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\
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

\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).
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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.
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\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.
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\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.
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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.
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\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.
---------------------------------------------------------------------------

\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.
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\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.
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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.
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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\
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\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.
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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).
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\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).
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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\
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\52\ Section 1026.18(s)(5)(i) defines ``balloon payment'' as ``a
payment that is more than two times a regular periodic payment.''
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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.''
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\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.''
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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.
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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.
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\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.
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\57\ See also OCC, Board, FDIC, NCUA, ``Interagency Guidance on
Nontraditional Mortgage Product Risks,'' 71 FR 58609 (Oct. 4, 2006).
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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.
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\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).
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\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.
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$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).
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\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.
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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.
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\105\ See Section 1022(b) analysis, 78 FR 10418-21.
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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.
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\107\ 78 FR 10419.
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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.
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\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.
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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.
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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.
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\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.
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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.
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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.
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\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.
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\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.
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\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.
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\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\
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\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.
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

\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).
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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.
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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\
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\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\
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\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\
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\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.
* * * * *
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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.

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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.
* * * * *
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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]
* * * * *
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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]]

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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