Appraisals for Higher-Priced Mortgage Loans, 78519-78588 [2013-30108]
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Vol. 78
Thursday,
No. 248
December 26, 2013
Part II
Department of the Treasury
Office of the Comptroller of the Currency
Board of Governors of the Federal Reserve
System
Bureau of Consumer Financial Protection
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12 CFR Parts 34, 226, and 1026
Appraisals for Higher-Priced Mortgage Loans; Final Rule
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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations
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
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: Supplemental final rule; official
staff commentary.
AGENCY:
The Board, Bureau, FDIC,
FHFA, NCUA, and OCC (collectively,
the Agencies) are amending Regulation
Z, which implements the Truth in
Lending Act (TILA), and the official
interpretation to the regulation. This
final rule supplements a final rule
issued by the Agencies on January 18,
2013, which goes into effect on January
18, 2014. The January 2013 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 January 2013 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. On July 10,
2013, the Agencies proposed
amendments to the January 2013 Final
Rule implementing these requirements.
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SUMMARY:
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Specifically, the Agencies proposed
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: This final rule is effective on
January 18, 2014. Alternative provisions
regarding manufactured home loans in
amendatory instructions 3b and 5f (12
CFR 34.203(b)(8) and 12 CFR part 34,
appendix C, 34.203(b)(8) entry OCC), 12
CFR 226.43(b)(8) Board, and 12 CFR
1026.35(c)(2)(viii) CFPB, are effective
July 18, 2015.
FOR FURTHER INFORMATION CONTACT:
OCC: Robert L. Parson, Appraisal Policy
Specialist, at (202) 649–6423, G. Kevin
Lawton, Appraiser (Real Estate
Specialist), at (202) 649–7152, Charlotte
M. Bahin, Senior Counsel or Mitchell
Plave, Special Counsel, Legislative &
Regulatory Activities Division, at (202)
649–5490, Krista LaBelle, Special
Counsel, Community and Consumer
Law Division, at (202) 649–6350, or 400
Seventh Street SW., Washington, DC
20219.
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, at (202) 452–3852, Board
of Governors of the Federal Reserve
System, Washington, DC 20551.
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.
NCUA: John Brolin, Staff Attorney,
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.
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.
FHFA: Robert Witt, Senior Policy
Analyst, at 202–649–3128, or MingYuen Meyer-Fong, Assistant General
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Counsel, Office of General Counsel,
(202) 649–3078, Federal Housing
Finance Agency, 400 Seventh Street
SW., Washington, DC 20024.
SUPPLEMENTARY INFORMATION:
I. Summary of the Final 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 a final rule on January
18, 2013 (January 2013 Final Rule; 78
FR 10368 (Feb. 13, 2013)) 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 are appropriate.
Specifically, the Agencies are adopting
exemptions for certain types of
refinancings and transactions of $25,000
or less (indexed for inflation). The
Agencies are also adopting a temporary
exemption of 18 months (until July 18,
2015) for all loans secured in whole or
in part by a manufactured home.
Starting on July 18, 2015, transactions
secured by a new manufactured home
and land will be exempt from the
requirement that the appraisal include a
physical inspection of the interior of the
property; transactions secured by an
existing (used) manufactured home and
land will not be exempt from the rules;
and transactions secured solely by a
manufactured home and not land will
be exempt from the rules if the creditor
gives the consumer one of three types of
information about the home’s value,
discussed in more detail below.
The Agencies are not adopting the
proposed definition of ‘‘business day’’
that would have differed from the
definition used in the January 2013
Final Rule. A revision to the exemption
for ‘‘qualified mortgages’’ is adopted
that is similar to the proposed revision,
as well as a few proposed nonsubstantive technical corrections.
A. Exemption for Extensions of Credit of
$25,000 or Less
The Agencies are adopting without
change the proposed exemption from
the HPML appraisal rules for extensions
of credit of $25,000 or less, indexed
every year for inflation.
B. Exemption for Certain Refinancings
The Agencies also are adopting an
exemption from the HPML appraisal
rules for certain types of refinancings
with characteristics common to
refinance products often referred to as
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streamlined refinances. Consistent with
the proposal, the final rule exempts a
refinancing where the holder of the
credit risk of the existing obligation
remains the same on the refinancing.
The final rule includes revised
terminology and additional examples in
Official Staff Commentary to clarify the
meaning of this requirement. 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 existing obligation
and to pay closing or settlement charges.
C. Exemption for Transactions Secured
in Whole or in Part by a Manufactured
Home
All loans secured in whole or in part
by a manufactured home will be exempt
from the HPML appraisal rules for 18
months, until July 18, 2015. For loan
applications received on or July 18,
2015, the following changes will apply:
Transactions secured by a new
manufactured home and land will be
exempt from the requirement that the
appraisal include a physical inspection
of the interior of the property, but will
be subject to all other HPML appraisal
requirements.
Transactions secured by an existing
(used) manufactured home and land
will not be exempt from the rules.
Transactions secured solely by a
manufactured home and not land will
be exempt from the rules if the creditor
gives the consumer one of three types of
information about the home’s value:
• The manufacturer’s invoice of the
unit cost (for a transaction secured by a
new manufactured home).
• An independent cost service unit
cost.
• A valuation conducted by an
individual who has no financial interest
in the property or credit transaction,
and has training in valuing
manufactured homes.1 An example
would be an appraisal conducted
according to procedures approved by
the U.S. Department of Housing and
Urban Development (HUD) for existing
(used) home-only transactions.
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D. Effective Date
The temporary exemption for
manufactured home loans and the
exemptions for certain refinancings and
1 As discussed further in the section-by-section
analysis, the Agencies are adopting the definition
of ‘‘valuation’’ at 12 CFR 1026.42(b)(3): ‘‘ ‘Valuation’
means an estimate of the value of the consumer’s
principal dwelling in written or electronic form,
other than one produced solely by an automated
model or system.’’
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loans of $25,000 or less will be effective
on January 18, 2014, the same date on
which the January 2013 Final Rule will
become effective. The Agencies find
under 5 U.S.C. 553(d)(1) that these
provisions may be made effective less
than 30 days after publication in the
Federal Register because these
provisions ‘‘grant[] or recognize[] an
exemption or relieve[] a restriction.’’ 5
U.S.C. 553(d)(1). The modified
exemptions for loans secured by
manufactured homes will be effective
on July 18, 2015.
II. Background
In general, TILA 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.2 15 U.S.C. 1604(a).
For most types of creditors and most
provisions of 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 January
2013 Final Rule, the new appraisal
section of TILA addressed in the
January 2013 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
January 2013 Final Rule and
corresponding official interpretations
are substantively identical. The FDIC,
2 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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NCUA, and FHFA adopted the Bureau’s
version of the regulations under the
January 2013 Final Rule.3
The Dodd-Frank Act 4 was signed into
law on July 21, 2010. Section 1471 of
the Dodd-Frank Act’s Title XIV, Subtitle
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’’ 5 secured
3 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).
4 Public Law 111–203, 124 Stat. 1376 (DoddFrank Act).
5 See Dodd-Frank Act section 1401; TILA section
103(cc)(5), 15 U.S.C. 1602(cc)(5) (defining
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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
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.
III. Summary of the Rulemaking
Process
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The Agencies issued proposed
regulations for public comment on
August 15, 2012, that would have
implemented the Dodd-Frank Act
higher-risk mortgage appraisal
provisions (2012 Proposed Rule). 77 FR
54722 (Sept. 5, 2012). This rule was
open for public comment for 60 days
(until October 15, 2012). After
consideration of public comments, the
Agencies issued the January 2013 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).
The preamble to the January 2013
Final Rule stated that the Agencies
would consider exemptions for three
additional types of transactions that
‘‘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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commenters requested the Agencies
consider: (1) smaller dollar loans; (2)
streamlined refinance loans; and (3)
loans secured by ‘‘existing’’ (used)
manufactured homes. On July 10, 2013,
the Agencies issued proposed
amendments to the January 2013 Final
Rule the 2013 Supplemental Proposed
Rule to exempt these transactions from
the HPML appraisal requirements. (2013
Supplemental Proposed Rule; 78 FR
48548 (Aug. 8, 2013)). The 2013
Supplemental Proposed Rule sought
comment on whether any of these
exemptions should be conditioned on
the creditor meeting an alternative
standard to estimate the value of the
property securing the transaction and
providing that information to the
consumer. Comment also was sought on
the appropriate scope of, and possible
conditions on, the exemption in the
January 2013 Final Rule for loans
secured by new manufactured homes.
The 2013 Supplemental Proposed Rule
was open for public comment for 60
days (until Sept. 9, 2013).
To inform the Agencies in drafting the
January 2013 Final Rule as well as the
2012 Proposed Rule, the Agencies
conducted a series of public outreach
meetings in January and February of
2012.6 Agency staff conducted
additional public outreach in the first
half of 2013 to inform the Agencies in
drafting the 2013 Supplemental
Proposed Rule. In addition to reviewing
public comments on the 2013
Supplemental Proposed Rule, Agency
staff conducted limited public outreach
in September and October to inform the
Agencies in drafting this final rule.7
A. January 2013 Final Rule
1. Loans Covered
To implement the statutory definition
of ‘‘higher-risk mortgage,’’ the January
2013 Final Rule used the term ‘‘higherpriced 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 DoddFrank Act. In response to commenters,
the Agencies used the term HPML to
refer generally to the loans that could be
subject to the January 2013 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
6 Information about these meetings is available at
https://www.federalreserve.gov/newsevents/rrcommpublic/industry_meetings_20120210.pdf.
7 Information about these meetings is available at
https://www.federalreserve.gov/newsevents/rrcommpublic/industry-meetings-20131001.pdf.
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rule.8 The term ‘‘higher-risk mortgage’’
generally 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.9
Specifically, consistent with TILA
section 129H, a loan is an HPML under
the January 2013 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.10
Consistent with TILA, the January
2013 Final Rule included an exemption
for ‘‘qualified mortgages,’’ as 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).11
15 U.S.C. 1639c. For revisions to this
exemption, see § 1026.35(c)(2)(i) and
accompanying section-by-section
analysis below.
In addition, the January 2013 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.
2. Requirements That Apply to All
Appraisals Performed for Non-Exempt
HPMLs
Consistent with TILA, the January
2013 Final Rule allows a creditor to
originate an HPML that is not exempt
from the January 2013 Final Rule only
if the following conditions are met:
8 As noted further below, 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).
9 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.
10 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).
11 78 FR 6408 (Jan. 30, 2013).
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• The creditor obtains a written
appraisal;
• The appraisal is performed by a
certified or licensed appraiser; and
• The appraiser conducts a physical
visit of the interior of the property.
Also consistent with TILA, the
following requirements also apply with
respect to HPMLs subject to the January
2013 Final Rule:
• 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; 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.
3. Requirement To Obtain an Additional
Appraisal in Certain HPML
Transactions
In addition, the January 2013 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 January 2013 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.
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Finally, in the January 2013 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 published
the 2013 Supplemental Proposed Rule.
owner or guarantor of the refinance loan
is the current owner or guarantor of the
existing obligation. The periodic
payments under the refinance loan
could not have resulted in negative
amortization, covered only interest on
the loan, or resulted in a balloon
payment. Further, the proceeds from the
refinance loan could have been used
only to pay off the outstanding principal
balance on the existing obligation and to
pay closing or settlement charges.
B. 2013 Supplemental Proposed Rule
Based on comments received on the
2012 Proposed Rule and additional
research and outreach, the Agencies
believed that several additional
exemptions from the new appraisal
rules might be appropriate. Specifically,
in the 2013 Supplemental Proposed
Rule, the Agencies proposed
exemptions 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 solicited
comment on these proposed
exemptions, as well as on the scope and
possible conditions on the exemption in
the January 2013 Final Rule for loans
secured by a new manufactured home
(with or without land). In addition, the
Agencies proposed a different definition
of ‘‘business day’’ than the definition
used in the Final Rule, as well as a few
non-substantive technical corrections.
3. Proposed Exemption for Extensions of
Credit of $25,000 or Less
Finally, the Agencies proposed an
exemption from the HPML appraisal
rules for extensions of credit of $25,000
or less, indexed every year for inflation.
1. Proposed Exemption for Transactions
Secured Solely by an Existing
Manufactured Home and Not Land
The Agencies proposed to exempt
transactions secured solely by an
existing (used) manufactured home and
not land from the HPML appraisal
requirements. The Agencies sought
comment on whether an alternative
valuation type should be required.
The Agencies proposed to retain
coverage of loans secured by existing
manufactured homes and land. The
Agencies also proposed to retain the
exemption for transactions secured by
new manufactured homes, but sought
further comment on the scope of this
exemption and whether certain
conditions on the exemption might be
appropriate.
2. Proposed Exemption for Certain
Refinancings
In addition, the Agencies proposed to
exempt from the HPML appraisal rules
certain types of refinancings with
characteristics common to refinance
programs that offer ‘‘streamlined’’
refinances. Specifically, the Agencies
proposed to exempt an extension of
credit that is a refinancing where the
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4. Effective Date
The Agencies’ Proposal
The Agencies intended that
exemptions adopted as a result of the
2013 Supplemental Proposed Rule
would be effective on January 18, 2014,
the same date on which the January
2013 Final Rule will become effective.
The Agencies requested comment on a
number of conditions that might be
appropriate to require creditors to meet
to qualify for the proposed exemptions.
The Agencies stated that, if the Agencies
adopted any conditions on an
exemption, the Agencies would
consider establishing a later effective
date for those conditions to allow
creditors sufficient time to adjust their
compliance systems, if necessary. The
Agencies requested comment on the
need for a later effective date for any
condition on a proposed exemption.
Public Comments
Most public commenters did not
directly address whether the
implementation date for any conditions
on proposed exemptions should be
extended beyond January 18, 2014. Four
State credit union trade associations, a
national credit union trade association,
two State banking trade associations, a
small mortgage lender, and a
community banking trade association
supported delaying the implementation
date for all of the HPML appraisal
requirements. Two credit union trade
associations recommended that, if
conditions were placed on exemptions
in the final rule, the Agencies should
delay the implementation date to allow
creditors sufficient time to adjust their
systems to comply with the conditions.
One commenter stated that the
uncertainty regarding potential
amendments to the January 2013 Final
Rule made it difficult to prepare for
compliance by the January 18, 2014
implementation date. Some commenters
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stated that the difficulty of complying
with the rules by January 2014 was
compounded by the multiple mortgage
rules recently issued by the Bureau that
are also due to become effective in
January 2014, and one pointed out
further that several of these rules were
amended after being finalized in January
2013. The small mortgage lender noted
that creating and implementing
compliance programs is resource
intensive, and that it is more difficult
for small businesses to implement such
programs than for large lenders. These
commenters suggested that the Agencies
delay the implementation date by
varying amounts of time, from six to 18
months.
As discussed in the section-by-section
analysis of § 1026.35(c)(2)(ii), several
commenters focused on the
implementation date of HPML appraisal
rules for loans secured by manufactured
homes. Manufactured housing industry
commenters—two lenders and a State
trade association—believed that the
Agencies should delay issuing final
rules on valuations for covered
manufactured home loans until further
study on manufactured housing
valuations. The manufactured housing
lenders noted that requiring appraisals
in manufactured housing lending would
be a significant change for the
manufactured housing industry,
requiring time to negotiate contracts
with appraisal management companies
and to develop new disclosures that
contain the appraised value, among
other changes. The State manufactured
housing industry trade association
commenter recommended that the
Agencies issue a more concrete proposal
regarding manufactured housing
valuations and that the effective date be
at least two years after the publication
of final rules.
As also discussed further in the
section-by-section analysis of
§ 1026.35(c)(2)(ii), a national association
of owners of manufactured homes, a
consumer advocate group, two
affordable housing organizations and a
policy and research organization
believed that appraisal rules applicable
to transactions secured by manufactured
homes (both new and existing) and land
should be effective ‘‘quickly’’ to
facilitate the development of
appropriate appraisal methods for these
transactions by increasing the demand
for appraisals. They suggested that rules
eliminating any exemptions in the
January 2013 Final Rule (i.e., the
exemptions for loans secured by new
manufactured homes, with or without
land) should go into effect six months
after the general effective date of
January 2014, if possible, and in any
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event no later than January 2016. These
commenters also recommended that
loans secured solely by a manufactured
home and not land be subject to a
temporary exemption until no later than
January 2016. In the intervening time,
the commenters suggested that the
Agencies convene a working group of
stakeholders to develop standards for
appraising manufactured homes.
Final Rule
The Agencies are adopting an
effective date of January 18, 2014 for
most provisions of this supplemental
final rule, to correspond with the
effective date of January 18, 2014 for the
January 2013 Final Rule, which is
prescribed by statute. Specifically, the
Dodd-Frank Act requires that
regulations required under Title XIV of
the Dodd-Frank Act, which include the
HPML appraisal provisions, ‘‘be
prescribed in final form before the end
of the 18-month period beginning on the
designated transfer date,’’ which was
July 21, 2011.12 Accordingly, the
Agencies issued the January 2013 Final
Rule within 18 months of the designated
transfer date, on January 18, 2013.13 The
Dodd-Frank Act also requires that
regulations required under Title XIV
‘‘take effect not later than 12 months
after the date of issuance of the
regulations in final form.’’ 14 Twelve
months after the date of issuance of the
HPML appraisal rules is January 18,
2014. Thus, the January 2013 Final
Rule, as amended by this supplemental
final rule, must go into effect on January
18, 2014, and will apply to applications
received by the creditor on or after that
date.
The Agencies have authority to
exempt certain classes of loans from the
HPML appraisal rules if the exemption
is determined to be ‘‘in the public
interest’’ and to ‘‘promote[] the safety
and soundness of creditors.’’ TILA
section 129H(b)(4)(B); 15 U.S.C.
1639h(b)(4)(B). As discussed further in
the section-by-section analysis of
§ 1026.35(c)(2)(ii), the Agencies believe
that a temporary exemption of 18
months for transactions secured by a
manufactured home meets these two
exemption criteria. The temporary
exemptions for loans secured by a
manufactured home will go into effect
on January 18, 2014, the effective date
of the 2013 January Final Rule.
Modified exemptions for certain types
of manufactured home transactions will
12 Designated Transfer Date, 75 FR 57252 (Sept.
20, 2010).
13 Sections 1400(c) and 1471 of the Dodd-Frank
Act, in title XIV.
14 Section 1400(c) of the Dodd-Frank Act, in title
XIV.
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be effective on July 18, 2015, and
applicable to applications received by
the creditor on or after that date.
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 that will be published in the
Bureau’s Regulation Z at 12 CFR
1026.35(c). As explained in the January
2013 Final Rule, separate versions of the
regulations and accompanying
commentary were issued as part of the
January 2013 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 revisions to the January 2013
Final Rule adopted by the Agencies in
this supplemental final rule are
separately published in the HPML
appraisal regulations of the OCC, the
Board, and the Bureau. No substantive
difference among the three sets of
revised rules is intended.
Section 1026.2 Definitions and Rules
of Construction
2(a) Definitions
2(a)(6) Business Day
The Agencies’ Proposal
The term ‘‘business day’’ is used with
respect to two requirements in the
January 2013 Final Rule. First, the
January 2013 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
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a higher-priced mortgage loan’’ subject
to § 1026.35(c). § 1026.35(c)(5)(i) and
(ii). Second, the January 2013 Final Rule
requires the creditor to provide to the
consumer a copy of each written
appraisal obtained under the January
2013 Final Rule ‘‘[n]o later than three
business days prior to consummation of
the loan.’’ § 1026.35(6)(i) and (ii).
The Agencies proposed to define
‘‘business day’’ for these requirements
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
proposed 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 mortgage 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 proposed to align the
definition of ‘‘business day’’ under the
January 2013 Final Rule with the
definition of ‘‘business day’’ for these
disclosures was 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).
The proposed definition of ‘‘business
day’’ also was 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 have required the
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creditor to deliver the early mortgage
disclosures ‘‘not later than the third
business day after the creditor receives
the consumer’s application.’’ Proposed
§ 1026.19(e)(1)(iii). The 2012 TILA–
RESPA Proposal would have required
the final mortgage disclosures to have
been provided ‘‘not later than three
business days before consummation.’’
Proposed § 1026.19(f)(1)(ii). For these
purposes, ‘‘business day’’ would have
been defined as the Agencies proposed
to define ‘‘business day’’ in the 2013
Supplemental Proposed Rule.
The Agencies stated in the 2013
Supplemental Proposed Rule that, if the
Bureau adopted this aspect of the 2012
TILA–RESPA Proposal, then adopting
the proposed definition of ‘‘business
day’’ for the final HPML appraisals 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). The Agencies
further stated that this would also
ensure that the copy of the HPML
appraisal and the final mortgage
disclosures would have to be provided
at the same time (no later than three
‘‘business days’’ before consummation).
The proposal to align these timing
requirements was intended to facilitate
compliance and reduce consumer
confusion by reducing the number of
disclosures that consumers might
receive at different times.
Public Comments
The Agencies received fourteen
comments on the proposed revision to
the definition of ‘‘business day,’’ with
most commenters supporting the
revised definition. A community
banking trade association, an
individual, two State banking trade
associations, a mortgage banking trade
association, four State credit union trade
associations, one national credit union
trade association, and a financial
holding company believed that revising
the definition for consistency with other
disclosure timing requirements—
particularly those of the combined
mortgage disclosures under the 2012
TILA–RESPA Proposed Rule—would
reduce regulatory burden and facilitate
compliance. The State banking trade
associations and the financial holding
company believed that making these
disclosure requirements consistent with
the timing for other mortgage
disclosures could also result in better
awareness and understanding of
disclosures by consumers and reduce
consumer confusion. One of the State
banking trade associations also believed
that the proposed definition provided
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78525
more certainty for creditors than the
definition of business day in the January
2013 Final Rule, which refers to days on
which a creditor’s offices are open to the
public for carrying on substantially all
of its business functions. See
§ 1026.2(a)(6).
A State credit union trade association,
a national credit union trade
association, and a community bank
commenter, however, opposed the
proposed revised definition of business
day, instead favoring the definition in
the January 2013 Final Rule. The
national credit union trade association
and community bank commenter stated
that many credit unions and community
banks are not open for most or any of
their business functions on Saturdays.
They argued that including Saturday as
a business day would increase their
regulatory burden.
Final Rule
As noted, the term ‘‘business day’’ is
used with respect to two requirements
in the January 2013 Final Rule. See
§§ 1026.35(c)(5)(ii) and (c)(6)(ii). The
amendments to the January 2013 Final
Rule adopted in this rule add a third use
of the term ‘‘business day.’’ As
discussed more fully in the section-bysection analysis of § 1026.35(c)(2)(ii)(C),
transactions secured solely by a
manufactured home and not land that
are consummated on or after July 18,
2015, will be exempt from the HPML
appraisal rules if the creditor obtains
and gives to the consumer a copy of one
of three types of valuation information
‘‘no later than three business days prior
to consummation of the transaction.’’
§ 1026.35(c)(2)(ii)(C).
For two reasons, the Agencies are not
adopting the proposed definition of
‘‘business day’’ and instead are retaining
the definition of ‘‘business day’’
adopted in the January 2013 Final Rule:
‘‘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). First, the
Agencies’ goal is to provide consistency
with the timing requirements of other
mortgage disclosures. Most public
commenters who supported the
Agencies’ proposed amendment to the
definition of ‘‘business day’’ used in the
January 2013 Final Rule did so on the
basis of favoring consistency with the
timing requirements of other mortgage
disclosures, particularly the combined
TILA–RESPA early and final mortgage
disclosures.
The proposed definition, however,
would result in inconsistency because
the Bureau did not adopt the definition
of ‘‘business day’’ that includes
Saturdays and excludes enumerated
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Federal holidays for the early mortgage
disclosures and final mortgage
disclosures proposed in the 2012 TILA–
RESPA Proposed Rule. Instead, the
definition of ‘‘business day’’ referring to
days on which the creditor’s offices are
open to the public will be used for the
timing requirement for those
disclosures.15 For the reasons discussed
in the 2013 Supplemental Proposed
Rule, the Agencies believe that the
timing requirement for creditors to give
consumers the disclosure required after
application should be aligned with the
TILA–RESPA early disclosures and that
the timing requirement for creditors to
give consumers copies of appraisals and
other valuation information should
generally be aligned with the timing
requirement for the TILA–RESPA
mortgage disclosures.
Second, the Agencies heard from
commenters that many credit unions
and community banks are not open for
most or any of their business functions
on Saturdays. As adopted, the final rule
will address these concerns.
Section 1026.35 Requirements for
Higher-Priced Mortgage Loans
35(c) Appraisals for Higher-Priced
Mortgage Loans
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35(c)(1) Definitions
The Agencies are adopting three new
definitions for purposes of the HPML
appraisal rules in § 1026.35(c)—‘‘credit
risk,’’ ‘‘manufacturer’s invoice,’’ and
‘‘new manufactured home’’—and renumbering definitions adopted in the
January 2013 Final Rule accordingly.
35(c)(1)(ii)
Section 1026.35(c)(1)(ii) defines
‘‘credit risk’’ for purposes of
§ 1026.35(c) to mean the financial risk
that a loan will default. The Agencies
are adopting a definition of ‘‘credit risk’’
to provide greater clarity regarding
certain aspects of the exemption for
certain refinance transactions, discussed
in more detail in the section-by-section
analysis of § 1026.35(c)(2)(vii). Under
§ 1026.35(c)(2)(vii), a covered HPML
refinance is eligible for an exemption if
one of several criteria are met, including
that either (1) the credit risk of the
refinance loan is retained by the person
that held the credit risk on the existing
obligation or (2) the refinance loan is
owned, insured or guaranteed by the
same Federal government agency that
owned, insured or guaranteed the
existing obligation. See
15 See Bureau’s 2013 TILA–RESPA Final Rule
(issued Nov. 20, 2013) at p. 147 et seq., available
at https://files.consumerfinance.gov/f/
201311_cfpb_final-rule-preamble_integratedmortgage-disclosures.pdf.
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§ 1026.35(c)(2)(vii)(A) and comment
35(c)(2)(vii)(A)–1.
corresponding section-by-section
analysis.
35(c)(1)(iv)
35(c)(1)(vi)
Section 35(c)(1)(vi) defines ‘‘new
manufactured home’’ to mean a
manufactured home that has not been
previously occupied. The Agencies
believe that adopting a definition of
‘‘new manufactured home’’ will help
prevent confusion among creditors of
manufactured home transactions. The
final rule differentiates between loans
secured by new and existing (used)
manufactured homes in the application
of certain requirements, so a clear
definition is intended to facilitate
compliance. See § 1026.35(c)(2)(viii).
Section 1026.35(c)(1)(iv) defines
‘‘manufacturer’s invoice’’ to mean a
document issued by a manufacturer and
provided with a manufactured home to
a retail dealer that separately details the
wholesale (base) prices at the factory for
specific models or series of
manufactured homes and itemized
options (large appliances, built-in items
and equipment), plus actual itemized
charges for freight from the factory to
the dealer’s lot or the home site
(including any rental of wheels and
axles) and for any sales taxes to be paid
by the dealer. The invoice may recite
such prices and charges on an itemized
basis or by stating an aggregate price or
charge, as appropriate, for each
category.
This definition is adopted from the
definition of ‘‘manufacturer’s invoice’’
in HUD regulations regarding Title I
loans insured by the Federal Housing
Administration (FHA) that are secured
by a new manufactured home and not
land, at 24 CFR 201.2. The Agencies
believe that defining the term
‘‘manufacturer’s invoice’’ to mirror the
definition in HUD regulations is
appropriate for consistency; the January
2013 Final Rule defines the term
‘‘manufactured home’’ by referencing
HUD regulations. See
§ 1026.35(c)(1)(iii). The only aspect of
the HUD definition of ‘‘manufacturer’s
invoice’’ not adopted in the final rule is
a provision requiring manufacturer’s
certification. The Agencies do not have
data regarding how often manufacturer’s
invoices outside of the Title I program
include the manufacturer’s certification
prescribed in HUD regulations at 24
CFR 201.2 that apply to the Title I
program. Thus, the Agencies are
concerned that requiring this
certification at this time might create
unanticipated compliance challenges.
The final rule defines ‘‘manufacturer’s
invoice’’ to ensure that creditors
understand § 1026.35(c)(2)(viii)(B)(1),
which goes into effect on July 18, 2015.
Under § 1026.35(c)(2)(viii)(B)(1), a
covered HPML secured by a new
manufactured home and not land is
exempt from the HPML appraisal
requirements of § 1026.35(c) if the
creditor provides the consumer with a
copy of a manufacturer’s invoice for the
manufactured home securing the
transaction. Further details regarding
this provision and other valuationrelated documents that a creditor could
give the consumer to qualify for the
exemption are discussed in the
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35(c)(2) Exemptions
The Agencies are adopting new
Official Staff Commentary to
§ 1026.35(c)(2). Specifically, comment
35(c)(2)-1 clarifies that § 1026.35(c)(2)
provides exemptions solely from the
HPML appraisal requirements in
Regulation Z (§ 1026.35(c)(3) through
(6)). The comment states that
institutions subject to the requirements
of title XI of FIRREA and its
implementing regulations that make a
loan qualifying for an exemption under
section 1026.35(c)(2) must still comply
with the appraisal and evaluation
requirements under FIRREA and its
implementing regulations.
The Agencies are adopting this
comment to ensure that creditors subject
to FIRREA are aware that, for any HPML
they originate that qualifies for an
exemption from the HPML appraisal
requirements in § 1026.35(c), they
would still be required to obtain an
appraisal or evaluation in conformity
with FIRREA title XI requirements.16
These requirements are implemented in
Federal banking agency regulations and
further explained in the Interagency
Appraisal and Evaluation Guidance.17
Comment 35(c)(2)–1 also underscores
that the HPML appraisal requirements
were not intended to override existing
Federal appraisal rules applicable to
institutions regulated by Federal
financial institutions regulatory
agencies.
35(c)(2)(i)
The Agencies’ Proposal
Qualified mortgages ‘‘as defined in
[TILA] section 129C’’ are exempt from
16 At least one commenter requested that the
Agencies clarify that FIRREA requirements would
not apply to loans exempt from the HPML appraisal
rules. The opposite is true.
17 See OCC: 12 CFR parts 34, Subpart C, and 164;
Board: 12 CFR part 208, subpart E, and part 225,
subpart G; FDIC: 12 CFR part 323; NCUA: 12 CFR
part 722. See also 75 FR 77450 (Dec. 10, 2010).
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the special appraisal rules for ‘‘higherrisk 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 January 2013 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’s rules define ‘‘qualified
mortgage’’ pursuant to the authority
granted to the Bureau to implement the
Dodd-Frank Act ability-to-repay
requirements. 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 proposed to revise
the appraisal rules’ exemption for
qualified mortgages 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 HUD, the U.S.
Department of Veterans Affairs (VA), the
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
recognized that HUD, VA, USDA, and
RHS may issue rules defining qualified
mortgages pursuant to their TILA
section 129C authority. Therefore, the
Agencies proposed 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.
Public Comments
Commenters on the revision to the
qualified mortgage exemption were: a
State credit union trade association, a
national appraiser trade association, a
State banking trade association, a
mortgage banking trade association, a
manufactured housing lender, a national
association of owners of manufactured
homes, a consumer advocate group, two
affordable housing organizations, and a
policy and research organization. All of
these commenters supported the
proposed revision. The State banking
trade association and State credit union
trade association emphasized that the
definition of qualified mortgage in the
final rule should include all types of
qualified mortgages, including balloon
payment qualified mortgages. The
mortgage banking trade association
favored expanding the definition of
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‘‘qualified mortgage’’ to include
qualified mortgages as defined by HUD,
VA, USDA, and RHS based on a belief
that qualified mortgages as defined by
these agencies will be subject to
stringent product requirements and
other consumer safeguards. The
manufactured housing lender also
favored such an expansion based on a
belief that these agencies’ loan programs
provide credit options for underserved
consumers in lower income groups.
The Final Rule
In § 1026.35(c)(2)(i), the Agencies are
adopting an exemption similar to the
proposed exemption for qualified
mortgages. In the final rule, the
exemption for qualified mortgages
applies to either:
• A loan that is a ‘‘covered
transaction’’ under the Bureau’s abilityto-repay rules—namely, a loan subject
to the ability-to-repay rules of the
Bureau in § 1026.43 (see § 1026.43(b)(1)
(defining ‘‘covered transaction’’))—and
that is also a qualified mortgage under
the Bureau’s ability-to-repay
requirements in § 1026.43 or, for loans
insured, guaranteed, or administered
under programs of HUD, VA, USDA, or
RHS, a qualified mortgage under the
applicable rules of those agencies (but
only once such rules are in effect;
otherwise, the Bureau’s definition of a
qualified mortgage applies to those
loans); or
• A loan that is not a ‘‘covered
transaction’’ under the Bureau’s abilityto-repay rules, but meets the qualified
mortgage criteria established in the rules
of the Bureau or, for loans insured,
guaranteed, or administered under
programs of HUD, VA, USDA, or RHS,
meets the qualified mortgage criteria
under the applicable rules of those
agencies (but only once such rules are
in effect; otherwise, the Bureau’s criteria
for a qualified mortgage applies to those
loans).
The expanded exemption adopted by
the Agencies includes qualified
mortgages defined by the Bureau in any
of its regulations, such as loans
described in § 1026.43(e) as well as
§ 1026.43(f). Thus, qualified mortgages
exempt from the HPML appraisal rules
include loans subject to the Bureau’s
ability-to-repay rules that:
• Meet the general criteria for a
qualified mortgage under
§ 1026.43(e)(2).
• Meet the special criteria for a
qualified mortgage under
§ 1026.43(e)(4).18
18 These include loans that are eligible, based
solely on criteria related to the consumer’s ability
to pay, to be purchased or guaranteed by Fannie
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• Meet the criteria for small creditor
portfolio loans in § 1026.43(e)(5).
• Meet the criteria for temporary
balloon-payment qualified mortgages in
§ 1026.43(e)(6).
• Meet the criteria for balloonpayment qualified mortgages under
§ 1026.43(f).
The Agencies believe that the
statutory provision exempting
‘‘qualified mortgage[s], as defined in
section 129C’’ evidences Congress’s
intent to exempt all loans with the
characteristics of a qualified mortgage
from the HPML appraisal rules. TILA
section 129H(f)(1); 15 U.S.C. 1639h(f)(1).
As discussed above, TILA section 129C
encompasses qualified mortgages
defined by the Bureau pursuant to its
authority to do so, as well as qualified
mortgages defined by HUD, VA, USDA
and RHS for loans in their respective
programs. See 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)
(authority of the Bureau) and TILA
section 129C(b)(3)(B)(ii), 15 U.S.C.
1639c(b)(3)(B)(ii) (authority of HUD,
VA, USDA, and RHS).
Additionally, the amended qualified
mortgage exemption language is
intended to ensure that loans that meet
the qualified mortgage criteria of the
Bureau, HUD, VA, USDA, or RHS, as
applicable, but are exempt from the
Bureau’s ability-to-repay rules in
§ 1026.43, are afforded an exemption
from the HPML appraisal rules as well.
In the Bureau’s ability-to-repay rules,
‘‘qualified mortgage’’ is a designation
only for ‘‘covered transactions,’’ which
are loans subject to the ability-to-repay
requirements of TILA section 129C(a),
implemented in § 1026.43(c).19 15
Mae or Freddie Mac and loans eligible to be insured
or guaranteed by HUD, VA, USDA, or RHS. To be
qualified mortgages, these loans also must meet the
following general criteria for a qualified mortgage:
(1) provide for regular periodic payments
(§ 1026.43(e)(2)(i)); (2) have a term of no more than
30 years (§ 1026.43(e)(2)(ii)); and (3) not exceed
thresholds for total points and fees set out in
§ 1026.43(e)(3) (§ 1026.43(e)(2)(iii)). See
§ 1026.43(e)(4)(i)(A). The qualified mortgage status
of loans eligible for purchase by Fannie Mae or
Freddie Mac expires starting on January 11, 2021.
The qualified mortgage status of loans eligible to be
insured or guaranteed by HUD, VA, USDA, or RHS
expires on the effective date of a rule issued by each
of these respective agencies defining ‘‘qualified
mortgage’’ for their own programs. On Sept. 30,
2013, HUD published proposed rules defining
‘‘qualified mortgage’’ based on its authority under
TILA section 129C(b)(3)(B)(ii)(I). 15 U.S.C.
1639c(b)(3)(B)(ii)(I); 78 FR 59890 (Sept. 30, 2013).
19 In the 2013 ATR Final Rule, ‘‘covered
transaction’’ is defined to mean ‘‘a consumer credit
transaction that is secured by a dwelling, as defined
in § 1026.2(a)(19), including any real property
attached to a dwelling, other than a transaction
exempt from coverage under [§ 1026.43(a)]’’
(emphasis added). ‘‘Qualified mortgage’’ is defined
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U.S.C. 1639c. The Bureau excluded
certain transactions from the scope of
the rules, including loans originated as
part of certain programs, such as a
program administered by a Housing
Finance Agency, or loans originated by
certain entities, such as a Community
Development Financial Institution
(CDFI). See § 1026.43(a)(3). Under the
Bureau’s ability-to-repay rules, these
loans are not considered to be ‘‘covered
transactions’’ and are therefore not
eligible to be qualified mortgages under
the Bureau’s ability-to-repay rules. This
is the case even if the loans meet the
criteria for a qualified mortgage in the
Bureau’s rules.
Under the proposed exemption—for
‘‘qualified mortgages as defined
pursuant to 15 U.S.C. 1639c’’—loans
exempted from the Bureau’s ability-torepay requirements would not be
eligible for the qualified mortgage
exemption from the HPML appraisal
rules because, technically, they are not
‘‘defined’’ as qualified mortgages under
Bureau rules. Such excluded loans
would include:
• Loans made as part of a program
administered by a State housing finance
agency (HFA); 20
• Loans made by a creditor
designated as a CDFI, a creditor
designated as a Downpayment
Assistance through Secondary
Financing Provider, a creditor
designated as a Community Housing
Development Organization, and a
creditor that is a 501(c)(3) organization
and meets certain other criteria; 21 and
• Loans made pursuant to a program
authorized by sections 101 and 109 of
the Emergency Economic Stabilization
Act of 2008.22
As discussed above, the Agencies
believe that, by exempting qualified
mortgages in the statute, Congress
intended to exempt from the
requirements those loans that have the
characteristics of a qualified mortgage.
The Agencies believe that if the HPML
appraisal rules exempted only
‘‘qualified mortgages as defined
pursuant to 15 U.S.C. 1639c,’’ the rules
would apply to transactions that
Congress did not intend to subject to the
appraisal requirements. By contrast, the
final rule, which exempts ‘‘a loan that
satisfies the criteria of a qualified
mortgage,’’ ensures that all transactions
intended to be exempt from the HPML
appraisal requirements are excluded
from coverage.
as ‘‘a covered transaction’’ that meets certain
criteria. § 1026.43(e)(2).
20 See § 1026.43(a)(3)(iv).
21 See § 1026.43(a)(3)(v)(A)–(D).
22 See § 1026.43(a)(3)(vi).
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In addition, this exemption ensures
that transactions with the terms and
features of a qualified mortgage are not
treated differently when made by or
through programs of entities that fall
outside the scope of the Bureau’s
ability-to-repay rules in § 1026.43 than
when made by other creditors. Thus, the
final rule avoids the anomalous result
that an HPML made through the
program of an HFA, for example, would
be subject to the HPML appraisal rules,
whereas an HPML with the exact same
terms and features made by a private
creditor would not.
Accordingly, comment 35(c)(2)(i)–1
explains that, under § 1026.35(c)(2)(i), a
loan is exempt from the appraisal
requirements of § 1026.35(c) if either:
• The loan is—(1) subject to the
Bureau’s ability-to-repay requirements
in § 1026.43 as a ‘‘covered transaction’’
(defined in § 1026.43(b)(1)) and (2) a
qualified mortgage pursuant to the
Bureau’s rules or, for loans insured,
guaranteed, or administered by HUD,
VA, USDA, or RHS, a qualified mortgage
pursuant to the applicable rules
prescribed by those agencies (but only
once such rules are in effect; otherwise,
the Bureau’s definition of a qualified
mortgage applies to those loans); or
• The loan is—(1) not subject to the
Bureau’s ability-to-repay requirements
in § 1026.43 as a ‘‘covered transaction,’’
but (2) meets the criteria for a qualified
mortgage in the Bureau’s rules or, for
loans insured, guaranteed, or
administered by HUD, VA, USDA, or
RHS, meets the criteria for a qualified
mortgage in the applicable rules
prescribed by those agencies (but only
once such rules are in effect; otherwise,
the Bureau’s criteria for a qualified
mortgage applies to those loans).
Comment 35(c)(2)(i)–1 further
explains that loans enumerated in
§ 1026.43(a) are not ‘‘covered
transactions’’ under the Bureau’s abilityto-repay requirements in § 1026.43, and
thus cannot be qualified mortgages
(entitled to a rebuttable presumption or
safe harbor of compliance with the
ability-to-repay requirements of
§ 1026.43, see, e.g., § 1026.43(e)(1)).
These include an extension of credit
made pursuant to a program
administered by an HFA, as defined
under 24 CFR 266.5, or pursuant to a
program authorized by sections 101 and
109 of the Emergency Economic
Stabilization Act of 2008. See
§ 1026.43(a)(3)(iv) and (vi). They also
include extensions of credit made by a
creditor identified in § 1026.43(a)(3)(v).
The comment clarifies that, nonetheless,
these loans are not subject to the
appraisal requirements of § 1026.35(c) if
they meet the Bureau’s qualified
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mortgage criteria in § 1026.43(e)(2), (4),
(5), or (6) or § 1026.43(f) (including
limits on when loans must be
consummated) or, for loans that are
insured, guaranteed, or administered by
HUD, VA, USDA, or RHS, in applicable
rules prescribed by those agencies (but
only once such rules are in effect;
otherwise, the Bureau’s criteria for a
qualified mortgage apply to those loans).
The comment includes the following
example: Assume that HUD has
prescribed rules to define loans insured
under its programs that are qualified
mortgages and those rules are in effect.
Assume further that a creditor
designated as a Community
Development Financial Institution, as
defined under 12 CFR 1805.104(h),
originates a loan insured by the Federal
Housing Administration, which is a part
of HUD. The loan is not a ‘‘covered
transaction’’ and thus is not a qualified
mortgage. See § 1026.43(a)(3)(v)(A) and
(b)(1). Nonetheless, the transaction is
eligible for an exemption from the
appraisal requirements of § 1026.35(c) if
it meets the qualified mortgage criteria
in HUD’s rules.
Finally, the comment clarifies that
nothing in § 1026.35(c)(2)(i) alters the
definition of a qualified mortgage under
regulations of the Bureau, HUD, VA,
USDA, or RHS.
35(c)(2)(ii)
The Agencies’ Proposal
In the 2013 Supplemental Proposed
Rule, the Agencies proposed an
exemption from the HPML appraisal
rules for extensions of credit of $25,000
or less. This threshold amount was
based on the Agencies’ consideration of
an appropriate threshold in light of
comments to the 2012 Proposed Rule, as
well as data reported under the Home
Mortgage Disclosure Act (HMDA), 15
U.S.C. 2801 et seq. The Agencies also
proposed to adjust the threshold for
inflation every year, based on the
percentage increase of the Consumer
Price Index for Urban Wage Earners and
Clerical Workers (CPI–W). Proposed
comments 35(c)(2)(ii)-1, -2, and -3
provided additional guidance on the
proposed exemption.
The Agencies expressed the belief that
the expense to the consumer of an
appraisal with an interior inspection
could be significant and unduly
burdensome to consumers of HPMLs of
$25,000 or less that are not qualified
mortgages. Thus, an appraisal
requirement could hamper consumers’
use of smaller home equity loans. The
Agencies also stated their concern that
a requirement for an appraisal with an
interior inspection may pose a
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burdensome cost for consumers who
seek to purchase lower-dollar homes
using HPMLs that are not qualified
mortgages; these tend to be low- to
moderate-income (LMI) consumers who
are less able to afford extra costs than
higher-income consumers.
The Agencies stated the view that the
exemption can facilitate creditors’
ability to meet consumers’ smaller
dollar credit needs, and that 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.
The Agencies noted that public
comments on the 2012 Proposed Rule
suggested that the reduction in costs
and burdens associated with this
exemption might benefit smaller
institutions in particular.
To inform the proposal, the Agencies
also relied on data on mortgage lending
in 2009, 2010, and 2011 reported under
HMDA. The Agencies noted that, for
example, an appraisal including an
interior inspection for a subordinate lien
home improvement loan might be
burdensome on a consumer, without
sufficient offsetting consumer protection
or safety and soundness benefits.
Therefore, the Agencies examined the
mean and median loan sizes for
subordinate lien home improvement
loans in 2009, 2010, and 2011. Based in
part on this HMDA data, the Agencies
believed $25,000 was an appropriate
threshold. See 78 Fed. Reg. 48547,
48564 (August 8, 2013).
At the same time, in light of the views
expressed by consumer advocates, the
Bureau had 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
loan-to-value (LTV) ratios, including
LTVs that lead to going ‘‘underwater’’—
owing more than their home is worth.
The Bureau believed that receiving a
written valuation might be helpful in
informing a consumer’s decision about
whether to obtain the loan by making
the consumer better aware of how the
value of the home compares to the
amount that the consumer might
borrow. As a result, the Agencies
requested comment in the 2013
Supplemental Proposed Rule regarding
whether certain conditions should be
placed on the proposed smaller dollar
loan exemption.
Public Comments
Public Comments on the 2012 Proposed
Rule
In the 2012 Proposed Rule, the
Agencies requested comment on
exemptions from the final rule that
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would be appropriate. In response,
several commenters recommended an
exemption for smaller dollar loans.
These commenters generally believed
that appraisals with interior inspections
for these loans would significantly raise
total costs as a proportion of the loan
and thus potentially be detrimental to
consumers. The commenters were
concerned that requiring an appraisal
for smaller dollar HPMLs would result
in excessive costs to consumers without
sufficient offsetting benefits. Some
asserted that applying the HPML
appraisal rules to smaller dollar loans
might disproportionately burden
smaller institutions and potentially
reduce access to credit for their
consumers.
Comments to the 2012 Proposed Rule
varied widely regarding the appropriate
threshold for a smaller dollar loan
exemption. Suggested thresholds ranged
from $10,000 or less up to $125,000 for
certain transactions. The Agencies did
not finalize a smaller dollar loan
exemption in the January 2013 Final
Rule, instead choosing to propose a
smaller dollar loan exemption in the
subsequent 2013 Supplemental
Proposed Rule.
The Agencies did not receive
comments on the 2012 Proposed Rule
from consumers or consumer advocates.
However, in informal outreach
conducted by the Agencies after the
January 2013 Final Rule was issued, a
consumer advocacy group expressed the
view that LMI consumers obtaining or
refinancing loans secured by lowervalue homes may have a particular need
for the protections of the HPML
appraisal rules. They also 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.
Public Comments on the 2013
Supplemental Proposed Rule
In the 2013 Supplemental Proposed
Rule, the Agencies sought comment on
a proposed exemption for loans of
$25,000 or less, and whether a threshold
higher or lower than $25,000 was
appropriate. The Agencies encouraged
commenters to include data to support
their views.
Twenty-nine commenters addressed
the threshold for the smaller dollar loan
exemption: nine State credit union trade
associations, three credit unions, one
national credit union trade association,
two community banks, one community
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78529
banking trade association, one financial
holding company, two State banking
trade associations, one mortgage
banking trade association, one consumer
advocate group, three affordable
housing organizations, one policy and
research organization, one national
association of owners of manufactured
homes, one State manufactured housing
association, one small mortgage lender,
and one individual.
No commenters on this proposed
exemption opposed including an
exemption from the HPML appraisal
requirements for smaller dollar loans.
Eight commenters believed that the
Agencies should either retain or reduce
the $25,000 threshold. A national
association of owners of manufactured
homes, two affordable housing
organizations, a consumer advocate
group, and a policy and research
organization generally recommended
that, if the Agencies adopted the
exemption, the exemption threshold
should be no more than $25,000. They
believed that a large percentage of the
transactions affected were likely to be
manufactured home transactions,
although they urged the Agencies to
apply the exemption equally to
manufactured homes and site-built
homes. A State banking trade
association also supported an
exemption for extensions of credit of
$25,000 or less, citing increased costs
and burdens associated with obtaining
appraisals with interior inspections. An
individual commenter urged the
Agencies to reduce the threshold to
$10,000, believing a $25,000 threshold
could lead to significant monetary risk
for consumers, particularly LMI
consumers.
All of the other commenters urged the
Agencies to raise the threshold for the
exemption. Eight State credit union
trade associations, three credit unions,
one national credit union trade
association, one State manufactured
housing association, and one small
mortgage lender suggested that the
threshold be raised to $50,000.
Generally, these commenters supported
the increase because they believed that
the cost of an appraisal for transactions
of lower amounts did not correspond to
a meaningful benefit. They also
supported regulatory relief to creditors.
A credit union stated that a threshold
under $50,000 may result in less
lending to LMI consumers because
lenders would not be willing to make
the loans. A State credit union
association stated that lenders may not
make loans if the threshold is below
$50,000 because the cost of originating
and processing loans under that amount
already exceeds origination fees,
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without a requirement for an appraisal
with an interior inspection. Another
credit union noted that it obtains
evaluations, rather than appraisals, for
transactions below $50,000.23
Several commenters suggested other
thresholds. A State credit union trade
association commenter suggested that
the threshold should be raised to
$100,000 or, at a minimum, to $75,000.
The commenter stated that requiring
costly appraisals on smaller dollar
HPMLs disproportionately hurts LMI
consumers and consumers in rural
areas, where appraisals can be costly
and the wait time for appraisals,
according to a member survey, is
generally one-and-a-half to three
months, but can be up to six months. A
community banking trade association
believed that, for loans below $100,000,
the cost of an appraisal is high relative
to the cost of the loan, but the credit risk
to the bank is low. One community bank
suggested a threshold of $35,000, noting
that the average size of loans secured by
a manufactured home (and not land)
that are made by the bank is under
$35,000. Another community bank
believed that $40,000 was an
appropriate threshold and expressed
concerns about the cost of appraisals,
especially in rural areas.
A few commenters suggested
thresholds that are the same as those in
other mortgage rules, asserting that this
alignment would reduce regulatory
burden. A mortgage banking trade
association stated that the threshold
should be $100,000 because the
Bureau’s ability-to-repay rule permits
creditors to apply higher points and fees
for loans below $100,000.24 Two of the
commenters suggesting a $50,000
threshold asserted that doing so would
make the exemption consistent with a
threshold in the Bureau’s Regulation Z
rules under the Home Ownership and
Equity Protection Act of 1994 (HOEPA)
for different interest rate triggers.25
The suggestions of some commenters
focused on excluding subordinate lien
transactions from the rule. A State credit
union association believed $50,000 was
an appropriate threshold because it
would exclude from coverage of the
HPML appraisal rules many subordinate
lien transactions. This commenter
believed that appraisals for subordinate
lien loans taken concurrently with first
23 Regulations applicable to national credit
unions generally require a credit union to obtain an
‘‘evaluation’’ rather than an appraisal for
transactions with a value of $250,000 or less. See
12 CFR 722.3(a)(1) and (d).
24 See § 1026.43(e)(3).
25 See § 1026.32(a)(1)(i)(B), effective January 10,
2014. See also 78 FR 6856 (Jan. 31, 2013) (2013
HOEPA Final Rule).
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lien loans were unnecessary because
often an appraisal will have been
performed for the first lien transaction.
The commenter also believed that most
home improvement loans are more than
$25,000, so the proposed threshold
could hinder the use of smaller home
equity loans. The commenter asserted
that the expense of the appraisal with an
interior inspection could considerably
raise the total costs of financing the
home improvement loan.
In addition, a State banking
association and a financial holding
company recommended exempting
home equity loans from the rule. The
financial holding company noted that,
in the calculation to determine HPML
status, the spread between APR and
APOR is smaller for first lien loans than
for subordinate lien loans (1.5
percentage points above APOR and 3.5
percentage points above APOR,
respectively), and objected to an
appraisal requirement for first lien home
equity loans in particular. This
commenter recommended that the
Agencies raise the APR–APOR spread to
3.5 percentage points for all home
equity loans. The State banking
association argued that first lien home
equity loans present very little credit
risk.
The Agencies also sought comment on
whether the threshold for the smaller
dollar loan exemption should be
adjusted periodically for inflation and
whether the adjustments should be
annually or some other period. A small
mortgage lender and a State banking
trade association expressed support for
the annual adjustment. The small
mortgage lender noted that this
approach was consistent with other
provisions in Regulation Z.26
Conditioning an exemption. In
addition, the Agencies requested
comment on whether conditions should
be imposed on the smaller dollar loan
exemption. The Agencies specifically
asked whether the smaller dollar loan
exemption should be conditioned on the
creditor providing the consumer with an
alternative estimate of the collateral
value. A national association of owners
of manufactured homes, two affordable
housing associations, a consumer
advocate group, and a policy and
research organization believed that, if
the Agencies adopted the exemption,
consumers should be given at least the
manufacturer’s invoice for new
manufactured home transactions, even
if they fall under the threshold. These
26 See § 1026.3(b) (exempting from Regulation Z
loans over the applicable threshold dollar amount,
adjusted annually); § 1026.32(a)(1)(ii) (setting the
points and fees trigger for high-cost mortgages,
adjusted annually).
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commenters believed that providing the
invoice would be low cost, and yet
would provide an important check on
overvaluation. Another affordable
housing organization believed that
creditors in manufactured home
transactions of $25,000 or less should be
required to obtain replacement cost
estimates performed by a trained,
independent appraiser from a
nationally-published cost service. See
also section-by-section analysis of
§ 1026.35(c)(2)(viii).
A community bank commenter
asserted that consumers should receive
a copy of the valuation used by the
creditor as a condition to the exemption.
A small mortgage lender suggested that
a government-provided tax assessment
would be an appropriate valuation to
provide to consumers. This commenter
argued that because municipalities
already use tax assessments to
determine property value for tax and
insurance purposes, the assessments
have been proven to be sufficiently
reliable. The commenter contended that
requiring more costly valuation methods
as a condition of the exemption might
prompt creditors to determine that the
exemption is unduly burdensome and
stop making these smaller dollar loans.
An affordable housing organization
suggested that, as a condition to the
exemption (as well as other
exemptions), creditors should be
required to provide any valuation used
to determine the security for the loan
and suggested that creditors should be
given flexibility to choose the
appropriate valuation for the
transaction. At the same time, the
commenter recommended that a
creditor should be required to obtain
replacement cost estimates from a
trained, independent appraiser and to
provide these estimates to a consumer.
The Agencies did not receive
comments on a number of additional
comment requests, including requests
for information about the risks that
smaller dollar loans could lead to high
LTV loans; specific data on the costs
and burdens associated with the
exemption, especially for smaller
institutions; and data on the extent to
which creditors anticipate originating
HPMLs of $25,000 or less that are not
qualified mortgages.
The Final Rule
The Agencies are adopting the
exemption for HPMLs for extensions of
credit of $25,000 or less as proposed
and renumbering it § 1026.35(c)(2)(ii).
The Agencies are also adopting the
proposal to adjust the threshold
annually, based on the percentage
increase of the CPI–W. Official Staff
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Commentary for § 1026.35(c)(2)(ii) is
also adopted as proposed.
Comment 35(c)(2)(ii)–1 explains that,
for purposes of § 1026.35(c)(2)(ii), the
threshold amount in effect during a
particular one-year period is the amount
stated in this comment for that period.
Specifically, comment 35(c)(2)(ii)–1.i.
provides that from January 18, 2014,
through December 31, 2014, the
threshold amount is $25,000. Comment
35(c)(2)(ii)–1 further provides 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 also states 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. In addition, the comment
states that any increase in the threshold
amount will be rounded to the nearest
$100 increment. The comment provides
the following 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.
Comment 35(c)(2)(ii)–2 clarifies that a
transaction is exempt under
§ 1026.35(c)(2)(ii) 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.
Finally, comment 35(c)(2)(ii)–3
explains that a transaction does not
meet the condition for an exemption
under § 1026.35(c)(2)(ii) 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. The comment provides the
following example: assume a closed-end
loan that qualified for a
§ 1026.35(c)(2)(ii) 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. 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. See § 1026.35(c)(2) and
§ 1026.35(c)(4)(vii).
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For the reasons discussed in the 2013
Supplemental Proposed Rule as
described in ‘‘The Agencies’ Proposal,’’
the Agencies believe that the exemption
finalized in § 1026.35(c)(2)(ii) is in the
public interest and promotes the safety
and soundness of creditors. As
discussed in the 2013 Supplemental
Proposed Rule, the Agencies believe
that the burden and expense of
imposing the HPML appraisal
requirements on HPMLs of $25,000 or
less that are not qualified mortgages
outweigh potential consumer protection
benefits in many cases. As discussed
above, no commenters objected to an
exemption, and many commenters
generally agreed with the Agencies’
assessment of the costs versus the
benefits of appraisals for these loans.
Commenters also noted that the cost of
the appraisals would be even higher in
rural areas, due to the scarcity of
appraisers and the potential for added
time to locate and engage an appraiser.
As noted, the Agencies received a
number of comments on the 2013
Supplemental Proposed Rule suggesting
that the Agencies should raise the
amount of the threshold. These
commenters cited the cost of the
appraisals and at least one commenter
provided some information about the
percentage of HPMLs made by the
lender that are smaller dollar, but
overall very little data was offered to
support the various threshold
suggestions. For example, despite the
Agencies’ requests for data, no
commenters provided data indicating
that a significant number of the smaller
dollar loans they originate would not be
qualified mortgages and thus would be
subject to the HPML appraisal
requirements absent an exemption.
To inform the threshold
determination, the Agencies again
examined HMDA data. According to
2012 HMDA data, increasing the
proposed threshold could substantially
increase the proportion of HPMLs that
would be exempted from the rule. For
example, a $25,000 exemption would
exempt 55 percent of conventional
subordinate lien home improvement
HPMLs from coverage and 37 percent of
conventional subordinate lien home
purchase HPMLs. In comparison, a
$50,000 exemption would exempt 87
percent of conventional subordinate lien
home improvement HPMLs and 70
percent of percent of conventional
subordinate lien home purchase
HPMLs.27 The Agencies believe that
increasing the threshold from $25,000
27 See Federal Financial Institutions Examination
Council (FFIEC), HMDA, https://www.ffiec.gov/
Hmda/default.htm.
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78531
to, for example, $50,000, would exempt
too large a proportion of HPMLs, such
that the exemption would violate the
intent of the statute to subject both first
and subordinate lien loans to the
appraisal requirements. The Agencies
believe that a threshold of $25,000
appropriately exempts from the rule
those smaller dollar loans that would
benefit from the exemption, such as
smaller dollar home improvement loans.
Moreover, the Agencies believe
creditors are generally better able to
absorb losses that might be associated
with a loan of $25,000 or less than loans
of higher amounts.
As discussed under ‘‘Public
Comments,’’ some commenters
suggested exempting loans based on lien
status or whether the loan is a home
equity loan. For example, a State credit
union association advocated for a
threshold that would exclude most
subordinate lien loan from the rules. A
State banking association and a
financial holding company
recommended exempting home equity
loans from the rule, particularly first
lien home equity loans. The financial
holding company noted that, in the
calculation to determine HPML status,
the spread between APR and APOR is
smaller for first lien loans than for
subordinate lien loans (1.5 percent
above APOR and 3.5 percent above
APOR, respectively). This commenter
recommended that the Agencies raise
the APR–APOR spread triggering HPML
status to 3.5 percentage points for all
home equity loans, whether first lien or
subordinate lien.
The Agencies believe that an
exemption based on a monetary
threshold rather than an exemption
based on a loan’s lien status or loan
purpose (home equity versus home
purchase, for example) is necessary to
protect consumers and more consistent
with the statute. The statute clearly
indicates that HPMLs secured by a
consumer’s principal dwelling should
be covered, whether home purchase or
home equity, and whether first lien or
subordinate lien. See TILA section
129H(f), 15 U.S.C. 1639h(f). In addition,
the differing APR–APOR spreads for
first lien and subordinate lien loans
were set by statute. See id. Both first
lien and subordinate lien home equity
loans reduce equity in a consumer’s
home and can put consumers at
financial risk; the Agencies believe that
limiting this risk to consumers for both
types of loans is appropriate. The
Agencies also believe that consistency
of the rule across these loan types will
facilitate compliance.
Regarding comments that the
threshold should match those in other
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mortgage rulemakings, the Agencies
decline to do so because the other
mortgage rules are not comparable to the
appraisal requirements. The $50,000
threshold in the 2013 HOEPA Final
Rule referred to by two commenters
relates to which APR–APOR spread
applies in determining whether a loan is
‘‘high-cost.’’ 28 Specifically, the $50,000
threshold is relevant only if the loan is
secured by a first lien on a dwelling that
is personal property. This threshold was
intended to capture a very specific type
of loan for an exemption from an
entirely different set of rules. The
Agencies therefore question the basis for
applying the same threshold in
establishing an exemption from the
HPML appraisal rules.
For similar reasons, the Agencies
believe that setting the threshold at
$100,000 to align with the $100,000 tier
for permitting higher points and fees for
qualified mortgages, as one commenter
suggested, is not appropriate. See
§ 1026.43(e)(3). The smaller dollar loan
thresholds in that rule were crafted in
the context of ensuring a consumer’s
ability to repay a mortgage, not for
purposes of determining whether an
appraisal should be performed for a
particular transaction. Moreover, the
$100,000 threshold is only the highest
loan amount of five tiers of loan
amounts for which higher points and
fees are permitted at varying levels.
For the reasons discussed above,
therefore, the Agencies are maintaining
the proposed $25,000 threshold in the
final rule. The Agencies also are
adopting the proposal to adjust the
threshold for inflation every year, based
on the percentage increase of CPI–W. As
noted, commenters supported an annual
adjustment for inflation. Also, as
discussed in the 2013 Supplemental
Proposed Rule, inflation adjustments for
other thresholds in Regulation Z are also
annual, so the adjustment will provide
for consistency across mortgage rules.
Conditions on the exemption. The
Agencies are finalizing the smaller
dollar loan exemption with no
conditions. Some commenters suggested
providing alternative valuations to
consumers as a condition to the smaller
dollar loan exemption, including
providing the consumer with an
estimate of the value of the collateral
property that the creditor relied on in
making the credit decision. However,
the Agencies believe that for HPMLs of
$25,000 or less that are not qualified
mortgages, the added burden or cost of
a condition could deter lenders from
making these loans, which could harm
28 See § 1026.32(a)(1)(i)(B) as amended by 78 FR
6962 (Jan. 31, 2013).
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consumers. In addition, the Agencies
believe that an unconditional exemption
for transactions of $25,000 or less will
be simpler and easier for creditors to
apply, thus facilitating compliance and
enhancing the utility of the exemption.
One reason that the Agencies are not
raising the exemption above $25,000 is
the Agencies’ concern that conditioning
the exemption might then be necessary
to ensure that the exemption both
promotes the safety and soundness of
creditors and is in the public interest. In
the Agencies’ view, arguments that
neither an appraisal nor an alternative
valuation need be obtained or provided
to the consumer become increasingly
less persuasive for transactions over
$25,000, as larger amounts tie up greater
amounts of home equity and losses
become less easily absorbed by
creditors. The Agencies deem it best not
to add complexity by conditioning the
exemption and believe that no
conditions are needed at the level of
$25,000 or less.
35(c)(2)(iv)
The Agencies are adopting a new
comment to clarify the exemption in
§ 1026.35(c)(2)(iv) for ‘‘a transaction to
finance the initial construction of a
dwelling.’’ Specifically, new comment
35(c)(2)(iv)-2 clarifies that the
exemption for construction loans in
§ 1026.35(c)(2)(iv) applies to temporary
financing of the construction of a
dwelling that will be replaced by
permanent financing once construction
is complete. The exemption does not
apply, for example, to loans to finance
the purchase of manufactured homes
that have not been or are in the process
of being built, when the financing
obtained by the consumer at that time
is permanent. The comment crossreferences § 1026.35(c)(2)(viii), which
sets out the HPML appraisal rules
applicable to transactions secured by
manufactured homes.
The Agencies are adding this
comment in response to public
comments on the 2013 Supplemental
Proposed Rule suggesting that
manufactured home loans where the
unit has not been constructed are
similar to temporary construction loans
exempt under § 1026.35(c)(2)(iv) and
should be exempt on the same basis.
The Agencies understand that
manufactured home loans in this
situation generally are permanent
financing, and therefore the same
rationale for exempting temporary
construction loans, expressed in the
January 2013 Final Rule, would not
apply to those loans.
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35(c)(2)(vii)
The Agencies’ Proposal
The Agencies proposed to exempt
from the HPML appraisal rules certain
types of refinancings with
characteristics common to refinance
programs offering ‘‘streamlined’’
refinances. Specifically, the Agencies
proposed to exempt an extension of
credit that is a refinancing where the
‘‘owner or guarantor’’ of the refinance
loan was the ‘‘owner or guarantor’’ of
the existing obligation. In addition, the
regular periodic payments under the
refinance loan could not have resulted
in negative amortization, covered only
interest on the loan, or resulted in a
balloon payment. Finally, the proceeds
from the refinance loan would have to
have been used solely to pay off the
outstanding principal balance on the
existing obligation and to pay closing or
settlement charges.
As discussed in the 2013
Supplemental Proposed Rule, the
Agencies believe that this exemption
would be in the public interest and
promote the safety and soundness of
creditors.
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 at the end of
2015.
Federal government agencies—HUD,
VA, and USDA—as well as governmentsponsored enterprises (GSEs), Fannie
Mae and Freddie Mac, have developed
streamlined refinance programs to
address consumer, creditor and investor
risks.29 These programs enable many
consumers to refinance the balance of
those mortgages through an abbreviated
application and underwriting process.30
29 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
LTVs over 80 percent) as well as for consumers
whose existing loans have LTVs at or below 80
percent.
30 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
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Under these programs, consumers with
little or no equity in their homes,31 as
well as consumers with significant
equity in their homes,32 can restructure
their mortgage debt, often at lower
interest rates or payment amounts than
under their existing loans.33
Valuation requirements of
‘‘streamlined’’ refinance programs. The
streamlined underwriting for certain
refinancings often does not include an
appraisal that conforms with USPAP or
a physical inspection of the property.
One reason for this is that, in currently
available streamlined refinance
programs, the value of the property
securing the existing and refinance
obligations does not determine borrower
eligibility for the refinance.
Generally, the principal concern
under streamlined refinance programs 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.
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.
31 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
https://www.makinghomeaffordable.gov/programs/
lower-rates/Pages/harp.aspx.
32 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 percent. This
report is available at https://www.freddiemac.com/
investors/er/pdf/10k_030912.pdf.
33 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 https://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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The credit risk holder of the existing
obligation might obtain a valuation
other than an appraisal for the refinance
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 credit risk
holder of the existing obligation and the
refinance loan does not have what it
deems to be sufficient information about
the property.
Fannie Mae and Freddie Mac. Fannie
Mae and Freddie Mac each have
streamlined refinance programs: Fannie
Mae DU (‘‘Desktop Underwriter’’) Refi
PlusTM and Refi PlusTM 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 (usually based on their
respective proprietary automated
valuation models (AVMs)), which is
then provided to lenders originating
loans under these programs.34
HUD/FHA. The HUD ‘‘Streamline’’
Refinance program administered by the
FHA permits but generally does not
require a creditor to obtain an
appraisal.35 The Agencies understand
that almost all FHA streamlined
refinances are done without requiring
an appraisal.36 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
VA and USDA streamlined refinance
programs also do not require an
alternative valuation type for
transactions for which an appraisal is
not required.
Private ‘‘streamlined’’ refinance
programs. The Agencies also understand
that some private creditors offer
streamlined refinance programs for their
borrowers that meet certain eligibility
requirements. In the 2013 Supplemental
Proposed Rule, the Agencies sought
34 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.
35 See, e.g., HUD Handbook 4155.1, chapter 6.C.1.
36 According to data from FHA, in calendar year
2012, only 1.1 percent of FHA streamline refinances
required an appraisal.
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78533
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 previously) when
no appraisal is conducted.37 The
Agencies did not receive comment on
this issue.
Public Comments
Public Comments on the 2012 Proposed
Rule
A number of commenters on the 2012
Proposed Rule recommended that the
Agencies exempt streamlined
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.
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 the 2013 Supplemental
Proposed Rule, they expressed concerns
about not requiring appraisals in HPML
streamlined refinance programs. They
expressed the view that a quality
appraisal that also is 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. In the 2013 Supplemental
Proposed Rule, the Agencies invited
further comment on these and any
related concerns, and appropriate means
of addressing these concerns as part of
this rulemaking. The Agencies did not
37 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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receive additional comments on this
issue as part of the 2013 Supplemental
Proposed Rule, the relevant public
comments on which are summarized
below.
Public Comments on the 2013
Supplemental Proposed Rule
Commenters were generally
supportive of exempting streamlined
refinances from the HPML appraisal
requirements. These included
comments from a credit union, a State
credit union trade association, a
national mortgage banking trade
association, and a national real estate
trade association. The commenters
stated that the exemption would
encourage and enable many consumers
to refinance the balance of their
mortgages through an abbreviated
underwriting process that will save
them time and money and help them
restructure their debt and lower their
interest rate or mortgage payment. The
State credit union association
commenter stated that an appraisal is
not necessary for these types of
transactions as the value of the home is
not the factor driving the restructuring
transaction. The national real estate
trade association asserted that the cost
of the appraisal would increase the costs
to the consumer, especially in rural
areas where there are fewer appraisers,
with no offsetting benefit to the
consumer.
Three national appraiser
organizations opposed the proposed
exemption for streamlined refinances
and urged the Agencies not to adopt it
in the final rule. Two of these
commenters asserted that a key
component of a consumers’ decision to
refinance their loan is the market value
of their home. A third national appraiser
organization believed that the proposed
exemption was unnecessary and
inconsistent with what this commenter
viewed as the Dodd-Frank Act’s
emphasis on risk management,
particularly for HPMLs.
The Agencies solicited comment on
the circumstances in which an
originator’s assumption of ‘‘put back’’
risk on a refinance loan raises safety and
soundness concerns, even where the
owner or guarantor on the refinance
loan remains the same. Two national
appraiser organizations and a State HFA
offered comments related to this
question. The appraisal organizations
commented that where a loan involves
new risk to either government agencies
or the taxpayers, an appraisal should be
required. Generally, where new risk
results from a transaction, an appraisal
with an interior inspection should be
required. These commenters added that,
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if the risk is already known or exists
(i.e., is not new risk), an exterior
inspection appraisal might be sufficient.
The State HFA commented that the
scope of the same ‘‘owner or guarantor’’
requirement should be expanded to
include Federally-insured or
-guaranteed streamlined refinancing
transactions. The group suggested that
the proposed language focused on the
secondary market for mortgage loans
rather than the Federal entities bearing
the risk at the loan level. The Agencies
understand that this State HFA has
programs in which a Federally-insured
or -guaranteed loan (such as by FHA or
VA) might be refinanced and placed in
a mortgage revenue bond guaranteed by
the HFA. The State HFA expressed
concerns that under this arrangement,
the loan might not meet the same
‘‘owner or guarantor’’ criteria of the
proposed refinance exemption because
the HFA would be a new guarantor at
the secondary market level. However,
the State HFA pointed out that the
refinance loan continues to be insured
by FHA or guaranteed by VA at the loan
level.
A State credit union organization
believed that exempting refinances in
which the ‘‘owner or guarantor’’ of the
refinanced loan also is the ‘‘owner or
guarantor’’ of the existing loan would
reduce time and transaction costs. A
State banking trade association
commented in the context of balloon
mortgages that streamlined refinances
with the same ‘‘owner and guarantor’’
typically have lower costs than a
refinance with another creditor. The
national trade association that
represents creditors believed that the
language of the proposal requiring that
the ‘‘owner or guarantor’’ be the same
would exclude loans that are originated
by the servicer or subservicer on the
original obligation, and requested
clarification to allow those entities to
originate streamlined refinances and
still be eligible for the exemption.
As noted under ‘‘Background,’’ the
Agencies also sought 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. Two national
organizations representing appraisers
commented that when refinanced loans
are not sold to the GSEs or insured or
guaranteed by a government agency,
creditors are likely to order appraisals
with interior inspections because of the
increased risk to the creditor.
Five commenters—three State credit
union associations and two State
banking trade associations—supported
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the proposed exemption for streamlined
refinances but requested that the
Agencies remove the proposed
prohibition on balloon payments. These
commenters believed that balloon
mortgages can be an affordable option
and serve an important role in helping
consumers retain their homes. For
similar reasons, one of the State credit
union associations also supported
eliminating the proposed prohibition on
interest-only payments. A State banking
trade association urged the Agencies to
consider including Balloon Payment
Qualified Mortgages 38 in the proposed
expanded definition for qualified
mortgages, arguing that these types of
mortgages undergo rigorous
underwriting procedures similar to
those required under the general
qualified mortgage provisions.39
In addition to the restrictions on
exempt refinancings that the Agencies
proposed, one State bank commenter
recommended that the proceeds from
the refinance be used to pay both
principal and accrued interest since the
majority of refinance loans today
include the accrued interest of the
refinanced loan into the new loan
amount. This commenter stated that
including accrued interest would not
adversely affect the consumer and could
be beneficial if the consumer does not
have the cash to pay the amount.
An affordable housing organization
commenter stated that any streamlined
refinance resulting in higher payments,
higher interest rates or longer loan terms
for the consumer should not be exempt.
This commenter also believed that
previously refinanced loans should not
be exempt to prevent an accumulation
of high fees from eroding the
consumer’s equity.
A State credit union association
commenter opposed limiting the
amount of points and fees that may be
financed on an exempt refinance
transaction. This commenter pointed
out that a points and fees test applies to
‘‘high-cost’’ mortgages in Regulation Z 40
and asserted that it is not necessary to
include point and fee caps as part of
HPML appraisal rules. This commenter
also argued that to do so would create
more regulatory confusion for
consumers and financial institutions.
Two commenters—a national
mortgage banking association and an
38 See
§ 1026.43(e)(6) and (f).
39 § 1026.43(e)(2).
40 See § 1026.32(a), implementing TILA section
103(aa), 15 U.S.C. 1602(aa), as amended by section
1431 of the Dodd-Frank Act (revising the points and
fees triggers for determining whether a loan is a
‘‘high-cost mortgage.’’ See also § 1026.43(e)(3),
implementing TILA section 129C(b)(2)(A)(vii), 15
U.S.C. 1639c(b)(2)(A)(vii) (limiting points and fees
that may be charged on a ‘‘qualified mortgage’’).
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affordable housing organization—
suggested that one of the criteria for an
exempt refinance transaction should be
a consumer benefit. The national
mortgage banking association
commenter recommended that the
Agencies adopt the benefits test used by
the GSEs for HARP loans, which
requires that the new loans put
borrowers in a better position by
reducing their payments or moving
them from a risky loan structure.41
Similarly, the affordable housing
organization commenter stated that only
streamlined refinance transactions
clearly lowering the consumer’s risk
should be exempt. On the other hand,
a State credit union association
commenter opposed introducing
additional limits on the exemption,
such as requiring that the borrower have
made timely payments for a specified
period or that the consumer ‘‘benefit’’
from the transaction in some way
defined in the regulations.
The Agencies also requested
comments on whether the exemption for
refinance loans should be conditioned
on the creditor obtaining an alternative
valuation and providing a copy to the
consumer three business days prior to
closing. The Agencies further asked
whether obtaining and providing an
alternative valuation would better
position the consumer to consider
alternatives, and whether consumers
seeking to refinance their existing first
lien loan typically need or want to
consider alternatives to refinancing.
Lastly, the Agencies generally requested
comment and data on whether a
condition on the exemption is
necessary.
Four commenters—a State credit
union association, a national
community bank trade association, a
national mortgage banking association,
and a financial holding company—
affirmatively opposed requiring
creditors to obtain an alternative
valuation to qualify their refinance
loans for the refinance exemption from
the HPML appraisal rules. Commenters
stated that doing so would hinder the
refinancing process and increase the
time and expense of these transactions
unnecessarily. These commenters did
not believe that a significant benefit
exists in giving an alternative valuation
when consumers are not increasing the
amount of their debt or changing the
collateral.
Comments from a State bank and a
State credit union association suggested
that if an alternative valuation were
41 See Fannie Mae Selling Guide, B5–5.2–02, DU
Refi Plus and Refi Plus Underwriting
Considerations (9/24/2013).
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required, creditors should be able to rely
on an existing appraisal to the extent
permitted by existing Federal appraisal
regulations and the interagency
appraisal guidelines,42 which allow for
using an existing appraisal prepared for
another financial institution. A credit
union commenter and a State credit
union association commenter suggested
that if an alternative is required, a
‘‘drive-by’’ appraisal or comparable
market analysis to ensure that the home
still stands and is in reasonable
condition is prudent when modifying or
restructuring debt to reduce foreclosures
and further delinquencies.
Three national appraiser
organizations and an affordable housing
organization recommended that, at
minimum, an alternative valuation to an
appraisal with an interior inspection
should be required so that consumers
are better informed. The appraiser group
commenters recommended that
creditors obtain replacement cost
estimates or other less costly services
provided by appraisers, such as desktop
appraisals. One appraiser group
generally asserted that the consumer
should be made aware of what type of
valuation service was performed and by
whom.
No commenters provided data
relevant to whether requiring an
alternative valuation as a condition of
the proposed refinance exemption
would be necessary or beneficial.
In the 2013 Supplemental Proposed
Rule, the Agencies recognized that
estimates of value may not always be
required by Federal law or investors.
For example, some creditors are not
subject to the appraisal and evaluation
requirements that apply to Federally
regulated financial institutions 43 under
FIRREA and, therefore would not be
required to obtain a FIRREA-compliant
valuation on a ‘‘no cash out’’ refinance.
Thus, the Agencies requested comment
on the extent to which either appraisals
or other valuation tools such as AVMs
or broker price opinions (BPOs) are used
in connection with streamlined
refinances—by non-depositories not
covered by FIRREA in particular. Only
one commenter, a national appraiser
organization, responded to this
question, stating that BPOs are not used
in refinance transactions and, in fact,
are illegal in many states. Moreover, this
commenter pointed out that GSEs and
other government agencies prohibit
using BPOs in refinancing, and use their
42 See OCC: 12 CFR 34.45(b)(2) and 12 CFR
164.5(b)(2); Board: 12 CFR 225.65(b)(2); FDIC: 12
CFR 323.5(b)(2); NCUA: 12 CFR 722.5(b)(2).
43 See 12 U.S.C 3350(7) (defining ‘‘financial
institution’’ for purposes of FIRREA and
implementing regulations).
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own AVMs to waive appraisal
requirements when appropriate.
The Final Rule
The Agencies are adopting the
exemption for certain refinancings
proposed in the 2013 Supplemental
Proposed Rule with modifications to
some of the criteria for an exempt
refinance transaction, described in the
section-by-section analysis below.
Consistent with the 2013 Supplemental
Proposed Rule, the Agencies decline to
adopt an exemption for all refinance
loans, as a few commenters on the 2012
Proposed Rule 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.44 Accordingly,
the Agencies believe that an exemption
for all HPML refinances would be
overbroad. For example, in refinance
transactions 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.
As stated in the 2013 Supplemental
Proposed Rule, the Agencies 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, is in the public interest and
will 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 refinance transactions 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 benefit by refinancing into a
lower rate mortgage for considerable
cost savings over time. The Agencies
also recognize that streamlined
refinancing programs assist credit risk
holders to manage their risks.
Originating HPML refinances that are
beneficial to consumers can be
important to creditors to ensure the
44 ‘‘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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continuing performance of loans on
their books and to strengthen customer
relations. For investors in these loans,
the streamlined refinances can reduce
financial risks associated with potential
defaults and foreclosures.
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 HPMLs. When the
consumer is not obtaining additional
funds to increase the amount of the debt
(other than the costs related to the
refinancing), and the entity that will
hold the credit risk of the refinance loan
is already the credit risk holder on the
existing loan, the benefit from obtaining
a new appraisal may be insufficient to
warrant the additional cost. The
Agencies believe that an exemption
from the HPML appraisal rules for
certain HPML refinances can ensure that
the time and cost generated by new
appraisal requirements are not
introduced into certain HPML
transactions—namely, those that are not
qualified mortgages but are part of
programs designed to help consumers
avoid defaults and improve their
financial positions, as well as help
creditors and investors avoid losses and
mitigate credit risk.
Definition of ‘‘Refinancing’’
Consistent with the proposal,
§ 1026.35(c)(2)(vii) in the final rule
defines a ‘‘refinancing’’ to mean
‘‘refinancing’’ in § 1026.20(a). Also
consistent with the proposal, the
definition of ‘‘refinancing’’ under
§ 1026.35(c)(2)(vii) does not require that
the creditor remain the same for both
the refinancing and the existing
obligation.45 As noted in the 2013
Supplemental Proposed Rule, this is a
departure from the definition of
‘‘refinancing’’ under § 1026.20(a);
commentary to that provision 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
exemption in § 1026.35(c)(2)(vii) allows
a different creditor to extend the
refinance loan, as long as the credit risk
holder remains the same on both the
existing loan and the refinance.
As stated in new comment 35(c)(2)–1,
discussed previously, the Agencies
emphasize that any creditor subject to
regulation by a Federal financial
45 ‘‘Creditor’’ is defined under Regulation Z to
mean, in pertinent part, ‘‘[a] person who regularly
extended consumer credit that is subject to a
finance charge * * *, and to whom the obligation
is initially payable, either on the face of the note
or by contract * * *.’’ § 1026.2(a)(17).
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regulatory agency remains subject to
FIRREA regulations regarding appraisals
and evaluations and the accompanying
Interagency Appraisal and Evaluation
Guidelines.46 As such, these institutions
will have to obtain an appraisal or
‘‘evaluation’’ under FIRREA rules for
any refinance loan, regardless of
whether it qualifies for an exemption
from the HPML appraisal rules.
Finally, in § 1026.35(c)(2)(vii), the
Agencies are clarifying that the
refinance loans eligible for the
exemption are limited to loans ‘‘secured
by a first lien,’’ which is consistent with
the Agencies’ intention in the 2013
Supplemental Proposed Rule.
35(c)(2)(vii)(A)
The exemption from the HPML
appraisal rules requires that the
refinance transaction satisfy several
criteria. These are described in the
section-by-section analysis of
§ 1026.35(c)(2)(vii)(A), (B), and (C).
One criterion that a refinance loan
must meet is that either: (1) The credit
risk of the refinance loan is retained by
the person that held the credit risk of
the existing obligation and the credit
risk is not subject, at consummation, to
a commitment to be transferred to
another person; or (2) the refinance loan
is insured or guaranteed by the same
Federal government agency that insured
or guaranteed the existing obligation.
35(c)(2)(vii)(A)(1)—same credit risk
holder. Substantively consistent with
the 2013 Supplemental Proposed Rule,
§ 1026.35(c)(2)(vii)(A)(1) allows the
exemption for certain refinancings to
apply if the credit risk holder is the
current credit risk holder of the existing
obligation (assuming the criteria in
§ 1026.35(c)(2)(vii)(B) and (C) are also
met). The Agencies are adopting 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 ensuring that the
exemption promotes the safety and
soundness of financial institutions. An
exemption for streamlined refinances
from the HPML appraisal rules can help
creditors more readily refinance loans to
mitigate risk by placing consumer in
loans with better terms. Decreased
default risk for all parties is also in the
public interest.
For clarity, as discussed previously,
the final regulation defines ‘‘credit risk’’
to mean the financial risk that a loan
will default. See § 1026.35(c)(1)(ii) and
46 See OCC: 12 CFR parts 34, Subpart C, and 164;
Board: 12 CFR part 208, subpart E, and part 225,
subpart G; FDIC: 12 CFR part 323; NCUA: 12 CFR
part 722. See also 75 FR 77450 (Dec. 10, 2010).
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corresponding section-by-section
analysis. The final rule also differs from
the proposal in that it does not use the
terms ‘‘guarantor’’ or ‘‘owner,’’ but
instead refers to the holder of the credit
risk.
Based on public comments, the
Agencies are concerned that the terms
‘‘guarantor’’ and ‘‘owner’’ may have
multiple meanings in the mortgage
markets and be confusing. For example,
the Agencies are concerned that the
agreements associated with loans
securitized in a private-label mortgagebacked security (MBS) may include
parties identified as ‘‘guarantor’’ and
‘‘owner,’’ but such parties do not bear
the ‘‘credit risk’’ as defined in this final
rule. See § 1026.35(c)(1)(ii).
In GSE securitizations, a GSE bears all
of the credit risk because it either
‘‘owns’’ a loan and holds the loan in
portfolio, or ‘‘guarantees’’ the loan by
placing the loan in an MBS and
guaranteeing payments of principal and
any interest to investors. Some of these
loans might have private mortgage
insurance, but the GSE is the
beneficiary.
By contrast, in private-label
securitizations, the credit risk is spread
among multiple parties; for example, the
originating credit might retain some
residual risk (and will be required to for
‘‘Qualified Residential Mortgages’’ 47),
the other MBS investors bear certain
risks depending on the ‘‘tranche’’ or risk
tier of the investor, and private mortgage
insurers or bond insurers also may
guarantee some losses. Typically, when
a loan in an MBS is refinanced, the loan
will not remain in the same MBS.48 The
Agencies believe that where entities
take on material new credit risk with a
refinance, safety and soundness and the
public interest are not served by
exempting that refinance from the
HPML appraisal rules.
At the same time, the Agencies
recognize that the private-label
securitization market could involve
MBS structures that include an entity
that provides a guarantee similar to that
guarantee provided by Fannie Mae and
Freddie Mac today. Therefore, the
criterion in § 1026.35(c)(2)(vii)(A)(1) is
intended to address not only GSE
securitizations, but also any equivalent
private-label structures that meet the
requirements of the exemption. The
Agencies believe that private creditor
refinance transactions may have similar
benefits to consumers, creditors, and
credit markets as those under GSE and
47 See
78 FR 57920 (Sept. 20, 2013).
disincentives for refinancing a loan out
of a private-label refinance may exist, including
contractual restrictions on refinancing the loan.
48 Certain
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government agency programs. In
particular, the Agencies believe that the
central feature of public streamlined
refinance programs—the credit risk
holder on the existing obligation
remains the credit risk holder on the
refinance loan—must be in place in any
private streamlined refinances that
would be entitled to an exemption from
the HPML appraisal requirements.
Accordingly, the Agencies are not
adopting proposed comment
35(c)(2)(vii)(A)–1, which was intended
to help clarify the meaning of the terms
‘‘owner’’ and ‘‘guarantor.’’ Instead, the
Agencies are adopting a revised version
of this comment, re-numbered comment
35(c)(2)(vii)(A)(1)–1, that focuses on
what it means to hold the credit risk on
a loan for purposes of the exemption.
Specifically, comment
35(c)(2)(vii)(A)(1)–1 states that the
requirement that the holder of the credit
risk on the existing obligation and the
refinance loan be the same applies to
situations in which an entity bears the
financial responsibility for the default of
a loan by either holding the loan in its
portfolio or guaranteeing payments of
principal and any interest to investors
in a mortgage-backed security in which
the loan is pooled. See
§ 1026.35(c)(1)(ii) (defining ‘‘credit
risk’’). The comment states that, for
example, a credit risk holder could be
a bank that bears the credit risk on the
existing obligation by holding the loan
in the bank’s portfolio. Another example
of a credit risk holder would be a
government-sponsored enterprise that
bears the risk of default on a loan by
guaranteeing the payment of principal
and any interest on a loan to investors
in a mortgage-backed security. Finally,
the comment clarifies that the holder of
credit risk under
§ 1026.35(c)(2)(vii)(A)(1) does not mean
individual investors in an MBS or
providers of private mortgage insurance.
Consistent with the proposal (see
proposed comment 35(c)(2)(vii)(A)–1),
the Agencies do not intend that
individual investors in an MBS be
considered credit risk holders under
this exemption criterion. The risks held
by investors in these arrangements are
too disparate for these investors to be
considered credit risk holders under the
final rule.
The Agencies also do not intend
private mortgage insurers—either at the
loan level or MBS level (as bond
insurers, for example)—to be credit risk
holders under the final rule because the
types of losses they guarantee may vary
for each loan by contract, as may their
valuation standards for collateral
underlying loans they insure. These
factors are subject to private contractual
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arrangements that are not publicly
available. Even if the refinance loan
were insured by the same private
mortgage insurance provider that
insured the existing obligation, the
types of losses guaranteed by this
provider on the refinance loan might be
different from those guaranteed on the
existing loan and a new party to the
refinance transaction could be taking on
significant new credit risk.
In new comment 35(c)(2)(vii)(A)(1)–2,
the final rule provides two illustrations
of refinance situations in which the
credit risk holder would be considered
the same for both the existing obligation
and the refinance loan. These examples
are not intended to be exhaustive. In the
first illustration, the existing obligation
is held in the portfolio of a bank, thus
the bank holds the credit risk. The bank
arranges to refinance the loan and also
will hold the refinance loan in its
portfolio. If the refinance transaction
otherwise meets the requirements for an
exemption under § 1026.35(c)(2)(vii),
the transaction will qualify for the
exemption because the credit risk
holder is the same for the existing
obligation and the refinance loan. In this
case, the exemption would apply
regardless of whether the bank arranged
to refinance the loan directly or
indirectly, such as through the servicer
or subservicer on the existing obligation.
See comment 35(c)(2)(vii)(A)(1)–2.i.
In the second illustration, the existing
obligation is held in the portfolio of a
GSE, thus the GSE holds the credit risk.
The GSE approves a refinance of the
existing obligation by the servicer of the
loan and immediately purchases the
refinance loan. The GSE pools the
refinance loan in a mortgage-backed
security guaranteed by the GSE; thus,
the GSE continues to hold the credit risk
on the refinance loan. If the refinance
transaction otherwise meets the
requirements for an exemption under
§ 1026.35(c)(2)(vii), the transaction will
qualify for the exemption because the
credit risk holder is the same for the
existing obligation and the refinance
loan. In this case, the exemption would
apply regardless of whether the existing
obligation were refinanced by the
servicer or subservicer on the existing
obligation (acting as a ‘‘creditor’’ under
§ 1026.2(a)(17)) or by a different
creditor. See comment
35(c)(2)(vii)(A)(1)–2.ii.
As noted, one commenter requested
clarification about whether a servicer or
subservicer could originate a refinance
that would be eligible for the
exemption. This commenter expressed
concerns that the requirement that the
‘‘owner or guarantor’’ remain the same
would prohibit this for exempt
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refinances. Comment 35(c)(2)(vii)(A)(1)–
2.ii is intended to clarify that servicers
or subservicers may originate refinances
that are exempt if the credit risk holder
on the original obligation remains the
credit risk holder on the refinance loan.
In new comment 35(c)(2)(vii)(A)(1)–3,
the final rule notes that a creditor may
at times make a mortgage loan that will
be transferred or sold to a purchaser
pursuant to an agreement that has been
entered into at or before the time the
transaction is consummated. Such an
agreement is sometimes known as a
‘‘forward commitment.’’ The comment
clarifies that a refinance loan with a
forward commitment does not satisfy
the requirement of
§ 1026.35(c)(2)(vii)(A)(1) if the loan will
be acquired by another person pursuant
to a forward commitment, such that the
credit risk on the refinance loan will
transfer to a person who did not hold
the credit risk on the existing obligation.
This comment is intended to ensure that
creditors cannot evade the HPML
appraisal requirement by refinancing a
loan on which they hold the credit risk
but then bear the credit risk on the
refinance loan for only a short interim
period before transferring the loan to a
new longer-term credit risk holder.
Overall, the Agencies believe that the
benefits of an appraisal with an interior
inspection are less clear where the
credit risk holder remains the same for
both transactions. The credit risk holder
of the existing obligation is more likely
to be familiar with the property securing
the transaction or relevant market
conditions than a new credit risk
holder. This knowledge could have
resulted from the credit risk holder
having evaluated property valuation
documents when taking on the original
credit risk, as well as ongoing portfolio
monitoring. By contrast, when the credit
risk holder of the refinance loan is not
also the credit risk holder of the existing
loan, the refinance loan involves new
risk to the new credit risk holder of the
refinance loan; here, safety and
soundness would be better served by an
appraisal in conformity with USPAP
and in compliance with FIRREA that
includes an interior inspection.49
49 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 [Board] and the [Bureau] use their
rulemaking authority . . . to extend the same
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As stated in the 2013 Supplemental
Proposed Rule, the Agencies generally
believe that requiring that the credit risk
holder remain the same makes it
unnecessary to require that the
‘‘creditor’’ (as defined under
§ 1026.2(a)(17)) also be the same for
both the existing obligation and the
refinance loan. Under Regulation Z’s
definition of ‘‘creditor,’’ the creditor
will not necessarily be the credit risk
holder for both the existing and the
refinance loans. By allowing the creditor
to be different (as long as the underlying
credit risk holder on the loan remains
the same), the final rule provides
consumers with greater ability to obtain
a more beneficial loan without having to
obtain an appraisal.
35(c)(2)(vii)(A)(2)—government
agency programs. Section
1026.35(c)(2)(vii)(A)(2) provides that a
refinance loan meeting the other criteria
for the exemption
(§ 1026.35(c)(2)(vii)(B) and (C)) could
also qualify for the exemption if the
Federal government agency that insured
or guaranteed the existing obligation
also insures or guarantees the refinance
loan.
Typically these government agency
loans would be qualified mortgages
under the Bureau’s 2013 ATR Final
Rule; 50 they also potentially could be
qualified mortgages under the qualified
mortgage regulations of each of these
agencies, once issued.51 As qualified
mortgages, they would be exempt from
the HPML appraisal rules under the
exemption for qualified mortgages in
§ 1026.35(c)(2)(i).
The Agencies are adopting a separate
provision for Federal government
agency loans for several reasons. First,
§ 1026.35(c)(2)(vii)(A)(2) is intended to
ensure that the HPML appraisal rules
will not disrupt government refinance
programs, which the Agencies do not
believe was Congress’s intent. This
provision is meant to clarify the 2013
Supplemental Proposed Rule, which
was intended to exempt refinances
consistent with existing Federal
government agency streamlined
refinance programs.
Second, as noted, Federal government
agency loans have valuation
requirements that the affected Federal
agency has deemed sufficiently
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).
50 See § 1026.43(e)(4)(iii)(A); see also TILA
section 129C(b)(3)(ii), 15 U.S.C. 1639c(b)(3)(ii).
51 See 78 FR 59890 (Sept. 30, 2013).
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protective of its interests. The Agencies
do not believe that Congress intended
that the HPML appraisal rules should
override the established requirements
and standards of Federal government
agencies for their mortgage programs.
Moreover, the requirements of Federal
mortgage programs, including the
valuation requirements, are transparent
and established by publicly accountable
entities. In this regard, refinances
retaining FHA insurance, for instance,
are distinguishable from loans with the
same loan-level private mortgage
insurer, whose valuation and other
standards are determined by private
contracts. See also comment
35(c)(2)(vii)(A)(1)–1 and accompanying
section-by-section analysis.
Third, the terms ‘‘insured’’ and
‘‘guaranteed’’ are commonly used to
describe the loan-level protections
afforded by HUD, VA, and USDA
(including RHS) against losses due to
default; however, the Agencies are
concerned that these terms might not be
readily understood to be a part of the
same credit risk holder provision under
§ 1026.35(c)(2)(vii)(A)(1). As noted, one
commenter indicated, for example, that
confusion might exist about whether a
loan with FHA insurance or a VA
guaranty that was refinanced into a loan
also insured or guaranteed by FHA or
VA could qualify for the exemption if
the secondary market participants
differed on the two loans. The Agencies
therefore wish to be clear that these
loans would still qualify for the
exemption because the loan-level credit
risk holder remains the same.
Finally, these loans might not always
be ‘‘qualified mortgages’’ under the
Bureau’s ATR rules because they might
not meet all of the criteria required for
that status.52 The Agencies do not
believe that layering the HPML
appraisal requirements onto Federal
government agency loans provides
sufficient benefits to warrant the
drawbacks of burdening consumers and
creditors in these transactions. A
Federal government agency has already
determined what the appropriate
valuation requirements should be and,
as previously discussed, these mortgage
programs are intended to provide
needed relief to borrowers and to
mitigate credit risk for creditors. The
Agencies thus believe that the safety
52 To be ‘‘qualified mortgages,’’ loans eligible to
be insured or guaranteed by HUD, VA, USDA or
RHS must not result in negative amortization or
provide for interest-only or balloon payments; have
a loan term exceeding 30 years; or points and fees
above to three percent of the loan amount (with a
higher cap for loans under $100,000).
§ 1026.43(e)(4)(i)(A) (cross-referencing
§ 1026.43(e)(2)(i) through (iii).
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and soundness of creditors and the
public interest is served by allowing
these transactions to go forward under
valuation rules established by the
Federal agency insuring or guaranteeing
the loan.
Relationship to the 2013 ATR Final
Rule. The Agencies recognize that in the
near term, most Federal government
program and GSE streamlined refinance
loans will be exempt from the HPML
appraisal rules as ‘‘qualified mortgages’’
under § 1026.35(c)(2)(i). 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 (based solely
on criteria related to the consumer’s
ability to repay) 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,53
they are considered ‘‘qualified
mortgages’’ entitled to either a
rebuttable or conclusive presumption of
compliance with the general ability-torepay rules, depending on the loan’s
interest rate.54 See § 1026.43(e)(1),
(e)(4).55 As qualified mortgages, they are
exempt from the HPML appraisal rules.
See § 1026.35(c)(2)(i).
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). These loans will not
be eligible to be qualified mortgages if
consummated after January 10, 2021,
unless they meet the criteria of another
type of qualified mortgage. See
§ 1026.43(c)(4)(iii)(B). Second, again,
GSE-eligible loans and loans eligible to
be insured or guaranteed under a HUD,
53 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).
54 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
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, other than a qualified
mortgage under paragraph (e)(5), (e)(6), or (f) of
§ 1026.43; by 3.5 or more percentage points for a
first lien covered transaction that is a qualified
mortgage under paragraph (e)(5), (e)(6), or (f) of
§ 1026.43; or by 3.5 or more percentage points for
a subordinate lien covered transaction.
§ 1026.43(b)(4).
55 They also can be ‘‘qualified mortgages’’ if, for
instance, they meet all of the criteria under the
general definition of ‘‘qualified mortgage.’’ See
§ 1026.43(e)(2).
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VA, USDA, or RHA program 56 are
‘‘qualified mortgages’’ only if they meet
certain criteria—they must not result in
negative amortization or provide for
interest-only or balloon payments; have
a loan term exceeding 30 years; or
points and fees above to three percent
of the loan amount (with a higher cap
for loans under $100,000).57
The Agencies believe that the
refinance exemption under the HPML
appraisal rule should nonetheless cover
Federal government agency and GSE
streamlined refinance loans. The
exemption is appropriate here in part
because the GSEs and Federal
government agencies have valuation
requirements to protect their interests
that are transparent and publicly
available. In this regard, an important
distinction between the qualified
mortgage provisions addressing GSE
and Federal government agency loans
and the HPML refinance exemption
criteria in § 1026.35(c)(2)(vii)(A)(1) and
(2) is that qualified mortgage status may
be conferred on loans ‘‘eligible’’ to be
purchased by a GSE or insured or
guaranteed by a Federal government
agency; by contrast, the HPML refinance
exemption from the HPML appraisal
rules requires that these loans actually
are purchased by Fannie Mae or Freddie
Mac or continue to be insured or
guaranteed by a Federal government
agency. In this way, compliance with
valuation requirements established by
these entities is assured as part of the
justification for the exemption.
35(c)(2)(vii)(B)
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Prohibition on certain risky features.
Consistent with the 2013 Supplemental
Proposed Rule, § 1026.35(c)(2)(vii)(B)
requires that a refinancing eligible for
the refinance 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).58
The Agencies also are adopting
without change proposed comment
56 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) will 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). See also, e.g., 78 FR 59890 (Sept. 30,
2013).
57 See § 1026.43(e)(4)(i)(A) (cross-referencing
§ 1026.43(e)(2)(i) through (iii).
58 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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78539
35(c)(2)(vii)(B)–1 which states that,
under § 1026.35(c)(2)(vii)(B), 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 thus clarifies 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 further states 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 cross-references
comment 43(c)(5)(i)–4 of the Bureau’s
2013 ATR Final Rule for an explanation
of the term ‘‘substantially equal.’’ 59 The
comment also clarifies that a singlepayment transaction is not a refinancing
meeting the requirements of
§ 1026.35(c)(2)(vii) because it does not
require ‘‘regular periodic payments.’’
Where these features are present in an
HPML that is not a qualified mortgage,
the Agencies believe that the
information provided by a real property
appraisal in conformity with USPAP
that includes an interior property
inspection is important for the safety
and soundness of creditors and the
protection of consumers. Additional
equity may be needed to support a loan
with negative amortization, for example,
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.60
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 make the balloon payment
or refinance, with potentially significant
consequences for the consumer and the
credit risk holder if something
unexpected happens and the consumer
cannot do so.
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.61 In
addition, the prohibition on risky
features for this exemption is consistent
with provisions in the Dodd-Frank Act
reflecting congressional concerns about
these loan terms. For example, in DoddFrank 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.62 The
59 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
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.’’
60 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.
61 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).
62 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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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations
final rule also is consistent with a
provision in the Bureau’s 2013 ATR
Final Rule that exempts the refinancing
of a ‘‘non-standard mortgage’’ into a
‘‘standard mortgage’’ from the
requirement that the creditor make a
good faith determination of the
consumer’s ability to repay the loan. 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). 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, interestonly payment features, or balloon
payments may increase risks to
consumers and creditors.
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.63
Thus, in the Agencies’ view, permitting
these non-qualified mortgage HPML
refinances to proceed without a real
property appraisal in conformity with
USPAP and FIRREA that includes an
interior inspection 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.
As noted, several commenters
requested that the prohibition on
balloon payments for exempt refinances
be eliminated in the final rule. One
commenter also requested that the
prohibition on interest-only payments
be eliminated. For the reasons stated,
however, the Agencies continue to
believe that the prohibitions on balloon
payments and interest-only payments
are appropriate. In addition, the
Agencies note that some of the public
comments in support of eliminating the
balloon payment prohibition suggested
uncertainty about whether ‘‘balloon
payment qualified mortgages’’ under the
Bureau’s ability-to-repay rules would be
exempt. See § 1026.43(e)(6) and (f). As
set out in the section-by-section analysis
of the exemption for qualified mortgages
under § 1026.35(c)(2)(i), both temporary
balloon payment mortgages under
§ 1026.43(e)(6) and balloon payment
qualified mortgages under § 1026.43(f)
are exempt from the HPML appraisal
63 See also OCC, Board, FDIC, NCUA,
‘‘Interagency Guidance on Nontraditional Mortgage
Product Risks,’’ 71 FR 58609 (Oct. 4, 2006).
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rules under the exemption for qualified
mortgages. The Agencies believe that
this clarification helps address the
concerns of commenters on this issue.
35(c)(2)(vii)(C)
No cash out. Proposed
§ 1026.35(c)(2)(vii)(C) would have
required 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. Based on comments,
particularly a comment recommending
that the Agencies clarify that proceeds
could be used to pay accrued interest,
the Agencies are revising this provision
of the proposal.
Specifically, the Agencies are revising
§ 1026.35(c)(2)(vii)(C) to require that the
proceeds from the refinance loan be
used ‘‘only to satisfy the existing
obligation and to pay amounts
attributed solely to the costs of the
refinancing.’’ The Agencies have
determined that compliance and
understanding are best facilitated by
generally modeling the ‘‘no cash out’’
aspect of the exemption on other
provisions in Regulation Z regarding
refinancings in the rescission context.
Thus, revised § 1026.35(c)(2)(vii)(C)
incorporates concepts and guidance
from § 1026.23(f)(2), which sets out the
portion of a refinance that is
rescindable—namely, the portion that
exceeds ‘‘the unpaid principal balance,
any earned unpaid finance charge on
the existing debt, and amounts
attributed solely to the costs of the
refinancing or consolidation.’’ The
Official Staff Commentary associated
with § 1026.23(f)(2) clarifies, in
pertinent part, that ‘‘a new advance does
not include amounts attributed solely to
the costs of the refinancing. These
amounts would include section
1026.4(c)(7) charges (such as attorney’s
fees and title examination and insurance
fees, if bona fide and reasonable in
amount), as well as insurance premiums
and other charges that are not finance
charges. (Finance charges on the new
transaction—points, for example—
would not be considered in determining
whether there is a new advance of
money in a refinancing since finance
charges are not part of the amount
financed.)’’ Comment 23(f)(2)–4.
Revised comment 35(c)(2)(vii)(C)–1
provides that the ‘‘existing obligation’’
includes the consumer’s existing first
lien principal balance, any earned
unpaid finance charges such as accrued
interest, and any other lawful charges
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related to the existing loan. Accrued
interest is any interest that has
accumulated since the consumer’s last
payment of principal and interest, but
that the borrower has not yet paid and
has not been capitalized into the
principal balance. Accrued interest
exists when a consumer makes a
payment on the existing obligation on
October 1st, for example, but then
refinances into a new loan on October
20th. In this case, interest would have
accumulated between the payment
made on October 1st and the date of the
refinance. However, the consumer
would not have paid that accrued
interest and the creditor normally
would not have capitalized that interest
into the principal balance.
Revised comment 35(c)(2)(vii)(C)–1
further provides that guidance on the
meaning of refinancing costs is available
in comment 23(f)–4. Finally, consistent
with proposed comment
35(c)(2)(vii)(C)–1, the revised comment
clarifies that, 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).
The Agencies view the 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 an appraisal with an interior
inspection 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.64 It is also consistent with the
exemption from the Bureau’s ability-torepay rules for refinances of ‘‘nonstandard mortgages’’ into ‘‘standard
mortgages.’’ 65 See § 1026.43(d)(1)(ii)(E).
The Agencies believe that consistency
across mortgage rules can help facilitate
64 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.
65 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).
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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations
compliance and ease compliance
burden.
Other conditions. Consistent with the
proposal, the Agencies are not adopting
additional conditions on the types of
refinancings eligible for the exemption
from the HPML appraisal rules. In this
way, the Agencies seek to maintain
flexibility for creditors and investors 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.
Regarding comments supporting a
requirement that the refinance result in
a ‘‘benefit’’ to the consumer, such as a
lower payment, a lower rate, or shorter
term, the Agencies continue to believe
that it is unclear how the existence of
a borrower benefit in the new
transaction relates to what type of
valuation should be required. The
Agencies are also not adopting a
limitation on the points and fees that
may be refinanced. Congress addressed
loan cost parameters for the appraisal
rules by defining HPMLs as loans with
interest rates above APOR by a certain
percentage. The Agencies are concerned
that introducing a points and fees cap
into the rule could create confusion and
compliance difficulties, given the
statutory points and fees caps
implemented in other overlapping
regulations, such as regulations
regarding qualified mortgages and highcost mortgages, noted earlier.
Other protections in the final rule
ensure that the borrower, creditor and
investor would be taking on no new
material credit risk, which the Agencies
believe should be the primary
determinant of whether an appraisal
with an interior inspection should be
required. The Agencies also believe that
borrower benefits can be difficult to
define because they can be highly
transaction-specific. For example, a
higher rate might result in a benefit to
a consumer where the higher rate results
from extending the loan term to lower
the consumer’s payments. Here, the
benefit to the consumer is an improved
ability to stay in the home by making
the payments more affordable. Finally,
the Agencies are concerned that a
‘‘benefits’’ test could add complexity
and burden to the exemption that might
undermine its intended benefits.
The Agencies are also not adopting
borrower eligibility requirements, such
as that the borrower must have been ontime with payments on the existing
mortgage for a certain period of time, as
at least one commenter suggested. As
discussed in the 2013 Supplemental
Proposed Rule, GSE and Federal
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government agency streamlined
refinance programs 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.66 Commenters did not,
however, explain how borrower
eligibility requirements relate to
whether an appraisal should be
required. Again, the Agencies believe
that the criteria for the refinance
exemption in the final rule comprise
those that relate to whether a more or
less rigorous valuation requirement
should apply; the Agencies believe that
the main consideration is whether new
credit risk will be taken on by the
consumer, creditor, and investor. The
criteria adopted in the final rule are
designed to minimize additional risk on
the refinance by curbing material
increases in principal and ensuring that
the ultimate credit risk holder remains
the same. In addition, the Agencies
believe that streamlined refinance
programs can provide maximum benefit
to consumers, creditors, and investors
when creditors and investors retain
some flexibility to adapt borrower
eligibility and other requirements to
address changing market environments
and factors that may be unique to their
programs.
Finally, one commenter also urged the
Agencies not to apply the exemption to
loans that had already been refinanced,
to avoid the consumer accruing
excessive origination costs with
successive refinances. The Agencies
share concerns about harm to
consumers through serial refinancings.
On balance, however, the Agencies
believe that consumers who have
already refinanced their loans should
have the same opportunities to take
advantage of lower rates as other
consumers. The Agencies believe that
the limit on cash out helps mitigate
abuses with serial refinancings by
ensuring that consumers cannot
continually refinance to pay off other
debts without a full assessment of the
collateral value.
Conditional exemption. In the 2013
Supplemental Proposed Rule, the
Agencies sought comment on whether
the exemption for refinance loans
should be conditioned on the creditor
66 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).
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78541
obtaining an alternative valuation (i.e., a
valuation other than a real property
appraisal in conformity with USPAP
and FIRREA that includes an interior
inspection) and providing a copy to the
consumer three days before
consummation. In requesting comment
on this issue, the Agencies noted that a
refinanced mortgage loan is a significant
financial commitment that involves
material transaction costs.
Because refinances do involve
potential risks and costs, the Agencies
requested commenters’ views on
whether the consumer would better
positioned to consider alternatives to
refinancing if they were given an
alternative valuation. The Agencies also
sought data that might be relevant to
whether this additional condition
would be necessary.
For reasons discussed below, the
Agencies are not adopting a condition
on the refinance exemption that the
creditor obtain and give the consumer
an alternative valuation. As noted,
several commenters affirmatively
opposed requiring creditors to obtain an
alternative valuation. Commenters
stated that doing so would hinder the
process and increase the time and
expense of these transactions
unnecessarily. These commenters did
not believe that a significant benefit
exists in giving an alternative valuation
when consumers are not increasing the
amount of their debt or substituting the
collateral.
Other commenters, while not
affirmatively supporting or opposing an
alternative valuation condition,
suggested that if an alternative valuation
is required, creditors should be able to
rely on an existing appraisal to the
extent permitted by existing Federal
appraisal regulations and the
interagency appraisal guidelines,67
which allow for using an existing
appraisal. Two commenters asked
whether a creditor that is considering an
extension of credit secured by a junior
mortgage could use the appraisal
obtained by the creditor who extended
credit to the same borrower secured by
a first mortgage. FIRREA real estate
appraisal regulations required to be
issued by the Federal financial
institution regulatory agencies 68 allow a
regulated institution 69 to accept an
67 See OCC: 12 CFR parts 34, Subpart C, and 164;
Board: 12 CFR part 208, subpart E, and part 225,
subpart G; FDIC: 12 CFR part 323; NCUA: 12 CFR
part 722. See also 75 FR 77450 (Dec. 10, 2010).
68 FDIC: 12 CFR part 323; FRB: 12 CFR part 208,
subpart E and 12 CFR part 255, subpart G; NCUA:
12 CFR part 722; and OCC: 12 CFR part 34, subpart
C, and 12 CFR part 164.
69 A regulated institution is an institution
regulated by a Federal financial institution
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appraisal that was prepared by an
appraiser engaged directly by another
financial services institution,70 if certain
conditions are met. These include that
a regulated institution may accept an
appraisal that was prepared by an
appraiser engaged directly by another
financial services institution, if: (1) The
appraiser has no direct or indirect
interest, financial or otherwise, in the
property or the transaction; and (2) the
regulated institution determines that the
appraisal conforms to the requirements
of this subpart and is otherwise
acceptable.71
Still others suggested that, if an
alternative is required, a ‘‘drive-by’’
appraisal or comparable market analysis
to ensure that the home still stands and
is in reasonable condition would be
advisable. The Agencies believe that
conditioning the exemption is not
warranted, so they are not adopting this
suggestion.
Several commenters supported
conditioning the exemption and
recommended that an alternative
valuation to an appraisal with an
interior inspection should be required
so that consumers are better informed
about their home value.
The Agencies believe that the
condition discussed in the 2013
Supplemental Proposed Rule would not
provide sufficient benefit to warrant the
burden or cost it would introduce into
the exemption. The vast majority of
refinance transactions involve some
type of valuation that, as of January
2014, creditors will have to provide to
consumers. For example, for any
refinance eligible for a Federal
government program or to be sold to a
GSE, the creditor would have to comply
with any valuation requirements
imposed under those programs. For
loans not made under those programs
but purchased or made by a Federally
regulated financial institution, either an
‘‘evaluation’’ or an appraisal generally
would be required.72
regulatory agency, such as the FDIC, FRB, NCUA,
or the OCC.
70 The Interagency Appraisal and Evaluation
Guidelines note that the Agencies’ appraisal
regulations do not contain a specific definition of
the term ‘‘financial services institution.’’ The term
is intended to describe entities that provide services
in connection with real estate lending transactions
on an ongoing basis, including loan brokers.
71 See OCC: 12 CFR 34. 45(b)(2) and 12 CFR
164.5(b)(2); Board: 12 CFR 225.65(b)(2); FDIC: 12
CFR 323.5(b)(2); NCUA: 12 CFR 722.5(b)(2).
72 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 visit or
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The Bureau’s rules in Regulation B
implementing Dodd-Frank Act
amendments to the Equal Credit
Opportunity Act 73 (ECOA) 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.74 The copies must be
provided to the applicant promptly
upon completion or three business days
before consummation. See id.
Regulation B defines ‘‘valuation’’
broadly to mean ‘‘any estimate of the
value of a dwelling developed in
connection with an application for
credit.’’ 75 § 1002.14(b)(3).
As stated in the 2013 Supplemental
Proposed Rule, the Agencies recognize
that obtaining estimates of value and
providing copies of written valuations
to consumers 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 Federally regulated
financial institutions under FIRREA title
XI. However, the Agencies did not
receive data or information suggesting
that a significant number of refinances
would be subject to no valuation
requirements. The Agencies believe that
the volume of refinances that might be
exempt from the HPML appraisal rules
and subject to no other valuation
requirements of either the government
or investors will be very small and that
the benefits of conditioning the
exemption for these refinances will not
outweigh complexity and burden to
affected creditors and their consumers
seeking streamlined refinances.
Again, the criteria for an exempt
refinance adopted in the final rule are
designed to limit the new risk that
would result in a refinance, including
risk resulting from significant additional
equity being taken out of the home.
Where no material credit risk is taken
on in a refinance transactions, including
risk resulting from a material reduction
in home equity, the Agencies believe
that valuation requirements are
appropriately left to be determined by
the parties involved in the transaction
exterior-only) was obtained for all streamlined
refinances purchased by the GSEs in 2012.
73 15 U.S.C. 1691 et seq.
74 See 12 CFR 1002.14(a)(1), effective January 18,
2014; 78 FR 7216 (Jan. 31, 2013) (2013 ECOA
Valuations Final Rule).
75 ‘‘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.
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and any other applicable laws and
regulations.
In sum, the Agencies believe that the
exemption is appropriately narrow in
scope to capture the types of
refinancings that Congress has generally
expressed an intent to facilitate. See,
e.g., TILA sections 129C(a)(5) and (6), 15
U.S.C. 1639c(a)(5) and (6).76 The
Agencies believe that this exemption
promotes the safety and soundness of
creditors and is in the public interest.
35(c)(2)(viii)
In section 35(c)(2)(viii), effective
January 18, 2014, the Agencies are
adopting a temporary exemption for all
transactions secured in whole or in part
by a manufactured home, until July 18,
2015. This temporary exemption of 18
months is intended to give creditors
sufficient time to make any changes
needed to comply with the HPML rules
that will apply to manufactured home
loans as a result of the final rules that
will apply to applications received on or
after July 18, 2015. The Agencies
understand that creditors may need to
make adjustments to their compliance
systems for some of the new rules.
These changes may involve new
technical configurations and training, as
well as modified or new contracts with
any third-party service providers that
the creditor may enlist to perform
valuation services and related functions.
Thus, the Agencies believe that this
temporary exemption promotes the
safety and soundness of creditors and is
in the public interest.
Rules Effective July 18, 2015
For applications received on or after
July 18, 2015, new rules will apply to
loans secured by manufactured homes,
as follows:
(1) The temporary exemption for
loans secured by existing manufactured
homes and land will expire; those loans
will be subject to the HPML appraisal
rules in § 1026.35(c)(3) through (6).
(2) A modified exemption for loans
secured by a new manufactured home
and land will take effect; those loans
will be subject to all of the HPML
appraisal requirements except the
requirement that the appraisal include a
physical visit of the interior of the
property. See § 1026.35(c)(2)(viii)(A)
and accompanying section-by-section
analysis.
(3) An exemption for loans secured by
either a new or existing manufactured
home and not land will be subject to a
condition that the creditor obtain and
provide to the consumer one of three
76 See also Statement of Sen. Dodd, 156 Cong.
Rec. S5928 (July 15, 2010).
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types of value-related information. See
§ 1026.35(c)(2)(viii)(B) and
accompanying section-by-section
analysis.
These new rules are discussed below.
Loans Secured by an Existing
Manufactured Home and Land
Under the version of
§ 1026.35(c)(2)(viii) that goes into effect
on July 18, 2015, loans secured by an
existing manufactured home and land
together will be subject to the HMPL
appraisal requirements in
§ 1026.35(c)(3) through (6), consistent
with the January 2013 Final Rule and
the 2013 Supplemental Proposed Rule.
The Agencies’ Proposal
tkelley on DSK3SPTVN1PROD with RULES2
In the 2013 Supplemental Proposed
Rule, the Agencies did not propose to
exempt from the HPML appraisal rules
transactions that are secured by both an
existing manufactured home and land.
The Agencies did not believe that an
exemption for these transactions would
be in the public interest and promote
the safety and soundness of creditors.
The Agencies noted that Federal
government and GSE manufactured
home loan programs generally require
conformity with USPAP real property
appraisal standards for transactions
secured by both a manufactured home
and land.77 The Agencies expressed the
view that the Federal government
agency and GSE requirements may
reflect that conducting an appraisal in
conformity with USPAP standards are
feasible for existing manufactured
homes together with land.
The Agencies noted that this view
was affirmed by 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. The Agencies also noted,
however, that some commenters on the
2012 Proposed Rule recommended that
the Agencies exempt these types of
‘‘land/home’’ transactions.78
77 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, 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).
78 See 78 FR 10368, 10379–80 (Feb. 13, 2013).
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Public Comments
In the 2013 Supplemental Proposed
Rule, the Agencies sought comment on
whether an exemption from the HPML
appraisal requirements for transactions
secured by an existing manufactured
home and land would be in the public
interest and promote the safety and
soundness of creditors. The Agencies
also sought comment on, among other
issues, whether an exemption for these
loans should be conditioned on the
creditor providing the consumer with
some other type of valuation
information.
The Agencies received 14 comment
letters on this issue from two national
appraisal trade associations, a consumer
advocate group, three affordable
housing organizations, a policy and
research organization, a national
association for owners of manufactured
homes, a credit union, a community
bank, a national trade association for
community banks, a State manufactured
housing trade association, and two
manufactured housing nonbank lenders.
In addition, a national manufactured
housing industry trade association
referred to and endorsed the comments
of two manufactured housing lenders.
The credit union, community bank,
consumer advocate group, affordable
housing organizations, national
association of owners of manufactured
homes, and appraisal trade associations
all supported the proposal to retain the
coverage of HPMLs secured by an
existing manufactured home and land,
consistent with the January 2013 Final
Rule.
The community bank stated that
existing manufactured homes typically
depreciate more than comparable sitebuilt homes and should receive an
interior and exterior inspection. This
commenter asserted that an interior
inspection is important for obtaining a
proper valuation and that providing an
exemption from the interior inspection
requirement would not be appropriate.
This commenter added that consumers
and creditors deserve a safe and
accurate transaction.
The appraisal trade associations
acknowledged that appraisal
assignments for transactions secured by
existing manufactured homes and land
can involve greater complexity than
assignments for site-built homes. These
commenters indicated, however, that in
recent years they have undertaken over
150 training sessions to train over 5,500
appraisal industry professionals on
performing appraisals for transactions
secured by a manufactured home and
land.
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78543
The consumer advocate group, two
affordable housing organizations, a
policy and research organization, and
national association of owners of
manufactured homes indicated that any
issues with appraiser availability were
due to a lack of valuation standards in
this segment of the housing market.
They maintained that requiring
appraisals for these transactions would
ensure demand, thus fostering greater
appraiser capacity.
On the other hand, the community
bank trade association, State
manufactured housing trade association,
and two manufactured housing nonbank
lenders opposed the proposal to cover
loans secured by an existing
manufactured home and land and
recommended exemption these
transactions from the HPML appraisal
rules.
The community bank trade
association stated that appraisals
increase costs to manufactured home
borrowers who often have low incomes.
In the view of this commenter, credit
risk on portfolio lending and
underwriting standards for secondary
market transactions provide sufficient
incentives for creditors to select
appropriate alternative valuation
methods, which include a variety of
methods other than an appraisal in
conformity with USPAP and FIRREA
based upon a physical inspection of the
interior of the property as required by
the HPML appraisal rules. In addition,
according to this commenter, some
community banks report that appraisers
can be readily engaged for manufactured
housing transactions in general; for
others, however, appraisers are
reportedly difficult to find or appraisals
are more costly or take longer than inhouse non-appraisal valuations. The
State manufactured housing trade
association also referred to difficulties
with obtaining appraisals for these
loans. This commenter expressed the
view that creditors should be subject
only to an appraisal requirement when
participating in a government or GSE
program that imposes such a
requirement.
One of the nonbank lenders stated
that these transactions should be
exempt due to a lack of sufficient
appraisers and a lack of sufficient data
on comparable sales (‘‘comparables’’) of
manufactured homes, particularly in
rural areas. This commenter also raised
concerns about costs, noting that
appraisals with interior inspections
could, in this lender’s experience, raise
loan cost by 68 to 81 basis points. In
addition, the lender noted that in the 6
percent of its 2012 manufactured home
transactions secured by land and home
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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations
that were subject to a similar HUD
appraisal requirement, the collateral did
not appraise at or above the sales price
in 30 percent of transactions. In the
view of this lender, these outcomes
were due in significant part to an
inappropriate emphasis in the HUD
program on the use of manufactured
homes as comparables. The other
nonbank lender stated that an appraisal
for transactions secured by an existing
manufactured home and land would be
unreliable and a misuse of consumer
funds. This commenter also noted that
it already complies with appraisal
disclosure requirements in Regulation
B.79 Finally, as noted above, a national
trade association for manufactured
housing endorsed the comments of
these manufactured home lenders.
tkelley on DSK3SPTVN1PROD with RULES2
The Final Rule
Consistent with the 2013
Supplemental Proposed Rule, the final
rule that goes into effect July 18, 2015,
does not exempt loans secured by an
existing manufactured home and land
from the HPML appraisal requirements
in § 1026.35(c)(3) through (6).80
Covering transactions secured by an
existing home and land is consistent
with the requirements of the GSEs and
Federal government agencies for these
types of loans.
In addition, the Agencies received
information from manufactured home
lender representatives who indicated
that obtaining appraisals in conformity
with USPAP that include interior
inspections for loans secured by an
existing manufactured home and land is
not uncommon among manufactured
home creditors. Some lender
commenters on the 2013 Supplemental
Proposed Rule supported applying the
HPML appraisal rules to these
transactions as consistent with prudent
lending practices.
Moreover, the Agencies obtained
comments on the 2013 Supplemental
Proposed Rule from consumer
advocates, affordable housing
organizations, and other stakeholders,
but had not had the benefit of comments
from these stakeholders on the 2012
Proposed Rule. As discussed above,
consumer and affordable housing
advocates strongly supported applying
the HPML appraisal requirements to
transactions secured by an existing
79 See
12 CFR 1002.14.
requirement for a second appraisal in
‘‘flipped’’ transactions is not anticipated to be
triggered in most existing manufactured home
transactions, if any. See § 1026.35(c)(4). The
Agencies are not aware, based on research, public
comments, and outreach, that manufactured home
properties are improved and re-sold quickly by
investors.
80 The
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Jkt 232001
manufactured home and land. They
argued, among other things, that
consumers would thereby obtain
information about the value of their
homes that would account more
thoroughly for the value added to a
home by the land on which the existing
home is or will be placed. Similar
comments were submitted by a national
real estate trade organization, a policy
and research organization, and a
national association of owners of
manufactured homes.81
Appraiser organizations that
submitted written comments and
appraisers consulted by the Agencies in
informal outreach also strongly
recommended that the HPML appraisal
rules be adopted for transactions
secured by existing manufactured
homes and land. They indicated that the
appraisal methods for appraising
existing manufactured homes and land
are the same as for site-built homes and
land. Their comments suggested that
appraisals with interior inspections for
these homes are common and that
prudent lending practice and consumer
protection are best served by obtaining
appraisals for transactions secured by an
existing manufactured home and land
together, including a physical
inspection of the interior of the home.
As noted, one manufactured home
lender commenter expressed concerns
about applying the HPML appraisal
rules to loans secured by existing
manufactured homes and land when the
home has been moved from its previous
site to a dealer’s lot. Transactions
secured by an existing home that has
been moved to a dealer’s lot and land
can still be appraised in conformity
with USPAP, which does not require
that the home first be sited before an
appraiser performs the appraisal. The
Agencies understand that the home
could be inspected on the dealer’s lot,
for example, or once the home is resited. The Agencies also note that
several commenters asserted that
existing manufactured homes are rarely
moved. For these reasons, the Agencies
believe that an appraisal with an
interior inspection that values the home
and land together is still warranted for
these properties.
Based on these comments and related
outreach, the Agencies do not believe
that exempting loans secured by a
manufactured home and land from the
HPML appraisal requirements would be
in the public interest or promote the
81 In commenting on the 2012 Proposed Rule, the
national real estate trade associated similarly
expressed the view that exempting transactions
secured by both a manufactured home and land
may not be appropriate. See 78 FR 48548, 48554,
n. 16 (Aug. 8, 2013).
PO 00000
Frm 00026
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safety and soundness of creditors. The
Agencies believe that covering these
loans will help ensure that consumers
are aware of information related to the
value of their manufactured home
before consummating an HPML (that is
not a qualified mortgage). The Agencies
also believe that covering these loans
will facilitate the development of greater
consistency between the rules and
practices applicable to transactions
secured by site-built homes and
manufactured homes. The Agencies
believe that this consistency of rules
and practices will contribute to
integrating manufactured home lending
more fully into the broader mortgage
market over time, which could have
long-term benefits for consumers and
lenders.
The Agencies believe that most
lenders of manufactured home loans
obtain appraisals in conformity with
USPAP and FIRREA for loans secured
by existing manufactured homes and
land. However, the Agencies understand
that not all manufactured home lenders
may do so, or do so consistently, and are
mindful that smaller lenders in
particular may need more time to
comply. Therefore, the final rule gives
the industry 18 months before
compliance with the HPML appraisal
requirements is mandatory for these
transactions.
35(c)(2)(viii)(A)
Loans Secured by a New Manufactured
Home and Land
Section 1026.35(c)(2)(viii)(A),
effective July 18, 2015, provides a
partial exemption from the HPML
appraisal requirements of
§ 1026.35(c)(3) through (c)(6) for
transactions secured by both a new
manufactured home and land.
Specifically, loans for which the
creditor receives the application on or
after July 18, 2015, will be exempt from
the requirement that the appraisal
include a physical visit of the interior of
the manufactured home, found in
§ 1026.35(c)(3)(i). All other HPML
appraisal requirements in
§ 1026.35(c)(3) through (c)(6) will apply.
The Agencies’ Proposal
In the January 2013 Final Rule, the
Agencies adopted an exemption from
the HPML appraisal requirements for
loans secured by a ‘‘new manufactured
home.’’ See 78 FR 10368, 10379–10380,
10433, 10438, 10444 (Feb. 13, 2013). In
the 2013 Supplemental Proposed Rule,
the Agencies stated that, after issuing
the January 2013 Final Rule, the
Agencies obtained additional
information on valuation methods for
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tkelley on DSK3SPTVN1PROD with RULES2
manufactured homes. Based on this
information, the Agencies requested
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. The
Agencies also sought comment on
whether some other valuation method
should be required as a condition of the
exemption for these transactions from
the general HPML appraisal
requirements in § 1026.35(c)(3) through
(c)(6).
In particular, the Agencies noted that
appraisers and State appraiser boards
consulted in outreach efforts confirmed
that real property appraisals in
conformity with USPAP are possible
and conducted with at least some
regularity in transactions secured by a
new manufactured home and land. The
Agencies expressed their understanding
that these appraisals value the site and
the home together 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).82 The Agencies
further noted that these appraisals could
document additional value based on
factors such as the home’s location, and
in some cases could identify visible
discrepancies between the
manufacturer’s specifications and the
actual home once it is sited.
In the 2013 Supplemental Proposed
Rule, the Agencies also observed that
USPAP-compliant real property
appraisals are regularly conducted for
all transactions under Federal
government agency and GSE
manufactured home loan programs.83
FHA Title II program standards, for
example, which apply to transactions
secured by a manufactured home and
land titled together as real property,
82 See, e.g., Texas Appraiser Licensing and
Certification Board, ‘‘Assemblage As Applied to
Manufactured Housing,’’ available at https://
www.talcb.state.tx.us/pdf/USPAP/
AssemblageAsAppliedToMfdHousing.pdf.
83 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, 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).
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18:30 Dec 24, 2013
Jkt 232001
require an appraisal in conformity with
USPAP.84
The Agencies noted further that in
informal outreach, a representative of
manufactured home appraisers and a
manufactured home 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.85 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 and appropriate
comparables are not unduly difficult to
find to perform these appraisals, even in
rural areas.86
The Agencies noted that
manufactured home lenders
commenting on the 2012 Proposed Rule
and during informal outreach raised
concerns that comparables of other
manufactured homes can be particularly
difficult to find. The Agencies expressed
their understanding that a lack of
appropriate comparables 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.87
The Agencies noted, 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
84 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 (p. D–9).
85 For a summary of more recent informal
outreach conducted by the Agencies, see https://
www.federalreserve.gov/newsevents/rrcommpublic/industry-meetings-20131001.pdf.
86 For FHA-insured loans secured by real
property—a manufactured home and lot together—
HUD requires creditors to use a FHA Title II Roster
appraiser that can certify to prior experience
appraising manufactured homes as real property.
See HUD, Title I Letter 481 (Aug. 14, 2009) (‘‘HUD
TI–481’’), 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).
87 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 https://
cfed.org/assets/pdfs/Appraising_Manufacture_
Housing.pdf.
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78545
adjustments where necessary.88 The
Agencies also stated that a current
version of an Appraisal Institute
seminar on manufactured housing
appraisals confirmed that when
necessary, USPAP appraisals can use
non-manufactured homes as
comparables, making adjustments where
needed.89
At the same time, the Agencies sought
information about the potential impact
on the industry and consumers of
requiring real property appraisals in
conformity with USPAP that include
interior inspections in transactions
secured by a new manufactured home
and land (where these types of
appraisals are not already required). In
this regard, the Agencies noted that
several manufactured home lenders
commented on the 2012 Proposed Rule
and shared in informal outreach that
they typically do not conduct an
appraisal with an interior inspection of
a new manufactured home, but use
other methods, such as relying on the
manufacturer’s invoice as a baseline for
the value of the new home and
conducting a separate appraisal of the
land in conformity with USPAP.90 Thus,
the Agencies observed that requiring a
USPAP-compliant appraisal with an
interior inspection could require
systems changes for some manufactured
home lenders. In addition, the Agencies
also noted the possibility that, if the
appraisals required under the 2013
January Final Rule were more expensive
than existing methods, imposing the
HPML appraisal requirements would
lead to additional costs that could be
passed on in whole or in part to
consumers.
Accordingly, the Agencies requested
data on the extent to which an appraisal
in conformity with USPAP with an
interior property inspection would be of
comparable cost to, or more or less
expensive than, a separate USPAPcompliant appraisal of a lot added
88 See HUD Handbook 4150.2, chapter 8.4
(providing the following instructions on appraisals
for manufactured homes insured under the FHA
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.’’).
89 See Appraisal Institute, ‘‘Appraising
Manufactured Housing—Seminar Handbook,’’ Doc.
PS009SH–F (2008) at Part 8, 8–110, available at
https://www.appraisalinstitute.org/education/
seminar_descrb/Default.aspx?sem_nbr=OL–
671&key_type=OOS.
90 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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together with an invoice price for the
home unit. The Agencies also requested
comment on the potential burdens on
creditors and consumers and any
potential reduction in access to credit
that might result from imposing
requirements for an appraisal in
conformity with USPAP that includes
an interior property inspection on all
manufactured home creditors of HPMLs
secured by both a new manufactured
home and land. In this regard, the
Agencies asked 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).
Finally, the Agencies requested
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.
Public Comments
Eighteen commenters responded to
the Agencies’ questions about the
exemption for transactions secured by
both a new manufactured home and
land. These commenters comprised four
national appraiser trade associations, a
State credit union trade association, a
credit union, a national manufactured
housing industry trade association, a
national association for owners of
manufactured homes, two manufactured
housing lenders, a consumer advocate
group, three affordable housing
organizations, a policy and research
organization, a State manufactured
housing industry trade association, a
real estate trade association, and a
mortgage banking trade association.
Commenters had varying opinions on
whether the exemption for transactions
secured by both a new manufactured
home and land was appropriate. Four
national appraiser trade associations, a
credit union, a national association for
owners of manufactured homes, a
consumer advocate group, three
affordable housing organizations, a
policy and research organization, and a
real estate trade association opposed the
exemption. Two of the national
appraiser trade associations asserted
that the exemption for transactions
secured by new manufactured homes
and land did not meet the statutory
exemption criteria of being in the public
interest and promoting the safety and
soundness of creditors.91 These
commenters also believed that the
January 2013 Final Rule and the 2013
Supplemental Proposed Rule lacked
91 See TILA section 129H(b)(4)(B), 15 U.S.C.
1639h(b)(4)(B).
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public policy consistency because loans
secured by a manufactured home and
land would be treated differently based
on whether the home is existing or new,
even though both are real estate-secured
transactions. A real estate trade
association and two national appraiser
trade associations noted that the
exemption was inconsistent with the
manufactured housing appraisal
requirements of HUD, VA, and GSE
manufactured housing loan programs.
A credit union commenter expressed
the view that an appraisal with an
interior inspection in conformity with
USPAP and FIRREA is the only method
of valuation that properly accounts for
all valuation factors, including the
property’s location and discrepancies
between the manufacturer’s
specifications and the home itself.
Similarly, two national appraiser trade
associations argued that this type of
appraisal was necessary because the
price of a manufactured home may not
necessarily reflect its value, due to
factors such as the quality of installation
and construction of the home. Two
national appraiser trade associations, a
manufactured housing lender, and a real
estate trade association stated that an
appraisal in conformity with USPAP of
a lot combined with an invoice price for
the home unit (as opposed to valuing
the home and land as a single item of
real property) was an incorrect form of
valuation that would not provide a
credible indication of the value of the
home and land combined.
Several commenters emphasized that
performing appraisals in conformity
with USPAP and FIRREA for these
transactions is feasible. An affordable
housing commenter argued that, for new
manufactured homes that are not yet
sited, appraisers can follow standards in
USPAP for appraising site-built homes
that are not yet constructed. Under these
existing USPAP standards, an appraisal
is based on a site inspection and the
plans and specifications of the home.92
When the construction is complete, an
appraiser or qualified inspector can
confirm whether the finished home
meets the same specifications.
According to national appraiser trade
associations, appraisals in conformity
with USPAP are regularly performed for
transactions secured by a new
manufactured home and land. These
commenters stated that professional
appraisers for manufactured homes are
widely available, that appropriate
comparables can be readily found, and
92 See Appraisal Standards Bd., Appraisal Fdn.,
Standards Rule 1–2(e) and Advisory Opinion 17,
‘‘Appraisals of Real Property with Proposed
Improvements,’’ at U–17, U–18, and A–37, available
at https://www.uspap.org.
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that USPAP protocols (including
interior inspections) are appropriate for
valuing manufactured housing and land.
Two affordable housing organizations, a
consumer advocate group, a policy and
research organization, and a national
association of owners of manufactured
homes believed that the same appraisal
requirements should apply to
transactions secured by a new
manufactured home as apply to
transactions secured by site-built
homes. They believed, however, that
appraisers should have more flexibility
in manufactured home transactions to
use site-built homes as comparables
than some Federal government agency
and GSE programs currently allow.
Two affordable housing organizations,
a consumer advocate group, a policy
and research organization, and a
national association for owners of
manufactured homes believed that
transactions secured by a new
manufactured home should be subject to
the rule if the homeowner owns the
land on which the home is sited, even
if the home is not subject to a security
interest. Another affordable housing
organization recommended that new
manufactured homes should be subject
to the rule, whether affixed to owned
land or on land with a long term lease.
In contrast, six commenters—a
national mortgage banking association, a
State credit union association, two
manufactured housing lenders, a
national manufactured housing trade
association, and a State manufactured
housing trade association—supported
the exemption for transactions secured
by both a new manufactured home and
land. Some of these commenters
asserted that an exemption was
necessary because a physical interior
inspection was infeasible. In this regard,
the manufactured housing lender stated
that a new manufactured home typically
will not be delivered and installed until
after a loan closes. The commenter
noted that, as with construction loans,
which are provided an exemption from
the HPML appraisal rules
(§ 1026.35(c)(2)(iv)), on-site interior
inspections of new manufactured homes
that will secure loans are not feasible
because they are still being
manufactured, delivered, or installed
when appraisals would need to be
ordered. Similarly, a State manufactured
housing industry trade association
stated that a manufactured home’s
production does not begin before the
determination is made to provide credit
to a consumer, so a physical inspection
prior to closing would be impossible.93
93 As noted under ‘‘Public Comments,’’ however,
a representative of a manufactured home loan
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A national manufactured housing
industry trade association also
questioned the value of an interior
inspection of new manufactured homes,
stating that each manufactured home is
built to the specifications of the retailer
and is manufactured in a controlled
manufacturing process in accordance
with HUD standards, which ensures the
application of consistent, quality
standards.94 According to this
commenter, the manufacturer certifies
to the retailer the authenticity and
accuracy of the wholesale cost of the
home at the point of manufacture.
Some commenters noted that even
though appraisals in conformity with
USPAP are required by some Federal
government agencies and GSE
manufactured housing loan programs,
they are not performed frequently. One
manufactured housing lender stated that
traditional appraisals typically are
performed only for certain FHA loans
that represent a small fraction of overall
land/home manufactured housing
loans.95 A State manufactured housing
industry trade association offered
similar comments. The State
manufactured housing industry trade
association commenter also asserted
that GSE-like appraisal requirements
were not appropriate for these
transactions, because most new
manufactured home loans are held in
portfolio and creditors will set valuation
standards appropriate for their own
loans.
Commenters also challenged the
accuracy of appraisals performed in
conformity with USPAP and FIRREA for
transactions secured by both a new
manufactured home and land. A
manufactured housing lender stated
that, even for FHA-insured land/home
loans, traditional appraisals are prone to
yielding appraised values that are lower
than the sales price of the home. A
national manufactured housing industry
trade association stated that traditional
appraisals produce appraised values
lender consulted in informal outreach by the
Agencies indicated that the lender does not close
loans secured by a new manufactured home and
land until the home is sited.
94 See 24 CFR part 3280.
95 FHA reported providing insurance under its
Title I program for 655 manufactured home loans
in Fiscal Year (FY) 2012, 986 in FY 2011, and 1,776
in FY 2010. See HUD, FHA Annual Management
Report, Fiscal Year 2012 (Nov. 15, 2013) at 17. FHA
also reported providing insurance under its Title II
program for 20,479 manufactured home loans in FY
2012, 21,378 in FY 2011, and 30,751 in FY 2010.
See id. According to 2012 HMDA data, 19,614 FHAinsured manufactured home loans (under both
Titles I and II) were reported out of a total of
123,628 reported manufactured home loans; thus,
FHA-insured loans represented 15.9 percent of
HMDA-reported manufactured home loans. See
www.ffiec.gov/hmda.
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lower than the sales price for more than
20 percent of transactions that are
secured by manufactured homes and
land. One manufactured housing lender
stated that for its loans for which
appraisals are ordered, appraisals
resulted in appraised values lower than
the sales price around 30 percent of the
time. Similarly, the State manufactured
housing industry trade association
stated that, based on information from
its members, the rate of appraisals with
appraised values lower than the sales
price is approximately 30 percent.
Commenters also cited problems with
obtaining comparables as contributing
to the difficulty with obtaining accurate
appraisals. Manufactured housing
lenders, a national manufactured
housing industry trade association, and
a State manufactured housing industry
trade association stated that
manufactured home comparables,
especially in rural areas, tend to be
unavailable or inadequate. One lender
noted that, in practice, HUD will permit
site-built comparables for the Title II
FHA loan insurance program in the
absence of appropriate manufacturer
home comparables, but only on a
limited basis. A manufactured housing
lender also asserted that relying upon
site-built homes as comparables can
lead to inflated values.
A national manufactured housing
industry trade association and a State
manufactured housing industry trade
association asserted that no reliable
database of previous sales which
appraisers can use to develop an
accurate, reliable value for
manufactured homes exists. The State
manufactured housing industry trade
association believed that actual sales
data must serve as the foundation for
any valuation system. The commenter
believed that creating such a database
would involve both time and expense,
and that such a database should not be
created by private industry or based
upon the voluntary submission of sales
price data. This commenter expressed
the view that such a database should be
created by State governments.
Several commenters believed that
issues with appraisers are the cause of
manufactured housing appraisals
resulting in values lower than the sales
price. A manufactured housing lender
believed that significant appraiser bias
exists against manufactured housing,
which results in lower value estimates.
Another manufactured housing lender
stated that most state-licensed or
-certified appraisers have no training or
experience in appraising manufactured
homes.
Commenters also cited concerns about
the cost of requiring appraisals for these
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78547
transactions. A national manufactured
housing industry trade association and
two manufactured housing lenders
raised related concerns that appraisal
costs would make these transactions
less affordable for consumers and that
an appraisal is expensive relative to the
cost of a manufacture home. The
national manufactured housing industry
trade association expressed the view
that these costs could result in reduced
manufactured housing lending.
The Agencies specifically requested
comment on the potential burdens on
creditors and consumers and any
potential reduction in access to credit
that might result from imposing
requirement for an appraisal in
conformity with USPAP and FIRREA
with an interior property inspection on
all creditors of loans secured by both a
new manufactured home and land. Two
national appraiser trade associations
believed that concerns about appraisal
costs could be mitigated because
professional appraisers can provide a
range of services other than an interior
inspection but still in conformity with
USPAP. These commenters argued that
the cost of a professional appraisal is
relatively small compared to the value
provided to borrowers and to loan
underwriting safety and soundness. A
consumer advocate group, two
affordable housing organizations, a
national association of owners of
manufactured homes, and a policy and
research organization believed that the
costs of an appraisal with an interior
inspection would be no higher than the
costs of appraisals for site-built homes
subject to the rule.
No commenters offered data on the
cost of the method of using the
manufacturer’s invoice for the home and
conducting a separate appraisal of the
land. However, a national manufactured
housing industry trade association
asserted that this method costs
consumers less than the type of
appraisal that the HPML appraisal rules
require. Informal outreach by the
Agencies with a manufactured housing
lender after the 2013 Supplemental
Proposed Rule suggested that the
interior inspection was the element of
the HPML appraisal requirements that
added the most cost. Another
manufactured housing lender believed
that the land-only appraisal would still
be expensive for consumers. A national
association of owners of manufactured
homes, a consumer advocate group, a
policy and research organization, and
two affordable housing organizations
stated that they did not have cost
information in order to respond to the
question posed by the Agencies.
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In addition, the Agencies requested
comment on whether consumers
currently receive information about the
value of their land and manufactured
home. A consumer advocate group, two
affordable housing organizations, a
policy and research organization, and a
national association of owners of
manufactured homes asserted that
consumers do not currently receive
valuation information. Two
manufactured housing lenders stated
that, when appraisals are performed,
lenders are required to provide the
ECOA notice informing consumers that
a copy of the appraisal may be obtained
from the lender upon request.96 One of
the manufactured housing lenders
indicated that it routinely issues a copy
of the appraisal to its customers. The
other lender stated that, after receiving
the ECOA notice, very few consumers
request the appraisal information.
Finally, the Agencies requested
comment on alternative methods that
may be appropriate for valuing new
manufactured homes and land, which
the Agencies could require as a
condition of an exemption from the
general HPML appraisal rules in
§ 1026.35(c)(3) through (c)(6). A real
estate trade association, two national
appraiser trade associations, a consumer
advocate group, a policy and research
organization, two affordable housing
organizations, and a national association
of owners of manufactured homes
believed that a discussion of
conditioning the exemption was
unnecessary because they believed that
there should be no exemption for these
transactions.
All other commenters on this issue—
a national mortgage banking association,
a State credit union association, two
nonbank manufactured home lenders, a
State manufactured housing industry
trade association, and a national
manufactured housing industry trade
association—opposed adding conditions
to the exemption. The manufactured
housing lenders stated that they were
unaware of a reliable, uniform valuation
method by which to provide
information to a consumer in new or
existing manufactured housing
transactions. The mortgage banking
trade association believed that
providing an alternative valuation
would confuse consumers, and a State
credit union trade association believed
that a condition would increase the cost
for consumers to obtain credit.
96 See ECOA section 701(e), 15 U.S.C. 1691(e).
These provisions were amended by section 1474 of
the Dodd-Frank Act, implemented by the Bureau’s
2013 ECOA Valuations Rule, 12 CFR § 1002.14, and
effective January 18, 2014.
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The Final Rule
The Agencies are adopting a modified
exemption for transactions secured by a
new manufactured home and land.
Under the final rule, creditors for these
transactions will be subject to all of the
HPML appraisal requirements except for
the requirement that the appraisal
include a physical visit of the interior of
the manufactured home. See
§ 1026.35(c)(3)(i). As discussed below,
the Agencies believe that this exemption
from the requirement for a physical visit
of the interior of the property is in the
public interest and promotes the safety
and soundness of creditors. Comment
35(c)(2)(viii)(A)–1 clarifies that a
creditor of a loan secured by a new
manufactured home and land could
comply with § 1026.35(c)(3)(i) by
obtaining an appraisal conducted by a
state-certified or -licensed appraiser
based on plans and specifications for
the new manufactured home and an
inspection of the land on which the
property will be sited, as well as any
other information necessary for the
appraiser to complete the appraisal
assignment in conformity with USPAP
and FIRREA. Compliance with the
HPML appraisal rules for these
transactions is not mandatory until July
18, 2015.
As discussed in the 2013
Supplemental Proposed Rule, the
Agencies conducted additional research
and outreach after issuing the January
2013 Final Rule to determine how to
treat loans secured by existing
manufactured homes under the HPML
appraisal rules. In this process, the
Agencies obtained information about
manufactured home lending valuation
practices that prompted the Agencies to
review the exemption in the January
2013 Final Rule for transactions secured
by a new manufactured home, whether
or not the transaction is secured by
land.
Through research, written comments,
and informal outreach, the Agencies
obtained the views of a wider range of
stakeholders, including consumer
advocates, affordable housing
organizations, a policy and research
organization, and a national association
of owners of manufactured homes
(summarized earlier ‘‘Public
Comments’’).97 In addition, the
Agencies consulted with additional
manufactured home lenders, one of
97 The Agencies did not receive comments from
these types of organizations on the 2012 Proposed
Rule, which the Agencies believe may be due to the
large volume of mortgage rules that were issued for
public comment at that time. A large real estate
trade association expressed similar views in
commenting on both the 2012 Proposed Rule and
2013 Supplemental Proposed Rule.
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which indicated that the lender obtains
appraisals in conformity with USPAP
for these transactions.98 Based on this
information, the Agencies understand
that a pivotal factor in valuing
manufactured homes is whether the
transaction is secured by land.
Accordingly, the Agencies are adopting
a final rule that applies different rules
to loans secured by a new manufactured
home and land (§ 1026.35(c)(2)(viii)(A))
and loans secured by a new
manufactured home without land
(§ 1026.35(c)(2)(viii)(B)).
The Agencies understand that
manufactured home lenders regularly
value a new manufactured home and
land by relying on the manufacturer’s
(wholesale) invoice for the home unit
(marked up by a certain percentage to
account for siting costs, dealer profit,
and related expenses associated with
the transactions) and having a separate
appraisal performed on the land. The
two values are then added together to
obtain a maximum loan amount, which
may not be the amount of credit
ultimately extended. The Agencies
understand that transactions secured by
a new manufactured home and land can
be consummated before the new home
is sited or, in some cases, even built.
For these reasons, the Agencies
recognize that applying the HPML
appraisal rules to transactions secured
by a new manufactured home and land
will represent a change in practices for
many manufactured home lenders. In
part to mitigate unnecessary burden, the
Agencies are exempting these
transactions from the requirements that
the appraisal include a physical
inspection of the interior of the new
manufactured home. In addition, the
Agencies understand that an interior
inspection of the property is a central
obstacle to complying with the HPML
appraisal rules in transactions secured
by a new manufactured home and land,
since production of the home might not
be completed or started before the loan
is consummated. Further, the Agencies
believe that an interior inspection on a
new manufactured home may not be
warranted because the home would not
have been subject to wear and tear and
production and installation inspections
new manufactured homes occur as part
of a separate regulatory framework
administered by HUD.99
Under the final rule, as of July 18,
2015, a creditor could, for example,
obtain an appraisal based on the
98 For a summary of more recent informal
outreach conducted by the Agencies, see https://
www.federalreserve.gov/newsevents/rrcommpublic/industry-meetings-20131001.pdf.
99 See 24 CFR parts 3282 and 3286.
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appraiser’s review of plans and
specifications of the new home and an
inspection of the site. See comment
35(c)(2)(viii)(A)–1. Neither USPAP nor
FIRREA requires an interior inspection,
but the Agencies believe that all other
aspects of the HPML appraisal rules
could and should be complied with.
USPAP and FIRREA also do not require
an appraiser to use particular types of
comparables in valuing manufactured
homes, so appraisers will have
flexibility in selecting either
manufactured home comparables or
site-built comparables as the appraiser
deems appropriate or as the creditor,
secondary market participant, or
relevant government agency requires.
The Agencies are also aware that public
comments and outreach included
varying views on the availability of
appropriate comparables and appraisers
with the relevant competency to
conduct USPAP land/home appraisals
for transactions secured by a new
manufactured home and land, with
some generally asserting that
appropriate comparables and competent
appraisers are readily available, while
other expressed concerns that at least in
some markets they are not. However, the
Agencies believe that giving creditors 18
months before compliance becomes
mandatory can provide time for
creditors and other stakeholders to
determine how to address concerns in
these areas.
The Agencies believe that applying
the HPML appraisal rules to
transactions secured by new
manufactured homes and land is
important for several reasons. First, as
with transactions secured by an existing
manufactured home and land, covering
transactions secured by a new home and
land is consistent with the requirements
of the GSEs and Federal government
agencies for these types of loans. Again,
Congress designated HPML transactions
that are not qualified mortgages to be
‘‘higher-risk’’ than other transactions;
therefore, the Agencies believe it
prudent and in keeping with
congressional concern to be consistent
with other Federal standards for these
loans.
Second, appraiser representatives and
regulators have made it clear in public
comments on this rulemaking and
independent publications that separate
assessments of the unit value and land
added together do not constitute an
acceptable appraisal.100 For loans
deemed ‘‘higher-risk’’ by Congress, the
100 See, e.g., Texas Appraiser Licensing and
Certification Board, ‘‘Assemblage As Applied to
Manufactured Housing,’’ available at https://
www.talcb.state.tx.us/pdf/USPAP/
AssemblageAsAppliedToMfdHousing.pdf.
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Agencies have reservations about a
valuation practice that diverges from
practices deemed appropriate and most
likely to result in a valid outcome.
Third, all commenters on the 2013
Supplemental Proposed Rule that did
not represent the manufactured home
lending industry, as well as a few
manufactured home lenders, opposed a
full exemption for loans secured by a
new manufactured home and land.
These comments strongly suggest that
the exemption would not be in the
public interest, as required by the
statute. Commenters opposing a full
exemption generally held the view that
appraisals in conformity with USPAP
and FIRREA for these homes are feasible
and that prudent lending practice and
consumer protection are best served by
obtaining appraisals for transactions
secured by a new manufactured home
and land together. They believed that
appraisals with interior inspections
would allow consumers to obtain better
information about the value of their
homes than methods that combine an
appraised value of a site and a markedup invoice price of a manufactured
home. As noted under ‘‘Public
Comments,’’ some manufactured home
lenders indicated that they already
conduct appraisals in conformity with
USPAP for transactions secured by a
new manufactured home and land.
The Agencies decline, however, to
adopt suggestions from some of these
commenters that the general appraisal
requirements should cover a broader
range of transactions. Regarding the
suggestion that the general appraisal
requirements should cover transactions
secured by a manufactured home and a
leasehold interest, the Agencies are
aware that State laws may vary
regarding rights attendant to leasehold
interests and that different lease terms
might have different values; both are
factors that would be beyond the scope
of the final rule to provide guidance.
GSE and Federal agency manufactured
housing programs require the securing
property to be real estate; whether a
manufactured home and lease-hold
meets that standard varies by State law
and the Agencies believe that
uniformity across states for the HPML
appraisal rules would best facilitate
compliance. At the same time, the
Agencies recognize that lease terms and
stability of tenancy can affect value, and
believe that these factors would be
appropriate to take into account as part
of valuations for appraising transactions
secured by a home and not land. The
final rule permits but does not require
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78549
consideration of these factors.101 See
§ 1026.35(c)(2)(viii)(B)(3) and
accompanying section-by-section
analysis.
The Agencies are also not following
the suggestion that the appraisal
requirement be applied to transactions
secured by a home whenever the
borrower owns the land, even if the
transaction is not secured by the land.
The Agencies are concerned that
accounting for differing ownership
structures of the land would complicate
the rule and could be difficult for
creditors and appraisers to assess. The
Agencies also have questions about
whether appraisals of the land and
home together, even if the land is not
securing the transaction, will
consistently lead to the desired result—
market value of the collateral securing
the loan. Some lenders indicated that
when a loan goes into foreclosure, the
property may be repossessed and taken
back into dealer inventory; thus, it
would seem important for a lender to
know the value of the structure by itself.
Again, the Agencies recognize that the
location of the home can have a
significant impact on its value, and
believe that the location-related factors
would be appropriate to take into
account as part of valuations for
transactions secured by a home and not
land. The final rule permits but does not
require consideration of these factors.
See § 1026.35(c)(2)(viii)(B)(3) and
accompanying section-by-section
analysis.
Fourth, most commenters, including
leading manufactured housing lending
industry representatives, expressed
support for developing and even
requiring appropriate valuations for
manufactured home transactions. In
light of additional stakeholder views
received since issuance of the January
2013 Final Rule and additional research,
the Agencies believe that applying the
HPML appraisal rules to transactions
secured by new manufactured homes
and land, as well as transactions
secured by existing manufactured
homes and land, creates needed
incentives for the continued training of
state-certified and -licensed appraisers
in valuing manufactured homes and the
development of appraisal methods
tailored to value collateral in
manufactured home lending
transactions, including appropriate use
of comparables. This will in turn
support improved accuracy and
101 A national provider of a manufactured home
cost guide indicated in comments that its guide
includes a land-lease community adjustment
guideline that can be used if a manufactured home
is located in a land-lease community.
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reliability of appraisals for these
transactions.
Regarding concerns expressed by
commenters about a lack of comparable
sales data, the Agencies understand that
in many cases comparable sales data is
reported to and available in Multiple
Listing Services (MLS) regarding sales of
manufactured homes and land classified
as real property. The Agencies recognize
that a more robust tracking of
manufactured home sales information
would be beneficial and may take time,
and encourages efforts in this regard.
The delayed effective date is intended to
allow more time to move forward in this
process.
Finally, the Agencies believe that
treating manufactured home loans
secured by both the home and land in
the same way as loans secured by sitebuilt homes and land will foster the
development of greater consistency
between the rules and practices
applicable to transactions secured by
site-built homes and manufactured
homes. The Agencies believe that this
consistency of rules and practices will
contribute to integrating manufactured
home lending more fully into the
broader mortgage market over time,
which could have long-term benefits for
consumers and lenders.
For these reasons, on balance, the
Agencies have concluded that an
exemption from the HPML appraisal
requirement for a physical visit of the
interior of the home as part of the
appraisal will promote the safety and
soundness of creditors and be in the
public interest.
35(c)(2)(ii)(B)
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Loans Secured by a Manufactured Home
and Not Land
The Agencies’ Proposal
As noted, in the January 2013 Final
Rule, the Agencies adopted an
exemption from the HPML appraisal
requirements for loans secured by a
‘‘new manufactured home.’’ See 78 FR
10368, 10379–10380, 10433, 10438,
10444 (Feb. 13, 2013). The January 2013
Final Rule did not address loans
secured by ‘‘existing’’ (used)
manufactured homes, which therefore
would be subject to the appraisal
requirements unless the Agencies
adopted an exemption.
As discussed in the 2013
Supplemental Proposed Rule, additional
research and outreach on valuation
practices for loans secured by an
existing manufactured home and not
land indicated that current valuation
practices for these transactions generally
do not involve using a state-certified or
-licensed appraiser to perform a real
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property appraisal in conformity with
USPAP and FIRREA with an interior
property inspection, as required under
TILA section 129H and the January 2013
Final Rule. In addition, lender
commenters on the 2012 Proposed Rule
had 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 MLS of most states, 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
confirmed in outreach with the
Agencies in 2013 that manufactured
home sales information is generally not
available through standard real estate
data sources.102 The Agencies also
understood that, in many states,
appraisers are not currently required to
be licensed or certified in order to
perform personal property appraisals.
Accordingly, the 2013 Supplemental
Proposed Rule would have exempted
transactions secured by existing
manufactured homes and not land in
proposed § 1026.35(c)(2)(ii)(B).103 The
Agencies noted that an exemption
would promote the public interest in
affordable housing by ensuring
transactions were not subject to a
requirement not suited to this particular
collateral type at this time, and would
promote safety and soundness by
allowing creditors to rely on currently
prevalent valuation methods to ensure
profitability and diversity to mitigate
risk. The Agencies requested comment
on this proposed exemption.
In addition, however, the Agencies’
2013 Supplemental Proposed Rule
sought comment on any risks that could
be created by an unconditional
exemption for transactions secured by a
manufactured home, whether new or
existing, and not land. After the January
2013 Final Rule was issued, consumer
advocates and other stakeholders
expressed concerns that some
transactions in the lending channel for
manufactured home-only (chattel)
transactions (both of new and existing
manufactured homes) can result in
consumers owing more than the
102 The Agencies also are not aware of site-built
or similar comparables for home-only collateral.
103 In addition, proposed comment 35(c)(2)(ii)(B)–
1 would have clarified 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.
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manufactured home is worth. For this
type of loan, stakeholders such as
consumer and affordable housing
advocates asserted 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.
Consumer advocates and others 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 also noted that chattel
manufactured home loan transactions
tend to have much higher rates than
conventional mortgage loans. Some
stakeholders 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 important
questions about the transaction.
Accordingly, the 2013 Supplemental
Proposed Rule posed a number of
questions seeking comment on
conditioning the exemptions for
manufactured home-only transactions
on providing the consumer with an
estimate of the value of the
manufactured home no later than three
business days before consummation.
The 2013 Supplemental Proposed Rule
discussed several types of estimates.
First, based on input from lenders and
manufactured home valuation
providers, the Agencies understood that
in new home-only transactions, many
creditors determine the maximum
amount that they will lend by using the
manufacturer’s invoice, or wholesale
unit price, marked up by a certain
percentage to reflect, for example, dealer
profit and siting costs. As discussed in
the 2012 Proposed Rule, informal
outreach participants indicated that this
practice—similar to that sometimes
used for automobiles—is longstanding
in new manufactured home
transactions.104 Lenders asserted that
these methods save costs for consumers
and creditors and has been found to be
reasonably effective and accurate for
purposes of ensuring a safe and sound
loan.
Second, outreach to manufactured
home lenders indicated that in
transactions secured by an existing
manufactured home and not land,
lenders typically obtain replacement
104 See
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cost estimates derived from nationally
published cost services, taking into
account factors such as the age of the
unit (to derive depreciated values) and
regional location of the home.105
Third, the Agencies understood that
additional methods exist for conducting
personal property appraisals of
manufactured homes. For example,
HUD has adopted property valuation
standards for HUD-insured loans
secured by an existing manufactured
home and not land. These standards call
for use of a certified independent fee
appraiser to conduct a valuation of the
home using data on comparable
manufactured homes in similar
condition and in the same geographic
area.106
Public Comments
The Agencies received 28 comment
letters on transactions secured by
manufactured homes and not land from
four national appraisal trade
associations, a provider of a
manufactured housing cost guide, a
consumer advocate group, three
affordable housing organizations, a
national association of owners of
manufactured homes, a policy and
research organization, a credit union,
seven State or regional credit union
associations, a national credit union
association, a community bank, a
national trade association for
community banks, a State banking trade
association, a national mortgage banking
trade association, a national trade
association for manufactured housing, a
State manufactured housing trade
association, and two manufactured
housing nonbank lenders.
Many of the comments received
pertained to transactions secured by
either an existing or new manufactured
home, but the comment summary below
is generally divided into two parts, one
regarding comments on loans secured
by a new manufactured home (but not
land) and one regarding comments on
loans secured by an existing
manufactured home (but not land).
First, however, some generally
applicable comments are reviewed
below.
General Comments
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A consumer advocate group, two
affordable housing organizations, a
105 One option identified in the 2013
Supplemental Proposed Rule (78 FR 48548, 48554
n. 12 (Aug. 8, 2013) was the National Automobile
Dealers Association (NADA) Manufactured Housing
Cost Guide. See NADAguides.com Value Report,
available at www.nadaguides.com/ManufacturedHomes/images/forms/MHOnlineSample.pdf.
106 See HUD TI–481, Appendices 8–9, C, and 10–
5.
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national association of owners of
manufactured homes, and a policy and
research organization indicated that the
Agencies should adopt a rule that would
ensure that consumers have information
about their home value before entering
into an HPML secured by an existing
manufactured loan without land.
Providers of valuations and their trade
associations also generally supported
providing copies of valuation
information to consumers in these
transactions. Two appraiser trade
associations stated that consumers have
a ‘‘fundamental right’’ to understand the
market value of the property
collateralizing covered loans. A
provider of a manufactured home cost
guide stated that consumers
unequivocally would benefit from
knowing the cost estimate value of their
home.
Industry support for providing this
information to consumers was more
limited. A State credit union association
stated that in an HPML secured by an
existing manufactured home and not
land, the consumer should receive a
copy of a valuation, which this
commenter believed would be a
valuable tool for the consumer. A State
manufactured housing trade association
stated that, if a reliable repository of
data on comparable sales were
developed, it would support providing
the consumer a copy of a valuation
based upon such data.
More broadly, manufactured home
lending industry commenters
questioned the need for valuation
regulations on new manufactured home
transactions on several grounds. A State
manufactured housing trade association
noted that most manufactured housing
lenders are portfolio lenders who have
incentives to adopt appropriate
underwriting standards and not to overfinance the loan. This commenter
asserted that the widespread practice of
using actual cost information from the
manufacturer’s invoice to determine
maximum loan amount prevents overfinancing. Finally, the commenter stated
that over-financing has not been
substantiated as a problem in
manufactured home lending. Thus, the
commenter suggested that the Agencies
take more time to study the issue of
manufactured home valuations before
proposing a final rule in this area.
Similarly, a national community
banking trade association stated that a
portfolio lender’s assumption of credit
risk is an incentive to choose
appropriate valuation methods. Further,
two State credit union associations
stated that existing valuation methods
suffice for ensuring reasonably safe and
sound loans. Another State credit union
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78551
association noted that creditors have
alternatives to the USPAP interiorinspection appraisal, such as an exterior
inspection or drive-by, or an analysis of
sales of comparable homes.
One manufactured home lender
suggested that consumers purchasing
manufactured homes do not need
appraisals because manufactured homes
are sold like automobiles, in that they
are sold from a retailer’s display center.
Therefore, the commenter suggests that
instead of providing consumers with
appraisals, consumers should be
encouraged to engage independently in
comparative shopping when selecting a
home as well as when shopping for a
loan. Another manufactured home
lender stated that consumers do not
need information beyond the sales
contract, which breaks down certain
costs. This commenter stated that
information about the value of the home
is not relevant to these consumers
because they do not buy manufactured
homes for investment. A manufactured
home lender also stated that it does not
offer loans based on the collateral value
but instead on the consumer’s ability to
repay.
A national manufactured housing
trade association stated that inspections
by HUD-certified inspectors conducted
on all new manufactured homes provide
lenders and consumers a strong
guarantee of the quality of a
manufactured home.107 Moreover, this
commenter asserted that the HUD
inspection process, coupled with the
verification that lenders receive from
manufactured home retailers and
builders on all new manufactured
homes,108 dispenses with the need for
an appraisal and interior inspection.
Two national appraiser associations
generally asserted that the importance of
valuation information to the consumer
and lenders far outweighs the costs and
burdens of providing this information.
However, one manufactured home
lender suggested that the cost of
performing third-party appraisals would
be unnecessary for the consumer,
especially given this commenter’s
concerns about their reliability in homeonly transactions. In addition, the
commenter suggested that these costs
would be a particular hardship on
consumers who purchase manufactured
home because they tend to have lower
107 See generally, 24 CFR parts 3280, 3282, and
3286.
108 This commenter may have been referring to
requirements such as those in HUD manufactured
housing regulations that require a manufacturer to
certify to the manufactured home dealer or
distributer that the home conforms to all applicable
Federal construction and safety standards. See 24
CFR 3282.205.
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incomes and lower credit scores than
consumers of site-built homes; thus,
they are purchasing a manufactured
home because it is the most affordable
and viable option available to them to
own their own home. Finally, the
commenter suggested the burden on
manufactured home creditors of
valuation requirements is likely to result
in a reduction in lending. Similarly, a
national manufactured housing trade
association commenter suggested that
existing valuation methods are adequate
and cost consumers substantially less
than traditional property appraisals.
A manufactured home lender
expressed concerns in particular about
requiring creditors to provide a thirdparty cost service unit value to the
consumer for either new or existing
manufactured homes. According to this
commenter, the technology and
personnel required to program and
develop a system to compare the home’s
year, manufacturer, and model name
with the appropriate year, manufacturer,
and model name from a specific price
guide would be considerable. Further,
this commenter asserted, this type of
requirement would add to all lenders’
overhead costs, which would increase
the cost of credit (i.e., be passed on to
the consumer). This lender predicted
that such a task would deter other
established creditors, including banks
and credit unions, from offering
financing secured by a manufactured
home.
Location. A question with equal
applicability to transactions secured by
either a new or existing manufactured
home was a request for comment on the
impact the location of a new
manufactured home can have on its
value and whether cost services are
available that account adequately for
differences in location. Commenters
who responded generally agreed that the
location of a manufactured home can
have a significant impact on its value.
Two national appraiser association
commenters suggested that the location
of a manufactured home can have a
significant influence on its value and
that they know of no cost services that
adequately account for price differences
in locations.
A consumer advocacy group, two
affordable housing organizations, a
national manufactured homeowner
association, and a policy and research
organization suggested that
manufactured homes are very rarely
moved because moving a manufactured
home is expensive and likely to damage
the unit. As a result, a location-based
value is more relevant to resale value.
These commenters further suggested
that attributes of the home’s location
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that affect the home’s value are tangible
and visible, but that there are other
attributes of a manufactured home’s
location that affect the home’s value that
are not typically captured in existing
valuation models. Examples of such
characteristics provided were lease
terms or State laws that: (1) Stabilize
rent; (2) ensure that the home may
remain where it is sited; (3) ensure that
the homeowner is able to sell the home
to a new owner without having to move
it; and (4) protect the lender’s interest in
the home if the homeowner defaults on
the loan.
One manufactured home lender
suggested that similar factors, such as
proximity to retail shopping, the quality
of the neighborhood public and private
schools, the condition and upkeep of
neighboring properties, and other
factors that affect the value of site-built
homes will also affect the value of
manufactured homes. However, the
commenter suggested that due to
historical biases against manufactured
homes in urban areas and most
neighborhoods—expressed through
zoning restrictions, prohibitions, and
restrictive covenants—most
manufactured homes are located in rural
communities. A manufactured home
lender also indicated that, in fact, it is
not uncommon for manufactured homes
may be moved from a sited location
back to a dealer’s lot, particularly when
they have been foreclosed upon and are
in rural areas.
Further study. Several commenters
suggested that more time may be needed
to develop reliable alternatives to a
USPAP- and FIRREA-compliant
appraisal based upon a physical
inspection of the interior of the home.
Two manufactured housing lenders,
while generally opposed to conditioning
the exemption, suggested the Agencies
that postpone any decision on these
issues for several months of further
evaluation. A State manufactured
housing trade association indicated that
it would only support a condition if a
mandatory repository of data on
comparable sales were developed and
sufficient time passed for this repository
to populate.109 This commenter also
expressed concerns that very few, if any,
loans secured by manufactured homes
would be exempt from the HPML
appraisal rules as qualified mortgages.
See § 1026.35(c)(2)(i). This commenter
suggested that the large number of loans
potentially covered by conditions on
109 This commenter noted, however, that the
private sector was not in a position to develop such
a repository due to cost and anti-trust concerns.
Further, if such a repository were developed, this
commenter expected challenges in finding data on
comparable sales in rural areas would remain.
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any exemption for manufactured home
transactions that would involve
alternative valuations warranted further
study of these options by the Agencies.
Similarly, a consumer advocate group,
two affordable housing groups, a
national association of owners of
manufactured homes, and a policy and
research organization, while generally
supporting conditions, suggested that
the Agencies convene a working group
of stakeholders to review and develop
valuation standards. These commenters
observed that this approach would help
to integrate the manufactured housing
sector into the larger housing market. In
their view, valuation rules would create
demand, which would improve capacity
for providing valuations and also
generate more financing options for
manufactured home consumers.
Comments on Loans Secured by a New
Manufactured Home (but not Land)
The Agencies solicited comment on
whether it would be appropriate and
beneficial to consumers to condition the
exemption from the HPML appraisal
requirements on the creditor providing
the consumer with various types of
third-party information about the
manufactured home’s cost, which thirdparty estimates should be used for these
estimates, and when creditors should be
required to provide the information. The
Agencies received several comments on
these questions. Representatives of
appraisal providers, a credit union, a
community bank, a consumer advocacy
group, three affordable housing groups,
a national association of owners of
manufactured homes, and one policy
and research organization generally
suggested that consumers would benefit.
On the other hand, a manufactured
home lender, two manufactured housing
trade associations, a State credit union
association, a mortgage company, a
national community bank trade
association, and a national mortgage
banking trade association generally
suggested that consumers would not
benefit and a condition should not be
adopted.
Manufacturer’s invoice. Regarding the
utility of providing the consumer with
a copy of the manufacturer’s invoice, a
consumer advocacy group, two
affordable housing groups, a national
manufactured homeowner association,
and a policy and research organization
stated that in the near term consumers
would benefit from receiving the
manufacturer’s invoice because this is
what manufactured home lenders rely
on in transactions involving new
manufactured homes. They asserted that
a consumer who is given the invoice is
better able to evaluate the accuracy of
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the description of the home’s features.
Given concerns about truth and
accuracy in invoices in capturing all
dealer payments, though, these
commenters suggested that these
transactions ultimately should be
subject to the HPML appraisal rules on
the same basis as site-built homes. In
their view, higher valuation standards
would improve appraiser capacity and,
they argued, decrease incentives to steer
consumers to loans with weaker
standards.
Regarding the credibility of
manufacturer’s invoices, the Agencies
received conflicting information. One
affordable housing organization
differentiated between a dealer’s invoice
and a manufacturer’s invoice, indicating
that incentives and rebates might be
omitted from the dealer’s invoice but
not from the manufacturer’s invoice so
the manufacturer’s invoice would be
more reliable for the consumer. A
consumer advocacy group, two
affordable housing organizations, a
national association of owners of
manufactured homes, and a policy and
research organization, however,
commented that the manufacturer’s
invoice may not have accurate
information about the actual cost paid
by the dealer because it might not reflect
incentives, rebates, and in-kind services
agreed upon by the dealer and
manufacturer. However, as noted, they
believed that the representation of home
features on the invoice would be useful
to consumers.
A national manufactured housing
trade association stated that the
manufacturer certifies to the retailer the
authenticity and accuracy of the
wholesale cost of the manufactured
home at the point of manufacture. A
manufactured housing lender further
suggested that the manufacturer’s
invoice is the only realistic option upon
which to base a home’s value because it
takes into account the upgrades and
other features pertinent to the home.
This commenter suggested that the
invoice amount also offers a
‘‘conservative’’ figure in terms of
valuation and loan-to-value
considerations. However, the
commenter noted that a consumer’s
total sales price will include certain
other third-party charges related to the
move and set-up of the manufactured
home, dealer mark-ups and occasionally
local government fees required to be
paid by the dealer.
Third-party cost service estimates.
Regarding the utility of providing a
third-party unit estimate from an
independent cost service, a credit union
commenter stated that a third-party unit
estimate would give consumers a
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valuable guideline to prevent predatory
practices. Similarly, a community bank
commenter stated that this information
could help alleviate the potential for
dealer price markups over
manufacturer’s suggested retail price. A
national provider of a manufactured
home cost service stated in its comment
letter that its cost guide information
could ‘‘absolutely’’ be useful to
consumers, but cautioned that providing
consumers with multiple different
indications of value could make the
process more confusing to consumers.
The provider further stated that its cost
guide can be used to provide a
‘‘guideline’’ that is a ‘‘reasonable
approximation’’ for a new manufactured
home value using the ‘‘new or like new’’
condition for the current-year model.
The cost guide provider indicated that
its value estimates consider the home’s
manufacturer, model, size, year, and
region. In its cost guide, adjustments are
also possible for State location, the
general condition of the home, as well
as for value added by additional
features.
An affordable housing organization
stated that creditors should be required
to obtain cost estimates from an
independent appraiser based upon
nationally-published cost information.
This commenter stated that consumers
will be better informed with more
information.
On the other hand, several industry
and industry trade association
commenters suggested that providing
copies of third-party estimates would be
of no benefit to consumers or would
cause consumer confusion. One
manufactured home lender asserted that
cost guides consider pieces of property
in the abstract and fail to account for the
cost of permits, site preparation, and
delivering the home to the purchaser’s
site. Moreover, this commenter
suggested cost guides are typically used
by lenders only to determine a value for
pre-owned manufactured homes. A
State manufactured housing association
also noted that the third-party cost
guides are not used in practice for new
manufactured home transactions, a view
confirmed by a manufactured home
lender during informal outreach.
Independent valuations. Regarding
third-party valuations for new homeonly transactions generally, a number of
industry, consumer group, and other
commenters stated that in their view
there does not exist today a reliable
national third party database for
comparable sales for new manufactured
homes. However, two national appraiser
association commenters stated that they
strongly support requiring an
independent third-party valuation by a
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78553
credentialed third party appraiser with
education, training, and experience, or a
valuation through the National
Appraisal System (NAS), which would
be consistent with the requirements of
government programs.110
Information for the consumer. The
Agencies also solicited comment on
whether the consumer in an HPML
transaction to be secured by a new
manufactured home and not land
typically receives unit cost information,
and what cost information from a
reliable independent third-party source
might be reasonably available to
creditors and useful to a consumer.
Several commenters responded to this
and a related question; all generally
suggested that, other than the retail
purchase and sale agreement between
the manufactured home purchaser and
the retailer, no third-party information
is currently provided to consumers
about the value of their new
manufactured home. One manufactured
home lender noted that the retail
purchase agreement will list the retail
price of the manufactured home and
itemize and include in the total cost all
other costs and charges associated with
the transactions and installation of the
home and extras. Another manufactured
home lender added that it is not the
industry custom to disclose the
wholesale amount to a consumer.
Rather, the commenter suggested, the
Agencies should not require disclosures
of cost information for consumers and
deviate from widely accepted practice
in other areas of retail sales, including
automobiles or site-built homes.
Most of the commenters who
responded on the information
availability issue suggested that there
was currently no readily-accessible,
publicly-available information that
consumers could use to determine
whether their loan amount exceeds the
collateral value in a new manufactured
home chattel transaction. Two national
appraiser associations asserted that,
under the statute, consumers have a
fundamental right to know the value of
the home that collateralizes debt they
incur. However, a provider of a
manufactured home cost guide
suggested that consumers could access
manufactured home value information
on its Web site representing the
depreciated replacement cost of a home.
Regarding the best timing for a
creditor to provide a unit value estimate
to a consumer, two national appraiser
associations suggested that the
110 See HUD TI–481, Appendices 8–9, C, and 10–
5. The Agencies understand that the NAS is an
appraisal method involving both the comparable
sales and the cost approach.
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information should be delivered to the
prospective borrower as early in the
loan underwriting process as possible. A
consumer advocacy group, two
affordable housing organizations, a
national association of owners of
manufactured homes, and a policy and
research organization suggested that a
copy of the manufacturer’s invoice
should be provided to consumers after
the execution of the buyer’s order but
prior to the consummation of the
transaction. Finally, one community
bank suggested that third-party cost
guide information should be provided to
the consumer at least three days prior to
consummation because the data is
readily available through the database.
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Comments on Loans Secured by an
Existing Manufactured Home (but not
Land)
Commenters generally supported an
exemption from the HPML appraisal
rules under § 1026.35(c)(3) through (6)
for transactions secured by an existing
manufactured home and not land.
However, a number of commenters
favored conditioning the exemption on
the creditor obtaining and providing
valuation information to the consumer.
Several commenters also stated that any
exemption should be temporary. The
most common reasons cited by
commenters for supporting the
exemption were a lack of qualified and
available appraisers; a lack of data on
comparable sales; and concerns over the
cost of appraisals.
Regarding the availability of
appraisers, a State manufactured
housing trade association cited a
scarcity of state-certified and -licensed
appraisers to support chattel lending in
general, which this commenter stated is
particularly pronounced in rural areas
where the homes are predominantly
located. This commenter also believed
valuation professionals lacked sufficient
experience with USPAP personal
property appraisal standards to comply
with them in existing manufactured
home-only transactions. Similarly, a
manufactured home lender stated that
most state-certified or -licensed
appraisers are not trained or
experienced in manufactured home
appraisals and that in many rural areas,
no qualified appraisers are available.111
In addition, a national community
bank trade association indicated that,
while some community banks can
readily engage appraisers for
manufactured home transactions, other
111 This
commenter’s observations were also
endorsed by another manufactured home lender
and a national manufactured housing trade
association.
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banks do find it difficult to identify
appraisers. A consumer advocate group,
two affordable housing organizations, a
national association of owners of
manufactured homes, and a policy and
research organization stated, however,
that any appraiser capacity issues are
driven by a lack of valuation standards
for the manufactured housing segment.
As a result, allowing the rule to take
effect after a temporary period would
lead to demand for appraisers, creating
an incentive for appraisers to obtain the
requisite skills.
A number of commenters expressed
concern that the limited availability of
data on comparable sales for
transactions secured by an existing
manufactured home and not land posed
a significant barrier to obtaining reliable
third-party appraisals for these
transactions. A manufactured home
lender stated that sales of existing
manufactured homes on leased land are
not reported to MLS and that data on
comparable sales outside of California is
generally lacking. The commenter
noted, though, that one private company
does aggregate comparable sales data
from different sources around the
country, which is usually used for
transactions in land-lease communities.
The national manufactured housing
trade association added that statecertified or -licensed appraisers do not
capture data on sales of existing
manufactured homes, whether from
retail dealers or communities. In
addition, this commenter suggested that
data may be distorted by foreclosures in
rural areas leading to relocation of
homes to dealer inventory. The State
manufactured housing trade association
commenter stated that the lack of a
reliable nationwide database of
comparable sales should be remedied
and indicated that the one statewide
database (in California) only receives
data on a voluntary basis.112
Further, several industry commenters
cited concerns over the cost of
appraisals. A national community bank
trade association and a State credit
union association generally believed
that that a USPAP-complaint appraisal
with an interior inspection would be
costly for low-income borrowers
purchasing existing manufactured
homes. Another State credit union
association and a national credit union
association supported the exemption
because manufactured home values are
generally lower than the values of other
types of home. A state-level bank trade
112 This commenter suggested that a national
mandatory-reporting database would need to be
sponsored by the government, as cost and possible
anti-trust issues make it unlikely the private sector
would create such a database.
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association also stated that appraisals
would be costly for these transactions.
Third-party cost service estimates. A
number of commenters also believed
that existing market incentives and
valuation methods were sufficient for
this type of transaction. For example,
national and State manufactured
housing trade associations noted that
lenders frequently use the value
indicated by a national manufactured
home cost guide to determine the
maximum amount of credit they would
extend for transactions secured by
existing homes and not land. One
manufactured home lender stated that it
uses the guide to calculate a
‘‘theoretical’’ value, which is imperfect
given the lack of reliable information
about the condition of the home.
Another nonbank lender stated that
while it uses this guide to determine
approximate wholesale value on tradeins and as a general guide to the
potential sale price for repossessions, it
does not use the guide in transactions to
finance the purchase or refinance of an
existing manufactured home and not
land.113 A consumer advocate group,
two affordable housing organizations, a
national association of owners of
manufactured homes, and a policy and
research organization further confirmed
the widespread use of third-party cost
service depreciation schedules in this
segment of the market.
Regarding the accuracy of third-party
cost service estimates for existing
manufactured homes, a national
provider of a manufactured home cost
guide stated that its values are derived
by applying depreciation factors to the
cost estimate of the home, and are
designed to represent ‘‘retail worth’’
assuming average condition and certain
components. Adjustments can be made
for actual condition, inventoried
components, and local site value (for
homes located in land-lease
communities).114 The commenter stated
that the local site value adjustment is
representative of a national average of
the contributing value for land-lease
communities with certain attributes.
After accounting for this adjustment, the
value can be up to 33 percent higher or
113 This nonbank lender also stated that industry
lenders do not typically obtain a ‘‘valuation’’ in
manufactured home transactions.
114 According to the association, the association
develops its guide by collecting data from industry
manufacturers to create a guideline based on actual
original costs, current regional market activity
(which are used to make regional adjustments), and
depreciation factors. The association stated that the
depreciation cost approach used by its guide is a
component of the cost approach used by certified
or licensed appraisers, and is approved for use with
Fannie Mae Form 1004C, Freddie Mac Form 70B,
and the VA.
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11 percent lower than the value of the
structure only (on average, the location
adjustment adds 13 percent). While
acknowledging that only appraisers are
qualified to analyze a property’s sited
location, this commenter claimed that
its location adjustment was more cost
effective than an appraisal based upon
a physical inspection, without
sacrificing accuracy. When it compared
its location-adjusted values with
estimates from a sample of over 1,000
personal property appraisals of
manufactured homes over a wide range
of ages, it found that the median
difference between its estimates and the
appraised value was less than five
percent.
Views of other commenters on the
accuracy of third-party cost guide
estimate were more mixed. A
manufactured home lender stated that
cost guides are used as a guideline by
lenders rather than as an estimate of
resale value. Another manufactured
home lender stated that the cost guide
does not include transaction costs,
including setup fees, which can lead to
unreliable estimates for consumers.
A consumer advocate group, two
affordable housing organizations, a
national association of owners of
manufactured homes, and a policy and
research organization believed that
estimates based upon these cost guides
fail to value correctly important factors
related to the location of the home, such
as the security of land tenure, risk of
rent increases, and community
attributes, among others. These
commenters also noted that the cost
guide assumes the property value has
depreciated and that available
adjustments based upon the property
condition are not required; as a result,
maintenance, repairs, and upgrades
could be left out of the value and the
property could be under-valued.
Further, these commenters expressed
concern that widespread use of a
depreciated value could drive rather
than reflect manufactured home values.
However, another affordable housing
organization believed that, despite
concerns expressed by some about the
utility of a third-party estimate based
upon a nationally-published cost
service, consumers will be better
informed with this information.
A State manufactured housing trade
association expressed concerns that
depreciated values available through a
cost service can be understated. While
this commenter noted that adjustments
can be made, the commenter asserted
that questions remain as to who should
make the adjustments and whether they
will be made in a uniform, valid, and
reliable manner.
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One manufactured home lender
believed that the use of physical
inspections to provide a basis for
making adjustments to depreciated unit
cost estimates was not widespread. This
commenter also pointed out that some
transactions are consummated before
the existing manufactured home is
placed on the new site making it
infeasible for the lender to arrange for
pre-closing inspections of the home at
its new site in these situations.
Independent valuations. Some
commenters also indicated that
valuation methods based upon sales
comparison approaches are sometimes
used in transactions secured by an
existing manufactured home and not
land. A consumer advocate group, two
affordable housing organizations, a
national association of owners of
manufactured homes, and a policy and
research organization stated that
comparable sales typically are selected
based upon characteristics such as type
of sale, size, style, and location of the
home.
A State manufactured housing trade
association noted that a private
company can provide comparable sales
reports for some transactions. A
manufactured home lender indicated
that this service also included a
physical inspection, and is used for
transactions secured by homes in landlease communities in particular when a
cost guide estimate does not match the
sales price.
A national manufactured housing
trade association stated that, for FHA
Title I program loans, a physical
inspection is conducted to adjust for site
additions and the physical condition of
the home. A State manufactured
housing association asserted that the
NAS is rarely used because only a small
number of originations are currently
done under the Title I FHA program for
which NAS appraisals are specifically
approved.115 This commenter and a
manufactured home lender stated
suggested that the small number of FHA
Title I program loans is due in part to
eligibility requirements, including
appraisal requirements.
The consumer advocate group, two
affordable housing organizations, a
115 FHA reported providing insurance under its
Title I program for 655 manufactured home loans
in Fiscal Year (FY) 2012, 986 in FY 2011, and 1,776
in FY 2010. See HUD, FHA Annual Management
Report, Fiscal Year 2012 (Nov. 15, 2013) at 17. FHA
also reported providing insurance under its Title II
program for 20,479 manufactured home loans in FY
2012, 21,378 in FY 2011, and 30,751 in FY 2010.
See id. According to 2012 HMDA data, 19,614 FHAinsured manufactured home loans were reported
out of a total of 123,628 reported manufactured
home loans, for a FHA-insured share of 15.9
percent. See www.ffiec.gov/hmda.
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national association of owners of
manufactured homes, and a policy and
research group stated that the FHA Title
I appraisal system is overly focused on
one characteristic of the home (that it is
a manufactured home) and excludes use
of other types of comparables that may
be more suitable. A manufactured home
lender noted that HUD-approved
valuation methods based upon
comparable sales tend to yield values
below the sales price, which this
commenter attributed to an overemphasis on use of manufactured
homes as comparables.116 Another
manufactured home lender claimed that
this occurrence in HUD-approved
appraisals is evidence that they
undervalue manufactured homes. A
manufactured home lender expressed
concerns about the cost of NAS
appraisals under the FHA Title I
program. This lender stated that, if a
condition is imposed, lenders should
have more than one option for the type
of valuation that would satisfy the
condition.
A national association for community
banking also referred to all of the above
types of valuations as options for
valuating these transactions, in addition
to an evaluation by a bank employee.
This commenter stated that some bank
employees conduct interior or exterior
inspections.
An affordable housing organization
believed that creditors should be
required to obtain a replacement cost
estimate from a trained, independent
appraiser using a nationally-published
cost service. Two national appraiser
trade associations stated that, in light of
the importance of the location to the
value of the home, the Agencies should
require an independent third-party
valuation by a credentialed appraiser
with education, training, and
experience,117 or a valuation that
complies with the appraisal system
specified under the FHA Title I program
for insuring loans secured by existing
manufactured homes and not land. A
community bank stated that interior and
exterior inspections should be
conducted, due to higher depreciation
116 These commenters did not identify, however,
what other types of comparables, apart from
manufactured homes that are not sited on land
owned by the consumers, could be used as
comparables in these transactions.
117 This commenter suggested the individual
would not necessarily have to be a state-certified or
-licensed real estate appraiser. Nonetheless, a
national manufactured home cost service provider
also noted that the number of individuals certified
to use the FHA Title I personal property appraisal
system is down, from over 1,000 in previous
decades to less than 100 today. HUD also allows
creditors to rely on real estate appraisers from its
Title II roster to complete these appraisals. See HUD
TI–481, Appendices 8–9, C, and 10–5.
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of manufactured homes compared to
site-built homes.
The Final Rule
Under § 1026.35(c)(2)(viii)(B), which
goes into effect on July 18, 2015, the
Agencies are adopting a conditional
exemption for transactions secured by
existing manufactured homes and not
land. The Agencies believe that
exempting transactions secured by
existing manufactured homes and not
land is in the public interest and
promotes the safety and soundness of
creditors, provided that such exemption
is conditioned on the consumer
receiving certain information as
provided in detail below. The Agencies
also are adopting a condition on the
exemption for transactions secured by
new manufactured homes and not land
adopted in the January 2013 Final Rule.
Under the condition, for applications
received by the creditor on or after July
18, 2015, an HPML that is not a
qualified mortgage and is secured by
either a new or existing manufactured
home without land will be exempt from
the general HPML appraisal rules in
§ 1026.35(c)(3) through (c)(6) if the
creditor provides the consumer with a
copy of any one of three specified types
of information no later than three days
prior to consummation of the
transaction. The three types of
information that can satisfy the
condition are: (1) The manufacturer’s
invoice for the manufactured home,
where the date of manufacture is within
18 months of the creditor’s receipt of the
consumer’s application; (2) a cost
estimate of the value of the
manufactured home from an
independent cost service; or (3) a
valuation, as defined in § 1026.42(b)(3),
of the manufactured home by a person
who has no direct or indirect interest,
financial or otherwise, in the property
or transaction for which the valuation is
performed and has training in valuing
manufactured homes.
The Agencies also are adopting and
re-numbering proposed comment
35(c)(2)(ii)(B)–1, which clarifies that the
exemption does not depend on whether
the home is titled as realty by operation
of State law. The heading for the
comment is revised to remove the word
‘‘solely,’’ to reflect that this provision
applies to transactions that are secured
by a manufactured home and other
collateral that is not land, such as a
leasehold interest. The comment is renumbered as comment 35(c)(2)(viii)(B)–
1. See also section-by-section analysis of
§ 1026.35(c)(2)(viii)(A) (further
discussing transactions secured by a
manufactured home and a leasehold
interest).
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The Agencies are not adopting
proposed comment 35(c)(2)(ii)(A)–1,
which would have provided that an
HPML secured by a new manufactured
home is not subject to the appraisal
requirements of § 1026.35(c), regardless
of whether the transactions is also
secured by the land on which it is sited.
The unconditional exemption for
transactions secured by a new
manufactured home, with or without
land, will go into effect on January 18,
2014, but will end starting with
applications received by the creditor on
or after July 18, 2015. At that time, the
exempt status of transactions secured by
new manufactured homes will depend
on whether the transaction also is
secured by land. Other comments
adopted in the final rule relate to the
information that a creditor can provide
to satisfy the condition and are
discussed in the section-by-section
analysis below.
Discussion
The Agencies believe that the
exemption in § 1026.35(c)(2)(viii)(B) for
loans secured by manufactured homes
and not land promotes the safety and
soundness of creditors in part because
the exemption makes it possible for
creditors to continue making these
loans, which may be an important part
of a given creditor’s operations; the
Agencies understand that for chattel
transactions, compliance with all of the
general HPML appraisal requirements of
§ 1026.35(c)(3) through (6) may be
infeasible. The condition on the
exemption in § 1026.35(c)(2)(viii)(B) is
necessary to ensure that the exemption
is also in the public interest, because the
condition will ensure that consumers
receive information pertaining to the
value of their manufactured home. The
Agencies further believe that by
allowing creditors a menu of options for
compliance, the condition will provide
appropriate flexibility to the creditor to
select which materials it deems most
cost-effective. The Agencies also believe
that having this information before
consummation of the loan can be useful
to the consumer, and is consistent with
the timing of the general HPML
appraisal requirement that the creditor
must give the consumer a copy of the
appraisal three days before
consummation.118 See § 1026.35(c)(6)(ii).
118 Having this information three days before
consummation also will allow borrowers the
opportunity to discuss it with a HUD-certified
housing counselor whose participation in the
transaction prior to consummation is mandated for
loans under the Bureau’s 2013 HOEPA Final Rule,
to be codified at 12 CFR 1026.34(a)(5). The role of
the HUD-certified housing counselor specifically
includes helping borrowers ‘‘avoid inflated
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TILA Section 129H ensures that,
before consummation of a ‘‘higher-risk
mortgage,’’ creditors obtain a valuation
of the home and provide a copy to the
consumer. 15 U.S.C. 1639h. The statute
focuses on transactions with a higher
risk profile (i.e., those with higher
interest rates and which are not
qualified mortgages). For these riskier
transactions, the statute sets standards
that are intended to reduce the risk of
inflated valuations of the ‘‘dwelling,’’
and grants consumers a right to know
the appraised value of the ‘‘dwelling’’
before entering into these
transactions.119 A manufactured home
is a ‘‘dwelling’’ under regulations
implementing TILA.120 Indeed,
transactions secured by manufactured
homes and not land comprise a
substantial proportion of the overall
annual housing transactions that are
HPMLs and not qualified mortgages.121
The Agencies therefore believe that
Congress intended for TILA Section
129H to provide protection against
inflated valuations and transparency to
borrowers in this housing segment.
Nonetheless, based upon outreach
and comments on the 2012 Proposed
Rule and further outreach and
comments on the 2013 Supplemental
Proposed Rule, the Agencies believe
that the precise form of valuation
specified in the statute—an appraisal by
a state-certified or -licensed appraiser in
conformity with USPAP and FIRREA,
based upon a physical inspection of the
interior of the home—is infeasible for
this housing segment at this time. A
steady supply of state-certified or
-licensed appraisers to service
thousands of these transactions
annually starting on January 18, 2014,
does not yet exist.
Even if more state-certified or
-licensed appraisers were able to
perform appraisals for transactions
secured by a manufactured home and
not land in the future, the Agencies
recognize that sources of data on
appraisals.’’ See HUD Housing Counseling Program
Handbook 7610.1 (May 2010), Ch. 1–2.
119 U.S. House of Reps., Comm. on Fin. Servs.,
Report on H.R. 1728, Mortgage Reform and AntiPredatory Lending Act, No. 111–94 (May 4, 2009)
(House Report), at p. 56 (noting that when faulty
valuation methods lead to overvaluation,
individuals ‘‘may later encounter difficulty in
refinancing or selling a home because the true value
of the property used as collateral is less than the
original mortgage.’’).
120 12 CFR 1026.2(19).
121 The Bureau’s Section 1022 analysis estimates
that around 20,000 but potentially more of these
transactions occur annually. Potential for a higher
number of affected loans results from variables that
determine whether a loan is a qualified mortgage
that require access to information that is not
available for these loans, such as the debt-to-income
ratio.
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comparable sales for transactions
secured by a manufactured home and
not land may not be as robust as sources
of data on sales of transactions secured
by a home and land.122 As a result, the
Agencies believe that, absent an
exemption, creditors could be unable to
comply with the HPML appraisal
requirements in a substantial number of
transactions secured by a manufactured
home and not land. Thus, the Agencies
have concluded that an exemption from
a requirement to perform appraisals in
conformity with USPAP and FIRREA for
these transactions would promote the
safety and soundness of creditors and be
in the public interest by allowing the
transactions to occur without requiring
use of a valuation method that is
infeasible in a large number of cases.
At the same time, the risk of inflated
valuations in these transactions can
contribute to increased default risk,123
which runs counter to both the safety
and soundness of creditors and the
public interest. The Agencies are
concerned, based on research, outreach,
and comments received, that these
transactions can be prone to inflated
valuations and associated risks of
under-collateralization, leading to loans
where the consumer has little, no, or
even negative equity in the home.124
The Agencies believe that an
unconditional exemption for these
transactions at a minimum would not
adequately account for the risks of
under-collateralization.
The effect of an inflated valuation on
consumers and their risk of default can
be even more pronounced in these
transactions. Chattel lending generally
carries higher interest rates, which
could result in a significant number of
122 Whereas appraisals of a land/home transaction
are not always limited to the use of manufactured
housing transactions as comparables, in
transactions secured only by the home, the universe
of comparables is generally limited to manufactured
homes.
123 See Enterprise Duty to Serve Underserved
Markets, Proposed Rule, 75 FR 32099, 32014 (June
7, 2010) (FHFA finding that ‘‘[i]nterest rates charged
for chattel loans are typically higher than those for
real estate-secured loans’’ and that ‘‘[d]elinquencies
and defaults on chattel loans typically exceed rates
on mortgage loans.’’).
124 See, e.g., Consumers Union Southwest
Regional Office, ‘‘Manufactured Housing
Appreciation: Stereotypes and Data’’ (Aug. 2003), p.
4 (asserting that depreciation is but one factor
leading to ‘‘underwater’’ homes and that ‘‘many
industry practices [ ] lead to very high loan-tovalue ratios. Fees, points and overpriced, unneeded
add-ons (such as vacations, cash rebates and singlepremium credit life) raise the loan balance without
adding value to the home. This can contribute to
a deficiency balance by removing equity and
placing the loan underwater.’’). See also id. at 14
(‘‘One contributing factor to an initial drop [in the
value of a manufactured home] can be inflated
retailer mark-ups embedded in the price of a
home.’’).
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HOEPA loans.125 Further, several
industry commenters indicated that
manufactured home loans would be less
likely to be qualified mortgages than
other types of mortgages because their
points and fees would typically exceed
thresholds set by the Bureau’s 2013 ATR
Final Rule. See § 1026.43(e)(3). At the
same time, consumers borrowing these
loans are disproportionately in the LMI
segment.126 Higher loan amounts
resulting from inflated valuations,
combined with the comparatively high
interest rates on these loans, can
generate payments that pose significant
burdens on LMI consumers and can put
them at greater risk of default.
Outreach and comments from the
2012 Proposed Rule and 2013
Supplemental Proposed Rule have not
shown that existing industry practices
or standards necessarily would be
sufficient to control the risk of inflated
valuations in these transactions, or
ensure that consumers are informed of
the home value in these transactions. To
compound the concern, most of these
transactions are not subject to valuation
standards imposed by Federal law or
regulation or Federal agency or GSE
programs. The FHA Title I
Manufactured Housing Loan Insurance
Program is the only program at the
Federal level that covers these
transactions; no other Federal agency or
GSE has programs for loans secured by
a manufactured home and not land. The
FHA Title I program includes valuation
requirements and loan amount caps to
mitigate against the risk of inflated
valuations, but currently most
transactions secured by a manufactured
home and not land are not insured by
that program. Some of these transactions
are originated by Federally regulated
financial institutions subject to
FIRREA’s appraisal and evaluation
requirements, but the FIRREA
regulations and related Interagency
Appraisal and Evaluation Guidelines
125 See, e.g., Bureau’s 2013 HOEPA Final Rule, 78
FR 6856, 6876 (Jan. 31, 2013) (noting that Congress
set a higher APR threshold for HOEPA coverage of
loans secured by manufactured homes titled as
personal property—8.5 percentage points—and that
under this test, industry commenters estimated that
between 32 and 48 percent of recent originations
would be covered).
126 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 9 (‘‘In
2009, the median household income of households
in manufactured homes was under $30,000—well
below the national average of $49,777. More than
one-fifth (22 percent) of manufactured housing
residents have incomes at or below the Federal
poverty level.’’). This report is available at https://
cfed.org/assets/pdfs/IM_HOME_Loan_Data_
Collection_Project_Report.pdf.
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apply only to real estate transactions.127
Under current State laws, the collateral
in transactions secured by a
manufactured home and not land is not
typically classified as real property.
In addition, all creditors are subject to
Regulation Z’s interim final valuation
independence rule (Valuation
Independence Rule) for consumer credit
secured by chattel, but the valuation
service providers are not, due to a
limitation in the current rule.128 The
Valuation Independence Rule applies to
creditors and ‘‘settlement service’’
providers of covered transactions.129
Under the rule, ‘‘settlement service’’ is
defined under RESPA and
implementing regulations (Regulation
X).130 Under RESPA and Regulation X,
a ‘‘settlement service’’ is limited to
services for ‘‘Federally related mortgage
loans,’’ which include only loans
secured by real property.131 Thus,
valuation service providers for
transactions secured by personal
property, such as many transactions
secured by a manufactured home and
not land, are not covered under
Regulation Z’s Valuation Independence
Rule.
Further, commenters indicated that
consumers in transactions secured by
manufactured homes and not land do
not currently receive information about
the value of their homes. Participants in
informal outreach and research
conducted by the Agencies similarly
indicated that consumers for these loans
are not familiar with independent
information about home values and may
be subject to high-pressure sales tactics
that tend to limit consumer’s
consideration of their choices and
pursuit of independent information.
Finally, while consumers might
receive valuations in some of these
transactions under the Bureau’s 2013
ECOA Valuations Final Rule,132
creditors might not always obtain a
valuation subject to disclosure to the
consumer under that rule. For example,
in new manufactured home transactions
without land, outreach and comments
indicated that creditors often rely
primarily upon the manufacturer’s
invoice when determining the
maximum loan amount. The
manufacturer’s invoice is not subject to
127 75 CFR 77450, 77456 n.12 (Dec. 10, 2010)
(noting that scope is for Federally-related
transactions, which are real-estate related under 12
U.S.C. 3339 and 12 U.S.C. 3350(4)).
128 Bureau: 12 CFR 1026.42; Board 12 CFR 226.42.
129 Bureau: 12 CFR 1026.42(b)(1) and (2); Board
12 CFR 226.42(b)(1) and (2).
130 See id.; see also 12 U.S.C. 2602(3) and 24 CFR
1024.2.
131 12 CFR 1024.2.
132 See 12 CFR 1002.14.
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disclosure under the 2013 ECOA
Valuations Final Rule.133 In addition,
the maximum loan amount is not
necessarily a valuation subject to
disclosure under ECOA, and could well
exceed caps defined under HUD
regulations that serve to prevent overfinancing, under-collateralization, and
underwater loans.134 Accordingly, even
if that amount were disclosed to
consumers under the 2013 ECOA
Valuations Rule, it would not
necessarily impart meaningful,
independent information to the
consumer about the value of the home.
The Agencies therefore are adopting a
condition on the exemption to ensure
that valuation information from an
independent source is obtained and is
transparent to the consumer. The
condition requires the creditor to obtain
and provide to the consumer, no later
than three days before consummation,
certain information related to the value
of the manufactured home securing the
covered HPML.135
The Agencies have identified three
types of materials, any one of which can
be provided, as further discussed below.
Providing a copy of a manufacturer’s
invoice used by a creditor for a
transaction secured by a new
manufactured home. Under
§ 1026.35(c)(2)(ii)(B)(1), a creditor on a
loan secured by a new manufactured
home and not land may be exempt from
the HPML appraisal rules if the creditor
gives the consumer a copy of the
manufacturer’s invoice, which is
defined consistent with HUD
manufactured home program
regulations. See § 1026.35(c)(1)(iv) and
accompanying section-by-section
analysis.
Outreach and comments consistently
indicated that in these transactions,
creditors use the invoice as the primary
source for calculating a maximum loan
amount. For that reason, several
commenters generally supported
providing a copy of the invoice to
consumers as a means of informing
them of pertinent valuation information.
A national manufactured housing trade
association also asserted that it is
standard practice for manufacturers to
133 See
12 CFR 1002.14, comment 14(b)(3)–3.iv.
24 CFR 201.10(b)(1).
135 ‘‘Consummation’’ would have the same
meaning as in § 1026.35(c)(6)(ii), requiring that a
copy of any appraisal obtained under
§ 1026.35(c)(6)(i) be given to the consumer no later
than three business days prior to consummation of
the covered HPML—namely, as defined elsewhere
in Regulation Z at 12 CFR 1026.2(a)(13) and
accompanying Official Staff Commentary. Under
those provisions, ‘‘consummation’’ means ‘‘the time
that a consumer becomes contractually obligated on
a credit transaction,’’ which is determined by state
law. § 1026.2(a)(13) and comment 2(a)(13)–1.
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134 See
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certify the authenticity and accuracy of
the wholesale cost of the home at the
point of manufacture.
The Agencies are adopting a
limitation on the option to provide the
manufacturer’s invoice: the invoice may
be provided to satisfy the condition only
if the date of manufacture of the home
was within 18 months of the creditor’s
receipt of the consumer’s application for
credit. This limitation is generally
consistent with FHA Title I regulations,
which incorporate the practice of using
manufacturers’ invoices as a reference
point for determining safe and sound
loan amounts for insuring transactions
secured by new manufactured homes.
Specifically, FHA Title I rules limit the
use of this practice to homes
manufactured within 18 months of
purchase by the consumer.136 The
Agencies believe that this limitation
will help prevent the use of invoices
that are too dated to reflect reliably the
current value of the manufactured
home.
Creditors commonly obtain and rely
on the manufacturer’s invoice and
consumer advocates, affordable housing
organizations, and others, however,
have asserted that consumers should
have access to information that creditors
use. If creditors have the invoice,
providing a consumer with a copy
imposes little burden.
The Agencies note that some
commenters were concerned that the
manufacturer’s invoice contains
sensitive wholesale pricing information
and that the wholesale invoice from the
manufacturer will not match the retail
price paid by the consumer. The
Agencies recognize that the retail price
will include a markup for various costs.
Commenters and industry participants
in outreach indicated that in
transactions secured by new
manufactured homes, the maximum
loan amount typically is determined by
applying a percentage markup to the
manufacturer’s invoice. Outreach
indicated that this markup can vary
among creditors, in some cases
significantly. The Agencies are not
aware of any regulatory standards
governing the extent of this markup
other than limitations in the FHA Title
I program, which only covers a small
subset of these loans currently. The
FHA Title I limitations do not permit a
markup on the manufacturer’s invoice
of more than 130 percent when
calculating the maximum insurable loan
136 24 CFR 201.21(b)(2)(i) (defining a ‘‘new
manufactured home’’ for which a manufacturer’s
invoice may be used as ‘‘one that is purchased by
the borrower within 18 months after the date of
manufacture and has not been previously
occupied.’’ See also HUD TI–481, Appendix 2.
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amount, and HUD has other detailed
standards for determining what other
charges can be factored into the
maximum loan amount.137 Most
manufactured housing transactions are
not subject to these restrictions, leaving
the markup to be determined by the
creditor’s tolerance for risk, and thus
subject to risk of inflated valuation.
The Agencies believe that providing
the manufacturer’s invoice to consumers
will give them an opportunity to have
a better understanding of the factors
contributing to the loan amount and its
relationship to the value of the home.138
In transactions secured by a home and
land under GSE and Federal agency
programs, the appraiser is required to
receive a copy of this invoice and must
disclose in the appraisal report how it
was considered.139
Under the final rule, creditors also
may choose to communicate the nature
or extent of this markup to consumers
when providing the manufacturer’s
invoice. In this case, the manufacturer’s
invoice will provide an opportunity for
questions from consumers to assess
whether the markup leads the collateral
to be over-valued. As noted above,
HUD-certified counselors, required for
HOEPA transactions and available for
others, also can assist consumers in
answering any questions. The Agencies
have sought to accommodate remaining
concerns over providing the
manufacturer’s invoice by providing
other compliance options that could be
used in new manufactured home
transactions (including that the loan
might qualify for another exemption
under § 1026.35(c)(2)).140
Providing a cost estimate from an
independent cost service provider.
137 See
24 CFR 201.10((b)(1).
e.g., Consumers Union Southwest
Regional Office, ‘‘Manufactured Housing
Appreciation: Stereotypes and Data’’ (Apr. 2003) at
14, available at https://consumersunion.org/pdf/mh/
Appreciation.pdf (‘‘One contributing factor to an
initial drop can be inflated retailer mark-ups
embedded in the price of a home. Consumers who
pay too much for any home will find it harder to
sell it later for a higher price. Retailer markups can
be a quarter of the base price of the home.
Consumers should question what value they get
from this middleman, and take steps to minimize
costs that don’t add value to the home. Buying
direct from the last owner in a used transaction may
reduce this overhead, as can buying direct from
manufacturers when possible.’’).
139 Fannie Mae Single-Family Selling Guide, B5–
2.2–04 (4/1/09); Freddie Mac Single-Family Seller/
Servicer Guide, H33.6 (2/10/12). See also 24 CFR
201.10(b)(1) (HUD regulations requiring that the
loan amount be determined with reference to the
invoice).
140 See, e.g., § 1026.35(c)(2)(i); see also 78 FR
59890, 59901 (Sept. 30, 2013) (HUD proposing that
manufactured home loans insured under Title I
would be qualified mortgages under HUD
regulations, even if their points and fees exceed the
cap under the Bureau’s qualified mortgage
definition, § 1026.43(c)(3)).
138 See,
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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations
Section 1026.35(c)(2)(ii)(B)(2) gives the
creditor the option of providing a cost
estimate from an independent thirdparty cost service provider. Comment
35(c)(2)(ii)(B)(2)–1 clarifies that a cost
service provider from which the creditor
obtains a manufactured home unit cost
estimate under § 1026.35(c)(2)(ii)(B)(2)
is independent if that party is not
affiliated with the creditor in the
transaction, such as by common
corporate ownership, and receives no
direct or indirect financial benefits
based on whether the transaction is
consummated.
As noted above, the Agencies
recognize that creditors may choose not
to provide a copy of the manufacturer’s
invoice for new manufactured home
transactions. In addition, appraisers or
valuation providers may be unavailable
for some transactions. Thus, including
this additional option is important to
ensure that the consumer can receive a
unit cost estimate of the value of the
home from an independent source.
Commenters and outreach indicated
that this type of estimate is the
predominant method used for
transactions secured by an existing
manufactured home and not land. Based
upon comments from a national cost
service provider confirming that its cost
guide reports values for the current
model year, the Agencies also believe
this type of cost service also could be
used for many new manufactured home
transactions. The Agencies learned from
one cost service that an adjustment for
‘‘new or like new’’ is available through
its cost guide, and that this guide is
updated multiple times per year.
The information provided by an
independent cost service provider can
provide a useful outside check against
inflated valuations. At the same time,
the check will not prohibit transactions
above the value reflected in the cost
service. Rather, the check will make
sure that if transactions occur above
those values, creditors and consumers
have the opportunity to know that fact
and evaluate the transaction
accordingly.
Interior inspections and adjustments.
The Agencies are not requiring physical
inspections of the interior or condition
or location adjustments to the cost
service values. In this way, the
condition ensures that the creditor can
readily identify the information to be
provided to the consumer (based upon
the make and model and year of the
manufactured home unit) from an
independent source, without being
asked to interject subjective or
discretionary considerations.
Interior inspections by an appraiser
for new manufactured homes may often
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be of limited value, given the associated
expense. For transactions secured by
new manufactured homes, as indicated
by industry commenters, HUD and State
inspectors conduct inspections to
ensure the proper construction and
installation of the home.141 Some
commenters asserted that an interior
inspection could confirm the existence
of extras or options that were promised.
The Agencies believe, however, that
consumers themselves can confirm that
they received extras or options ordered.
Regarding adjustments, the Agencies
understand that cost services may offer
adjustments of standard estimates to
reflect that the unit is in ‘‘new or like
new’’ condition.
For existing manufactured homes,
information about the condition of the
interior can be an important factor
affecting the valuation. Due to concerns
with burden, complexity, and reliability
of such adjustments, though, the
Agencies are not mandating that
adjustments be made. At the same time,
the rule does not prohibit creditors from
making this adjustment to the unit-cost
estimate of an existing manufactured
home.
Accordingly, comment
35(c)(2)(viii)(B)(2)–2 clarifies that the
requirement that the cost estimate be
from an independent cost service
provider does not prohibit a creditor
from providing a cost estimate that
reflects adjustments to factors such as
special features, condition or location.
The comment explains, however, that
the requirement that the estimate be
obtained from an independent cost
service provider means that any
adjustments to the estimate must be
based on adjustment factors available as
part of the independent cost service
used, with associated values that are
determined by the independent cost
service.
For both new and existing
manufactured homes, the location can
enhance or, in some cases, reduce the
value of the home. A consumer advocate
group, affordable housing organizations,
and others emphasized that cost service
data does not adequately account for the
contribution of location to the value of
the home. The manufactured home can
be resold as a trade-in or repossessed,
however, in which case its value-inplace is not what is relevant to the
consumer. Further, as noted above,
location adjustments can introduce
greater subjectivity into the information
provided. Therefore, the rule does not
mandate that a location adjustment be
made. Providing the unit value will
141 See
generally, 24 CFR parts 3280, 3282, and
3286.
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78559
enable consumers to compare the cost
estimate from the published cost service
to the line item charge in the sales
contract for the base unit.
Finally, some commenters expressed
concerns over accuracy or
undervaluation in the unit cost
estimates published by third-party cost
services. These commenters did not
provide data to support their views,
however. In addition, while some
comments noted that the unit cost
estimate is not the same as an estimate
of the retail market value, the Agencies
recognize that this type of estimate
nonetheless is widely used by creditors
currently as a guideline for the value of
an existing manufactured home. In some
cases, it therefore may represent the best
available, most cost-effective estimate of
the value of the home. Further, the
Agencies are structuring the exemption
condition so that the creditor has the
discretion to choose which of the
specified types of valuation materials it
finds most suitable for informing the
consumer of the estimated value of the
home. Thus, if a creditor believes an
independent cost service generally
undervalues manufactured homes, the
creditor can provide other forms of
valuation information as described
below, as well as its own accompanying
explanatory information.
Providing a valuation by a trained
manufactured home valuation provider.
Section 1026.35(c)(2)(ii)(B)(3) allows a
creditor to provide an appraisal
conducted by a person who has no
direct or indirect interest, financial or
otherwise, in the property for which the
valuation is performed and has training
or experience in valuing manufactured
homes. ‘‘Valuation’’ is defined as in
§ 1026.42(b)(3) of the Bureau’s
Valuation Independence Rule, which
defines ‘‘valuation’’ to mean ‘‘an
estimate of the value of the consumer’s
principal dwelling in written or
electronic form, other than one
produced solely by an automated model
or system.’’ 142
Comment 35(c)(2)(ii)(B)(3)–1 provides
that the manufactured home valuation
provider would have a direct or indirect
interest in the property if, for example,
the person had any ownership or
reasonably foreseeable ownership
interest in the manufactured home. To
illustrate, the comment states that a
person who seeks a loan to purchase the
manufactured home to be valued has a
reasonably foreseeable ownership
interest in the property.
142 See 12 CFR 226.42(b)(3) for the definition of
‘‘valuation’’ in the Board’s substantially similar
version of the valuation independence rule.
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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations
Comment 35(c)(2)(ii)(B)(3)–2 clarifies
that the valuation provider would have
a direct or indirect interest in the
transaction if, for example, the
manufactured home valuation provider
or an affiliate of that person also served
as a loan officer of the creditor or
otherwise arranges the credit
transaction, or is the retail dealer of the
manufactured home. The comment
further states that a person also has a
prohibited interest in the transaction if
the person is compensated or otherwise
receives financial or other benefits
based on whether the transaction is
consummated.
Comments 35(c)(2)(ii)(B)(3)–1 and –2
are generally based on comments
42(d)(1)(i)–1 and –2 of Regulation Z’s
Valuation Independence Rule.143 As
discussed previously, the Valuation
Independence Rule applies to all
creditors of transactions secured by a
consumer’s principal dwelling, but
applies to ‘‘settlement service’’
providers only for transactions secured
by real property.144 However, the
Agencies believe it prudent to apply the
principles of Regulation Z’s Valuation
Independence Rule to valuations that
may be used in lieu of complying with
the general HPML appraisal
requirements for transactions secured by
manufactured homes and not land,
which might not be titled as real
property.
Comment 35(c)(2)(viii)(B)(3)–3
clarifies that ‘‘training’’ referenced in
§ 1026.35(c)(2)(viii)(B)(3) includes, for
example, successfully completing a
course in valuing manufactured homes
offered by a State or national appraiser
association or receiving job training
from an employer in the business of
valuing manufactured homes.
Comment 35(c)(2)(viii)(B)(3)–4
provides an example of a manufactured
home valuation that would satisfy the
requirements of the condition in
§ 1026.35(c)(2)(viii)(B)(3). Specifically,
the comment states that a valuation in
compliance with
§ 1026.35(c)(2)(viii)(B)(3) would
include, for example, an appraisal of the
manufactured home in accordance with
the appraisal requirements for a
manufactured home classified as
personal property under the Title I
Manufactured Home Loan Insurance
Program of HUD (administered by FHA),
pursuant to section 2(b)(10) of the
National Housing Act, 12 U.S.C.
1703(b)(10).
143 Bureau: 12 CFR 1026.42; Board: 12 CFR
226.42.
144 Bureau: § 1026.42(b)(1) and (2); Board
§ 226.42(b)(1) and (2).
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The Agencies included this comment
in recognition that one of the more welldeveloped standards for the valuation of
manufactured homes and not land is
found in the FHA Title I program.145
When an existing manufactured home is
classified as personal property, FHA
Title I requires creditors to, among other
things: (1) Use an appraiser certified to
use the NAS or, if the lender is unable
to locate an NAS-certified appraiser, an
appraiser from the FHA Title II
mortgage program who certifies having
experience appraising manufactured
homes; 146 (2) obtain an appraisal
performed on the home site where
possible and that reflects the retail value
of comparable manufactured homes in
similar condition and in the same
geographic area; and (3) review the
appraisal to verify, among other things,
that the correct cost service unit value
was used and proper condition
adjustment was made.147
As noted in the 2013 Supplemental
Proposed Rule, the Agencies are aware
that fewer than 100 individuals are
currently certified to use this system,
although many more have been certified
in the past and may have incentives to
obtain the certification in the future.
This factor provides further support for
the Agencies’ decision to allow creditors
multiple options to comply with the
condition.
Consumer and affordable housing
advocate commenters supported the
long-term goal of applying an appraisal
standard to transactions secured by a
manufactured home and not land. At
the same time, manufacturer housing
industry commenters generally
supported a long-term effort to further
refine and develop valuation methods
for manufactured homes. The Agencies
believe that adopting a condition that
furthers these goals is in the public
interest. To allow flexibility for these
and other valuation methods to evolve,
the Agencies seek to avoid prescriptive,
detailed requirements on the valuation
method. Rather, the Agencies seek
generally to define who is eligible to
perform the valuation, and leave the
method to that person’s judgment and
expertise as appropriate for the scope of
145 See HUD TI–481, Appendix 2–1, D (General
Program Requirements—Eligible Homes).
146 When the home is classified as real property,
the appraisal must be completed by a real estate
appraiser on the FHA Title II roster who can certify
prior experience appraising manufactured homes as
real property. The Agencies believe it is useful to
incorporate the general standard, in case states
adopt model laws treating manufactured homes as
real property even when they are not affixed to land
and the land does not provide security for a loan.
See HUD TI–481, Appendices 8–9, C, and 10–5.
147 See HUD TI–481, Appendices 8–9, C, and
10–5.
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work required. As noted above, two
national appraisal trade associations
noted that state-certified or -licensed
appraisers are not the only persons who
could value manufactured homes. For
example, some commenters identified
an existing product prepared by a
company who hires individuals trained
in the valuation of manufactured homes.
The company generates a report that
estimates the value of a given
manufactured home using local data on
comparable sales.
Accordingly, under this alternative,
the creditor must provide the consumer
with a valuation prepared by one or
more individuals who do not have a
direct or indirect financial interest in
the property or the transaction, and who
have training in the valuation of
manufactured homes. The Agencies are
adopting comments to provide further
guidance on how creditors can satisfy
these criteria. Finally, it may follow
from the exercise of independent
judgment and application of this
training that the individual will conduct
a physical inspection of the interior, or
assess the condition or value of the
location of the home. But as noted, at
this time, the Agencies are not
specifying these steps as necessary
elements of a valuation that satisfies the
condition.
Several industry commenters
indicated that HUD appraisal
requirements in transactions secured by
manufactured homes have led to higher
frequency of appraisals where the value
of the home is below the purchase price.
At least one commenter indicated this
occurred in Title I transactions secured
by existing manufactured homes. Some
commenters and outreach participants
attributed high numbers of appraised
values that are lower than the purchase
price to an over-emphasis on the use of
manufactured homes as comparables in
FHA and other manufactured home
credit programs. They suggested, for
example, that manufactured homes
comparables in the geographic area
might be much older than the home
being appraised. The Agencies are
concerned, however, that other factors
can contribute to higher rates of
appraised values lower than the
purchase price, such as inflated
purchase prices and corresponding loan
amounts.
The Agencies believe that, on balance,
appraising manufactured homes in
transactions that are not also secured by
land can be an effective way to account
for the many factors that contribute to
the value of the home, including home
condition, location, re-sale conditions,
and lease terms, among others.
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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations
Other Issues
Delay in issuing rules on
manufactured home loans. As discussed
under ‘‘Public Comments,’’ commenters
on behalf of consumers and industry
generally expressed support in principle
for ensuring that consumers receive
valuation information in exempt
transactions. Industry commenters
raised a number of concerns over the
utility to consumers of information
generated through current valuation
practices, however. Several consumer
and affordable housing groups
expressed a similar concern over the
quality of current valuation methods
(citing, for example, concerns over the
reliability of a cost estimate of the unit
from a third-party source). They
nonetheless stated that creditors should
still be required to provide a copy of the
collateral valuation information that is
used by the creditor (i.e., manufacturer’s
invoice in new manufactured home
transactions). These commenters also
suggested that the Agencies engage in
further study of manufactured housing
valuation issues before adopting further
conditions.
The Agencies note, however, that
manufactured housing valuation
practices and issues have been the
subject of significant requests for
comment and outreach in two separate
proposals, and have generated detailed
comment from representatives of
industry, consumer advocates, and
appraisers alike. The Agencies believe
that the current public record
sufficiently supports adopting
conditions in this final rule. While the
Agencies are allowing additional 18
months for conditions to be
implemented, deferring their adoption
pending further study would not
promote safety and soundness and be in
the public interest. Thousands of
consumers would be without the
protections during any further study. It
also is unclear that further study,
beyond the two years of study already
undertaken, would generate material
improvements to the approach taken
here.
Steering. Some consumer group and
affordable housing commenters also
expressed concern that consumers
might be steered into higher-rate chattel
transactions with fewer consumer
protections if the final rule provided an
unconditional exemption for
transactions secured by a manufactured
home and not land. For example,
consumers could be steered away from
an HPML transaction secured by both
the home and land to avoid the HPML
appraisal requirements (see
§ 1026.35(c)(2)(viii), effective July 18,
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2015). Creditors might also structure
what otherwise would be a packaged
land/home transactions into two
transactions—one secured solely by the
home and one by land. The Agencies
believe that some of these concerns are
mitigated by other laws and regulations.
Such practices might be subject to
scrutiny under consumer protection
laws at the State and Federal level. For
example, regulations may apply that
generally prohibit a loan originator from
steering a consumer to a transaction
based on the fact that the originator will
receive greater compensation (which
could result from an over-valuation of
the home, leading to a higher loan
amount).148 The Agencies believe that
some of the concerns about steering may
be mitigated by conditioning the
exemption for manufactured home-only
transactions on the creditor having to
provide alternative valuation
information to the consumer.
Effective date. The Agencies recognize
creditors will need time to make
necessary adjustments to their
compliance systems to be able to
comply with the condition. For
example, creditors will need to adjust
their systems to identify transactions
that would need to rely on the
exemption (e.g., HPMLs that are not
eligible for exemptions for loans that
satisfy the criteria of a qualified
mortgage, transactions in an amount of
$25,000 or less, or other exemption
types (see § 1026.35(c)(2)),149 to
determine which types of valuation
materials to obtain for these
transactions, and to develop a
mechanism for providing these to the
consumer no later than three days prior
to consummation. Creditors also will
need to ensure that they have access to
the valuation materials they choose to
use. To ensure adequate time to
implement these and any other
necessary steps, and that these
transactions remain available to
consumers in the interim period, the
Agencies are delaying implementation
of the condition for 18 months after the
effective date of the HPML Appraisals
Rules, until July 18, 2015.
Sunset. Finally, the Agencies are not
adopting an expiration date for the
conditional exemption for transactions
148 See, e.g., § 1026.36(e)(1) (prohibiting steering
consumers to earn greater compensation). The
Agencies will monitor application of the rule in this
regard.
149 Transactions secured by a manufactured home
would not typically be eligible for the exemption
for initial construction loans, 12 CFR
1026.35(c)(2)(iv), because that exemption is
designed for temporary initial financing that is
replaced with permanent financing when the
construction phase is complete. See comment
35(c)(2)(iv)–1.
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secured by a manufactured home and
not land. Some commenters suggested
that a ‘‘sunset’’ date would provide an
incentive for the appraiser and
manufactured home lending industries
to improve capacity and methods for
conducting appraisals that would
comply with USPAP and FIRREA.
However, it is unclear that a sunset date
would promote this outcome. At the
same time, a sunset date would create
risk for this important source of
affordable housing if capacity and
methods are not developed by that date.
The Agencies believe that a better way
to promote improved capacity and
methods is to allow the condition to be
satisfied through the use of existing
methods. This is therefore another
reason why the Agencies are allowing
the third option for satisfying the
condition—appraisals performed by
independent and trained individuals.
35(c)(6) Copy of Appraisals
35(c)(6)(ii) Timing
In the January 2013 Final Rule,
§ 1026.35(c)(6)(ii) requires that a
creditor provide a copy of any appraisal
obtained in compliance with the HPML
appraisal rules to the consumer ‘‘no
later than three business days prior to
consummation of the loan.’’ 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. In the 2013
Supplemental Proposed Rule, the
Agencies proposed 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).
Public Comments
A State credit union association
commenter requested that the Agencies
allow flexibility in providing a copy of
the appraisal three days before closing
because it is difficult to obtain an
appraisal in time to do so, requiring
closing to be rescheduled, which can be
difficult. The commenter requested that
consumers be permitted to waive the
requirement if it is in their best interest
to do so.
The Final Rule
The Agencies are adopting the
proposal to delete comment 35(c)(6)(ii)–
2 without change, and re-numbering
comment 35(c)(6)(ii)–3 as 35(c)(6)(ii)–2.
The Agencies are not adding a waiver
option to the timing requirement for
providing a copy of the appraisal to the
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consumer. Re-numbered comment
35(c)(6)(ii)–2 clarifies that the ECOA
provision allowing a consumer to waive
the requirement that the appraisal copy
be provided three business days before
consummation, does not apply to
HPMLs subject to § 1026.35(c).150 The
comment further clarifies that a
consumer of an HPML subject to
§ 1026.35(c) may not waive the timing
requirement to receive a copy of the
appraisal under § 1026.35(c)(6)(i).
The Agencies believe that allowing
the consumer to waive the timing
requirement for providing a copy of the
appraisal would be inconsistent with
the statute. ECOA expressly provides
that the consumer may waive the three
day timing requirement for the creditor
to provide a copy of the appraisal to the
consumer under ECOA.151 By contrast,
Congress did not amend TILA to
include a parallel waiver provision
regarding the same requirement in the
context of appraisals for HPMLs. See
TILA section 129H(c), 15 U.S.C.
1639h(c). The Agencies interpret TILA’s
lack of a waiver provision to indicate
that Congress did not intend to allow
consumers of loans covered by the
HPML appraisal rules to waive the
timing requirement.
VI. Bureau’s Dodd-Frank Act Section
1022(b)(2) Analysis 152
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In developing this supplemental rule,
the Bureau has considered potential
benefits, costs, and impacts to
consumers and covered persons.153 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 those
agencies. The Bureau also held
discussions with or solicited feedback
from the USDA, RHS, and VA regarding
the potential impacts of this
supplemental rule on their loan
programs.
150 ECOA section 701(e)(2), 15 U.S.C. 1691(e)(2),
implemented in the 2013 ECOA Valuations Final
Rule, Regulation B § 1002.14(a)(1), effective January
18, 2014.
151 ECOA section 701(e)(2), 15 U.S.C. 1691(e)(2),
implemented in 12 CFR 1002.14(a)(1), effective
January 18, 2014.
152 The analysis and views in this Part VI reflect
those of the Bureau only, and not necessarily those
of all of the Agencies.
153 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 final rule, the
Agencies are exempting the following
three additional classes of higher-priced
mortgage loans (HPMLs) from the
January 2013 Final Rule: (1) HPMLs
whose proceeds are used exclusively to
satisfy (i.e., refinance) an existing first
lien loan and to pay for closing costs,
provided that the credit risk holder is
the same on both loans (or that the same
government agency insures or
guarantees both loans) and the new loan
does not have negative amortization,
interest-only, or balloon features; (2)
HPMLs that have a principal amount of
$25,000 or less (indexed to inflation);
and (3) certain HPMLs secured by
manufactured homes.
As revised in this final rule, the
manufactured home exemption covers
all HPMLs secured by manufactured
homes for which an application is
received before July 18, 2015.
Thereafter, (1) for transactions secured
by a new manufactured home and land,
creditors will only be exempt only from
the requirement that the appraiser
conduct a physical visit of the interior;
and (2) for transactions secured by a
manufactured home and not land, the
exemption applies only if certain
alternative valuation information is
provided to the consumer no later than
three days before consummation.
The Agencies are also broadening the
exemption for qualified mortgages
adopted in the January 2013 Final Rule
beyond the Bureau’s qualified mortgage
definition in 12 CFR 1026.43(e) to
include any transaction that meets the
criteria of a qualified mortgage
established by agencies with authority
to do so under TILA section 129c—the
Bureau, HUD, VA, USDA, and RHS. See
15 U.S.C. 1693c. As revised, this
exemption will include transactions that
are qualified mortgages as defined under
any final rule that the Bureau, HUD, VA,
USDA, or RHS has adopted or will
adopt under authority at TILA section
129c. See 15 U.S.C. 1693c. In addition,
transactions that meet criteria for a
qualified mortgage established under
rules prescribed by the Bureau, HUD,
VA, USDA, or RHS are eligible for the
exemption even if they are not ‘‘covered
transactions’’ under the Bureau’s abilityto-repay rules (and thus not technically
defined as ‘‘qualified mortgages’’ under
each of the respective rules).154 For
154 Only transactions that are actually insured,
guaranteed, or administered under programs of
HUD, VA, USDA, or RHS could be eligible for the
exemption under § 1026.35(c)(2)(i) by being defined
as or meeting the criteria of a qualified mortgage
under rules of those agencies; the authority of those
agencies to determine the features of a qualified
mortgage does not extend to loans that they do not
insure, guarantee, or administer. See TILA section
129c(b)(3)(B)(ii), 15 U.S.C. 1639c(b)(3)(B)(ii).
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further discussion, see the section-bysection analysis of § 1026.35(c)(2)(i).
A. Potential Benefits and Costs to
Consumers and Covered Persons
This analysis considers the benefits,
costs, and impacts of the key provisions
of the supplemental rule relative to the
baseline provided by existing law,
including the January 2013 Final Rule
and the Bureau’s previously issued ATR
Rules.155 The Bureau considered
comments received on issues related to
this analysis. These comments are
addressed below and in the section-bysection analyses.
1. Economic Overview
This rulemaking consists of the
adoption of an expanded qualified
mortgage exemption and five separate
provisions regarding HPMLs that do not
qualify for the qualified mortgage status
(non-QM). The January 2013 Final Rule
demarcated which of those non-QM
loans are subject to requirement for an
appraisal in conformity with USPAP
and FIRREA with an interior property
visit (the full appraisal) and related
notice and additional appraisal
requirements for loans used to purchase
certain flipped properties. The overall
impact of these five provisions is
limited to specific segments of the
mortgage market, with arguably the
largest impact on transactions secured
by a used manufactured home and not
land (provision (3) below). The five
provisions for non-QM HPMLs are:
1. Certain refinances, commonly
referred to as ‘‘streamlined,’’ are now
exempt from the January 2013 Final
Rule;
2. Smaller dollar loans (up to $25,000,
indexed to inflation) are now exempt
from the January 2013 Final Rule;
3. Used manufactured housing
transactions that are not secured by land
(chattel) are now exempt from the
January 2013 Final Rule and, for
applications received on or after July 18,
2015, subject to a condition that the
creditor must give the consumer
alternative valuation information; 156
4. New manufactured housing
transactions that are not secured by land
(chattel) remain exempt from the
January 2013 Final Rule; however, for
applications received on or after July 18,
2015, this exemption will be subject to
155 The Bureau has discretion in future
rulemakings to choose the most appropriate
baseline for that particular rulemaking.
156 Used manufactured housing transactions that
are secured by land remain covered by the January
2013 Final Rule, starting with applications received
on or after July 18, 2015. All loans secured in whole
or in part by manufactured home are exempt if the
application is received before July 18, 2015.
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a condition that the creditor must give
the consumer alternative valuation
information; and
5. New manufactured housing
transactions secured by land (new land/
home) remain exempt until July 18,
2015; for applications received on or
after July 18, 2015, these transactions
will be exempted only from the physical
interior visit part of the January 2013
Final Rule.
In adopting each of these provisions,
the Agencies considered mandating that
consumers receive information about
the value of their house at the time of
the loan. The Bureau discusses the
general benefits and costs of this type of
mandatory information provision, and
then applies this discussion to each of
the provisions.
Consumers benefit from knowing the
value of the home on which they are
planning to take out a loan. Consumers
are able to make decisions that will
better fit their situation if they have a
more precise estimate of what their
home is worth. For example, a
consumer might decide, given a home’s
value, that he or she should not take out
the loan or should consider purchasing
a different home whose value in relation
to the loan amount is lower; that they
should sell instead of refinancing; that
they should postpone a particular home
improvement and not overinvest in a
home that might be worth less than they
thought. Affording consumers a better
opportunity to get this decision right is
particularly valuable in home loans
because these transaction sizes are
significant relative to income; the large
size of the transaction relative to income
may be especially significant in non-QM
HPMLs, which are more costly and may
pose greater repayment risk than other
mortgage loans.
No valuation method will give the
consumer perfect information about the
home’s value. Thus, a consumer might
receive a valuation that overestimates
the value and leads to a purchase that
should not have been made; similarly, a
valuation that underestimates the value
might lead to no purchase when one
should have been made. However, the
Bureau believes that imparting unbiased
valuation information to the consumer
is better than the consumer receiving no
information, and that consumer benefits
increase with more precise information,
whether it’s moving from no
information to a manufacturer’s invoice,
an AVM or similar estimate, a full
appraisal, or some other type of
valuation prepared by an independent
trained person.
The cost of providing any additional
information on the home value is
directly imposed on the creditor—the
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creditor has to perform what is
necessary to obtain the home valuation
information and provide it to the
consumer. However, since this is mostly
a marginal cost and most of the
mortgage markets are relatively
competitive, this cost is likely to be
almost fully passed through to the
consumer.157 The fixed costs, which are
unlikely to be passed through to the
consumer in a relatively competitive
market, include developing training
materials and providing training.
However, the Bureau believes that the
marginal training and training
development costs for the provisions of
this supplemental final rule are nonsignificant. Creditors will have already
developed and provided training in
preparation for complying with the
various requirements of the January
2013 Final Rule, which goes into effect
on January 18, 2014; this supplemental
final rule is considerably less complex,
establishing exemptions from those
requirements.
In the world of informed consumers
exhibiting fully rational economic
behavior, mandatory information
provisions might be unnecessary—
consumers would have decided for
themselves whether they need this
information enough to pay for it.
However, the Bureau believes that this
is not the best assumption, especially
for a market with many product
characteristics, intertemporal
investment decisions, and projections
into the distant future. Moreover, even
under that assumption, creditors might
have some specialized knowledge
making them able to obtain better
information than the consumer could
access on their own.158
A range of possibilities for a home
value information requirement exists in
the non-QM HPML mortgage market.
This range has, at one end of the
spectrum, no information provision
requirement, and a full appraisal on the
other. Generally, the more precise the
information is, the more expensive the
method is. In particular, the Bureau
believes that a full appraisal costs $350
on average as discussed in the Section
1022 analysis in the January 2013 Final
Rule.159 Not providing any information
is, of course, free to the creditor. An
intermediate solution like an automated
valuation estimate (an AVM estimate)
157 See, for example, E. Glen Weyl and Michael
Fabinger, ‘‘Pass-Through as an Economic Tool:
Principles of Incidence under Imperfect
Competition,’’ Journal of Political Economy, Vol.
121, No. 3 (Feb. 24, 2013).
158 For example, consumers generally cannot
access the manufacturer’s invoice for a
manufactured house.
159 78 FR 10368, 10420 (Feb. 13, 2013).
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78563
would result in a cost of under $20, as
estimated in the 2013 Supplemental
Proposed Rule; 160 however, an AVM
estimate is arguably less precise than a
USPAP appraisal, especially in rural
areas. Providing a consumer with a copy
of a manufacturer’s invoice (one of the
few conditions that a creditor might
satisfy for a non-QM HPML to be
exempted from a full appraisal on
chattel manufactured housing) is
estimated to cost less than $5. Moreover,
the Bureau’s January 2013 ECOA
Valuations Rule already requires the
creditor to give the consumer a copy of
valuations performed for the
transaction; the Bureau estimates that
full appraisals that are performed 95%
of the time for purchases, 90% for
refinances, and 5% for other loans
generally in the mortgage market based
upon outreach.161
2. Data Used
For all the estimates, both above and
below, the data sources used are
described in the 2013 Supplemental
Proposed Rule (described in the next
paragraph below). Several commenters
stated that for the completeness of
analysis, the Bureau should also
examine the impact of the points and
fees criterion for a qualified mortgage
under the Bureau’s 2013 ATR Final Rule
on the number of HPMLs that are nonQMs.162 The Bureau does not possess
any data and is not aware of any
existing data to address this point
directly. However, the effect of points
and fees is described further below. The
Bureau did not receive comments
raising additional issues regarding the
data and the methodology by which
projections were originated.
The Bureau has relied on a variety of
data sources to analyze the potential
benefits, costs and impacts of the
rule.163 However, in some instances, the
160 78
FR 48548, 48568 n.91 (Aug. 13, 2013).
FR 10368, 10419 (Feb. 13, 2013).
162 See generally 12 CFR 1026.43(e)–(f)
(provisions identifying types of mortgages that are
qualified mortgages under Bureau rules).
163 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,
161 78
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requisite data are not available or are
quite limited. Data with which to
quantify the benefits of the 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
HMDA. The empirical analysis
generally uses 2011 data, including from
the 4th quarter 2011 bank and thrift Call
Reports 164 and 4th quarter 2011 credit
union call reports from the NCUA. Deidentified data from the National
Mortgage Licensing System (NMLS)
Mortgage Call Reports (MCR) 165 for the
4th quarter of 2011 also were used to
identify financial institutions and their
characteristics.
In addition, in analyzing alternatives
for the exemption for certain refinances,
the Bureau did consider 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).
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 probit
model to predict DTI using loan amount, income,
and other variables. This model is then used to
estimate DTI for loans in HMDA.
164 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 https://
www2.fdic.gov/call_tfr_rpts/.
165 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.
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3. Smaller Dollar Loans
Estimate of the Number of Covered
Loans
The Bureau estimates the number of
transactions potentially eligible for the
smaller dollar 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 DTI ratios above 43 percent
(so they would not meet the more
general definition of a qualified
mortgage at 12 CFR 1026.43(e)(2)).
Accordingly, the Bureau estimates that
approximately 4,800 covered loans are
originated annually in an amount up to
$25,000.166 Of these estimated 4,800
covered loans, the Bureau estimates that
the types most affected by this
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. Absent an
exemption, 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
January 2013 Final Rule.167
Covered Persons
Creditors originating smaller dollar
HPMLs that are non-QMs would
experience some reduced burden as a
result of the exemption for HPMLs of
$25,000 or less. As a result of the
exemption, these loans will not be
subject to the estimated per-loan costs
described in the January 2013 Final
Rule.168 For these transactions, creditors
do 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
166 As discussed above, the Bureau does not
believe that a significant number of smaller dollar
HPMLs would exceed the points and fees threshold
in the 2013 ATR Final Rule. The Bureau requested
data on this issue in the supplemental proposal.
None of the commenters on the smaller dollar
exemption provided this data. If a significant
number of smaller dollar HPMLs did exceed that
threshold, then the number of loans eligible for the
exemption would increase.
167 See 78 FR 10368, 10419 (Feb. 13, 2013).
168 See Section 1022(b) analysis, 78 FR at 10418–
21.
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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. As noted
above, the overall impact of this
exemption on creditors is likely
minimal for most creditors given that in
2011 only 4,800 loans were potentially
eligible for the exemption.
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 exemption for smaller
dollar HPMLs (at or less than $25,000)
would provide some benefits. Industry
practice prior to implementation of the
January 2013 Final Rule suggests that
appraisals are not otherwise frequently
done for home improvement and
subordinate lien transactions.169 Thus,
by not requiring an appraisal, the cost
of which typically would be passed on
to consumers, the exemption could
facilitate access to smaller dollar HPMLs
that are not otherwise exempt from the
HPML appraisal rules. Otherwise,
requiring an appraisal for these loans
could create incentives that may not
benefit consumers. These incentives can
be more significant for smaller dollar
loans, given that the cost of the
appraisal relative to the amount of the
loan is higher for smaller dollar loans.
For example, some consumers could 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 QM) or
pursuing an alternative source of credit
that is not subject to the rules, such as
an open-end home equity line of credit
or using other forms of credit that are
not dwelling-secured such as a credit
card. Finally, as a result of the
exemption, consumers are likely to save
around $350 per loan; if the appraisal
requirement applied to these loans, the
Bureau would have expected creditors
to pass the cost of the appraisal on to
consumers.
Regarding costs to consumers, under
the exemption, consumers entering into
smaller dollar HPMLs (that are not
otherwise exempt) would lose the
benefits of the Final Rule. As discussed
in the Bureau’s analysis under Section
1022 in the January 2013 Final Rule, in
general, consumers who are borrowing
HPMLs could benefit from an appraisal.
169 78
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For smaller dollar HPMLs that are not
purchase transactions, the general
benefits elsewhere 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 toward or into negative
equity, without the consumer 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.170 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.171 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.172 Moreover, based upon HMDA
170 See 2011 American Housing Survey, ‘‘Value,
Purchase Price, and Source of Down Payment—
Owner Occupied Units (NATIONAL),’’ C–13–OO,
available at https://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 Single-Family Homes for
Metropolitan Statistical Areas Q4 2012, available at
https://www.realtor.org/sites/default/files/reports/
2013/embargoes/hai-metro-2-11-asdlp/metro-homeprices-q4-2012-single-family-2013-02-11.pdf.
171 Core Logic Press Release and Negative Equity
Report Q4 2012 (Mar. 19, 2013), available at https://
www.corelogic.com.
172 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 https://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
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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.
4. Transactions Secured by Used
Manufactured Homes and Not Land
Estimate of the Number of Covered
Loans
To assess the impact of the rule’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 nonQMs because the DTI ratio exceeded 43
percent and the loan was not insured,
guaranteed, or purchased by a federal
government agency or GSE.173 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 smaller dollar exemption
discussed above. However, the estimates
of affected manufactured home
transactions discussed in this Section
1022 analysis do not exclude smaller
dollar loans and therefore may be
slightly overstated.
Census data also reports an estimated
369,000 move-ins to owner-occupied
manufactured homes in 2011.174 Census
data reports shipment of approximately
51,000 new manufactured homes in
2011, with approximately 17 percent
titled as real estate.175 Therefore, the
Bureau estimates that approximately
318,000 existing manufactured homes
were purchased in 2011. The Bureau
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 https://www.areuea.org/
conferences/papers/download.phtml?id=2133.
174 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.
175 See Cost & Size Comparisons: New
Manufactured Homes, available at https://
www.census.gov/construction/mhs/pdf/
sitebuiltvsmh.pdf.
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conservatively assumes that all of these
purchases were financed. Further, based
upon a review of nearly 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, for the purposes of this 1022
analysis, conservatively estimates that
approximately 105,000 purchases of
existing manufactured homes also
involved the acquisition of land which
provided security for the purchase
loan,176 while approximately 213,000
purchases were secured only by the
existing 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 non-QMs,
and approximately 8,400 were land- and
home-secured HPMLs that were nonQMs.177
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 manufactured housing
refinance or home improvement loan
(that is, out of every five manufactured
housing loans, four are purchases). The
Bureau believes that both refinance and
home improvement loans in
manufactured housing are exempt due
to other exemptions in this rule.
Therefore, the Bureau believes that there
are approximately 13,600 covered used
chattel manufactured housing loans.178
Several commenters noted that the
proportion of non-QM loans will be
higher in manufactured housing than
what was estimated by the Bureau,
particularly due to points and fees
exceeding the qualified mortgage limit.
These commenters did not provide
supporting data or address non-QM
proportions by collateral type.
Nonetheless, if the proportion of nonQM loans secured by existing
manufactured homes and not land is
indeed higher, then the estimates of
costs and benefits of this final rule
might increase somewhat (while
remaining constant on a per-loan basis).
Moreover, while the commenters
identified the points and fees cap for
qualified mortgages in the Bureau’s ATR
176 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.
177 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 Rules.
178 For further analysis of these assumptions, see
the Bureau’s RFA analysis at part VII.
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Rules as the main reason for these loans
not to qualify for qualified mortgage
status, the Bureau believes that creditors
will adjust many transactions, for
example by shifting points and fees into
the interest rate, so that these
transactions are QMs.
Moreover, HUD recently issued a
proposed rulemaking to effectively
exempt Title I manufactured housing
from the qualified mortgage points and
fees requirement. If this provision of
HUD’s proposal is finalized
substantially as proposed, the Bureau
believes that some creditors will start
originating more Title I mortgage loans
that will also have the qualified
mortgage status. Furthermore, the
Bureau conservatively assumes that
every manufactured home move-in
reported in the Census (or in the
American Housing Survey) had a
mortgage loan associated with the movein. Finally, given the analysis of HMDA
data, the Bureau believes that the two
creditors specialized in manufactured
home lending that commented on the
supplemental proposal are outliers on
several dimensions relevant to the
proportion of covered loans, and thus
are not necessarily representative of the
whole manufactured home market and
that their claims regarding non-QM loan
volume might overestimate the
proportion of manufactured housing
loans that are non-QMs for the overall
market.
Covered Persons
Creditors originating covered
transactions secured by existing
manufactured homes but not land will
experience some reduced burden as a
result of the exemption. In particular,
these loans are not subject to the
estimated per-loan costs for an appraisal
in conformity with USPAP described in
the January 2013 Final Rule.179 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.
Appraisals in conformity with USPAP
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
179 See
Section 1022(b) analysis, 78 FR at 10418–
21.
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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. Thus, most, of the covered
transactions might have been impossible
to make. The impact of the hypothetical
case in which creditors are not able to
comply with a provision of this rule that
has not yet taken effect is impossible to
estimate with any reasonable degree of
confidence. As a result, for purposes of
analyzing the benefits of the exemption,
the Bureau cannot evaluate the burden
reduced as a result of the exemption.
The Bureau believes that whatever
method of satisfying conditions for the
exemption the creditors choose, the cost
is likely to be relatively low, and all the
manufactured housing creditors would
incur it, likely resulting in the majority
of this cost passed on to the consumers.
The Bureau believes that many creditors
will opt to use an independent cost
service to qualify for the exemption. The
prevalent option currently on the
market is the NADAguides. This guide
contains an estimate of a manufactured
home’s cost of replacement value based
on the exact make, model, and the year
that the manufactured home was built.
Since many creditors use this guide or
a competitor’s guide already in these
transactions, and that estimate is a
valuation under the ECOA Valuations
Rule and would have had to be
provided to the consumer in either case,
this additional requirement is not an
extra cost on either the creditors or the
consumers.180
180 The Agencies received a comment that
implementing a process to ensure compliance with
the new provisions regarding chattel manufactured
homes will take at least 1,600 hours of labor time.
The Bureau disagrees. As discussed above, the
requirements can be satisfied not only by obtaining
an independent valuation, but also by copying a
manufacturer’s invoice for new chattel, or following
a guide, like the one provided by NADA, for new
or used chattel. Following the guide involves
looking up the model, make, and the year that the
home was built in, akin to Yellow Pages or, more
appropriately, Kelley’s Bluebook. The Bureau
believes that most loan officers should be able to
perform that task in, at most, minutes given either
a hardcopy of the guide or an electronic version. If
a creditor chooses to invest additional labor to tailor
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Consumers
The exemption likely results in
creditors being able to consummate
these transactions while staying in
compliance, and thus the benefit of the
exemption to consumers is primarily
that they will continue to have access to
these loans.
Consumers will now receive one of
the available options including, and
most likely (since it is likely the most
cost-effective option for used homes), a
third-party cost estimate. As noted
above, most creditors use an existing
cost service to produce an estimate that
already would be provided to the
consumer under the ECOA Valuations
Rule. This will provide consumers with
some information about the value of
their manufactured home, and will
allow them to decide whether they
should indeed purchase this home. If
the consumers deem the value too low,
they might decide to look at other
models of manufactured homes, choose
a non-manufactured home instead, or
decide to exit the housing market, most
likely by renting. The Bureau believes
that creditors will pass through most of
their costs onto consumers. The Bureau
is unaware of any estimates of the cost
of a third-party cost evaluation for a
used chattel manufactured home, but
believes that it is significantly less than
$350 required for a full appraisal for a
non-manufactured home. For example,
the cost of using the third-party cost
service may be more akin to the cost of
using an automated valuation model,
which, as discussed in this Section 1022
analysis, may be approximately $20.181
5. Transactions Secured by New
Manufactured Homes and Not Land
Estimate of the Number of Covered
Loans
As noted above, approximately 51,000
new manufactured homes were shipped
according to recent annual Census data.
For this analysis, the Bureau
conservatively 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
its output to consumers to go beyond the limited
conditions in this rule, that is not a cost of this rule.
181 See also 78 CFR 48548, 48573, n.123 (Aug. 13,
2013) (‘‘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 . . . The
average cost per-loan would therefore depending on
the covered person’s total level of lending
activity.’’).
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new manufactured home purchase
transactions that are secured in part by
land.182 The Bureau therefore, for this
1022 analysis, conservatively 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 non-QMs,
and almost 700 were land and homesecured HPMLs that were non-QMs.183
Covered Persons
The Bureau believes that the vast
majority of creditors receive a copy of
the manufacturer’s invoice as a matter of
standard business practice, and thus
they could simply provide consumers a
copy. Consistent with the January 2013
ECOA Valuations Rule,184 the Bureau
estimates that this will cost creditors
around $5 per loan, including training
costs. A few commenters have suggested
that releasing invoices would upset
industry’s pricing model. The Bureau
does not possess any data and is not
aware of any studies to help it evaluate
this claim. Moreover, in some
industries, such as the car market, a
high volume of transactions occur and
firms profit even though some
consumers are able to discover the
invoice value of the product. Moreover,
the rule allows the creditor to choose to
avoid disclosing the invoice and thereby
avoid any issues a creditor believes
disclosure of the invoice could entail; in
lieu of the invoice, the rule allows
covered persons to provide a valuation
from an independent person or based on
an independent cost service, as
described above.
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Consumers
Consumers will benefit from this rule
by receiving at least some kind of
valuation information. The Bureau
believes that while consumers getting a
mortgage loan on a non-manufactured
182 Only a few states provide for treating
manufactured homes sited on leased land as real
property.
183 See the discussion in the beginning of this
section on data used and comments received. If the
Bureau’s estimate is off, for example by a factor as
great as three, the estimate would increase from
4,100 to slightly more than 12,000 loans per year
(indicating that close to a quarter of the transactions
would be non-QM HPMLs after the rule is
implemented and that a significant proportion of
the manufactured home transactions are not
reported to HMDA despite these transactions
covered by HMDA).
184 78 FR 7216, 7244 (Jan. 31, 2013).
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home would generally receive a
valuation based on the ECOA
Valuations Rule, this is not the case for
new manufactured homes since the
manufacturer’s invoice is exempt from
the ECOA requirements. Thus, this
provision arguably has a particularly
large effect per transaction affected:
consumers go from not knowing
anything about the value of their home
to at least having some information.
This is particularly valuable considering
that these are likely to be LMI
consumers who would be particularly
vulnerable and adversely affected by
entering into a transaction that might
leave them underwater from the very
first day, as discussed in more detail in
the section-by-section analysis. The
Agencies further discuss this provision
in the section-by-section analysis.
6. Transactions Secured by New
Manufactured Homes and Land
The Bureau believes that there were
approximately 700 new land/home
HPML non-QM transactions. One
commenter noted that few if any of the
transactions outside of those programs
include appraisals currently. While the
Bureau does not have data on this point,
even if few transactions outside of these
programs did have appraisals currently,
the number of new appraisals that
would result from the modified
exemption still is quite low.
Covered Persons
This rule will result in approximately
a $350 dollar cost increase (the average
price of a full appraisal) per transaction,
which is likely to be passed through to
the consumer. While the rule exempts
these appraisals from the requirement of
the interior inspections, various
commenters suggested that full
appraisals (including interior
inspections) of manufactured houses
cost more than $350. Thus, it is possible
that the actual cost per appraisal is
slightly higher or slightly lower.185
185 Some
commenters claimed that requiring
appraisals for manufactured housing, in particular
in land/home transactions, is problematic, in part
because they asserted that the appraised value
comes in lower than the sale price in a high
proportion of FHA manufactured home program
transactions. Some comments suggested that the
appraisals were not valid in part because they relied
upon too many manufactured homes as
comparables or the opposite—they relied too
heavily on site-built homes as comparables with
adjustments which are too subjective. The
commenters’ views, however, were presented only
in theoretical form and did not include data to
support the contents. In the context of an individual
transaction, if the lender views the appraisal to be
inaccurate and can demonstrate that fact, appraisal
review and dispute processes exist, and lenders can
get a second appraisal or opinion as well. On the
other hand, if a portfolio lender accepts an
appraisal that indicates insufficient collateral value
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Consumers
Consumers will receive the benefits of
the appraisal discussed elsewhere, and
will not be vulnerable to weaker
valuation practices when their
transactions are occurring outside of
GSE or federal agency programs.
However, consumers will pay any cost
of the required appraisal to the extent
that creditors pass it through. The
Bureau believes that many of the
consumers using non-QM HPMLs to
purchase a new manufactured home and
land currently do not receive any
valuation before buying it, magnifying
the potential benefit for consumers.
Finally, the Agencies do not believe
that a requirement of a full appraisal
(i.e., with a physical inspection of the
interior) on new manufactured housing
secured by land is appropriate given the
fact that many of these houses are not
physically on land when the loan is
consummated and other inspections
occur under HUD and other safety
standards. Aside from that, these
transactions are not systematically
different from construction of site-built
homes, and thus should be treated the
same to the extent possible.
Again, the Bureau believes that there
were approximately 700 new land/home
HPML non-QM transactions. This will
result in approximately a $350 dollar
cost increase (the average price of a full
appraisal) that is likely to be passed
through to the consumer. This cost
might be lower because the rule
exempts these appraisals from the
requirement of the interior exemptions;
however, some commenters suggested
that full manufactured home appraisals
(which would typically include an
interior inspection) might sometimes
cost more than appraisals of site-built
homes. Thus, it is possible that the
actual cost per appraisal is slightly
higher or slightly lower.
7. Streamlined Refinances
Estimate of the Number of Covered
Loans
The Bureau anticipates that the
refinance provision overwhelmingly
affects private streamline refinances
until 2021 because qualified mortgages
are separately exempt from this rule
and, under the Bureau’s 2013 ATR Final
Rule, GSE and federal government
agency refinances are generally deemed
and does not proceed with the transactions, the fact
that the creditor voluntarily decided not to originate
the loan based on the appraisal is a benefit to the
creditor, and likely to the consumer as well. In
addition, FHA appraisal requirements indicate that
this agency considers these appraisals sufficiently
valid to use, and thus not everyone views these
appraisals as problematic.
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qualified mortgages until 2021.186 In
addition, as discussed in the section-bysection analysis above, only refinances
in which the holder of the credit risk on
the existing obligation and the
refinancing remain the same would be
eligible, and the loan cannot have
interest-only, negative amortization, or
balloon features.
The Bureau estimates that at most
12,000 private no cash-out refinance
transactions were originated in 2011.
The Bureau believes that some of these
were refinances of existing loans where
the credit risk holder changed and thus
would not be eligible for the exemption,
and that a small number of these
refinances had interest-only, negative
amortization, or balloon features and
also would not be eligible for the
exemption. The Bureau believes that for
about 90% of refinance transactions, the
creditor would have provided an
appraisal to the consumer; starting in
January 2014, the ECOA Valuations
Rule will require creditors to do so.
Thus, this exemption is likely to affect
under 1,000 loans a year (10% of
12,000).
Covered Persons
Any creditors originating covered
refinances that meet the criteria of the
exemption can choose to make use of
the exemption, which reduces burden.
In particular, these loans will not be
subject to the estimated per-loan costs
described in the January 2013 Final
Rule.187 For these transactions, the
creditor is not required to spend time
providing a notice, obtaining an
appraisal, reviewing the appraisals
conducted for conformity to this rule,
and providing copies of those appraisals
to applicants.
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Consumers
Regarding benefits, consumers whose
HPML streamlined refinance are newly
exempt will save an average of $350 per
loan. In addition, streamlined refinance
transactions may close more quickly
without an appraisal, reducing the time
in which a consumer may be in a worse
loan, which can result in further cost
savings to the consumer. For example,
if the consumer can close a refinance
transaction two weeks earlier because a
full appraisal is not performed, and the
refinance loan has a lower interest rate,
that will provide the consumer with an
additional two weeks of payments at the
reduced interest rate of the refinance
loan.
186 See
187 See
12 CFR 1026.43(e)(4).
Section 1022(b) analysis, 78 FR at 10418–
21.
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As discussed above and in the
Bureau’s analysis under Section 1022 in
the January 2013 Final Rule, in general,
consumers who are borrowing HPMLs
that are covered loans benefit from
having an appraisal. The cost to
consumers of the proposed exemption
therefore is 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.
proportion of the remaining non-QM
subordinate lien HPMLs. The Bureau
also noted that such an increase would
wholly exempt many manufactured
home purchases that deserve the
protection provided by the new
provisions in this rule. The Agencies
also believe that at these higher loan
amounts the cost of the appraisal
provides less of an incentive to switch
to another kind of financing, for
example an open-credit loan.
8. Significant Alternatives
The Agencies discussed various
conditions on exemptions for smaller
dollar loans and streamline refinances.
Placing conditions on these
exemptions—for example, requiring that
an automated valuation be obtained and
provided to the consumer—would
provide many of the same benefits to
consumer as a full appraisal. However,
the Bureau believes that the benefits of
an appraisal would likely be lower for
these two particular types of
transactions than for other types of
transactions that will not be exempt
from the January 2013 Final Rule.
The cost of these conditions would be
directly levied on the creditors;
however, the Bureau believes that it
would be almost fully passed on to
consumers. The Bureau did not view the
cost of these alternatives to be
significant. The Agencies determined,
however, not to adopt this alternative. A
significant factor was that streamline
refinances and smaller dollar loans were
viewed as classes of transactions that
were significantly lower risk and
therefore not necessitating alternative
valuation conditions in this rule.
The Agencies also discussed a
provision mandating the creditors to
provide chattel manufactured home
valuations with adjustments for
condition (used chattel) and location
(used or new chattel). The Agencies
decided that this provision would
introduce additional implementation
burden and subjectivity with respect to
the compliance processes, and that
practices with regard to these
adjustments had not sufficiently
evolved to codify a uniform set of
standards in regulations. From the
perspective of potential benefits of this
provision, creditors can still provide
whatever adjustments are specified in
the cost service guide.
The Agencies discussed raising the
loan amount requirement for the smaller
dollar exemption to $50,000. However,
the Agencies decided that the range of
$25,000 to $50,000 captures too great a
1. Potential Reduction in Access of
Consumers to Consumer Financial
Products or Services
The rule includes only exemptions
and provisions that have limited impact
on a small amount of loans. Thus, the
Bureau does not believe that any
reduction in access to credit will result.
If anything, the Bureau believes that the
exemption for used chattel
manufactured housing will make many
loans possible to originate while
complying with the January 2013 Final
Rule, thus improving access to credit.
Manufactured housing industry
commenters suggested that access to
credit in chattel loans, including new
chattel loans, would be reduced if
valuation information must be provided
to the consumer. These comments may
be read as potentially suggesting that:
(1) Consumers, if informed of the
estimated value of the home by
currently available means, might elect
not to proceed with the transaction, or
(2) creditors, if required to provide such
information to the consumers, also
might not proceed with the transaction,
particularly where the loan amount
exceeds the estimated value of the
home.
If these comments are based upon the
assumption that valuation information
provided will be inaccurate or
misleading, commenters did not provide
data in support of this point with
respect to any of the three valuation
information options specified in the
condition to the exemption for chattel
manufactured home loans. In this
regard, the Bureau notes that a leading
independent cost service provided data
in its comments indicating the accuracy
of its method compared to personal
property appraisals. Otherwise, the
Bureau does not consider access to
credit to be reduced where consumers
voluntarily choose not to continue with
a transaction after receiving valuation
information; in this case, the
information has benefited the consumer
by enabling the consumer to make better
informed credit choices. Similarly,
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B. Potential Specific Impacts of the
Supplemental Final Rule
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access to credit is not necessarily
compromised if the creditor chooses not
to continue with the transaction,
particularly if the loan amount exceeds
the estimated value of the home. In
purchase transactions, the Bureau
believes that consumers typically have
the option of purchasing other
manufactured and non-manufactured
homes that would not have the
consumer starting off in their mortgage
by effectively being underwater.
2. Impact of the Rule on Depository
Institutions and Credit Unions With $10
Billion or Less in Total Assets
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 more benefits from
the exemption for smaller dollar loans.
These benefits would not be high in
absolute dollar terms, however, because
the number of covered transactions
across all creditors that would be
exempted by the smaller dollar loan
exemption is still relatively low—less
than 5,000, as discussed above.
Otherwise, the Bureau does not
believe that the impact of the
supplemental rule 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 covered streamlined
refinances that would be exempted by
the exemption for certain refinances at
a greater rate than would other financial
institutions.
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3. Impact of the Rule on Consumers in
Rural Areas
The Bureau understands that a
significantly greater proportion of
homes in rural areas are existing
manufactured homes than in non-rural
areas.188 Therefore, any impacts of the
188 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 https://
factfinder2.census.gov/faces/tableservices/jsf/
pages/productview.xhtml?pid=AHS_2011_
C01OO&prodType=table. See also Housing
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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 exemption for
streamlined refinances would generate a
similar benefit for consumers in rural
areas as for consumers in non-rural
areas. Finally, setting aside the
increased incidence of manufactured
housing loans in rural areas, the Bureau
does not believe that the difference in
the number of smaller dollar loans
originated for consumers in rural areas
and non-rural areas is significant.
VII. Regulatory Flexibility Act
OCC
Pursuant to section 605(b) of the
Regulatory Flexibility Act, 5 U.S.C.
605(b) (RFA), the regulatory flexibility
analysis otherwise required under
section 603 of the RFA is not required
if the agency certifies that the final rule
will not 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 189 and trust
companies with total assets of $35.5
million or less) and publishes its
certification and a short, explanatory
statement in the Federal Register along
with its final 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 HPMLs. The
statute expressly excludes from these
appraisal requirements coverage of
‘‘qualified mortgages as defined by
section 129C.’’ 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.
Assistance Council Rural Housing Research Note,
‘‘Improving HMDA: A Need to Better Understand
Rural Mortgage Markets,’’ (Oct. 2010), available at
https://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.
189 ‘‘A financial institution’s assets are
determined by averaging 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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78569
The Agencies issued the January 2013
Final Rule on January 18, 2013, which
will be effective on January 18, 2014.
Pursuant to the general exemption
authority in the statute, the January
2013 Final Rule excluded the following
consumer credit transactions from the
definition of HPML: Transactions
secured by new manufactured homes;
transactions secured by a 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 final rule
to include additional exemptions from
the higher risk mortgage loan appraisal
requirements of section 129H of TILA:
Certain ‘‘streamlined’’ refinancings and
extensions of credit of $25,000 or less,
indexed every year for inflation. In
addition, this supplemental final rule
amends and adds exemptions for
transactions secured by manufactured
homes.
The OCC currently supervises 1,797
banks (1,179 commercial banks, 61 trust
companies, 509 federal savings
associations, and 48 branches or
agencies of foreign banks). We estimate
that less than 1,309 of the banks
supervised by the OCC are currently
originating one- to four-family
residential mortgage loans that could be
HPMLs. Approximately 1,291 of OCCsupervised banks are small entities
based on the Small Business
Administration’s (SBA’s) definition of
small entities for RFA purposes. Of
these, the OCC estimates that 867 banks
originate mortgages and therefore may
be impacted by this final 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 will be zero. The
supplemental final rule 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 exemptions in the
supplemental final rule will be less than
the cost of compliance for a comparable
loan under the final rule.
Therefore, the OCC believes the
supplemental final rule will not have a
significant economic impact on a
substantial number of small entities.
The OCC certifies that the supplemental
final rule will not have a significant
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economic impact on a substantial
number of small entities.
OCC Unfunded Mandates Reform Act of
1995 Determination
Section 202 of the Unfunded
Mandates Reform Act of 1995 (2 U.S.C.
1532), requires the OCC to prepare a
budgetary impact statement before
promulgating a rule that includes a
Federal mandate that may result in the
expenditure by state, local, and tribal
governments, in the aggregate, or by the
private sector, of $100 million or more
in any one year (adjusted annually for
inflation). The OCC has determined that
this supplemental final rule will not
result in expenditures by state, local,
and tribal governments, or the private
sector, of $100 million or more in any
one year. Accordingly, the OCC has not
prepared a budgetary impact statement.
Board
The RFA (5 U.S.C. 601 et seq.)
requires an agency either to provide a
final regulatory flexibility analysis
(FRFA) with a final rule or certify that
the final rule will not have a significant
economic impact on a substantial
number of small entities. This
supplemental final rule applies to
certain banks, other depository
institutions, and non-bank entities that
extend HPMLs to consumers.190 The
SBA establishes size standards that
define which entities are small
businesses for purposes of the RFA.191
The size standard to be considered a
small business is: $500 million or less
in assets for banks and other depository
institutions; and $35.5 million or less in
annual revenues for the majority of
nonbank entities that are likely to be
subject to the regulations. Based on its
analysis, and for the reasons stated
below, the Board believes that the
supplemental final rule will not have a
significant economic impact on a
substantial number of small entities.
Nevertheless, the Board is publishing a
FRFA.
tkelley on DSK3SPTVN1PROD with RULES2
A. Reasons for the Final Rule
This supplemental final rule relates to
the January 2013 Final Rule issued by
the Agencies on January 18, 2013,
which goes into effect on January 18,
2014. See 78 FR 10368 (Feb. 13, 2013).
The January 2013 Final Rule
190 The Board notes that for purposes of its
analysis, the Board considered all creditors to
which the supplemental final rule applies. The
Board’s Regulation Z at 12 CFR 226.43 applies to
a subset of these creditors. See 12 CFR 226.43(g).
191 U.S. SBA, Table of Small Business Size
Standards Matched to North American Industry
Classification System Codes, available at https://
www.sba.gov/sites/default/files/files/size_table_
07222013.pdf.
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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 average
prime offer rate by a specified
percentage, the January 2013 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
definition of higher-risk mortgage in
new TILA section 129H expressly
excludes qualified mortgages, as defined
in TILA section 129C, as well as reverse
mortgage loans that are qualified
mortgages as defined in TILA section
129C.
The Agencies are now finalizing two
additional exemptions to the 2013 Final
Rule appraisal requirements and
adopting certain provisions for
manufactured homes. As described in
the SUPPLEMENTARY INFORMATION, the
supplemental final rule exempts
‘‘streamlined’’ refinancings and
transactions of $25,000 or less. The
supplemental final rule also exempts
loans secured by manufactured homes
from the January 2013 Final Rule’s
appraisal requirements for 18 months,
until July 18, 2015. Subsequent to that
date:
Æ A loan secured by a new
manufactured home and land must
comply with the January 2013 Final
Rule’s appraisal requirements except for
the requirement to conduct a physical
visit to the interior of the property;
Æ A loan secured by an existing
(used) manufactured home and land
will be subject to all of the January 2013
Final Rule’s appraisal requirements; and
Æ A loan secured by manufactured
homes (new or used) and not land will
be exempt from the January 2013 Final
Rule’s appraisal requirements if the
consumer is provided with a specified
alternative cost estimate or valuation.
B. Statement of Objectives and Legal
Basis
The Board believes that the additional
exemptions and amendments
established by the supplemental final
rule are appropriate to carry out the
purposes of the statute, as discussed
above in the SUPPLEMENTARY
INFORMATION. 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
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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 January 2013 Final Rule applies
to creditors that make HPMLs subject to
12 CFR 1026.35(c). In the Board’s
regulatory flexibility analysis for the
January 2013 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.192 According
to the data provided by the Bureau in
connection with promulgation of the
supplemental final rule, approximately
5,913 commercial banks and savings
institutions, 3,784 credit unions, and
2,672 non-depository institutions are
considered small entities and extend
mortgages, and therefore are potentially
subject to the January 2013 Final Rule
and the supplemental 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 226.43, given the
range of exemptions provided in the
January 2013 Final Rule and the
supplemental final rule, including the
exemption for loans that satisfy the
criteria of a qualified mortgage. Further,
the number of these small entities that
will make HPMLs subject to the
supplemental final rule’s exemptions is
unknown.
D. Projected Reporting, Recordkeeping
and Other Compliance Requirements
The supplemental final rule does not
impose any significant new
recordkeeping, reporting, or compliance
requirements on small entities. The
supplemental final rule reduces the
number of transactions that are subject
to the requirements of the January 2013
Final Rule. As noted above, the January
2013 Final Rule generally applies to
creditors that make HPMLs subject to 12
CFR 1026.35(c), which are generally
mortgages with an APR that exceeds the
APOR by a specified percentage, subject
to certain exemptions. The
supplemental final rule exempts two
additional classes of HPMLs from the
January 2013 Final Rule: Certain
streamlined refinance HPMLs whose
proceeds are used exclusively to satisfy
192 See the Bureau’s regulatory flexibility analysis
in the 2013 Final Rule (78 FR 10368, 10424 (Feb.
13, 2013)).
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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). In addition, the
supplemental final rule exempts until
July 2015 HPMLs secured by
manufactured homes. Accordingly, the
supplemental final rule decreases the
burden on creditors by reducing the
number of loan transactions that are
subject to the January 2013 Final Rule.
For applications submitted on or after
July 18, 2015, burden increases slightly
for transactions secured by new
manufactured homes and land because
such transactions will be required to
comply with the January 2013 Final
Rule’s appraisal requirements except for
the requirement to conduct a physical
visit to the interior of the property. In
addition, burden also increases with
respect to transactions secured by a new
manufactured home and not land. These
transactions will be exempt from the
January 2013 Final Rule’s appraisal
requirements only if the borrower is
provided with a specified alternative
cost estimate or valuation to the
borrower.
tkelley on DSK3SPTVN1PROD with RULES2
F. Identification of Duplicative,
Overlapping, or Conflicting Federal
Regulations
The Board has not identified any
Federal statutes or regulations that
duplicate, overlap, or conflict with the
proposed revisions.
G. Discussion of Significant Alternatives
The Board is not aware of any
significant alternatives that would
further minimize the economic impact
of the supplemental final rule on small
entities. With respect to transactions
secured by ‘‘streamlined’’ refinances or
smaller-dollar HPMLs, the supplemental
final rule exempts these transactions
from the January 2013 Final Rule and
therefore reduces economic burden for
small entities. With respect to loans
secured by new manufactured homes
and land, the Board recognizes that the
supplemental final rule imposes new
burden by requiring such transactions to
comply with the January 2013 Final
Rule’s appraisal requirements except for
the requirement to conduct a physical
visit to the interior of the property. With
respect to loans secured by new
manufactured homes and not land, the
Board also recognizes that the
supplemental final rule imposes new
burden by requiring that such
transactions are exempt from the
January 2013 Final Rule only if the
borrower is provided with a specified
alternative cost estimate or valuation.
Although maintaining the January 2013
Final Rule exemption for new
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manufactured homes would lower the
economic impact on small entities, the
Board does not believe doing so is
appropriate in carrying out the purposes
of the statute.
FDIC
The RFA generally requires that, in
connection with a rulemaking, an
agency prepare and make available for
public comment a regulatory flexibility
analysis that describes the impact of the
rule on small entities.193 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 $500 million or less) and
publishes its certification and a short,
explanatory statement in the Federal
Register together with the rule.
As of June 30, 2013, there were about
3,673 small FDIC-supervised
institutions, which include 3,363 state
nonmember banks and 310 statechartered savings banks. The FDIC
analyzed the 2011 HMDA 194 dataset to
determine how many loans by all FDICsupervised institutions 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 institutions
originated at least 100 HPMLs, with
only four institutions originating more
than 500 HPMLs. Further, the FDICsupervised institutions that met the
definition of a small entity originated on
average less than 11 HPMLs of
$250,000 195 or less each in 2011.
The supplemental final rule relates to
the January 2013 Final Rule issued by
the Agencies on January 18, 2013,
which goes into effect on January 18,
2014. The January 2013 Final Rule
requires that creditors satisfy the
following requirements for each HPML
they originate that is not exempt from
the rule:
• The creditor must obtain a written
appraisal; the appraisal must be
performed by a certified or licensed
193 See
5 U.S.C. 601 et seq.
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.
195 HPML transactions over $250,000 were
excluded from this analysis as 12 CFR Part 323 of
the FDIC Rules and Regulations requires an
appraisal for real estate loans over $250,000 unless
another exemption applies.
194 The
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78571
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 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 supplemental final rule amends
one existing exemption and establishes
additional exemptions to the appraisal
requirements in the January 2013 Final
Rule. The supplemental final rule
exempts:
• ‘‘Streamlined’’ refinancings. A
‘‘streamlined’’ refinancing results if the
holder of the successor credit risk also
held the risk of the original credit
obligation. The supplemental final rule
does not exempt refinancing
transactions involving cash out,
negative amortization, interest only
payments or balloon payments.
• ‘‘Smaller Dollar’’ Residential Loans.
A ‘‘smaller dollar’’ residential loan is an
extension of credit of $25,000 or less,
with the amount indexed annually for
inflation, secured by the borrower’s
principal dwelling.
• Manufactured Home Loans. Loans
secured by manufactured homes are
exempt from the appraisal requirements
for 18 months, until July 18, 2015.
Subsequent to that date:
Æ A loan secured by a new
manufactured home and land must
comply with the appraisal requirements
except for the requirement to conduct a
physical visit to the interior of the
property;
Æ A loan secured by an existing
(used) manufactured home and land
will be subject to all appraisal
requirements; and
Æ A loan secured by a manufactured
home (new or used) and not land will
be exempt from the appraisal
requirements if the buyer is provided
with a specified alternative cost
estimate or valuation.
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tkelley on DSK3SPTVN1PROD with RULES2
The supplemental final rule amends
the exemption for a loan secured by a
new manufactured home in the January
2013 Final Rule by requiring an
appraisal without a physical visit to the
interior of the property for loans secured
by a new manufactured home and land
after July 18, 2015. This amendment
will increase burden as such loans will
no longer be exempt from all of the
appraisal requirements. While data is
not available to estimate the number of
such transactions, the previously cited
HMDA data reflects that FDICsupervised institutions that met the
definition of a small entity each engaged
in a relatively small number of HPML
transactions in 2011. In addition, the
supplemental final rule exempts
additional transactions, including
certain ‘‘streamlined’’ refinancings,
‘‘smaller dollar’’ residential loans, and
some manufactured home loans, from
the appraisal requirements of the
January 2013 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
supplemental final rule will not have a
significant economic impact on a
substantial number of small entities that
it regulates in light of the following
facts: (1) The supplemental final rule
reduces regulatory burden on small
institutions by exempting certain
transactions from the appraisal
requirements of the January 2013 Final
Rule; and (2) the FDIC previously
certified that the January 2013 Final
Rule would not have a significant
economic impact on a substantial
number of small entities. Accordingly,
the FDIC certifies that the supplemental
final rule would not have a significant
economic impact on a substantial
number of small entities. Therefore, a
regulatory flexibility analysis is not
required.
NCUA
The RFA generally requires that, in
connection with a final rule, an agency
prepare and make available for public
comment a FRFA that describes the
impact of the final rule on small
entities.196 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.
196 See
5 U.S.C. 601 et seq.
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NCUA defines small entities as small
federally insured credit unions (FICU)
having less than 50 million dollars in
assets.197
In 2012, there were approximately
4,600 small FICUs. The NCUA analyzed
the 2012 HMDA 198 dataset to determine
how many loans by all FICUs might
qualify as HPMLs under section 129H of
the TILA as added by section 1471 of
the Dodd-Frank Act. This analysis
reflects that 918 FICUs originated
HPMLs, with only 24 institutions
originating more than 100 HPMLs.
Further, the FICUs that met the
definition of a small entity originated on
average less than 2 HPMLs in 2012.
The supplemental final rule relates to
the January 2013 Final Rule issued by
the Agencies on January 18, 2013,
which goes into effect on January 18,
2014. The January 2013 Final Rule
requires that creditors satisfy the
following requirements for each HPML
they originate that is not exempt from
the 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 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.
197 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).
198 The NCUA based its analysis on the HMDA
data, as it provided a proxy for the characteristics
of HPMLs. While the NCUA 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
NCUA also recognizes that the HMDA data provides
information relative to mortgage lending in
metropolitan statistical areas, but not in rural areas.
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The supplemental final rule amends
one existing exemption and establishes
additional exemptions to the appraisal
requirements in the January 2013 Final
Rule. The supplemental final rule
exempts:
• ‘‘Streamlined’’ refinancings. A
‘‘streamlined’’ refinancing if the holder
of the successor credit risk also held the
risk of the original credit obligation. The
supplemental final rule does not exempt
refinancing transactions involving cash
out, negative amortization, interest only
payments or balloon payments.
• Extensions of credit of $25,000 or
less. Extension of credit of $25,000 or
less, with the amount indexed annually
for inflation, secured by the borrower’s
principal dwelling.
• Manufactured Home Loans. Loans
secured by a manufactured home are
exempt from the appraisal requirements
for 18 months, until July 18, 2015.
Subsequent to that date:
Æ A loan secured by a new
manufactured home and land must
comply with the appraisal requirements
except for the requirement to conduct a
physical visit to the interior of the
property;
Æ A loan secured by an existing
(used) manufactured home and land
will be subject to all appraisal
requirements; and
Æ A loan secured by a manufactured
home (new or used) and not land will
be exempt from the appraisal
requirements if the consumer is
provided with a specified alternative
cost estimate or valuation.
The supplemental final rule amends
the exemption for loans secured by a
new manufactured home in the January
2013 Final Rule by requiring an
appraisal without a physical visit to the
interior of the property for loans secured
by a new manufactured home and land
after July 18, 2015. This amendment
will increase burden as such loans will
no longer be exempt from all of the
appraisal requirements. While data is
not available to estimate the number of
such transactions, the previously cited
HMDA data reflects that FICUs that met
the definition of a small entity each
engaged in a relatively small number of
HPML transactions in 2011. In addition,
the supplemental final rule exempts
additional transactions, including
certain ‘‘streamlined’’ refinancings,
‘‘smaller dollar’’ residential loans, and
some manufactured home loans, from
the appraisal requirements of the
January 2013 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.
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It is the opinion of the NCUA that the
supplemental final rule will not have a
significant economic impact on a
substantial number of small entities that
it regulates in light of the following
facts: (1) The supplemental final rule
reduces regulatory burden on small
institutions by exempting certain
transactions from the appraisal
requirements of the January 2013 Final
Rule; and (2) the NCUA previously
certified that the January 2013 Final
Rule would not have a significant
economic impact on a substantial
number of small entities. Accordingly,
the NCUA certifies that the
supplemental final rule will not have a
significant economic impact on a
substantial number of small entities.
Therefore, a regulatory flexibility
analysis is not required.
Executive Order 13132
Executive Order 13132 encourages
independent regulatory agencies to
consider the impact of their actions on
state and local interests. NCUA, an
independent regulatory agency as
defined in 44 U.S.C. 3502(5), voluntarily
complies with the executive order to
adhere to fundamental federalism
principles. This supplemental final rule
applies to FICUs and will not have a
substantial direct effect on the states, on
the relationship between the national
government and the states, or on the
distribution of power and
responsibilities among the various
levels of government. NCUA has
determined that this supplemental final
rule does not constitute a policy that has
federalism implications for purposes of
the Executive Order.
The Treasury and General Government
Appropriations Act, 1999—Assessment
of Federal Regulations and Policies on
Families
NCUA has determined this final rule
will not affect family well-being within
the meaning of section 654 of the
Treasury and General Government
Appropriations Act, 1999, Public Law
105–277, 112 Stat. 2681 (1998).
tkelley on DSK3SPTVN1PROD with RULES2
Small Business Regulatory Enforcement
Fairness Act
The Small Business Regulatory
Enforcement Fairness Act of 1996 199
(SBREFA) provides generally for
congressional review of agency rules. A
reporting requirement is triggered in
199 Public
Law 104–121, 110 Stat. 857 (1996).
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78573
instances where NCUA issues a final
rule as defined by Section 551 of the
Administrative Procedure Act.200 NCUA
does not believe this final rule is a
‘‘major rule’’ within the meaning of the
relevant sections of SBREFA. NCUA has
submitted the rule to the Office of
Management and Budget (OMB) for its
determination.
Agencies discuss more general
comments in the section-by-section
analyses and the Bureau discusses some
of the more specific comments relating
to benefits and costs of these provisions
in its Section 1022(b) analysis.
Bureau
The RFA generally requires an agency
to conduct an initial regulatory
flexibility analysis (IRFA) and a FRFA
of any rule subject to notice-andcomment rulemaking requirements.201
These analyses must ‘‘describe the
impact of the proposed rule on small
entities.’’ 202 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.203 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.204
An IRFA was not required for the
proposal, and a FRFA is not required for
the supplemental final rule, because it
will not have a significant economic
impact on a substantial number of small
entities.
The analysis below evaluates the
potential economic impact of the
supplemental final rule on small entities
as defined by the RFA. The analysis
generally examines the regulatory
impact of the provisions of the
supplemental final rule against the
baseline of the January 2013 Final Rule
the Agencies issued on January 18,
2013.
No comments received were relevant
specifically to smaller entities. The
The supplemental final rule applies 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 supplemental
final rule. This supplemental final rule
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.205 Under such standards,
depository institutions with $500
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 $35.5
million. Thus, commercial banks,
savings institutions, and credit unions
with $500 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 $35.5 million.
The Bureau can identify through data
under the 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 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
supplemental final rule would apply: 206
200 5
U.S.C. 551.
U.S.C. 601 et. seq.
202 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
SBA 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).
203 Id. at 605(b).
204 Id. at 609.
201 5
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A. Number and Classes of Affected
Entities
205 5 U.S.C. 601(3). The current SBA size
standards are located on the SBA’s Web site at
https://www.sba.gov/content/table-small-businesssize-standards.
206 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.
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TABLE 1—COUNTS OF CREDITORS BY TYPE
[Estimated number of affected entities and small entities by NAICS code and engagement in closed-end mortgage transactions]
Entities engaged in
closed-end mortgage transactions b
Small entities engaged in closedend mortgage
transactions
Category
NAICS
Small entity threshold
Commercial banks & savings institutions.
Credit unions c ...................
Real Estate credit d e ..........
522110,
522120.
522130 .........
522310,
522292.
$500,000,000 assets .....................................................
a 7230
a 5913
$500,000,000 assets .....................................................
$35,500,000 revenues ..................................................
a 4178
a 3784
2787
a 2672
Total ............................
......................
.......................................................................................
14,195
12,369
Source: 2011 HMDA, Dec. 31, 2011 Bank and Thrift Call Reports, Dec. 31, 2011 NCUA Call Reports, Dec. 31, 2011 NMLSR Mortgage Call
Reports.
a For HMDA reporters, loan counts from HMDA 2011. For institutions that are not HMDA reporters, loan counts projected based on Call Report
data fields and counts for HMDA reporters.
b Entities are characterized as originating loans if they make one or more loans.
c Does not include cooperatives operating in Puerto Rico. The Bureau has limited data about these institutions or their mortgage activity.
d NMLSR Mortgage Call Report for 2011. All MCR reporters that originate at least one loan or that have positive loan amounts are considered
to be engaged in real estate credit (instead of purely mortgage brokers). For institutions with missing revenue values, the probability that the institution was a small entity is estimated based on the count and amount of originations and the count and amount of brokered loans.
a Data do not distinguish nonprofit from for-profit organizations, but Real Estate Credit presumptively includes nonprofit organizations.
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B. Impact of Exemptions
The provisions of the supplemental
final rule all provide or modify
exemptions from the HPML appraisal
requirements. Measured against the
baseline of the burdens imposed by the
January 2013 Final Rule the Agencies
issued on January 18, 2013, the Bureau
believes that these provisions impose
either no or insignificant additional
burdens on small entities. The Bureau
believes that most of these 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.
As discussed in the Bureau’s Section
1022(b) analysis, the five provisions 207
for non-QM HPMLs are in this rule are:
1. Certain refinances, commonly
referred to as ‘‘streamlined’’ are now
exempt from the January 2013 Final
Rule;
2. Smaller dollar loans (under
$25,000) are now exempt from the
January 2013 Final Rule;
3. Used manufactured housing
transactions that are not secured by land
(chattel) are now exempt from the
January 2013 Final Rule and, for
applications received on or after July 18,
2015, subject to some conditions to
provide an alternative valuation; 208
207 The Bureau believes that other provisions
would have a de minimis impact on small entities.
208 Used manufactured housing transactions that
are secured by land remain covered by the January
2013 Final Rule. However, all loans are exempt if
the application is received before July 18, 2015.
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4. New manufactured housing
transactions that are not secured by land
(chattel) remain exempt from the
January 2013 Final Rule; however, for
applications received on or after July 18,
2015, these transactions are now subject
to conditions; and
5. New manufactured housing
transactions secured by land (new land/
home) for which an application is
received on or after July 18, 2015, now
are subject to the January 2013 Final
Rule; however, these transactions
remain exempted from the physical
interior visit part of the requirement.
1. Exemption for ‘‘Streamlined’’
Refinancing Programs
The supplemental final rule provides
an exemption for any transaction that is
a refinancing satisfying certain
conditions.
This provision removes 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.
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. Small
entities will be able to choose whether
to avail themselves of this exemption.
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2. Exemption for Smaller Dollar Loans
The supplemental final rule exempts
from the final rule loans equal to or less
than $25,000, adjusted annually for
inflation. This provision removes
burden imposed by the final rule on
small entities extending any HPMLs
covered by the final rule up to $25,000.
In any event, small entities will be able
to choose whether to avail themselves of
this exemption.
3. Exemption Subject to Alternative
Valuation for Used Manufactured
Housing Transactions Not Secured by
Land (Used Chattel)
The supplemental final rule exempts
from the HPML appraisal requirements
a transaction secured by an existing
manufactured home and not land. This
provision removes certain burdens
imposed by the January 2013 Final Rule
on small entities extending HPMLs
covered by the January 2013 Final Rule
when they are secured solely by existing
manufactured homes. 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 FIRREAcompliant appraisals. To be eligible for
this burden-reducing exemption, the
creditor is required to obtain an estimate
of the value of the home, with the types
of estimates allowed described in detail
in the section-by-section analysis. For
example, creditors can use an
independent cost service to qualify for
the exemption.
Taking the January 2013 Final Rule as
the baseline, as discussed in the sectionby-section and the Bureau’s Section
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1022(b) analyses, this exemption might
provide significant burden relief since,
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. Thus,
many of these transactions might not
have been made, but for this exemption.
Finally, taking advantage of this
exemption is voluntary for creditors,
thus it imposes no additional burden.
4. Narrowed Exemption for Transactions
Secured by New Chattel Manufactured
Homes
As discussed in the Bureau’s Section
1022(b) analysis and in the section-bysection analysis, the final rule requires
the creditor to provide the consumer
with one of several types of an
alternative valuation of the new
manufactured home in transactions that
are secured by a new manufactured
home but not land. This condition does
not significantly increase the burden of
the rule relative to the January 2013
Final Rule. The Bureau believes that the
cost of obtaining an estimate of the
value of the new manufactured home
using a third-party cost source, for
example, would be significantly less
than the cost of obtaining a USPAPcomplaint appraisal.
As noted in the Bureau’s Section
1022(b) analysis, the Bureau believes
that there might be as many as 3,400
such transactions. As shown in the table
above, the Bureau believes that there
were 12,369 small creditors in 2011.
Thus, over 85 percent of small creditors
face at most one such transaction per
year. As noted in the 2013 January Final
Rule, the Bureau believes that a USPAP
appraisal costs on average $350. Even if
we suppose that an alternative valuation
would cost as must as a USPAP
appraisal, that results in a burden of
$350 for that creditor, an insignificant
burden. Note that the Bureau believes
that the cost imposed per transaction is
considerably lower, arguably under $5
for some third-party cost sources.
Moreover, HMDA data implies that over
85 percent of small creditors will not be
subject to any transactions like that.
Even if the Bureau misestimated the
number of affected transactions by a
factor of 10, the costs imposed on 85
percent of small creditors are still like
to be well under $100 per creditor.209
209 All mortgage lenders can participate in the
manufactured housing market segment (which
includes chattel transactions and transactions
secured by a manufactured home and land; the
handful of manufactured housing specialty lenders
engaged in chattel lending are still not significant
in number by themselves. Further, even if the
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5. Narrowed Exemption for Transactions
Secured by New Manufactured Homes
and Land
The Agencies finalized a provision
that requires an appraisal for
transactions secured by new
manufactured homes and land, while
exempting these appraisals from interior
inspection. As noted in the Bureau’s
Section 1022(b) analysis, the Bureau
believes that approximately 700
transactions are going to be affected.
Thus, over 90 percent of small creditors
are not going to be affected by this
provision. Even if the Bureau
misestimated the number of transactions
affected by a factor of 10, over 85
percent of small creditors would be
subject to at most one such transaction
per year, resulting in a burden of around
$350 per creditor, a negligible fraction
of a creditor’s revenue. This impact
could be even lower, given that, as
noted in the section-by-section analysis,
these transactions already are subject to
a full appraisal requirement when
carried out under GSE or federal agency
programs.
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.
C. Conclusion
Each element of this supplemental
final rule would reduce economic
burden for small entities or impose a
minor burden on a small amount of
creditors (well less than $500 per
creditor for 85 percent of small creditors
even if the Bureau misestimated the
number of covered manufactured home
transactions by a factor of 10). The
exemption for HPMLs secured by
existing manufactured homes and not
land would lessen any economic impact
resulting from the HPML appraisal
requirements. The 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 exemption
for smaller-dollar HPMLs similarly
would lessen burden on small entities
extending credit in the form of HPMLs
up to the threshold amount. The
narrowed exemptions for transactions
secured by new manufactured homes,
both land and chattel, would barely
affect over 85 percent of creditors (at
most one such transaction per year).
These impacts that would have been
generated by the January 2013 Final
Rule are reduced to the extent the
transactions are not already exempt
from the January 2013 Final Rule as
qualified mortgages. While all of these
VIII. Paperwork Reduction Act
chattel exemption conditions were significant to
their revenue, that is not a substantial number for
RFA purposes.
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Certification
Accordingly, the undersigned certifies
that the supplemental final rule will not
have a significant economic impact on
a substantial number of small entities.
FHFA
The supplemental 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)).
OCC, Board, FDIC, NCUA, and Bureau
Certain provisions of the January 2013
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, and
notwithstanding any other provision of
law, 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 OMB control number.
The information collection requirements
contained in this final rule to amend the
January 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 Bureau, FDIC, NCUA, and
OCC submitted these information
collection requirements to OMB at the
proposed rule stage, as well. OMB filed
comments instructing the agencies to
examine public comment in response to
the NPRM and describe in the
supporting statement of its collection
any public comments received regarding
the collection, as well as why it did or
did not incorporate the commenter’s
recommendation. No comments were
received concerning the proposed
information collection requirements.
The Board reviewed these final rules
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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.210
Bureau: Insured depository
institutions with more than $10 billion
in assets, their depository institution
affiliates, and certain non-depository
mortgage institutions.211
FDIC: Insured state non-member
banks, insured state branches of foreign
banks, state savings associations, 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 January 2013 Final
Rule are found in paragraphs (c)(3)(i),
(c)(3)(ii), (c)(4), (c)(5), and (c)(6) of 12
CFR 1026.35.212 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 January 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
210 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.
211 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 final rule.
212 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).
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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
January 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
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
January 2013 Final Rule were described
in the PRA section of that rule. See 78
FR 10368, 10429 (February 13, 2013). As
described in the Bureau’s section 1022
analysis in the January 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 proposed rule stage and reduced to
reflect those exemptions in the January
2013 Final Rule for which the Bureau
had identified data. As discussed in the
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January 2013 Final Rule, the other
Agencies did not adjust the calculations
to account for the exempted transactions
provided in the January 2013 Final
Rule. Accordingly, the estimated burden
calculations in Table 3 in the January
2013 Final Rule were overstated.
Calculation of Estimated Burden
January 2013 Final Rule
As explained in the January 2013
Final Rule, for the Initial Appraisal
Disclosure, the creditor is required to
provide a short, written disclosure
within three business days of
application. Because this disclosure is
supplied by the federal government for
purposes of disclosure to the public,
this is not classified as an information
collection pursuant to 5 CFR 1320(c)(2),
and the Agencies have assigned it no
burden for purposes of this PRA
analysis.
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
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 January
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.
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Final Rule
The Agencies use the estimated
burden from the PRA section of the
January 2013 Final Rule as the baseline
for analyzing the impact the three
exemptions in the final rule. 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
January 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
final rule has been considered as
follows:
First, the Agencies find that,
currently, only a very small minority of
refinances involve cash out beyond the
levels permitted for the exemption for
certain refinance loans. See
§ 1026.35(c)(2)(vii). Going forward, the
Agencies believe that virtually all
refinance loans will be either qualified
mortgages or qualify for this exemption.
The Agencies therefore assume that the
exemption for certain refinances in this
supplemental final rule affects all of the
refinance loans analyzed under Section
1022(b)(2) of the January 2013 Final
Rule.213 In that analysis, the Bureau
estimated that a total of 3,800 new
Written Appraisals would occur as a
result of the January 2013 Final Rule
(including home purchase, home equity,
and refinance loans). In the
Supplemental Proposal, the Bureau
estimated that refinances would account
213 See 78 FR 10368, 10419 (Feb. 13, 2013). As
discussed in the Section 1022(b)(2) analysis in this
rule, the Bureau believes that there were at most
private 12,000 no cash-out refinance transactions in
2011, and that some number of these were
refinances of existing loans where the credit risk
holder changed and thus would not be eligible for
the exemption, and that a small number of these
refinances had interest-only, negative amortization,
or balloon features and also would not be eligible
for the exemption. Moreover, the Bureau believes
that about 90 percent of refinance transactions
would have an appraisal provided to consumers
because the creditor chose to have an appraisal and
provided a copy due to the ECOA Valuations Rule.
Thus, this exemption is likely to affect under 1,000
loans a year. The Agencies do not possess reliable,
representative data on how many refinances will
qualify for this exemption. However, to the extent
refinances previously would not have been eligible
for exemptions to this rule, the Agencies believe
that going forward most such refinances will be
restructured as qualified mortgages or otherwise to
satisfy the criteria of this exemption for certain
refinances. The Agencies used the same assumption
for the supplemental proposal and did not receive
any comments indicating otherwise. Accordingly,
the Table below reflects this assumption. If this
assumption did not hold and these refinances were
not restructured, the Agencies believe that based on
the 2011 data the final rules will cause at most a
minor number of new appraisals—for
approximately 1,200 loans.
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for approximately 1,200 of these 3,800
new Written Appraisals that would
occur as a result of the January 2013
Final Rule.214 Thus, the exemption for
certain refinances in this supplemental
final rule would eliminate
approximately 32 percent of the new
Written Appraisals that were estimated
to occur as a result of the January 2013
Final Rule.
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 smaller dollar loans.
Third, the Agencies find that many of
the transactions secured by
manufactured homes involve either
refinances (all of which are
conservatively assumed to be covered
by the exemption for certain refinances),
or smaller dollar loans (which cover
many types of manufactured housing
transactions).215 While covered HPMLs
above smaller dollar levels that are
secured by existing manufactured
homes and not land may be newlyexempted, these transactions will need
alternative valuations under the final
rule. In addition, such loans secured by
new manufactured homes and not land
also will need alternative valuations.
Further, such loans secured by new
manufactured homes and land will need
an appraisal. In the January 2013 Final
Rule, the Agencies did not reduce the
paperwork burden estimates to account
214 As stated in the Bureau’s Section 1022
analysis in the January 2013 Final Rule 1022, there
were 12,000 refinances affected by the January 2013
Final Rule, and out of those the Bureau estimated
that 10 percent did not have a full appraisal
performed in the absence of the January 2013 Final
Rule, resulting in 10 percent*12,000=1,200 of
refinances that would be estimated to obtain an
appraisal as a result of the January 2013 Final Rule
(and which would not be obtained as a result of this
supplemental final rule).
215 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 https://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 https://
www.census.gov/housing/ahs/files/
Appendix%20A.pdf.
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78577
for the exemption for new manufactured
homes adopted at that time. The
Agencies therefore conservatively make
no adjustment to the data in the first
panel of Table 3 in the January 2013
Final Rule as a result of that
exemption.216
The numbers above affect only the
first panel in Table 3 of the PRA section
of the January 2013 Final Rule.
Refinances are not subject to the
requirement to obtain an Additional
Written Appraisal under the January
2013 Final Rule, and it is assumed that
none of the smaller dollar loans or the
loans secured by manufactured homes
and not land were used to purchase
homes being resold within 180 days
with the requisite price increases to
trigger that requirement (and thus the
exemptions for those loans will not
reduce any burden associated with that
requirement). Accordingly, only the first
panel in Table 3 from the January 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 not affected.
The following table summarizes the
resulting burden estimates.
216 The Bureau assumes that manufactured
housing loans secured solely by a manufactured
home and not land 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 Agencies conservatively included all nonQM HPML MH loans reported in HMDA and
projected based on the Call Reports data in its
paperwork burden calculations for the January 2013
Final Rule. The Agencies did not possess sufficient
information at the time to estimate the proportion
of non-QM HPML MH affected by the January 2013
Final Rule. No new data is used in this rule, and
the Agencies still do not possess sufficient
information to estimate the proportion of non-QM
HPML MH affected by this Supplemental final rule.
Thus, the Agencies continue to conservatively
assume that all non-QM HPML MH loans reported
in HMDA and projected based on the Call Reports
data are subject to the full appraisal requirement,
resulting in no change in the Table of paperwork
burden below.
Note that, while the Agencies assume that all
non-QM HPML MH loans are affected, and thus the
paperwork burden reported might be an
overestimate, the Agencies are possibly
underestimating the burden to the extent that there
exists systematic underreporting or non-reporting of
MH loans to HMDA by creditors who are subject
to reporting. In its Section 1022(b) and RFA
analyses, the Bureau stress-tested this possibility
and very conservatively, in terms of calculating the
magnitude of loans affected by provisions of this
Supplemental final rule, assumed that this
underreporting is occurring on a massive scale. For
the purposes of the PRA analysis, the Agencies
assume that there is no underreporting. Also, note
that if the Bureau underestimated the proportion of
non-QM loans among MH lending, the paperwork
burden is also underestimated. See the Bureau’s
Section 1022(b) analysis above for a discussion of
data used and comments received.
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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations
Estimated PRA Burden
TABLE 2—SUMMARY OF PRA BURDEN HOURS FOR INFORMATION COLLECTIONS IN HPML APPRAISALS FINAL RULE ONCE
EXEMPTIONS IN THE SUPPLEMENTAL PROPOSAL ARE ADOPTED 217
Estimated
number of
respondents
Estimated number of appraisals
per
respondent 218
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
Bureau 219,220,221,222.
Depository Inst. > $10 B in total assets+
Depository Inst. Affiliates .................................................................
Non-Depository Inst. and Credit Unions ..........................................
FDIC .................................................................................................
Board 224 ..........................................................................................
OCC .................................................................................................
NCUA ...............................................................................................
132
2,853
2,571
418
1,399
2,437
3.73
0.23
0.14
0.18
0.16
0.07
0.25
0.25
0.25
0.25
0.25
0.25
Total ..........................................................................................
9,810
............................
............................
123
223 82
93
19
55
44
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
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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). As discussed in the second footnote in this PRA section, the Bureau will assume half of the burden for non-depository institutions and the privately-insured credit unions.
217 Some of the intermediate numbers are
rounded, resulting in ‘‘Estimated Total Annual
Burden Hours’’ not precisely matching up with
columns a, b, and c.
218 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 January 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.
219 The information collection requirements (ICs)
contained in the Bureau’s Regulation Z are
generally approved by OMB under OMB No. 3170–
0015. The Bureau divided certain proposals to
amend the Bureau’s Regulation Z into separate
Information Collection Requests in OMB’s system
(accessible at www.reginfo.gov) to ease the public’s
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18:30 Dec 24, 2013
Jkt 232001
ability to view and understand the individual
proposals. The ICs in the January 2013 Final Rule
(and this final rule) will be incorporated with the
Bureau’s existing collection associated with Truth
in Lending Act (Regulation Z) 12 CFR 1026 (OMB
No. 3170–0026). In the future, the Bureau plans to
reintegrate the ICs in this final rule back into OMB
No. 3170–0015; therefore, OMB No. 3170–0015
should continue to be used when referencing the
ICs contained in this final rule.
220 The burden estimates allocated to the Bureau
are updated using the data described in the
Bureau’s section 1022 analysis in the January 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 January 2013 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.
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221 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.
222 The Bureau calculates its burden by including
both HMDA reporting creditors and the HMDA non-
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Finally, as explained in the PRA
section of the January 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.225
The Agencies have a continuing
interest in the public opinion of our
collections of information. At any time,
comments regarding the burden
estimate, or any other aspect of this
collection of information, including
suggestions for reducing the burden,
may be sent to the 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 January 2013 Final Rule and this
final rule 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.
IX. Section 302 of the Riegle
Community Development and
Regulatory Improvement Act
tkelley on DSK3SPTVN1PROD with RULES2
Section 1400 of the Dodd Frank Act
requires that the rule issued to
implement Section 1471 take effect not
later than 12 months after the date of
issuance of the Final Rule. The January
reporting creditors, based on the 2011 data, and
allocating burden as discussed in the second
footnote in this PRA section. The other Agencies
only report the burden for HMDA reporting
creditors, based on the 2011 counts.
223 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.
224 The ICs in the January 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 (OMB No. 7100–0199). The burden
estimates provided in this final rule pertain only to
the ICs associated with the Final Rule.
225 As discussed in the PRA section of the January
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 (Feb. 13, 2013).
VerDate Mar<15>2010
18:30 Dec 24, 2013
Jkt 232001
2013 Final Rule was issued on January
18, 2013 and will become effective on
January 18, 2014. This supplemental
final rule is issued on December 10,
2013 and will be effective on January
18, 2014, except that modifications to
the exemptions for loans secured by
manufactured homes will be effective
on July 18, 2015.
Section 302 of the Riegle Community
Development and Regulatory
Improvement Act of 1994 (‘‘RCDRIA’’)
requires that, subject to certain
exceptions, regulations issued by the
federal banking agencies that impose
additional reporting, disclosure, or other
requirements on insured depository
institutions, take effect on the first day
of a calendar quarter which begins on or
after the date on which the regulations
are published in final form. This
effective date requirement does not
apply if the issuing agency finds for
good cause that the regulation should
become effective before such time. 12
U.S.C. 4802.
With respect to the provisions that are
effective on January 18, 2014, the OCC,
Board, and FDIC find that section 302 of
the RCDRIA does not apply because
these provisions do not impose
additional reporting, disclosure, or other
requirements on insured depository
institutions.
With respect to the provisions that are
effective July 18, 2015, the OCC, Board,
and FDIC recognize that section 302 of
the RCDRIA applies because these
modifications to the exemption for loans
secured by manufactured housing
impose some additional disclosure
requirements. The July 18, 2015
effective date will provide depository
institutions engaged in manufactured
housing lending the opportunity to
develop appropriate policies and
implement systems to ensure
compliance with the new requirements.
Although this date is not the first day of
a calendar quarter which begins on or
after the date on which the regulations
are published in final form, the OCC,
Board, and FDIC note that insured
depository institutions wishing to
comply at the beginning of a calendar
quarter prior to the effective date retain
the flexibility to do so.
List of Subjects
78579
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 amends 12 CFR part
34 as amended on February 13, 2013 at
78 FR 10368, effective on January 18,
2014, as follows:
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.
Subpart G—Appraisals for HigherPriced Mortgage Loans
2. Section 34.202 is amended by
redesignating paragraphs (a) through (c)
as paragraphs (b) through (d),
respectively, and adding a new
paragraph (a) to read as follows:
■
§ 34.202 Definitions applicable to higherpriced mortgage loans.
(a) Consummation has the same
meaning as in 12 CFR 1026.2(a)(13).
*
*
*
*
*
■ 3a. Section 34.203 is amended by:
■ a. Redesignating paragraphs (a)(2), (3),
and (4) as paragraphs (a)(3), (5), and (7),
respectively, and republishing them;
■ b. Adding new paragraphs (a)(2) and
(4) and paragraph (a)(6);
■ c. Revising paragraphs (b)
introductory text and (b)(1) and (2); and
■ d. Adding paragraphs (b)(7) and (8).
The additions and revisions read as
follows:
12 CFR Part 34
§ 34.203 Appraisals for higher priced
mortgage loans.
Appraisal, Appraiser, Banks, Banking,
Consumer protection, Credit, Mortgages,
National banks, Reporting and
recordkeeping requirements, Savings
associations, Truth in lending.
(a) Definitions. For purposes of this
section:
*
*
*
*
*
(2) Credit risk means the financial risk
that a consumer will default on a loan.
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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations
(3) Manufactured home has the same
meaning as in 24 CFR 3280.2.
(4) Manufacturer’s invoice means a
document issued by a manufacturer and
provided with a manufactured home to
a retail dealer that separately details the
wholesale (base) prices at the factory for
specific models or series of
manufactured homes and itemized
options (large appliances, built-in items
and equipment), plus actual itemized
charges for freight from the factory to
the dealer’s lot or the homesite
(including any rental of wheels and
axles) and for any sales taxes to be paid
by the dealer. The invoice may recite
such prices and charges on an itemized
basis or by stating an aggregate price or
charge, as appropriate, for each
category.
(5) National Registry means the
database of information about State
certified and licensed appraisers
maintained by the Appraisal
Subcommittee of the Federal Financial
Institutions Examination Council.
(6) New manufactured home means a
manufactured home that has not been
previously occupied.
(7) State agency means a ‘‘State
appraiser certifying and licensing
agency’’ recognized in accordance with
section 1118(b) of the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (12 U.S.C.
3347(b)) and any implementing
regulations.
(b) Exemptions. Unless otherwise
specified, the requirements in paragraph
(c) through (f) of this section do not
apply to the following types of
transactions:
(1) A loan that satisfies the criteria of
a qualified mortgage as defined
pursuant to 15 U.S.C. 1639c.
(2) 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 OCC official
interpretations to this paragraph (b)(2).
*
*
*
*
*
(7) An extension of credit that is a
refinancing secured by a first lien, with
refinancing defined as in 12 CFR
1026.20(a) (except that the creditor need
not be the original creditor or a holder
or servicer of the original obligation),
provided that the refinancing meets the
following criteria:
(i) Either—
(A) The credit risk of the refinancing
is retained by the person that held the
credit risk of the existing obligation and
there is no commitment, at
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18:30 Dec 24, 2013
Jkt 232001
consummation, to transfer the credit
risk to another person; or
(B) The refinancing is insured or
guaranteed by the same Federal
government agency that insured or
guaranteed 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
refinancing are used solely to satisfy the
existing obligation and to pay amounts
attributed solely to the costs of the
refinancing; and
(8) A transaction secured in whole or
in part by a manufactured home.
■ 3b. Effective July 18, 2015, in
§ 34.203, newly added paragraph (b)(8)
is revised to read as follows:
§ 34.203 Appraisals for higher priced
mortgage loans.
*
*
*
*
*
(b) * * *
(8) A transaction secured by:
(i) A new manufactured home and
land, but the exemption shall only
apply to the requirement in paragraph
(c)(1) of this section that the appraiser
conduct a physical visit of the interior
of the new manufactured home; or
(ii) A manufactured home and not
land, for which the creditor obtains one
of the following and provides a copy to
the consumer no later than three
business days prior to consummation of
the transaction—
(A) For a new manufactured home,
the manufacturer’s invoice for the
manufactured home securing the
transaction, provided that the date of
manufacture is no earlier than 18
months prior to the creditor’s receipt of
the consumer’s application for credit;
(B) A cost estimate of the value of the
manufactured home securing the
transaction obtained from an
independent cost service provider; or
(C) A valuation, as defined in 12 CFR
1026.42(b)(3), of the manufactured
home performed by a person who has
no direct or indirect interest, financial
or otherwise, in the property or
transaction for which the valuation is
performed and has training in valuing
manufactured homes.
*
*
*
*
*
4. In Appendix A to Subpart G,
republish the introductory text and
revise paragraph 7 to read as follows:
■
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Appendix A to Subpart G—HigherPriced Mortgage Loan Appraisal Safe
Harbor Review
To qualify for the safe harbor provided in
§ 34.203(c)(2), a creditor must confirm that
the written appraisal:
*
*
*
*
*
7. Indicates that a physical property visit
of the interior of the property was performed,
as applicable.
*
*
*
*
*
Appendix C to Subpart G—OCC
Interpretations
5. In Appendix C to Subpart G:
a. Under the § 34.203(b) entry, add
paragraph 1 and add an entry for
§ 34.203(b)(1);
■ c. Revise the § 34.203(b)(2) entry;
■ d. Add paragraph 2 to the
§ 34.203(b)(4) entry;
■ e. Add an entry for § 34.203(b)(7);
■ f. Effective July 18, 2015, add an entry
for § 34.203(b)(8); and
■ g. In the § 34.203(f)(2) entry, remove
paragraph 2, redesignate paragraph 3 as
paragraph 2, and revise it.
The additions and revisions read as
follows:
■
■
Section 34.203—Appraisals for HigherPriced Mortgage Loans
*
*
*
*
*
34.203(b) Exemptions
1. Compliance with title XI of the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA). Section
34.203(b) provides exemptions solely from
the requirements of § 34.203(c) through (f).
Institutions subject to the requirements of
FIRREA and its implementing regulations
that make a loan qualifying for an exemption
under § 34.203(b) must still comply with
appraisal and evaluation requirements under
FIRREA and its implementing regulations.
34.203(b)(1) Exemptions
Paragraph 34.203(b)(1)
1. Qualified mortgage criteria. Under
§ 34.203(b)(1), a loan is exempt from the
appraisal requirements of § 34.203 if either:
i. The loan is—(1) subject to the ability-torepay requirements of the Consumer
Financial Protection Bureau (Bureau) in 12
CFR 1026.43 as a ‘‘covered transaction’’
(defined in 12 CFR 1026.43(b)(1)) and (2) a
qualified mortgage pursuant to the Bureau’s
rules or, for loans insured, guaranteed, or
administered by the U.S. Department of
Housing and Urban Development (HUD),
U.S. Department of Veterans Affairs (VA),
U.S. Department of Agriculture (USDA), or
Rural Housing Service (RHS), a qualified
mortgage pursuant to applicable rules
prescribed by those agencies (but only once
such rules are in effect; otherwise, the
Bureau’s definition of a qualified mortgage
applies to those loans); or
ii. The loan is—(1) not subject to the
Bureau’s ability-to-repay requirements in 12
CFR 1026.43 as a ‘‘covered transaction’’
(defined in 12 CFR 1026.43(b)(1)), but (2)
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meets the criteria for a qualified mortgage in
the Bureau’s rules or, for loans insured,
guaranteed, or administered by HUD, VA,
USDA, or RHS, meets the criteria for a
qualified mortgage in the applicable rules
prescribed by those agencies (but only once
such rules are in effect; otherwise, the
Bureau’s criteria for a qualified mortgage
applies to those loans). To explain further,
loans enumerated in 12 CFR 1026.43(a) are
not ‘‘covered transactions’’ under the
Bureau’s ability-to-repay requirements in 12
CFR 1026.43, and thus cannot be qualified
mortgages (entitled to a rebuttable
presumption or safe harbor of compliance
with the ability-to-repay requirements of 12
CFR 1026.43, see, e.g., 12 CFR 1026.43(e)(1)).
These include an extension of credit made
pursuant to a program administered by a
Housing Finance Agency, as defined under
24 CFR 266.5, or pursuant to a program
authorized by sections 101 and 109 of the
Emergency Economic Stabilization Act of
2008. See 12 CFR 1026.43(a)(3)(iv) and (vi).
They also include extensions of credit made
by a creditor identified in 12 CFR
1026.43(a)(3)(v). However, these loans are
eligible for the exemption in § 34.203(b)(1) if
they meet the Bureau’s qualified mortgage
criteria in 12 CFR 1026.43(e)(2), (4), (5), or (6)
or 12 CFR 1026.43(f) (including limits on
when loans must be consummated) or, for
loans that are insured, guaranteed, or
administered by HUD, VA, USDA, or RHS, in
applicable rules prescribed by those agencies
(but only once such rules are in effect;
otherwise, the Bureau’s criteria for a
qualified mortgage applies to those loans).
For example, assume that HUD has
prescribed rules to define loans insured
under its programs that are qualified
mortgages and those rules are in effect.
Assume further that a creditor designated as
a Community Development Financial
Institution, as defined under 12 CFR
1805.104(h), originates a loan insured by the
Federal Housing Administration, which is a
part of HUD. The loan is not a ‘‘covered
transaction’’ and thus is not a qualified
mortgage. See 12 CFR 1026.43(a)(3)(v)(A) and
(b)(1). Nonetheless, the transaction is eligible
for an exemption from the appraisal
requirements of § 34.203(b)(1) if it meets the
qualified mortgage criteria in HUD’s rules.
Nothing in § 34.203(b)(1) alters the definition
of a qualified mortgage under regulations of
the Bureau, HUD, VA, USDA, or RHS.
Paragraph 34.203(b)(2)
1. Threshold amount. For purposes of
§ 34.203(b)(2), 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
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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)(2) 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
§ 34.203(b)(2) 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)(2) 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 § 34.203 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 § 34.203 applies. See
§ 34.203(b) and § 34.203(d)(7).
*
*
*
*
*
Paragraph 34.203(b)(4)
*
*
*
*
*
2. Financing initial construction. The
exemption for construction loans in
§ 34.203(b)(4) applies to temporary financing
of the construction of a dwelling that will be
replaced by permanent financing once
construction is complete. The exemption
does not apply, for example, to loans to
finance the purchase of manufactured homes
that have not been or are in the process of
being built when the financing obtained by
the consumer at that time is permanent. See
§ 34.203(b)(8).
*
*
*
*
*
Paragraph 34.203(b)(7)
Paragraph 34.203(b)(7)(i)(A)
1. Same credit risk holder. The
requirement that the holder of the credit risk
on the existing obligation and the refinancing
be the same applies to situations in which an
entity bears the financial responsibility for
the default of a loan by either holding the
loan in its portfolio or guaranteeing payments
of principal and any interest to investors in
a mortgage-backed security in which the loan
is pooled. See § 34.203(a)(2) (defining ‘‘credit
risk’’). For example, a credit risk holder
could be a bank that bears the credit risk on
the existing obligation by holding the loan in
the bank’s portfolio. Another example of a
credit risk holder would be a governmentsponsored enterprise that bears the risk of
default on a loan by guaranteeing the
payment of principal and any interest on a
loan to investors in a mortgage-backed
security. The holder of credit risk under
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§ 34.203(b)(7)(i)(A) does not mean individual
investors in a mortgage-backed security or
providers of private mortgage insurance.
2. Same credit risk holder—illustrations.
Illustrations of the credit risk holder of the
existing obligation continuing to be the credit
risk holder of the refinancing include, but are
not limited to, the following:
i. The existing obligation is held in the
portfolio of a bank, thus the bank holds the
credit risk. The bank arranges to refinance
the loan and also will hold the refinancing
in its portfolio. If the refinancing otherwise
meets the requirements for an exemption
under § 34.203(b)(7), the transaction will
qualify for the exemption because the credit
risk holder is the same for the existing
obligation and the refinance transaction. In
this case, the exemption would apply
regardless of whether the bank arranged to
refinance the loan directly or indirectly, such
as through the servicer or subservicer on the
existing obligation.
ii. The existing obligation is held in the
portfolio of a government-sponsored
enterprise (GSE), thus the GSE holds the
credit risk. The existing obligation is then
refinanced by the servicer of the loan and
immediately transferred to the GSE. The GSE
pools the refinancing in a mortgage-backed
security guaranteed by the GSE, thus the GSE
holds the credit risk on the refinance loan.
If the refinance transaction otherwise meets
the requirements for an exemption under
§ 34.203(b)(7), the transaction will qualify for
the exemption because the credit risk holder
is the same for the existing obligation and the
refinance transaction. In this case, the
exemption would apply regardless of
whether the existing obligation was
refinanced by the servicer or subservicer on
the existing obligation (acting as a ‘‘creditor’’
under 12 CFR 1026.2(a)(17)) or by a different
creditor.
3. Forward commitments. A creditor may
make a mortgage loan that will be sold or
otherwise transferred pursuant to an
agreement that has been entered into at or
before the time the transaction is
consummated. Such an agreement is
sometimes known as a ‘‘forward
commitment.’’ A refinance loan does not
satisfy the requirement of § 34.203(b)(7)(i)(A)
if the loan will be acquired pursuant to a
forward commitment, such that the credit
risk on the refinance loan will transfer to a
person who did not hold the credit risk on
the existing obligation.
Paragraph 34.203(b)(7)(ii)
1. Regular periodic payments. Under
§ 34.203(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 12 CFR
1026.43, and the 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 adjustablerate or step-rate mortgage, the periodic
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payments must be substantially equal. For an
explanation of the term ‘‘substantially
equal,’’ see 12 CFR 1026.43, the 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 the existing obligation and
amounts attributed solely to the costs of the
refinancing. The existing obligation includes
the unpaid principal balance of the existing
first lien loan, any earned unpaid finance
charges, and any other lawful charges related
to the existing loan. For guidance on the
meaning of refinancing costs, see 12 CFR
1026.23, the Official Staff Interpretations to
the Bureau’s Regulations Z, comment 23(f)–
4. 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 § 34.203.
For applications received on or after July 18,
2015
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Paragraph 34.203(b)(8)
Paragraph 34.203(b)(8)(i)
1. Secured by new manufactured home and
land—physical visit of the interior. A
transaction secured by a new manufactured
home and land is subject to the requirements
of § 34.203(c) through (f) except for the
requirement in § 34.203(c)(1) that the
appraiser conduct a physical inspection of
the interior of the property. Thus, for
example, a creditor of a loan secured by a
new manufactured home and land could
comply with § 34.203(c)(1) by obtaining an
appraisal conducted by a state-certified or
-licensed appraiser based on plans and
specifications for the new manufactured
home and an inspection of the land on which
the property will be sited, as well as any
other information necessary for the appraiser
to complete the appraisal assignment in
conformity with the Uniform Standards of
Professional Appraisal Practice and the
requirements of FIRREA and any
implementing regulations.
Paragraph 34.203(b)(8)(ii)
1. Secured by a manufactured home and
not land. Section 34.203(b)(8)(ii) applies to a
higher-priced mortgage loan secured by a
manufactured home and not land, regardless
of whether the home is titled as realty by
operation of state law.
Paragraph 34.203(b)(8)(ii)(B)
1. Independent. A cost service provider
from which the creditor obtains a
manufactured home unit cost estimate under
§ 34.203(b)(8)(ii)(B) is ‘‘independent’’ if that
person is not affiliated with the creditor in
the transaction, such as by common
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corporate ownership, and receives no direct
or indirect financial benefits based on
whether the transaction is consummated.
2. Adjustments. The requirement that the
cost estimate be from an independent cost
service provider does not prohibit a creditor
from providing a cost estimate that reflects
adjustments to account for factors such as
special features, condition or location.
However, the requirement that the estimate
be obtained from an independent cost service
provider means that any adjustments to the
estimate must be based on adjustment factors
available as part of the independent cost
service used, with associated values that are
determined by the independent cost service.
Paragraph 34.203(b)(8)(ii)(C)
1. Interest in the property. A person has a
direct or indirect in the property if, for
example, the person has any ownership or
reasonably foreseeable ownership interest in
the manufactured home. To illustrate, a
person who seeks a loan to purchase the
manufactured home to be valued has a
reasonably foreseeable ownership interest in
the property.
2. Interest in the transaction. A person has
a direct or indirect interest in the transaction
if, for example, the person or an affiliate of
that person also serves as a loan officer of the
creditor or otherwise arranges the credit
transaction, or is the retail dealer of the
manufactured home. A person also has a
prohibited interest in the transaction if the
person is compensated or otherwise receives
financial or other benefits based on whether
the transaction is consummated.
3. Training in valuing manufactured
homes. Training in valuing manufactured
homes includes, for example, successfully
completing a course in valuing manufactured
homes offered by a state or national appraiser
association or receiving job training from an
employer in the business of valuing
manufactured homes.
4. Manufactured home valuation—
example. A valuation in compliance with
§ 34.203(b)(8)(ii)(C) would include, for
example, an appraisal of the manufactured
home in accordance with the appraisal
requirements for a manufactured home
classified as personal property under the
Title I Manufactured Home Loan Insurance
Program of the U.S. Department of Housing
and Urban Development, pursuant to section
2(b)(10) of the National Housing Act, 12
U.S.C. 1703(b)(10).
*
*
*
*
*
Paragraph 34.203(f)(2) * * *
2. 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 § 34.203. A
consumer of a higher-priced mortgage loan
subject to § 34.203 may not waive the timing
requirement to receive a copy of the appraisal
under § 34.203(f)(2).
*
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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 further amends
Regulation Z, 12 CFR part 226, as
amended at 78 FR 10368 (Feb. 13, 2013),
as follows:
PART 226—TRUTH IN LENDING ACT
(REGULATION Z)
6. 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.
7a. Section 226.43 is amended by:
a. Revising paragraphs (a)(2) through
(6);
■ b. Adding paragraphs (a)(7) through
(10);
■ c. Revising paragraphs (b)
introductory text, (b)(1) and (2) and
(b)(5);
■ d. Adding paragraphs (b)(7) and (8).
The revisions and additions read as
follows:
■
■
§ 226.43 Appraisals for higher-priced
mortgage loans.
(a) * * *
(2) Consummation has the same
meaning as in 12 CFR 1026.2(a)(13).
(3) Creditor has the same meaning as
in 12 CFR 1026.2(a)(17).
(4) Credit risk means the financial risk
that a consumer will default on a loan.
(5) Higher-priced mortgage loan has
the same meaning as in 12 CFR
1026.35(a)(1).
(6) Manufactured home has the same
meaning as in 24 CFR 3280.2.
(7) Manufacturer’s invoice means a
document issued by a manufacturer and
provided with a manufactured home to
a retail dealer that separately details the
wholesale (base) prices at the factory for
specific models or series of
manufactured homes and itemized
options (large appliances, built-in items
and equipment), plus actual itemized
charges for freight from the factory to
the dealer’s lot or the homesite
(including any rental of wheels and
axles) and for any sales taxes to be paid
by the dealer. The invoice may recite
such prices and charges on an itemized
basis or by stating an aggregate price or
charge, as appropriate, for each
category.
(8) National Registry means the
database of information about State
certified and licensed appraisers
maintained by the Appraisal
Subcommittee of the Federal Financial
Institutions Examination Council.
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(9) New manufactured home means a
manufactured home that has not been
previously occupied.
(10) State agency means a ‘‘State
appraiser certifying and licensing
agency’’ recognized in accordance with
section 1118(b) of the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (12 U.S.C.
3347(b)) and any implementing
regulations.
(b) Exemptions. Unless otherwise
specified, the requirements in
paragraphs (c) through (f) of this section
do not apply to the following types of
transactions:
(1) A loan that satisfies the criteria of
a qualified mortgage as defined
pursuant to 15 U.S.C. 1639c;
(2) 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)(2);
*
*
*
*
*
(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 secured by a first lien, with
refinancing defined as in 12 CFR
1026.20(a) (except that the creditor need
not be the original creditor or a holder
or servicer of the original obligation),
provided that the refinancing meets the
following criteria:
(i) Either—
(A) The credit risk of the refinancing
is retained by the person that held the
credit risk of the existing obligation and
there is no commitment, at
consummation, to transfer the credit
risk to another person; or
(B) The refinancing is insured or
guaranteed by the same Federal
government agency that insured or
guaranteed 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
refinancing are used only to satisfy the
existing obligation and to pay amounts
attributed solely to the costs of the
refinancing; and
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(8) A transaction secured in whole or
in part by a manufactured home.
*
*
*
*
*
■ 7b. Effective July 18, 2015,
§ 226.43(b)(8) is revised to read as
follows:
§ 226.43 Appraisals for higher-priced
mortgage loans
*
*
*
*
*
(b) * * *
(8) A transaction secured by:
(i) A new manufactured home and
land, but the exemption shall only
apply to the requirement in paragraph
(c)(1) of this section that the appraiser
conduct a physical visit of the interior
of the new manufactured home; or
(ii) A manufactured home and not
land, for which the creditor obtains one
of the following and provides a copy to
the consumer no later than three
business days prior to consummation of
the transaction—
(A) For a new manufactured home,
the manufacturer’s invoice for the
manufactured home securing the
transaction, provided that the date of
manufacture is no earlier than 18
months prior to the creditor’s receipt of
the consumer’s application for credit;
(B) A cost estimate of the value of the
manufactured home securing the
transaction obtained from an
independent cost service provider; or
(C) A valuation, as defined in 12 CFR
1026.42(b)(3), of the manufactured
home performed by a person who has
no direct or indirect interest, financial
or otherwise, in the property or
transaction for which the valuation is
performed and has training in valuing
manufactured homes.
*
*
*
*
*
■ 8. In Appendix N to part 226, the
introductory text is republished and
paragraph 7 is revised to read as
follows:
Appendix N to Part 226—Higher-Priced
Mortgage Loan Appraisal Safe Harbor
Review
To qualify for the safe harbor provided in
§ 226.43(c)(2), a creditor must confirm that
the written appraisal:
*
*
*
*
*
7. Indicates that a physical property visit
of the interior of the property was performed,
as applicable.
*
*
*
*
*
9. In Supplement I to part 226, under
Section 226.43—Appraisals for HigherPriced Mortgage Loans:
■ a. Under the entry for 43(b), paragraph
1 is added;
■ b. A 43(b)(1) entry is added.
■ c. The 43(b)(2) entry is revised.
■ d. Under the 43(b)(4) entry, paragraph
2 is added.
■
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78583
e. A 43(b)(7) entry is added.
f. Effective July 18, 2015, a 43(b)(8)
entry is added.
■ g. Under entry 43(f)(2), paragraph 2 is
removed and paragraph 3 is
redesignated as paragraph 2 and revised.
The additions and revisions read as
follows:
■
■
Supplement I to Part 226—Official
Interpretations
*
*
*
*
*
Section 226.43—Appraisals for HigherPriced Mortgage Loans
*
*
*
*
*
43(b) Exemptions
1. Compliance with title XI of the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA). Section
226.43(b) provides exemptions solely from
the requirements of § 226.43(c) through (f).
Institutions subject to the requirements of
FIRREA and its implementing regulations
that make a loan qualifying for an exemption
under § 226.43(b) must still comply with
appraisal and evaluation requirements under
FIRREA and its implementing regulations.
Paragraph 43(b)(1)
1. Qualified mortgage criteria. Under
§ 226.43(b)(1), a loan is exempt from the
appraisal requirements of § 226.43 if either:
i. The loan is—(1) subject to the ability-torepay requirements of the Bureau of
Consumer Financial Protection (Bureau) in
12 CFR 1026.43 as a ‘‘covered transaction’’
(defined in 12 CFR 1026.43(b)(1)) and (2) a
qualified mortgage pursuant to the Bureau’s
rules or, for loans insured, guaranteed, or
administered by the U.S. Department of
Housing and Urban Development (HUD),
U.S. Department of Veterans Affairs (VA),
U.S. Department of Agriculture (USDA), or
Rural Housing Service (RHS), a qualified
mortgage pursuant to applicable rules
prescribed by those agencies (but only once
such rules are in effect; otherwise, the
Bureau’s definition of a qualified mortgage
applies to those loans); or
ii. The loan is—(1) not subject to the
Bureau’s ability-to-repay requirements in 12
CFR 1026.43 as a ‘‘covered transaction’’
(defined in 12 CFR 1026.43(b)(1)), but (2)
meets the criteria for a qualified mortgage in
the Bureau’s rules or, for loans insured,
guaranteed, or administered by HUD, VA,
USDA, or RHS, meets the criteria for a
qualified mortgage in the applicable rules
prescribed by those agencies (but only once
such rules are in effect; otherwise, the
Bureau’s criteria for a qualified mortgage
applies to those loans). To explain further,
loans enumerated in 12 CFR 1026.43(a) are
not ‘‘covered transactions’’ under the
Bureau’s ability-to-repay requirements in 12
CFR 1026.43, and thus cannot be qualified
mortgages (entitled to a rebuttable
presumption or safe harbor of compliance
with the ability-to-repay requirements of 12
CFR 1026.43, see, e.g., 12 CFR 1026.43(e)(1)).
These include an extension of credit made
pursuant to a program administered by a
Housing Finance Agency, as defined under
24 CFR 266.5, or pursuant to a program
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authorized by sections 101 and 109 of the
Emergency Economic Stabilization Act of
2008. See 12 CFR 1026.43(a)(3)(iv) and (vi).
They also include extensions of credit made
by a creditor identified in 12 CFR
1026.43(a)(3)(v). However, these loans are
eligible for the exemption in § 226.43(b)(1) if
they meet the Bureau’s qualified mortgage
criteria in § 1026.43(e)(2), (4), (5), or (6) or
§ 1026.43(f) (including limits on when loans
must be consummated) or, for loans that are
insured, guaranteed, or administered by
HUD, VA, USDA, or RHS, in applicable rules
prescribed by those agencies (but only once
such rules are in effect; otherwise, the
Bureau’s criteria for a qualified mortgage
applies to those loans). For example, assume
that HUD has prescribed rules to define loans
insured under its programs that are qualified
mortgages and those rules are in effect.
Assume further that a creditor designated as
a Community Development Financial
Institution, as defined under 12 CFR
1805.104(h), originates a loan insured by the
Federal Housing Administration, which is a
part of HUD. The loan is not a ‘‘covered
transaction’’ and thus is not a qualified
mortgage. See 12 CFR 1026.43(a)(3)(v)(A) and
(b)(1). Nonetheless, the transaction is eligible
for an exemption from the appraisal
requirements of § 226.43 if it meets the
qualified mortgage criteria in HUD’s rules.
Nothing in § 226.43(b)(1) alters the definition
of a qualified mortgage under regulations of
the Bureau, HUD, VA, USDA, or RHS.
Paragraph 43(b)(2)
1. Threshold amount. For purposes of
§ 226.43(b)(2), 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)(2) 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)(2) 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
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threshold amount. For example, assume a
closed-end loan that qualified for a
§ 226.43(b)(2) 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 (d)(7).
*
*
*
*
*
*
*
Paragraph 43(b)(4)
*
*
*
2. Financing initial construction. The
exemption for construction loans in
§ 226.43(b)(4) applies to temporary financing
of the construction of a dwelling that will be
replaced by permanent financing once
construction is complete. The exemption
does not apply, for example, to loans to
finance the purchase of manufactured homes
that have not been or are in the process of
being built when the financing obtained by
the consumer at that time is permanent. See
§ 226.43(b)(8).
Paragraph 43(b)(7)(i)(A)
1. Same credit risk holder. The
requirement that the holder of the credit risk
on the existing obligation and the refinancing
be the same applies to situations in which an
entity bears the financial responsibility for
the default of a loan by either holding the
loan in its portfolio or guaranteeing payments
of principal and any interest to investors in
a mortgage-backed security in which the loan
is pooled. See § 226.43(a)(4) (defining ‘‘credit
risk’’). For example, a credit risk holder
could be a bank that bears the credit risk on
the existing obligation by holding the loan in
the bank’s portfolio. Another example of a
credit risk holder would be a governmentsponsored enterprise that bears the risk of
default on a loan by guaranteeing the
payment of principal and any interest on a
loan to investors in a mortgage-backed
security. The holder of credit risk under
§ 226.43(b)(7)(i)(A) does not mean individual
investors in a mortgage-backed security or
providers of private mortgage insurance.
2. Same credit risk holder—illustrations.
Illustrations of the credit risk holder of the
existing obligation continuing to be the credit
risk holder of the refinancing include, but are
not limited to, the following:
i. The existing obligation is held in the
portfolio of a bank, thus the bank holds the
credit risk. The bank arranges to refinance
the loan and also will hold the refinancing
in its portfolio. If the refinancing otherwise
meets the requirements for an exemption
under § 226.43(b)(7), the transaction will
qualify for the exemption because the credit
risk holder is the same for the existing
obligation and the refinance transaction. In
this case, the exemption would apply
regardless of whether the bank arranged to
refinance the loan directly or indirectly, such
as through the servicer or subservicer on the
existing obligation.
ii. The existing obligation is held in the
portfolio of a government-sponsored
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enterprise (GSE), thus the GSE holds the
credit risk. The existing obligation is then
refinanced by the servicer of the loan and
immediately transferred to the GSE. The GSE
pools the refinancing in a mortgage-backed
security guaranteed by the GSE, thus the GSE
holds the credit risk on the refinance loan.
If the refinance transaction otherwise meets
the requirements for an exemption under
§ 226.43(b)(7), the transaction will qualify for
the exemption because the credit risk holder
is the same for the existing obligation and the
refinance transaction. In this case, the
exemption would apply regardless of
whether the existing obligation was
refinanced by the servicer or subservicer on
the existing obligation (acting as a ‘‘creditor’’
under § 1026.2(a)(17)) or by a different
creditor.
3. Forward commitments. A creditor may
make a mortgage loan that will be sold or
otherwise transferred pursuant to an
agreement that has been entered into at or
before the time the transaction is
consummated. Such an agreement is
sometimes known as a ‘‘forward
commitment.’’ A refinance loan does not
satisfy the requirement of § 226.43(b)(7)(i)(A)
if the loan will be acquired pursuant to a
forward commitment, such that the credit
risk on the refinance loan will transfer to a
person who did not hold the credit risk on
the existing obligation.
Paragraph 43(b)(7)
Paragraph 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 12 CFR
1026.43 and the 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 adjustablerate or step-rate mortgage, the periodic
payments must be substantially equal. For an
explanation of the term ‘‘substantially
equal,’’ see 12 CFR 1026.43 and the 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
§ 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
§ 226.43(b)(7) is available only if the
proceeds from the refinancing are used
exclusively for the existing obligation and
amounts attributed solely to the costs of the
refinancing. The existing obligation includes
the unpaid principal balance of the existing
first lien loan, any earned unpaid finance
charges, and any other lawful charges related
to the existing loan. For guidance on the
meaning of refinancing costs, see 12 CFR
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1026.23, the Official Staff Interpretations to
the Bureau’s Regulations Z, comment 23(f)–
4. 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.
For applications received on or after July 18,
2015
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Paragraph 43(b)(8)
Paragraph 43(b)(8)(i)
1. Secured by new manufactured home and
land—physical visit of the interior. A
transaction secured by a new manufactured
home and land is subject to the requirements
of § 226.43(c) through (f) except for the
requirement in § 226.43(c)(1) that the
appraiser conduct a physical inspection of
the interior of the property. Thus, for
example, a creditor of a loan secured by a
new manufactured home and land could
comply with § 226.43(c)(1) by obtaining an
appraisal conducted by a state-certified or
-licensed appraiser based on plans and
specifications for the new manufactured
home and an inspection of the land on which
the property will be sited, as well as any
other information necessary for the appraiser
to complete the appraisal assignment in
conformity with the Uniform Standards of
Professional Appraisal Practice and the
requirements of FIRREA and any
implementing regulations.
Paragraph 43(b)(8)(ii)
1. Secured by a manufactured home and
not land. Section 226.43(b)(8)(ii) applies to a
higher-priced mortgage loan secured by a
manufactured home and not land, regardless
of whether the home is titled as realty by
operation of State law.
Paragraph 43(b)(8)(ii)(B)
1. Independent. A cost service provider
from which the creditor obtains a
manufactured home unit cost estimate under
§ 226.43(b)(8)(ii)(B) is ‘‘independent’’ if that
person is not affiliated with the creditor in
the transaction, such as by common
corporate ownership, and receives no direct
or indirect financial benefits based on
whether the transaction is consummated.
2. Adjustments. The requirement that the
cost estimate be from an independent cost
service provider does not prohibit a creditor
from providing a cost estimate that reflects
adjustments to account for factors such as
special features, condition or location.
However, the requirement that the estimate
be obtained from an independent cost service
provider means that any adjustments to the
estimate must be based on adjustment factors
available as part of the independent cost
service used, with associated values that are
determined by the independent cost service.
Paragraph 43(b)(8)(ii)(C)
1. Interest in the property. A person has a
direct or indirect in the property if, for
example, the person has any ownership or
reasonably foreseeable ownership interest in
the manufactured home. To illustrate, a
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person who seeks a loan to purchase the
manufactured home to be valued has a
reasonably foreseeable ownership interest in
the property.
2. Interest in the transaction. A person has
a direct or indirect interest in the transaction
if, for example, the person or an affiliate of
that person also serves as a loan officer of the
creditor or otherwise arranges the credit
transaction, or is the retail dealer of the
manufactured home. A person also has a
prohibited interest in the transaction if the
person is compensated or otherwise receives
financial or other benefits based on whether
the transaction is consummated.
3. Training in valuing manufactured
homes. Training in valuing manufactured
homes includes, for example, successfully
completing a course in valuing manufactured
homes offered by a State or national
appraiser association or receiving job training
from an employer in the business of valuing
manufactured homes.
4. Manufactured home valuation—
example. A valuation in compliance with
§ 226.43(b)(8)(ii)(C) would include, for
example, an appraisal of the manufactured
home in accordance with the appraisal
requirements for a manufactured home
classified as personal property under the
Title I Manufactured Home Loan Insurance
Program of the U.S. Department of Housing
and Urban Development, pursuant to section
2(b)(10) of the National Housing Act, 12
U.S.C. 1703(b)(10).
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43(f)(2)
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Timing
*
2. 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)(2).
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Bureau of Consumer Financial
Protection
Authority and Issuance
For the reasons stated above, the
Bureau further amends Regulation Z, 12
CFR part 1026, as amended February 13,
2013 (78 FR 10368), as follows:
PART 1026—TRUTH IN LENDING ACT
(REGULATION Z)
10. The authority citation for part
1026 continues to read as follows:
■
Authority: 12 U.S.C. 2601, 2603–2605,
2607, 2609, 2617, 5511, 5512, 5532, 5581; 15
U.S.C. 1601 et seq.
Subpart E—Special Rules for Certain
Home Mortgage Transactions
■
11a. Section 1026.35 is amended by;
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a. Revising the paragraph (c) subject
heading and paragraphs (c)(1)(ii)
through (iv);
■ b. Adding paragraphs (c)(1)(v) through
(vii);
■ c. Revising paragraphs (c)(2)
introductory text, (c)(2)(i) and (ii), and
(v); and
■ d. Adding paragraphs (c)(2)(vii) and
(viii).
The revisions and additions read as
follows:
■
§ 1026.35 Requirements for higher-priced
mortgage loans.
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*
*
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*
(c) Appraisals—(1) * * *
(ii) Credit risk means the financial risk
that a consumer will default on a loan.
(iii) Manufactured home has the same
meaning as in 24 CFR 3280.2.
(iv) Manufacturer’s invoice means a
document issued by a manufacturer and
provided with a manufactured home to
a retail dealer that separately details the
wholesale (base) prices at the factory for
specific models or series of
manufactured homes and itemized
options (large appliances, built-in items
and equipment), plus actual itemized
charges for freight from the factory to
the dealer’s lot or the homesite
(including any rental of wheels and
axles) and for any sales taxes to be paid
by the dealer. The invoice may recite
such prices and charges on an itemized
basis or by stating an aggregate price or
charge, as appropriate, for each
category.
(v) National Registry means the
database of information about State
certified and licensed appraisers
maintained by the Appraisal
Subcommittee of the Federal Financial
Institutions Examination Council.
(vi) New manufactured home means a
manufactured home that has not been
previously occupied.
(vii) State agency means a ‘‘State
appraiser certifying and licensing
agency’’ recognized in accordance with
section 1118(b) of the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (12 U.S.C.
3347(b)) and any implementing
regulations.
(2) Exemptions. Unless otherwise
specified, the requirements in paragraph
(c)(3) through (6) of this section do not
apply to the following types of
transactions:
(i) A loan that satisfies the criteria of
a qualified mortgage as defined
pursuant to 15 U.S.C. 1639c;
(ii) 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
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Index for Urban Wage Earners and
Clerical Workers, as applicable, and
published in the official staff
commentary to this paragraph (c)(2)(ii);
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*
(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.
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*
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*
(vii) An extension of credit that is a
refinancing secured by a first lien, with
refinancing defined as in § 1026.20(a)
(except that the creditor need not be the
original creditor or a holder or servicer
of the original obligation), provided that
the refinancing meets the following
criteria:
(A) Either—
(1) The credit risk of the refinancing
is retained by the person that held the
credit risk of the existing obligation and
there is no commitment, at
consummation, to transfer the credit
risk to another person; or
(2) The refinancing is insured or
guaranteed by the same Federal
government agency that insured or
guaranteed 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 refinancing
are used solely to satisfy the existing
obligation and amounts attributed solely
to the costs of the refinancing; and
(viii) A transaction secured in whole
or in part by a manufactured home.
11b. Effective July 18, 2015,
§ 1026.35(c)(2)(viii) is revised to read as
follows:
■
§ 1026.35 Requirements for higher-priced
mortgage loans.
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(c) * * *
(2) * * *
(viii) A transaction secured by:
(A) A new manufactured home and
land, but the exemption shall only
apply to the requirement in paragraph
(c)(3)(i) of this section that the appraiser
conduct a physical visit of the interior
of the new manufactured home; or
(B) A manufactured home and not
land, for which the creditor obtains one
of the following and provides a copy to
the consumer no later than three
business days prior to consummation of
the transaction—
(1) For a new manufactured home, the
manufacturer’s invoice for the
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manufactured home securing the
transaction, provided that the date of
manufacture is no earlier than 18
months prior to the creditor’s receipt of
the consumer’s application for credit;
(2) A cost estimate of the value of the
manufactured home securing the
transaction obtained from an
independent cost service provider; or
(3) A valuation, as defined in
§ 1026.42(b)(3), of the manufactured
home performed by a person who has
no direct or indirect interest, financial
or otherwise, in the property or
transaction for which the valuation is
performed and has training in valuing
manufactured homes.
*
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*
*
■ 12. In Appendix N to part 1026, the
introductory text is republished and
paragraph 7 is revised to read as
follows:
Appendix N To Part 1026—HigherPriced Mortgage Loan Appraisal Safe
Harbor Review
To qualify for the safe harbor provided in
§ 1026.35(c)(3)(ii), a creditor must confirm
that the written appraisal:
*
*
*
*
*
7. Indicates that a physical property visit
of the interior of the property was performed,
as applicable.
*
*
*
*
*
13. In Supplement I to part 1026,
under Section 1026.35—Requirements
for Higher Priced Mortgages Loans:
■ a. The 35(c)(2) entry is amended by
adding paragraph 1.
■ b. A 35(c)(2)(i) entry is added.
■ c. The 35(c)(2)(ii) entry is revised.
■ d. The 35(c)(2)(iv) entry is amended
by adding paragraph 2.
■ e. A 35(c)(2)(vii)(A)(1) entry is added.
■ f. Entries for 35(c)(2)(vii)(B) and (C)
are added.
■ g. Effective July 18, 2015, entries for
35(c)(2)(viii)(A) and (B) are added.
■ h. Effective July 18, 2015, a
35(c)(2)(viii)(B)(2) entry is added.
■ i. Effective July 18, 2015, a
35(c)(2)(viii)(C)(3) entry is added.
■ j. Under the 35(c)(6)(ii) entry,
paragraph 2 is removed and paragraph
3 is redesignated as paragraph 2.
The revisions and additions read as
follows:
■
Supplement I to Part 1026—Official
Interpretations
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Subpart E—Special Rules for Certain Home
Mortgage Transactions
Section 1026.35—Requirements for HigherPriced Mortgage Loans
*
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Paragraph 35(c)(2) Exemptions
1. Compliance with title XI of the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA). Section
1026.35(c)(2) provides exemptions solely
from the requirements of section
1026.35(c)(3) through (6). Institutions subject
to the requirements of FIRREA and its
implementing regulations that make a loan
qualifying for an exemption under section
1026.35(c)(2) must still comply with
appraisal and evaluation requirements under
FIRREA and its implementing regulations.
Paragraph 35(c)(2)(i)
1. Qualified mortgage criteria. Under
§ 1026.35(c)(2)(i), a loan is exempt from the
appraisal requirements of § 1026.35(c) if
either:
i. The loan is—(1) subject to the Bureau’s
ability-to-repay requirements in § 1026.43 as
a ‘‘covered transaction’’ (defined in
§ 1026.43(b)(1)) and (2) a qualified mortgage
pursuant to the Bureau’s rules or, for loans
insured, guaranteed, or administered by the
U.S. Department of Housing and Urban
Development (HUD), U.S. Department of
Veterans Affairs (VA), U.S. Department of
Agriculture (USDA), or Rural Housing
Service (RHS), a qualified mortgage pursuant
to applicable rules prescribed by those
agencies (but only once such rules are in
effect; otherwise, the Bureau’s definition of a
qualified mortgage applies to those loans); or
ii. The loan is—(1) not subject to the
Bureau’s ability-to-repay requirements in
§ 1026.43 as a ‘‘covered transaction’’ (defined
in § 1026.43(b)(1)), but (2) meets the criteria
for a qualified mortgage in the Bureau’s rules
or, for loans insured, guaranteed, or
administered by HUD, VA, USDA, or RHS,
meets the criteria for a qualified mortgage in
the applicable rules prescribed by those
agencies (but only once such rules are in
effect; otherwise, the Bureau’s criteria for a
qualified mortgage applies to those loans). To
explain further, loans enumerated in
§ 1026.43(a) are not ‘‘covered transactions’’
under the Bureau’s ability-to-repay
requirements in § 1026.43, and thus cannot
be qualified mortgages (entitled to a
rebuttable presumption or safe harbor of
compliance with the ability-to-repay
requirements of § 1026.43, see, e.g.,
§ 1026.43(e)(1)). These include an extension
of credit made pursuant to a program
administered by a Housing Finance Agency,
as defined under 24 CFR 266.5, or pursuant
to a program authorized by sections 101 and
109 of the Emergency Economic Stabilization
Act of 2008. See § 1026.43(a)(3)(iv) and (vi).
They also include extensions of credit made
by a creditor identified in § 1026.43(a)(3)(v).
However, these loans are eligible for the
exemption in § 1026.35(c)(2)(i) if they meet
the Bureau’s qualified mortgage criteria in
§ 1026.43(e)(2), (4), (5), or (6) or § 1026.43(f)
(including limits on when loans must be
consummated) or, for loans that are insured,
guaranteed, or administered by HUD, VA,
USDA, or RHS, in applicable rules prescribed
by those agencies (but only once such rules
are in effect; otherwise, the Bureau’s criteria
for a qualified mortgage applies to those
loans). For example, assume that HUD has
prescribed rules to define loans insured
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under its programs that are qualified
mortgages and those rules are in effect.
Assume further that a creditor designated as
a Community Development Financial
Institution, as defined under 12 CFR
1805.104(h), originates a loan insured by the
Federal Housing Administration, which is a
part of HUD. The loan is not a ‘‘covered
transaction’’ and thus is not a qualified
mortgage. See § 1026.43(a)(3)(v)(A) and (b)(1).
Nonetheless, the transaction is eligible for an
exemption from the appraisal requirements
of § 1026.35(c) if it meets the qualified
mortgage criteria in HUD’s rules. Nothing in
§ 1026.35(c)(2)(i) alters the definition of a
qualified mortgage under regulations of the
Bureau, HUD, VA, USDA, or RHS.
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Paragraph 35(c)(2)(ii)
1. Threshold amount. For purposes of
§ 1026.35(c)(2)(ii), 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)(ii) 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)(ii) 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)(ii) 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).
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Paragraph 35(c)(2)(iv)
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2. Financing initial construction. The
exemption for construction loans in
§ 1026.35(c)(2)(iv) applies to temporary
financing of the construction of a dwelling
that will be replaced by permanent financing
once construction is complete. The
exemption does not apply, for example, to
loans to finance the purchase of
manufactured homes that have not been or
are in the process of being built when the
financing obtained by the consumer at that
time is permanent. See § 1026.35(c)(2)(viii).
Paragraph 35(c)(2)(vii)(A)(1)
1. Same credit risk holder. The
requirement that the holder of the credit risk
on the existing obligation and the refinancing
be the same applies to situations in which an
entity bears the financial responsibility for
the default of a loan by either holding the
loan in its portfolio or guaranteeing payments
of principal and any interest to investors in
a mortgage-backed security in which the loan
is pooled. See § 1026.35(c)(1)(ii) (defining
‘‘credit risk’’). For example, a credit risk
holder could be a bank that bears the credit
risk on the existing obligation by holding the
loan in the bank’s portfolio. Another example
of a credit risk holder would be a
government-sponsored enterprise that bears
the risk of default on a loan by guaranteeing
the payment of principal and any interest on
a loan to investors in a mortgage-backed
security. The holder of credit risk under
§ 1026.35(c)(2)(vii)(A)(1) does not mean
individual investors in a mortgage-backed
security or providers of private mortgage
insurance.
2. Same credit risk holder—illustrations.
Illustrations of the credit risk holder of the
existing obligation continuing to be the credit
risk holder of the refinancing include, but are
not limited to, the following:
i. The existing obligation is held in the
portfolio of a bank, thus the bank holds the
credit risk. The bank arranges to refinance
the loan and also will hold the refinancing
in its portfolio. If the refinancing otherwise
meets the requirements for an exemption
under § 1026.35(c)(2)(vii), the transaction
will qualify for the exemption because the
credit risk holder is the same for the existing
obligation and the refinance transaction. In
this case, the exemption would apply
regardless of whether the bank arranged to
refinance the loan directly or indirectly, such
as through the servicer or subservicer on the
existing obligation.
ii. The existing obligation is held in the
portfolio of a government-sponsored
enterprise (GSE), thus the GSE holds the
credit risk. The existing obligation is then
refinanced by the servicer of the loan and
immediately transferred to the GSE. The GSE
pools the refinancing in a mortgage-backed
security guaranteed by the GSE, thus the GSE
holds the credit risk on the refinance loan.
If the refinance transaction otherwise meets
the requirements for an exemption under
§ 1026.35(c)(2)(vii), the transaction will
qualify for the exemption because the credit
risk holder is the same for the existing
obligation and the refinance transaction. In
this case, the exemption would apply
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78587
regardless of whether the existing obligation
was refinanced by the servicer or subservicer
on the existing obligation (acting as a
‘‘creditor’’ under § 1026.2(a)(17)) or by a
different creditor.
3. Forward commitments. A creditor may
make a mortgage loan that will be sold or
otherwise transferred pursuant to an
agreement that has been entered into at or
before the time the transaction is
consummated. Such an agreement is
sometimes known as a ‘‘forward
commitment.’’ A refinance loan does not
satisfy the requirement of
§ 1026.35(c)(2)(vii)(A)(1) if the loan will be
acquired pursuant to a forward commitment,
such that the credit risk on the refinance loan
will transfer to a person who did not hold the
credit risk on the existing obligation.
Paragraph 35(c)(2)(vii)(B)
1. Regular periodic payments. Under
§ 1026.35(c)(2)(vii)(B), 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 the existing obligation and
amounts attributed solely to the costs of the
refinancing. The existing obligation includes
the unpaid principal balance of the existing
first lien loan, any earned unpaid finance
charges, and any other lawful charges related
to the existing loan. For guidance on the
meaning of refinancing costs, see comment
23(f)–4. 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).
For applications received on or after July 18,
2015
Paragraph 35(c)(2)(viii)(A)
1. Secured by new manufactured home and
land—physical visit of the interior. A
transaction secured by a new manufactured
home and land is subject to the requirements
of § 1026.35(c)(3) through (6) except for the
requirement in § 1026.35(c)(3)(i) that the
appraiser conduct a physical inspection of
the interior of the property. Thus, for
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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations
tkelley on DSK3SPTVN1PROD with RULES2
example, a creditor of a loan secured by a
new manufactured home and land could
comply with § 1026.35(c)(3)(i) by obtaining
an appraisal conducted by a state-certified or
-licensed appraiser based on plans and
specifications for the new manufactured
home and an inspection of the land on which
the property will be sited, as well as any
other information necessary for the appraiser
to complete the appraisal assignment in
conformity with the Uniform Standards of
Professional Appraisal Practice and the
requirements of FIRREA and any
implementing regulations.
Paragraph 35(c)(2)(viii)(B)
1. Secured by a manufactured home and
not land. Section 1026.35(c)(2)(viii)(B)
applies to a higher-priced mortgage loan
secured by a manufactured home and not
land, regardless of whether the home is titled
as realty by operation of state law.
Paragraph 35(c)(2)(viii)(B)(2)
1. Independent. A cost service provider
from which the creditor obtains a
manufactured home unit cost estimate under
§ 1026.35(c)(2)(viii)(B)(2) is ‘‘independent’’ if
that person is not affiliated with the creditor
in the transaction, such as by common
corporate ownership, and receives no direct
or indirect financial benefits based on
whether the transaction is consummated.
2. Adjustments. The requirement that the
cost estimate be from an independent cost
service provider does not prohibit a creditor
from providing a cost estimate that reflects
adjustments to account for factors such as
special features, condition or location.
However, the requirement that the estimate
be obtained from an independent cost service
provider means that any adjustments to the
VerDate Mar<15>2010
18:30 Dec 24, 2013
Jkt 232001
estimate must be based on adjustment factors
available as part of the independent cost
service used, with associated values that are
determined by the independent cost service.
Paragraph 35(c)(2)(viii)(C)(3)
1. Interest in the property. A person has a
direct or indirect in the property if, for
example, the person has any ownership or
reasonably foreseeable ownership interest in
the manufactured home. To illustrate, a
person who seeks a loan to purchase the
manufactured home to be valued has a
reasonably foreseeable ownership interest in
the property.
2. Interest in the transaction. A person has
a direct or indirect interest in the transaction
if, for example, the person or an affiliate of
that person also serves as a loan officer of the
creditor or otherwise arranges the credit
transaction, or is the retail dealer of the
manufactured home. A person also has a
prohibited interest in the transaction if the
person is compensated or otherwise receives
financial or other benefits based on whether
the transaction is consummated.
3. Training in valuing manufactured
homes. Training in valuing manufactured
homes includes, for example, successfully
completing a course in valuing manufactured
homes offered by a state or national appraiser
association or receiving job training from an
employer in the business of valuing
manufactured homes.
4. Manufactured home valuation—
example. A valuation in compliance with
§ 1026.35(c)(2)(viii)(B)(3) would include, for
example, an appraisal of the manufactured
home in accordance with the appraisal
requirements for a manufactured home
classified as personal property under the
PO 00000
Frm 00070
Fmt 4701
Sfmt 9990
Title I Manufactured Home Loan Insurance
Program of the U.S. Department of Housing
and Urban Development, pursuant to section
2(b)(10) of the National Housing Act, 12
U.S.C. 1703(b)(10).
*
*
*
*
*
Dated: December 10, 2013.
Thomas J. Curry,
Comptroller of the Currency.
By order of the Board of Governors of the
Federal Reserve System, December 11, 2013.
Robert deV. Frierson,
Secretary of the Board.
Dated: December 10, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial
Protection.
In consultation with:
By the National Credit Union
Administration Board on December 10, 2013.
Gerard Poliquin,
Secretary of the Board.
Dated at Washington, DC, this 10th day of
December, 2013.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
Dated: December 9, 2013.
Edward J. DeMarco,
Acting Director, Federal Housing Finance
Agency.
[FR Doc. 2013–30108 Filed 12–18–13; 4:15 pm]
BILLING CODE 4810–33–P
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[Federal Register Volume 78, Number 248 (Thursday, December 26, 2013)]
[Rules and Regulations]
[Pages 78519-78588]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30108]
[[Page 78519]]
Vol. 78
Thursday,
No. 248
December 26, 2013
Part II
Department of the Treasury
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Office of the Comptroller of the Currency
Board of Governors of the Federal Reserve System
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Bureau of Consumer Financial Protection
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12 CFR Parts 34, 226, and 1026
Appraisals for Higher-Priced Mortgage Loans; Final Rule
Federal Register / Vol. 78 , No. 248 / Thursday, December 26, 2013 /
Rules and Regulations
[[Page 78520]]
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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
AGENCY: 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: Supplemental final rule; official staff commentary.
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SUMMARY: The Board, Bureau, FDIC, FHFA, NCUA, and OCC (collectively,
the Agencies) are amending Regulation Z, which implements the Truth in
Lending Act (TILA), and the official interpretation to the regulation.
This final rule supplements a final rule issued by the Agencies on
January 18, 2013, which goes into effect on January 18, 2014. The
January 2013 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 January 2013
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. On July 10, 2013, the Agencies
proposed amendments to the January 2013 Final Rule implementing these
requirements. Specifically, the Agencies proposed 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: This final rule is effective on January 18, 2014. Alternative
provisions regarding manufactured home loans in amendatory instructions
3b and 5f (12 CFR 34.203(b)(8) and 12 CFR part 34, appendix C,
34.203(b)(8) entry OCC), 12 CFR 226.43(b)(8) Board, and 12 CFR
1026.35(c)(2)(viii) CFPB, are effective July 18, 2015.
FOR FURTHER INFORMATION CONTACT: OCC: Robert L. Parson, Appraisal
Policy Specialist, at (202) 649-6423, G. Kevin Lawton, Appraiser (Real
Estate Specialist), at (202) 649-7152, Charlotte M. Bahin, Senior
Counsel or Mitchell Plave, Special Counsel, Legislative & Regulatory
Activities Division, at (202) 649-5490, Krista LaBelle, Special
Counsel, Community and Consumer Law Division, at (202) 649-6350, or 400
Seventh Street SW., Washington, DC 20219.
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, at (202)
452-3852, Board of Governors of the Federal Reserve System, Washington,
DC 20551.
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.
NCUA: John Brolin, Staff Attorney, 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.
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.
FHFA: Robert Witt, Senior Policy Analyst, at 202-649-3128, or 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.
SUPPLEMENTARY INFORMATION:
I. Summary of the Final 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 a
final rule on January 18, 2013 (January 2013 Final Rule; 78 FR 10368
(Feb. 13, 2013)) 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 are appropriate. Specifically, the
Agencies are adopting exemptions for certain types of refinancings and
transactions of $25,000 or less (indexed for inflation). The Agencies
are also adopting a temporary exemption of 18 months (until July 18,
2015) for all loans secured in whole or in part by a manufactured home.
Starting on July 18, 2015, transactions secured by a new manufactured
home and land will be exempt from the requirement that the appraisal
include a physical inspection of the interior of the property;
transactions secured by an existing (used) manufactured home and land
will not be exempt from the rules; and transactions secured solely by a
manufactured home and not land will be exempt from the rules if the
creditor gives the consumer one of three types of information about the
home's value, discussed in more detail below.
The Agencies are not adopting the proposed definition of ``business
day'' that would have differed from the definition used in the January
2013 Final Rule. A revision to the exemption for ``qualified
mortgages'' is adopted that is similar to the proposed revision, as
well as a few proposed non-substantive technical corrections.
A. Exemption for Extensions of Credit of $25,000 or Less
The Agencies are adopting without change the proposed exemption
from the HPML appraisal rules for extensions of credit of $25,000 or
less, indexed every year for inflation.
B. Exemption for Certain Refinancings
The Agencies also are adopting an exemption from the HPML appraisal
rules for certain types of refinancings with characteristics common to
refinance products often referred to as
[[Page 78521]]
streamlined refinances. Consistent with the proposal, the final rule
exempts a refinancing where the holder of the credit risk of the
existing obligation remains the same on the refinancing. The final rule
includes revised terminology and additional examples in Official Staff
Commentary to clarify the meaning of this requirement. 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 existing obligation and to pay closing or settlement
charges.
C. Exemption for Transactions Secured in Whole or in Part by a
Manufactured Home
All loans secured in whole or in part by a manufactured home will
be exempt from the HPML appraisal rules for 18 months, until July 18,
2015. For loan applications received on or July 18, 2015, the following
changes will apply:
Transactions secured by a new manufactured home and land will be
exempt from the requirement that the appraisal include a physical
inspection of the interior of the property, but will be subject to all
other HPML appraisal requirements.
Transactions secured by an existing (used) manufactured home and
land will not be exempt from the rules.
Transactions secured solely by a manufactured home and not land
will be exempt from the rules if the creditor gives the consumer one of
three types of information about the home's value:
The manufacturer's invoice of the unit cost (for a
transaction secured by a new manufactured home).
An independent cost service unit cost.
A valuation conducted by an individual who has no
financial interest in the property or credit transaction, and has
training in valuing manufactured homes.\1\ An example would be an
appraisal conducted according to procedures approved by the U.S.
Department of Housing and Urban Development (HUD) for existing (used)
home-only transactions.
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\1\ As discussed further in the section-by-section analysis, the
Agencies are adopting the definition of ``valuation'' at 12 CFR
1026.42(b)(3): `` `Valuation' means an estimate of the value of the
consumer's principal dwelling in written or electronic form, other
than one produced solely by an automated model or system.''
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D. Effective Date
The temporary exemption for manufactured home loans and the
exemptions for certain refinancings and loans of $25,000 or less will
be effective on January 18, 2014, the same date on which the January
2013 Final Rule will become effective. The Agencies find under 5 U.S.C.
553(d)(1) that these provisions may be made effective less than 30 days
after publication in the Federal Register because these provisions
``grant[] or recognize[] an exemption or relieve[] a restriction.'' 5
U.S.C. 553(d)(1). The modified exemptions for loans secured by
manufactured homes will be effective on July 18, 2015.
II. Background
In general, TILA 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.\2\ 15 U.S.C. 1604(a).
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\2\ 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 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
January 2013 Final Rule, the new appraisal section of TILA addressed in
the January 2013 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 January 2013 Final Rule and corresponding official interpretations
are substantively identical. The FDIC, NCUA, and FHFA adopted the
Bureau's version of the regulations under the January 2013 Final
Rule.\3\
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\3\ 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 \4\ was signed into law on July 21, 2010.
Section 1471 of the Dodd-Frank Act's Title XIV, Subtitle 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:
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\4\ Public Law 111-203, 124 Stat. 1376 (Dodd-Frank Act).
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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'' \5\ secured
[[Page 78522]]
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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\5\ 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.
III. Summary of the Rulemaking Process
The Agencies issued proposed regulations for public comment on
August 15, 2012, that would have implemented the Dodd-Frank Act higher-
risk mortgage appraisal provisions (2012 Proposed Rule). 77 FR 54722
(Sept. 5, 2012). This rule was open for public comment for 60 days
(until October 15, 2012). After consideration of public comments, the
Agencies issued the January 2013 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).
The preamble to the January 2013 Final Rule stated that the
Agencies would consider exemptions for three additional types of
transactions that commenters requested the Agencies consider: (1)
smaller dollar loans; (2) streamlined refinance loans; and (3) loans
secured by ``existing'' (used) manufactured homes. On July 10, 2013,
the Agencies issued proposed amendments to the January 2013 Final Rule
the 2013 Supplemental Proposed Rule to exempt these transactions from
the HPML appraisal requirements. (2013 Supplemental Proposed Rule; 78
FR 48548 (Aug. 8, 2013)). The 2013 Supplemental Proposed Rule sought
comment on whether any of these exemptions should be conditioned on the
creditor meeting an alternative standard to estimate the value of the
property securing the transaction and providing that information to the
consumer. Comment also was sought on the appropriate scope of, and
possible conditions on, the exemption in the January 2013 Final Rule
for loans secured by new manufactured homes. The 2013 Supplemental
Proposed Rule was open for public comment for 60 days (until Sept. 9,
2013).
To inform the Agencies in drafting the January 2013 Final Rule as
well as the 2012 Proposed Rule, the Agencies conducted a series of
public outreach meetings in January and February of 2012.\6\ Agency
staff conducted additional public outreach in the first half of 2013 to
inform the Agencies in drafting the 2013 Supplemental Proposed Rule. In
addition to reviewing public comments on the 2013 Supplemental Proposed
Rule, Agency staff conducted limited public outreach in September and
October to inform the Agencies in drafting this final rule.\7\
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\6\ Information about these meetings is available at https://www.federalreserve.gov/newsevents/rr-commpublic/industry_meetings_20120210.pdf.
\7\ Information about these meetings is available at https://www.federalreserve.gov/newsevents/rr-commpublic/industry-meetings-20131001.pdf.
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A. January 2013 Final Rule
1. Loans Covered
To implement the statutory definition of ``higher-risk mortgage,''
the January 2013 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 January 2013 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.\8\ The term ``higher-risk mortgage'' generally 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.\9\ Specifically, consistent with TILA
section 129H, a loan is an HPML under the January 2013 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.\10\
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\8\ As noted further below, 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).
\9\ 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.
\10\ 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 January 2013 Final Rule included an
exemption for ``qualified mortgages,'' as 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).\11\
15 U.S.C. 1639c. For revisions to this exemption, see Sec.
1026.35(c)(2)(i) and accompanying section-by-section analysis below.
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\11\ 78 FR 6408 (Jan. 30, 2013).
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In addition, the January 2013 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.
2. Requirements That Apply to All Appraisals Performed for Non-Exempt
HPMLs
Consistent with TILA, the January 2013 Final Rule allows a creditor
to originate an HPML that is not exempt from the January 2013 Final
Rule only if the following conditions are met:
[[Page 78523]]
The creditor obtains a written appraisal;
The appraisal is performed by a certified or licensed
appraiser; and
The appraiser conducts a physical visit of the interior of
the property.
Also consistent with TILA, the following requirements also apply
with respect to HPMLs subject to the January 2013 Final Rule:
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; 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.
3. Requirement To Obtain an Additional Appraisal in Certain HPML
Transactions
In addition, the January 2013 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 January
2013 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 January 2013 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 published the 2013 Supplemental
Proposed Rule.
B. 2013 Supplemental Proposed Rule
Based on comments received on the 2012 Proposed Rule and additional
research and outreach, the Agencies believed that several additional
exemptions from the new appraisal rules might be appropriate.
Specifically, in the 2013 Supplemental Proposed Rule, the Agencies
proposed exemptions 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
solicited comment on these proposed exemptions, as well as on the scope
and possible conditions on the exemption in the January 2013 Final Rule
for loans secured by a new manufactured home (with or without land). In
addition, the Agencies proposed a different definition of ``business
day'' than the definition used in the Final Rule, as well as a few non-
substantive technical corrections.
1. Proposed Exemption for Transactions Secured Solely by an Existing
Manufactured Home and Not Land
The Agencies proposed to exempt transactions secured solely by an
existing (used) manufactured home and not land from the HPML appraisal
requirements. The Agencies sought comment on whether an alternative
valuation type should be required.
The Agencies proposed to retain coverage of loans secured by
existing manufactured homes and land. The Agencies also proposed to
retain the exemption for transactions secured by new manufactured
homes, but sought further comment on the scope of this exemption and
whether certain conditions on the exemption might be appropriate.
2. Proposed Exemption for Certain Refinancings
In addition, the Agencies proposed to exempt from the HPML
appraisal rules certain types of refinancings with characteristics
common to refinance programs that offer ``streamlined'' refinances.
Specifically, the Agencies proposed 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. The
periodic payments under the refinance loan could not have resulted in
negative amortization, covered only interest on the loan, or resulted
in a balloon payment. Further, the proceeds from the refinance loan
could have been used only to pay off the outstanding principal balance
on the existing obligation and to pay closing or settlement charges.
3. Proposed Exemption for Extensions of Credit of $25,000 or Less
Finally, the Agencies proposed an exemption from the HPML appraisal
rules for extensions of credit of $25,000 or less, indexed every year
for inflation.
4. Effective Date
The Agencies' Proposal
The Agencies intended that exemptions adopted as a result of the
2013 Supplemental Proposed Rule would be effective on January 18, 2014,
the same date on which the January 2013 Final Rule will become
effective. The Agencies requested comment on a number of conditions
that might be appropriate to require creditors to meet to qualify for
the proposed exemptions. The Agencies stated that, if the Agencies
adopted any conditions on an exemption, the Agencies would consider
establishing a later effective date for those conditions to allow
creditors sufficient time to adjust their compliance systems, if
necessary. The Agencies requested comment on the need for a later
effective date for any condition on a proposed exemption.
Public Comments
Most public commenters did not directly address whether the
implementation date for any conditions on proposed exemptions should be
extended beyond January 18, 2014. Four State credit union trade
associations, a national credit union trade association, two State
banking trade associations, a small mortgage lender, and a community
banking trade association supported delaying the implementation date
for all of the HPML appraisal requirements. Two credit union trade
associations recommended that, if conditions were placed on exemptions
in the final rule, the Agencies should delay the implementation date to
allow creditors sufficient time to adjust their systems to comply with
the conditions. One commenter stated that the uncertainty regarding
potential amendments to the January 2013 Final Rule made it difficult
to prepare for compliance by the January 18, 2014 implementation date.
Some commenters
[[Page 78524]]
stated that the difficulty of complying with the rules by January 2014
was compounded by the multiple mortgage rules recently issued by the
Bureau that are also due to become effective in January 2014, and one
pointed out further that several of these rules were amended after
being finalized in January 2013. The small mortgage lender noted that
creating and implementing compliance programs is resource intensive,
and that it is more difficult for small businesses to implement such
programs than for large lenders. These commenters suggested that the
Agencies delay the implementation date by varying amounts of time, from
six to 18 months.
As discussed in the section-by-section analysis of Sec.
1026.35(c)(2)(ii), several commenters focused on the implementation
date of HPML appraisal rules for loans secured by manufactured homes.
Manufactured housing industry commenters--two lenders and a State trade
association--believed that the Agencies should delay issuing final
rules on valuations for covered manufactured home loans until further
study on manufactured housing valuations. The manufactured housing
lenders noted that requiring appraisals in manufactured housing lending
would be a significant change for the manufactured housing industry,
requiring time to negotiate contracts with appraisal management
companies and to develop new disclosures that contain the appraised
value, among other changes. The State manufactured housing industry
trade association commenter recommended that the Agencies issue a more
concrete proposal regarding manufactured housing valuations and that
the effective date be at least two years after the publication of final
rules.
As also discussed further in the section-by-section analysis of
Sec. 1026.35(c)(2)(ii), a national association of owners of
manufactured homes, a consumer advocate group, two affordable housing
organizations and a policy and research organization believed that
appraisal rules applicable to transactions secured by manufactured
homes (both new and existing) and land should be effective ``quickly''
to facilitate the development of appropriate appraisal methods for
these transactions by increasing the demand for appraisals. They
suggested that rules eliminating any exemptions in the January 2013
Final Rule (i.e., the exemptions for loans secured by new manufactured
homes, with or without land) should go into effect six months after the
general effective date of January 2014, if possible, and in any event
no later than January 2016. These commenters also recommended that
loans secured solely by a manufactured home and not land be subject to
a temporary exemption until no later than January 2016. In the
intervening time, the commenters suggested that the Agencies convene a
working group of stakeholders to develop standards for appraising
manufactured homes.
Final Rule
The Agencies are adopting an effective date of January 18, 2014 for
most provisions of this supplemental final rule, to correspond with the
effective date of January 18, 2014 for the January 2013 Final Rule,
which is prescribed by statute. Specifically, the Dodd-Frank Act
requires that regulations required under Title XIV of the Dodd-Frank
Act, which include the HPML appraisal provisions, ``be prescribed in
final form before the end of the 18-month period beginning on the
designated transfer date,'' which was July 21, 2011.\12\ Accordingly,
the Agencies issued the January 2013 Final Rule within 18 months of the
designated transfer date, on January 18, 2013.\13\ The Dodd-Frank Act
also requires that regulations required under Title XIV ``take effect
not later than 12 months after the date of issuance of the regulations
in final form.'' \14\ Twelve months after the date of issuance of the
HPML appraisal rules is January 18, 2014. Thus, the January 2013 Final
Rule, as amended by this supplemental final rule, must go into effect
on January 18, 2014, and will apply to applications received by the
creditor on or after that date.
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\12\ Designated Transfer Date, 75 FR 57252 (Sept. 20, 2010).
\13\ Sections 1400(c) and 1471 of the Dodd-Frank Act, in title
XIV.
\14\ Section 1400(c) of the Dodd-Frank Act, in title XIV.
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The Agencies have authority to exempt certain classes of loans from
the HPML appraisal rules if the exemption is determined to be ``in the
public interest'' and to ``promote[] the safety and soundness of
creditors.'' TILA section 129H(b)(4)(B); 15 U.S.C. 1639h(b)(4)(B). As
discussed further in the section-by-section analysis of Sec.
1026.35(c)(2)(ii), the Agencies believe that a temporary exemption of
18 months for transactions secured by a manufactured home meets these
two exemption criteria. The temporary exemptions for loans secured by a
manufactured home will go into effect on January 18, 2014, the
effective date of the 2013 January Final Rule. Modified exemptions for
certain types of manufactured home transactions will be effective on
July 18, 2015, and applicable to applications received by the creditor
on or after that date.
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 that will be published in the
Bureau's Regulation Z at 12 CFR 1026.35(c). As explained in the January
2013 Final Rule, separate versions of the regulations and accompanying
commentary were issued as part of the January 2013 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 revisions to the
January 2013 Final Rule adopted by the Agencies in this supplemental
final rule are separately published in the HPML appraisal regulations
of the OCC, the Board, and the Bureau. No substantive difference among
the three sets of revised rules is intended.
Section 1026.2 Definitions and Rules of Construction
2(a) Definitions
2(a)(6) Business Day
The Agencies' Proposal
The term ``business day'' is used with respect to two requirements
in the January 2013 Final Rule. First, the January 2013 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
[[Page 78525]]
a higher-priced mortgage loan'' subject to Sec. 1026.35(c). Sec.
1026.35(c)(5)(i) and (ii). Second, the January 2013 Final Rule requires
the creditor to provide to the consumer a copy of each written
appraisal obtained under the January 2013 Final Rule ``[n]o later than
three business days prior to consummation of the loan.'' Sec.
1026.35(6)(i) and (ii).
The Agencies proposed to define ``business day'' for these
requirements 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
proposed 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
mortgage 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 proposed to align the definition of ``business day''
under the January 2013 Final Rule with the definition of ``business
day'' for these disclosures was 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).
The proposed definition of ``business day'' also was 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 have required the creditor to deliver the early mortgage
disclosures ``not later than the third business day after the creditor
receives the consumer's application.'' Proposed Sec.
1026.19(e)(1)(iii). The 2012 TILA-RESPA Proposal would have required
the final mortgage disclosures to have been provided ``not later than
three business days before consummation.'' Proposed Sec.
1026.19(f)(1)(ii). For these purposes, ``business day'' would have been
defined as the Agencies proposed to define ``business day'' in the 2013
Supplemental Proposed Rule.
The Agencies stated in the 2013 Supplemental Proposed Rule that, if
the Bureau adopted this aspect of the 2012 TILA-RESPA Proposal, then
adopting the proposed definition of ``business day'' for the final HPML
appraisals 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). The Agencies further stated that this would
also ensure that the copy of the HPML appraisal and the final mortgage
disclosures would have to be provided at the same time (no later than
three ``business days'' before consummation). The proposal to align
these timing requirements was intended to facilitate compliance and
reduce consumer confusion by reducing the number of disclosures that
consumers might receive at different times.
Public Comments
The Agencies received fourteen comments on the proposed revision to
the definition of ``business day,'' with most commenters supporting the
revised definition. A community banking trade association, an
individual, two State banking trade associations, a mortgage banking
trade association, four State credit union trade associations, one
national credit union trade association, and a financial holding
company believed that revising the definition for consistency with
other disclosure timing requirements--particularly those of the
combined mortgage disclosures under the 2012 TILA-RESPA Proposed Rule--
would reduce regulatory burden and facilitate compliance. The State
banking trade associations and the financial holding company believed
that making these disclosure requirements consistent with the timing
for other mortgage disclosures could also result in better awareness
and understanding of disclosures by consumers and reduce consumer
confusion. One of the State banking trade associations also believed
that the proposed definition provided more certainty for creditors than
the definition of business day in the January 2013 Final Rule, which
refers to days on which a creditor's offices are open to the public for
carrying on substantially all of its business functions. See Sec.
1026.2(a)(6).
A State credit union trade association, a national credit union
trade association, and a community bank commenter, however, opposed the
proposed revised definition of business day, instead favoring the
definition in the January 2013 Final Rule. The national credit union
trade association and community bank commenter stated that many credit
unions and community banks are not open for most or any of their
business functions on Saturdays. They argued that including Saturday as
a business day would increase their regulatory burden.
Final Rule
As noted, the term ``business day'' is used with respect to two
requirements in the January 2013 Final Rule. See Sec. Sec.
1026.35(c)(5)(ii) and (c)(6)(ii). The amendments to the January 2013
Final Rule adopted in this rule add a third use of the term ``business
day.'' As discussed more fully in the section-by-section analysis of
Sec. 1026.35(c)(2)(ii)(C), transactions secured solely by a
manufactured home and not land that are consummated on or after July
18, 2015, will be exempt from the HPML appraisal rules if the creditor
obtains and gives to the consumer a copy of one of three types of
valuation information ``no later than three business days prior to
consummation of the transaction.'' Sec. 1026.35(c)(2)(ii)(C).
For two reasons, the Agencies are not adopting the proposed
definition of ``business day'' and instead are retaining the definition
of ``business day'' adopted in the January 2013 Final Rule: ``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).
First, the Agencies' goal is to provide consistency with the timing
requirements of other mortgage disclosures. Most public commenters who
supported the Agencies' proposed amendment to the definition of
``business day'' used in the January 2013 Final Rule did so on the
basis of favoring consistency with the timing requirements of other
mortgage disclosures, particularly the combined TILA-RESPA early and
final mortgage disclosures.
The proposed definition, however, would result in inconsistency
because the Bureau did not adopt the definition of ``business day''
that includes Saturdays and excludes enumerated
[[Page 78526]]
Federal holidays for the early mortgage disclosures and final mortgage
disclosures proposed in the 2012 TILA-RESPA Proposed Rule. Instead, the
definition of ``business day'' referring to days on which the
creditor's offices are open to the public will be used for the timing
requirement for those disclosures.\15\ For the reasons discussed in the
2013 Supplemental Proposed Rule, the Agencies believe that the timing
requirement for creditors to give consumers the disclosure required
after application should be aligned with the TILA-RESPA early
disclosures and that the timing requirement for creditors to give
consumers copies of appraisals and other valuation information should
generally be aligned with the timing requirement for the TILA-RESPA
mortgage disclosures.
---------------------------------------------------------------------------
\15\ See Bureau's 2013 TILA-RESPA Final Rule (issued Nov. 20,
2013) at p. 147 et seq., available at https://files.consumerfinance.gov/f/201311_cfpb_final-rule-preamble_integrated-mortgage-disclosures.pdf.
---------------------------------------------------------------------------
Second, the Agencies heard from commenters that many credit unions
and community banks are not open for most or any of their business
functions on Saturdays. As adopted, the final rule will address these
concerns.
Section 1026.35 Requirements for Higher-Priced Mortgage Loans
35(c) Appraisals for Higher-Priced Mortgage Loans
35(c)(1) Definitions
The Agencies are adopting three new definitions for purposes of the
HPML appraisal rules in Sec. 1026.35(c)--``credit risk,''
``manufacturer's invoice,'' and ``new manufactured home''--and re-
numbering definitions adopted in the January 2013 Final Rule
accordingly.
35(c)(1)(ii)
Section 1026.35(c)(1)(ii) defines ``credit risk'' for purposes of
Sec. 1026.35(c) to mean the financial risk that a loan will default.
The Agencies are adopting a definition of ``credit risk'' to provide
greater clarity regarding certain aspects of the exemption for certain
refinance transactions, discussed in more detail in the section-by-
section analysis of Sec. 1026.35(c)(2)(vii). Under Sec.
1026.35(c)(2)(vii), a covered HPML refinance is eligible for an
exemption if one of several criteria are met, including that either (1)
the credit risk of the refinance loan is retained by the person that
held the credit risk on the existing obligation or (2) the refinance
loan is owned, insured or guaranteed by the same Federal government
agency that owned, insured or guaranteed the existing obligation. See
Sec. 1026.35(c)(2)(vii)(A) and comment 35(c)(2)(vii)(A)-1.
35(c)(1)(iv)
Section 1026.35(c)(1)(iv) defines ``manufacturer's invoice'' to
mean a document issued by a manufacturer and provided with a
manufactured home to a retail dealer that separately details the
wholesale (base) prices at the factory for specific models or series of
manufactured homes and itemized options (large appliances, built-in
items and equipment), plus actual itemized charges for freight from the
factory to the dealer's lot or the home site (including any rental of
wheels and axles) and for any sales taxes to be paid by the dealer. The
invoice may recite such prices and charges on an itemized basis or by
stating an aggregate price or charge, as appropriate, for each
category.
This definition is adopted from the definition of ``manufacturer's
invoice'' in HUD regulations regarding Title I loans insured by the
Federal Housing Administration (FHA) that are secured by a new
manufactured home and not land, at 24 CFR 201.2. The Agencies believe
that defining the term ``manufacturer's invoice'' to mirror the
definition in HUD regulations is appropriate for consistency; the
January 2013 Final Rule defines the term ``manufactured home'' by
referencing HUD regulations. See Sec. 1026.35(c)(1)(iii). The only
aspect of the HUD definition of ``manufacturer's invoice'' not adopted
in the final rule is a provision requiring manufacturer's
certification. The Agencies do not have data regarding how often
manufacturer's invoices outside of the Title I program include the
manufacturer's certification prescribed in HUD regulations at 24 CFR
201.2 that apply to the Title I program. Thus, the Agencies are
concerned that requiring this certification at this time might create
unanticipated compliance challenges.
The final rule defines ``manufacturer's invoice'' to ensure that
creditors understand Sec. 1026.35(c)(2)(viii)(B)(1), which goes into
effect on July 18, 2015. Under Sec. 1026.35(c)(2)(viii)(B)(1), a
covered HPML secured by a new manufactured home and not land is exempt
from the HPML appraisal requirements of Sec. 1026.35(c) if the
creditor provides the consumer with a copy of a manufacturer's invoice
for the manufactured home securing the transaction. Further details
regarding this provision and other valuation-related documents that a
creditor could give the consumer to qualify for the exemption are
discussed in the corresponding section-by-section analysis.
35(c)(1)(vi)
Section 35(c)(1)(vi) defines ``new manufactured home'' to mean a
manufactured home that has not been previously occupied. The Agencies
believe that adopting a definition of ``new manufactured home'' will
help prevent confusion among creditors of manufactured home
transactions. The final rule differentiates between loans secured by
new and existing (used) manufactured homes in the application of
certain requirements, so a clear definition is intended to facilitate
compliance. See Sec. 1026.35(c)(2)(viii).
35(c)(2) Exemptions
The Agencies are adopting new Official Staff Commentary to Sec.
1026.35(c)(2). Specifically, comment 35(c)(2)-1 clarifies that Sec.
1026.35(c)(2) provides exemptions solely from the HPML appraisal
requirements in Regulation Z (Sec. 1026.35(c)(3) through (6)). The
comment states that institutions subject to the requirements of title
XI of FIRREA and its implementing regulations that make a loan
qualifying for an exemption under section 1026.35(c)(2) must still
comply with the appraisal and evaluation requirements under FIRREA and
its implementing regulations.
The Agencies are adopting this comment to ensure that creditors
subject to FIRREA are aware that, for any HPML they originate that
qualifies for an exemption from the HPML appraisal requirements in
Sec. 1026.35(c), they would still be required to obtain an appraisal
or evaluation in conformity with FIRREA title XI requirements.\16\
These requirements are implemented in Federal banking agency
regulations and further explained in the Interagency Appraisal and
Evaluation Guidance.\17\ Comment 35(c)(2)-1 also underscores that the
HPML appraisal requirements were not intended to override existing
Federal appraisal rules applicable to institutions regulated by Federal
financial institutions regulatory agencies.
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\16\ At least one commenter requested that the Agencies clarify
that FIRREA requirements would not apply to loans exempt from the
HPML appraisal rules. The opposite is true.
\17\ See OCC: 12 CFR parts 34, Subpart C, and 164; Board: 12 CFR
part 208, subpart E, and part 225, subpart G; FDIC: 12 CFR part 323;
NCUA: 12 CFR part 722. See also 75 FR 77450 (Dec. 10, 2010).
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35(c)(2)(i)
The Agencies' Proposal
Qualified mortgages ``as defined in [TILA] section 129C'' are
exempt from
[[Page 78527]]
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 January 2013 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's rules define ``qualified mortgage''
pursuant to the authority granted to the Bureau to implement the Dodd-
Frank Act ability-to-repay requirements. 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 proposed to
revise the appraisal rules' exemption for qualified mortgages 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 HUD, the U.S. Department
of Veterans Affairs (VA), the 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
recognized that HUD, VA, USDA, and RHS may issue rules defining
qualified mortgages pursuant to their TILA section 129C authority.
Therefore, the Agencies proposed 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.
Public Comments
Commenters on the revision to the qualified mortgage exemption
were: a State credit union trade association, a national appraiser
trade association, a State banking trade association, a mortgage
banking trade association, a manufactured housing lender, a national
association of owners of manufactured homes, a consumer advocate group,
two affordable housing organizations, and a policy and research
organization. All of these commenters supported the proposed revision.
The State banking trade association and State credit union trade
association emphasized that the definition of qualified mortgage in the
final rule should include all types of qualified mortgages, including
balloon payment qualified mortgages. The mortgage banking trade
association favored expanding the definition of ``qualified mortgage''
to include qualified mortgages as defined by HUD, VA, USDA, and RHS
based on a belief that qualified mortgages as defined by these agencies
will be subject to stringent product requirements and other consumer
safeguards. The manufactured housing lender also favored such an
expansion based on a belief that these agencies' loan programs provide
credit options for underserved consumers in lower income groups.
The Final Rule
In Sec. 1026.35(c)(2)(i), the Agencies are adopting an exemption
similar to the proposed exemption for qualified mortgages. In the final
rule, the exemption for qualified mortgages applies to either:
A loan that is a ``covered transaction'' under the
Bureau's ability-to-repay rules--namely, a loan subject to the ability-
to-repay rules of the Bureau in Sec. 1026.43 (see Sec. 1026.43(b)(1)
(defining ``covered transaction''))--and that is also a qualified
mortgage under the Bureau's ability-to-repay requirements in Sec.
1026.43 or, for loans insured, guaranteed, or administered under
programs of HUD, VA, USDA, or RHS, a qualified mortgage under the
applicable rules of those agencies (but only once such rules are in
effect; otherwise, the Bureau's definition of a qualified mortgage
applies to those loans); or
A loan that is not a ``covered transaction'' under the
Bureau's ability-to-repay rules, but meets the qualified mortgage
criteria established in the rules of the Bureau or, for loans insured,
guaranteed, or administered under programs of HUD, VA, USDA, or RHS,
meets the qualified mortgage criteria under the applicable rules of
those agencies (but only once such rules are in effect; otherwise, the
Bureau's criteria for a qualified mortgage applies to those loans).
The expanded exemption adopted by the Agencies includes qualified
mortgages defined by the Bureau in any of its regulations, such as
loans described in Sec. 1026.43(e) as well as Sec. 1026.43(f). Thus,
qualified mortgages exempt from the HPML appraisal rules include loans
subject to the Bureau's ability-to-repay rules that:
Meet the general criteria for a qualified mortgage under
Sec. 1026.43(e)(2).
Meet the special criteria for a qualified mortgage under
Sec. 1026.43(e)(4).\18\
---------------------------------------------------------------------------
\18\ These include loans that are eligible, based solely on
criteria related to the consumer's ability to pay, to be purchased
or guaranteed by Fannie Mae or Freddie Mac and loans eligible to be
insured or guaranteed by HUD, VA, USDA, or RHS. To be qualified
mortgages, these loans also must meet the following general criteria
for a qualified mortgage: (1) provide for regular periodic payments
(Sec. 1026.43(e)(2)(i)); (2) have a term of no more than 30 years
(Sec. 1026.43(e)(2)(ii)); and (3) not exceed thresholds for total
points and fees set out in Sec. 1026.43(e)(3) (Sec.
1026.43(e)(2)(iii)). See Sec. 1026.43(e)(4)(i)(A). The qualified
mortgage status of loans eligible for purchase by Fannie Mae or
Freddie Mac expires starting on January 11, 2021. The qualified
mortgage status of loans eligible to be insured or guaranteed by
HUD, VA, USDA, or RHS expires on the effective date of a rule issued
by each of these respective agencies defining ``qualified mortgage''
for their own programs. On Sept. 30, 2013, HUD published proposed
rules defining ``qualified mortgage'' based on its authority under
TILA section 129C(b)(3)(B)(ii)(I). 15 U.S.C. 1639c(b)(3)(B)(ii)(I);
78 FR 59890 (Sept. 30, 2013).
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Meet the criteria for small creditor portfolio loans in
Sec. 1026.43(e)(5).
Meet the criteria for temporary balloon-payment qualified
mortgages in Sec. 1026.43(e)(6).
Meet the criteria for balloon-payment qualified mortgages
under Sec. 1026.43(f).
The Agencies believe that the statutory provision exempting
``qualified mortgage[s], as defined in section 129C'' evidences
Congress's intent to exempt all loans with the characteristics of a
qualified mortgage from the HPML appraisal rules. TILA section
129H(f)(1); 15 U.S.C. 1639h(f)(1). As discussed above, TILA section
129C encompasses qualified mortgages defined by the Bureau pursuant to
its authority to do so, as well as qualified mortgages defined by HUD,
VA, USDA and RHS for loans in their respective programs. See 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) (authority of the Bureau) and TILA section
129C(b)(3)(B)(ii), 15 U.S.C. 1639c(b)(3)(B)(ii) (authority of HUD, VA,
USDA, and RHS).
Additionally, the amended qualified mortgage exemption language is
intended to ensure that loans that meet the qualified mortgage criteria
of the Bureau, HUD, VA, USDA, or RHS, as applicable, but are exempt
from the Bureau's ability-to-repay rules in Sec. 1026.43, are afforded
an exemption from the HPML appraisal rules as well. In the Bureau's
ability-to-repay rules, ``qualified mortgage'' is a designation only
for ``covered transactions,'' which are loans subject to the ability-
to-repay requirements of TILA section 129C(a), implemented in Sec.
1026.43(c).\19\ 15
[[Page 78528]]
U.S.C. 1639c. The Bureau excluded certain transactions from the scope
of the rules, including loans originated as part of certain programs,
such as a program administered by a Housing Finance Agency, or loans
originated by certain entities, such as a Community Development
Financial Institution (CDFI). See Sec. 1026.43(a)(3). Under the
Bureau's ability-to-repay rules, these loans are not considered to be
``covered transactions'' and are therefore not eligible to be qualified
mortgages under the Bureau's ability-to-repay rules. This is the case
even if the loans meet the criteria for a qualified mortgage in the
Bureau's rules.
---------------------------------------------------------------------------
\19\ In the 2013 ATR Final Rule, ``covered transaction'' is
defined to mean ``a consumer credit transaction that is secured by a
dwelling, as defined in Sec. 1026.2(a)(19), including any real
property attached to a dwelling, other than a transaction exempt
from coverage under [Sec. 1026.43(a)]'' (emphasis added).
``Qualified mortgage'' is defined as ``a covered transaction'' that
meets certain criteria. Sec. 1026.43(e)(2).
---------------------------------------------------------------------------
Under the proposed exemption--for ``qualified mortgages as defined
pursuant to 15 U.S.C. 1639c''--loans exempted from the Bureau's
ability-to-repay requirements would not be eligible for the qualified
mortgage exemption from the HPML appraisal rules because, technically,
they are not ``defined'' as qualified mortgages under Bureau rules.
Such excluded loans would include:
Loans made as part of a program administered by a State
housing finance agency (HFA); \20\
---------------------------------------------------------------------------
\20\ See Sec. 1026.43(a)(3)(iv).
---------------------------------------------------------------------------
Loans made by a creditor designated as a CDFI, a creditor
designated as a Downpayment Assistance through Secondary Financing
Provider, a creditor designated as a Community Housing Development
Organization, and a creditor that is a 501(c)(3) organization and meets
certain other criteria; \21\ and
---------------------------------------------------------------------------
\21\ See Sec. 1026.43(a)(3)(v)(A)-(D).
---------------------------------------------------------------------------
Loans made pursuant to a program authorized by sections
101 and 109 of the Emergency Economic Stabilization Act of 2008.\22\
---------------------------------------------------------------------------
\22\ See Sec. 1026.43(a)(3)(vi).
---------------------------------------------------------------------------
As discussed above, the Agencies believe that, by exempting
qualified mortgages in the statute, Congress intended to exempt from
the requirements those loans that have the characteristics of a
qualified mortgage. The Agencies believe that if the HPML appraisal
rules exempted only ``qualified mortgages as defined pursuant to 15
U.S.C. 1639c,'' the rules would apply to transactions that Congress did
not intend to subject to the appraisal requirements. By contrast, the
final rule, which exempts ``a loan that satisfies the criteria of a
qualified mortgage,'' ensures that all transactions intended to be
exempt from the HPML appraisal requirements are excluded from coverage.
In addition, this exemption ensures that transactions with the
terms and features of a qualified mortgage are not treated differently
when made by or through programs of entities that fall outside the
scope of the Bureau's ability-to-repay rules in Sec. 1026.43 than when
made by other creditors. Thus, the final rule avoids the anomalous
result that an HPML made through the program of an HFA, for example,
would be subject to the HPML appraisal rules, whereas an HPML with the
exact same terms and features made by a private creditor would not.
Accordingly, comment 35(c)(2)(i)-1 explains that, under Sec.
1026.35(c)(2)(i), a loan is exempt from the appraisal requirements of
Sec. 1026.35(c) if either:
The loan is--(1) subject to the Bureau's ability-to-repay
requirements in Sec. 1026.43 as a ``covered transaction'' (defined in
Sec. 1026.43(b)(1)) and (2) a qualified mortgage pursuant to the
Bureau's rules or, for loans insured, guaranteed, or administered by
HUD, VA, USDA, or RHS, a qualified mortgage pursuant to the applicable
rules prescribed by those agencies (but only once such rules are in
effect; otherwise, the Bureau's definition of a qualified mortgage
applies to those loans); or
The loan is--(1) not subject to the Bureau's ability-to-
repay requirements in Sec. 1026.43 as a ``covered transaction,'' but
(2) meets the criteria for a qualified mortgage in the Bureau's rules
or, for loans insured, guaranteed, or administered by HUD, VA, USDA, or
RHS, meets the criteria for a qualified mortgage in the applicable
rules prescribed by those agencies (but only once such rules are in
effect; otherwise, the Bureau's criteria for a qualified mortgage
applies to those loans).
Comment 35(c)(2)(i)-1 further explains that loans enumerated in
Sec. 1026.43(a) are not ``covered transactions'' under the Bureau's
ability-to-repay requirements in Sec. 1026.43, and thus cannot be
qualified mortgages (entitled to a rebuttable presumption or safe
harbor of compliance with the ability-to-repay requirements of Sec.
1026.43, see, e.g., Sec. 1026.43(e)(1)). These include an extension of
credit made pursuant to a program administered by an HFA, as defined
under 24 CFR 266.5, or pursuant to a program authorized by sections 101
and 109 of the Emergency Economic Stabilization Act of 2008. See Sec.
1026.43(a)(3)(iv) and (vi). They also include extensions of credit made
by a creditor identified in Sec. 1026.43(a)(3)(v). The comment
clarifies that, nonetheless, these loans are not subject to the
appraisal requirements of Sec. 1026.35(c) if they meet the Bureau's
qualified mortgage criteria in Sec. 1026.43(e)(2), (4), (5), or (6) or
Sec. 1026.43(f) (including limits on when loans must be consummated)
or, for loans that are insured, guaranteed, or administered by HUD, VA,
USDA, or RHS, in applicable rules prescribed by those agencies (but
only once such rules are in effect; otherwise, the Bureau's criteria
for a qualified mortgage apply to those loans).
The comment includes the following example: Assume that HUD has
prescribed rules to define loans insured under its programs that are
qualified mortgages and those rules are in effect. Assume further that
a creditor designated as a Community Development Financial Institution,
as defined under 12 CFR 1805.104(h), originates a loan insured by the
Federal Housing Administration, which is a part of HUD. The loan is not
a ``covered transaction'' and thus is not a qualified mortgage. See
Sec. 1026.43(a)(3)(v)(A) and (b)(1). Nonetheless, the transaction is
eligible for an exemption from the appraisal requirements of Sec.
1026.35(c) if it meets the qualified mortgage criteria in HUD's rules.
Finally, the comment clarifies that nothing in Sec.
1026.35(c)(2)(i) alters the definition of a qualified mortgage under
regulations of the Bureau, HUD, VA, USDA, or RHS.
35(c)(2)(ii)
The Agencies' Proposal
In the 2013 Supplemental Proposed Rule, the Agencies proposed an
exemption from the HPML appraisal rules for extensions of credit of
$25,000 or less. This threshold amount was based on the Agencies'
consideration of an appropriate threshold in light of comments to the
2012 Proposed Rule, as well as data reported under the Home Mortgage
Disclosure Act (HMDA), 15 U.S.C. 2801 et seq. The Agencies also
proposed to adjust the threshold for inflation every year, based on the
percentage increase of the Consumer Price Index for Urban Wage Earners
and Clerical Workers (CPI-W). Proposed comments 35(c)(2)(ii)-1, -2, and
-3 provided additional guidance on the proposed exemption.
The Agencies expressed the belief that the expense to the consumer
of an appraisal with an interior inspection could be significant and
unduly burdensome to consumers of HPMLs of $25,000 or less that are not
qualified mortgages. Thus, an appraisal requirement could hamper
consumers' use of smaller home equity loans. The Agencies also stated
their concern that a requirement for an appraisal with an interior
inspection may pose a
[[Page 78529]]
burdensome cost for consumers who seek to purchase lower-dollar homes
using HPMLs that are not qualified mortgages; these tend to be low- to
moderate-income (LMI) consumers who are less able to afford extra costs
than higher-income consumers.
The Agencies stated the view that the exemption can facilitate
creditors' ability to meet consumers' smaller dollar credit needs, and
that 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. The Agencies noted that public
comments on the 2012 Proposed Rule suggested that the reduction in
costs and burdens associated with this exemption might benefit smaller
institutions in particular.
To inform the proposal, the Agencies also relied on data on
mortgage lending in 2009, 2010, and 2011 reported under HMDA. The
Agencies noted that, for example, an appraisal including an interior
inspection for a subordinate lien home improvement loan might be
burdensome on a consumer, without sufficient offsetting consumer
protection or safety and soundness benefits. Therefore, the Agencies
examined the mean and median loan sizes for subordinate lien home
improvement loans in 2009, 2010, and 2011. Based in part on this HMDA
data, the Agencies believed $25,000 was an appropriate threshold. See
78 Fed. Reg. 48547, 48564 (August 8, 2013).
At the same time, in light of the views expressed by consumer
advocates, the Bureau had 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 loan-to-value (LTV) ratios, including
LTVs that lead to going ``underwater''--owing more than their home is
worth. The Bureau believed that receiving a written valuation might be
helpful in informing a consumer's decision about whether to obtain the
loan by making the consumer better aware of how the value of the home
compares to the amount that the consumer might borrow. As a result, the
Agencies requested comment in the 2013 Supplemental Proposed Rule
regarding whether certain conditions should be placed on the proposed
smaller dollar loan exemption.
Public Comments
Public Comments on the 2012 Proposed Rule
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 appraisals with interior
inspections for these loans would significantly raise total costs as a
proportion of the loan and thus potentially be detrimental to
consumers. The commenters were concerned that requiring an appraisal
for smaller dollar HPMLs would result in excessive costs to consumers
without sufficient offsetting benefits. Some asserted that applying the
HPML appraisal rules to smaller dollar loans might disproportionately
burden smaller institutions and potentially reduce access to credit for
their consumers.
Comments to the 2012 Proposed Rule varied widely regarding the
appropriate threshold for a smaller dollar loan exemption. Suggested
thresholds ranged from $10,000 or less up to $125,000 for certain
transactions. The Agencies did not finalize a smaller dollar loan
exemption in the January 2013 Final Rule, instead choosing to propose a
smaller dollar loan exemption in the subsequent 2013 Supplemental
Proposed Rule.
The Agencies did not receive comments on the 2012 Proposed Rule
from consumers or consumer advocates. However, in informal outreach
conducted by the Agencies after the January 2013 Final Rule was issued,
a consumer advocacy group expressed the view that LMI consumers
obtaining or refinancing loans secured by lower-value homes may have a
particular need for the protections of the HPML appraisal rules. They
also 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.
Public Comments on the 2013 Supplemental Proposed Rule
In the 2013 Supplemental Proposed Rule, the Agencies sought comment
on a proposed exemption for loans of $25,000 or less, and whether a
threshold higher or lower than $25,000 was appropriate. The Agencies
encouraged commenters to include data to support their views.
Twenty-nine commenters addressed the threshold for the smaller
dollar loan exemption: nine State credit union trade associations,
three credit unions, one national credit union trade association, two
community banks, one community banking trade association, one financial
holding company, two State banking trade associations, one mortgage
banking trade association, one consumer advocate group, three
affordable housing organizations, one policy and research organization,
one national association of owners of manufactured homes, one State
manufactured housing association, one small mortgage lender, and one
individual.
No commenters on this proposed exemption opposed including an
exemption from the HPML appraisal requirements for smaller dollar
loans. Eight commenters believed that the Agencies should either retain
or reduce the $25,000 threshold. A national association of owners of
manufactured homes, two affordable housing organizations, a consumer
advocate group, and a policy and research organization generally
recommended that, if the Agencies adopted the exemption, the exemption
threshold should be no more than $25,000. They believed that a large
percentage of the transactions affected were likely to be manufactured
home transactions, although they urged the Agencies to apply the
exemption equally to manufactured homes and site-built homes. A State
banking trade association also supported an exemption for extensions of
credit of $25,000 or less, citing increased costs and burdens
associated with obtaining appraisals with interior inspections. An
individual commenter urged the Agencies to reduce the threshold to
$10,000, believing a $25,000 threshold could lead to significant
monetary risk for consumers, particularly LMI consumers.
All of the other commenters urged the Agencies to raise the
threshold for the exemption. Eight State credit union trade
associations, three credit unions, one national credit union trade
association, one State manufactured housing association, and one small
mortgage lender suggested that the threshold be raised to $50,000.
Generally, these commenters supported the increase because they
believed that the cost of an appraisal for transactions of lower
amounts did not correspond to a meaningful benefit. They also supported
regulatory relief to creditors. A credit union stated that a threshold
under $50,000 may result in less lending to LMI consumers because
lenders would not be willing to make the loans. A State credit union
association stated that lenders may not make loans if the threshold is
below $50,000 because the cost of originating and processing loans
under that amount already exceeds origination fees,
[[Page 78530]]
without a requirement for an appraisal with an interior inspection.
Another credit union noted that it obtains evaluations, rather than
appraisals, for transactions below $50,000.\23\
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\23\ Regulations applicable to national credit unions generally
require a credit union to obtain an ``evaluation'' rather than an
appraisal for transactions with a value of $250,000 or less. See 12
CFR 722.3(a)(1) and (d).
---------------------------------------------------------------------------
Several commenters suggested other thresholds. A State credit union
trade association commenter suggested that the threshold should be
raised to $100,000 or, at a minimum, to $75,000. The commenter stated
that requiring costly appraisals on smaller dollar HPMLs
disproportionately hurts LMI consumers and consumers in rural areas,
where appraisals can be costly and the wait time for appraisals,
according to a member survey, is generally one-and-a-half to three
months, but can be up to six months. A community banking trade
association believed that, for loans below $100,000, the cost of an
appraisal is high relative to the cost of the loan, but the credit risk
to the bank is low. One community bank suggested a threshold of
$35,000, noting that the average size of loans secured by a
manufactured home (and not land) that are made by the bank is under
$35,000. Another community bank believed that $40,000 was an
appropriate threshold and expressed concerns about the cost of
appraisals, especially in rural areas.
A few commenters suggested thresholds that are the same as those in
other mortgage rules, asserting that this alignment would reduce
regulatory burden. A mortgage banking trade association stated that the
threshold should be $100,000 because the Bureau's ability-to-repay rule
permits creditors to apply higher points and fees for loans below
$100,000.\24\ Two of the commenters suggesting a $50,000 threshold
asserted that doing so would make the exemption consistent with a
threshold in the Bureau's Regulation Z rules under the Home Ownership
and Equity Protection Act of 1994 (HOEPA) for different interest rate
triggers.\25\
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\24\ See Sec. 1026.43(e)(3).
\25\ See Sec. 1026.32(a)(1)(i)(B), effective January 10, 2014.
See also 78 FR 6856 (Jan. 31, 2013) (2013 HOEPA Final Rule).
---------------------------------------------------------------------------
The suggestions of some commenters focused on excluding subordinate
lien transactions from the rule. A State credit union association
believed $50,000 was an appropriate threshold because it would exclude
from coverage of the HPML appraisal rules many subordinate lien
transactions. This commenter believed that appraisals for subordinate
lien loans taken concurrently with first lien loans were unnecessary
because often an appraisal will have been performed for the first lien
transaction. The commenter also believed that most home improvement
loans are more than $25,000, so the proposed threshold could hinder the
use of smaller home equity loans. The commenter asserted that the
expense of the appraisal with an interior inspection could considerably
raise the total costs of financing the home improvement loan.
In addition, a State banking association and a financial holding
company recommended exempting home equity loans from the rule. The
financial holding company noted that, in the calculation to determine
HPML status, the spread between APR and APOR is smaller for first lien
loans than for subordinate lien loans (1.5 percentage points above APOR
and 3.5 percentage points above APOR, respectively), and objected to an
appraisal requirement for first lien home equity loans in particular.
This commenter recommended that the Agencies raise the APR-APOR spread
to 3.5 percentage points for all home equity loans. The State banking
association argued that first lien home equity loans present very
little credit risk.
The Agencies also sought comment on whether the threshold for the
smaller dollar loan exemption should be adjusted periodically for
inflation and whether the adjustments should be annually or some other
period. A small mortgage lender and a State banking trade association
expressed support for the annual adjustment. The small mortgage lender
noted that this approach was consistent with other provisions in
Regulation Z.\26\
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\26\ See Sec. 1026.3(b) (exempting from Regulation Z loans over
the applicable threshold dollar amount, adjusted annually); Sec.
1026.32(a)(1)(ii) (setting the points and fees trigger for high-cost
mortgages, adjusted annually).
---------------------------------------------------------------------------
Conditioning an exemption. In addition, the Agencies requested
comment on whether conditions should be imposed on the smaller dollar
loan exemption. The Agencies specifically asked whether the smaller
dollar loan exemption should be conditioned on the creditor providing
the consumer with an alternative estimate of the collateral value. A
national association of owners of manufactured homes, two affordable
housing associations, a consumer advocate group, and a policy and
research organization believed that, if the Agencies adopted the
exemption, consumers should be given at least the manufacturer's
invoice for new manufactured home transactions, even if they fall under
the threshold. These commenters believed that providing the invoice
would be low cost, and yet would provide an important check on
overvaluation. Another affordable housing organization believed that
creditors in manufactured home transactions of $25,000 or less should
be required to obtain replacement cost estimates performed by a
trained, independent appraiser from a nationally-published cost
service. See also section-by-section analysis of Sec.
1026.35(c)(2)(viii).
A community bank commenter asserted that consumers should receive a
copy of the valuation used by the creditor as a condition to the
exemption. A small mortgage lender suggested that a government-provided
tax assessment would be an appropriate valuation to provide to
consumers. This commenter argued that because municipalities already
use tax assessments to determine property value for tax and insurance
purposes, the assessments have been proven to be sufficiently reliable.
The commenter contended that requiring more costly valuation methods as
a condition of the exemption might prompt creditors to determine that
the exemption is unduly burdensome and stop making these smaller dollar
loans.
An affordable housing organization suggested that, as a condition
to the exemption (as well as other exemptions), creditors should be
required to provide any valuation used to determine the security for
the loan and suggested that creditors should be given flexibility to
choose the appropriate valuation for the transaction. At the same time,
the commenter recommended that a creditor should be required to obtain
replacement cost estimates from a trained, independent appraiser and to
provide these estimates to a consumer.
The Agencies did not receive comments on a number of additional
comment requests, including requests for information about the risks
that smaller dollar loans could lead to high LTV loans; specific data
on the costs and burdens associated with the exemption, especially for
smaller institutions; and data on the extent to which creditors
anticipate originating HPMLs of $25,000 or less that are not qualified
mortgages.
The Final Rule
The Agencies are adopting the exemption for HPMLs for extensions of
credit of $25,000 or less as proposed and renumbering it Sec.
1026.35(c)(2)(ii). The Agencies are also adopting the proposal to
adjust the threshold annually, based on the percentage increase of the
CPI-W. Official Staff
[[Page 78531]]
Commentary for Sec. 1026.35(c)(2)(ii) is also adopted as proposed.
Comment 35(c)(2)(ii)-1 explains that, for purposes of Sec.
1026.35(c)(2)(ii), the threshold amount in effect during a particular
one-year period is the amount stated in this comment for that period.
Specifically, comment 35(c)(2)(ii)-1.i. provides that from January 18,
2014, through December 31, 2014, the threshold amount is $25,000.
Comment 35(c)(2)(ii)-1 further provides 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
also states 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. In addition, the comment states that any increase in the
threshold amount will be rounded to the nearest $100 increment. The
comment provides the following 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.
Comment 35(c)(2)(ii)-2 clarifies that a transaction is exempt under
Sec. 1026.35(c)(2)(ii) 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.
Finally, comment 35(c)(2)(ii)-3 explains that a transaction does
not meet the condition for an exemption under Sec. 1026.35(c)(2)(ii)
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. The comment provides the
following example: assume a closed-end loan that qualified for a Sec.
1026.35(c)(2)(ii) 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. 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. See Sec. 1026.35(c)(2) and Sec.
1026.35(c)(4)(vii).
For the reasons discussed in the 2013 Supplemental Proposed Rule as
described in ``The Agencies' Proposal,'' the Agencies believe that the
exemption finalized in Sec. 1026.35(c)(2)(ii) is in the public
interest and promotes the safety and soundness of creditors. As
discussed in the 2013 Supplemental Proposed Rule, the Agencies believe
that the burden and expense of imposing the HPML appraisal requirements
on HPMLs of $25,000 or less that are not qualified mortgages outweigh
potential consumer protection benefits in many cases. As discussed
above, no commenters objected to an exemption, and many commenters
generally agreed with the Agencies' assessment of the costs versus the
benefits of appraisals for these loans. Commenters also noted that the
cost of the appraisals would be even higher in rural areas, due to the
scarcity of appraisers and the potential for added time to locate and
engage an appraiser.
As noted, the Agencies received a number of comments on the 2013
Supplemental Proposed Rule suggesting that the Agencies should raise
the amount of the threshold. These commenters cited the cost of the
appraisals and at least one commenter provided some information about
the percentage of HPMLs made by the lender that are smaller dollar, but
overall very little data was offered to support the various threshold
suggestions. For example, despite the Agencies' requests for data, no
commenters provided data indicating that a significant number of the
smaller dollar loans they originate would not be qualified mortgages
and thus would be subject to the HPML appraisal requirements absent an
exemption.
To inform the threshold determination, the Agencies again examined
HMDA data. According to 2012 HMDA data, increasing the proposed
threshold could substantially increase the proportion of HPMLs that
would be exempted from the rule. For example, a $25,000 exemption would
exempt 55 percent of conventional subordinate lien home improvement
HPMLs from coverage and 37 percent of conventional subordinate lien
home purchase HPMLs. In comparison, a $50,000 exemption would exempt 87
percent of conventional subordinate lien home improvement HPMLs and 70
percent of percent of conventional subordinate lien home purchase
HPMLs.\27\ The Agencies believe that increasing the threshold from
$25,000 to, for example, $50,000, would exempt too large a proportion
of HPMLs, such that the exemption would violate the intent of the
statute to subject both first and subordinate lien loans to the
appraisal requirements. The Agencies believe that a threshold of
$25,000 appropriately exempts from the rule those smaller dollar loans
that would benefit from the exemption, such as smaller dollar home
improvement loans. Moreover, the Agencies believe creditors are
generally better able to absorb losses that might be associated with a
loan of $25,000 or less than loans of higher amounts.
---------------------------------------------------------------------------
\27\ See Federal Financial Institutions Examination Council
(FFIEC), HMDA, https://www.ffiec.gov/Hmda/default.htm.
---------------------------------------------------------------------------
As discussed under ``Public Comments,'' some commenters suggested
exempting loans based on lien status or whether the loan is a home
equity loan. For example, a State credit union association advocated
for a threshold that would exclude most subordinate lien loan from the
rules. A State banking association and a financial holding company
recommended exempting home equity loans from the rule, particularly
first lien home equity loans. The financial holding company noted that,
in the calculation to determine HPML status, the spread between APR and
APOR is smaller for first lien loans than for subordinate lien loans
(1.5 percent above APOR and 3.5 percent above APOR, respectively). This
commenter recommended that the Agencies raise the APR-APOR spread
triggering HPML status to 3.5 percentage points for all home equity
loans, whether first lien or subordinate lien.
The Agencies believe that an exemption based on a monetary
threshold rather than an exemption based on a loan's lien status or
loan purpose (home equity versus home purchase, for example) is
necessary to protect consumers and more consistent with the statute.
The statute clearly indicates that HPMLs secured by a consumer's
principal dwelling should be covered, whether home purchase or home
equity, and whether first lien or subordinate lien. See TILA section
129H(f), 15 U.S.C. 1639h(f). In addition, the differing APR-APOR
spreads for first lien and subordinate lien loans were set by statute.
See id. Both first lien and subordinate lien home equity loans reduce
equity in a consumer's home and can put consumers at financial risk;
the Agencies believe that limiting this risk to consumers for both
types of loans is appropriate. The Agencies also believe that
consistency of the rule across these loan types will facilitate
compliance.
Regarding comments that the threshold should match those in other
[[Page 78532]]
mortgage rulemakings, the Agencies decline to do so because the other
mortgage rules are not comparable to the appraisal requirements. The
$50,000 threshold in the 2013 HOEPA Final Rule referred to by two
commenters relates to which APR-APOR spread applies in determining
whether a loan is ``high-cost.'' \28\ Specifically, the $50,000
threshold is relevant only if the loan is secured by a first lien on a
dwelling that is personal property. This threshold was intended to
capture a very specific type of loan for an exemption from an entirely
different set of rules. The Agencies therefore question the basis for
applying the same threshold in establishing an exemption from the HPML
appraisal rules.
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\28\ See Sec. 1026.32(a)(1)(i)(B) as amended by 78 FR 6962
(Jan. 31, 2013).
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For similar reasons, the Agencies believe that setting the
threshold at $100,000 to align with the $100,000 tier for permitting
higher points and fees for qualified mortgages, as one commenter
suggested, is not appropriate. See Sec. 1026.43(e)(3). The smaller
dollar loan thresholds in that rule were crafted in the context of
ensuring a consumer's ability to repay a mortgage, not for purposes of
determining whether an appraisal should be performed for a particular
transaction. Moreover, the $100,000 threshold is only the highest loan
amount of five tiers of loan amounts for which higher points and fees
are permitted at varying levels.
For the reasons discussed above, therefore, the Agencies are
maintaining the proposed $25,000 threshold in the final rule. The
Agencies also are adopting the proposal to adjust the threshold for
inflation every year, based on the percentage increase of CPI-W. As
noted, commenters supported an annual adjustment for inflation. Also,
as discussed in the 2013 Supplemental Proposed Rule, inflation
adjustments for other thresholds in Regulation Z are also annual, so
the adjustment will provide for consistency across mortgage rules.
Conditions on the exemption. The Agencies are finalizing the
smaller dollar loan exemption with no conditions. Some commenters
suggested providing alternative valuations to consumers as a condition
to the smaller dollar loan exemption, including providing the consumer
with an estimate of the value of the collateral property that the
creditor relied on in making the credit decision. However, the Agencies
believe that for HPMLs of $25,000 or less that are not qualified
mortgages, the added burden or cost of a condition could deter lenders
from making these loans, which could harm consumers. In addition, the
Agencies believe that an unconditional exemption for transactions of
$25,000 or less will be simpler and easier for creditors to apply, thus
facilitating compliance and enhancing the utility of the exemption.
One reason that the Agencies are not raising the exemption above
$25,000 is the Agencies' concern that conditioning the exemption might
then be necessary to ensure that the exemption both promotes the safety
and soundness of creditors and is in the public interest. In the
Agencies' view, arguments that neither an appraisal nor an alternative
valuation need be obtained or provided to the consumer become
increasingly less persuasive for transactions over $25,000, as larger
amounts tie up greater amounts of home equity and losses become less
easily absorbed by creditors. The Agencies deem it best not to add
complexity by conditioning the exemption and believe that no conditions
are needed at the level of $25,000 or less.
35(c)(2)(iv)
The Agencies are adopting a new comment to clarify the exemption in
Sec. 1026.35(c)(2)(iv) for ``a transaction to finance the initial
construction of a dwelling.'' Specifically, new comment 35(c)(2)(iv)-2
clarifies that the exemption for construction loans in Sec.
1026.35(c)(2)(iv) applies to temporary financing of the construction of
a dwelling that will be replaced by permanent financing once
construction is complete. The exemption does not apply, for example, to
loans to finance the purchase of manufactured homes that have not been
or are in the process of being built, when the financing obtained by
the consumer at that time is permanent. The comment cross-references
Sec. 1026.35(c)(2)(viii), which sets out the HPML appraisal rules
applicable to transactions secured by manufactured homes.
The Agencies are adding this comment in response to public comments
on the 2013 Supplemental Proposed Rule suggesting that manufactured
home loans where the unit has not been constructed are similar to
temporary construction loans exempt under Sec. 1026.35(c)(2)(iv) and
should be exempt on the same basis. The Agencies understand that
manufactured home loans in this situation generally are permanent
financing, and therefore the same rationale for exempting temporary
construction loans, expressed in the January 2013 Final Rule, would not
apply to those loans.
35(c)(2)(vii)
The Agencies' Proposal
The Agencies proposed to exempt from the HPML appraisal rules
certain types of refinancings with characteristics common to refinance
programs offering ``streamlined'' refinances. Specifically, the
Agencies proposed to exempt an extension of credit that is a
refinancing where the ``owner or guarantor'' of the refinance loan was
the ``owner or guarantor'' of the existing obligation. In addition, the
regular periodic payments under the refinance loan could not have
resulted in negative amortization, covered only interest on the loan,
or resulted in a balloon payment. Finally, the proceeds from the
refinance loan would have to have been used solely to pay off the
outstanding principal balance on the existing obligation and to pay
closing or settlement charges.
As discussed in the 2013 Supplemental Proposed Rule, the Agencies
believe that this exemption would be in the public interest and promote
the safety and soundness of creditors.
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 at the end of 2015.
Federal government agencies--HUD, VA, and USDA--as well as
government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac,
have developed streamlined refinance programs to address consumer,
creditor and investor risks.\29\ These programs enable many consumers
to refinance the balance of those mortgages through an abbreviated
application and underwriting process.\30\
[[Page 78533]]
Under these programs, consumers with little or no equity in their
homes,\31\ as well as consumers with significant equity in their
homes,\32\ can restructure their mortgage debt, often at lower interest
rates or payment amounts than under their existing loans.\33\
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\29\ 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 LTVs over
80 percent) as well as for consumers whose existing loans have LTVs
at or below 80 percent.
\30\ 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.
\31\ 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 https://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx.
\32\ 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
percent. This report is available at https://www.freddiemac.com/investors/er/pdf/10k_030912.pdf.
\33\ 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 https://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 does not
include an appraisal that conforms with USPAP or a physical inspection
of the property. One reason for this is that, in currently available
streamlined refinance programs, the value of the property securing the
existing and refinance obligations does not determine borrower
eligibility for the refinance.
Generally, the principal concern under streamlined refinance
programs 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.
The credit risk holder of the existing obligation might obtain a
valuation other than an appraisal for the refinance 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 credit risk holder of the existing obligation and
the refinance loan does not have what it deems to be sufficient
information about the property.
Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac each have
streamlined refinance programs: Fannie Mae DU (``Desktop Underwriter'')
Refi PlusTM and Refi PlusTM and Freddie Mac
Relief Refinance[supreg]-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 (usually based on their
respective proprietary automated valuation models (AVMs)), which is
then provided to lenders originating loans under these programs.\34\
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\34\ 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 FHA permits but generally does not require a creditor to obtain an
appraisal.\35\ The Agencies understand that almost all FHA streamlined
refinances are done without requiring an appraisal.\36\ The FHA program
does not require an alternative valuation type for transactions that do
not have appraisals.
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\35\ See, e.g., HUD Handbook 4155.1, chapter 6.C.1.
\36\ 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 VA
and USDA streamlined refinance programs also do not require an
alternative valuation type for transactions for which an appraisal is
not required.
Private ``streamlined'' refinance programs. The Agencies also
understand that some private creditors offer streamlined refinance
programs for their borrowers that meet certain eligibility
requirements. In the 2013 Supplemental Proposed Rule, the Agencies
sought 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 previously) when no appraisal is conducted.\37\ The
Agencies did not receive comment on this issue.
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\37\ 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
Public Comments on the 2012 Proposed Rule
A number of commenters on the 2012 Proposed Rule recommended that
the Agencies exempt streamlined 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. 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 the 2013
Supplemental Proposed Rule, they expressed concerns about not requiring
appraisals in HPML streamlined refinance programs. They expressed the
view that a quality appraisal that also is 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. In the 2013 Supplemental Proposed Rule, the
Agencies invited further comment on these and any related concerns, and
appropriate means of addressing these concerns as part of this
rulemaking. The Agencies did not
[[Page 78534]]
receive additional comments on this issue as part of the 2013
Supplemental Proposed Rule, the relevant public comments on which are
summarized below.
Public Comments on the 2013 Supplemental Proposed Rule
Commenters were generally supportive of exempting streamlined
refinances from the HPML appraisal requirements. These included
comments from a credit union, a State credit union trade association, a
national mortgage banking trade association, and a national real estate
trade association. The commenters stated that the exemption would
encourage and enable many consumers to refinance the balance of their
mortgages through an abbreviated underwriting process that will save
them time and money and help them restructure their debt and lower
their interest rate or mortgage payment. The State credit union
association commenter stated that an appraisal is not necessary for
these types of transactions as the value of the home is not the factor
driving the restructuring transaction. The national real estate trade
association asserted that the cost of the appraisal would increase the
costs to the consumer, especially in rural areas where there are fewer
appraisers, with no offsetting benefit to the consumer.
Three national appraiser organizations opposed the proposed
exemption for streamlined refinances and urged the Agencies not to
adopt it in the final rule. Two of these commenters asserted that a key
component of a consumers' decision to refinance their loan is the
market value of their home. A third national appraiser organization
believed that the proposed exemption was unnecessary and inconsistent
with what this commenter viewed as the Dodd-Frank Act's emphasis on
risk management, particularly for HPMLs.
The Agencies solicited comment on the circumstances in which an
originator's assumption of ``put back'' risk on a refinance loan raises
safety and soundness concerns, even where the owner or guarantor on the
refinance loan remains the same. Two national appraiser organizations
and a State HFA offered comments related to this question. The
appraisal organizations commented that where a loan involves new risk
to either government agencies or the taxpayers, an appraisal should be
required. Generally, where new risk results from a transaction, an
appraisal with an interior inspection should be required. These
commenters added that, if the risk is already known or exists (i.e., is
not new risk), an exterior inspection appraisal might be sufficient.
The State HFA commented that the scope of the same ``owner or
guarantor'' requirement should be expanded to include Federally-insured
or -guaranteed streamlined refinancing transactions. The group
suggested that the proposed language focused on the secondary market
for mortgage loans rather than the Federal entities bearing the risk at
the loan level. The Agencies understand that this State HFA has
programs in which a Federally-insured or -guaranteed loan (such as by
FHA or VA) might be refinanced and placed in a mortgage revenue bond
guaranteed by the HFA. The State HFA expressed concerns that under this
arrangement, the loan might not meet the same ``owner or guarantor''
criteria of the proposed refinance exemption because the HFA would be a
new guarantor at the secondary market level. However, the State HFA
pointed out that the refinance loan continues to be insured by FHA or
guaranteed by VA at the loan level.
A State credit union organization believed that exempting
refinances in which the ``owner or guarantor'' of the refinanced loan
also is the ``owner or guarantor'' of the existing loan would reduce
time and transaction costs. A State banking trade association commented
in the context of balloon mortgages that streamlined refinances with
the same ``owner and guarantor'' typically have lower costs than a
refinance with another creditor. The national trade association that
represents creditors believed that the language of the proposal
requiring that the ``owner or guarantor'' be the same would exclude
loans that are originated by the servicer or subservicer on the
original obligation, and requested clarification to allow those
entities to originate streamlined refinances and still be eligible for
the exemption.
As noted under ``Background,'' the Agencies also sought 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. Two national organizations representing appraisers commented
that when refinanced loans are not sold to the GSEs or insured or
guaranteed by a government agency, creditors are likely to order
appraisals with interior inspections because of the increased risk to
the creditor.
Five commenters--three State credit union associations and two
State banking trade associations--supported the proposed exemption for
streamlined refinances but requested that the Agencies remove the
proposed prohibition on balloon payments. These commenters believed
that balloon mortgages can be an affordable option and serve an
important role in helping consumers retain their homes. For similar
reasons, one of the State credit union associations also supported
eliminating the proposed prohibition on interest-only payments. A State
banking trade association urged the Agencies to consider including
Balloon Payment Qualified Mortgages \38\ in the proposed expanded
definition for qualified mortgages, arguing that these types of
mortgages undergo rigorous underwriting procedures similar to those
required under the general qualified mortgage provisions.\39\
---------------------------------------------------------------------------
\38\ See Sec. 1026.43(e)(6) and (f).
\39\ Sec. 1026.43(e)(2).
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In addition to the restrictions on exempt refinancings that the
Agencies proposed, one State bank commenter recommended that the
proceeds from the refinance be used to pay both principal and accrued
interest since the majority of refinance loans today include the
accrued interest of the refinanced loan into the new loan amount. This
commenter stated that including accrued interest would not adversely
affect the consumer and could be beneficial if the consumer does not
have the cash to pay the amount.
An affordable housing organization commenter stated that any
streamlined refinance resulting in higher payments, higher interest
rates or longer loan terms for the consumer should not be exempt. This
commenter also believed that previously refinanced loans should not be
exempt to prevent an accumulation of high fees from eroding the
consumer's equity.
A State credit union association commenter opposed limiting the
amount of points and fees that may be financed on an exempt refinance
transaction. This commenter pointed out that a points and fees test
applies to ``high-cost'' mortgages in Regulation Z \40\ and asserted
that it is not necessary to include point and fee caps as part of HPML
appraisal rules. This commenter also argued that to do so would create
more regulatory confusion for consumers and financial institutions.
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\40\ See Sec. 1026.32(a), implementing TILA section 103(aa), 15
U.S.C. 1602(aa), as amended by section 1431 of the Dodd-Frank Act
(revising the points and fees triggers for determining whether a
loan is a ``high-cost mortgage.'' See also Sec. 1026.43(e)(3),
implementing TILA section 129C(b)(2)(A)(vii), 15 U.S.C.
1639c(b)(2)(A)(vii) (limiting points and fees that may be charged on
a ``qualified mortgage'').
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Two commenters--a national mortgage banking association and an
[[Page 78535]]
affordable housing organization--suggested that one of the criteria for
an exempt refinance transaction should be a consumer benefit. The
national mortgage banking association commenter recommended that the
Agencies adopt the benefits test used by the GSEs for HARP loans, which
requires that the new loans put borrowers in a better position by
reducing their payments or moving them from a risky loan structure.\41\
Similarly, the affordable housing organization commenter stated that
only streamlined refinance transactions clearly lowering the consumer's
risk should be exempt. On the other hand, a State credit union
association commenter opposed introducing additional limits on the
exemption, such as requiring that the borrower have made timely
payments for a specified period or that the consumer ``benefit'' from
the transaction in some way defined in the regulations.
---------------------------------------------------------------------------
\41\ See Fannie Mae Selling Guide, B5-5.2-02, DU Refi Plus and
Refi Plus Underwriting Considerations (9/24/2013).
---------------------------------------------------------------------------
The Agencies also requested comments on whether the exemption for
refinance loans should be conditioned on the creditor obtaining an
alternative valuation and providing a copy to the consumer three
business days prior to closing. The Agencies further asked whether
obtaining and providing an alternative valuation would better position
the consumer to consider alternatives, and whether consumers seeking to
refinance their existing first lien loan typically need or want to
consider alternatives to refinancing. Lastly, the Agencies generally
requested comment and data on whether a condition on the exemption is
necessary.
Four commenters--a State credit union association, a national
community bank trade association, a national mortgage banking
association, and a financial holding company--affirmatively opposed
requiring creditors to obtain an alternative valuation to qualify their
refinance loans for the refinance exemption from the HPML appraisal
rules. Commenters stated that doing so would hinder the refinancing
process and increase the time and expense of these transactions
unnecessarily. These commenters did not believe that a significant
benefit exists in giving an alternative valuation when consumers are
not increasing the amount of their debt or changing the collateral.
Comments from a State bank and a State credit union association
suggested that if an alternative valuation were required, creditors
should be able to rely on an existing appraisal to the extent permitted
by existing Federal appraisal regulations and the interagency appraisal
guidelines,\42\ which allow for using an existing appraisal prepared
for another financial institution. A credit union commenter and a State
credit union association commenter suggested that if an alternative is
required, a ``drive-by'' appraisal or comparable market analysis to
ensure that the home still stands and is in reasonable condition is
prudent when modifying or restructuring debt to reduce foreclosures and
further delinquencies.
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\42\ See OCC: 12 CFR 34.45(b)(2) and 12 CFR 164.5(b)(2); Board:
12 CFR 225.65(b)(2); FDIC: 12 CFR 323.5(b)(2); NCUA: 12 CFR
722.5(b)(2).
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Three national appraiser organizations and an affordable housing
organization recommended that, at minimum, an alternative valuation to
an appraisal with an interior inspection should be required so that
consumers are better informed. The appraiser group commenters
recommended that creditors obtain replacement cost estimates or other
less costly services provided by appraisers, such as desktop
appraisals. One appraiser group generally asserted that the consumer
should be made aware of what type of valuation service was performed
and by whom.
No commenters provided data relevant to whether requiring an
alternative valuation as a condition of the proposed refinance
exemption would be necessary or beneficial.
In the 2013 Supplemental Proposed Rule, the Agencies recognized
that estimates of value may not always be required by Federal law or
investors. For example, some creditors are not subject to the appraisal
and evaluation requirements that apply to Federally regulated financial
institutions \43\ under FIRREA and, therefore would not be required to
obtain a FIRREA-compliant valuation on a ``no cash out'' refinance.
Thus, the Agencies requested comment on the extent to which either
appraisals or other valuation tools such as AVMs or broker price
opinions (BPOs) are used in connection with streamlined refinances--by
non-depositories not covered by FIRREA in particular. Only one
commenter, a national appraiser organization, responded to this
question, stating that BPOs are not used in refinance transactions and,
in fact, are illegal in many states. Moreover, this commenter pointed
out that GSEs and other government agencies prohibit using BPOs in
refinancing, and use their own AVMs to waive appraisal requirements
when appropriate.
---------------------------------------------------------------------------
\43\ See 12 U.S.C 3350(7) (defining ``financial institution''
for purposes of FIRREA and implementing regulations).
---------------------------------------------------------------------------
The Final Rule
The Agencies are adopting the exemption for certain refinancings
proposed in the 2013 Supplemental Proposed Rule with modifications to
some of the criteria for an exempt refinance transaction, described in
the section-by-section analysis below. Consistent with the 2013
Supplemental Proposed Rule, the Agencies decline to adopt an exemption
for all refinance loans, as a few commenters on the 2012 Proposed Rule
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.\44\ Accordingly, the Agencies believe that an exemption for all
HPML refinances would be overbroad. For example, in refinance
transactions 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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\44\ ``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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As stated in the 2013 Supplemental Proposed Rule, the Agencies
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, is in the
public interest and will 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 refinance
transactions 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 benefit by refinancing into a lower rate mortgage for
considerable cost savings over time. The Agencies also recognize that
streamlined refinancing programs assist credit risk holders to manage
their risks. Originating HPML refinances that are beneficial to
consumers can be important to creditors to ensure the
[[Page 78536]]
continuing performance of loans on their books and to strengthen
customer relations. For investors in these loans, the streamlined
refinances can reduce financial risks associated with potential
defaults and foreclosures.
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 HPMLs. When the consumer
is not obtaining additional funds to increase the amount of the debt
(other than the costs related to the refinancing), and the entity that
will hold the credit risk of the refinance loan is already the credit
risk holder on the existing loan, the benefit from obtaining a new
appraisal may be insufficient to warrant the additional cost. The
Agencies believe that an exemption from the HPML appraisal rules for
certain HPML refinances can ensure that the time and cost generated by
new appraisal requirements are not introduced into certain HPML
transactions--namely, those that are not qualified mortgages but are
part of programs designed to help consumers avoid defaults and improve
their financial positions, as well as help creditors and investors
avoid losses and mitigate credit risk.
Definition of ``Refinancing''
Consistent with the proposal, Sec. 1026.35(c)(2)(vii) in the final
rule defines a ``refinancing'' to mean ``refinancing'' in Sec.
1026.20(a). Also consistent with the proposal, the definition of
``refinancing'' under Sec. 1026.35(c)(2)(vii) does not require that
the creditor remain the same for both the refinancing and the existing
obligation.\45\ As noted in the 2013 Supplemental Proposed Rule, this
is a departure from the definition of ``refinancing'' under Sec.
1026.20(a); commentary to that provision 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 exemption
in Sec. 1026.35(c)(2)(vii) allows a different creditor to extend the
refinance loan, as long as the credit risk holder remains the same on
both the existing loan and the refinance.
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\45\ ``Creditor'' is defined under Regulation Z to mean, in
pertinent part, ``[a] person who regularly extended consumer credit
that is subject to a finance charge * * *, and to whom the
obligation is initially payable, either on the face of the note or
by contract * * *.'' Sec. 1026.2(a)(17).
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As stated in new comment 35(c)(2)-1, discussed previously, the
Agencies emphasize that any creditor subject to regulation by a Federal
financial regulatory agency remains subject to FIRREA regulations
regarding appraisals and evaluations and the accompanying Interagency
Appraisal and Evaluation Guidelines.\46\ As such, these institutions
will have to obtain an appraisal or ``evaluation'' under FIRREA rules
for any refinance loan, regardless of whether it qualifies for an
exemption from the HPML appraisal rules.
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\46\ See OCC: 12 CFR parts 34, Subpart C, and 164; Board: 12 CFR
part 208, subpart E, and part 225, subpart G; FDIC: 12 CFR part 323;
NCUA: 12 CFR part 722. See also 75 FR 77450 (Dec. 10, 2010).
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Finally, in Sec. 1026.35(c)(2)(vii), the Agencies are clarifying
that the refinance loans eligible for the exemption are limited to
loans ``secured by a first lien,'' which is consistent with the
Agencies' intention in the 2013 Supplemental Proposed Rule.
35(c)(2)(vii)(A)
The exemption from the HPML appraisal rules requires that the
refinance transaction satisfy several criteria. These are described in
the section-by-section analysis of Sec. 1026.35(c)(2)(vii)(A), (B),
and (C).
One criterion that a refinance loan must meet is that either: (1)
The credit risk of the refinance loan is retained by the person that
held the credit risk of the existing obligation and the credit risk is
not subject, at consummation, to a commitment to be transferred to
another person; or (2) the refinance loan is insured or guaranteed by
the same Federal government agency that insured or guaranteed the
existing obligation.
35(c)(2)(vii)(A)(1)--same credit risk holder. Substantively
consistent with the 2013 Supplemental Proposed Rule, Sec.
1026.35(c)(2)(vii)(A)(1) allows the exemption for certain refinancings
to apply if the credit risk holder is the current credit risk holder of
the existing obligation (assuming the criteria in Sec.
1026.35(c)(2)(vii)(B) and (C) are also met). The Agencies are adopting
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 ensuring that the exemption
promotes the safety and soundness of financial institutions. An
exemption for streamlined refinances from the HPML appraisal rules can
help creditors more readily refinance loans to mitigate risk by placing
consumer in loans with better terms. Decreased default risk for all
parties is also in the public interest.
For clarity, as discussed previously, the final regulation defines
``credit risk'' to mean the financial risk that a loan will default.
See Sec. 1026.35(c)(1)(ii) and corresponding section-by-section
analysis. The final rule also differs from the proposal in that it does
not use the terms ``guarantor'' or ``owner,'' but instead refers to the
holder of the credit risk.
Based on public comments, the Agencies are concerned that the terms
``guarantor'' and ``owner'' may have multiple meanings in the mortgage
markets and be confusing. For example, the Agencies are concerned that
the agreements associated with loans securitized in a private-label
mortgage-backed security (MBS) may include parties identified as
``guarantor'' and ``owner,'' but such parties do not bear the ``credit
risk'' as defined in this final rule. See Sec. 1026.35(c)(1)(ii).
In GSE securitizations, a GSE bears all of the credit risk because
it either ``owns'' a loan and holds the loan in portfolio, or
``guarantees'' the loan by placing the loan in an MBS and guaranteeing
payments of principal and any interest to investors. Some of these
loans might have private mortgage insurance, but the GSE is the
beneficiary.
By contrast, in private-label securitizations, the credit risk is
spread among multiple parties; for example, the originating credit
might retain some residual risk (and will be required to for
``Qualified Residential Mortgages'' \47\), the other MBS investors bear
certain risks depending on the ``tranche'' or risk tier of the
investor, and private mortgage insurers or bond insurers also may
guarantee some losses. Typically, when a loan in an MBS is refinanced,
the loan will not remain in the same MBS.\48\ The Agencies believe that
where entities take on material new credit risk with a refinance,
safety and soundness and the public interest are not served by
exempting that refinance from the HPML appraisal rules.
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\47\ See 78 FR 57920 (Sept. 20, 2013).
\48\ Certain disincentives for refinancing a loan out of a
private-label refinance may exist, including contractual
restrictions on refinancing the loan.
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At the same time, the Agencies recognize that the private-label
securitization market could involve MBS structures that include an
entity that provides a guarantee similar to that guarantee provided by
Fannie Mae and Freddie Mac today. Therefore, the criterion in Sec.
1026.35(c)(2)(vii)(A)(1) is intended to address not only GSE
securitizations, but also any equivalent private-label structures that
meet the requirements of the exemption. The Agencies believe that
private creditor refinance transactions may have similar benefits to
consumers, creditors, and credit markets as those under GSE and
[[Page 78537]]
government agency programs. In particular, the Agencies believe that
the central feature of public streamlined refinance programs--the
credit risk holder on the existing obligation remains the credit risk
holder on the refinance loan--must be in place in any private
streamlined refinances that would be entitled to an exemption from the
HPML appraisal requirements.
Accordingly, the Agencies are not adopting proposed comment
35(c)(2)(vii)(A)-1, which was intended to help clarify the meaning of
the terms ``owner'' and ``guarantor.'' Instead, the Agencies are
adopting a revised version of this comment, re-numbered comment
35(c)(2)(vii)(A)(1)-1, that focuses on what it means to hold the credit
risk on a loan for purposes of the exemption. Specifically, comment
35(c)(2)(vii)(A)(1)-1 states that the requirement that the holder of
the credit risk on the existing obligation and the refinance loan be
the same applies to situations in which an entity bears the financial
responsibility for the default of a loan by either holding the loan in
its portfolio or guaranteeing payments of principal and any interest to
investors in a mortgage-backed security in which the loan is pooled.
See Sec. 1026.35(c)(1)(ii) (defining ``credit risk''). The comment
states that, for example, a credit risk holder could be a bank that
bears the credit risk on the existing obligation by holding the loan in
the bank's portfolio. Another example of a credit risk holder would be
a government-sponsored enterprise that bears the risk of default on a
loan by guaranteeing the payment of principal and any interest on a
loan to investors in a mortgage-backed security. Finally, the comment
clarifies that the holder of credit risk under Sec.
1026.35(c)(2)(vii)(A)(1) does not mean individual investors in an MBS
or providers of private mortgage insurance.
Consistent with the proposal (see proposed comment
35(c)(2)(vii)(A)-1), the Agencies do not intend that individual
investors in an MBS be considered credit risk holders under this
exemption criterion. The risks held by investors in these arrangements
are too disparate for these investors to be considered credit risk
holders under the final rule.
The Agencies also do not intend private mortgage insurers--either
at the loan level or MBS level (as bond insurers, for example)--to be
credit risk holders under the final rule because the types of losses
they guarantee may vary for each loan by contract, as may their
valuation standards for collateral underlying loans they insure. These
factors are subject to private contractual arrangements that are not
publicly available. Even if the refinance loan were insured by the same
private mortgage insurance provider that insured the existing
obligation, the types of losses guaranteed by this provider on the
refinance loan might be different from those guaranteed on the existing
loan and a new party to the refinance transaction could be taking on
significant new credit risk.
In new comment 35(c)(2)(vii)(A)(1)-2, the final rule provides two
illustrations of refinance situations in which the credit risk holder
would be considered the same for both the existing obligation and the
refinance loan. These examples are not intended to be exhaustive. In
the first illustration, the existing obligation is held in the
portfolio of a bank, thus the bank holds the credit risk. The bank
arranges to refinance the loan and also will hold the refinance loan in
its portfolio. If the refinance transaction otherwise meets the
requirements for an exemption under Sec. 1026.35(c)(2)(vii), the
transaction will qualify for the exemption because the credit risk
holder is the same for the existing obligation and the refinance loan.
In this case, the exemption would apply regardless of whether the bank
arranged to refinance the loan directly or indirectly, such as through
the servicer or subservicer on the existing obligation. See comment
35(c)(2)(vii)(A)(1)-2.i.
In the second illustration, the existing obligation is held in the
portfolio of a GSE, thus the GSE holds the credit risk. The GSE
approves a refinance of the existing obligation by the servicer of the
loan and immediately purchases the refinance loan. The GSE pools the
refinance loan in a mortgage-backed security guaranteed by the GSE;
thus, the GSE continues to hold the credit risk on the refinance loan.
If the refinance transaction otherwise meets the requirements for an
exemption under Sec. 1026.35(c)(2)(vii), the transaction will qualify
for the exemption because the credit risk holder is the same for the
existing obligation and the refinance loan. In this case, the exemption
would apply regardless of whether the existing obligation were
refinanced by the servicer or subservicer on the existing obligation
(acting as a ``creditor'' under Sec. 1026.2(a)(17)) or by a different
creditor. See comment 35(c)(2)(vii)(A)(1)-2.ii.
As noted, one commenter requested clarification about whether a
servicer or subservicer could originate a refinance that would be
eligible for the exemption. This commenter expressed concerns that the
requirement that the ``owner or guarantor'' remain the same would
prohibit this for exempt refinances. Comment 35(c)(2)(vii)(A)(1)-2.ii
is intended to clarify that servicers or subservicers may originate
refinances that are exempt if the credit risk holder on the original
obligation remains the credit risk holder on the refinance loan.
In new comment 35(c)(2)(vii)(A)(1)-3, the final rule notes that a
creditor may at times make a mortgage loan that will be transferred or
sold to a purchaser pursuant to an agreement that has been entered into
at or before the time the transaction is consummated. Such an agreement
is sometimes known as a ``forward commitment.'' The comment clarifies
that a refinance loan with a forward commitment does not satisfy the
requirement of Sec. 1026.35(c)(2)(vii)(A)(1) if the loan will be
acquired by another person pursuant to a forward commitment, such that
the credit risk on the refinance loan will transfer to a person who did
not hold the credit risk on the existing obligation. This comment is
intended to ensure that creditors cannot evade the HPML appraisal
requirement by refinancing a loan on which they hold the credit risk
but then bear the credit risk on the refinance loan for only a short
interim period before transferring the loan to a new longer-term credit
risk holder.
Overall, the Agencies believe that the benefits of an appraisal
with an interior inspection are less clear where the credit risk holder
remains the same for both transactions. The credit risk holder of the
existing obligation is more likely to be familiar with the property
securing the transaction or relevant market conditions than a new
credit risk holder. This knowledge could have resulted from the credit
risk holder having evaluated property valuation documents when taking
on the original credit risk, as well as ongoing portfolio monitoring.
By contrast, when the credit risk holder of the refinance loan is not
also the credit risk holder of the existing loan, the refinance loan
involves new risk to the new credit risk holder of the refinance loan;
here, safety and soundness would be better served by an appraisal in
conformity with USPAP and in compliance with FIRREA that includes an
interior inspection.\49\
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\49\ 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 re-underwriting the borrower . . . . It is the
conferees' intent that the [Board] and the [Bureau] 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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[[Page 78538]]
As stated in the 2013 Supplemental Proposed Rule, the Agencies
generally believe that requiring that the credit risk holder remain the
same makes it unnecessary to require that the ``creditor'' (as defined
under Sec. 1026.2(a)(17)) also be the same for both the existing
obligation and the refinance loan. Under Regulation Z's definition of
``creditor,'' the creditor will not necessarily be the credit risk
holder for both the existing and the refinance loans. By allowing the
creditor to be different (as long as the underlying credit risk holder
on the loan remains the same), the final rule provides consumers with
greater ability to obtain a more beneficial loan without having to
obtain an appraisal.
35(c)(2)(vii)(A)(2)--government agency programs. Section
1026.35(c)(2)(vii)(A)(2) provides that a refinance loan meeting the
other criteria for the exemption (Sec. 1026.35(c)(2)(vii)(B) and (C))
could also qualify for the exemption if the Federal government agency
that insured or guaranteed the existing obligation also insures or
guarantees the refinance loan.
Typically these government agency loans would be qualified
mortgages under the Bureau's 2013 ATR Final Rule; \50\ they also
potentially could be qualified mortgages under the qualified mortgage
regulations of each of these agencies, once issued.\51\ As qualified
mortgages, they would be exempt from the HPML appraisal rules under the
exemption for qualified mortgages in Sec. 1026.35(c)(2)(i).
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\50\ See Sec. 1026.43(e)(4)(iii)(A); see also TILA section
129C(b)(3)(ii), 15 U.S.C. 1639c(b)(3)(ii).
\51\ See 78 FR 59890 (Sept. 30, 2013).
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The Agencies are adopting a separate provision for Federal
government agency loans for several reasons. First, Sec.
1026.35(c)(2)(vii)(A)(2) is intended to ensure that the HPML appraisal
rules will not disrupt government refinance programs, which the
Agencies do not believe was Congress's intent. This provision is meant
to clarify the 2013 Supplemental Proposed Rule, which was intended to
exempt refinances consistent with existing Federal government agency
streamlined refinance programs.
Second, as noted, Federal government agency loans have valuation
requirements that the affected Federal agency has deemed sufficiently
protective of its interests. The Agencies do not believe that Congress
intended that the HPML appraisal rules should override the established
requirements and standards of Federal government agencies for their
mortgage programs. Moreover, the requirements of Federal mortgage
programs, including the valuation requirements, are transparent and
established by publicly accountable entities. In this regard,
refinances retaining FHA insurance, for instance, are distinguishable
from loans with the same loan-level private mortgage insurer, whose
valuation and other standards are determined by private contracts. See
also comment 35(c)(2)(vii)(A)(1)-1 and accompanying section-by-section
analysis.
Third, the terms ``insured'' and ``guaranteed'' are commonly used
to describe the loan-level protections afforded by HUD, VA, and USDA
(including RHS) against losses due to default; however, the Agencies
are concerned that these terms might not be readily understood to be a
part of the same credit risk holder provision under Sec.
1026.35(c)(2)(vii)(A)(1). As noted, one commenter indicated, for
example, that confusion might exist about whether a loan with FHA
insurance or a VA guaranty that was refinanced into a loan also insured
or guaranteed by FHA or VA could qualify for the exemption if the
secondary market participants differed on the two loans. The Agencies
therefore wish to be clear that these loans would still qualify for the
exemption because the loan-level credit risk holder remains the same.
Finally, these loans might not always be ``qualified mortgages''
under the Bureau's ATR rules because they might not meet all of the
criteria required for that status.\52\ The Agencies do not believe that
layering the HPML appraisal requirements onto Federal government agency
loans provides sufficient benefits to warrant the drawbacks of
burdening consumers and creditors in these transactions. A Federal
government agency has already determined what the appropriate valuation
requirements should be and, as previously discussed, these mortgage
programs are intended to provide needed relief to borrowers and to
mitigate credit risk for creditors. The Agencies thus believe that the
safety and soundness of creditors and the public interest is served by
allowing these transactions to go forward under valuation rules
established by the Federal agency insuring or guaranteeing the loan.
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\52\ To be ``qualified mortgages,'' loans eligible to be insured
or guaranteed by HUD, VA, USDA or RHS must not result in negative
amortization or provide for interest-only or balloon payments; have
a loan term exceeding 30 years; or points and fees above to three
percent of the loan amount (with a higher cap for loans under
$100,000). Sec. 1026.43(e)(4)(i)(A) (cross-referencing Sec.
1026.43(e)(2)(i) through (iii).
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Relationship to the 2013 ATR Final Rule. The Agencies recognize
that in the near term, most Federal government program and GSE
streamlined refinance loans will be exempt from the HPML appraisal
rules as ``qualified mortgages'' under Sec. 1026.35(c)(2)(i). 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 (based solely on criteria related to the consumer's ability to
repay) 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,\53\ they are considered ``qualified mortgages''
entitled to either a rebuttable or conclusive presumption of compliance
with the general ability-to-repay rules, depending on the loan's
interest rate.\54\ See Sec. 1026.43(e)(1), (e)(4).\55\ As qualified
mortgages, they are exempt from the HPML appraisal rules. See Sec.
1026.35(c)(2)(i).
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\53\ 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).
\54\ 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, other than a qualified mortgage
under paragraph (e)(5), (e)(6), or (f) of Sec. 1026.43; by 3.5 or
more percentage points for a first lien covered transaction that is
a qualified mortgage under paragraph (e)(5), (e)(6), or (f) of Sec.
1026.43; or by 3.5 or more percentage points for a subordinate lien
covered transaction. Sec. 1026.43(b)(4).
\55\ They also can be ``qualified mortgages'' if, for instance,
they meet all of the criteria under the general definition of
``qualified mortgage.'' See Sec. 1026.43(e)(2).
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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). These loans will not be
eligible to be qualified mortgages if consummated after January 10,
2021, unless they meet the criteria of another type of qualified
mortgage. See Sec. 1026.43(c)(4)(iii)(B). Second, again, GSE-eligible
loans and loans eligible to be insured or guaranteed under a HUD,
[[Page 78539]]
VA, USDA, or RHA program \56\ are ``qualified mortgages'' only if they
meet certain criteria--they must not result in negative amortization or
provide for interest-only or balloon payments; have a loan term
exceeding 30 years; or points and fees above to three percent of the
loan amount (with a higher cap for loans under $100,000).\57\
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\56\ 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) will 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). See also, e.g., 78 FR 59890 (Sept. 30,
2013).
\57\ See Sec. 1026.43(e)(4)(i)(A) (cross-referencing Sec.
1026.43(e)(2)(i) through (iii).
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The Agencies believe that the refinance exemption under the HPML
appraisal rule should nonetheless cover Federal government agency and
GSE streamlined refinance loans. The exemption is appropriate here in
part because the GSEs and Federal government agencies have valuation
requirements to protect their interests that are transparent and
publicly available. In this regard, an important distinction between
the qualified mortgage provisions addressing GSE and Federal government
agency loans and the HPML refinance exemption criteria in Sec.
1026.35(c)(2)(vii)(A)(1) and (2) is that qualified mortgage status may
be conferred on loans ``eligible'' to be purchased by a GSE or insured
or guaranteed by a Federal government agency; by contrast, the HPML
refinance exemption from the HPML appraisal rules requires that these
loans actually are purchased by Fannie Mae or Freddie Mac or continue
to be insured or guaranteed by a Federal government agency. In this
way, compliance with valuation requirements established by these
entities is assured as part of the justification for the exemption.
35(c)(2)(vii)(B)
Prohibition on certain risky features. Consistent with the 2013
Supplemental Proposed Rule, Sec. 1026.35(c)(2)(vii)(B) requires that a
refinancing eligible for the refinance 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).\58\
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\58\ 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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The Agencies also are adopting without change proposed comment
35(c)(2)(vii)(B)-1 which states that, under Sec.
1026.35(c)(2)(vii)(B), 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 thus clarifies 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 further states 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 cross-references comment 43(c)(5)(i)-4
of the Bureau's 2013 ATR Final Rule for an explanation of the term
``substantially equal.'' \59\ The comment also clarifies 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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\59\ 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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Where these features are present in an HPML that is not a qualified
mortgage, the Agencies believe that the information provided by a real
property appraisal in conformity with USPAP that includes an interior
property inspection is important for the safety and soundness of
creditors and the protection of consumers. Additional equity may be
needed to support a loan with negative amortization, for example, 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.\60\
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\60\ 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 make
the balloon payment or refinance, with potentially significant
consequences for the consumer and the credit risk holder if something
unexpected happens and the consumer cannot do so.
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.\61\ In addition, the prohibition on risky features for
this 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.\62\ The
[[Page 78540]]
final rule also is consistent with a provision in the Bureau's 2013 ATR
Final Rule that exempts the refinancing of a ``non-standard mortgage''
into a ``standard mortgage'' from the requirement that the creditor
make a good faith determination of the consumer's ability to repay the
loan. 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). 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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\61\ 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).
\62\ 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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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.\63\ Thus, in the Agencies' view, permitting these non-
qualified mortgage HPML refinances to proceed without a real property
appraisal in conformity with USPAP and FIRREA that includes an interior
inspection 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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\63\ See also OCC, Board, FDIC, NCUA, ``Interagency Guidance on
Nontraditional Mortgage Product Risks,'' 71 FR 58609 (Oct. 4, 2006).
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As noted, several commenters requested that the prohibition on
balloon payments for exempt refinances be eliminated in the final rule.
One commenter also requested that the prohibition on interest-only
payments be eliminated. For the reasons stated, however, the Agencies
continue to believe that the prohibitions on balloon payments and
interest-only payments are appropriate. In addition, the Agencies note
that some of the public comments in support of eliminating the balloon
payment prohibition suggested uncertainty about whether ``balloon
payment qualified mortgages'' under the Bureau's ability-to-repay rules
would be exempt. See Sec. 1026.43(e)(6) and (f). As set out in the
section-by-section analysis of the exemption for qualified mortgages
under Sec. 1026.35(c)(2)(i), both temporary balloon payment mortgages
under Sec. 1026.43(e)(6) and balloon payment qualified mortgages under
Sec. 1026.43(f) are exempt from the HPML appraisal rules under the
exemption for qualified mortgages. The Agencies believe that this
clarification helps address the concerns of commenters on this issue.
35(c)(2)(vii)(C)
No cash out. Proposed Sec. 1026.35(c)(2)(vii)(C) would have
required 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. Based on comments, particularly a
comment recommending that the Agencies clarify that proceeds could be
used to pay accrued interest, the Agencies are revising this provision
of the proposal.
Specifically, the Agencies are revising Sec. 1026.35(c)(2)(vii)(C)
to require that the proceeds from the refinance loan be used ``only to
satisfy the existing obligation and to pay amounts attributed solely to
the costs of the refinancing.'' The Agencies have determined that
compliance and understanding are best facilitated by generally modeling
the ``no cash out'' aspect of the exemption on other provisions in
Regulation Z regarding refinancings in the rescission context. Thus,
revised Sec. 1026.35(c)(2)(vii)(C) incorporates concepts and guidance
from Sec. 1026.23(f)(2), which sets out the portion of a refinance
that is rescindable--namely, the portion that exceeds ``the unpaid
principal balance, any earned unpaid finance charge on the existing
debt, and amounts attributed solely to the costs of the refinancing or
consolidation.'' The Official Staff Commentary associated with Sec.
1026.23(f)(2) clarifies, in pertinent part, that ``a new advance does
not include amounts attributed solely to the costs of the refinancing.
These amounts would include section 1026.4(c)(7) charges (such as
attorney's fees and title examination and insurance fees, if bona fide
and reasonable in amount), as well as insurance premiums and other
charges that are not finance charges. (Finance charges on the new
transaction--points, for example--would not be considered in
determining whether there is a new advance of money in a refinancing
since finance charges are not part of the amount financed.)'' Comment
23(f)(2)-4.
Revised comment 35(c)(2)(vii)(C)-1 provides that the ``existing
obligation'' includes the consumer's existing first lien principal
balance, any earned unpaid finance charges such as accrued interest,
and any other lawful charges related to the existing loan. Accrued
interest is any interest that has accumulated since the consumer's last
payment of principal and interest, but that the borrower has not yet
paid and has not been capitalized into the principal balance. Accrued
interest exists when a consumer makes a payment on the existing
obligation on October 1st, for example, but then refinances into a new
loan on October 20th. In this case, interest would have accumulated
between the payment made on October 1st and the date of the refinance.
However, the consumer would not have paid that accrued interest and the
creditor normally would not have capitalized that interest into the
principal balance.
Revised comment 35(c)(2)(vii)(C)-1 further provides that guidance
on the meaning of refinancing costs is available in comment 23(f)-4.
Finally, consistent with proposed comment 35(c)(2)(vii)(C)-1, the
revised comment clarifies that, 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).
The Agencies view the 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 an appraisal with an interior inspection 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.\64\ It is
also consistent with the exemption from the Bureau's ability-to-repay
rules for refinances of ``non-standard mortgages'' into ``standard
mortgages.'' \65\ See Sec. 1026.43(d)(1)(ii)(E). The Agencies believe
that consistency across mortgage rules can help facilitate
[[Page 78541]]
compliance and ease compliance burden.
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\64\ 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.
\65\ 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).
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Other conditions. Consistent with the proposal, the Agencies are
not adopting additional conditions on the types of refinancings
eligible for the exemption from the HPML appraisal rules. In this way,
the Agencies seek to maintain flexibility for creditors and investors
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.
Regarding comments supporting a requirement that the refinance
result in a ``benefit'' to the consumer, such as a lower payment, a
lower rate, or shorter term, the Agencies continue to believe that it
is unclear how the existence of a borrower benefit in the new
transaction relates to what type of valuation should be required. The
Agencies are also not adopting a limitation on the points and fees that
may be refinanced. Congress addressed loan cost parameters for the
appraisal rules by defining HPMLs as loans with interest rates above
APOR by a certain percentage. The Agencies are concerned that
introducing a points and fees cap into the rule could create confusion
and compliance difficulties, given the statutory points and fees caps
implemented in other overlapping regulations, such as regulations
regarding qualified mortgages and high-cost mortgages, noted earlier.
Other protections in the final rule ensure that the borrower,
creditor and investor would be taking on no new material credit risk,
which the Agencies believe should be the primary determinant of whether
an appraisal with an interior inspection should be required. The
Agencies also believe that borrower benefits can be difficult to define
because they can be highly transaction-specific. For example, a higher
rate might result in a benefit to a consumer where the higher rate
results from extending the loan term to lower the consumer's payments.
Here, the benefit to the consumer is an improved ability to stay in the
home by making the payments more affordable. Finally, the Agencies are
concerned that a ``benefits'' test could add complexity and burden to
the exemption that might undermine its intended benefits.
The Agencies are also not adopting borrower eligibility
requirements, such as that the borrower must have been on-time with
payments on the existing mortgage for a certain period of time, as at
least one commenter suggested. As discussed in the 2013 Supplemental
Proposed Rule, GSE and Federal government agency streamlined refinance
programs 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.\66\ Commenters did not, however, explain how
borrower eligibility requirements relate to whether an appraisal should
be required. Again, the Agencies believe that the criteria for the
refinance exemption in the final rule comprise those that relate to
whether a more or less rigorous valuation requirement should apply; the
Agencies believe that the main consideration is whether new credit risk
will be taken on by the consumer, creditor, and investor. The criteria
adopted in the final rule are designed to minimize additional risk on
the refinance by curbing material increases in principal and ensuring
that the ultimate credit risk holder remains the same. In addition, the
Agencies believe that streamlined refinance programs can provide
maximum benefit to consumers, creditors, and investors when creditors
and investors retain some flexibility to adapt borrower eligibility and
other requirements to address changing market environments and factors
that may be unique to their programs.
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\66\ 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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Finally, one commenter also urged the Agencies not to apply the
exemption to loans that had already been refinanced, to avoid the
consumer accruing excessive origination costs with successive
refinances. The Agencies share concerns about harm to consumers through
serial refinancings. On balance, however, the Agencies believe that
consumers who have already refinanced their loans should have the same
opportunities to take advantage of lower rates as other consumers. The
Agencies believe that the limit on cash out helps mitigate abuses with
serial refinancings by ensuring that consumers cannot continually
refinance to pay off other debts without a full assessment of the
collateral value.
Conditional exemption. In the 2013 Supplemental Proposed Rule, the
Agencies sought 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 real property appraisal in
conformity with USPAP and FIRREA that includes an interior inspection)
and providing a copy to the consumer three days before consummation. In
requesting comment on this issue, the Agencies noted that a refinanced
mortgage loan is a significant financial commitment that involves
material transaction costs.
Because refinances do involve potential risks and costs, the
Agencies requested commenters' views on whether the consumer would
better positioned to consider alternatives to refinancing if they were
given an alternative valuation. The Agencies also sought data that
might be relevant to whether this additional condition would be
necessary.
For reasons discussed below, the Agencies are not adopting a
condition on the refinance exemption that the creditor obtain and give
the consumer an alternative valuation. As noted, several commenters
affirmatively opposed requiring creditors to obtain an alternative
valuation. Commenters stated that doing so would hinder the process and
increase the time and expense of these transactions unnecessarily.
These commenters did not believe that a significant benefit exists in
giving an alternative valuation when consumers are not increasing the
amount of their debt or substituting the collateral.
Other commenters, while not affirmatively supporting or opposing an
alternative valuation condition, suggested that if an alternative
valuation is required, creditors should be able to rely on an existing
appraisal to the extent permitted by existing Federal appraisal
regulations and the interagency appraisal guidelines,\67\ which allow
for using an existing appraisal. Two commenters asked whether a
creditor that is considering an extension of credit secured by a junior
mortgage could use the appraisal obtained by the creditor who extended
credit to the same borrower secured by a first mortgage. FIRREA real
estate appraisal regulations required to be issued by the Federal
financial institution regulatory agencies \68\ allow a regulated
institution \69\ to accept an
[[Page 78542]]
appraisal that was prepared by an appraiser engaged directly by another
financial services institution,\70\ if certain conditions are met.
These include that a regulated institution may accept an appraisal that
was prepared by an appraiser engaged directly by another financial
services institution, if: (1) The appraiser has no direct or indirect
interest, financial or otherwise, in the property or the transaction;
and (2) the regulated institution determines that the appraisal
conforms to the requirements of this subpart and is otherwise
acceptable.\71\
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\67\ See OCC: 12 CFR parts 34, Subpart C, and 164; Board: 12 CFR
part 208, subpart E, and part 225, subpart G; FDIC: 12 CFR part 323;
NCUA: 12 CFR part 722. See also 75 FR 77450 (Dec. 10, 2010).
\68\ FDIC: 12 CFR part 323; FRB: 12 CFR part 208, subpart E and
12 CFR part 255, subpart G; NCUA: 12 CFR part 722; and OCC: 12 CFR
part 34, subpart C, and 12 CFR part 164.
\69\ A regulated institution is an institution regulated by a
Federal financial institution regulatory agency, such as the FDIC,
FRB, NCUA, or the OCC.
\70\ The Interagency Appraisal and Evaluation Guidelines note
that the Agencies' appraisal regulations do not contain a specific
definition of the term ``financial services institution.'' The term
is intended to describe entities that provide services in connection
with real estate lending transactions on an ongoing basis, including
loan brokers.
\71\ See OCC: 12 CFR 34. 45(b)(2) and 12 CFR 164.5(b)(2); Board:
12 CFR 225.65(b)(2); FDIC: 12 CFR 323.5(b)(2); NCUA: 12 CFR
722.5(b)(2).
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Still others suggested that, if an alternative is required, a
``drive-by'' appraisal or comparable market analysis to ensure that the
home still stands and is in reasonable condition would be advisable.
The Agencies believe that conditioning the exemption is not warranted,
so they are not adopting this suggestion.
Several commenters supported conditioning the exemption and
recommended that an alternative valuation to an appraisal with an
interior inspection should be required so that consumers are better
informed about their home value.
The Agencies believe that the condition discussed in the 2013
Supplemental Proposed Rule would not provide sufficient benefit to
warrant the burden or cost it would introduce into the exemption. The
vast majority of refinance transactions involve some type of valuation
that, as of January 2014, creditors will have to provide to consumers.
For example, for any refinance eligible for a Federal government
program or to be sold to a GSE, the creditor would have to comply with
any valuation requirements imposed under those programs. For loans not
made under those programs but purchased or made by a Federally
regulated financial institution, either an ``evaluation'' or an
appraisal generally would be required.\72\
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\72\ 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 visit or exterior-only)
was obtained for all streamlined refinances purchased by the GSEs in
2012.
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The Bureau's rules in Regulation B implementing Dodd-Frank Act
amendments to the Equal Credit Opportunity Act \73\ (ECOA) 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.\74\ The copies
must be provided to the applicant promptly upon completion or three
business days before consummation. See id. Regulation B defines
``valuation'' broadly to mean ``any estimate of the value of a dwelling
developed in connection with an application for credit.'' \75\ Sec.
1002.14(b)(3).
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\73\ 15 U.S.C. 1691 et seq.
\74\ See 12 CFR 1002.14(a)(1), effective January 18, 2014; 78 FR
7216 (Jan. 31, 2013) (2013 ECOA Valuations Final Rule).
\75\ ``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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As stated in the 2013 Supplemental Proposed Rule, the Agencies
recognize that obtaining estimates of value and providing copies of
written valuations to consumers 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 Federally regulated financial institutions
under FIRREA title XI. However, the Agencies did not receive data or
information suggesting that a significant number of refinances would be
subject to no valuation requirements. The Agencies believe that the
volume of refinances that might be exempt from the HPML appraisal rules
and subject to no other valuation requirements of either the government
or investors will be very small and that the benefits of conditioning
the exemption for these refinances will not outweigh complexity and
burden to affected creditors and their consumers seeking streamlined
refinances.
Again, the criteria for an exempt refinance adopted in the final
rule are designed to limit the new risk that would result in a
refinance, including risk resulting from significant additional equity
being taken out of the home. Where no material credit risk is taken on
in a refinance transactions, including risk resulting from a material
reduction in home equity, the Agencies believe that valuation
requirements are appropriately left to be determined by the parties
involved in the transaction and any other applicable laws and
regulations.
In sum, the Agencies believe that the exemption is appropriately
narrow in scope to capture the types of refinancings that Congress has
generally expressed an intent to facilitate. See, e.g., TILA sections
129C(a)(5) and (6), 15 U.S.C. 1639c(a)(5) and (6).\76\ The Agencies
believe that this exemption promotes the safety and soundness of
creditors and is in the public interest.
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\76\ See also Statement of Sen. Dodd, 156 Cong. Rec. S5928 (July
15, 2010).
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35(c)(2)(viii)
In section 35(c)(2)(viii), effective January 18, 2014, the Agencies
are adopting a temporary exemption for all transactions secured in
whole or in part by a manufactured home, until July 18, 2015. This
temporary exemption of 18 months is intended to give creditors
sufficient time to make any changes needed to comply with the HPML
rules that will apply to manufactured home loans as a result of the
final rules that will apply to applications received on or after July
18, 2015. The Agencies understand that creditors may need to make
adjustments to their compliance systems for some of the new rules.
These changes may involve new technical configurations and training, as
well as modified or new contracts with any third-party service
providers that the creditor may enlist to perform valuation services
and related functions. Thus, the Agencies believe that this temporary
exemption promotes the safety and soundness of creditors and is in the
public interest.
Rules Effective July 18, 2015
For applications received on or after July 18, 2015, new rules will
apply to loans secured by manufactured homes, as follows:
(1) The temporary exemption for loans secured by existing
manufactured homes and land will expire; those loans will be subject to
the HPML appraisal rules in Sec. 1026.35(c)(3) through (6).
(2) A modified exemption for loans secured by a new manufactured
home and land will take effect; those loans will be subject to all of
the HPML appraisal requirements except the requirement that the
appraisal include a physical visit of the interior of the property. See
Sec. 1026.35(c)(2)(viii)(A) and accompanying section-by-section
analysis.
(3) An exemption for loans secured by either a new or existing
manufactured home and not land will be subject to a condition that the
creditor obtain and provide to the consumer one of three
[[Page 78543]]
types of value-related information. See Sec. 1026.35(c)(2)(viii)(B)
and accompanying section-by-section analysis.
These new rules are discussed below.
Loans Secured by an Existing Manufactured Home and Land
Under the version of Sec. 1026.35(c)(2)(viii) that goes into
effect on July 18, 2015, loans secured by an existing manufactured home
and land together will be subject to the HMPL appraisal requirements in
Sec. 1026.35(c)(3) through (6), consistent with the January 2013 Final
Rule and the 2013 Supplemental Proposed Rule.
The Agencies' Proposal
In the 2013 Supplemental Proposed Rule, the Agencies did not
propose to exempt from the HPML appraisal rules transactions that are
secured by both an existing manufactured home and land. The Agencies
did not believe that an exemption for these transactions would be in
the public interest and promote the safety and soundness of creditors.
The Agencies noted that Federal government and GSE manufactured home
loan programs generally require conformity with USPAP real property
appraisal standards for transactions secured by both a manufactured
home and land.\77\ The Agencies expressed the view that the Federal
government agency and GSE requirements may reflect that conducting an
appraisal in conformity with USPAP standards are feasible for existing
manufactured homes together with land.
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\77\ 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, 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).
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The Agencies noted that this view was affirmed by 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. The Agencies also noted, however, that
some commenters on the 2012 Proposed Rule recommended that the Agencies
exempt these types of ``land/home'' transactions.\78\
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\78\ See 78 FR 10368, 10379-80 (Feb. 13, 2013).
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Public Comments
In the 2013 Supplemental Proposed Rule, the Agencies sought comment
on whether an exemption from the HPML appraisal requirements for
transactions secured by an existing manufactured home and land would be
in the public interest and promote the safety and soundness of
creditors. The Agencies also sought comment on, among other issues,
whether an exemption for these loans should be conditioned on the
creditor providing the consumer with some other type of valuation
information.
The Agencies received 14 comment letters on this issue from two
national appraisal trade associations, a consumer advocate group, three
affordable housing organizations, a policy and research organization, a
national association for owners of manufactured homes, a credit union,
a community bank, a national trade association for community banks, a
State manufactured housing trade association, and two manufactured
housing nonbank lenders. In addition, a national manufactured housing
industry trade association referred to and endorsed the comments of two
manufactured housing lenders.
The credit union, community bank, consumer advocate group,
affordable housing organizations, national association of owners of
manufactured homes, and appraisal trade associations all supported the
proposal to retain the coverage of HPMLs secured by an existing
manufactured home and land, consistent with the January 2013 Final
Rule.
The community bank stated that existing manufactured homes
typically depreciate more than comparable site-built homes and should
receive an interior and exterior inspection. This commenter asserted
that an interior inspection is important for obtaining a proper
valuation and that providing an exemption from the interior inspection
requirement would not be appropriate. This commenter added that
consumers and creditors deserve a safe and accurate transaction.
The appraisal trade associations acknowledged that appraisal
assignments for transactions secured by existing manufactured homes and
land can involve greater complexity than assignments for site-built
homes. These commenters indicated, however, that in recent years they
have undertaken over 150 training sessions to train over 5,500
appraisal industry professionals on performing appraisals for
transactions secured by a manufactured home and land.
The consumer advocate group, two affordable housing organizations,
a policy and research organization, and national association of owners
of manufactured homes indicated that any issues with appraiser
availability were due to a lack of valuation standards in this segment
of the housing market. They maintained that requiring appraisals for
these transactions would ensure demand, thus fostering greater
appraiser capacity.
On the other hand, the community bank trade association, State
manufactured housing trade association, and two manufactured housing
nonbank lenders opposed the proposal to cover loans secured by an
existing manufactured home and land and recommended exemption these
transactions from the HPML appraisal rules.
The community bank trade association stated that appraisals
increase costs to manufactured home borrowers who often have low
incomes. In the view of this commenter, credit risk on portfolio
lending and underwriting standards for secondary market transactions
provide sufficient incentives for creditors to select appropriate
alternative valuation methods, which include a variety of methods other
than an appraisal in conformity with USPAP and FIRREA based upon a
physical inspection of the interior of the property as required by the
HPML appraisal rules. In addition, according to this commenter, some
community banks report that appraisers can be readily engaged for
manufactured housing transactions in general; for others, however,
appraisers are reportedly difficult to find or appraisals are more
costly or take longer than in-house non-appraisal valuations. The State
manufactured housing trade association also referred to difficulties
with obtaining appraisals for these loans. This commenter expressed the
view that creditors should be subject only to an appraisal requirement
when participating in a government or GSE program that imposes such a
requirement.
One of the nonbank lenders stated that these transactions should be
exempt due to a lack of sufficient appraisers and a lack of sufficient
data on comparable sales (``comparables'') of manufactured homes,
particularly in rural areas. This commenter also raised concerns about
costs, noting that appraisals with interior inspections could, in this
lender's experience, raise loan cost by 68 to 81 basis points. In
addition, the lender noted that in the 6 percent of its 2012
manufactured home transactions secured by land and home
[[Page 78544]]
that were subject to a similar HUD appraisal requirement, the
collateral did not appraise at or above the sales price in 30 percent
of transactions. In the view of this lender, these outcomes were due in
significant part to an inappropriate emphasis in the HUD program on the
use of manufactured homes as comparables. The other nonbank lender
stated that an appraisal for transactions secured by an existing
manufactured home and land would be unreliable and a misuse of consumer
funds. This commenter also noted that it already complies with
appraisal disclosure requirements in Regulation B.\79\ Finally, as
noted above, a national trade association for manufactured housing
endorsed the comments of these manufactured home lenders.
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\79\ See 12 CFR 1002.14.
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The Final Rule
Consistent with the 2013 Supplemental Proposed Rule, the final rule
that goes into effect July 18, 2015, does not exempt loans secured by
an existing manufactured home and land from the HPML appraisal
requirements in Sec. 1026.35(c)(3) through (6).\80\ Covering
transactions secured by an existing home and land is consistent with
the requirements of the GSEs and Federal government agencies for these
types of loans.
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\80\ The requirement for a second appraisal in ``flipped''
transactions is not anticipated to be triggered in most existing
manufactured home transactions, if any. See Sec. 1026.35(c)(4). The
Agencies are not aware, based on research, public comments, and
outreach, that manufactured home properties are improved and re-sold
quickly by investors.
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In addition, the Agencies received information from manufactured
home lender representatives who indicated that obtaining appraisals in
conformity with USPAP that include interior inspections for loans
secured by an existing manufactured home and land is not uncommon among
manufactured home creditors. Some lender commenters on the 2013
Supplemental Proposed Rule supported applying the HPML appraisal rules
to these transactions as consistent with prudent lending practices.
Moreover, the Agencies obtained comments on the 2013 Supplemental
Proposed Rule from consumer advocates, affordable housing
organizations, and other stakeholders, but had not had the benefit of
comments from these stakeholders on the 2012 Proposed Rule. As
discussed above, consumer and affordable housing advocates strongly
supported applying the HPML appraisal requirements to transactions
secured by an existing manufactured home and land. They argued, among
other things, that consumers would thereby obtain information about the
value of their homes that would account more thoroughly for the value
added to a home by the land on which the existing home is or will be
placed. Similar comments were submitted by a national real estate trade
organization, a policy and research organization, and a national
association of owners of manufactured homes.\81\
---------------------------------------------------------------------------
\81\ In commenting on the 2012 Proposed Rule, the national real
estate trade associated similarly expressed the view that exempting
transactions secured by both a manufactured home and land may not be
appropriate. See 78 FR 48548, 48554, n. 16 (Aug. 8, 2013).
---------------------------------------------------------------------------
Appraiser organizations that submitted written comments and
appraisers consulted by the Agencies in informal outreach also strongly
recommended that the HPML appraisal rules be adopted for transactions
secured by existing manufactured homes and land. They indicated that
the appraisal methods for appraising existing manufactured homes and
land are the same as for site-built homes and land. Their comments
suggested that appraisals with interior inspections for these homes are
common and that prudent lending practice and consumer protection are
best served by obtaining appraisals for transactions secured by an
existing manufactured home and land together, including a physical
inspection of the interior of the home.
As noted, one manufactured home lender commenter expressed concerns
about applying the HPML appraisal rules to loans secured by existing
manufactured homes and land when the home has been moved from its
previous site to a dealer's lot. Transactions secured by an existing
home that has been moved to a dealer's lot and land can still be
appraised in conformity with USPAP, which does not require that the
home first be sited before an appraiser performs the appraisal. The
Agencies understand that the home could be inspected on the dealer's
lot, for example, or once the home is re-sited. The Agencies also note
that several commenters asserted that existing manufactured homes are
rarely moved. For these reasons, the Agencies believe that an appraisal
with an interior inspection that values the home and land together is
still warranted for these properties.
Based on these comments and related outreach, the Agencies do not
believe that exempting loans secured by a manufactured home and land
from the HPML appraisal requirements would be in the public interest or
promote the safety and soundness of creditors. The Agencies believe
that covering these loans will help ensure that consumers are aware of
information related to the value of their manufactured home before
consummating an HPML (that is not a qualified mortgage). The Agencies
also believe that covering these loans will facilitate the development
of greater consistency between the rules and practices applicable to
transactions secured by site-built homes and manufactured homes. The
Agencies believe that this consistency of rules and practices will
contribute to integrating manufactured home lending more fully into the
broader mortgage market over time, which could have long-term benefits
for consumers and lenders.
The Agencies believe that most lenders of manufactured home loans
obtain appraisals in conformity with USPAP and FIRREA for loans secured
by existing manufactured homes and land. However, the Agencies
understand that not all manufactured home lenders may do so, or do so
consistently, and are mindful that smaller lenders in particular may
need more time to comply. Therefore, the final rule gives the industry
18 months before compliance with the HPML appraisal requirements is
mandatory for these transactions.
35(c)(2)(viii)(A)
Loans Secured by a New Manufactured Home and Land
Section 1026.35(c)(2)(viii)(A), effective July 18, 2015, provides a
partial exemption from the HPML appraisal requirements of Sec.
1026.35(c)(3) through (c)(6) for transactions secured by both a new
manufactured home and land. Specifically, loans for which the creditor
receives the application on or after July 18, 2015, will be exempt from
the requirement that the appraisal include a physical visit of the
interior of the manufactured home, found in Sec. 1026.35(c)(3)(i). All
other HPML appraisal requirements in Sec. 1026.35(c)(3) through (c)(6)
will apply.
The Agencies' Proposal
In the January 2013 Final Rule, the Agencies adopted an exemption
from the HPML appraisal requirements for loans secured by a ``new
manufactured home.'' See 78 FR 10368, 10379-10380, 10433, 10438, 10444
(Feb. 13, 2013). In the 2013 Supplemental Proposed Rule, the Agencies
stated that, after issuing the January 2013 Final Rule, the Agencies
obtained additional information on valuation methods for
[[Page 78545]]
manufactured homes. Based on this information, the Agencies requested
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. The Agencies also sought comment on whether
some other valuation method should be required as a condition of the
exemption for these transactions from the general HPML appraisal
requirements in Sec. 1026.35(c)(3) through (c)(6).
In particular, the Agencies noted that appraisers and State
appraiser boards consulted in outreach efforts confirmed that real
property appraisals in conformity with USPAP are possible and conducted
with at least some regularity in transactions secured by a new
manufactured home and land. The Agencies expressed their understanding
that these appraisals value the site and the home together 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).\82\
The Agencies further noted that these appraisals could document
additional value based on factors such as the home's location, and in
some cases could identify visible discrepancies between the
manufacturer's specifications and the actual home once it is sited.
---------------------------------------------------------------------------
\82\ See, e.g., Texas Appraiser Licensing and Certification
Board, ``Assemblage As Applied to Manufactured Housing,'' available
at https://www.talcb.state.tx.us/pdf/USPAP/AssemblageAsAppliedToMfdHousing.pdf.
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In the 2013 Supplemental Proposed Rule, the Agencies also observed
that USPAP-compliant real property appraisals are regularly conducted
for all transactions under Federal government agency and GSE
manufactured home loan programs.\83\ FHA Title II program standards,
for example, which apply to transactions secured by a manufactured home
and land titled together as real property, require an appraisal in
conformity with USPAP.\84\
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\83\ 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, 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).
\84\ 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 (p. D-9).
---------------------------------------------------------------------------
The Agencies noted further that in informal outreach, a
representative of manufactured home appraisers and a manufactured home
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.\85\ 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 and appropriate comparables are not unduly
difficult to find to perform these appraisals, even in rural areas.\86\
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\85\ For a summary of more recent informal outreach conducted by
the Agencies, see https://www.federalreserve.gov/newsevents/rr-commpublic/industry-meetings-20131001.pdf.
\86\ For FHA-insured loans secured by real property--a
manufactured home and lot together--HUD requires creditors to use a
FHA Title II Roster appraiser that can certify to prior experience
appraising manufactured homes as real property. See HUD, Title I
Letter 481 (Aug. 14, 2009) (``HUD TI-481''), 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 noted that manufactured home lenders commenting on the
2012 Proposed Rule and during informal outreach raised concerns that
comparables of other manufactured homes can be particularly difficult
to find. The Agencies expressed their understanding that a lack of
appropriate comparables 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.\87\
---------------------------------------------------------------------------
\87\ 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 https://cfed.org/assets/pdfs/Appraising_Manufacture_Housing.pdf.
---------------------------------------------------------------------------
The Agencies noted, 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.\88\ The Agencies also stated that a
current version of an Appraisal Institute seminar on manufactured
housing appraisals confirmed that when necessary, USPAP appraisals can
use non-manufactured homes as comparables, making adjustments where
needed.\89\
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\88\ See HUD Handbook 4150.2, chapter 8.4 (providing the
following instructions on appraisals for manufactured homes insured
under the FHA 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.'').
\89\ See Appraisal Institute, ``Appraising Manufactured
Housing--Seminar Handbook,'' Doc. PS009SH-F (2008) at Part 8, 8-110,
available at https://www.appraisalinstitute.org/education/seminar_descrb/Default.aspx?sem_nbr=OL-671&key_type=OOS.
---------------------------------------------------------------------------
At the same time, the Agencies sought information about the
potential impact on the industry and consumers of requiring real
property appraisals in conformity with USPAP that include interior
inspections in transactions secured by a new manufactured home and land
(where these types of appraisals are not already required). In this
regard, the Agencies noted that several manufactured home lenders
commented on the 2012 Proposed Rule and shared in informal outreach
that they typically do not conduct an appraisal with an interior
inspection of a new manufactured home, but use other methods, such as
relying on the manufacturer's invoice as a baseline for the value of
the new home and conducting a separate appraisal of the land in
conformity with USPAP.\90\ Thus, the Agencies observed that requiring a
USPAP-compliant appraisal with an interior inspection could require
systems changes for some manufactured home lenders. In addition, the
Agencies also noted the possibility that, if the appraisals required
under the 2013 January Final Rule were more expensive than existing
methods, imposing the HPML appraisal requirements would lead to
additional costs that could be passed on in whole or in part to
consumers.
---------------------------------------------------------------------------
\90\ 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.
---------------------------------------------------------------------------
Accordingly, the Agencies requested data on the extent to which an
appraisal in conformity with USPAP with an interior property inspection
would be of comparable cost to, or more or less expensive than, a
separate USPAP-compliant appraisal of a lot added
[[Page 78546]]
together with an invoice price for the home unit. The Agencies also
requested comment on the potential burdens on creditors and consumers
and any potential reduction in access to credit that might result from
imposing requirements for an appraisal in conformity with USPAP that
includes an interior property inspection on all manufactured home
creditors of HPMLs secured by both a new manufactured home and land. In
this regard, the Agencies asked 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). Finally, the Agencies requested
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.
Public Comments
Eighteen commenters responded to the Agencies' questions about the
exemption for transactions secured by both a new manufactured home and
land. These commenters comprised four national appraiser trade
associations, a State credit union trade association, a credit union, a
national manufactured housing industry trade association, a national
association for owners of manufactured homes, two manufactured housing
lenders, a consumer advocate group, three affordable housing
organizations, a policy and research organization, a State manufactured
housing industry trade association, a real estate trade association,
and a mortgage banking trade association.
Commenters had varying opinions on whether the exemption for
transactions secured by both a new manufactured home and land was
appropriate. Four national appraiser trade associations, a credit
union, a national association for owners of manufactured homes, a
consumer advocate group, three affordable housing organizations, a
policy and research organization, and a real estate trade association
opposed the exemption. Two of the national appraiser trade associations
asserted that the exemption for transactions secured by new
manufactured homes and land did not meet the statutory exemption
criteria of being in the public interest and promoting the safety and
soundness of creditors.\91\ These commenters also believed that the
January 2013 Final Rule and the 2013 Supplemental Proposed Rule lacked
public policy consistency because loans secured by a manufactured home
and land would be treated differently based on whether the home is
existing or new, even though both are real estate-secured transactions.
A real estate trade association and two national appraiser trade
associations noted that the exemption was inconsistent with the
manufactured housing appraisal requirements of HUD, VA, and GSE
manufactured housing loan programs.
---------------------------------------------------------------------------
\91\ See TILA section 129H(b)(4)(B), 15 U.S.C. 1639h(b)(4)(B).
---------------------------------------------------------------------------
A credit union commenter expressed the view that an appraisal with
an interior inspection in conformity with USPAP and FIRREA is the only
method of valuation that properly accounts for all valuation factors,
including the property's location and discrepancies between the
manufacturer's specifications and the home itself. Similarly, two
national appraiser trade associations argued that this type of
appraisal was necessary because the price of a manufactured home may
not necessarily reflect its value, due to factors such as the quality
of installation and construction of the home. Two national appraiser
trade associations, a manufactured housing lender, and a real estate
trade association stated that an appraisal in conformity with USPAP of
a lot combined with an invoice price for the home unit (as opposed to
valuing the home and land as a single item of real property) was an
incorrect form of valuation that would not provide a credible
indication of the value of the home and land combined.
Several commenters emphasized that performing appraisals in
conformity with USPAP and FIRREA for these transactions is feasible. An
affordable housing commenter argued that, for new manufactured homes
that are not yet sited, appraisers can follow standards in USPAP for
appraising site-built homes that are not yet constructed. Under these
existing USPAP standards, an appraisal is based on a site inspection
and the plans and specifications of the home.\92\ When the construction
is complete, an appraiser or qualified inspector can confirm whether
the finished home meets the same specifications.
---------------------------------------------------------------------------
\92\ See Appraisal Standards Bd., Appraisal Fdn., Standards Rule
1-2(e) and Advisory Opinion 17, ``Appraisals of Real Property with
Proposed Improvements,'' at U-17, U-18, and A-37, available at
https://www.uspap.org.
---------------------------------------------------------------------------
According to national appraiser trade associations, appraisals in
conformity with USPAP are regularly performed for transactions secured
by a new manufactured home and land. These commenters stated that
professional appraisers for manufactured homes are widely available,
that appropriate comparables can be readily found, and that USPAP
protocols (including interior inspections) are appropriate for valuing
manufactured housing and land. Two affordable housing organizations, a
consumer advocate group, a policy and research organization, and a
national association of owners of manufactured homes believed that the
same appraisal requirements should apply to transactions secured by a
new manufactured home as apply to transactions secured by site-built
homes. They believed, however, that appraisers should have more
flexibility in manufactured home transactions to use site-built homes
as comparables than some Federal government agency and GSE programs
currently allow.
Two affordable housing organizations, a consumer advocate group, a
policy and research organization, and a national association for owners
of manufactured homes believed that transactions secured by a new
manufactured home should be subject to the rule if the homeowner owns
the land on which the home is sited, even if the home is not subject to
a security interest. Another affordable housing organization
recommended that new manufactured homes should be subject to the rule,
whether affixed to owned land or on land with a long term lease.
In contrast, six commenters--a national mortgage banking
association, a State credit union association, two manufactured housing
lenders, a national manufactured housing trade association, and a State
manufactured housing trade association--supported the exemption for
transactions secured by both a new manufactured home and land. Some of
these commenters asserted that an exemption was necessary because a
physical interior inspection was infeasible. In this regard, the
manufactured housing lender stated that a new manufactured home
typically will not be delivered and installed until after a loan
closes. The commenter noted that, as with construction loans, which are
provided an exemption from the HPML appraisal rules (Sec.
1026.35(c)(2)(iv)), on-site interior inspections of new manufactured
homes that will secure loans are not feasible because they are still
being manufactured, delivered, or installed when appraisals would need
to be ordered. Similarly, a State manufactured housing industry trade
association stated that a manufactured home's production does not begin
before the determination is made to provide credit to a consumer, so a
physical inspection prior to closing would be impossible.\93\
---------------------------------------------------------------------------
\93\ As noted under ``Public Comments,'' however, a
representative of a manufactured home loan lender consulted in
informal outreach by the Agencies indicated that the lender does not
close loans secured by a new manufactured home and land until the
home is sited.
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[[Page 78547]]
A national manufactured housing industry trade association also
questioned the value of an interior inspection of new manufactured
homes, stating that each manufactured home is built to the
specifications of the retailer and is manufactured in a controlled
manufacturing process in accordance with HUD standards, which ensures
the application of consistent, quality standards.\94\ According to this
commenter, the manufacturer certifies to the retailer the authenticity
and accuracy of the wholesale cost of the home at the point of
manufacture.
---------------------------------------------------------------------------
\94\ See 24 CFR part 3280.
---------------------------------------------------------------------------
Some commenters noted that even though appraisals in conformity
with USPAP are required by some Federal government agencies and GSE
manufactured housing loan programs, they are not performed frequently.
One manufactured housing lender stated that traditional appraisals
typically are performed only for certain FHA loans that represent a
small fraction of overall land/home manufactured housing loans.\95\ A
State manufactured housing industry trade association offered similar
comments. The State manufactured housing industry trade association
commenter also asserted that GSE-like appraisal requirements were not
appropriate for these transactions, because most new manufactured home
loans are held in portfolio and creditors will set valuation standards
appropriate for their own loans.
---------------------------------------------------------------------------
\95\ FHA reported providing insurance under its Title I program
for 655 manufactured home loans in Fiscal Year (FY) 2012, 986 in FY
2011, and 1,776 in FY 2010. See HUD, FHA Annual Management Report,
Fiscal Year 2012 (Nov. 15, 2013) at 17. FHA also reported providing
insurance under its Title II program for 20,479 manufactured home
loans in FY 2012, 21,378 in FY 2011, and 30,751 in FY 2010. See id.
According to 2012 HMDA data, 19,614 FHA-insured manufactured home
loans (under both Titles I and II) were reported out of a total of
123,628 reported manufactured home loans; thus, FHA-insured loans
represented 15.9 percent of HMDA-reported manufactured home loans.
See www.ffiec.gov/hmda.
---------------------------------------------------------------------------
Commenters also challenged the accuracy of appraisals performed in
conformity with USPAP and FIRREA for transactions secured by both a new
manufactured home and land. A manufactured housing lender stated that,
even for FHA-insured land/home loans, traditional appraisals are prone
to yielding appraised values that are lower than the sales price of the
home. A national manufactured housing industry trade association stated
that traditional appraisals produce appraised values lower than the
sales price for more than 20 percent of transactions that are secured
by manufactured homes and land. One manufactured housing lender stated
that for its loans for which appraisals are ordered, appraisals
resulted in appraised values lower than the sales price around 30
percent of the time. Similarly, the State manufactured housing industry
trade association stated that, based on information from its members,
the rate of appraisals with appraised values lower than the sales price
is approximately 30 percent.
Commenters also cited problems with obtaining comparables as
contributing to the difficulty with obtaining accurate appraisals.
Manufactured housing lenders, a national manufactured housing industry
trade association, and a State manufactured housing industry trade
association stated that manufactured home comparables, especially in
rural areas, tend to be unavailable or inadequate. One lender noted
that, in practice, HUD will permit site-built comparables for the Title
II FHA loan insurance program in the absence of appropriate
manufacturer home comparables, but only on a limited basis. A
manufactured housing lender also asserted that relying upon site-built
homes as comparables can lead to inflated values.
A national manufactured housing industry trade association and a
State manufactured housing industry trade association asserted that no
reliable database of previous sales which appraisers can use to develop
an accurate, reliable value for manufactured homes exists. The State
manufactured housing industry trade association believed that actual
sales data must serve as the foundation for any valuation system. The
commenter believed that creating such a database would involve both
time and expense, and that such a database should not be created by
private industry or based upon the voluntary submission of sales price
data. This commenter expressed the view that such a database should be
created by State governments.
Several commenters believed that issues with appraisers are the
cause of manufactured housing appraisals resulting in values lower than
the sales price. A manufactured housing lender believed that
significant appraiser bias exists against manufactured housing, which
results in lower value estimates. Another manufactured housing lender
stated that most state-licensed or -certified appraisers have no
training or experience in appraising manufactured homes.
Commenters also cited concerns about the cost of requiring
appraisals for these transactions. A national manufactured housing
industry trade association and two manufactured housing lenders raised
related concerns that appraisal costs would make these transactions
less affordable for consumers and that an appraisal is expensive
relative to the cost of a manufacture home. The national manufactured
housing industry trade association expressed the view that these costs
could result in reduced manufactured housing lending.
The Agencies specifically requested comment on the potential
burdens on creditors and consumers and any potential reduction in
access to credit that might result from imposing requirement for an
appraisal in conformity with USPAP and FIRREA with an interior property
inspection on all creditors of loans secured by both a new manufactured
home and land. Two national appraiser trade associations believed that
concerns about appraisal costs could be mitigated because professional
appraisers can provide a range of services other than an interior
inspection but still in conformity with USPAP. These commenters argued
that the cost of a professional appraisal is relatively small compared
to the value provided to borrowers and to loan underwriting safety and
soundness. A consumer advocate group, two affordable housing
organizations, a national association of owners of manufactured homes,
and a policy and research organization believed that the costs of an
appraisal with an interior inspection would be no higher than the costs
of appraisals for site-built homes subject to the rule.
No commenters offered data on the cost of the method of using the
manufacturer's invoice for the home and conducting a separate appraisal
of the land. However, a national manufactured housing industry trade
association asserted that this method costs consumers less than the
type of appraisal that the HPML appraisal rules require. Informal
outreach by the Agencies with a manufactured housing lender after the
2013 Supplemental Proposed Rule suggested that the interior inspection
was the element of the HPML appraisal requirements that added the most
cost. Another manufactured housing lender believed that the land-only
appraisal would still be expensive for consumers. A national
association of owners of manufactured homes, a consumer advocate group,
a policy and research organization, and two affordable housing
organizations stated that they did not have cost information in order
to respond to the question posed by the Agencies.
[[Page 78548]]
In addition, the Agencies requested comment on whether consumers
currently receive information about the value of their land and
manufactured home. A consumer advocate group, two affordable housing
organizations, a policy and research organization, and a national
association of owners of manufactured homes asserted that consumers do
not currently receive valuation information. Two manufactured housing
lenders stated that, when appraisals are performed, lenders are
required to provide the ECOA notice informing consumers that a copy of
the appraisal may be obtained from the lender upon request.\96\ One of
the manufactured housing lenders indicated that it routinely issues a
copy of the appraisal to its customers. The other lender stated that,
after receiving the ECOA notice, very few consumers request the
appraisal information.
---------------------------------------------------------------------------
\96\ See ECOA section 701(e), 15 U.S.C. 1691(e). These
provisions were amended by section 1474 of the Dodd-Frank Act,
implemented by the Bureau's 2013 ECOA Valuations Rule, 12 CFR Sec.
1002.14, and effective January 18, 2014.
---------------------------------------------------------------------------
Finally, the Agencies requested comment on alternative methods that
may be appropriate for valuing new manufactured homes and land, which
the Agencies could require as a condition of an exemption from the
general HPML appraisal rules in Sec. 1026.35(c)(3) through (c)(6). A
real estate trade association, two national appraiser trade
associations, a consumer advocate group, a policy and research
organization, two affordable housing organizations, and a national
association of owners of manufactured homes believed that a discussion
of conditioning the exemption was unnecessary because they believed
that there should be no exemption for these transactions.
All other commenters on this issue--a national mortgage banking
association, a State credit union association, two nonbank manufactured
home lenders, a State manufactured housing industry trade association,
and a national manufactured housing industry trade association--opposed
adding conditions to the exemption. The manufactured housing lenders
stated that they were unaware of a reliable, uniform valuation method
by which to provide information to a consumer in new or existing
manufactured housing transactions. The mortgage banking trade
association believed that providing an alternative valuation would
confuse consumers, and a State credit union trade association believed
that a condition would increase the cost for consumers to obtain
credit.
The Final Rule
The Agencies are adopting a modified exemption for transactions
secured by a new manufactured home and land. Under the final rule,
creditors for these transactions will be subject to all of the HPML
appraisal requirements except for the requirement that the appraisal
include a physical visit of the interior of the manufactured home. See
Sec. 1026.35(c)(3)(i). As discussed below, the Agencies believe that
this exemption from the requirement for a physical visit of the
interior of the property is in the public interest and promotes the
safety and soundness of creditors. Comment 35(c)(2)(viii)(A)-1
clarifies that a creditor of a loan secured by a new manufactured home
and land could comply with Sec. 1026.35(c)(3)(i) by obtaining an
appraisal conducted by a state-certified or -licensed appraiser based
on plans and specifications for the new manufactured home and an
inspection of the land on which the property will be sited, as well as
any other information necessary for the appraiser to complete the
appraisal assignment in conformity with USPAP and FIRREA. Compliance
with the HPML appraisal rules for these transactions is not mandatory
until July 18, 2015.
As discussed in the 2013 Supplemental Proposed Rule, the Agencies
conducted additional research and outreach after issuing the January
2013 Final Rule to determine how to treat loans secured by existing
manufactured homes under the HPML appraisal rules. In this process, the
Agencies obtained information about manufactured home lending valuation
practices that prompted the Agencies to review the exemption in the
January 2013 Final Rule for transactions secured by a new manufactured
home, whether or not the transaction is secured by land.
Through research, written comments, and informal outreach, the
Agencies obtained the views of a wider range of stakeholders, including
consumer advocates, affordable housing organizations, a policy and
research organization, and a national association of owners of
manufactured homes (summarized earlier ``Public Comments'').\97\ In
addition, the Agencies consulted with additional manufactured home
lenders, one of which indicated that the lender obtains appraisals in
conformity with USPAP for these transactions.\98\ Based on this
information, the Agencies understand that a pivotal factor in valuing
manufactured homes is whether the transaction is secured by land.
Accordingly, the Agencies are adopting a final rule that applies
different rules to loans secured by a new manufactured home and land
(Sec. 1026.35(c)(2)(viii)(A)) and loans secured by a new manufactured
home without land (Sec. 1026.35(c)(2)(viii)(B)).
---------------------------------------------------------------------------
\97\ The Agencies did not receive comments from these types of
organizations on the 2012 Proposed Rule, which the Agencies believe
may be due to the large volume of mortgage rules that were issued
for public comment at that time. A large real estate trade
association expressed similar views in commenting on both the 2012
Proposed Rule and 2013 Supplemental Proposed Rule.
\98\ For a summary of more recent informal outreach conducted by
the Agencies, see https://www.federalreserve.gov/newsevents/rr-commpublic/industry-meetings-20131001.pdf.
---------------------------------------------------------------------------
The Agencies understand that manufactured home lenders regularly
value a new manufactured home and land by relying on the manufacturer's
(wholesale) invoice for the home unit (marked up by a certain
percentage to account for siting costs, dealer profit, and related
expenses associated with the transactions) and having a separate
appraisal performed on the land. The two values are then added together
to obtain a maximum loan amount, which may not be the amount of credit
ultimately extended. The Agencies understand that transactions secured
by a new manufactured home and land can be consummated before the new
home is sited or, in some cases, even built.
For these reasons, the Agencies recognize that applying the HPML
appraisal rules to transactions secured by a new manufactured home and
land will represent a change in practices for many manufactured home
lenders. In part to mitigate unnecessary burden, the Agencies are
exempting these transactions from the requirements that the appraisal
include a physical inspection of the interior of the new manufactured
home. In addition, the Agencies understand that an interior inspection
of the property is a central obstacle to complying with the HPML
appraisal rules in transactions secured by a new manufactured home and
land, since production of the home might not be completed or started
before the loan is consummated. Further, the Agencies believe that an
interior inspection on a new manufactured home may not be warranted
because the home would not have been subject to wear and tear and
production and installation inspections new manufactured homes occur as
part of a separate regulatory framework administered by HUD.\99\
---------------------------------------------------------------------------
\99\ See 24 CFR parts 3282 and 3286.
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Under the final rule, as of July 18, 2015, a creditor could, for
example, obtain an appraisal based on the
[[Page 78549]]
appraiser's review of plans and specifications of the new home and an
inspection of the site. See comment 35(c)(2)(viii)(A)-1. Neither USPAP
nor FIRREA requires an interior inspection, but the Agencies believe
that all other aspects of the HPML appraisal rules could and should be
complied with. USPAP and FIRREA also do not require an appraiser to use
particular types of comparables in valuing manufactured homes, so
appraisers will have flexibility in selecting either manufactured home
comparables or site-built comparables as the appraiser deems
appropriate or as the creditor, secondary market participant, or
relevant government agency requires. The Agencies are also aware that
public comments and outreach included varying views on the availability
of appropriate comparables and appraisers with the relevant competency
to conduct USPAP land/home appraisals for transactions secured by a new
manufactured home and land, with some generally asserting that
appropriate comparables and competent appraisers are readily available,
while other expressed concerns that at least in some markets they are
not. However, the Agencies believe that giving creditors 18 months
before compliance becomes mandatory can provide time for creditors and
other stakeholders to determine how to address concerns in these areas.
The Agencies believe that applying the HPML appraisal rules to
transactions secured by new manufactured homes and land is important
for several reasons. First, as with transactions secured by an existing
manufactured home and land, covering transactions secured by a new home
and land is consistent with the requirements of the GSEs and Federal
government agencies for these types of loans. Again, Congress
designated HPML transactions that are not qualified mortgages to be
``higher-risk'' than other transactions; therefore, the Agencies
believe it prudent and in keeping with congressional concern to be
consistent with other Federal standards for these loans.
Second, appraiser representatives and regulators have made it clear
in public comments on this rulemaking and independent publications that
separate assessments of the unit value and land added together do not
constitute an acceptable appraisal.\100\ For loans deemed ``higher-
risk'' by Congress, the Agencies have reservations about a valuation
practice that diverges from practices deemed appropriate and most
likely to result in a valid outcome.
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\100\ See, e.g., Texas Appraiser Licensing and Certification
Board, ``Assemblage As Applied to Manufactured Housing,'' available
at https://www.talcb.state.tx.us/pdf/USPAP/AssemblageAsAppliedToMfdHousing.pdf.
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Third, all commenters on the 2013 Supplemental Proposed Rule that
did not represent the manufactured home lending industry, as well as a
few manufactured home lenders, opposed a full exemption for loans
secured by a new manufactured home and land. These comments strongly
suggest that the exemption would not be in the public interest, as
required by the statute. Commenters opposing a full exemption generally
held the view that appraisals in conformity with USPAP and FIRREA for
these homes are feasible and that prudent lending practice and consumer
protection are best served by obtaining appraisals for transactions
secured by a new manufactured home and land together. They believed
that appraisals with interior inspections would allow consumers to
obtain better information about the value of their homes than methods
that combine an appraised value of a site and a marked-up invoice price
of a manufactured home. As noted under ``Public Comments,'' some
manufactured home lenders indicated that they already conduct
appraisals in conformity with USPAP for transactions secured by a new
manufactured home and land.
The Agencies decline, however, to adopt suggestions from some of
these commenters that the general appraisal requirements should cover a
broader range of transactions. Regarding the suggestion that the
general appraisal requirements should cover transactions secured by a
manufactured home and a leasehold interest, the Agencies are aware that
State laws may vary regarding rights attendant to leasehold interests
and that different lease terms might have different values; both are
factors that would be beyond the scope of the final rule to provide
guidance. GSE and Federal agency manufactured housing programs require
the securing property to be real estate; whether a manufactured home
and lease-hold meets that standard varies by State law and the Agencies
believe that uniformity across states for the HPML appraisal rules
would best facilitate compliance. At the same time, the Agencies
recognize that lease terms and stability of tenancy can affect value,
and believe that these factors would be appropriate to take into
account as part of valuations for appraising transactions secured by a
home and not land. The final rule permits but does not require
consideration of these factors.\101\ See Sec.
1026.35(c)(2)(viii)(B)(3) and accompanying section-by-section analysis.
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\101\ A national provider of a manufactured home cost guide
indicated in comments that its guide includes a land-lease community
adjustment guideline that can be used if a manufactured home is
located in a land-lease community.
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The Agencies are also not following the suggestion that the
appraisal requirement be applied to transactions secured by a home
whenever the borrower owns the land, even if the transaction is not
secured by the land. The Agencies are concerned that accounting for
differing ownership structures of the land would complicate the rule
and could be difficult for creditors and appraisers to assess. The
Agencies also have questions about whether appraisals of the land and
home together, even if the land is not securing the transaction, will
consistently lead to the desired result--market value of the collateral
securing the loan. Some lenders indicated that when a loan goes into
foreclosure, the property may be repossessed and taken back into dealer
inventory; thus, it would seem important for a lender to know the value
of the structure by itself. Again, the Agencies recognize that the
location of the home can have a significant impact on its value, and
believe that the location-related factors would be appropriate to take
into account as part of valuations for transactions secured by a home
and not land. The final rule permits but does not require consideration
of these factors. See Sec. 1026.35(c)(2)(viii)(B)(3) and accompanying
section-by-section analysis.
Fourth, most commenters, including leading manufactured housing
lending industry representatives, expressed support for developing and
even requiring appropriate valuations for manufactured home
transactions. In light of additional stakeholder views received since
issuance of the January 2013 Final Rule and additional research, the
Agencies believe that applying the HPML appraisal rules to transactions
secured by new manufactured homes and land, as well as transactions
secured by existing manufactured homes and land, creates needed
incentives for the continued training of state-certified and -licensed
appraisers in valuing manufactured homes and the development of
appraisal methods tailored to value collateral in manufactured home
lending transactions, including appropriate use of comparables. This
will in turn support improved accuracy and
[[Page 78550]]
reliability of appraisals for these transactions.
Regarding concerns expressed by commenters about a lack of
comparable sales data, the Agencies understand that in many cases
comparable sales data is reported to and available in Multiple Listing
Services (MLS) regarding sales of manufactured homes and land
classified as real property. The Agencies recognize that a more robust
tracking of manufactured home sales information would be beneficial and
may take time, and encourages efforts in this regard. The delayed
effective date is intended to allow more time to move forward in this
process.
Finally, the Agencies believe that treating manufactured home loans
secured by both the home and land in the same way as loans secured by
site-built homes and land will foster the development of greater
consistency between the rules and practices applicable to transactions
secured by site-built homes and manufactured homes. The Agencies
believe that this consistency of rules and practices will contribute to
integrating manufactured home lending more fully into the broader
mortgage market over time, which could have long-term benefits for
consumers and lenders.
For these reasons, on balance, the Agencies have concluded that an
exemption from the HPML appraisal requirement for a physical visit of
the interior of the home as part of the appraisal will promote the
safety and soundness of creditors and be in the public interest.
35(c)(2)(ii)(B)
Loans Secured by a Manufactured Home and Not Land
The Agencies' Proposal
As noted, in the January 2013 Final Rule, the Agencies adopted an
exemption from the HPML appraisal requirements for loans secured by a
``new manufactured home.'' See 78 FR 10368, 10379-10380, 10433, 10438,
10444 (Feb. 13, 2013). The January 2013 Final Rule did not address
loans secured by ``existing'' (used) manufactured homes, which
therefore would be subject to the appraisal requirements unless the
Agencies adopted an exemption.
As discussed in the 2013 Supplemental Proposed Rule, additional
research and outreach on valuation practices for loans secured by an
existing manufactured home and not land indicated that current
valuation practices for these transactions generally do not involve
using a state-certified or -licensed appraiser to perform a real
property appraisal in conformity with USPAP and FIRREA with an interior
property inspection, as required under TILA section 129H and the
January 2013 Final Rule. In addition, lender commenters on the 2012
Proposed Rule had 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 MLS of most states, 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 confirmed in outreach
with the Agencies in 2013 that manufactured home sales information is
generally not available through standard real estate data sources.\102\
The Agencies also understood that, in many states, appraisers are not
currently required to be licensed or certified in order to perform
personal property appraisals.
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\102\ The Agencies also are not aware of site-built or similar
comparables for home-only collateral.
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Accordingly, the 2013 Supplemental Proposed Rule would have
exempted transactions secured by existing manufactured homes and not
land in proposed Sec. 1026.35(c)(2)(ii)(B).\103\ The Agencies noted
that an exemption would promote the public interest in affordable
housing by ensuring transactions were not subject to a requirement not
suited to this particular collateral type at this time, and would
promote safety and soundness by allowing creditors to rely on currently
prevalent valuation methods to ensure profitability and diversity to
mitigate risk. The Agencies requested comment on this proposed
exemption.
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\103\ In addition, proposed comment 35(c)(2)(ii)(B)-1 would have
clarified 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.
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In addition, however, the Agencies' 2013 Supplemental Proposed Rule
sought comment on any risks that could be created by an unconditional
exemption for transactions secured by a manufactured home, whether new
or existing, and not land. After the January 2013 Final Rule was
issued, consumer advocates and other stakeholders expressed concerns
that some transactions in the lending channel for manufactured home-
only (chattel) transactions (both of new and existing manufactured
homes) can result in consumers owing more than the manufactured home is
worth. For this type of loan, stakeholders such as consumer and
affordable housing advocates asserted 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.
Consumer advocates and others 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 also noted that chattel manufactured home loan transactions
tend to have much higher rates than conventional mortgage loans. Some
stakeholders 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 important
questions about the transaction.
Accordingly, the 2013 Supplemental Proposed Rule posed a number of
questions seeking comment on conditioning the exemptions for
manufactured home-only transactions on providing the consumer with an
estimate of the value of the manufactured home no later than three
business days before consummation. The 2013 Supplemental Proposed Rule
discussed several types of estimates.
First, based on input from lenders and manufactured home valuation
providers, the Agencies understood that in new home-only transactions,
many creditors determine the maximum amount that they will lend by
using the manufacturer's invoice, or wholesale unit price, marked up by
a certain percentage to reflect, for example, dealer profit and siting
costs. As discussed in the 2012 Proposed Rule, informal outreach
participants indicated that this practice--similar to that sometimes
used for automobiles--is longstanding in new manufactured home
transactions.\104\ Lenders asserted that these methods save 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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\104\ See 77 FR 54722, 54732-33 (Sept. 5, 2012).
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Second, outreach to manufactured home lenders indicated that in
transactions secured by an existing manufactured home and not land,
lenders typically obtain replacement
[[Page 78551]]
cost estimates derived from nationally published cost services, taking
into account factors such as the age of the unit (to derive depreciated
values) and regional location of the home.\105\
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\105\ One option identified in the 2013 Supplemental Proposed
Rule (78 FR 48548, 48554 n. 12 (Aug. 8, 2013) was the National
Automobile Dealers Association (NADA) Manufactured Housing Cost
Guide. See NADAguides.com Value Report, available at
www.nadaguides.com/Manufactured-Homes/images/forms/MHOnlineSample.pdf.
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Third, the Agencies understood that additional methods exist for
conducting personal property appraisals of manufactured homes. For
example, HUD has adopted property valuation standards for HUD-insured
loans secured by an existing manufactured home and not land. These
standards call for use of a certified independent fee appraiser to
conduct a valuation of the home using data on comparable manufactured
homes in similar condition and in the same geographic area.\106\
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\106\ See HUD TI-481, Appendices 8-9, C, and 10-5.
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Public Comments
The Agencies received 28 comment letters on transactions secured by
manufactured homes and not land from four national appraisal trade
associations, a provider of a manufactured housing cost guide, a
consumer advocate group, three affordable housing organizations, a
national association of owners of manufactured homes, a policy and
research organization, a credit union, seven State or regional credit
union associations, a national credit union association, a community
bank, a national trade association for community banks, a State banking
trade association, a national mortgage banking trade association, a
national trade association for manufactured housing, a State
manufactured housing trade association, and two manufactured housing
nonbank lenders.
Many of the comments received pertained to transactions secured by
either an existing or new manufactured home, but the comment summary
below is generally divided into two parts, one regarding comments on
loans secured by a new manufactured home (but not land) and one
regarding comments on loans secured by an existing manufactured home
(but not land). First, however, some generally applicable comments are
reviewed below.
General Comments
A consumer advocate group, two affordable housing organizations, a
national association of owners of manufactured homes, and a policy and
research organization indicated that the Agencies should adopt a rule
that would ensure that consumers have information about their home
value before entering into an HPML secured by an existing manufactured
loan without land.
Providers of valuations and their trade associations also generally
supported providing copies of valuation information to consumers in
these transactions. Two appraiser trade associations stated that
consumers have a ``fundamental right'' to understand the market value
of the property collateralizing covered loans. A provider of a
manufactured home cost guide stated that consumers unequivocally would
benefit from knowing the cost estimate value of their home.
Industry support for providing this information to consumers was
more limited. A State credit union association stated that in an HPML
secured by an existing manufactured home and not land, the consumer
should receive a copy of a valuation, which this commenter believed
would be a valuable tool for the consumer. A State manufactured housing
trade association stated that, if a reliable repository of data on
comparable sales were developed, it would support providing the
consumer a copy of a valuation based upon such data.
More broadly, manufactured home lending industry commenters
questioned the need for valuation regulations on new manufactured home
transactions on several grounds. A State manufactured housing trade
association noted that most manufactured housing lenders are portfolio
lenders who have incentives to adopt appropriate underwriting standards
and not to over-finance the loan. This commenter asserted that the
widespread practice of using actual cost information from the
manufacturer's invoice to determine maximum loan amount prevents over-
financing. Finally, the commenter stated that over-financing has not
been substantiated as a problem in manufactured home lending. Thus, the
commenter suggested that the Agencies take more time to study the issue
of manufactured home valuations before proposing a final rule in this
area.
Similarly, a national community banking trade association stated
that a portfolio lender's assumption of credit risk is an incentive to
choose appropriate valuation methods. Further, two State credit union
associations stated that existing valuation methods suffice for
ensuring reasonably safe and sound loans. Another State credit union
association noted that creditors have alternatives to the USPAP
interior-inspection appraisal, such as an exterior inspection or drive-
by, or an analysis of sales of comparable homes.
One manufactured home lender suggested that consumers purchasing
manufactured homes do not need appraisals because manufactured homes
are sold like automobiles, in that they are sold from a retailer's
display center. Therefore, the commenter suggests that instead of
providing consumers with appraisals, consumers should be encouraged to
engage independently in comparative shopping when selecting a home as
well as when shopping for a loan. Another manufactured home lender
stated that consumers do not need information beyond the sales
contract, which breaks down certain costs. This commenter stated that
information about the value of the home is not relevant to these
consumers because they do not buy manufactured homes for investment. A
manufactured home lender also stated that it does not offer loans based
on the collateral value but instead on the consumer's ability to repay.
A national manufactured housing trade association stated that
inspections by HUD-certified inspectors conducted on all new
manufactured homes provide lenders and consumers a strong guarantee of
the quality of a manufactured home.\107\ Moreover, this commenter
asserted that the HUD inspection process, coupled with the verification
that lenders receive from manufactured home retailers and builders on
all new manufactured homes,\108\ dispenses with the need for an
appraisal and interior inspection.
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\107\ See generally, 24 CFR parts 3280, 3282, and 3286.
\108\ This commenter may have been referring to requirements
such as those in HUD manufactured housing regulations that require a
manufacturer to certify to the manufactured home dealer or
distributer that the home conforms to all applicable Federal
construction and safety standards. See 24 CFR 3282.205.
---------------------------------------------------------------------------
Two national appraiser associations generally asserted that the
importance of valuation information to the consumer and lenders far
outweighs the costs and burdens of providing this information. However,
one manufactured home lender suggested that the cost of performing
third-party appraisals would be unnecessary for the consumer,
especially given this commenter's concerns about their reliability in
home-only transactions. In addition, the commenter suggested that these
costs would be a particular hardship on consumers who purchase
manufactured home because they tend to have lower
[[Page 78552]]
incomes and lower credit scores than consumers of site-built homes;
thus, they are purchasing a manufactured home because it is the most
affordable and viable option available to them to own their own home.
Finally, the commenter suggested the burden on manufactured home
creditors of valuation requirements is likely to result in a reduction
in lending. Similarly, a national manufactured housing trade
association commenter suggested that existing valuation methods are
adequate and cost consumers substantially less than traditional
property appraisals.
A manufactured home lender expressed concerns in particular about
requiring creditors to provide a third-party cost service unit value to
the consumer for either new or existing manufactured homes. According
to this commenter, the technology and personnel required to program and
develop a system to compare the home's year, manufacturer, and model
name with the appropriate year, manufacturer, and model name from a
specific price guide would be considerable. Further, this commenter
asserted, this type of requirement would add to all lenders' overhead
costs, which would increase the cost of credit (i.e., be passed on to
the consumer). This lender predicted that such a task would deter other
established creditors, including banks and credit unions, from offering
financing secured by a manufactured home.
Location. A question with equal applicability to transactions
secured by either a new or existing manufactured home was a request for
comment on the impact the location of a new manufactured home can have
on its value and whether cost services are available that account
adequately for differences in location. Commenters who responded
generally agreed that the location of a manufactured home can have a
significant impact on its value. Two national appraiser association
commenters suggested that the location of a manufactured home can have
a significant influence on its value and that they know of no cost
services that adequately account for price differences in locations.
A consumer advocacy group, two affordable housing organizations, a
national manufactured homeowner association, and a policy and research
organization suggested that manufactured homes are very rarely moved
because moving a manufactured home is expensive and likely to damage
the unit. As a result, a location-based value is more relevant to
resale value. These commenters further suggested that attributes of the
home's location that affect the home's value are tangible and visible,
but that there are other attributes of a manufactured home's location
that affect the home's value that are not typically captured in
existing valuation models. Examples of such characteristics provided
were lease terms or State laws that: (1) Stabilize rent; (2) ensure
that the home may remain where it is sited; (3) ensure that the
homeowner is able to sell the home to a new owner without having to
move it; and (4) protect the lender's interest in the home if the
homeowner defaults on the loan.
One manufactured home lender suggested that similar factors, such
as proximity to retail shopping, the quality of the neighborhood public
and private schools, the condition and upkeep of neighboring
properties, and other factors that affect the value of site-built homes
will also affect the value of manufactured homes. However, the
commenter suggested that due to historical biases against manufactured
homes in urban areas and most neighborhoods--expressed through zoning
restrictions, prohibitions, and restrictive covenants--most
manufactured homes are located in rural communities. A manufactured
home lender also indicated that, in fact, it is not uncommon for
manufactured homes may be moved from a sited location back to a
dealer's lot, particularly when they have been foreclosed upon and are
in rural areas.
Further study. Several commenters suggested that more time may be
needed to develop reliable alternatives to a USPAP- and FIRREA-
compliant appraisal based upon a physical inspection of the interior of
the home. Two manufactured housing lenders, while generally opposed to
conditioning the exemption, suggested the Agencies that postpone any
decision on these issues for several months of further evaluation. A
State manufactured housing trade association indicated that it would
only support a condition if a mandatory repository of data on
comparable sales were developed and sufficient time passed for this
repository to populate.\109\ This commenter also expressed concerns
that very few, if any, loans secured by manufactured homes would be
exempt from the HPML appraisal rules as qualified mortgages. See Sec.
1026.35(c)(2)(i). This commenter suggested that the large number of
loans potentially covered by conditions on any exemption for
manufactured home transactions that would involve alternative
valuations warranted further study of these options by the Agencies.
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\109\ This commenter noted, however, that the private sector was
not in a position to develop such a repository due to cost and anti-
trust concerns. Further, if such a repository were developed, this
commenter expected challenges in finding data on comparable sales in
rural areas would remain.
---------------------------------------------------------------------------
Similarly, a consumer advocate group, two affordable housing
groups, a national association of owners of manufactured homes, and a
policy and research organization, while generally supporting
conditions, suggested that the Agencies convene a working group of
stakeholders to review and develop valuation standards. These
commenters observed that this approach would help to integrate the
manufactured housing sector into the larger housing market. In their
view, valuation rules would create demand, which would improve capacity
for providing valuations and also generate more financing options for
manufactured home consumers.
Comments on Loans Secured by a New Manufactured Home (but not Land)
The Agencies solicited comment on whether it would be appropriate
and beneficial to consumers to condition the exemption from the HPML
appraisal requirements on the creditor providing the consumer with
various types of third-party information about the manufactured home's
cost, which third-party estimates should be used for these estimates,
and when creditors should be required to provide the information. The
Agencies received several comments on these questions. Representatives
of appraisal providers, a credit union, a community bank, a consumer
advocacy group, three affordable housing groups, a national association
of owners of manufactured homes, and one policy and research
organization generally suggested that consumers would benefit. On the
other hand, a manufactured home lender, two manufactured housing trade
associations, a State credit union association, a mortgage company, a
national community bank trade association, and a national mortgage
banking trade association generally suggested that consumers would not
benefit and a condition should not be adopted.
Manufacturer's invoice. Regarding the utility of providing the
consumer with a copy of the manufacturer's invoice, a consumer advocacy
group, two affordable housing groups, a national manufactured homeowner
association, and a policy and research organization stated that in the
near term consumers would benefit from receiving the manufacturer's
invoice because this is what manufactured home lenders rely on in
transactions involving new manufactured homes. They asserted that a
consumer who is given the invoice is better able to evaluate the
accuracy of
[[Page 78553]]
the description of the home's features. Given concerns about truth and
accuracy in invoices in capturing all dealer payments, though, these
commenters suggested that these transactions ultimately should be
subject to the HPML appraisal rules on the same basis as site-built
homes. In their view, higher valuation standards would improve
appraiser capacity and, they argued, decrease incentives to steer
consumers to loans with weaker standards.
Regarding the credibility of manufacturer's invoices, the Agencies
received conflicting information. One affordable housing organization
differentiated between a dealer's invoice and a manufacturer's invoice,
indicating that incentives and rebates might be omitted from the
dealer's invoice but not from the manufacturer's invoice so the
manufacturer's invoice would be more reliable for the consumer. A
consumer advocacy group, two affordable housing organizations, a
national association of owners of manufactured homes, and a policy and
research organization, however, commented that the manufacturer's
invoice may not have accurate information about the actual cost paid by
the dealer because it might not reflect incentives, rebates, and in-
kind services agreed upon by the dealer and manufacturer. However, as
noted, they believed that the representation of home features on the
invoice would be useful to consumers.
A national manufactured housing trade association stated that the
manufacturer certifies to the retailer the authenticity and accuracy of
the wholesale cost of the manufactured home at the point of
manufacture. A manufactured housing lender further suggested that the
manufacturer's invoice is the only realistic option upon which to base
a home's value because it takes into account the upgrades and other
features pertinent to the home. This commenter suggested that the
invoice amount also offers a ``conservative'' figure in terms of
valuation and loan-to-value considerations. However, the commenter
noted that a consumer's total sales price will include certain other
third-party charges related to the move and set-up of the manufactured
home, dealer mark-ups and occasionally local government fees required
to be paid by the dealer.
Third-party cost service estimates. Regarding the utility of
providing a third-party unit estimate from an independent cost service,
a credit union commenter stated that a third-party unit estimate would
give consumers a valuable guideline to prevent predatory practices.
Similarly, a community bank commenter stated that this information
could help alleviate the potential for dealer price markups over
manufacturer's suggested retail price. A national provider of a
manufactured home cost service stated in its comment letter that its
cost guide information could ``absolutely'' be useful to consumers, but
cautioned that providing consumers with multiple different indications
of value could make the process more confusing to consumers. The
provider further stated that its cost guide can be used to provide a
``guideline'' that is a ``reasonable approximation'' for a new
manufactured home value using the ``new or like new'' condition for the
current-year model. The cost guide provider indicated that its value
estimates consider the home's manufacturer, model, size, year, and
region. In its cost guide, adjustments are also possible for State
location, the general condition of the home, as well as for value added
by additional features.
An affordable housing organization stated that creditors should be
required to obtain cost estimates from an independent appraiser based
upon nationally-published cost information. This commenter stated that
consumers will be better informed with more information.
On the other hand, several industry and industry trade association
commenters suggested that providing copies of third-party estimates
would be of no benefit to consumers or would cause consumer confusion.
One manufactured home lender asserted that cost guides consider pieces
of property in the abstract and fail to account for the cost of
permits, site preparation, and delivering the home to the purchaser's
site. Moreover, this commenter suggested cost guides are typically used
by lenders only to determine a value for pre-owned manufactured homes.
A State manufactured housing association also noted that the third-
party cost guides are not used in practice for new manufactured home
transactions, a view confirmed by a manufactured home lender during
informal outreach.
Independent valuations. Regarding third-party valuations for new
home-only transactions generally, a number of industry, consumer group,
and other commenters stated that in their view there does not exist
today a reliable national third party database for comparable sales for
new manufactured homes. However, two national appraiser association
commenters stated that they strongly support requiring an independent
third-party valuation by a credentialed third party appraiser with
education, training, and experience, or a valuation through the
National Appraisal System (NAS), which would be consistent with the
requirements of government programs.\110\
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\110\ See HUD TI-481, Appendices 8-9, C, and 10-5. The Agencies
understand that the NAS is an appraisal method involving both the
comparable sales and the cost approach.
---------------------------------------------------------------------------
Information for the consumer. The Agencies also solicited comment
on whether the consumer in an HPML transaction to be secured by a new
manufactured home and not land typically receives unit cost
information, and what cost information from a reliable independent
third-party source might be reasonably available to creditors and
useful to a consumer. Several commenters responded to this and a
related question; all generally suggested that, other than the retail
purchase and sale agreement between the manufactured home purchaser and
the retailer, no third-party information is currently provided to
consumers about the value of their new manufactured home. One
manufactured home lender noted that the retail purchase agreement will
list the retail price of the manufactured home and itemize and include
in the total cost all other costs and charges associated with the
transactions and installation of the home and extras. Another
manufactured home lender added that it is not the industry custom to
disclose the wholesale amount to a consumer. Rather, the commenter
suggested, the Agencies should not require disclosures of cost
information for consumers and deviate from widely accepted practice in
other areas of retail sales, including automobiles or site-built homes.
Most of the commenters who responded on the information
availability issue suggested that there was currently no readily-
accessible, publicly-available information that consumers could use to
determine whether their loan amount exceeds the collateral value in a
new manufactured home chattel transaction. Two national appraiser
associations asserted that, under the statute, consumers have a
fundamental right to know the value of the home that collateralizes
debt they incur. However, a provider of a manufactured home cost guide
suggested that consumers could access manufactured home value
information on its Web site representing the depreciated replacement
cost of a home.
Regarding the best timing for a creditor to provide a unit value
estimate to a consumer, two national appraiser associations suggested
that the
[[Page 78554]]
information should be delivered to the prospective borrower as early in
the loan underwriting process as possible. A consumer advocacy group,
two affordable housing organizations, a national association of owners
of manufactured homes, and a policy and research organization suggested
that a copy of the manufacturer's invoice should be provided to
consumers after the execution of the buyer's order but prior to the
consummation of the transaction. Finally, one community bank suggested
that third-party cost guide information should be provided to the
consumer at least three days prior to consummation because the data is
readily available through the database.
Comments on Loans Secured by an Existing Manufactured Home (but not
Land)
Commenters generally supported an exemption from the HPML appraisal
rules under Sec. 1026.35(c)(3) through (6) for transactions secured by
an existing manufactured home and not land. However, a number of
commenters favored conditioning the exemption on the creditor obtaining
and providing valuation information to the consumer. Several commenters
also stated that any exemption should be temporary. The most common
reasons cited by commenters for supporting the exemption were a lack of
qualified and available appraisers; a lack of data on comparable sales;
and concerns over the cost of appraisals.
Regarding the availability of appraisers, a State manufactured
housing trade association cited a scarcity of state-certified and -
licensed appraisers to support chattel lending in general, which this
commenter stated is particularly pronounced in rural areas where the
homes are predominantly located. This commenter also believed valuation
professionals lacked sufficient experience with USPAP personal property
appraisal standards to comply with them in existing manufactured home-
only transactions. Similarly, a manufactured home lender stated that
most state-certified or -licensed appraisers are not trained or
experienced in manufactured home appraisals and that in many rural
areas, no qualified appraisers are available.\111\
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\111\ This commenter's observations were also endorsed by
another manufactured home lender and a national manufactured housing
trade association.
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In addition, a national community bank trade association indicated
that, while some community banks can readily engage appraisers for
manufactured home transactions, other banks do find it difficult to
identify appraisers. A consumer advocate group, two affordable housing
organizations, a national association of owners of manufactured homes,
and a policy and research organization stated, however, that any
appraiser capacity issues are driven by a lack of valuation standards
for the manufactured housing segment. As a result, allowing the rule to
take effect after a temporary period would lead to demand for
appraisers, creating an incentive for appraisers to obtain the
requisite skills.
A number of commenters expressed concern that the limited
availability of data on comparable sales for transactions secured by an
existing manufactured home and not land posed a significant barrier to
obtaining reliable third-party appraisals for these transactions. A
manufactured home lender stated that sales of existing manufactured
homes on leased land are not reported to MLS and that data on
comparable sales outside of California is generally lacking. The
commenter noted, though, that one private company does aggregate
comparable sales data from different sources around the country, which
is usually used for transactions in land-lease communities. The
national manufactured housing trade association added that state-
certified or -licensed appraisers do not capture data on sales of
existing manufactured homes, whether from retail dealers or
communities. In addition, this commenter suggested that data may be
distorted by foreclosures in rural areas leading to relocation of homes
to dealer inventory. The State manufactured housing trade association
commenter stated that the lack of a reliable nationwide database of
comparable sales should be remedied and indicated that the one
statewide database (in California) only receives data on a voluntary
basis.\112\
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\112\ This commenter suggested that a national mandatory-
reporting database would need to be sponsored by the government, as
cost and possible anti-trust issues make it unlikely the private
sector would create such a database.
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Further, several industry commenters cited concerns over the cost
of appraisals. A national community bank trade association and a State
credit union association generally believed that that a USPAP-complaint
appraisal with an interior inspection would be costly for low-income
borrowers purchasing existing manufactured homes. Another State credit
union association and a national credit union association supported the
exemption because manufactured home values are generally lower than the
values of other types of home. A state-level bank trade association
also stated that appraisals would be costly for these transactions.
Third-party cost service estimates. A number of commenters also
believed that existing market incentives and valuation methods were
sufficient for this type of transaction. For example, national and
State manufactured housing trade associations noted that lenders
frequently use the value indicated by a national manufactured home cost
guide to determine the maximum amount of credit they would extend for
transactions secured by existing homes and not land. One manufactured
home lender stated that it uses the guide to calculate a
``theoretical'' value, which is imperfect given the lack of reliable
information about the condition of the home. Another nonbank lender
stated that while it uses this guide to determine approximate wholesale
value on trade-ins and as a general guide to the potential sale price
for repossessions, it does not use the guide in transactions to finance
the purchase or refinance of an existing manufactured home and not
land.\113\ A consumer advocate group, two affordable housing
organizations, a national association of owners of manufactured homes,
and a policy and research organization further confirmed the widespread
use of third-party cost service depreciation schedules in this segment
of the market.
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\113\ This nonbank lender also stated that industry lenders do
not typically obtain a ``valuation'' in manufactured home
transactions.
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Regarding the accuracy of third-party cost service estimates for
existing manufactured homes, a national provider of a manufactured home
cost guide stated that its values are derived by applying depreciation
factors to the cost estimate of the home, and are designed to represent
``retail worth'' assuming average condition and certain components.
Adjustments can be made for actual condition, inventoried components,
and local site value (for homes located in land-lease
communities).\114\ The commenter stated that the local site value
adjustment is representative of a national average of the contributing
value for land-lease communities with certain attributes. After
accounting for this adjustment, the value can be up to 33 percent
higher or
[[Page 78555]]
11 percent lower than the value of the structure only (on average, the
location adjustment adds 13 percent). While acknowledging that only
appraisers are qualified to analyze a property's sited location, this
commenter claimed that its location adjustment was more cost effective
than an appraisal based upon a physical inspection, without sacrificing
accuracy. When it compared its location-adjusted values with estimates
from a sample of over 1,000 personal property appraisals of
manufactured homes over a wide range of ages, it found that the median
difference between its estimates and the appraised value was less than
five percent.
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\114\ According to the association, the association develops its
guide by collecting data from industry manufacturers to create a
guideline based on actual original costs, current regional market
activity (which are used to make regional adjustments), and
depreciation factors. The association stated that the depreciation
cost approach used by its guide is a component of the cost approach
used by certified or licensed appraisers, and is approved for use
with Fannie Mae Form 1004C, Freddie Mac Form 70B, and the VA.
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Views of other commenters on the accuracy of third-party cost guide
estimate were more mixed. A manufactured home lender stated that cost
guides are used as a guideline by lenders rather than as an estimate of
resale value. Another manufactured home lender stated that the cost
guide does not include transaction costs, including setup fees, which
can lead to unreliable estimates for consumers.
A consumer advocate group, two affordable housing organizations, a
national association of owners of manufactured homes, and a policy and
research organization believed that estimates based upon these cost
guides fail to value correctly important factors related to the
location of the home, such as the security of land tenure, risk of rent
increases, and community attributes, among others. These commenters
also noted that the cost guide assumes the property value has
depreciated and that available adjustments based upon the property
condition are not required; as a result, maintenance, repairs, and
upgrades could be left out of the value and the property could be
under-valued. Further, these commenters expressed concern that
widespread use of a depreciated value could drive rather than reflect
manufactured home values. However, another affordable housing
organization believed that, despite concerns expressed by some about
the utility of a third-party estimate based upon a nationally-published
cost service, consumers will be better informed with this information.
A State manufactured housing trade association expressed concerns
that depreciated values available through a cost service can be
understated. While this commenter noted that adjustments can be made,
the commenter asserted that questions remain as to who should make the
adjustments and whether they will be made in a uniform, valid, and
reliable manner.
One manufactured home lender believed that the use of physical
inspections to provide a basis for making adjustments to depreciated
unit cost estimates was not widespread. This commenter also pointed out
that some transactions are consummated before the existing manufactured
home is placed on the new site making it infeasible for the lender to
arrange for pre-closing inspections of the home at its new site in
these situations.
Independent valuations. Some commenters also indicated that
valuation methods based upon sales comparison approaches are sometimes
used in transactions secured by an existing manufactured home and not
land. A consumer advocate group, two affordable housing organizations,
a national association of owners of manufactured homes, and a policy
and research organization stated that comparable sales typically are
selected based upon characteristics such as type of sale, size, style,
and location of the home.
A State manufactured housing trade association noted that a private
company can provide comparable sales reports for some transactions. A
manufactured home lender indicated that this service also included a
physical inspection, and is used for transactions secured by homes in
land-lease communities in particular when a cost guide estimate does
not match the sales price.
A national manufactured housing trade association stated that, for
FHA Title I program loans, a physical inspection is conducted to adjust
for site additions and the physical condition of the home. A State
manufactured housing association asserted that the NAS is rarely used
because only a small number of originations are currently done under
the Title I FHA program for which NAS appraisals are specifically
approved.\115\ This commenter and a manufactured home lender stated
suggested that the small number of FHA Title I program loans is due in
part to eligibility requirements, including appraisal requirements.
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\115\ FHA reported providing insurance under its Title I program
for 655 manufactured home loans in Fiscal Year (FY) 2012, 986 in FY
2011, and 1,776 in FY 2010. See HUD, FHA Annual Management Report,
Fiscal Year 2012 (Nov. 15, 2013) at 17. FHA also reported providing
insurance under its Title II program for 20,479 manufactured home
loans in FY 2012, 21,378 in FY 2011, and 30,751 in FY 2010. See id.
According to 2012 HMDA data, 19,614 FHA-insured manufactured home
loans were reported out of a total of 123,628 reported manufactured
home loans, for a FHA-insured share of 15.9 percent. See
www.ffiec.gov/hmda.
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The consumer advocate group, two affordable housing organizations,
a national association of owners of manufactured homes, and a policy
and research group stated that the FHA Title I appraisal system is
overly focused on one characteristic of the home (that it is a
manufactured home) and excludes use of other types of comparables that
may be more suitable. A manufactured home lender noted that HUD-
approved valuation methods based upon comparable sales tend to yield
values below the sales price, which this commenter attributed to an
over-emphasis on use of manufactured homes as comparables.\116\ Another
manufactured home lender claimed that this occurrence in HUD-approved
appraisals is evidence that they undervalue manufactured homes. A
manufactured home lender expressed concerns about the cost of NAS
appraisals under the FHA Title I program. This lender stated that, if a
condition is imposed, lenders should have more than one option for the
type of valuation that would satisfy the condition.
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\116\ These commenters did not identify, however, what other
types of comparables, apart from manufactured homes that are not
sited on land owned by the consumers, could be used as comparables
in these transactions.
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A national association for community banking also referred to all
of the above types of valuations as options for valuating these
transactions, in addition to an evaluation by a bank employee. This
commenter stated that some bank employees conduct interior or exterior
inspections.
An affordable housing organization believed that creditors should
be required to obtain a replacement cost estimate from a trained,
independent appraiser using a nationally-published cost service. Two
national appraiser trade associations stated that, in light of the
importance of the location to the value of the home, the Agencies
should require an independent third-party valuation by a credentialed
appraiser with education, training, and experience,\117\ or a valuation
that complies with the appraisal system specified under the FHA Title I
program for insuring loans secured by existing manufactured homes and
not land. A community bank stated that interior and exterior
inspections should be conducted, due to higher depreciation
[[Page 78556]]
of manufactured homes compared to site-built homes.
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\117\ This commenter suggested the individual would not
necessarily have to be a state-certified or -licensed real estate
appraiser. Nonetheless, a national manufactured home cost service
provider also noted that the number of individuals certified to use
the FHA Title I personal property appraisal system is down, from
over 1,000 in previous decades to less than 100 today. HUD also
allows creditors to rely on real estate appraisers from its Title II
roster to complete these appraisals. See HUD TI-481, Appendices 8-9,
C, and 10-5.
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The Final Rule
Under Sec. 1026.35(c)(2)(viii)(B), which goes into effect on July
18, 2015, the Agencies are adopting a conditional exemption for
transactions secured by existing manufactured homes and not land. The
Agencies believe that exempting transactions secured by existing
manufactured homes and not land is in the public interest and promotes
the safety and soundness of creditors, provided that such exemption is
conditioned on the consumer receiving certain information as provided
in detail below. The Agencies also are adopting a condition on the
exemption for transactions secured by new manufactured homes and not
land adopted in the January 2013 Final Rule. Under the condition, for
applications received by the creditor on or after July 18, 2015, an
HPML that is not a qualified mortgage and is secured by either a new or
existing manufactured home without land will be exempt from the general
HPML appraisal rules in Sec. 1026.35(c)(3) through (c)(6) if the
creditor provides the consumer with a copy of any one of three
specified types of information no later than three days prior to
consummation of the transaction. The three types of information that
can satisfy the condition are: (1) The manufacturer's invoice for the
manufactured home, where the date of manufacture is within 18 months of
the creditor's receipt of the consumer's application; (2) a cost
estimate of the value of the manufactured home from an independent cost
service; or (3) a valuation, as defined in Sec. 1026.42(b)(3), of the
manufactured home by a person who has no direct or indirect interest,
financial or otherwise, in the property or transaction for which the
valuation is performed and has training in valuing manufactured homes.
The Agencies also are adopting and re-numbering proposed comment
35(c)(2)(ii)(B)-1, which clarifies that the exemption does not depend
on whether the home is titled as realty by operation of State law. The
heading for the comment is revised to remove the word ``solely,'' to
reflect that this provision applies to transactions that are secured by
a manufactured home and other collateral that is not land, such as a
leasehold interest. The comment is re-numbered as comment
35(c)(2)(viii)(B)-1. See also section-by-section analysis of Sec.
1026.35(c)(2)(viii)(A) (further discussing transactions secured by a
manufactured home and a leasehold interest).
The Agencies are not adopting proposed comment 35(c)(2)(ii)(A)-1,
which would have provided that an HPML secured by a new manufactured
home is not subject to the appraisal requirements of Sec. 1026.35(c),
regardless of whether the transactions is also secured by the land on
which it is sited. The unconditional exemption for transactions secured
by a new manufactured home, with or without land, will go into effect
on January 18, 2014, but will end starting with applications received
by the creditor on or after July 18, 2015. At that time, the exempt
status of transactions secured by new manufactured homes will depend on
whether the transaction also is secured by land. Other comments adopted
in the final rule relate to the information that a creditor can provide
to satisfy the condition and are discussed in the section-by-section
analysis below.
Discussion
The Agencies believe that the exemption in Sec.
1026.35(c)(2)(viii)(B) for loans secured by manufactured homes and not
land promotes the safety and soundness of creditors in part because the
exemption makes it possible for creditors to continue making these
loans, which may be an important part of a given creditor's operations;
the Agencies understand that for chattel transactions, compliance with
all of the general HPML appraisal requirements of Sec. 1026.35(c)(3)
through (6) may be infeasible. The condition on the exemption in Sec.
1026.35(c)(2)(viii)(B) is necessary to ensure that the exemption is
also in the public interest, because the condition will ensure that
consumers receive information pertaining to the value of their
manufactured home. The Agencies further believe that by allowing
creditors a menu of options for compliance, the condition will provide
appropriate flexibility to the creditor to select which materials it
deems most cost-effective. The Agencies also believe that having this
information before consummation of the loan can be useful to the
consumer, and is consistent with the timing of the general HPML
appraisal requirement that the creditor must give the consumer a copy
of the appraisal three days before consummation.\118\ See Sec.
1026.35(c)(6)(ii).
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\118\ Having this information three days before consummation
also will allow borrowers the opportunity to discuss it with a HUD-
certified housing counselor whose participation in the transaction
prior to consummation is mandated for loans under the Bureau's 2013
HOEPA Final Rule, to be codified at 12 CFR 1026.34(a)(5). The role
of the HUD-certified housing counselor specifically includes helping
borrowers ``avoid inflated appraisals.'' See HUD Housing Counseling
Program Handbook 7610.1 (May 2010), Ch. 1-2.
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TILA Section 129H ensures that, before consummation of a ``higher-
risk mortgage,'' creditors obtain a valuation of the home and provide a
copy to the consumer. 15 U.S.C. 1639h. The statute focuses on
transactions with a higher risk profile (i.e., those with higher
interest rates and which are not qualified mortgages). For these
riskier transactions, the statute sets standards that are intended to
reduce the risk of inflated valuations of the ``dwelling,'' and grants
consumers a right to know the appraised value of the ``dwelling''
before entering into these transactions.\119\ A manufactured home is a
``dwelling'' under regulations implementing TILA.\120\ Indeed,
transactions secured by manufactured homes and not land comprise a
substantial proportion of the overall annual housing transactions that
are HPMLs and not qualified mortgages.\121\ The Agencies therefore
believe that Congress intended for TILA Section 129H to provide
protection against inflated valuations and transparency to borrowers in
this housing segment.
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\119\ U.S. House of Reps., Comm. on Fin. Servs., Report on H.R.
1728, Mortgage Reform and Anti-Predatory Lending Act, No. 111-94
(May 4, 2009) (House Report), at p. 56 (noting that when faulty
valuation methods lead to overvaluation, individuals ``may later
encounter difficulty in refinancing or selling a home because the
true value of the property used as collateral is less than the
original mortgage.'').
\120\ 12 CFR 1026.2(19).
\121\ The Bureau's Section 1022 analysis estimates that around
20,000 but potentially more of these transactions occur annually.
Potential for a higher number of affected loans results from
variables that determine whether a loan is a qualified mortgage that
require access to information that is not available for these loans,
such as the debt-to-income ratio.
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Nonetheless, based upon outreach and comments on the 2012 Proposed
Rule and further outreach and comments on the 2013 Supplemental
Proposed Rule, the Agencies believe that the precise form of valuation
specified in the statute--an appraisal by a state-certified or -
licensed appraiser in conformity with USPAP and FIRREA, based upon a
physical inspection of the interior of the home--is infeasible for this
housing segment at this time. A steady supply of state-certified or -
licensed appraisers to service thousands of these transactions annually
starting on January 18, 2014, does not yet exist.
Even if more state-certified or -licensed appraisers were able to
perform appraisals for transactions secured by a manufactured home and
not land in the future, the Agencies recognize that sources of data on
[[Page 78557]]
comparable sales for transactions secured by a manufactured home and
not land may not be as robust as sources of data on sales of
transactions secured by a home and land.\122\ As a result, the Agencies
believe that, absent an exemption, creditors could be unable to comply
with the HPML appraisal requirements in a substantial number of
transactions secured by a manufactured home and not land. Thus, the
Agencies have concluded that an exemption from a requirement to perform
appraisals in conformity with USPAP and FIRREA for these transactions
would promote the safety and soundness of creditors and be in the
public interest by allowing the transactions to occur without requiring
use of a valuation method that is infeasible in a large number of
cases.
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\122\ Whereas appraisals of a land/home transaction are not
always limited to the use of manufactured housing transactions as
comparables, in transactions secured only by the home, the universe
of comparables is generally limited to manufactured homes.
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At the same time, the risk of inflated valuations in these
transactions can contribute to increased default risk,\123\ which runs
counter to both the safety and soundness of creditors and the public
interest. The Agencies are concerned, based on research, outreach, and
comments received, that these transactions can be prone to inflated
valuations and associated risks of under-collateralization, leading to
loans where the consumer has little, no, or even negative equity in the
home.\124\ The Agencies believe that an unconditional exemption for
these transactions at a minimum would not adequately account for the
risks of under-collateralization.
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\123\ See Enterprise Duty to Serve Underserved Markets, Proposed
Rule, 75 FR 32099, 32014 (June 7, 2010) (FHFA finding that
``[i]nterest rates charged for chattel loans are typically higher
than those for real estate-secured loans'' and that
``[d]elinquencies and defaults on chattel loans typically exceed
rates on mortgage loans.'').
\124\ See, e.g., Consumers Union Southwest Regional Office,
``Manufactured Housing Appreciation: Stereotypes and Data'' (Aug.
2003), p. 4 (asserting that depreciation is but one factor leading
to ``underwater'' homes and that ``many industry practices [ ] lead
to very high loan-to-value ratios. Fees, points and overpriced,
unneeded add-ons (such as vacations, cash rebates and single-premium
credit life) raise the loan balance without adding value to the
home. This can contribute to a deficiency balance by removing equity
and placing the loan underwater.''). See also id. at 14 (``One
contributing factor to an initial drop [in the value of a
manufactured home] can be inflated retailer mark-ups embedded in the
price of a home.'').
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The effect of an inflated valuation on consumers and their risk of
default can be even more pronounced in these transactions. Chattel
lending generally carries higher interest rates, which could result in
a significant number of HOEPA loans.\125\ Further, several industry
commenters indicated that manufactured home loans would be less likely
to be qualified mortgages than other types of mortgages because their
points and fees would typically exceed thresholds set by the Bureau's
2013 ATR Final Rule. See Sec. 1026.43(e)(3). At the same time,
consumers borrowing these loans are disproportionately in the LMI
segment.\126\ Higher loan amounts resulting from inflated valuations,
combined with the comparatively high interest rates on these loans, can
generate payments that pose significant burdens on LMI consumers and
can put them at greater risk of default.
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\125\ See, e.g., Bureau's 2013 HOEPA Final Rule, 78 FR 6856,
6876 (Jan. 31, 2013) (noting that Congress set a higher APR
threshold for HOEPA coverage of loans secured by manufactured homes
titled as personal property--8.5 percentage points--and that under
this test, industry commenters estimated that between 32 and 48
percent of recent originations would be covered).
\126\ 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 9 (``In
2009, the median household income of households in manufactured
homes was under $30,000--well below the national average of $49,777.
More than one-fifth (22 percent) of manufactured housing residents
have incomes at or below the Federal poverty level.''). This report
is available at https://cfed.org/assets/pdfs/IM_HOME_Loan_Data_Collection_Project_Report.pdf.
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Outreach and comments from the 2012 Proposed Rule and 2013
Supplemental Proposed Rule have not shown that existing industry
practices or standards necessarily would be sufficient to control the
risk of inflated valuations in these transactions, or ensure that
consumers are informed of the home value in these transactions. To
compound the concern, most of these transactions are not subject to
valuation standards imposed by Federal law or regulation or Federal
agency or GSE programs. The FHA Title I Manufactured Housing Loan
Insurance Program is the only program at the Federal level that covers
these transactions; no other Federal agency or GSE has programs for
loans secured by a manufactured home and not land. The FHA Title I
program includes valuation requirements and loan amount caps to
mitigate against the risk of inflated valuations, but currently most
transactions secured by a manufactured home and not land are not
insured by that program. Some of these transactions are originated by
Federally regulated financial institutions subject to FIRREA's
appraisal and evaluation requirements, but the FIRREA regulations and
related Interagency Appraisal and Evaluation Guidelines apply only to
real estate transactions.\127\ Under current State laws, the collateral
in transactions secured by a manufactured home and not land is not
typically classified as real property.
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\127\ 75 CFR 77450, 77456 n.12 (Dec. 10, 2010) (noting that
scope is for Federally-related transactions, which are real-estate
related under 12 U.S.C. 3339 and 12 U.S.C. 3350(4)).
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In addition, all creditors are subject to Regulation Z's interim
final valuation independence rule (Valuation Independence Rule) for
consumer credit secured by chattel, but the valuation service providers
are not, due to a limitation in the current rule.\128\ The Valuation
Independence Rule applies to creditors and ``settlement service''
providers of covered transactions.\129\ Under the rule, ``settlement
service'' is defined under RESPA and implementing regulations
(Regulation X).\130\ Under RESPA and Regulation X, a ``settlement
service'' is limited to services for ``Federally related mortgage
loans,'' which include only loans secured by real property.\131\ Thus,
valuation service providers for transactions secured by personal
property, such as many transactions secured by a manufactured home and
not land, are not covered under Regulation Z's Valuation Independence
Rule.
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\128\ Bureau: 12 CFR 1026.42; Board 12 CFR 226.42.
\129\ Bureau: 12 CFR 1026.42(b)(1) and (2); Board 12 CFR
226.42(b)(1) and (2).
\130\ See id.; see also 12 U.S.C. 2602(3) and 24 CFR 1024.2.
\131\ 12 CFR 1024.2.
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Further, commenters indicated that consumers in transactions
secured by manufactured homes and not land do not currently receive
information about the value of their homes. Participants in informal
outreach and research conducted by the Agencies similarly indicated
that consumers for these loans are not familiar with independent
information about home values and may be subject to high-pressure sales
tactics that tend to limit consumer's consideration of their choices
and pursuit of independent information.
Finally, while consumers might receive valuations in some of these
transactions under the Bureau's 2013 ECOA Valuations Final Rule,\132\
creditors might not always obtain a valuation subject to disclosure to
the consumer under that rule. For example, in new manufactured home
transactions without land, outreach and comments indicated that
creditors often rely primarily upon the manufacturer's invoice when
determining the maximum loan amount. The manufacturer's invoice is not
subject to
[[Page 78558]]
disclosure under the 2013 ECOA Valuations Final Rule.\133\ In addition,
the maximum loan amount is not necessarily a valuation subject to
disclosure under ECOA, and could well exceed caps defined under HUD
regulations that serve to prevent over-financing, under-
collateralization, and underwater loans.\134\ Accordingly, even if that
amount were disclosed to consumers under the 2013 ECOA Valuations Rule,
it would not necessarily impart meaningful, independent information to
the consumer about the value of the home.
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\132\ See 12 CFR 1002.14.
\133\ See 12 CFR 1002.14, comment 14(b)(3)-3.iv.
\134\ See 24 CFR 201.10(b)(1).
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The Agencies therefore are adopting a condition on the exemption to
ensure that valuation information from an independent source is
obtained and is transparent to the consumer. The condition requires the
creditor to obtain and provide to the consumer, no later than three
days before consummation, certain information related to the value of
the manufactured home securing the covered HPML.\135\
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\135\ ``Consummation'' would have the same meaning as in Sec.
1026.35(c)(6)(ii), requiring that a copy of any appraisal obtained
under Sec. 1026.35(c)(6)(i) be given to the consumer no later than
three business days prior to consummation of the covered HPML--
namely, as defined elsewhere in Regulation Z at 12 CFR 1026.2(a)(13)
and accompanying Official Staff Commentary. Under those provisions,
``consummation'' means ``the time that a consumer becomes
contractually obligated on a credit transaction,'' which is
determined by state law. Sec. 1026.2(a)(13) and comment 2(a)(13)-1.
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The Agencies have identified three types of materials, any one of
which can be provided, as further discussed below.
Providing a copy of a manufacturer's invoice used by a creditor for
a transaction secured by a new manufactured home. Under Sec.
1026.35(c)(2)(ii)(B)(1), a creditor on a loan secured by a new
manufactured home and not land may be exempt from the HPML appraisal
rules if the creditor gives the consumer a copy of the manufacturer's
invoice, which is defined consistent with HUD manufactured home program
regulations. See Sec. 1026.35(c)(1)(iv) and accompanying section-by-
section analysis.
Outreach and comments consistently indicated that in these
transactions, creditors use the invoice as the primary source for
calculating a maximum loan amount. For that reason, several commenters
generally supported providing a copy of the invoice to consumers as a
means of informing them of pertinent valuation information. A national
manufactured housing trade association also asserted that it is
standard practice for manufacturers to certify the authenticity and
accuracy of the wholesale cost of the home at the point of manufacture.
The Agencies are adopting a limitation on the option to provide the
manufacturer's invoice: the invoice may be provided to satisfy the
condition only if the date of manufacture of the home was within 18
months of the creditor's receipt of the consumer's application for
credit. This limitation is generally consistent with FHA Title I
regulations, which incorporate the practice of using manufacturers'
invoices as a reference point for determining safe and sound loan
amounts for insuring transactions secured by new manufactured homes.
Specifically, FHA Title I rules limit the use of this practice to homes
manufactured within 18 months of purchase by the consumer.\136\ The
Agencies believe that this limitation will help prevent the use of
invoices that are too dated to reflect reliably the current value of
the manufactured home.
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\136\ 24 CFR 201.21(b)(2)(i) (defining a ``new manufactured
home'' for which a manufacturer's invoice may be used as ``one that
is purchased by the borrower within 18 months after the date of
manufacture and has not been previously occupied.'' See also HUD TI-
481, Appendix 2.
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Creditors commonly obtain and rely on the manufacturer's invoice
and consumer advocates, affordable housing organizations, and others,
however, have asserted that consumers should have access to information
that creditors use. If creditors have the invoice, providing a consumer
with a copy imposes little burden.
The Agencies note that some commenters were concerned that the
manufacturer's invoice contains sensitive wholesale pricing information
and that the wholesale invoice from the manufacturer will not match the
retail price paid by the consumer. The Agencies recognize that the
retail price will include a markup for various costs. Commenters and
industry participants in outreach indicated that in transactions
secured by new manufactured homes, the maximum loan amount typically is
determined by applying a percentage markup to the manufacturer's
invoice. Outreach indicated that this markup can vary among creditors,
in some cases significantly. The Agencies are not aware of any
regulatory standards governing the extent of this markup other than
limitations in the FHA Title I program, which only covers a small
subset of these loans currently. The FHA Title I limitations do not
permit a markup on the manufacturer's invoice of more than 130 percent
when calculating the maximum insurable loan amount, and HUD has other
detailed standards for determining what other charges can be factored
into the maximum loan amount.\137\ Most manufactured housing
transactions are not subject to these restrictions, leaving the markup
to be determined by the creditor's tolerance for risk, and thus subject
to risk of inflated valuation.
---------------------------------------------------------------------------
\137\ See 24 CFR 201.10((b)(1).
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The Agencies believe that providing the manufacturer's invoice to
consumers will give them an opportunity to have a better understanding
of the factors contributing to the loan amount and its relationship to
the value of the home.\138\ In transactions secured by a home and land
under GSE and Federal agency programs, the appraiser is required to
receive a copy of this invoice and must disclose in the appraisal
report how it was considered.\139\
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\138\ See, e.g., Consumers Union Southwest Regional Office,
``Manufactured Housing Appreciation: Stereotypes and Data'' (Apr.
2003) at 14, available at https://consumersunion.org/pdf/mh/Appreciation.pdf (``One contributing factor to an initial drop can
be inflated retailer mark-ups embedded in the price of a home.
Consumers who pay too much for any home will find it harder to sell
it later for a higher price. Retailer markups can be a quarter of
the base price of the home. Consumers should question what value
they get from this middleman, and take steps to minimize costs that
don't add value to the home. Buying direct from the last owner in a
used transaction may reduce this overhead, as can buying direct from
manufacturers when possible.'').
\139\ Fannie Mae Single-Family Selling Guide, B5-2.2-04 (4/1/
09); Freddie Mac Single-Family Seller/Servicer Guide, H33.6 (2/10/
12). See also 24 CFR 201.10(b)(1) (HUD regulations requiring that
the loan amount be determined with reference to the invoice).
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Under the final rule, creditors also may choose to communicate the
nature or extent of this markup to consumers when providing the
manufacturer's invoice. In this case, the manufacturer's invoice will
provide an opportunity for questions from consumers to assess whether
the markup leads the collateral to be over-valued. As noted above, HUD-
certified counselors, required for HOEPA transactions and available for
others, also can assist consumers in answering any questions. The
Agencies have sought to accommodate remaining concerns over providing
the manufacturer's invoice by providing other compliance options that
could be used in new manufactured home transactions (including that the
loan might qualify for another exemption under Sec.
1026.35(c)(2)).\140\
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\140\ See, e.g., Sec. 1026.35(c)(2)(i); see also 78 FR 59890,
59901 (Sept. 30, 2013) (HUD proposing that manufactured home loans
insured under Title I would be qualified mortgages under HUD
regulations, even if their points and fees exceed the cap under the
Bureau's qualified mortgage definition, Sec. 1026.43(c)(3)).
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Providing a cost estimate from an independent cost service
provider.
[[Page 78559]]
Section 1026.35(c)(2)(ii)(B)(2) gives the creditor the option of
providing a cost estimate from an independent third-party cost service
provider. Comment 35(c)(2)(ii)(B)(2)-1 clarifies that a cost service
provider from which the creditor obtains a manufactured home unit cost
estimate under Sec. 1026.35(c)(2)(ii)(B)(2) is independent if that
party is not affiliated with the creditor in the transaction, such as
by common corporate ownership, and receives no direct or indirect
financial benefits based on whether the transaction is consummated.
As noted above, the Agencies recognize that creditors may choose
not to provide a copy of the manufacturer's invoice for new
manufactured home transactions. In addition, appraisers or valuation
providers may be unavailable for some transactions. Thus, including
this additional option is important to ensure that the consumer can
receive a unit cost estimate of the value of the home from an
independent source. Commenters and outreach indicated that this type of
estimate is the predominant method used for transactions secured by an
existing manufactured home and not land. Based upon comments from a
national cost service provider confirming that its cost guide reports
values for the current model year, the Agencies also believe this type
of cost service also could be used for many new manufactured home
transactions. The Agencies learned from one cost service that an
adjustment for ``new or like new'' is available through its cost guide,
and that this guide is updated multiple times per year.
The information provided by an independent cost service provider
can provide a useful outside check against inflated valuations. At the
same time, the check will not prohibit transactions above the value
reflected in the cost service. Rather, the check will make sure that if
transactions occur above those values, creditors and consumers have the
opportunity to know that fact and evaluate the transaction accordingly.
Interior inspections and adjustments. The Agencies are not
requiring physical inspections of the interior or condition or location
adjustments to the cost service values. In this way, the condition
ensures that the creditor can readily identify the information to be
provided to the consumer (based upon the make and model and year of the
manufactured home unit) from an independent source, without being asked
to interject subjective or discretionary considerations.
Interior inspections by an appraiser for new manufactured homes may
often be of limited value, given the associated expense. For
transactions secured by new manufactured homes, as indicated by
industry commenters, HUD and State inspectors conduct inspections to
ensure the proper construction and installation of the home.\141\ Some
commenters asserted that an interior inspection could confirm the
existence of extras or options that were promised. The Agencies
believe, however, that consumers themselves can confirm that they
received extras or options ordered. Regarding adjustments, the Agencies
understand that cost services may offer adjustments of standard
estimates to reflect that the unit is in ``new or like new'' condition.
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\141\ See generally, 24 CFR parts 3280, 3282, and 3286.
---------------------------------------------------------------------------
For existing manufactured homes, information about the condition of
the interior can be an important factor affecting the valuation. Due to
concerns with burden, complexity, and reliability of such adjustments,
though, the Agencies are not mandating that adjustments be made. At the
same time, the rule does not prohibit creditors from making this
adjustment to the unit-cost estimate of an existing manufactured home.
Accordingly, comment 35(c)(2)(viii)(B)(2)-2 clarifies that the
requirement that the cost estimate be from an independent cost service
provider does not prohibit a creditor from providing a cost estimate
that reflects adjustments to factors such as special features,
condition or location. The comment explains, however, that the
requirement that the estimate be obtained from an independent cost
service provider means that any adjustments to the estimate must be
based on adjustment factors available as part of the independent cost
service used, with associated values that are determined by the
independent cost service.
For both new and existing manufactured homes, the location can
enhance or, in some cases, reduce the value of the home. A consumer
advocate group, affordable housing organizations, and others emphasized
that cost service data does not adequately account for the contribution
of location to the value of the home. The manufactured home can be
resold as a trade-in or repossessed, however, in which case its value-
in-place is not what is relevant to the consumer. Further, as noted
above, location adjustments can introduce greater subjectivity into the
information provided. Therefore, the rule does not mandate that a
location adjustment be made. Providing the unit value will enable
consumers to compare the cost estimate from the published cost service
to the line item charge in the sales contract for the base unit.
Finally, some commenters expressed concerns over accuracy or
undervaluation in the unit cost estimates published by third-party cost
services. These commenters did not provide data to support their views,
however. In addition, while some comments noted that the unit cost
estimate is not the same as an estimate of the retail market value, the
Agencies recognize that this type of estimate nonetheless is widely
used by creditors currently as a guideline for the value of an existing
manufactured home. In some cases, it therefore may represent the best
available, most cost-effective estimate of the value of the home.
Further, the Agencies are structuring the exemption condition so that
the creditor has the discretion to choose which of the specified types
of valuation materials it finds most suitable for informing the
consumer of the estimated value of the home. Thus, if a creditor
believes an independent cost service generally undervalues manufactured
homes, the creditor can provide other forms of valuation information as
described below, as well as its own accompanying explanatory
information.
Providing a valuation by a trained manufactured home valuation
provider. Section 1026.35(c)(2)(ii)(B)(3) allows a creditor to provide
an appraisal conducted by a person who has no direct or indirect
interest, financial or otherwise, in the property for which the
valuation is performed and has training or experience in valuing
manufactured homes. ``Valuation'' is defined as in Sec. 1026.42(b)(3)
of the Bureau's Valuation Independence Rule, which defines
``valuation'' to mean ``an estimate of the value of the consumer's
principal dwelling in written or electronic form, other than one
produced solely by an automated model or system.'' \142\
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\142\ See 12 CFR 226.42(b)(3) for the definition of
``valuation'' in the Board's substantially similar version of the
valuation independence rule.
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Comment 35(c)(2)(ii)(B)(3)-1 provides that the manufactured home
valuation provider would have a direct or indirect interest in the
property if, for example, the person had any ownership or reasonably
foreseeable ownership interest in the manufactured home. To illustrate,
the comment states that a person who seeks a loan to purchase the
manufactured home to be valued has a reasonably foreseeable ownership
interest in the property.
[[Page 78560]]
Comment 35(c)(2)(ii)(B)(3)-2 clarifies that the valuation provider
would have a direct or indirect interest in the transaction if, for
example, the manufactured home valuation provider or an affiliate of
that person also served as a loan officer of the creditor or otherwise
arranges the credit transaction, or is the retail dealer of the
manufactured home. The comment further states that a person also has a
prohibited interest in the transaction if the person is compensated or
otherwise receives financial or other benefits based on whether the
transaction is consummated.
Comments 35(c)(2)(ii)(B)(3)-1 and -2 are generally based on
comments 42(d)(1)(i)-1 and -2 of Regulation Z's Valuation Independence
Rule.\143\ As discussed previously, the Valuation Independence Rule
applies to all creditors of transactions secured by a consumer's
principal dwelling, but applies to ``settlement service'' providers
only for transactions secured by real property.\144\ However, the
Agencies believe it prudent to apply the principles of Regulation Z's
Valuation Independence Rule to valuations that may be used in lieu of
complying with the general HPML appraisal requirements for transactions
secured by manufactured homes and not land, which might not be titled
as real property.
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\143\ Bureau: 12 CFR 1026.42; Board: 12 CFR 226.42.
\144\ Bureau: Sec. 1026.42(b)(1) and (2); Board Sec.
226.42(b)(1) and (2).
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Comment 35(c)(2)(viii)(B)(3)-3 clarifies that ``training''
referenced in Sec. 1026.35(c)(2)(viii)(B)(3) includes, for example,
successfully completing a course in valuing manufactured homes offered
by a State or national appraiser association or receiving job training
from an employer in the business of valuing manufactured homes.
Comment 35(c)(2)(viii)(B)(3)-4 provides an example of a
manufactured home valuation that would satisfy the requirements of the
condition in Sec. 1026.35(c)(2)(viii)(B)(3). Specifically, the comment
states that a valuation in compliance with Sec.
1026.35(c)(2)(viii)(B)(3) would include, for example, an appraisal of
the manufactured home in accordance with the appraisal requirements for
a manufactured home classified as personal property under the Title I
Manufactured Home Loan Insurance Program of HUD (administered by FHA),
pursuant to section 2(b)(10) of the National Housing Act, 12 U.S.C.
1703(b)(10).
The Agencies included this comment in recognition that one of the
more well-developed standards for the valuation of manufactured homes
and not land is found in the FHA Title I program.\145\ When an existing
manufactured home is classified as personal property, FHA Title I
requires creditors to, among other things: (1) Use an appraiser
certified to use the NAS or, if the lender is unable to locate an NAS-
certified appraiser, an appraiser from the FHA Title II mortgage
program who certifies having experience appraising manufactured homes;
\146\ (2) obtain an appraisal performed on the home site where possible
and that reflects the retail value of comparable manufactured homes in
similar condition and in the same geographic area; and (3) review the
appraisal to verify, among other things, that the correct cost service
unit value was used and proper condition adjustment was made.\147\
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\145\ See HUD TI-481, Appendix 2-1, D (General Program
Requirements--Eligible Homes).
\146\ When the home is classified as real property, the
appraisal must be completed by a real estate appraiser on the FHA
Title II roster who can certify prior experience appraising
manufactured homes as real property. The Agencies believe it is
useful to incorporate the general standard, in case states adopt
model laws treating manufactured homes as real property even when
they are not affixed to land and the land does not provide security
for a loan. See HUD TI-481, Appendices 8-9, C, and 10-5.
\147\ See HUD TI-481, Appendices 8-9, C, and 10-5.
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As noted in the 2013 Supplemental Proposed Rule, the Agencies are
aware that fewer than 100 individuals are currently certified to use
this system, although many more have been certified in the past and may
have incentives to obtain the certification in the future. This factor
provides further support for the Agencies' decision to allow creditors
multiple options to comply with the condition.
Consumer and affordable housing advocate commenters supported the
long-term goal of applying an appraisal standard to transactions
secured by a manufactured home and not land. At the same time,
manufacturer housing industry commenters generally supported a long-
term effort to further refine and develop valuation methods for
manufactured homes. The Agencies believe that adopting a condition that
furthers these goals is in the public interest. To allow flexibility
for these and other valuation methods to evolve, the Agencies seek to
avoid prescriptive, detailed requirements on the valuation method.
Rather, the Agencies seek generally to define who is eligible to
perform the valuation, and leave the method to that person's judgment
and expertise as appropriate for the scope of work required. As noted
above, two national appraisal trade associations noted that state-
certified or -licensed appraisers are not the only persons who could
value manufactured homes. For example, some commenters identified an
existing product prepared by a company who hires individuals trained in
the valuation of manufactured homes. The company generates a report
that estimates the value of a given manufactured home using local data
on comparable sales.
Accordingly, under this alternative, the creditor must provide the
consumer with a valuation prepared by one or more individuals who do
not have a direct or indirect financial interest in the property or the
transaction, and who have training in the valuation of manufactured
homes. The Agencies are adopting comments to provide further guidance
on how creditors can satisfy these criteria. Finally, it may follow
from the exercise of independent judgment and application of this
training that the individual will conduct a physical inspection of the
interior, or assess the condition or value of the location of the home.
But as noted, at this time, the Agencies are not specifying these steps
as necessary elements of a valuation that satisfies the condition.
Several industry commenters indicated that HUD appraisal
requirements in transactions secured by manufactured homes have led to
higher frequency of appraisals where the value of the home is below the
purchase price. At least one commenter indicated this occurred in Title
I transactions secured by existing manufactured homes. Some commenters
and outreach participants attributed high numbers of appraised values
that are lower than the purchase price to an over-emphasis on the use
of manufactured homes as comparables in FHA and other manufactured home
credit programs. They suggested, for example, that manufactured homes
comparables in the geographic area might be much older than the home
being appraised. The Agencies are concerned, however, that other
factors can contribute to higher rates of appraised values lower than
the purchase price, such as inflated purchase prices and corresponding
loan amounts.
The Agencies believe that, on balance, appraising manufactured
homes in transactions that are not also secured by land can be an
effective way to account for the many factors that contribute to the
value of the home, including home condition, location, re-sale
conditions, and lease terms, among others.
[[Page 78561]]
Other Issues
Delay in issuing rules on manufactured home loans. As discussed
under ``Public Comments,'' commenters on behalf of consumers and
industry generally expressed support in principle for ensuring that
consumers receive valuation information in exempt transactions.
Industry commenters raised a number of concerns over the utility to
consumers of information generated through current valuation practices,
however. Several consumer and affordable housing groups expressed a
similar concern over the quality of current valuation methods (citing,
for example, concerns over the reliability of a cost estimate of the
unit from a third-party source). They nonetheless stated that creditors
should still be required to provide a copy of the collateral valuation
information that is used by the creditor (i.e., manufacturer's invoice
in new manufactured home transactions). These commenters also suggested
that the Agencies engage in further study of manufactured housing
valuation issues before adopting further conditions.
The Agencies note, however, that manufactured housing valuation
practices and issues have been the subject of significant requests for
comment and outreach in two separate proposals, and have generated
detailed comment from representatives of industry, consumer advocates,
and appraisers alike. The Agencies believe that the current public
record sufficiently supports adopting conditions in this final rule.
While the Agencies are allowing additional 18 months for conditions to
be implemented, deferring their adoption pending further study would
not promote safety and soundness and be in the public interest.
Thousands of consumers would be without the protections during any
further study. It also is unclear that further study, beyond the two
years of study already undertaken, would generate material improvements
to the approach taken here.
Steering. Some consumer group and affordable housing commenters
also expressed concern that consumers might be steered into higher-rate
chattel transactions with fewer consumer protections if the final rule
provided an unconditional exemption for transactions secured by a
manufactured home and not land. For example, consumers could be steered
away from an HPML transaction secured by both the home and land to
avoid the HPML appraisal requirements (see Sec. 1026.35(c)(2)(viii),
effective July 18, 2015). Creditors might also structure what otherwise
would be a packaged land/home transactions into two transactions--one
secured solely by the home and one by land. The Agencies believe that
some of these concerns are mitigated by other laws and regulations.
Such practices might be subject to scrutiny under consumer protection
laws at the State and Federal level. For example, regulations may apply
that generally prohibit a loan originator from steering a consumer to a
transaction based on the fact that the originator will receive greater
compensation (which could result from an over-valuation of the home,
leading to a higher loan amount).\148\ The Agencies believe that some
of the concerns about steering may be mitigated by conditioning the
exemption for manufactured home-only transactions on the creditor
having to provide alternative valuation information to the consumer.
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\148\ See, e.g., Sec. 1026.36(e)(1) (prohibiting steering
consumers to earn greater compensation). The Agencies will monitor
application of the rule in this regard.
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Effective date. The Agencies recognize creditors will need time to
make necessary adjustments to their compliance systems to be able to
comply with the condition. For example, creditors will need to adjust
their systems to identify transactions that would need to rely on the
exemption (e.g., HPMLs that are not eligible for exemptions for loans
that satisfy the criteria of a qualified mortgage, transactions in an
amount of $25,000 or less, or other exemption types (see Sec.
1026.35(c)(2)),\149\ to determine which types of valuation materials to
obtain for these transactions, and to develop a mechanism for providing
these to the consumer no later than three days prior to consummation.
Creditors also will need to ensure that they have access to the
valuation materials they choose to use. To ensure adequate time to
implement these and any other necessary steps, and that these
transactions remain available to consumers in the interim period, the
Agencies are delaying implementation of the condition for 18 months
after the effective date of the HPML Appraisals Rules, until July 18,
2015.
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\149\ Transactions secured by a manufactured home would not
typically be eligible for the exemption for initial construction
loans, 12 CFR 1026.35(c)(2)(iv), because that exemption is designed
for temporary initial financing that is replaced with permanent
financing when the construction phase is complete. See comment
35(c)(2)(iv)-1.
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Sunset. Finally, the Agencies are not adopting an expiration date
for the conditional exemption for transactions secured by a
manufactured home and not land. Some commenters suggested that a
``sunset'' date would provide an incentive for the appraiser and
manufactured home lending industries to improve capacity and methods
for conducting appraisals that would comply with USPAP and FIRREA.
However, it is unclear that a sunset date would promote this outcome.
At the same time, a sunset date would create risk for this important
source of affordable housing if capacity and methods are not developed
by that date. The Agencies believe that a better way to promote
improved capacity and methods is to allow the condition to be satisfied
through the use of existing methods. This is therefore another reason
why the Agencies are allowing the third option for satisfying the
condition--appraisals performed by independent and trained individuals.
35(c)(6) Copy of Appraisals
35(c)(6)(ii) Timing
In the January 2013 Final Rule, Sec. 1026.35(c)(6)(ii) requires
that a creditor provide a copy of any appraisal obtained in compliance
with the HPML appraisal rules to the consumer ``no later than three
business days prior to consummation of the loan.'' 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. In the 2013 Supplemental Proposed Rule, the
Agencies proposed 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).
Public Comments
A State credit union association commenter requested that the
Agencies allow flexibility in providing a copy of the appraisal three
days before closing because it is difficult to obtain an appraisal in
time to do so, requiring closing to be rescheduled, which can be
difficult. The commenter requested that consumers be permitted to waive
the requirement if it is in their best interest to do so.
The Final Rule
The Agencies are adopting the proposal to delete comment
35(c)(6)(ii)-2 without change, and re-numbering comment 35(c)(6)(ii)-3
as 35(c)(6)(ii)-2. The Agencies are not adding a waiver option to the
timing requirement for providing a copy of the appraisal to the
[[Page 78562]]
consumer. Re-numbered comment 35(c)(6)(ii)-2 clarifies that the ECOA
provision allowing a consumer to waive the requirement that the
appraisal copy be provided three business days before consummation,
does not apply to HPMLs subject to Sec. 1026.35(c).\150\ The comment
further clarifies that a consumer of an HPML subject to Sec.
1026.35(c) may not waive the timing requirement to receive a copy of
the appraisal under Sec. 1026.35(c)(6)(i).
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\150\ ECOA section 701(e)(2), 15 U.S.C. 1691(e)(2), implemented
in the 2013 ECOA Valuations Final Rule, Regulation B Sec.
1002.14(a)(1), effective January 18, 2014.
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The Agencies believe that allowing the consumer to waive the timing
requirement for providing a copy of the appraisal would be inconsistent
with the statute. ECOA expressly provides that the consumer may waive
the three day timing requirement for the creditor to provide a copy of
the appraisal to the consumer under ECOA.\151\ By contrast, Congress
did not amend TILA to include a parallel waiver provision regarding the
same requirement in the context of appraisals for HPMLs. See TILA
section 129H(c), 15 U.S.C. 1639h(c). The Agencies interpret TILA's lack
of a waiver provision to indicate that Congress did not intend to allow
consumers of loans covered by the HPML appraisal rules to waive the
timing requirement.
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\151\ ECOA section 701(e)(2), 15 U.S.C. 1691(e)(2), implemented
in 12 CFR 1002.14(a)(1), effective January 18, 2014.
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VI. Bureau's Dodd-Frank Act Section 1022(b)(2) Analysis \152\
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\152\ 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 rule, the Bureau has considered
potential benefits, costs, and impacts to consumers and covered
persons.\153\ 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 those agencies. The Bureau also held discussions with
or solicited feedback from the USDA, RHS, and VA regarding the
potential impacts of this supplemental rule on their loan programs.
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\153\ 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 final rule, the Agencies are exempting the
following three additional classes of higher-priced mortgage loans
(HPMLs) from the January 2013 Final Rule: (1) HPMLs whose proceeds are
used exclusively to satisfy (i.e., refinance) an existing first lien
loan and to pay for closing costs, provided that the credit risk holder
is the same on both loans (or that the same government agency insures
or guarantees both loans) and the new loan does not have negative
amortization, interest-only, or balloon features; (2) HPMLs that have a
principal amount of $25,000 or less (indexed to inflation); and (3)
certain HPMLs secured by manufactured homes.
As revised in this final rule, the manufactured home exemption
covers all HPMLs secured by manufactured homes for which an application
is received before July 18, 2015. Thereafter, (1) for transactions
secured by a new manufactured home and land, creditors will only be
exempt only from the requirement that the appraiser conduct a physical
visit of the interior; and (2) for transactions secured by a
manufactured home and not land, the exemption applies only if certain
alternative valuation information is provided to the consumer no later
than three days before consummation.
The Agencies are also broadening the exemption for qualified
mortgages adopted in the January 2013 Final Rule beyond the Bureau's
qualified mortgage definition in 12 CFR 1026.43(e) to include any
transaction that meets the criteria of a qualified mortgage established
by agencies with authority to do so under TILA section 129c--the
Bureau, HUD, VA, USDA, and RHS. See 15 U.S.C. 1693c. As revised, this
exemption will include transactions that are qualified mortgages as
defined under any final rule that the Bureau, HUD, VA, USDA, or RHS has
adopted or will adopt under authority at TILA section 129c. See 15
U.S.C. 1693c. In addition, transactions that meet criteria for a
qualified mortgage established under rules prescribed by the Bureau,
HUD, VA, USDA, or RHS are eligible for the exemption even if they are
not ``covered transactions'' under the Bureau's ability-to-repay rules
(and thus not technically defined as ``qualified mortgages'' under each
of the respective rules).\154\ For further discussion, see the section-
by-section analysis of Sec. 1026.35(c)(2)(i).
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\154\ Only transactions that are actually insured, guaranteed,
or administered under programs of HUD, VA, USDA, or RHS could be
eligible for the exemption under Sec. 1026.35(c)(2)(i) by being
defined as or meeting the criteria of a qualified mortgage under
rules of those agencies; the authority of those agencies to
determine the features of a qualified mortgage does not extend to
loans that they do not insure, guarantee, or administer. See TILA
section 129c(b)(3)(B)(ii), 15 U.S.C. 1639c(b)(3)(B)(ii).
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A. Potential Benefits and Costs to Consumers and Covered Persons
This analysis considers the benefits, costs, and impacts of the key
provisions of the supplemental rule relative to the baseline provided
by existing law, including the January 2013 Final Rule and the Bureau's
previously issued ATR Rules.\155\ The Bureau considered comments
received on issues related to this analysis. These comments are
addressed below and in the section-by-section analyses.
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\155\ The Bureau has discretion in future rulemakings to choose
the most appropriate baseline for that particular rulemaking.
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1. Economic Overview
This rulemaking consists of the adoption of an expanded qualified
mortgage exemption and five separate provisions regarding HPMLs that do
not qualify for the qualified mortgage status (non-QM). The January
2013 Final Rule demarcated which of those non-QM loans are subject to
requirement for an appraisal in conformity with USPAP and FIRREA with
an interior property visit (the full appraisal) and related notice and
additional appraisal requirements for loans used to purchase certain
flipped properties. The overall impact of these five provisions is
limited to specific segments of the mortgage market, with arguably the
largest impact on transactions secured by a used manufactured home and
not land (provision (3) below). The five provisions for non-QM HPMLs
are:
1. Certain refinances, commonly referred to as ``streamlined,'' are
now exempt from the January 2013 Final Rule;
2. Smaller dollar loans (up to $25,000, indexed to inflation) are
now exempt from the January 2013 Final Rule;
3. Used manufactured housing transactions that are not secured by
land (chattel) are now exempt from the January 2013 Final Rule and, for
applications received on or after July 18, 2015, subject to a condition
that the creditor must give the consumer alternative valuation
information; \156\
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\156\ Used manufactured housing transactions that are secured by
land remain covered by the January 2013 Final Rule, starting with
applications received on or after July 18, 2015. All loans secured
in whole or in part by manufactured home are exempt if the
application is received before July 18, 2015.
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4. New manufactured housing transactions that are not secured by
land (chattel) remain exempt from the January 2013 Final Rule; however,
for applications received on or after July 18, 2015, this exemption
will be subject to
[[Page 78563]]
a condition that the creditor must give the consumer alternative
valuation information; and
5. New manufactured housing transactions secured by land (new land/
home) remain exempt until July 18, 2015; for applications received on
or after July 18, 2015, these transactions will be exempted only from
the physical interior visit part of the January 2013 Final Rule.
In adopting each of these provisions, the Agencies considered
mandating that consumers receive information about the value of their
house at the time of the loan. The Bureau discusses the general
benefits and costs of this type of mandatory information provision, and
then applies this discussion to each of the provisions.
Consumers benefit from knowing the value of the home on which they
are planning to take out a loan. Consumers are able to make decisions
that will better fit their situation if they have a more precise
estimate of what their home is worth. For example, a consumer might
decide, given a home's value, that he or she should not take out the
loan or should consider purchasing a different home whose value in
relation to the loan amount is lower; that they should sell instead of
refinancing; that they should postpone a particular home improvement
and not overinvest in a home that might be worth less than they
thought. Affording consumers a better opportunity to get this decision
right is particularly valuable in home loans because these transaction
sizes are significant relative to income; the large size of the
transaction relative to income may be especially significant in non-QM
HPMLs, which are more costly and may pose greater repayment risk than
other mortgage loans.
No valuation method will give the consumer perfect information
about the home's value. Thus, a consumer might receive a valuation that
overestimates the value and leads to a purchase that should not have
been made; similarly, a valuation that underestimates the value might
lead to no purchase when one should have been made. However, the Bureau
believes that imparting unbiased valuation information to the consumer
is better than the consumer receiving no information, and that consumer
benefits increase with more precise information, whether it's moving
from no information to a manufacturer's invoice, an AVM or similar
estimate, a full appraisal, or some other type of valuation prepared by
an independent trained person.
The cost of providing any additional information on the home value
is directly imposed on the creditor--the creditor has to perform what
is necessary to obtain the home valuation information and provide it to
the consumer. However, since this is mostly a marginal cost and most of
the mortgage markets are relatively competitive, this cost is likely to
be almost fully passed through to the consumer.\157\ The fixed costs,
which are unlikely to be passed through to the consumer in a relatively
competitive market, include developing training materials and providing
training. However, the Bureau believes that the marginal training and
training development costs for the provisions of this supplemental
final rule are non-significant. Creditors will have already developed
and provided training in preparation for complying with the various
requirements of the January 2013 Final Rule, which goes into effect on
January 18, 2014; this supplemental final rule is considerably less
complex, establishing exemptions from those requirements.
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\157\ See, for example, E. Glen Weyl and Michael Fabinger,
``Pass-Through as an Economic Tool: Principles of Incidence under
Imperfect Competition,'' Journal of Political Economy, Vol. 121, No.
3 (Feb. 24, 2013).
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In the world of informed consumers exhibiting fully rational
economic behavior, mandatory information provisions might be
unnecessary--consumers would have decided for themselves whether they
need this information enough to pay for it. However, the Bureau
believes that this is not the best assumption, especially for a market
with many product characteristics, intertemporal investment decisions,
and projections into the distant future. Moreover, even under that
assumption, creditors might have some specialized knowledge making them
able to obtain better information than the consumer could access on
their own.\158\
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\158\ For example, consumers generally cannot access the
manufacturer's invoice for a manufactured house.
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A range of possibilities for a home value information requirement
exists in the non-QM HPML mortgage market. This range has, at one end
of the spectrum, no information provision requirement, and a full
appraisal on the other. Generally, the more precise the information is,
the more expensive the method is. In particular, the Bureau believes
that a full appraisal costs $350 on average as discussed in the Section
1022 analysis in the January 2013 Final Rule.\159\ Not providing any
information is, of course, free to the creditor. An intermediate
solution like an automated valuation estimate (an AVM estimate) would
result in a cost of under $20, as estimated in the 2013 Supplemental
Proposed Rule; \160\ however, an AVM estimate is arguably less precise
than a USPAP appraisal, especially in rural areas. Providing a consumer
with a copy of a manufacturer's invoice (one of the few conditions that
a creditor might satisfy for a non-QM HPML to be exempted from a full
appraisal on chattel manufactured housing) is estimated to cost less
than $5. Moreover, the Bureau's January 2013 ECOA Valuations Rule
already requires the creditor to give the consumer a copy of valuations
performed for the transaction; the Bureau estimates that full
appraisals that are performed 95% of the time for purchases, 90% for
refinances, and 5% for other loans generally in the mortgage market
based upon outreach.\161\
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\159\ 78 FR 10368, 10420 (Feb. 13, 2013).
\160\ 78 FR 48548, 48568 n.91 (Aug. 13, 2013).
\161\ 78 FR 10368, 10419 (Feb. 13, 2013).
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2. Data Used
For all the estimates, both above and below, the data sources used
are described in the 2013 Supplemental Proposed Rule (described in the
next paragraph below). Several commenters stated that for the
completeness of analysis, the Bureau should also examine the impact of
the points and fees criterion for a qualified mortgage under the
Bureau's 2013 ATR Final Rule on the number of HPMLs that are non-
QMs.\162\ The Bureau does not possess any data and is not aware of any
existing data to address this point directly. However, the effect of
points and fees is described further below. The Bureau did not receive
comments raising additional issues regarding the data and the
methodology by which projections were originated.
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\162\ See generally 12 CFR 1026.43(e)-(f) (provisions
identifying types of mortgages that are qualified mortgages under
Bureau rules).
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The Bureau has relied on a variety of data sources to analyze the
potential benefits, costs and impacts of the rule.\163\ However, in
some instances, the
[[Page 78564]]
requisite data are not available or are quite limited. Data with which
to quantify the benefits of the 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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\163\ 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 probit 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 HMDA. The empirical analysis generally uses 2011 data, including
from the 4th quarter 2011 bank and thrift Call Reports \164\ and 4th
quarter 2011 credit union call reports from the NCUA. De-identified
data from the National Mortgage Licensing System (NMLS) Mortgage Call
Reports (MCR) \165\ for the 4th quarter of 2011 also were used to
identify financial institutions and their characteristics.
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\164\ 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 https://www2.fdic.gov/call_tfr_rpts/.
\165\ 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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In addition, in analyzing alternatives for the exemption for
certain refinances, the Bureau did consider 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).
3. Smaller Dollar Loans
Estimate of the Number of Covered Loans
The Bureau estimates the number of transactions potentially
eligible for the smaller dollar 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 DTI ratios above
43 percent (so they would not meet the more general definition of a
qualified mortgage at 12 CFR 1026.43(e)(2)). Accordingly, the Bureau
estimates that approximately 4,800 covered loans are originated
annually in an amount up to $25,000.\166\ Of these estimated 4,800
covered loans, the Bureau estimates that the types most affected by
this 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. Absent an exemption, 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 January 2013 Final Rule.\167\
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\166\ As discussed above, the Bureau does not believe that a
significant number of smaller dollar HPMLs would exceed the points
and fees threshold in the 2013 ATR Final Rule. The Bureau requested
data on this issue in the supplemental proposal. None of the
commenters on the smaller dollar exemption provided this data. If a
significant number of smaller dollar HPMLs did exceed that
threshold, then the number of loans eligible for the exemption would
increase.
\167\ See 78 FR 10368, 10419 (Feb. 13, 2013).
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Covered Persons
Creditors originating smaller dollar HPMLs that are non-QMs would
experience some reduced burden as a result of the exemption for HPMLs
of $25,000 or less. As a result of the exemption, these loans will not
be subject to the estimated per-loan costs described in the January
2013 Final Rule.\168\ For these transactions, creditors do 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. As noted above, the overall impact of this exemption on
creditors is likely minimal for most creditors given that in 2011 only
4,800 loans were potentially eligible for the exemption.
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\168\ See Section 1022(b) analysis, 78 FR at 10418-21.
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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 exemption for smaller
dollar HPMLs (at or less than $25,000) would provide some benefits.
Industry practice prior to implementation of the January 2013 Final
Rule suggests that appraisals are not otherwise frequently done for
home improvement and subordinate lien transactions.\169\ Thus, by not
requiring an appraisal, the cost of which typically would be passed on
to consumers, the exemption could facilitate access to smaller dollar
HPMLs that are not otherwise exempt from the HPML appraisal rules.
Otherwise, requiring an appraisal for these loans could create
incentives that may not benefit consumers. These incentives can be more
significant for smaller dollar loans, given that the cost of the
appraisal relative to the amount of the loan is higher for smaller
dollar loans. For example, some consumers could 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 QM) or
pursuing an alternative source of credit that is not subject to the
rules, such as an open-end home equity line of credit or using other
forms of credit that are not dwelling-secured such as a credit card.
Finally, as a result of the exemption, consumers are likely to save
around $350 per loan; if the appraisal requirement applied to these
loans, the Bureau would have expected creditors to pass the cost of the
appraisal on to consumers.
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\169\ 78 FR at 10419.
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Regarding costs to consumers, under the exemption, consumers
entering into smaller dollar HPMLs (that are not otherwise exempt)
would lose the benefits of the Final Rule. As discussed in the Bureau's
analysis under Section 1022 in the January 2013 Final Rule, in general,
consumers who are borrowing HPMLs could benefit from an appraisal.
[[Page 78565]]
For smaller dollar HPMLs that are not purchase transactions, the
general benefits elsewhere 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 toward or into negative equity, without the consumer 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.\170\ 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.\171\ 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.\172\ Moreover, based upon HMDA 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.
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\170\ See 2011 American Housing Survey, ``Value, Purchase Price,
and Source of Down Payment--Owner Occupied Units (NATIONAL),'' C-13-
OO, available at https://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 https://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.
\171\ Core Logic Press Release and Negative Equity Report Q4
2012 (Mar. 19, 2013), available at https://www.corelogic.com.
\172\ 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 https://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 https://www.areuea.org/conferences/papers/download.phtml?id=2133.
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4. Transactions Secured by Used Manufactured Homes and Not Land
Estimate of the Number of Covered Loans
To assess the impact of the rule'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 non-QMs
because the DTI ratio exceeded 43 percent and the loan was not insured,
guaranteed, or purchased by a federal government agency or GSE.\173\
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 smaller dollar exemption
discussed above. However, the estimates of affected manufactured home
transactions discussed in this Section 1022 analysis do not exclude
smaller dollar loans and therefore may be slightly overstated.
Census data also reports an estimated 369,000 move-ins to owner-
occupied manufactured homes in 2011.\174\ Census data reports shipment
of approximately 51,000 new manufactured homes in 2011, with
approximately 17 percent titled as real estate.\175\ Therefore, the
Bureau estimates that approximately 318,000 existing manufactured homes
were purchased in 2011. The Bureau conservatively assumes that all of
these purchases were financed. Further, based upon a review of nearly
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,
for the purposes of this 1022 analysis, conservatively estimates that
approximately 105,000 purchases of existing manufactured homes also
involved the acquisition of land which provided security for the
purchase loan,\176\ while approximately 213,000 purchases were secured
only by the existing 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 non-QMs, and
approximately 8,400 were land- and home-secured HPMLs that were non-
QMs.\177\
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\174\ 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.
\175\ See Cost & Size Comparisons: New Manufactured Homes,
available at https://www.census.gov/construction/mhs/pdf/sitebuiltvsmh.pdf.
\176\ 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.
\177\ 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 Rules.
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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 manufactured housing
refinance or home improvement loan (that is, out of every five
manufactured housing loans, four are purchases). The Bureau believes
that both refinance and home improvement loans in manufactured housing
are exempt due to other exemptions in this rule. Therefore, the Bureau
believes that there are approximately 13,600 covered used chattel
manufactured housing loans.\178\
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\178\ For further analysis of these assumptions, see the
Bureau's RFA analysis at part VII.
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Several commenters noted that the proportion of non-QM loans will
be higher in manufactured housing than what was estimated by the
Bureau, particularly due to points and fees exceeding the qualified
mortgage limit. These commenters did not provide supporting data or
address non-QM proportions by collateral type. Nonetheless, if the
proportion of non-QM loans secured by existing manufactured homes and
not land is indeed higher, then the estimates of costs and benefits of
this final rule might increase somewhat (while remaining constant on a
per-loan basis). Moreover, while the commenters identified the points
and fees cap for qualified mortgages in the Bureau's ATR
[[Page 78566]]
Rules as the main reason for these loans not to qualify for qualified
mortgage status, the Bureau believes that creditors will adjust many
transactions, for example by shifting points and fees into the interest
rate, so that these transactions are QMs.
Moreover, HUD recently issued a proposed rulemaking to effectively
exempt Title I manufactured housing from the qualified mortgage points
and fees requirement. If this provision of HUD's proposal is finalized
substantially as proposed, the Bureau believes that some creditors will
start originating more Title I mortgage loans that will also have the
qualified mortgage status. Furthermore, the Bureau conservatively
assumes that every manufactured home move-in reported in the Census (or
in the American Housing Survey) had a mortgage loan associated with the
move-in. Finally, given the analysis of HMDA data, the Bureau believes
that the two creditors specialized in manufactured home lending that
commented on the supplemental proposal are outliers on several
dimensions relevant to the proportion of covered loans, and thus are
not necessarily representative of the whole manufactured home market
and that their claims regarding non-QM loan volume might overestimate
the proportion of manufactured housing loans that are non-QMs for the
overall market.
Covered Persons
Creditors originating covered transactions secured by existing
manufactured homes but not land will experience some reduced burden as
a result of the exemption. In particular, these loans are not subject
to the estimated per-loan costs for an appraisal in conformity with
USPAP described in the January 2013 Final Rule.\179\ 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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\179\ See Section 1022(b) analysis, 78 FR at 10418-21.
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Appraisals in conformity with USPAP 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. Thus, most, of the covered transactions might have
been impossible to make. The impact of the hypothetical case in which
creditors are not able to comply with a provision of this rule that has
not yet taken effect is impossible to estimate with any reasonable
degree of confidence. As a result, for purposes of analyzing the
benefits of the exemption, the Bureau cannot evaluate the burden
reduced as a result of the exemption.
The Bureau believes that whatever method of satisfying conditions
for the exemption the creditors choose, the cost is likely to be
relatively low, and all the manufactured housing creditors would incur
it, likely resulting in the majority of this cost passed on to the
consumers. The Bureau believes that many creditors will opt to use an
independent cost service to qualify for the exemption. The prevalent
option currently on the market is the NADAguides. This guide contains
an estimate of a manufactured home's cost of replacement value based on
the exact make, model, and the year that the manufactured home was
built. Since many creditors use this guide or a competitor's guide
already in these transactions, and that estimate is a valuation under
the ECOA Valuations Rule and would have had to be provided to the
consumer in either case, this additional requirement is not an extra
cost on either the creditors or the consumers.\180\
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\180\ The Agencies received a comment that implementing a
process to ensure compliance with the new provisions regarding
chattel manufactured homes will take at least 1,600 hours of labor
time. The Bureau disagrees. As discussed above, the requirements can
be satisfied not only by obtaining an independent valuation, but
also by copying a manufacturer's invoice for new chattel, or
following a guide, like the one provided by NADA, for new or used
chattel. Following the guide involves looking up the model, make,
and the year that the home was built in, akin to Yellow Pages or,
more appropriately, Kelley's Bluebook. The Bureau believes that most
loan officers should be able to perform that task in, at most,
minutes given either a hardcopy of the guide or an electronic
version. If a creditor chooses to invest additional labor to tailor
its output to consumers to go beyond the limited conditions in this
rule, that is not a cost of this rule.
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Consumers
The exemption likely results in creditors being able to consummate
these transactions while staying in compliance, and thus the benefit of
the exemption to consumers is primarily that they will continue to have
access to these loans.
Consumers will now receive one of the available options including,
and most likely (since it is likely the most cost-effective option for
used homes), a third-party cost estimate. As noted above, most
creditors use an existing cost service to produce an estimate that
already would be provided to the consumer under the ECOA Valuations
Rule. This will provide consumers with some information about the value
of their manufactured home, and will allow them to decide whether they
should indeed purchase this home. If the consumers deem the value too
low, they might decide to look at other models of manufactured homes,
choose a non-manufactured home instead, or decide to exit the housing
market, most likely by renting. The Bureau believes that creditors will
pass through most of their costs onto consumers. The Bureau is unaware
of any estimates of the cost of a third-party cost evaluation for a
used chattel manufactured home, but believes that it is significantly
less than $350 required for a full appraisal for a non-manufactured
home. For example, the cost of using the third-party cost service may
be more akin to the cost of using an automated valuation model, which,
as discussed in this Section 1022 analysis, may be approximately
$20.\181\
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\181\ See also 78 CFR 48548, 48573, n.123 (Aug. 13, 2013) (``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 . . . The average cost per-loan
would therefore depending on the covered person's total level of
lending activity.'').
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5. Transactions Secured by New Manufactured Homes and Not Land
Estimate of the Number of Covered Loans
As noted above, approximately 51,000 new manufactured homes were
shipped according to recent annual Census data. For this analysis, the
Bureau conservatively 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
[[Page 78567]]
new manufactured home purchase transactions that are secured in part by
land.\182\ The Bureau therefore, for this 1022 analysis, conservatively
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 non-QMs, and almost 700 were land and home-secured
HPMLs that were non-QMs.\183\
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\182\ Only a few states provide for treating manufactured homes
sited on leased land as real property.
\183\ See the discussion in the beginning of this section on
data used and comments received. If the Bureau's estimate is off,
for example by a factor as great as three, the estimate would
increase from 4,100 to slightly more than 12,000 loans per year
(indicating that close to a quarter of the transactions would be
non-QM HPMLs after the rule is implemented and that a significant
proportion of the manufactured home transactions are not reported to
HMDA despite these transactions covered by HMDA).
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Covered Persons
The Bureau believes that the vast majority of creditors receive a
copy of the manufacturer's invoice as a matter of standard business
practice, and thus they could simply provide consumers a copy.
Consistent with the January 2013 ECOA Valuations Rule,\184\ the Bureau
estimates that this will cost creditors around $5 per loan, including
training costs. A few commenters have suggested that releasing invoices
would upset industry's pricing model. The Bureau does not possess any
data and is not aware of any studies to help it evaluate this claim.
Moreover, in some industries, such as the car market, a high volume of
transactions occur and firms profit even though some consumers are able
to discover the invoice value of the product. Moreover, the rule allows
the creditor to choose to avoid disclosing the invoice and thereby
avoid any issues a creditor believes disclosure of the invoice could
entail; in lieu of the invoice, the rule allows covered persons to
provide a valuation from an independent person or based on an
independent cost service, as described above.
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\184\ 78 FR 7216, 7244 (Jan. 31, 2013).
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Consumers
Consumers will benefit from this rule by receiving at least some
kind of valuation information. The Bureau believes that while consumers
getting a mortgage loan on a non-manufactured home would generally
receive a valuation based on the ECOA Valuations Rule, this is not the
case for new manufactured homes since the manufacturer's invoice is
exempt from the ECOA requirements. Thus, this provision arguably has a
particularly large effect per transaction affected: consumers go from
not knowing anything about the value of their home to at least having
some information. This is particularly valuable considering that these
are likely to be LMI consumers who would be particularly vulnerable and
adversely affected by entering into a transaction that might leave them
underwater from the very first day, as discussed in more detail in the
section-by-section analysis. The Agencies further discuss this
provision in the section-by-section analysis.
6. Transactions Secured by New Manufactured Homes and Land
The Bureau believes that there were approximately 700 new land/home
HPML non-QM transactions. One commenter noted that few if any of the
transactions outside of those programs include appraisals currently.
While the Bureau does not have data on this point, even if few
transactions outside of these programs did have appraisals currently,
the number of new appraisals that would result from the modified
exemption still is quite low.
Covered Persons
This rule will result in approximately a $350 dollar cost increase
(the average price of a full appraisal) per transaction, which is
likely to be passed through to the consumer. While the rule exempts
these appraisals from the requirement of the interior inspections,
various commenters suggested that full appraisals (including interior
inspections) of manufactured houses cost more than $350. Thus, it is
possible that the actual cost per appraisal is slightly higher or
slightly lower.\185\
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\185\ Some commenters claimed that requiring appraisals for
manufactured housing, in particular in land/home transactions, is
problematic, in part because they asserted that the appraised value
comes in lower than the sale price in a high proportion of FHA
manufactured home program transactions. Some comments suggested that
the appraisals were not valid in part because they relied upon too
many manufactured homes as comparables or the opposite--they relied
too heavily on site-built homes as comparables with adjustments
which are too subjective. The commenters' views, however, were
presented only in theoretical form and did not include data to
support the contents. In the context of an individual transaction,
if the lender views the appraisal to be inaccurate and can
demonstrate that fact, appraisal review and dispute processes exist,
and lenders can get a second appraisal or opinion as well. On the
other hand, if a portfolio lender accepts an appraisal that
indicates insufficient collateral value and does not proceed with
the transactions, the fact that the creditor voluntarily decided not
to originate the loan based on the appraisal is a benefit to the
creditor, and likely to the consumer as well. In addition, FHA
appraisal requirements indicate that this agency considers these
appraisals sufficiently valid to use, and thus not everyone views
these appraisals as problematic.
---------------------------------------------------------------------------
Consumers
Consumers will receive the benefits of the appraisal discussed
elsewhere, and will not be vulnerable to weaker valuation practices
when their transactions are occurring outside of GSE or federal agency
programs. However, consumers will pay any cost of the required
appraisal to the extent that creditors pass it through. The Bureau
believes that many of the consumers using non-QM HPMLs to purchase a
new manufactured home and land currently do not receive any valuation
before buying it, magnifying the potential benefit for consumers.
Finally, the Agencies do not believe that a requirement of a full
appraisal (i.e., with a physical inspection of the interior) on new
manufactured housing secured by land is appropriate given the fact that
many of these houses are not physically on land when the loan is
consummated and other inspections occur under HUD and other safety
standards. Aside from that, these transactions are not systematically
different from construction of site-built homes, and thus should be
treated the same to the extent possible.
Again, the Bureau believes that there were approximately 700 new
land/home HPML non-QM transactions. This will result in approximately a
$350 dollar cost increase (the average price of a full appraisal) that
is likely to be passed through to the consumer. This cost might be
lower because the rule exempts these appraisals from the requirement of
the interior exemptions; however, some commenters suggested that full
manufactured home appraisals (which would typically include an interior
inspection) might sometimes cost more than appraisals of site-built
homes. Thus, it is possible that the actual cost per appraisal is
slightly higher or slightly lower.
7. Streamlined Refinances
Estimate of the Number of Covered Loans
The Bureau anticipates that the refinance provision overwhelmingly
affects private streamline refinances until 2021 because qualified
mortgages are separately exempt from this rule and, under the Bureau's
2013 ATR Final Rule, GSE and federal government agency refinances are
generally deemed
[[Page 78568]]
qualified mortgages until 2021.\186\ In addition, as discussed in the
section-by-section analysis above, only refinances in which the holder
of the credit risk on the existing obligation and the refinancing
remain the same would be eligible, and the loan cannot have interest-
only, negative amortization, or balloon features.
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\186\ See 12 CFR 1026.43(e)(4).
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The Bureau estimates that at most 12,000 private no cash-out
refinance transactions were originated in 2011. The Bureau believes
that some of these were refinances of existing loans where the credit
risk holder changed and thus would not be eligible for the exemption,
and that a small number of these refinances had interest-only, negative
amortization, or balloon features and also would not be eligible for
the exemption. The Bureau believes that for about 90% of refinance
transactions, the creditor would have provided an appraisal to the
consumer; starting in January 2014, the ECOA Valuations Rule will
require creditors to do so. Thus, this exemption is likely to affect
under 1,000 loans a year (10% of 12,000).
Covered Persons
Any creditors originating covered refinances that meet the criteria
of the exemption can choose to make use of the exemption, which reduces
burden. In particular, these loans will not be subject to the estimated
per-loan costs described in the January 2013 Final Rule.\187\ For these
transactions, the creditor is not required to spend time providing a
notice, obtaining an appraisal, reviewing the appraisals conducted for
conformity to this rule, and providing copies of those appraisals to
applicants.
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\187\ See Section 1022(b) analysis, 78 FR at 10418-21.
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Consumers
Regarding benefits, consumers whose HPML streamlined refinance are
newly exempt will save an average of $350 per loan. In addition,
streamlined refinance transactions may close more quickly without an
appraisal, reducing the time in which a consumer may be in a worse
loan, which can result in further cost savings to the consumer. For
example, if the consumer can close a refinance transaction two weeks
earlier because a full appraisal is not performed, and the refinance
loan has a lower interest rate, that will provide the consumer with an
additional two weeks of payments at the reduced interest rate of the
refinance loan.
As discussed above and in the Bureau's analysis under Section 1022
in the January 2013 Final Rule, in general, consumers who are borrowing
HPMLs that are covered loans benefit from having an appraisal. The cost
to consumers of the proposed exemption therefore is 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.
8. Significant Alternatives
The Agencies discussed various conditions on exemptions for smaller
dollar loans and streamline refinances. Placing conditions on these
exemptions--for example, requiring that an automated valuation be
obtained and provided to the consumer--would provide many of the same
benefits to consumer as a full appraisal. However, the Bureau believes
that the benefits of an appraisal would likely be lower for these two
particular types of transactions than for other types of transactions
that will not be exempt from the January 2013 Final Rule.
The cost of these conditions would be directly levied on the
creditors; however, the Bureau believes that it would be almost fully
passed on to consumers. The Bureau did not view the cost of these
alternatives to be significant. The Agencies determined, however, not
to adopt this alternative. A significant factor was that streamline
refinances and smaller dollar loans were viewed as classes of
transactions that were significantly lower risk and therefore not
necessitating alternative valuation conditions in this rule.
The Agencies also discussed a provision mandating the creditors to
provide chattel manufactured home valuations with adjustments for
condition (used chattel) and location (used or new chattel). The
Agencies decided that this provision would introduce additional
implementation burden and subjectivity with respect to the compliance
processes, and that practices with regard to these adjustments had not
sufficiently evolved to codify a uniform set of standards in
regulations. From the perspective of potential benefits of this
provision, creditors can still provide whatever adjustments are
specified in the cost service guide.
The Agencies discussed raising the loan amount requirement for the
smaller dollar exemption to $50,000. However, the Agencies decided that
the range of $25,000 to $50,000 captures too great a proportion of the
remaining non-QM subordinate lien HPMLs. The Bureau also noted that
such an increase would wholly exempt many manufactured home purchases
that deserve the protection provided by the new provisions in this
rule. The Agencies also believe that at these higher loan amounts the
cost of the appraisal provides less of an incentive to switch to
another kind of financing, for example an open-credit loan.
B. Potential Specific Impacts of the Supplemental Final Rule
1. Potential Reduction in Access of Consumers to Consumer Financial
Products or Services
The rule includes only exemptions and provisions that have limited
impact on a small amount of loans. Thus, the Bureau does not believe
that any reduction in access to credit will result. If anything, the
Bureau believes that the exemption for used chattel manufactured
housing will make many loans possible to originate while complying with
the January 2013 Final Rule, thus improving access to credit.
Manufactured housing industry commenters suggested that access to
credit in chattel loans, including new chattel loans, would be reduced
if valuation information must be provided to the consumer. These
comments may be read as potentially suggesting that: (1) Consumers, if
informed of the estimated value of the home by currently available
means, might elect not to proceed with the transaction, or (2)
creditors, if required to provide such information to the consumers,
also might not proceed with the transaction, particularly where the
loan amount exceeds the estimated value of the home.
If these comments are based upon the assumption that valuation
information provided will be inaccurate or misleading, commenters did
not provide data in support of this point with respect to any of the
three valuation information options specified in the condition to the
exemption for chattel manufactured home loans. In this regard, the
Bureau notes that a leading independent cost service provided data in
its comments indicating the accuracy of its method compared to personal
property appraisals. Otherwise, the Bureau does not consider access to
credit to be reduced where consumers voluntarily choose not to continue
with a transaction after receiving valuation information; in this case,
the information has benefited the consumer by enabling the consumer to
make better informed credit choices. Similarly,
[[Page 78569]]
access to credit is not necessarily compromised if the creditor chooses
not to continue with the transaction, particularly if the loan amount
exceeds the estimated value of the home. In purchase transactions, the
Bureau believes that consumers typically have the option of purchasing
other manufactured and non-manufactured homes that would not have the
consumer starting off in their mortgage by effectively being
underwater.
2. Impact of the Rule on Depository Institutions and Credit Unions With
$10 Billion or Less in Total Assets
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 more
benefits from the exemption for smaller dollar loans. These benefits
would not be high in absolute dollar terms, however, because the number
of covered transactions across all creditors that would be exempted by
the smaller dollar loan exemption is still relatively low--less than
5,000, as discussed above.
Otherwise, the Bureau does not believe that the impact of the
supplemental rule 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
covered streamlined refinances that would be exempted by the exemption
for certain refinances at a greater rate than would other financial
institutions.
3. Impact of the Rule on Consumers in Rural Areas
The Bureau understands that a significantly greater proportion of
homes in rural areas are existing manufactured homes than in non-rural
areas.\188\ Therefore, any impacts of the 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 exemption for streamlined refinances would generate a similar
benefit for consumers in rural areas as for consumers in non-rural
areas. Finally, setting aside the increased incidence of manufactured
housing loans in rural areas, the Bureau does not believe that the
difference in the number of smaller dollar loans originated for
consumers in rural areas and non-rural areas is significant.
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\188\ 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 https://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 https://www.ruralhome.org/storage/documents/notehmdasm.pdf. Industry
comments on the 2012 Interagency Appraisals Proposed Rule noted that
manufactured homes sited on land owned by the buyer are
predominantly located in rural areas; one commenter estimated that
60 percent of manufactured homes are located in rural areas.
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VII. Regulatory Flexibility Act
OCC
Pursuant to section 605(b) of the Regulatory Flexibility Act, 5
U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise
required under section 603 of the RFA is not required if the agency
certifies that the final rule will not 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
\189\ and trust companies with total assets of $35.5 million or less)
and publishes its certification and a short, explanatory statement in
the Federal Register along with its final rule.
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\189\ ``A financial institution's assets are determined by
averaging 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 HPMLs. The statute expressly
excludes from these appraisal requirements coverage of ``qualified
mortgages as defined by section 129C.'' 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 January 2013 Final Rule on January 18,
2013, which will be effective on January 18, 2014. Pursuant to the
general exemption authority in the statute, the January 2013 Final Rule
excluded the following consumer credit transactions from the definition
of HPML: Transactions secured by new manufactured homes; transactions
secured by a 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 final rule to include additional exemptions from the
higher risk mortgage loan appraisal requirements of section 129H of
TILA: Certain ``streamlined'' refinancings and extensions of credit of
$25,000 or less, indexed every year for inflation. In addition, this
supplemental final rule amends and adds exemptions for transactions
secured by manufactured homes.
The OCC currently supervises 1,797 banks (1,179 commercial banks,
61 trust companies, 509 federal savings associations, and 48 branches
or agencies of foreign banks). We estimate that less than 1,309 of the
banks supervised by the OCC are currently originating one- to four-
family residential mortgage loans that could be HPMLs. Approximately
1,291 of OCC-supervised banks are small entities based on the Small
Business Administration's (SBA's) definition of small entities for RFA
purposes. Of these, the OCC estimates that 867 banks originate
mortgages and therefore may be impacted by this final 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 will be zero. The supplemental final rule 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 exemptions in the supplemental final rule will be
less than the cost of compliance for a comparable loan under the final
rule.
Therefore, the OCC believes the supplemental final rule will not
have a significant economic impact on a substantial number of small
entities. The OCC certifies that the supplemental final rule will not
have a significant
[[Page 78570]]
economic impact on a substantial number of small entities.
OCC Unfunded Mandates Reform Act of 1995 Determination
Section 202 of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1532), requires the OCC to prepare a budgetary impact statement before
promulgating a rule that includes a Federal mandate that may result in
the expenditure by state, local, and tribal governments, in the
aggregate, or by the private sector, of $100 million or more in any one
year (adjusted annually for inflation). The OCC has determined that
this supplemental final rule will not result in expenditures by state,
local, and tribal governments, or the private sector, of $100 million
or more in any one year. Accordingly, the OCC has not prepared a
budgetary impact statement.
Board
The RFA (5 U.S.C. 601 et seq.) requires an agency either to provide
a final regulatory flexibility analysis (FRFA) with a final rule or
certify that the final rule will not have a significant economic impact
on a substantial number of small entities. This supplemental final rule
applies to certain banks, other depository institutions, and non-bank
entities that extend HPMLs to consumers.\190\ The SBA establishes size
standards that define which entities are small businesses for purposes
of the RFA.\191\ The size standard to be considered a small business
is: $500 million or less in assets for banks and other depository
institutions; and $35.5 million or less in annual revenues for the
majority of nonbank entities that are likely to be subject to the
regulations. Based on its analysis, and for the reasons stated below,
the Board believes that the supplemental final rule will not have a
significant economic impact on a substantial number of small entities.
Nevertheless, the Board is publishing a FRFA.
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\190\ The Board notes that for purposes of its analysis, the
Board considered all creditors to which the supplemental final rule
applies. The Board's Regulation Z at 12 CFR 226.43 applies to a
subset of these creditors. See 12 CFR 226.43(g).
\191\ U.S. SBA, Table of Small Business Size Standards Matched
to North American Industry Classification System Codes, available at
https://www.sba.gov/sites/default/files/files/size_table_07222013.pdf.
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A. Reasons for the Final Rule
This supplemental final rule relates to the January 2013 Final Rule
issued by the Agencies on January 18, 2013, which goes into effect on
January 18, 2014. See 78 FR 10368 (Feb. 13, 2013). The January 2013
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 average prime
offer rate by a specified percentage, the January 2013 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 definition of higher-risk mortgage in new TILA
section 129H expressly excludes qualified mortgages, as defined in TILA
section 129C, as well as reverse mortgage loans that are qualified
mortgages as defined in TILA section 129C.
The Agencies are now finalizing two additional exemptions to the
2013 Final Rule appraisal requirements and adopting certain provisions
for manufactured homes. As described in the SUPPLEMENTARY INFORMATION,
the supplemental final rule exempts ``streamlined'' refinancings and
transactions of $25,000 or less. The supplemental final rule also
exempts loans secured by manufactured homes from the January 2013 Final
Rule's appraisal requirements for 18 months, until July 18, 2015.
Subsequent to that date:
[cir] A loan secured by a new manufactured home and land must
comply with the January 2013 Final Rule's appraisal requirements except
for the requirement to conduct a physical visit to the interior of the
property;
[cir] A loan secured by an existing (used) manufactured home and
land will be subject to all of the January 2013 Final Rule's appraisal
requirements; and
[cir] A loan secured by manufactured homes (new or used) and not
land will be exempt from the January 2013 Final Rule's appraisal
requirements if the consumer is provided with a specified alternative
cost estimate or valuation.
B. Statement of Objectives and Legal Basis
The Board believes that the additional exemptions and amendments
established by the supplemental final rule are appropriate to carry out
the purposes of the statute, as discussed above in the SUPPLEMENTARY
INFORMATION. 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 January 2013 Final Rule applies to creditors that make HPMLs
subject to 12 CFR 1026.35(c). In the Board's regulatory flexibility
analysis for the January 2013 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.\192\ According
to the data provided by the Bureau in connection with promulgation of
the supplemental final rule, approximately 5,913 commercial banks and
savings institutions, 3,784 credit unions, and 2,672 non-depository
institutions are considered small entities and extend mortgages, and
therefore are potentially subject to the January 2013 Final Rule and
the supplemental final rule.
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\192\ See the Bureau's regulatory flexibility analysis in the
2013 Final Rule (78 FR 10368, 10424 (Feb. 13, 2013)).
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Data currently available to the Board are not sufficient to
estimate how many small entities that extend mortgages will be subject
to 12 CFR 226.43, given the range of exemptions provided in the January
2013 Final Rule and the supplemental final rule, including the
exemption for loans that satisfy the criteria of a qualified mortgage.
Further, the number of these small entities that will make HPMLs
subject to the supplemental final rule's exemptions is unknown.
D. Projected Reporting, Recordkeeping and Other Compliance Requirements
The supplemental final rule does not impose any significant new
recordkeeping, reporting, or compliance requirements on small entities.
The supplemental final rule reduces the number of transactions that are
subject to the requirements of the January 2013 Final Rule. As noted
above, the January 2013 Final Rule generally applies to creditors that
make HPMLs subject to 12 CFR 1026.35(c), which are generally mortgages
with an APR that exceeds the APOR by a specified percentage, subject to
certain exemptions. The supplemental final rule exempts two additional
classes of HPMLs from the January 2013 Final Rule: Certain streamlined
refinance HPMLs whose proceeds are used exclusively to satisfy
[[Page 78571]]
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).
In addition, the supplemental final rule exempts until July 2015 HPMLs
secured by manufactured homes. Accordingly, the supplemental final rule
decreases the burden on creditors by reducing the number of loan
transactions that are subject to the January 2013 Final Rule. For
applications submitted on or after July 18, 2015, burden increases
slightly for transactions secured by new manufactured homes and land
because such transactions will be required to comply with the January
2013 Final Rule's appraisal requirements except for the requirement to
conduct a physical visit to the interior of the property. In addition,
burden also increases with respect to transactions secured by a new
manufactured home and not land. These transactions will be exempt from
the January 2013 Final Rule's appraisal requirements only if the
borrower is provided with a specified alternative cost estimate or
valuation to the borrower.
F. Identification of Duplicative, Overlapping, or Conflicting Federal
Regulations
The Board has not identified any Federal statutes or regulations
that duplicate, overlap, or conflict with the proposed revisions.
G. Discussion of Significant Alternatives
The Board is not aware of any significant alternatives that would
further minimize the economic impact of the supplemental final rule on
small entities. With respect to transactions secured by ``streamlined''
refinances or smaller-dollar HPMLs, the supplemental final rule exempts
these transactions from the January 2013 Final Rule and therefore
reduces economic burden for small entities. With respect to loans
secured by new manufactured homes and land, the Board recognizes that
the supplemental final rule imposes new burden by requiring such
transactions to comply with the January 2013 Final Rule's appraisal
requirements except for the requirement to conduct a physical visit to
the interior of the property. With respect to loans secured by new
manufactured homes and not land, the Board also recognizes that the
supplemental final rule imposes new burden by requiring that such
transactions are exempt from the January 2013 Final Rule only if the
borrower is provided with a specified alternative cost estimate or
valuation. Although maintaining the January 2013 Final Rule exemption
for new manufactured homes would lower the economic impact on small
entities, the Board does not believe doing so is appropriate in
carrying out the purposes of the statute.
FDIC
The RFA generally requires that, in connection with a rulemaking,
an agency prepare and make available for public comment a regulatory
flexibility analysis that describes the impact of the rule on small
entities.\193\ 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 $500 million or less) and publishes
its certification and a short, explanatory statement in the Federal
Register together with the rule.
---------------------------------------------------------------------------
\193\ See 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------
As of June 30, 2013, there were about 3,673 small FDIC-supervised
institutions, which include 3,363 state nonmember banks and 310 state-
chartered savings banks. The FDIC analyzed the 2011 HMDA \194\ dataset
to determine how many loans by all FDIC-supervised institutions 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 institutions originated at least 100 HPMLs, with only four
institutions originating more than 500 HPMLs. Further, the FDIC-
supervised institutions that met the definition of a small entity
originated on average less than 11 HPMLs of $250,000 \195\ or less each
in 2011.
---------------------------------------------------------------------------
\194\ 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.
\195\ HPML transactions over $250,000 were excluded from this
analysis as 12 CFR Part 323 of the FDIC Rules and Regulations
requires an appraisal for real estate loans over $250,000 unless
another exemption applies.
---------------------------------------------------------------------------
The supplemental final rule relates to the January 2013 Final Rule
issued by the Agencies on January 18, 2013, which goes into effect on
January 18, 2014. The January 2013 Final Rule requires that creditors
satisfy the following requirements for each HPML they originate that is
not exempt from the 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 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 supplemental final rule amends one existing exemption and
establishes additional exemptions to the appraisal requirements in the
January 2013 Final Rule. The supplemental final rule exempts:
``Streamlined'' refinancings. A ``streamlined''
refinancing results if the holder of the successor credit risk also
held the risk of the original credit obligation. The supplemental final
rule does not exempt refinancing transactions involving cash out,
negative amortization, interest only payments or balloon payments.
``Smaller Dollar'' Residential Loans. A ``smaller dollar''
residential loan is an extension of credit of $25,000 or less, with the
amount indexed annually for inflation, secured by the borrower's
principal dwelling.
Manufactured Home Loans. Loans secured by manufactured
homes are exempt from the appraisal requirements for 18 months, until
July 18, 2015. Subsequent to that date:
[cir] A loan secured by a new manufactured home and land must
comply with the appraisal requirements except for the requirement to
conduct a physical visit to the interior of the property;
[cir] A loan secured by an existing (used) manufactured home and
land will be subject to all appraisal requirements; and
[cir] A loan secured by a manufactured home (new or used) and not
land will be exempt from the appraisal requirements if the buyer is
provided with a specified alternative cost estimate or valuation.
[[Page 78572]]
The supplemental final rule amends the exemption for a loan secured
by a new manufactured home in the January 2013 Final Rule by requiring
an appraisal without a physical visit to the interior of the property
for loans secured by a new manufactured home and land after July 18,
2015. This amendment will increase burden as such loans will no longer
be exempt from all of the appraisal requirements. While data is not
available to estimate the number of such transactions, the previously
cited HMDA data reflects that FDIC-supervised institutions that met the
definition of a small entity each engaged in a relatively small number
of HPML transactions in 2011. In addition, the supplemental final rule
exempts additional transactions, including certain ``streamlined''
refinancings, ``smaller dollar'' residential loans, and some
manufactured home loans, from the appraisal requirements of the January
2013 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 supplemental final rule will
not have a significant economic impact on a substantial number of small
entities that it regulates in light of the following facts: (1) The
supplemental final rule reduces regulatory burden on small institutions
by exempting certain transactions from the appraisal requirements of
the January 2013 Final Rule; and (2) the FDIC previously certified that
the January 2013 Final Rule would not have a significant economic
impact on a substantial number of small entities. Accordingly, the FDIC
certifies that the supplemental final rule would not have a significant
economic impact on a substantial number of small entities. Therefore, a
regulatory flexibility analysis is not required.
NCUA
The RFA generally requires that, in connection with a final rule,
an agency prepare and make available for public comment a FRFA that
describes the impact of the final rule on small entities.\196\ 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 federally insured
credit unions (FICU) having less than 50 million dollars in
assets.\197\
---------------------------------------------------------------------------
\196\ See 5 U.S.C. 601 et seq.
\197\ 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).
---------------------------------------------------------------------------
In 2012, there were approximately 4,600 small FICUs. The NCUA
analyzed the 2012 HMDA \198\ dataset to determine how many loans by all
FICUs might qualify as HPMLs under section 129H of the TILA as added by
section 1471 of the Dodd-Frank Act. This analysis reflects that 918
FICUs originated HPMLs, with only 24 institutions originating more than
100 HPMLs. Further, the FICUs that met the definition of a small entity
originated on average less than 2 HPMLs in 2012.
---------------------------------------------------------------------------
\198\ The NCUA based its analysis on the HMDA data, as it
provided a proxy for the characteristics of HPMLs. While the NCUA
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 NCUA also recognizes that the HMDA data
provides information relative to mortgage lending in metropolitan
statistical areas, but not in rural areas.
---------------------------------------------------------------------------
The supplemental final rule relates to the January 2013 Final Rule
issued by the Agencies on January 18, 2013, which goes into effect on
January 18, 2014. The January 2013 Final Rule requires that creditors
satisfy the following requirements for each HPML they originate that is
not exempt from the 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 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 supplemental final rule amends one existing exemption and
establishes additional exemptions to the appraisal requirements in the
January 2013 Final Rule. The supplemental final rule exempts:
``Streamlined'' refinancings. A ``streamlined''
refinancing if the holder of the successor credit risk also held the
risk of the original credit obligation. The supplemental final rule
does not exempt refinancing transactions involving cash out, negative
amortization, interest only payments or balloon payments.
Extensions of credit of $25,000 or less. Extension of
credit of $25,000 or less, with the amount indexed annually for
inflation, secured by the borrower's principal dwelling.
Manufactured Home Loans. Loans secured by a manufactured
home are exempt from the appraisal requirements for 18 months, until
July 18, 2015. Subsequent to that date:
[cir] A loan secured by a new manufactured home and land must
comply with the appraisal requirements except for the requirement to
conduct a physical visit to the interior of the property;
[cir] A loan secured by an existing (used) manufactured home and
land will be subject to all appraisal requirements; and
[cir] A loan secured by a manufactured home (new or used) and not
land will be exempt from the appraisal requirements if the consumer is
provided with a specified alternative cost estimate or valuation.
The supplemental final rule amends the exemption for loans secured
by a new manufactured home in the January 2013 Final Rule by requiring
an appraisal without a physical visit to the interior of the property
for loans secured by a new manufactured home and land after July 18,
2015. This amendment will increase burden as such loans will no longer
be exempt from all of the appraisal requirements. While data is not
available to estimate the number of such transactions, the previously
cited HMDA data reflects that FICUs that met the definition of a small
entity each engaged in a relatively small number of HPML transactions
in 2011. In addition, the supplemental final rule exempts additional
transactions, including certain ``streamlined'' refinancings, ``smaller
dollar'' residential loans, and some manufactured home loans, from the
appraisal requirements of the January 2013 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.
[[Page 78573]]
It is the opinion of the NCUA that the supplemental final rule will
not have a significant economic impact on a substantial number of small
entities that it regulates in light of the following facts: (1) The
supplemental final rule reduces regulatory burden on small institutions
by exempting certain transactions from the appraisal requirements of
the January 2013 Final Rule; and (2) the NCUA previously certified that
the January 2013 Final Rule would not have a significant economic
impact on a substantial number of small entities. Accordingly, the NCUA
certifies that the supplemental final rule will not have a significant
economic impact on a substantial number of small entities. Therefore, a
regulatory flexibility analysis is not required.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests.
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive order to adhere to fundamental
federalism principles. This supplemental final rule applies to FICUs
and will not have a substantial direct effect on the states, on the
relationship between the national government and the states, or on the
distribution of power and responsibilities among the various levels of
government. NCUA has determined that this supplemental final rule does
not constitute a policy that has federalism implications for purposes
of the Executive Order.
The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
NCUA has determined this final rule will not affect family well-
being within the meaning of section 654 of the Treasury and General
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681
(1998).
Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
\199\ (SBREFA) provides generally for congressional review of agency
rules. A reporting requirement is triggered in instances where NCUA
issues a final rule as defined by Section 551 of the Administrative
Procedure Act.\200\ NCUA does not believe this final rule is a ``major
rule'' within the meaning of the relevant sections of SBREFA. NCUA has
submitted the rule to the Office of Management and Budget (OMB) for its
determination.
---------------------------------------------------------------------------
\199\ Public Law 104-121, 110 Stat. 857 (1996).
\200\ 5 U.S.C. 551.
---------------------------------------------------------------------------
Bureau
The RFA generally requires an agency to conduct an initial
regulatory flexibility analysis (IRFA) and a FRFA of any rule subject
to notice-and-comment rulemaking requirements.\201\ These analyses must
``describe the impact of the proposed rule on small entities.'' \202\
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.\203\ 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.\204\
---------------------------------------------------------------------------
\201\ 5 U.S.C. 601 et. seq.
\202\ 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 SBA 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).
\203\ Id. at 605(b).
\204\ Id. at 609.
---------------------------------------------------------------------------
An IRFA was not required for the proposal, and a FRFA is not
required for the supplemental final rule, because it will not have a
significant economic impact on a substantial number of small entities.
The analysis below evaluates the potential economic impact of the
supplemental final rule on small entities as defined by the RFA. The
analysis generally examines the regulatory impact of the provisions of
the supplemental final rule against the baseline of the January 2013
Final Rule the Agencies issued on January 18, 2013.
No comments received were relevant specifically to smaller
entities. The Agencies discuss more general comments in the section-by-
section analyses and the Bureau discusses some of the more specific
comments relating to benefits and costs of these provisions in its
Section 1022(b) analysis.
A. Number and Classes of Affected Entities
The supplemental final rule applies 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 supplemental final rule. This supplemental final
rule 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.\205\ Under such standards, depository institutions with $500
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 $35.5 million.
Thus, commercial banks, savings institutions, and credit unions with
$500 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 $35.5
million.
---------------------------------------------------------------------------
\205\ 5 U.S.C. 601(3). The current SBA size standards are
located on the SBA's Web site at https://www.sba.gov/content/table-small-business-size-standards.
---------------------------------------------------------------------------
The Bureau can identify through data under the 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 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 supplemental final rule would apply:
\206\
---------------------------------------------------------------------------
\206\ 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.
[[Page 78574]]
Table 1--Counts of Creditors by Type
[Estimated number of affected entities and small entities by NAICS code and engagement in closed-end mortgage
transactions]
----------------------------------------------------------------------------------------------------------------
Entities engaged Small entities
Small entity in closed-end engaged in closed-
Category NAICS threshold mortgage end mortgage
transactions \b\ transactions
----------------------------------------------------------------------------------------------------------------
Commercial banks & savings 522110, 522120..... $500,000,000 \a\ 7230 \a\ 5913
institutions. assets.
Credit unions \c\.............. 522130............. $500,000,000 \a\ 4178 \a\ 3784
assets.
Real Estate credit \d e\....... 522310, 522292..... $35,500,000 2787 \a\ 2672
revenues.
---------------------------------------
Total...................... ................... .................. 14,195 12,369
----------------------------------------------------------------------------------------------------------------
Source: 2011 HMDA, Dec. 31, 2011 Bank and Thrift Call Reports, Dec. 31, 2011 NCUA Call Reports, Dec. 31, 2011
NMLSR Mortgage Call Reports.
\a\ For HMDA reporters, loan counts from HMDA 2011. For institutions that are not HMDA reporters, loan counts
projected based on Call Report data fields and counts for HMDA reporters.
\b\ Entities are characterized as originating loans if they make one or more loans.
\c\ Does not include cooperatives operating in Puerto Rico. The Bureau has limited data about these institutions
or their mortgage activity.
\d\ NMLSR Mortgage Call Report for 2011. All MCR reporters that originate at least one loan or that have
positive loan amounts are considered to be engaged in real estate credit (instead of purely mortgage brokers).
For institutions with missing revenue values, the probability that the institution was a small entity is
estimated based on the count and amount of originations and the count and amount of brokered loans.
\a\ Data do not distinguish nonprofit from for-profit organizations, but Real Estate Credit presumptively
includes nonprofit organizations.
B. Impact of Exemptions
The provisions of the supplemental final rule all provide or modify
exemptions from the HPML appraisal requirements. Measured against the
baseline of the burdens imposed by the January 2013 Final Rule the
Agencies issued on January 18, 2013, the Bureau believes that these
provisions impose either no or insignificant additional burdens on
small entities. The Bureau believes that most of these 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.
As discussed in the Bureau's Section 1022(b) analysis, the five
provisions \207\ for non-QM HPMLs are in this rule are:
---------------------------------------------------------------------------
\207\ The Bureau believes that other provisions would have a de
minimis impact on small entities.
---------------------------------------------------------------------------
1. Certain refinances, commonly referred to as ``streamlined'' are
now exempt from the January 2013 Final Rule;
2. Smaller dollar loans (under $25,000) are now exempt from the
January 2013 Final Rule;
3. Used manufactured housing transactions that are not secured by
land (chattel) are now exempt from the January 2013 Final Rule and, for
applications received on or after July 18, 2015, subject to some
conditions to provide an alternative valuation; \208\
---------------------------------------------------------------------------
\208\ Used manufactured housing transactions that are secured by
land remain covered by the January 2013 Final Rule. However, all
loans are exempt if the application is received before July 18,
2015.
---------------------------------------------------------------------------
4. New manufactured housing transactions that are not secured by
land (chattel) remain exempt from the January 2013 Final Rule; however,
for applications received on or after July 18, 2015, these transactions
are now subject to conditions; and
5. New manufactured housing transactions secured by land (new land/
home) for which an application is received on or after July 18, 2015,
now are subject to the January 2013 Final Rule; however, these
transactions remain exempted from the physical interior visit part of
the requirement.
1. Exemption for ``Streamlined'' Refinancing Programs
The supplemental final rule provides an exemption for any
transaction that is a refinancing satisfying certain conditions.
This provision removes 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.
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. Small
entities will be able to choose whether to avail themselves of this
exemption.
2. Exemption for Smaller Dollar Loans
The supplemental final rule exempts from the final rule loans equal
to or less than $25,000, adjusted annually for inflation. This
provision removes burden imposed by the final rule on small entities
extending any HPMLs covered by the final rule up to $25,000. In any
event, small entities will be able to choose whether to avail
themselves of this exemption.
3. Exemption Subject to Alternative Valuation for Used Manufactured
Housing Transactions Not Secured by Land (Used Chattel)
The supplemental final rule exempts from the HPML appraisal
requirements a transaction secured by an existing manufactured home and
not land. This provision removes certain burdens imposed by the January
2013 Final Rule on small entities extending HPMLs covered by the
January 2013 Final Rule when they are secured solely by existing
manufactured homes. 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. To be
eligible for this burden-reducing exemption, the creditor is required
to obtain an estimate of the value of the home, with the types of
estimates allowed described in detail in the section-by-section
analysis. For example, creditors can use an independent cost service to
qualify for the exemption.
Taking the January 2013 Final Rule as the baseline, as discussed in
the section-by-section and the Bureau's Section
[[Page 78575]]
1022(b) analyses, this exemption might provide significant burden
relief since, 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. Thus, many of these transactions might
not have been made, but for this exemption. Finally, taking advantage
of this exemption is voluntary for creditors, thus it imposes no
additional burden.
4. Narrowed Exemption for Transactions Secured by New Chattel
Manufactured Homes
As discussed in the Bureau's Section 1022(b) analysis and in the
section-by-section analysis, the final rule requires the creditor to
provide the consumer with one of several types of an alternative
valuation of the new manufactured home in transactions that are secured
by a new manufactured home but not land. This condition does not
significantly increase the burden of the rule relative to the January
2013 Final Rule. The Bureau believes that the cost of obtaining an
estimate of the value of the new manufactured home using a third-party
cost source, for example, would be significantly less than the cost of
obtaining a USPAP-complaint appraisal.
As noted in the Bureau's Section 1022(b) analysis, the Bureau
believes that there might be as many as 3,400 such transactions. As
shown in the table above, the Bureau believes that there were 12,369
small creditors in 2011. Thus, over 85 percent of small creditors face
at most one such transaction per year. As noted in the 2013 January
Final Rule, the Bureau believes that a USPAP appraisal costs on average
$350. Even if we suppose that an alternative valuation would cost as
must as a USPAP appraisal, that results in a burden of $350 for that
creditor, an insignificant burden. Note that the Bureau believes that
the cost imposed per transaction is considerably lower, arguably under
$5 for some third-party cost sources. Moreover, HMDA data implies that
over 85 percent of small creditors will not be subject to any
transactions like that. Even if the Bureau misestimated the number of
affected transactions by a factor of 10, the costs imposed on 85
percent of small creditors are still like to be well under $100 per
creditor.\209\
---------------------------------------------------------------------------
\209\ All mortgage lenders can participate in the manufactured
housing market segment (which includes chattel transactions and
transactions secured by a manufactured home and land; the handful of
manufactured housing specialty lenders engaged in chattel lending
are still not significant in number by themselves. Further, even if
the chattel exemption conditions were significant to their revenue,
that is not a substantial number for RFA purposes.
---------------------------------------------------------------------------
5. Narrowed Exemption for Transactions Secured by New Manufactured
Homes and Land
The Agencies finalized a provision that requires an appraisal for
transactions secured by new manufactured homes and land, while
exempting these appraisals from interior inspection. As noted in the
Bureau's Section 1022(b) analysis, the Bureau believes that
approximately 700 transactions are going to be affected. Thus, over 90
percent of small creditors are not going to be affected by this
provision. Even if the Bureau misestimated the number of transactions
affected by a factor of 10, over 85 percent of small creditors would be
subject to at most one such transaction per year, resulting in a burden
of around $350 per creditor, a negligible fraction of a creditor's
revenue. This impact could be even lower, given that, as noted in the
section-by-section analysis, these transactions already are subject to
a full appraisal requirement when carried out under GSE or federal
agency programs.
C. Conclusion
Each element of this supplemental final rule would reduce economic
burden for small entities or impose a minor burden on a small amount of
creditors (well less than $500 per creditor for 85 percent of small
creditors even if the Bureau misestimated the number of covered
manufactured home transactions by a factor of 10). The exemption for
HPMLs secured by existing manufactured homes and not land would lessen
any economic impact resulting from the HPML appraisal requirements. The
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 exemption for smaller-dollar HPMLs
similarly would lessen burden on small entities extending credit in the
form of HPMLs up to the threshold amount. The narrowed exemptions for
transactions secured by new manufactured homes, both land and chattel,
would barely affect over 85 percent of creditors (at most one such
transaction per year).
These impacts that would have been generated by the January 2013
Final Rule are reduced to the extent the transactions are not already
exempt from the January 2013 Final Rule as qualified mortgages. While
all of these 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 the supplemental final
rule will not have a significant economic impact on a substantial
number of small entities.
FHFA
The supplemental 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)).
VIII. Paperwork Reduction Act
OCC, Board, FDIC, NCUA, and Bureau
Certain provisions of the January 2013 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, and notwithstanding any
other provision of law, 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 OMB control number. The
information collection requirements contained in this final rule to
amend the January 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 Bureau, FDIC, NCUA, and OCC submitted these
information collection requirements to OMB at the proposed rule stage,
as well. OMB filed comments instructing the agencies to examine public
comment in response to the NPRM and describe in the supporting
statement of its collection any public comments received regarding the
collection, as well as why it did or did not incorporate the
commenter's recommendation. No comments were received concerning the
proposed information collection requirements. The Board reviewed these
final rules
[[Page 78576]]
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.\210\
---------------------------------------------------------------------------
\210\ 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.\211\
---------------------------------------------------------------------------
\211\ 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 final rule.
---------------------------------------------------------------------------
FDIC: Insured state non-member banks, insured state branches of
foreign banks, state savings associations, 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 January 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.\212\ 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).
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\212\ 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).
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The January 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 January 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 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 January 2013 Final Rule were
described in the PRA section of that rule. See 78 FR 10368, 10429
(February 13, 2013). As described in the Bureau's section 1022 analysis
in the January 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 proposed rule
stage and reduced to reflect those exemptions in the January 2013 Final
Rule for which the Bureau had identified data. As discussed in the
January 2013 Final Rule, the other Agencies did not adjust the
calculations to account for the exempted transactions provided in the
January 2013 Final Rule. Accordingly, the estimated burden calculations
in Table 3 in the January 2013 Final Rule were overstated.
Calculation of Estimated Burden
January 2013 Final Rule
As explained in the January 2013 Final Rule, for the Initial
Appraisal Disclosure, the creditor is required to provide a short,
written disclosure within three business days of application. Because
this disclosure is supplied by the federal government for purposes of
disclosure to the public, this is not classified as an information
collection pursuant to 5 CFR 1320(c)(2), and the Agencies have assigned
it no burden for purposes of this PRA analysis.
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 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 January 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.
[[Page 78577]]
Final Rule
The Agencies use the estimated burden from the PRA section of the
January 2013 Final Rule as the baseline for analyzing the impact the
three exemptions in the final rule. 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 January 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 final rule has been considered as follows:
First, the Agencies find that, currently, only a very small
minority of refinances involve cash out beyond the levels permitted for
the exemption for certain refinance loans. See Sec.
1026.35(c)(2)(vii). Going forward, the Agencies believe that virtually
all refinance loans will be either qualified mortgages or qualify for
this exemption. The Agencies therefore assume that the exemption for
certain refinances in this supplemental final rule affects all of the
refinance loans analyzed under Section 1022(b)(2) of the January 2013
Final Rule.\213\ In that analysis, the Bureau estimated that a total of
3,800 new Written Appraisals would occur as a result of the January
2013 Final Rule (including home purchase, home equity, and refinance
loans). In the Supplemental Proposal, the Bureau estimated that
refinances would account for approximately 1,200 of these 3,800 new
Written Appraisals that would occur as a result of the January 2013
Final Rule.\214\ Thus, the exemption for certain refinances in this
supplemental final rule would eliminate approximately 32 percent of the
new Written Appraisals that were estimated to occur as a result of the
January 2013 Final Rule.
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\213\ See 78 FR 10368, 10419 (Feb. 13, 2013). As discussed in
the Section 1022(b)(2) analysis in this rule, the Bureau believes
that there were at most private 12,000 no cash-out refinance
transactions in 2011, and that some number of these were refinances
of existing loans where the credit risk holder changed and thus
would not be eligible for the exemption, and that a small number of
these refinances had interest-only, negative amortization, or
balloon features and also would not be eligible for the exemption.
Moreover, the Bureau believes that about 90 percent of refinance
transactions would have an appraisal provided to consumers because
the creditor chose to have an appraisal and provided a copy due to
the ECOA Valuations Rule. Thus, this exemption is likely to affect
under 1,000 loans a year. The Agencies do not possess reliable,
representative data on how many refinances will qualify for this
exemption. However, to the extent refinances previously would not
have been eligible for exemptions to this rule, the Agencies believe
that going forward most such refinances will be restructured as
qualified mortgages or otherwise to satisfy the criteria of this
exemption for certain refinances. The Agencies used the same
assumption for the supplemental proposal and did not receive any
comments indicating otherwise. Accordingly, the Table below reflects
this assumption. If this assumption did not hold and these
refinances were not restructured, the Agencies believe that based on
the 2011 data the final rules will cause at most a minor number of
new appraisals--for approximately 1,200 loans.
\214\ As stated in the Bureau's Section 1022 analysis in the
January 2013 Final Rule 1022, there were 12,000 refinances affected
by the January 2013 Final Rule, and out of those the Bureau
estimated that 10 percent did not have a full appraisal performed in
the absence of the January 2013 Final Rule, resulting in 10
percent*12,000=1,200 of refinances that would be estimated to obtain
an appraisal as a result of the January 2013 Final Rule (and which
would not be obtained as a result of this supplemental final rule).
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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 smaller dollar loans.
Third, the Agencies find that many of the transactions secured by
manufactured homes involve either refinances (all of which are
conservatively assumed to be covered by the exemption for certain
refinances), or smaller dollar loans (which cover many types of
manufactured housing transactions).\215\ While covered HPMLs above
smaller dollar levels that are secured by existing manufactured homes
and not land may be newly-exempted, these transactions will need
alternative valuations under the final rule. In addition, such loans
secured by new manufactured homes and not land also will need
alternative valuations. Further, such loans secured by new manufactured
homes and land will need an appraisal. In the January 2013 Final Rule,
the Agencies did not reduce the paperwork burden estimates to account
for the exemption for new manufactured homes adopted at that time. The
Agencies therefore conservatively make no adjustment to the data in the
first panel of Table 3 in the January 2013 Final Rule as a result of
that exemption.\216\
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\215\ 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 https://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 https://www.census.gov/housing/ahs/files/Appendix%20A.pdf.
\216\ The Bureau assumes that manufactured housing loans secured
solely by a manufactured home and not land 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 Agencies conservatively included all non-QM HPML MH loans
reported in HMDA and projected based on the Call Reports data in its
paperwork burden calculations for the January 2013 Final Rule. The
Agencies did not possess sufficient information at the time to
estimate the proportion of non-QM HPML MH affected by the January
2013 Final Rule. No new data is used in this rule, and the Agencies
still do not possess sufficient information to estimate the
proportion of non-QM HPML MH affected by this Supplemental final
rule. Thus, the Agencies continue to conservatively assume that all
non-QM HPML MH loans reported in HMDA and projected based on the
Call Reports data are subject to the full appraisal requirement,
resulting in no change in the Table of paperwork burden below.
Note that, while the Agencies assume that all non-QM HPML MH
loans are affected, and thus the paperwork burden reported might be
an overestimate, the Agencies are possibly underestimating the
burden to the extent that there exists systematic underreporting or
non-reporting of MH loans to HMDA by creditors who are subject to
reporting. In its Section 1022(b) and RFA analyses, the Bureau
stress-tested this possibility and very conservatively, in terms of
calculating the magnitude of loans affected by provisions of this
Supplemental final rule, assumed that this underreporting is
occurring on a massive scale. For the purposes of the PRA analysis,
the Agencies assume that there is no underreporting. Also, note that
if the Bureau underestimated the proportion of non-QM loans among MH
lending, the paperwork burden is also underestimated. See the
Bureau's Section 1022(b) analysis above for a discussion of data
used and comments received.
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The numbers above affect only the first panel in Table 3 of the PRA
section of the January 2013 Final Rule. Refinances are not subject to
the requirement to obtain an Additional Written Appraisal under the
January 2013 Final Rule, and it is assumed that none of the smaller
dollar loans or the loans secured by manufactured homes and not land
were used to purchase homes being resold within 180 days with the
requisite price increases to trigger that requirement (and thus the
exemptions for those loans will not reduce any burden associated with
that requirement). Accordingly, only the first panel in Table 3 from
the January 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 not affected.
The following table summarizes the resulting burden estimates.
[[Page 78578]]
Estimated PRA Burden
Table 2--Summary of PRA Burden Hours for Information Collections in HPML Appraisals Final Rule Once Exemptions
in the Supplemental Proposal Are Adopted \217\
----------------------------------------------------------------------------------------------------------------
Estimated number
Estimated of appraisals Estimated burden Estimated total
number of per respondent hours per annual burden
respondents \218\ appraisal hours
[a] [b] [c] [d] = (a*b*c)
----------------------------------------------------------------------------------------------------------------
Review and Provide a Copy of Written Appraisal
----------------------------------------------------------------------------------------------------------------
Bureau \219,220,221,222\................
Depository Inst. > $10 B in total
assets+
Depository Inst. Affiliates............. 132 3.73 0.25 123
Non-Depository Inst. and Credit Unions.. 2,853 0.23 0.25 \223\ 82
FDIC.................................... 2,571 0.14 0.25 93
Board \224\............................. 418 0.18 0.25 19
OCC..................................... 1,399 0.16 0.25 55
NCUA.................................... 2,437 0.07 0.25 44
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Total............................... 9,810 ................ ................ 416
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Investigate and Verify Requirement for Additional Written Appraisal
----------------------------------------------------------------------------------------------------------------
Bureau
Depository Inst. > $10 B in total
assets+
Depository Inst. Affiliates............. 132 20.05 0.25 662
Non-Depository Inst. and Credit Unions.. 2,853 1.22 0.25 435
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
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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............. 132 0.64 0.25 21
Non-Depository Inst. and Credit Unions.. 2,853 0.04 0.25 14
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
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Total............................... 9,810 ................ ................ 66
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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). As discussed in the second footnote in this PRA
section, the Bureau will assume half of the burden for non-depository institutions and the privately-insured
credit unions.
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\217\ Some of the intermediate numbers are rounded, resulting in
``Estimated Total Annual Burden Hours'' not precisely matching up
with columns a, b, and c.
\218\ 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
January 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.
\219\ The information collection requirements (ICs) contained in
the Bureau's Regulation Z are generally approved by OMB under OMB
No. 3170-0015. The Bureau divided certain proposals to amend the
Bureau's Regulation Z into separate Information Collection Requests
in OMB's system (accessible at www.reginfo.gov) to ease the public's
ability to view and understand the individual proposals. The ICs in
the January 2013 Final Rule (and this final rule) will be
incorporated with the 
