 
outreach raised questions about the accuracy of estimates derived from 
a published cost service such as the NADA Guide value report in part 
because this method of estimating home values does not analyze the 
market value of the home in the particular location based upon 
comparables. The Bureau notes, however, that one cost method--the 
NADAGuide.com Value Report--provides for adjustments based upon region 
and land-ease community which can take into account location factors. 
In addition, comparable-based estimates for existing manufactured homes 
can cost nearly $300 according to outreach to one provider, which the 
Bureau believes would be significantly more costly than an estimate 
based upon a published cost service. If such a valuation for a new 
manufactured home would be similarly priced, then it would be 
significantly more expensive than the cost estimate noted above (which 
can be used for new manufactured homes as well as existing manufactured 
homes). The Bureau believes that a lower-cost method would result in 
less cost passed along to the consumer. In any event, for both new and 
existing manufactured homes, the Bureau requests data from commenters 
on the cost and accuracy of valuations developed from local market 
comparables, and valuations based upon published cost services that 
provide for adjustments such as those noted above.
Transactions Secured by Existing Manufactured Homes and Land
    Finally, as noted above, the Bureau does not believe that 
continuing to require USPAP-compliant appraisals for transactions 
secured by existing manufactured homes and land would pose any 
significant impediment to these transactions, as the cost of the 
appraisal is on par with that of other homes and the process used of 
selecting and adjustment comparables also is standard.

B. Potential Specific Impacts of the Supplemental Proposal

1. Potential Reduction in Access by Consumers to Consumer Financial 
Products or Services
    The proposed rule includes only exemptions. Exempting loans from 
the requirements of the HPML Appraisal Rule will not reduce access to 
credit. While the Agencies are seeking comment on whether to include 
certain conditions on these proposed exemptions as discussed in the 
section-by-section analysis, these conditions would not reduce access 
to credit. The cost of complying with any conditions, if adopted, would 
not exceed the cost of complying with the HPML Appraisal Rule (which in 
turn could increase the cost of credit) because any exemptions are 
optional and thus cost or burdens of exemptions also are optional. In 
addition, as discussed above, the Agencies are seeking comment on 
whether to narrow the exemption for new manufactured homes and/or to 
include conditions on this exemption. The Bureau does not believe that 
requiring a USPAP- and FIRREA-compliant appraisal with an interior 
inspection for transactions secured by a new manufactured home and land 
or conditioning these or other new manufactured home transactions on 
the alternative valuation methods described above would reduce access 
to credit in these transactions. Such valuation methods at most would 
entail only slightly increased costs where different from existing 
methods, such that they do not carry the potential to impede access to 
credit.

[[Page 48576]]

2. Impact of the Proposed Rule on Depository Institutions and Credit 
Unions With $10 Billion or Less in Total Assets, as Described in 
Section 1026 of the Dodd-Frank Act
    Small depository banks and credit unions may originate loans of 
$25,000 or less more often, relative to their overall origination 
business, than other depository institutions (DIs) and credit unions. 
Therefore, relative to their overall origination business, these small 
depository banks and credit unions may experience relatively benefits 
from the proposed exemption for smaller dollar loans. These benefits 
would not be high in absolute dollar terms, however, because the number 
of transactions that would be uniquely exempted by the proposed small 
loan exemption is still relatively low--less than 5,000, as discussed 
above.
    Otherwise, the Bureau does not believe that the impact of the 
proposal would be substantially different for the DIs and credit unions 
with total assets below $10 billion than for larger DIs and credit 
unions. The Bureau has not identified data indicating that small 
depository institutions or small credit unions disproportionately 
engage in lending secured by manufactured homes. Finally, the Bureau 
has not identified data indicating that these institutions engage in 
streamlined refinances that would be newly-exempted by the proposed 
exemption at any greater rate than other financial institutions. The 
Bureau requests relevant data on the impact of the proposed rule on DIs 
and credit unions with total assets below $10 billion.
3. Impact of the Proposed Rule on Consumers in Rural Areas
    The Bureau understands that a significantly greater proportion of 
existing manufactured homes are located in rural areas compared to 
other single-family homes.\130\ Therefore, any impacts of the proposed 
exemption for transactions secured by these homes (but not land) would 
proportionally accrue more often to rural consumers. With respect to 
streamlined refinances, the Bureau does not believe that streamlined 
refinances are more or less common in rural areas. Accordingly, the 
Bureau currently believes that the proposed exemption for streamlined 
refinances would generate a similar benefit for consumers in rural 
areas as for consumers in non-rural areas. Finally, the Bureau does not 
believe the magnitude of the difference of the smaller dollar loans 
originated, between consumers in rural areas and not in rural areas, is 
significant. The Bureau requests comment and relevant data on the 
impact of the proposed rule on rural areas.
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    \130\ Census data from 2011 indicates that approximately 45 
percent of owner-occupied manufactured homes are located outside of 
metropolitan statistical areas, compared with 21 percent of owner-
occupied single-family homes. See U.S. Census Bureau, 2011 American 
Housing Survey, General Housing Data--Owner-Occupied Units 
(National), available at http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=AHS_2011_C01OO&prodType=table. See also Housing Assistance Council Rural 
Housing Research Note, ``Improving HMDA: A Need to Better Understand 
Rural Mortgage Markets,'' (Oct. 2010), available at http://www.ruralhome.org/storage/documents/notehmdasm.pdf. Industry 
comments on the 2012 Interagency Appraisals Proposed Rule noted that 
manufactured homes sited on land owned by the buyer are 
predominantly located in rural areas; one commenter estimated that 
60 percent of manufactured homes are located in rural areas.
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VII. Regulatory Flexibility Act

Board

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires an agency either to provide an initial regulatory flexibility 
analysis with a proposed rule or certify that the proposed rule will 
not have a significant economic impact on a substantial number of small 
entities. The proposed amendments apply to certain banks, other 
depository institutions, and non-bank entities that extend HPMLs.\131\ 
The Small Business Administration (SBA) establishes size standards that 
define which entities are small businesses for purposes of the 
RFA.\132\ The size standard to be considered a small business is: $175 
million or less in assets for banks and other depository institutions; 
and $7 million or less in annual revenues for the majority of nonbank 
entities that are likely to be subject to the proposed 
regulations.\133\ Based on its analysis, and for the reasons stated 
below, the Board believes that the proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
Nevertheless, the Board is publishing an initial regulatory flexibility 
analysis. The Board will, if necessary, conduct a final regulatory 
flexibility analysis after consideration of comments received during 
the public comment period.
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    \131\ For its RFA analysis, the Board considered all creditors 
to which the Final Rule applies. The Board's Regulation Z at 12 CFR 
226.43 applies to a subset of these creditors. See Sec.  226.43(g).
    \132\ U.S. Small Business Administration, Table of Small 
Business Size Standards Matched to North American Industry 
Classification System Codes, available at http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.
    \133\ The Board recognizes that the SBA's revised size standards 
will be effective July 22, 2013 (see 78 FR 37409 (June 20, 2013)). 
The Board will update its regulatory flexibility analysis 
accordingly in its final rule.
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    The Board requests public comment on all aspects of this analysis.

A. Reasons for the Proposed Rule

    This proposal relates to the 2013 Interagency Appraisals Final 
Rule, issued jointly by the Agencies on January 18, 2013, which goes 
into effect on January 18, 2014. See 78 FR 10368 (Feb. 13, 2013). The 
Final Rule implements a provision added to TILA by the Dodd-Frank Act 
requiring appraisals for ``higher-risk mortgages.'' For certain 
mortgages with an annual percentage rate that exceeds the APOR by a 
specified percentage (designated as ``HPMLs'' in the Final Rule), the 
Final Rule requires creditors, among other requirements, to obtain an 
appraisal or appraisals meeting certain specified standards, provide 
applicants with a notification regarding the use of the appraisals, and 
give applicants a copy of the written appraisals used. The definition 
of higher-risk mortgage in new TILA section 129H expressly excludes 
qualified mortgages, as defined in TILA section 129C, as well as open-
end mortgages reverse mortgage loans that are qualified mortgages as 
defined in TILA section 129C.
    The Agencies are now proposing amendments to the Final Rule to 
exempt the following transactions: (1) Transactions secured by existing 
manufactured homes and not land; (2) certain ``streamlined'' 
refinancings; and (3) transactions of $25,000 or less. The Agencies are 
also proposing to revise the Final Rule's definition of ``business 
day.''

B. Statement of Objectives and Legal Basis

    As discussed above, section 1471 of the Dodd-Frank Act created new 
TILA section 129H, which establishes special appraisal requirements for 
``higher-risk mortgages.'' 15 U.S.C. 1639h. The Final Rule implements 
these requirements and includes certain exemptions from the Rule's 
requirements. The Agencies believe that several additional exemptions 
from the new appraisal rules may be appropriate. Specifically, the 
Agencies are proposing an exemption for transactions secured by an 
existing manufactured home (and not land), certain types of 
refinancings, and transactions of $25,000 or less (indexed for 
inflation). In addition, the Agencies are proposing to revise the Final 
Rule's definition of ``business day'' for consistency with disclosure 
timing requirements under existing Regulation Z mortgage disclosure 
timing requirements and the Bureau's proposed

[[Page 48577]]

rules for combined mortgage disclosures under TILA and the RESPA (2012 
TILA-RESPA Proposed Rule). See Sec.  1026.19(a)(1)(ii) and (a)(2); see 
also 77 FR 51116 (Aug. 23, 2012) (e.g., proposed Sec.  
1026.19(e)(1)(iii) (early mortgage disclosures) and (f)(1)(ii) (final 
mortgage disclosures).
    The legal basis for the proposed rule is TILA section 129H(b)(4). 
15 U.S.C. 1639h(b)(4). TILA section 129H(b)(4)(A), added by the Dodd-
Frank Act, authorizes the Agencies jointly to prescribe regulations 
implementing section 129H. 15 U.S.C. 1639h(b)(4)(A). In addition, TILA 
section 129H(b)(4)(B) grants the Agencies the authority jointly to 
exempt, by rule, a class of loans from the requirements of TILA section 
129H(a) or section 129H(b) if the Agencies determine that the exemption 
is in the public interest and promotes the safety and soundness of 
creditors. 15 U.S.C. 1639h(b)(4)(B).

C. Description of Small Entities to Which the Regulation Applies

    The proposed rule applies to creditors that make HPMLs subject to 
12 CFR 1026.35(c) (published by the Board in 12 CFR 226.43). In the 
Board's Regulatory Flexibility Analysis for the Final Rule, the Board 
relied primarily on data provided by the Bureau to estimate the number 
of small entities that would be subject to the requirements of the 
rule.\134\ According to the data provided by the Bureau, approximately 
3,466 commercial banks, 373 savings institutions, 3,240 credit unions, 
and 2,294 non-depository institutions are considered small entities and 
extend mortgages, and therefore are potentially subject to the Final 
Rule.
---------------------------------------------------------------------------

    \134\ See the Bureau's Regulatory Flexibility Analysis in the 
Final Rule (78 FR 10368, 10424 (Feb. 13, 2013)).
---------------------------------------------------------------------------

    Data currently available to the Board are not sufficient to 
estimate how many small entities that extend mortgages will be subject 
to 12 CFR 1026.35(c) (published by the Board in 12 CFR 226.43), given 
the range of exemptions provided in the Final Rule, including the 
exemption for qualified mortgages. Further, the number of these small 
entities that will make HPMLs that would qualify for the proposed 
exemptions is unknown.

D. Projected Reporting, Recordkeeping and Other Compliance Requirements

    The proposed rule does not impose any new recordkeeping, reporting, 
or compliance requirements on small entities. The proposed rule would 
reduce the number of transactions that are subject to the requirements 
of the Final Rule. The Final Rule generally applies to creditors that 
make HPMLs subject to 12 CFR 1026.35(c) (published by the Board in 12 
CFR 226.43), which are generally mortgages with an APR that exceeds the 
APOR by a specified percentage, subject to certain exemptions. The 
proposal would exempt three additional classes of HPMLs from the Final 
Rule: HPMLs secured by existing manufactured loans (but not land); 
certain refinance HPMLs whose proceeds are used exclusively to satisfy 
an existing first-lien loan and to pay for closing costs; and new HPMLs 
that have a principal amount of $25,000 or less (indexed to inflation). 
Accordingly, the proposal would decrease the burden on creditors by 
reducing the number of loan transactions that are subject to the Final 
Rule.

E. Identification of Duplicative, Overlapping, or Conflicting Federal 
Regulations

    The Board has not identified any Federal statutes or regulations 
that would duplicate, overlap, or conflict with the proposed revisions.

F. Discussion of Significant Alternatives

    The Board is not aware of any significant alternatives that would 
further minimize the economic impact of the proposed rule on small 
entities. The proposed rule would exempt three additional classes of 
HPMLs from the Final Rule and not impose any new recordkeeping, 
reporting, or compliance requirements on small entities.
Bureau
    The 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.\135\ These analyses must ``describe the impact 
of the proposed rule on small entities.'' \136\ 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.\137\ 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.\138\
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    \135\ 5 U.S.C. 601 et seq.
    \136\ Id. at 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. Id. at 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. Id. at 601(3). A ``small organization'' is any ``not-for-
profit enterprise which is independently owned and operated and is 
not dominant in its field.'' Id. at 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. Id. at 601(5).
    \137\ Id. at 605(b).
    \138\ Id. at 609.
---------------------------------------------------------------------------

    An IRFA is not required for this proposal because if adopted it 
would not have a significant economic impact on a substantial number of 
small entities.
    The analysis below evaluates the potential economic impact of the 
proposed rule on small entities as defined by the RFA. The analysis 
generally examines the regulatory impact of the provisions of the 
proposed rule against the baseline of the Final Rule the Agencies 
issued on January 18, 2013.

A. Number and Classes of Affected Entities

    The proposed rule would apply to all creditors that extend closed-
end credit secured by a consumer's principal dwelling. All small 
entities that extend these loans are potentially subject to at least 
some aspects of the proposal. This proposal may impact small 
businesses, small nonprofit organizations, and small government 
jurisdictions. A ``small business'' is determined by application of SBA 
regulations and reference to the North American Industry Classification 
System (NAICS) classifications and size standards.\139\ Under such 
standards, depository institutions with $175 million or less in assets 
are considered small; other financial businesses are considered small 
if such entities have average annual receipts (i.e., annual revenues) 
that do not exceed $7 million. Thus, commercial banks, savings 
institutions, and credit unions with $175 million or less in assets are 
small businesses, while other creditors extending credit secured by 
real property or a dwelling are small businesses if average annual 
receipts do not exceed $7 million.
---------------------------------------------------------------------------

    \139\ 5 U.S.C. 601(3). The current SBA size standards are 
located on the SBA's Web site at http://www.sba.gov/content/table-small-business-size-standards.
---------------------------------------------------------------------------

    The Bureau can identify through data under HMDA, Reports of 
Condition and Income (Call Reports), and data from the National 
Mortgage Licensing System (NMLS) the approximate numbers of small 
depository institutions that would be subject to the final rule. 
Origination data is available for entities that report in HMDA, NMLS or 
the credit union

[[Page 48578]]

call reports; for other entities, the Bureau has estimated their 
origination activities using statistical projection methods.
    The following table provides the Bureau's estimate of the number 
and types of entities to which the proposed rule would apply: \140\
---------------------------------------------------------------------------

    \140\ The Bureau assumes that creditors who originate chattel 
manufactured home loans are included in the sources described above, 
but to the extent commenters believe this is not the case, the 
Bureau seeks data from commenters on this point.
---------------------------------------------------------------------------

Counts of Creditors by Type. 
[GRAPHIC] [TIFF OMITTED] TP08AU13.008

B. Impact of Proposed Exemptions

    The provisions of the proposed rule all provide or modify 
exemptions from the HPML appraisal requirements. Measured against the 
baseline of the burdens imposed by the 2013 Interagency Appraisals 
Final Rule, the Bureau believes that these proposed provisions impose 
either no or insignificant additional burdens on small entities. The 
Bureau believes that these proposed provisions would reduce the burdens 
associated with implementation costs, additional valuation costs, and 
compliance costs stemming from the HPML appraisal requirements. The 
Bureau also notes that creditors voluntarily choose whether to avail 
themselves of the exemptions.
1. Exemption for Certain Transactions Secured by Manufactured Homes
    The proposed rule would exempt from the HPML appraisal requirements 
a transaction secured by an existing manufactured home and not land. 
This provision would remove certain burdens imposed by the Final Rule 
on small entities extending HPMLs covered by the final rule when they 
are secured solely by existing manufactured homes, whether for 
refinance, home improvement, purchase transactions, or other purposes. 
The burdens removed would be those of providing a consumer notice, 
determining the applicability of the second appraisal requirement in 
purchase transactions, and obtaining, reviewing, and disclosing to 
consumers USPAP- and FIRREA-compliant appraisals. As discussed in the 
section-by-section analysis above, the Agencies are seeking comment on 
whether, to be eligible for this burden-reducing exemption, the 
creditor should be required to obtain an estimate of the value of the 
home based upon a published cost service method, a method required 
under HUD Title I programs, or an otherwise USPAP-complaint method, and 
provide a copy to the consumer no later than three business days before 
closing.
    The requirement of obtaining an alternative valuation to qualify 
for the exemption might result in relatively less regulatory burden 
reduction. However, the Bureau understands from outreach that at least 
a cost estimate is often obtained in these transactions and, in any 
event, even if such a condition were adopted in the Final Rule, the 
decision to obtain an alternative estimate would be voluntary under 
this rule and the Bureau presumes that a small entity would not do so 
unless the exemption provided a net burden reduction versus obtaining a 
USPAP appraisal. Thus, the Bureau believes that the creditors would 
still experience a significant benefit from the exemption, even with 
this additional requirement. The Bureau requests comment on the impact 
of this proposed exemption on small entities. The Bureau also requests 
comment on how the impact would change, if at all, if the Agencies 
included a condition that the creditor obtain an estimate of the value 
of the home and provide this to the consumer.
    As also discussed in the Bureau's Section 1022(b) analysis and in 
the section-by-section analysis, the Agencies are seeking comment on 
whether to narrow the scope of the exemption for new manufactured 
homes, and thereby subject transactions secured by both a new 
manufactured home and land to the HPML appraisal rules in the Final 
Rule, or to a condition that another type of valuation be obtained. If 
so narrowed or conditioned, the exemption adopted in the 2013 Final 
Rule would no longer relieve as much burden in these transactions.

[[Page 48579]]

However, the Bureau believes it already is a common existing practice 
for creditors in these transactions to obtain either (1) an appraisal 
of the land and a separate estimate of the value of the home or (2) an 
appraisal of the land and home together. As discussed in the Section 
1022 analysis above, the Bureau does not believe that there is a 
significant difference in cost between these methods. As also discussed 
in the Section 1022 analysis above, the Bureau does not believe there 
would be a significant cost to obtaining an estimate of the value of 
the home using a published cost service, including with adjustments. 
Accordingly, if the exemption from the requirement to obtain an 
appraisal were removed, or if the exemption were conditioned on 
obtaining an appraisal of the land and an estimate of the home using a 
published cost service, the Bureau does not believe these changes would 
impose significant economic impacts. Further, regardless, the 
requirements relating to ``flipped'' properties would not apply to a 
new home.
    Finally, as discussed in the Bureau's Section 1022(b) analysis and 
in the section-by-section analysis, the Agencies are seeking comment on 
whether to require the creditor to provide the consumer with a cost 
estimate of the value of the new manufactured home in transactions that 
are secured by a new manufactured home but not land. If adopted, this 
condition would not significantly change the amount of burden reduced 
by the existing exemption in these transactions, which comprise the 
significant majority of transactions involving new manufactured homes. 
The Bureau believes that the cost of obtaining an estimate of the value 
of the new manufactured home using a third-party cost source, and 
making appropriate adjustments, would be significantly less than the 
cost of obtaining a USPAP-complaint appraisal.
2. Proposed Exemption for ``Streamlined'' Refinancing Programs
    The proposed rule would provide an exemption for any transaction 
that is a refinancing satisfying certain conditions. In brief, the 
proceeds of the loan may only be used to pay off an existing first lien 
loan and to pay closing or settlement charges is exempt from the HPML 
appraisal requirements, provided the new loan has the same owner or 
guarantor as the existing loan, and provided further that the new loan 
provides for periodic payments that do not cause the principal balance 
to increase, allow for deferment in payment of principal, or result in 
a balloon payment.
    This provision would remove the burden to small entities extending 
any HPMLs covered by the Final Rule under ``streamlined'' refinance 
programs of providing a consumer notice and obtaining, reviewing, and 
disclosing to consumers USPAP- and FIRREA-compliant appraisals. Under 
an alternative discussed in the section-by-section analysis above, to 
be eligible for this burden-reducing exemption, the creditor would need 
to obtain a valuation--which need not be a USPAP- and FIRREA-compliant 
appraisal--and provide it to the consumer no later than three business 
days before closing.
    The regulatory burden reduction might be lower since a creditor 
would have to determine whether the refinancing loan is of the type 
that meets the exemption requirements. However, the Bureau believes 
that little if any additional time would be needed to make these 
determinations, as they depend upon basic information relating to the 
transaction that is typically already known to the creditor. Regulatory 
burden reduction might also be lower due to any additional condition 
the Agencies could adopt such as the condition of obtaining a valuation 
and providing it to the consumer, if one is not otherwise obtained 
through the normal creditor process as required by FIRREA regulations 
for some creditors and disclosed to the consumer as already required by 
the 2013 ECOA Valuations Rule. In either case, however, the decision to 
ensure eligibility for the exemption is voluntary and the Bureau 
presumes that a small entity would not do so unless the exemption 
provided a net burden reduction. The Bureau requests comment on the 
impact of this proposed exemption on small entities.
3. Proposed Exemption for Smaller Dollar Loans
    The proposed rule would exempt from the HPML appraisal requirements 
loans equal to or less than $25,000, adjusted annually for inflation. 
This provision would remove burden imposed by the final rule on small 
entities extending any HPMLs covered by the final rule up to $25,000.
    Regulatory burden reduction might also be lower due to any 
additional condition the Agencies could adopt such as the condition of 
obtaining a valuation and/or providing the consumer with a copy of any 
valuation the creditor has obtained in connection with the application. 
However, the decision to ensure eligibility for the exemption is 
voluntary and the Bureau presumes that a small entity would not do so 
unless the proposed exemption provided a net burden reduction. The 
Bureau requests comment on the impact of this proposed exemption on 
small entities.

C. Conclusion

    Each element of this proposal would reduce economic burden for 
small entities. The proposed exemption for HPMLs secured by existing 
manufactured homes and not land would lessen any economic impact 
resulting from the HPML appraisal requirements. The proposed exemption 
for ``streamlined'' refinance HPMLs also would lessen any economic 
impact on small entities extending credit pursuant to those programs, 
particularly those relating to the refinancing of existing loans held 
on portfolio. The proposed exemption for smaller-dollar HPMLs similarly 
would lessen burden on small entities extending credit in the form of 
HPMLs up to the threshold amount.
    These impacts would be reduced to the extent the transactions are 
not already exempt from the Final Rule as qualified mortgages. While 
all of these proposed exemptions may entail additional recordkeeping 
costs, the Bureau believes that these costs are minimal and outweighed 
by the cost reductions resulting from the proposal. Small entities for 
which such cost reductions are outweighed by additional record keeping 
costs may choose not to utilize the proposed exemptions.
Certification
    Accordingly, the undersigned certifies that if adopted this 
proposal would not have a significant economic impact on a substantial 
number of small entities. The Bureau requests comment on the analysis 
above and requests any relevant data.
FDIC
    The RFA generally requires that, in connection with a notice of 
proposed rulemaking, an agency prepare and make available for public 
comment an initial regulatory flexibility analysis that describes the 
impact of a proposed rule on small entities.\141\ A regulatory 
flexibility analysis is not required, however, if the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities (defined in regulations 
promulgated by the SBA to include banking organizations with total 
assets of less than or equal to $175 million) and publishes its 
certification and a short, explanatory statement in

[[Page 48580]]

the Federal Register together with the rule.
---------------------------------------------------------------------------

    \141\ See 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

    As of March 31, 2013, there were approximately 3,711 small FDIC-
supervised banks, which include 2,275 state nonmember banks and 158 
state-chartered savings banks. The FDIC analyzed the 2011 HMDA\142\ 
dataset to determine how many loans by FDIC-supervised banks might 
qualify as HPMLs under section 129H of the TILA as added by section 
1471 of the Dodd-Frank Act. This analysis reflects that only 70 FDIC-
supervised banks originated at least 100 HPMLs, with only four banks 
originating more than 500 HPMLs. Further, the FDIC-supervised banks 
that met the definition of a small entity originated on average less 
than 8 HPMLs of $25,000 or less each in 2011.
---------------------------------------------------------------------------

    \142\ The FDIC based its analysis on the HMDA data, as it 
provided a proxy for the characteristics of HPMLs. While the FDIC 
recognizes that fewer higher-price loans were generated in 2011, a 
more historical review is not possible because the average offer 
price (a key data element for this review) was not added until the 
fourth quarter of 2009. The FDIC also recognizes that the HMDA data 
provides information relative to mortgage lending in metropolitan 
statistical areas, but not in rural areas.
---------------------------------------------------------------------------

    The proposed rule relates to the 2013 Interagency Appraisals Final 
Rule, issued by the Agencies on January 18, 2013, which goes into 
effect on January 18, 2014. The 2013 Interagency Appraisals Final Rule 
requires that creditors satisfy the following requirements for each 
HPML they originate that is not exempt from the Final Rule:
     The creditor must obtain a written appraisal; the 
appraisal must be performed by a certified or licensed appraiser; and 
the appraiser must conduct a physical property visit of the interior of 
the property.
     At application, the consumer must be provided with a 
statement regarding the purpose of the appraisal, that the creditor 
will provide the applicant a copy of any written appraisal, and that 
the applicant may choose to have a separate appraisal conducted for the 
applicant's own use at his or her own expense.
     The consumer must be provided with a free copy of any 
written appraisals obtained for the transaction at least three (3) 
business days before consummation.
     The creditor of an HPML must obtain an additional written 
appraisal, at no cost to the borrower, when the loan will finance the 
purchase of a consumer's principal dwelling and there has been an 
increase in the purchase price from a prior acquisition that took place 
within 180 days of the current purchase.
    The Agencies are now proposing to amend the 2013 Interagency 
Appraisals Final Rule to provide the following changes and exemptions 
to requirements of the Final Rule:

     To provide a different definition of ``business day'' than 
the definition used in the Final Rule, as well as a few non-substantive 
technical corrections.
     To exempt transactions secured solely by an existing 
(used) manufactured home and not land.
     To exempt certain types of refinancings with 
characteristics common to refinance products often referred to as 
``streamlined'' refinances.
     To exempt extensions of credit of $25,000 or less, indexed 
every year for inflation.
    The proposed rule would exempt certain transactions that qualify as 
HPMLs under the 2013 Interagency Appraisals Final Rule from the 
appraisal requirements of the Final Rule, resulting in reduced 
regulatory burden to FDIC-supervised institutions that would have 
otherwise been required to obtain an appraisal and comply with the 
requirements for such HPML transactions.
    It is the opinion of the FDIC that the proposed rule will not have 
a significant economic impact on a substantial number of small entities 
that it regulates in light of the fact that: (1) The proposed rule 
would reduce regulatory burden on small institutions by exempting 
certain transactions from the requirements of the 2013 Interagency 
Appraisals Final Rule; and (2) the FDIC previously certified that the 
2013 Interagency Appraisals Final Rule would not have a significant 
economic impact on a substantial number of small entities. Accordingly, 
the FDIC certifies that the proposed rule, if adopted in final form, 
would not have a significant economic impact on a substantial number of 
small entities. Therefore, a regulatory flexibility analysis is not 
required.
    Nonetheless, the FDIC seeks comment on whether the proposed rule, 
if adopted in final form, would impose undue burden on, or have 
unintended consequences for, small FDIC-supervised institutions and 
whether there are ways such potential burden or consequences could be 
minimized in a manner consistent with section 129H of TILA.
FHFA
    The supplemental proposal to amend the 2013 Interagency Appraisals 
Final Rule applies only to institutions in the primary mortgage market 
that originate mortgage loans. FHFA's regulated entities--Fannie Mae, 
Freddie Mac, and the Federal Home Loan Banks--operate in the secondary 
mortgage markets. In addition, these entities do not come within the 
meaning of small entities as defined in the RFA. See 5 U.S.C. 601(6).
NCUA
    The RFA generally requires that, in connection with a notice of 
proposed rulemaking, an agency prepare and make available for public 
comment an initial regulatory flexibility analysis that describes the 
impact of the proposed rule on small entities.\143\ A regulatory 
flexibility analysis is not required, however, if the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities and publishes its certification 
and a short, explanatory statement in the Federal Register together 
with the rule. NCUA defines small entities as small credit unions 
having less than fifty million dollars in assets\144\ in contrast to 
the definition of small entities in the rules issued by the SBA, which 
include banking organizations with total assets of less than or equal 
to $175 million.
---------------------------------------------------------------------------

    \143\ See 5 U.S.C. 601 et seq.
    \144\ NCUA Interpretative Ruling and Policy Statement (IRPS) 87-
2, 52 FR 35231 (Sept. 18, 1987); as amended by IRPS 03-2, 68 FR 
31951 (May 29, 2003); and IRPS 13-1, 78 FR 4032, 4037 (Jan. 18, 
2013).
---------------------------------------------------------------------------

    However, for purposes of the 2013 Interagency Appraisals Final Rule 
and for consistency with the Agencies, NCUA reviewed the dataset for 
FICUs that met the small entity standard for banking organizations 
under the SBA's regulations. As of March 31, 2012, there were 
approximately 6,060, FICUs with total assets of $175 million or less. 
Of the FICUs which reported 2010 HMDA data, 452 reported at least one 
HPML. The data reflects that only three FICUs originated at least 100 
HPMLs, with no FICUs originating more than 500 HPMLs, and eighty-eight 
percent of reporting FICUs originating 10 HPMLs or less. Further, FICUs 
that met the SBA's definition of a small entity originated an average 
of 4 HPML loans each in 2010. \145\
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    \145\ With only a fraction of small FICUs reporting data to 
HMDA, NCUA also analyzed FICUs not observed in the HMDA data. Using 
the total number of real estate loans originated by FICUs with less 
than $175M in total assets, NCUA estimated the average number of 
HPMLs per real estate loan originated. Using this ratio to 
interpolate the likely number of HPML originations, the analysis 
suggests that small FICUs originate on average less than 2 HPML 
loans each year.
---------------------------------------------------------------------------

    The 2013 Interagency Appraisals Final Rule requires that creditors 
satisfy the following requirements for each HPML they originate that is 
not exempt from the Final Rule:
     The creditor must obtain a written appraisal; the 
appraisal must be

[[Page 48581]]

performed by a certified or licensed appraiser; and the appraiser must 
conduct a physical property visit of the interior of the property.
     At application, the consumer must be provided with a 
statement regarding the purpose of the appraisal, that the creditor 
will provide the applicant a copy of any written appraisal, and that 
the applicant may choose to have a separate appraisal conducted for the 
applicant's own use at his or her own expense.
     The consumer must be provided with a free copy of any 
written appraisals obtained for the transaction at least three (3) 
business days before consummation.
     The creditor of an HPML must obtain an additional written 
appraisal, at no cost to the borrower, when the loan will finance the 
purchase of a consumer's principal dwelling and there has been an 
increase in the purchase price from a prior acquisition that took place 
within 180 days of the current purchase.
    The Agencies are now proposing to amend the 2013 Interagency 
Appraisals Final Rule to provide the following changes and exemptions 
to requirements of the Final Rule:
     To provide a different definition of ``business day'' than 
the definition used in the Final Rule, as well as a few non-substantive 
technical corrections.
     To exempt transactions secured solely by an existing 
(used) manufactured home and not land from the HPML appraisal 
requirements.
     To exempt from the HPML appraisal rules certain types of 
refinancings with characteristics common to refinance products often 
referred to as ``streamlined'' refinances.
     To exempt from the HPML appraisal rules extensions of 
credit of $25,000 or less, indexed every year for inflation.
    As previously explained, the proposed rule would align the 
definition of ``business day'' under the Final Rule with the definition 
of ``business day'' for the required disclosures to, among other 
things, improve streamlining and consistency in Regulation Z 
disclosures by avoiding the creditor having to provide the copy of the 
appraisal under the HPML rules and corrected Regulation Z disclosures 
at different times (because different definitions of ``business day'' 
would apply). In addition, the proposed rule would exempt certain 
transactions that qualify as HPMLs under the 2013 Interagency Appraisal 
Final Rule from the requirements of the Final Rule, resulting in 
reduced regulatory burden to FICUs that would have otherwise been 
required to obtain an appraisal and comply with the requirements for 
such HPML transactions. NCUA believes these proposed changes will only 
serve to lessen regulatory burdens imposed by the Final Rule.
    In light of the fact that few loans made by FICUs would qualify as 
HPMLs, the fact that the NCUA certified that the 2013 Interagency 
Appraisal Final Rule would not have a significant economic impact on a 
substantial number of small entities, and that the proposal would only 
further reduce any regulatory burdens imposed on small credit unions by 
the Final Rule, NCUA believes the proposed rule will not have a 
significant economic impact on small FICUs.
    For the reasons provided above, NCUA certifies that the proposed 
rule will not have a significant economic impact on a substantial 
number of small entities. Accordingly, a regulatory flexibility 
analysis is not required.
OCC
    Pursuant to section 605(b) of the RFA, 5 U.S.C. 605(b), the 
regulatory flexibility analysis otherwise required under section 603 of 
the RFA is not required if the agency certifies that the proposed rule 
will not, if promulgated, have a significant economic impact on a 
substantial number of small entities (defined for purposes of the RFA 
to include banks, savings institutions and other depository credit 
intermediaries with assets less than or equal to $500 million and trust 
companies with total assets of $35.5 million or less \146\) and 
publishes its certification and a short, explanatory statement in the 
Federal Register along with its proposed rule.
---------------------------------------------------------------------------

    \146\ ``Based on the number of banks and their size (as of 
December 31, 2012) the OCC supervises 1,291 small entities. We base 
our estimate of the number of small entities on the SBA's size 
thresholds for commercial banks and savings institutions, and trust 
companies, which are $500 million and $35.5 million, respectively. 
Consistent with the General Principles of Affiliation, 13 CFR 
121.103(a), we count the assets of affiliated financial institutions 
when determining if we should classify a bank we supervise as a 
small entity. We use December 31, 2012, to determine size because a 
``financial institution's assets are determined by averaging the 
assets reported on its four quarterly financial statements for the 
preceding year.'' See footnote 8 of the U.S. Small Business 
Administration's Table of Size Standards.
---------------------------------------------------------------------------

    As described previously in this preamble, section 1471 of the Dodd-
Frank Act establishes a new TILA section 129H, which sets forth 
appraisal requirements applicable to higher-risk mortgages (termed 
``higher-priced mortgage loans'' or HPMLs in the 2013 Interagency 
Appraisals Final Rule). The statute expressly excludes from these 
appraisal requirements coverage of ``qualified mortgages,'' the terms 
of which have been established by the CFPB as an exemption from its new 
TILA mortgage ``ability to repay'' underwriting requirements rule. In 
addition, the Agencies may jointly exempt a class of loans from the 
requirements of the statute if the Agencies determine that the 
exemption is in the public interest and promotes the safety and 
soundness of creditors.
    The Agencies issued the Final Rule on January 18, 2013, which will 
be effective on January 18, 2014. Pursuant to the general exemption 
authority in the statute, the Final Rule exempts from coverage of the 
HPML appraisal rules the following transactions: Transactions secured 
by new manufactured homes; transactions secured by mobile homes, boats, 
or trailers; transactions to finance the initial construction of a 
dwelling; temporary or ``bridge'' loans with a term of twelve months or 
less, such as a loan to purchase a new dwelling where the consumer 
plans to sell a current dwelling within twelve months; and reverse 
mortgage loans. The Agencies are issuing this supplemental proposed 
rule to include three additional exemptions from the HPML appraisal 
requirements of section 129H of TILA: Transactions secured solely by an 
existing manufactured home and not land; certain ``streamlined'' 
refinancings; and extensions of credit of $25,000 or less, indexed 
every year for inflation.
    The OCC currently supervises 1,842 banks (1,204 commercial banks, 
63 trust companies, 527 federal savings associations, and 48 branches 
or agencies of foreign banks). We estimate that less than 1,291 of the 
banks supervised by the OCC are currently originating one- to four-
family residential mortgage loans that could be HPMLs. Approximately 
867 OCC supervised banks are small entities based on the SBA's 
definition of small entities for RFA purposes. Of these, the OCC 
estimates that 428 banks originate mortgages and therefore may be 
impacted by the proposed rule.
    The OCC classifies the economic impact of total costs on a bank as 
significant if the total costs in a single year are greater than 5 
percent of total salaries and benefits, or greater than 2.5 percent of 
total non-interest expense. The OCC estimates that the average cost per 
small bank, if the proposed rule is promulgated, will be zero. The 
proposal does not impose new requirements on banks or include new 
mandates. The OCC assumes any costs (e.g., alternative valuations) or 
requirements that may be associated with the proposed exemptions will 
be less than the cost of

[[Page 48582]]

compliance for a comparable loan under the Final Rule.
    Therefore, we believe the proposed rule will not have a significant 
economic impact on a substantial number of small entities. The OCC 
certifies that the proposed rule would not, if promulgated, have a 
significant economic impact on a substantial number of small entities.

VIII. Paperwork Reduction Act

Board, Bureau, FDIC, NCUA and OCC

    Certain provisions of the 2013 Interagency Appraisals Final Rule 
contain ``collection of information'' requirements within the meaning 
of the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501 et seq.). 
See 78 FR 10368, 10429 (Feb. 13, 2013). Under the PRA, the Agencies may 
not conduct or sponsor, and a person is not required to respond to, an 
information collection unless the information collection displays a 
valid Office of Management and Budget (OMB) control number. The 
information collection requirements contained in this joint notice of 
proposed rulemaking to amend the 2013 Final Rule have been submitted to 
OMB for review and approval by the Bureau, FDIC, NCUA, and OCC under 
section 3506 of the PRA and section 1320.11 of the OMB's implementing 
regulations (5 CFR part 1320). The Board reviewed the proposed rule 
under the authority delegated to the Board by OMB.
    Title of Information Collection: HPML Appraisals.
    Frequency of Response: Event generated.
    Affected Public: Businesses or other for-profit and not-for-profit 
organizations.\147\
---------------------------------------------------------------------------

    \147\ The burdens on the affected public generally are divided 
in accordance with the Agencies' respective administrative 
enforcement authority under TILA section 108, 15 U.S.C. 1607.
---------------------------------------------------------------------------

    Bureau: Insured depository institutions with more than $10 billion 
in assets, their depository institution affiliates, and certain non-
depository mortgage institutions.\148\
---------------------------------------------------------------------------

    \148\ The Bureau and the Federal Trade Commission (FTC) 
generally both have enforcement authority over non-depository 
institutions for Regulation Z. Accordingly, for purposes of this PRA 
analysis, the Bureau has allocated to itself half of the Bureau's 
estimated burden for non-depository mortgage institutions. The FTC 
is responsible for estimating and reporting to OMB its share of 
burden under this proposal.
---------------------------------------------------------------------------

    FDIC: Insured state non-member banks, insured state branches of 
foreign banks, and certain subsidiaries of these entities.
    OCC: National banks, Federal savings associations, Federal branches 
or agencies of foreign banks, or any operating subsidiary thereof.
    Board: State member banks, uninsured state branches and agencies of 
foreign banks.
    NCUA: Federally-insured credit unions.
    Abstract:
    The collection of information requirements in the 2013 Final Rule 
are found in paragraphs (c)(3)(i), (c)(3)(ii), (c)(4), (c)(5), and 
(c)(6) of 12 CFR 1026.35.\149\ This information is required to protect 
consumers and promote the safety and soundness of creditors making 
HPMLs subject to 12 CFR 1026.35(c). This information is used by 
creditors to evaluate real estate collateral securing HPMLs subject to 
12 CFR 1026.35(c) and by consumers entering these transactions. The 
collections of information are mandatory for creditors making HPMLs 
subject to 12 CFR 1026.35(c). The 2013 Final Rule requires that, within 
three business days of application, a creditor provide a disclosure 
that informs consumers of the purpose of the appraisal, that the 
creditor will provide the consumer a copy of any appraisal, and that 
the consumer may choose to have a separate appraisal conducted at the 
expense of the consumer (Initial Appraisal Disclosure). See 12 CFR 
1026.35(c)(5). If a loan is a HPML subject to 12 CFR 1026.35(c), then 
the creditor is required to obtain a written appraisal prepared by a 
certified or licensed appraiser who conducts a physical visit of the 
interior of the property that will secure the transaction (Written 
Appraisal), and provide a copy of the Written Appraisal to the 
consumer. See 12 CFR 1026.35(c)(3)(i) and (c)(6). To qualify for the 
safe harbor provided under the 2013 Final Rule, a creditor is required 
to review the Written Appraisal as specified in the text of the rule 
and Appendix N. See 12 CFR 1026.35(c)(3)(ii).
---------------------------------------------------------------------------

    \149\ As explained in the section-by-section analysis, these 
requirements are also published in regulations of the OCC (12 CFR 
34.203(c)(1), (c)(2), (d), (e) and (f)) and the Board (12 CFR 
226.43(c)(1), (c)(2), (d), (e), and (f)). For ease of reference, 
this PRA analysis refers to the section numbers of the requirements 
as published in the Bureau's Regulation Z at 12 CFR 1026.35(c).
---------------------------------------------------------------------------

    A creditor is required to obtain an additional appraisal 
(Additional Written Appraisal) for a HPML that is subject to 12 CFR 
1026.35(c) if (1) the seller acquired the property securing the loan 90 
or fewer days prior to the date of the consumer's agreement to acquire 
the property and the resale price exceeds the seller's acquisition 
price by more than 10 percent; or (2) the seller acquired the property 
securing the loan 91 to 180 days prior to the date of the consumer's 
agreement to acquire the property and the resale price exceeds the 
seller's acquisition price by more than 20 percent. See 12 CFR 
1026.35(c)(4). The Additional Written Appraisal must meet the 
requirements described above and also analyze: (1) The difference 
between the price at which the seller acquired the property and the 
price the consumer agreed to pay; (2) changes in market conditions 
between the date the seller acquired the property and the date the 
consumer agreed to acquire the property; and (3) any improvements made 
to the property between the date the seller acquired the property and 
the date on which the consumer agreed to acquire the property. See 12 
CFR 1026.35(c)(4)(iv). A creditor is also required to provide a copy of 
the Additional Written Appraisal to the consumer. 12 CFR 1026.35(c)(6).
    The requirements provided in the 2013 Final Rule were described in 
the PRA section of that rule. See 78 FR 10368, 10429 (February 13, 
2013). As described in its section 1022 analysis in the 2013 Final Rule 
and in Table 3 to that rule, the estimated burdens allocated to the 
Bureau reflected an institution count based upon data that had been 
updated from the proposal stage and reduced to reflect those exemptions 
in the 2013 Final Rule for which the Bureau has identified data. As 
discussed in the 2013 Final Rule, the other Agencies did not adjust the 
calculations to account for the exempted transactions provided in the 
2013 Final Rule. Accordingly, the estimated burden calculations in 
Table 3 in the 2013 Final Rule are overstated.

Calculation of Estimated Burden

    As explained in the 2013 Final Rule, for the Initial Appraisal 
Disclosure, the creditor is required to provide a short, written 
disclosure within three days of application. Because the disclosure is 
classified as a warning label supplied by the Federal government, the 
Agencies have assigned it no burden for purposes of this PRA 
analysis.\150\
---------------------------------------------------------------------------

    \150\ The public disclosure of information originally supplied 
by the Federal government to the recipient for the purpose of 
disclosure to the public is not included within the definition of 
``collection of information.'' 5 CFR 1320.3(c)(2).
---------------------------------------------------------------------------

    The estimated burden for the Written Appraisal requirements 
includes the creditor's burden of reviewing the Written Appraisal in 
order to satisfy the safe harbor criteria set forth in the rule and 
providing a copy of the Written Appraisal to the consumer. 
Additionally, as discussed above, an Additional Written Appraisal 
containing additional analyses is required in certain circumstances. 
The

[[Page 48583]]

Additional Written Appraisal must meet the standards of the Written 
Appraisal. The Additional Written Appraisal is also required to be 
prepared by a certified or licensed appraiser different from the 
appraiser performing the Written Appraisal, and a copy of the 
Additional Written Appraisal must be provided to the consumer. The 
creditor must separately review the Additional Written Appraisal in 
order to qualify for the safe harbor provided in the 2013 Final Rule.
    The Agencies continue to estimate that respondents will take, on 
average, 15 minutes for each HPML that is subject to 12 CFR 1026.35(c) 
to review the Written Appraisal and to provide a copy of the Written 
Appraisal. The Agencies further continue to estimate that respondents 
will take, on average, 15 minutes for each HPML that is subject to 12 
CFR 1026.35(c) to investigate and verify the need for an Additional 
Written Appraisal and, where necessary, an additional 15 minutes to 
review the Additional Written Appraisal and to provide a copy of the 
Additional Written Appraisal. For the small fraction of loans requiring 
an Additional Written Appraisal, the burden is similar to that of the 
Written Appraisal.
    The Agencies use the estimated burden from the PRA section of the 
2013 Final Rule as the starting baseline for analyzing the impact the 
three exemptions in the proposal would have on PRA burden if adopted. 
The estimated number of appraisals per respondent for the FDIC, Board, 
OCC, and NCUA respondents has been updated to account for the exemption 
for qualified mortgages adopted in the 2013 Final Rule, which had not 
been accounted for in the table published at that time, as discussed in 
the PRA section of the Final Rule. See 78 FR 10368, 10430-31 (February 
13, 2013). In addition, the impact of the proposed rule has been 
considered as follows:
    First, the Agencies find that, currently, only a small minority of 
refinances involves cash out beyond the levels eligible for this 
proposed exemption, and as a result most refinance loans may qualify 
for this exemption. The Agencies therefore assume that the proposed 
exemption for certain refinances affects all the refinance loans 
discussed in the analysis under Section 1022(b)(2) of the 2013 Final 
Rule, and thus would eliminate all of the approximately 1,200 new 
appraisals that had been estimated to result from these refinances as a 
result of Final Rule (out of the 3,800 total new Written Appraisals 
estimated to occur in the Final Rule, or roughly 32%).
    Second, based on the HMDA 2011 data, the Agencies find that 12 
percent of all HPMLs are under $25,000. The Agencies believe that this 
implies that there will be, proportionately, 12 percent fewer 
appraisals based on the exemption for small dollar loans.
    Third, the Agencies find that many of the transactions secured by 
existing manufactured homes and not land involve either refinances (all 
of which are conservatively assumed to be covered by the proposed 
exemption for certain refinances), or smaller dollar loans (which cover 
many types of manufactured housing transactions).\151\ While covered 
HPMLs above smaller dollar levels that are secured by existing 
manufactured homes and not land may be newly-exempted, these 
transactions may need alternative valuations depending upon how the 
exemption is finalized. The Agencies therefore conservatively make no 
adjustment to the data in the first panel of Table 3 in the 2013 Final 
Rule as a result of that proposed exemption.\152\
---------------------------------------------------------------------------

    \151\ In particular, the Bureau believes that a substantial 
proportion of the existing manufactured homes that are sold would be 
sold for less than $25,000. According to the Census Bureau 2011 
American Housing Survey Table C-13-OO, the average value of existing 
manufactured homes is $30,000. See http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=AHS_2011_C13OO&prodType = table. The estimate includes not only the value of 
the home, but also appears to include the value of the lot where the 
lot is also owned. According to the AHS Survey, the term ``value'' 
is defined as ``the respondent's estimate of how much the property 
(house and lot) would sell for if it were for sale. Any 
nonresidential portions of the property, any rental units, and land 
cost of mobile homes, are excluded from the value. For vacant units, 
value represents the sales price asked for the property at the time 
of the interview, and may differ from the price at which the 
property is sold. In the publications, medians for value are rounded 
to the nearest dollar.'' See http://www.census.gov/housing/ahs/files/Appendix%20A.pdf.
    \152\ The Bureau assumes that manufactured housing loans secured 
solely by a manufactured home and not land mortgages are reflected 
in the data provided by the institutions to the datasets that are 
used by the Bureau (Call Reports for Banks and Thrifts, Call Reports 
for Credit Unions, and NMLS's Mortgage Call Reports), and thus are 
reflected in the Bureau's loan projections utilized for the table 
below. The Bureau is asking for comment if any institutions believe 
that this is not the case.
---------------------------------------------------------------------------

    The numbers above affect only the first panel in the Table 3 of the 
PRA section of the Final Rule. Refinances are not subject to the 
requirement to obtain an Additional Written Appraisal under the 2013 
Final Rule, and it is conservatively assumed that none of the smaller 
dollar loans or the loans secured by manufactured homes sited on leased 
land were used to purchase homes being resold within 180 days with the 
requisite price increases to trigger that requirement (and thus the 
proposed exemptions for those loans will not reduce any burden 
associated with that requirement). Accordingly, only the first panel in 
Table 3 from the 2013 Final Rule is being updated and the estimates in 
the second and third panels remain the same. The updated table is 
reproduced below. The one-time costs are also not affected.
    The following table summarizes the resulting burden estimates.
Estimated PRA Burden

 Summary of PRA Burden Hours for Information Collections in HPML Appraisals Final Rule If the Exemptions in the
                                     Supplemental Proposal Are Adopted \153\
----------------------------------------------------------------------------------------------------------------
                                                                Estimated
                                              Estimated         number of         Estimated     Estimated  total
                                              number of      appraisals per     burden hours     annual  burden
                                             respondents    respondent \154\    per appraisal         hours
                                                       [a]               [b]               [c]     [d] = (a*b*c)
----------------------------------------------------------------------------------------------------------------
                                 Review and Provide a Copy of Written Appraisal
----------------------------------------------------------------------------------------------------------------
Bureau: 155 156 157 158
    Depository Inst. > $10 B in total                  132              3.73              0.25               123
     assets + Depository Inst.
     Affiliates.........................
    Non-Depository Inst. and Credit                  2,853              0.23              0.25          \159\ 82
     Unions.............................
    FDIC................................             2,571                0.              0.25                93
    Board \160\.........................               418              0.18              0.25                19

[[Page 48584]]

 
    OCC.................................             1,399              0.16              0.25                55
    NCUA................................             2,437              0.07              0.25                44
                                         -----------------------------------------------------------------------
        Total...........................             9,810  ................  ................               416
----------------------------------------------------------------------------------------------------------------
                       Investigate and Verify Requirement for Additional Written Appraisal
----------------------------------------------------------------------------------------------------------------
Bureau:
    Depository Inst. > $10 B in total                  132             20.05              0.25               662
     assets + Depository Inst.
     Affiliates.........................
    Non-Depository Inst. and Credit                  2,853              1.22              0.25               435
     Unions.............................
    FDIC................................             2,571              0.78              0.25               502
    Board...............................               418              0.97              0.25               102
    OCC.................................             1,399              0.85              0.25               299
    NCUA................................             2,437              0.38              0.25               232
                                         -----------------------------------------------------------------------
        Total...........................             9,810  ................  ................             2,232
----------------------------------------------------------------------------------------------------------------
                            Review and Provide a Copy of Additional Written Appraisal
----------------------------------------------------------------------------------------------------------------
Bureau:
    Depository Inst. > $10 B in total                  132              0.64              0.25                21
     assets + Depository Inst.
     Affiliates.........................
    Non-Depository Inst. and Credit                  2,853              0.04              0.25                14
     Unions.............................
    FDIC................................             2,571              0.02              0.25                15
    Board...............................               418              0.03              0.25                 3
    OCC.................................             1,399              0.02              0.25                 8
    NCUA................................             2,437              0.01              0.25                 5
                                         -----------------------------------------------------------------------
        Total...........................             9,810  ................  ................                66
----------------------------------------------------------------------------------------------------------------
Notes:
(1) Respondents include all institutions estimated to originate HPMLs that are subject to 12 CFR 1026.35(c).
(2) There may be an additional ongoing burden of roughly 75 hours for privately-insured credit unions estimated
  to originate HPMLs that are subject to 12 CFR 1026.35(c). The Bureau will assume half of the burden for non-
  depository institutions and the privately-insured credit unions.

     
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    \153\ Some of the intermediate numbers are rounded, resulting in 
Estimated Total Annual Hours not precisely matching up with columns 
a, b, and c.
    \154\ The ``Estimated Number of Appraisals Per Respondent'' 
reflects the estimated number of Written Appraisals and Additional 
Written Appraisals that will be performed solely to comply with the 
2013 Final Rule. It does not include the number of appraisals that 
will continue to be performed under current industry practice, 
without regard to the Final Rule's requirements.
    \155\ The information collection requirements (ICs) in the 2013 
Final Rule (and this proposed rule) will be incorporated with the 
Bureau's existing collection associated with Truth in Lending Act 
(Regulation Z) 12 CFR 1026 (OMB No. 3170-0015/3170-0026).
    \156\ The burden estimates allocated to the Bureau are updated 
using the data described in the Bureau's section 1022 analysis in 
the 2013 Final Rule and in the Bureau's section 1022 analysis above, 
including significant burden reductions after accounting for 
qualified mortgages that are exempt from the Final Rule, and burden 
reductions after accounting for loans in rural areas that are exempt 
from the Additional Written Appraisal requirement in the Final Rule.
    \157\ There are 153 depository institutions (and their 
depository affiliates) that are subject to the Bureau's 
administrative enforcement authority. In addition, there are 146 
privately-insured credit unions that are subject to the Bureau's 
administrative enforcement authority. For purposes of this PRA 
analysis, the Bureau's respondents under Regulation Z are 135 
depository institutions that originate either open or closed-end 
mortgages; 77 privately-insured credit unions that originate either 
open or closed-end mortgages; and an estimated 2,787 non-depository 
institutions that are subject to the Bureau's administrative 
enforcement authority. Unless otherwise specified, all references to 
burden hours and costs for the Bureau respondents for the collection 
under Regulation Z are based on a calculation that includes half of 
the burden for the estimated 2,787 non-depository institutions and 
77 privately-insured credit unions.
    \158\ The Bureau calculates its burden by including both HMDA 
reporting creditors and the HMDA non-reporting creditors, based on 
the 2012 counts. The other Agencies only report the burden for HMDA 
reporting creditors, based on the 2011 counts.
    \159\ The Bureau assumes half of the burden for the non-
depository mortgage institutions and the credit unions supervised by 
the Bureau. The FTC assumes the burden for the other half.
    \160\ The ICs in the 2013 Final Rule will be incorporated with 
the Board's Reporting, Recordkeeping, and Disclosure Requirements 
associated with Regulation Z (Truth in Lending), 12 CFR part 226, 
and Regulation AA (Unfair or Deceptive Acts or Practices), 12 CFR 
part 227 (OMB No. 7100-0199). The burden estimates provided in this 
proposed rule pertain only to the ICs associated with the Final 
Rule.
---------------------------------------------------------------------------

    Finally, as explained in the PRA section of the 2013 Final Rule, 
respondents must also review the instructions and legal guidance 
associated with the Final Rule and train loan officers regarding the 
requirements of the Final Rule. The Agencies continue to estimate that 
these one-time costs are as follows: Bureau: 36,383 hours; FDIC: 10,284 
hours; Board 3,344 hours; OCC: 19,586 hours; NCUA: 7,311 hours.\161\
---------------------------------------------------------------------------

    \161\ As discussed in the PRA section of the 2013 Final Rule, 
estimated one-time burden continues to be calculated assuming a 
fixed burden per institution to review the regulations and fixed 
burden per estimated loan officer in training costs. As a result of 
the different size and mortgage activities across institutions, the 
average per-institution one-time burdens vary across the Agencies. 
See 78 FR 10368, 10432 (February 13, 2013).
---------------------------------------------------------------------------

    The Agencies have a continuing interest in the public opinion of 
our collections of information. At any time, comments regarding the 
burden

[[Page 48585]]

estimate, or any other aspect of this collection of information, 
including suggestions for reducing the burden, may be sent to the OMB 
desk officer for the Agencies by mail to U.S. Office of Management and 
Budget, Office of Information and Regulatory Affairs, Washington, DC 
20503, or by the internet to oira_submission@omb.eop.gov, with copies 
to the Agencies at the addresses listed in the ADDRESSES section of 
this SUPPLEMENTARY INFORMATION.

FHFA

    The 2013 Final Rule and this proposal do not contain any 
collections of information applicable to the FHFA, requiring review by 
OMB under the PRA. Therefore, FHFA has not submitted any materials to 
OMB for review.

Text of Proposed Revisions

    Certain conventions have been used to highlight the Federal Reserve 
System's proposed revisions. New language is shown inside [rtrif]bold-
faced arrows[ltrif], while language that would be deleted is shown 
inside [bold-faced brackets].

List of Subjects

12 CFR Part 34

    Appraisal, Appraiser, Banks, Banking, Consumer protection, Credit, 
Mortgages, National banks, Reporting and recordkeeping requirements, 
Savings associations, Truth in lending.

12 CFR Part 226

    Advertising, Appraisal, Appraiser, Consumer protection, Credit, 
Federal Reserve System, Mortgages, Reporting and recordkeeping 
requirements, Truth in lending.

12 CFR Part 1026

    Advertising, Appraisal, Appraiser, Banking, Banks, Consumer 
protection, Credit, Credit unions, Mortgages, National banks, Reporting 
and recordkeeping requirements, Savings associations, Truth in lending.

Department of the Treasury

Office of the Comptroller of the Currency

Authority and Issuance

    For the reasons set forth in the preamble, the OCC proposes to 
amend 12 CFR Part 34, as previously amended at 78 FR 10368, 10432 (Feb. 
13, 2013), effective January 18, 2014, as follows:

PART 34--REAL ESTATE LENDING AND APPRAISALS

0
1. The authority citation for part 34 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 25b, 29, 93a, 371, 1463, 1464, 
1465, 1701j-3, 1828(o), 3331 et seq., 5101 et seq., 5412(b)(2)(B) 
and 15 U.S.C. 1639h.

0
2. Section 34.202 is amended by adding new paragraph (a) and 
redesignating current paragraphs (a) through (c) as paragraphs (b) 
through (d) as follows:


Sec.  34.202  Definitions applicable to higher priced mortgage loans.

* * * * *
    (a) Business day has the same meaning as in 12 CFR 1026.2(a)(6).
* * * * *
0
3. Section 34.203 is amended by revising paragraphs (b) introductory 
text, (b)(1), (b)(2), and (b)(5) and adding paragraphs (b)(2)(i), 
(b)(2)(ii), (b)(7) and (b)(8) as follows:


Sec.  34.203  Appraisalsfor higher-priced mortgage loans.

* * * * *
    (b) Exemptions. The requirements in paragraphs (c) through (f) of 
this section do not apply to the following types of transactions:
    (1) A qualified mortgage pursuant to 15 U.S.C. 1639c;
    (2) A transaction:
    (i) Secured by a new manufactured home; or
    (ii) Secured solely by an existing manufactured home and not land.
* * * * *
    (5) A loan with a maturity of 12 months or less, if the purpose of 
the loan is a ``bridge'' loan connected with the acquisition of a 
dwelling intended to become the consumer's principal dwelling.
* * * * *
    (7) An extension of credit that is a refinancing, as defined under 
12 CFR 1026.20(a) except that the creditor need not be the original 
creditor or a holder or servicer of the original obligation, and that 
meets the following criteria:
    (i) The owner or guarantor of the refinance loan is the current 
owner or guarantor of the existing obligation;
    (ii) The regular periodic payments under the refinance loan do not:
    (A) Cause the principal balance to increase;
    (B) Allow the consumer to defer repayment of principal; or
    (C) Result in a balloon payment, as defined in 12 CFR 
1026.18(s)(5)(i); and
    (iii) The proceeds from the refinance loan are used solely for the 
following purposes:
    (A) To pay off the outstanding principal balance on the existing 
obligation; and
    (B) To pay closing or settlement charges required to be disclosed 
under the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et 
seq.; and
    (8) An extension of credit for which the amount of credit extended 
is equal to or less than the applicable threshold amount, which is 
adjusted every year to reflect increases in the Consumer Price Index 
for Urban Wage Earners and Clerical Workers, as applicable, and 
published in Appendix C to Subpart G--OCC Interpretations, see Section 
34.203(b)(8) of Appendix C to Subpart G.
* * * * *
0
4. In Appendix C to Subpart G--OCC Interpretations:
0
a. Paragraph 34.203(b)(2) is redesignated Paragraph 34.203(b)(2)(i).
0
b. Under redesignated Paragraph 34.203(b)(2)(i), paragraph 1 is 
revised.
0
c. New Paragraph 34.203(b)(2)(ii) is added.
0
d. New Paragraph 34.203(b)(7) is added.
0
e. New Paragraph 34. 203(b)(8) is added.
0
f. Under Paragraph 34.203(f)(2), paragraph 2 is removed and current 
paragraph 3 is redesignated paragraph 2.
    The revisions read as follows:

Appendix C to Subpart G--OCC Interpretations

* * * * *
    34.203(b) Exemptions.
    Paragraph 34.203(b)(2)(i).
    1. Secured by new manufactured home. A higher-priced mortgage 
loan secured by a new manufactured home is not subject to the 
appraisal requirements of Subpart G, regardless of whether the 
transaction is also secured by the land on which it is sited is not 
a ``higher-priced mortgage loan'' subject to the appraisal 
requirements of Subpart G.
    Paragraph 34.203(b)(2)(ii).
    1. Secured solely by an existing manufactured home and not land. 
A higher-priced mortgage loan secured by a manufactured home and not 
land is not subject to the appraisal requirements of Subpart G, 
regardless of whether the home is titled as realty by operation of 
state law.
* * * * *
    Paragraph 34.203(b)(7).
    Paragraph 34.203(b)(7)(i).
    1. Owner or guarantor. The term ``owner'' in Sec.  
34.203(b)(7)(i)(A) means an entity that owns and holds a loan in its 
portfolio. ``Owner'' does not refer to an investor in a mortgage-
backed security. The term ``guarantor'' in Sec.  
34.203(b)(7)(i)(A)(1) refers to the entity that guarantees the 
credit risk on a loan that the entity holds in a mortgage-backed 
security.
    Paragraph 34.203(b)(7)(ii).
    1. Regular periodic payments. Under Sec.  34.203(b)(7)(ii), the 
regular periodic

[[Page 48586]]

payments on the refinance loan must not: result in an increase of 
the principal balance (negative amortization); allow the consumer to 
defer repayment of principal (see Official Staff Interpretations to 
the Bureau's Regulation Z, comment 43(e)(2)(i)-2); or result in a 
balloon payment. Thus, the terms of the legal obligation must 
require the consumer to make payments of principal and interest on a 
monthly or other periodic basis that will repay the loan amount over 
the loan term. Except for payments resulting from any interest rate 
changes after consummation in an adjustable-rate or step-rate 
mortgage, the periodic payments must be substantially equal. For an 
explanation of the term ``substantially equal,'' see Official Staff 
Interpretations to the Bureau's Regulation Z, comment 43(c)(5)(i)-4. 
In addition, a single-payment transaction is not a refinancing 
meeting the requirements of Sec.  34.203(b)(7) because it does not 
require ``regular periodic payments.''
    Paragraph 34.203(b)(7)(iii).
    1. Permissible use of proceeds. The exemption for a refinancing 
under Sec.  34.203(b)(7) is available only if the proceeds from the 
refinancing are used exclusively for two purposes: paying off the 
consumer's existing first-lien mortgage obligation and paying for 
closing costs, including paying escrow amounts required at or before 
closing. If the proceeds of a refinancing are used for other 
purposes, such as to pay off other liens or to provide additional 
cash to the consumer for discretionary spending, the transaction 
does not qualify for the exemption for a refinancing under Sec.  
34.203(b)(7) from the appraisal requirements in Subpart G.
    Paragraph 34.203(b)(8).
    1. Threshold amount. For purposes of Sec.  34.203(b)(8), the 
threshold amount in effect during a particular one-year period is 
the amount stated below for that period. The threshold amount is 
adjusted effective January 1 of every year by the percentage 
increase in the Consumer Price Index for Urban Wage Earners and 
Clerical Workers (CPI-W) that was in effect on the preceding June 1. 
Every year, this comment will be amended to provide the threshold 
amount for the upcoming one-year period after the annual percentage 
change in the CPI-W that was in effect on June 1 becomes available. 
Any increase in the threshold amount will be rounded to the nearest 
$100 increment. For example, if the percentage increase in the CPI-W 
would result in a $950 increase in the threshold amount, the 
threshold amount will be increased by $1,000. However, if the 
percentage increase in the CPI-W would result in a $949 increase in 
the threshold amount, the threshold amount will be increased by 
$900.
    i. From January 18, 2014, through December 31, 2014, the 
threshold amount is $25,000.
    2. Qualifying for exemption--in general. A transaction is exempt 
under Sec.  34.203(b)(8) if the creditor makes an extension of 
credit at consummation that is equal to or below the threshold 
amount in effect at the time of consummation.
    3. Qualifying for exemption--subsequent changes. A transaction 
does not meet the condition for an exemption under Sec.  
34.203(b)(8) merely because it is used to satisfy and replace an 
existing exempt loan, unless the amount of the new extension of 
credit is equal to or less than the applicable threshold amount. For 
example, assume a closed-end loan that qualified for a Sec.  
34.203(b)(8) exemption at consummation in year one is refinanced in 
year ten and that the new loan amount is greater than the threshold 
amount in effect in year ten. In these circumstances, the creditor 
must comply with all of the applicable requirements of Subpart G 
with respect to the year ten transaction if the original loan is 
satisfied and replaced by the new loan, unless another exemption 
from the requirements of Subpart G applies. See Sec.  34.203(b) and 
Sec.  34.203(d)(7).
* * * * *

Board of Governors of the Federal Reserve System

Authority and Issuance

    For the reasons stated above, the Board of Governors of the Federal 
Reserve System proposes to amend Regulation Z, 12 CFR Part 226, as 
previously amended at 78 FR 10368, 10437 (Feb. 13, 2013), effective 
January 18, 2014, as follows:

PART 226--TRUTH IN LENDING ACT (REGULATION Z)

0
5. The authority citation for part 226 continues to read as follows:

    Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), 1639(l), 
and 1639h; Pub. L. 111-24 section 2, 123 Stat. 1734; Pub. L. 111-
203, 124 Stat. 1376.

0
6. Section 226.2 is amended by revising paragraph (a)(6) as follows:


Sec.  226.2--Definitions  and rules of construction.

    (a) Definitions. For purposes of this part, the following 
definitions apply:
* * * * *
    (6) Business day means a day on which the creditor's offices are 
open to the public for carrying on substantially all of its business 
functions. However, for purposes of rescission under Sec. Sec.  1026.15 
and 1026.23, and for purposes of Sec. Sec.  226.19(a)(1)(ii), 
226.19(a)(2), 226.31, [rtrif]226.43, [ltrif]and 226.46(d)(4), the term 
means all calendar days except Sundays and the legal public holidays 
specified in 5 U.S.C. 6103(a), such as New Year's Day, the Birthday of 
Martin Luther King, Jr., Washington's Birthday, Memorial Day, 
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving 
Day, and Christmas Day.
* * * * *
0
7. Section 226.43 is amended by revising paragraph (b) as follows:


Sec.  226.43--Appraisals  for higher-priced mortgage loans.

* * * * *
    (b) Exemptions. The requirements in paragraphs [(c)(3) through (6)] 
[rtrif](c) through (f)[ltrif] of this section do not apply to the 
following types of transactions:
    (1) A qualified mortgage as defined [in 12 CFR 
1026.43(e)][rtrif]pursuant to 15 U.S.C. 1639c[ltrif];
    (2) A transaction[rtrif]:
    (i) S[ltrif][s]ecured by a new manufactured home;[rtrif] or
    (ii) Secured solely by an existing manufactured home and not 
land.[ltrif]
* * * * *
    (5) A loan with [rtrif]a[ltrif] maturity of 12 months or less, if 
the purpose of the loan is a ``bridge'' loan connected with the 
acquisition of a dwelling intended to become the consumer's principal 
dwelling.
* * * * *
    [rtrif](7) An extension of credit that is a refinancing, as defined 
under 12 CFR 1026.20(a), except that the creditor need not be the 
original creditor or a holder or servicer of the original obligation, 
and that meets the following criteria:
    (i) The owner or guarantor of the refinance loan is the current 
owner or guarantor of the existing obligation;
    (ii) The regular periodic payments under the refinance loan do not:
    (A) Cause the principal balance to increase;
    (B) Allow the consumer to defer repayment of principal; or
    (C) Result in a balloon payment, as defined in 12 CFR 
1026.18(s)(5)(i); and
    (iii) The proceeds from the refinance loan are used solely for the 
following purposes:
    (A) To pay off the outstanding principal balance on the existing 
obligation; and
    (B) To pay closing or settlement charges required to be disclosed 
under the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et 
seq.; and
    (8) An extension of credit for which the amount of credit extended 
is equal to or less than the applicable threshold amount, which is 
adjusted every year to reflect increases in the Consumer Price Index 
for Urban Wage Earners and Clerical Workers, as applicable, and 
published in the official staff commentary to this paragraph 
(b)(8).[ltrif]
* * * * *
0
8. In Supplement I to part 226, under Section 226.43--Appraisals for 
Higher-Priced Mortgage Loans:
0
a. Paragraph 43(b)(2) is redesignated Paragraph 43(b)(2)(i).
0
b. Under redesignated Paragraph 43(b)(2)(i), paragraph 1 is revised.

[[Page 48587]]

0
c. New Paragraph 43(b)(2)(ii) is added.
0
d. New Paragraph 43(b)(7) is added.
0
e. New Paragraph 43(b)(8) is added.
0
f. Under Paragraph 43(f)(2), paragraph 2 is removed and current 
paragraph 3 is redesignated as paragraph 2.
    The revisions read as follows:

Supplement I to Part 226--Official Interpretations

* * * * *

Section 226.43--Appraisals for Higher-Priced Mortgage Loans

* * * * *
    43(b) Exemptions.
    Paragraph 43(b)(2)[rtrif](i)[ltrif].
    1. Secured by new manufactured home. A [rtrif]higher-priced 
mortgage loan[ltrif][transaction] secured by a new manufactured 
home[rtrif] is not subject to the appraisal requirements of Sec.  
226.43, [ltrif]regardless of whether the transaction is also secured 
by the land on which it is sited [is not a ``higher-priced mortgage 
loan'' subject to the appraisal requirements of Sec.  226.43].
    [rtrif]Paragraph 43(b)(2)(ii).
    1. Secured solely by an existing manufactured home and not land. 
A higher-priced mortgage loan secured by a manufactured home and not 
land is not subject to the appraisal requirements of Sec.  226.43, 
regardless of whether the home is titled as realty by operation of 
state law.[ltrif]
* * * * *
    [rtrif] Paragraph 43(b)(7).
    Paragraph 43(b)(7)(i).
    1. Owner or guarantor. The term ``owner'' in Sec.  
226.43(b)(7)(i) means an entity that owns and holds a loan in its 
portfolio. ``Owner'' does not refer to an investor in a mortgage-
backed security. The term ``guarantor'' in Sec.  226.43(b)(7)(i) 
refers to the entity that guarantees the credit risk on a loan that 
the entity holds in a mortgage-backed security.
    PParagraph 43(b)(7)(ii).
    1. Regular periodic payments. Under Sec.  226.43(b)(7)(ii), the 
regular periodic payments on the refinance loan must not: Result in 
an increase of the principal balance (negative amortization); allow 
the consumer to defer repayment of principal (see Official Staff 
Interpretations to the Bureau's Regulation Z, comment 43(e)(2)(i)-
2); or result in a balloon payment. Thus, the terms of the legal 
obligation must require the consumer to make payments of principal 
and interest on a monthly or other periodic basis that will repay 
the loan amount over the loan term. Except for payments resulting 
from any interest rate changes after consummation in an adjustable-
rate or step-rate mortgage, the periodic payments must be 
substantially equal. For an explanation of the term ``substantially 
equal,'' see Official Staff Interpretations to the Bureau's 
Regulation Z, comment 43(c)(5)(i)-4. In addition, a single-payment 
transaction is not a refinancing meeting the requirements of Sec.  
226.43(b)(7) because it does not require ``regular periodic 
payments.''
    Paragraph 43(b)(7)(iii).
    1. Permissible use of proceeds. The exemption for a refinancing 
under Sec.  226.43(b)(7) is available only if the proceeds from the 
refinancing are used exclusively for two purposes: Paying off the 
consumer's existing first-lien mortgage obligation and paying for 
closing costs, including paying escrow amounts required at or before 
closing. If the proceeds of a refinancing are used for other 
purposes, such as to pay off other liens or to provide additional 
cash to the consumer for discretionary spending, the transaction 
does not qualify for the exemption for a refinancing under Sec.  
226.43(b)(7) from the appraisal requirements in Sec.  226.43.
    Paragraph 43(b)(8).
    1. Threshold amount. For purposes of Sec.  226.43(b)(8), the 
threshold amount in effect during a particular one-year period is 
the amount stated below for that period. The threshold amount is 
adjusted effective January 1 of every year by the percentage 
increase in the Consumer Price Index for Urban Wage Earners and 
Clerical Workers (CPI-W) that was in effect on the preceding June 1. 
Every year, this comment will be amended to provide the threshold 
amount for the upcoming one-year period after the annual percentage 
change in the CPI-W that was in effect on June 1 becomes available. 
Any increase in the threshold amount will be rounded to the nearest 
$100 increment. For example, if the percentage increase in the CPI-W 
would result in a $950 increase in the threshold amount, the 
threshold amount will be increased by $1,000. However, if the 
percentage increase in the CPI-W would result in a $949 increase in 
the threshold amount, the threshold amount will be increased by 
$900.
    i. From January 18, 2014, through December 31, 2014, the 
threshold amount is $25,000.
    2. Qualifying for exemption--in general. A transaction is exempt 
under Sec.  226.43(b)(8) if the creditor makes an extension of 
credit at consummation that is equal to or below the threshold 
amount in effect at the time of consummation.
    3. Qualifying for exemption--subsequent changes. A transaction 
does not meet the condition for an exemption under Sec.  
226.43(b)(8) merely because it is used to satisfy and replace an 
existing exempt loan, unless the amount of the new extension of 
credit is equal to or less than the applicable threshold amount. For 
example, assume a closed-end loan that qualified for a Sec.  
226.43(b)(8) exemption at consummation in year one is refinanced in 
year ten and that the new loan amount is greater than the threshold 
amount in effect in year ten. In these circumstances, the creditor 
must comply with all of the applicable requirements of Sec.  226.43 
with respect to the year ten transaction if the original loan is 
satisfied and replaced by the new loan, unless another exemption 
from the requirements of Sec.  226.43 applies. See Sec.  226.43(b) 
and Sec.  226.43(d)(7).[ltrif]
* * * * *
    43(f) Copy of appraisals.
* * * * *
    43(f)(2) Timing.
* * * * *
    [2. ``Receipt'' of the appraisal. For appraisals prepared by the 
creditor's internal appraisal staff, the date of ``receipt'' is the 
date on which the appraisal is completed.].
    [rtrif]2[ltrif][3]. No waiver. Regulation B, 12 CFR 
1002.14(a)(1), allowing the consumer to waive the requirement that 
the appraisal copy be provided three business days before 
consummation, does not apply to higher-priced mortgage loans subject 
to Sec.  226.43. A consumer of a higher-priced mortgage loan subject 
to Sec.  226.43 may not waive the timing requirement to receive a 
copy of the appraisal under Sec.  226.43(f)(1).
* * * * *

Bureau of Consumer Financial Protection

Authority and Issuance

    For the reasons stated above, the Bureau proposes to amend 
Regulation Z, 12 CFR part 1026, as previously amended, including on 
February 13, 2013 (78 FR 10368, 10442 (Feb. 13, 2013)), effective 
January 18, 2014, as follows:

PART 1026--TRUTH IN LENDING ACT (REGULATION Z)

0
9. 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.

0
10. Section 1026.2 is amended by revising paragraph (a)(6) to read as 
follows:


Sec.  1026.2--Definitions  and rules of construction.

    (a) Definitions. For purposes of this part, the following 
definitions apply:
* * * * *
    (6) Business day means a day on which the creditor's offices are 
open to the public for carrying on substantially all of its business 
functions. However, for purposes of rescission under sections 1026.15 
and 1026.23, and for purposes of sections 1026.19(a)(1)(ii), 
1026.19(a)(2), 1026.31, 1026.35(c), and 1026.46(d)(4), the term means 
all calendar days except Sundays and the legal public holidays 
specified in 5 U.S.C. 6103(a), such as New Year's Day, the Birthday of 
Martin Luther King, Jr., Washington's Birthday, Memorial Day, 
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving 
Day, and Christmas Day.
0
11. Section 1026.35 is amended by revising paragraphs (c) heading, 
(c)(2)(i), (c)(2)(ii), (c)(2)(v) and adding paragraphs (c)(2)(ii)(A), 
(c)(2)(ii)(B), (c)(2)(vii), and (c)(2)(viii) to read as follows:


Sec.  1026.35--Requirements  for higher-priced mortgage loans.

* * * * *
    (c) Appraisals.* * *
* * * * *

[[Page 48588]]

    (2) * * *
    (i) A qualified mortgage as defined pursuant to 15 U.S.C. 1639c;
    (ii) A transaction:
    (A) Secured by a new manufactured home; or
    (B) Secured solely by an existing manufactured home and not land.
* * * * *
    (v) A loan with a maturity of 12 months or less, if the purpose of 
the loan is a ``bridge'' loan connected with the acquisition of a 
dwelling intended to become the consumer's principal dwelling.
* * * * *
    (vii) An extension of credit that is a refinancing, as defined 
under Sec.  1026.20(a) except that the creditor need not be the 
original creditor or a holder or servicer of the original obligation, 
and that meets the following criteria:
    (A) The owner or guarantor of the refinance loan is the current 
owner or guarantor of the existing obligation;
    (B) The regular periodic payments under the refinance loan do not:
    (1) Cause the principal balance to increase;
    (2) Allow the consumer to defer repayment of principal; or
    (3) Result in a balloon payment, as defined in Sec.  
1026.18(s)(5)(i); and
    (C) The proceeds from the refinance loan are used solely for the 
following purposes:
    (1) To pay off the outstanding principal balance on the existing 
obligation; and
    (2) To pay closing or settlement charges required to be disclosed 
under the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et 
seq.; and
    (viii) An extension of credit for which the amount of credit 
extended is equal to or less than the applicable threshold amount, 
which is adjusted every year to reflect increases in the Consumer Price 
Index for Urban Wage Earners and Clerical Workers, as applicable, and 
published in the official staff commentary to this paragraph 
(c)(2)(viii).
* * * * *
0
12. In Supplement I to part 1026, under Section 1026.35--Requirements 
for Higher-Priced Mortgage Loans:
0
a. Paragraph 35(c)(2)(ii) is redesignated Paragraph 35(c)(2)(ii)(A).
0
b. Under redesignated Paragraph 35(c)(2)(ii)(A), paragraph 1 is 
revised.
0
c. New Paragraph 35(c)(2)(ii)(B) is added.
0
d. New Paragraph 35(c)(2)(vii) is added.
0
e. New Paragraph 35(c)(2)(viii) is added.
0
f. Under Paragraph 35(c)(6)(ii), paragraph 2 is removed and current 
paragraph 3 is redesignated paragraph 2.
    The revisions read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Section 1026.35--Requirements for Higher-Priced Mortgage Loans

* * * * *

35(c)(2) Exemptions

Paragraph 35(c)(2)(ii)(A)

    1. Secured by new manufactured home. A higher-priced mortgage 
loan secured by a new manufactured home is not subject to the 
appraisal requirements of Sec.  1026.35(c), regardless of whether 
the transaction is also secured by the land on which it is sited.

Paragraph 35(c)(2)(ii)(B)

    1. Secured solely by an existing manufactured home and not land. 
A higher-priced mortgage loan secured by a manufactured home and not 
land is not subject to the appraisal requirements of Sec.  
1026.35(c), regardless of whether the home is titled as realty by 
operation of state law.
* * * * *

Paragraph 35(c)(2)(vii)

Paragraph 35(c)(2)(vii)(A)

    1. Owner or guarantor. The term ``owner'' in Sec.  
1026.35(c)(2)(vii)(A) means an entity that owns and holds a loan in 
its portfolio. ``Owner'' does not refer to an investor in a 
mortgage-backed security. The term ``guarantor'' in Sec.  
1026.35(c)(2)(vii)(A)(1) refers to the entity that guarantees the 
credit risk on a loan that the entity holds in a mortgage-backed 
security.

Paragraph 35(c)(2)(vii)(B)

    1. Regular periodic payments. Under Sec.  1026.35(c)(2)(vii)(D), 
the regular periodic payments on the refinance loan must not: result 
in an increase of the principal balance (negative amortization); 
allow the consumer to defer repayment of principal (see comment 
43(e)(2)(i)-2); or result in a balloon payment. Thus, the terms of 
the legal obligation must require the consumer to make payments of 
principal and interest on a monthly or other periodic basis that 
will repay the loan amount over the loan term. Except for payments 
resulting from any interest rate changes after consummation in an 
adjustable-rate or step-rate mortgage, the periodic payments must be 
substantially equal. For an explanation of the term ``substantially 
equal,'' see comment 43(c)(5)(i)-4. In addition, a single-payment 
transaction is not a refinancing meeting the requirements of Sec.  
1026.35(c)(2)(vii) because it does not require ``regular periodic 
payments.''

Paragraph 35(c)(2)(vii)(C)

    1. Permissible use of proceeds. The exemption for a refinancing 
under Sec.  1026.35(c)(2)(vii) is available only if the proceeds 
from the refinancing are used exclusively for two purposes: Paying 
off the consumer's existing first-lien mortgage obligation and 
paying for closing costs, including paying escrow amounts required 
at or before closing. If the proceeds of a refinancing are used for 
other purposes, such as to pay off other liens or to provide 
additional cash to the consumer for discretionary spending, the 
transaction does not qualify for the exemption for a refinancing 
under Sec.  1026.35(c)(2)(vii) from the appraisal requirements in 
Sec.  1026.35(c).

Paragraph 35(c)(2)(viii)

    1. Threshold amount. For purposes of Sec.  1026.35(c)(2)(viii), 
the threshold amount in effect during a particular one-year period 
is the amount stated below for that period. The threshold amount is 
adjusted effective January 1 of every year by the percentage 
increase in the Consumer Price Index for Urban Wage Earners and 
Clerical Workers (CPI-W) that was in effect on the preceding June 1. 
Every year, this comment will be amended to provide the threshold 
amount for the upcoming one-year period after the annual percentage 
change in the CPI-W that was in effect on June 1 becomes available. 
Any increase in the threshold amount will be rounded to the nearest 
$100 increment. For example, if the percentage increase in the CPI-W 
would result in a $950 increase in the threshold amount, the 
threshold amount will be increased by $1,000. However, if the 
percentage increase in the CPI-W would result in a $949 increase in 
the threshold amount, the threshold amount will be increased by 
$900.
    i. From January 18, 2014, through December 31, 2014, the 
threshold amount is $25,000.
    2. Qualifying for exemption--in general. A transaction is exempt 
under Sec.  1026.35(c)(2)(viii) if the creditor makes an extension 
of credit at consummation that is equal to or below the threshold 
amount in effect at the time of consummation.
    3. Qualifying for exemption--subsequent changes. A transaction 
does not meet the condition for an exemption under Sec.  
1026.35(c)(2)(viii) merely because it is used to satisfy and replace 
an existing exempt loan, unless the amount of the new extension of 
credit is equal to or less than the applicable threshold amount. For 
example, assume a closed-end loan that qualified for a Sec.  
1026.35(c)(2)(viii) exemption at consummation in year one is 
refinanced in year ten and that the new loan amount is greater than 
the threshold amount in effect in year ten. In these circumstances, 
the creditor must comply with all of the applicable requirements of 
Sec.  1026.35(c) with respect to the year ten transaction if the 
original loan is satisfied and replaced by the new loan, unless 
another exemption from the requirements of Sec.  1026.35(c) applies. 
See Sec.  1026.35(c)(2) and Sec.  1026.35(c)(4)(vii).
* * * * *



[[Page 48589]]


    Dated: July 9, 2013.
Thomas J. Curry,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, July 10, 2013.
Robert deV. Frierson,
Secretary of the Board.
    Dated: July 9, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
    By the National Credit Union Administration Board on July 9, 
2013.
Mary Rupp,
Secretary of the Board.
    Dated at Washington, DC, this 9th day of July 2013.
    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
    Dated: July 8, 2013.
Edward J. DeMarco,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2013-17086 Filed 8-7-13; 8:45 am]
BILLING CODE 6210-01-P; 4810-33-P; 4810-AM-P; 8070-01-P; 7590-01-P