Credit Risk Retention-Notification of Determination of Review, 71810-71813 [2021-27561]

Download as PDF 71810 Federal Register / Vol. 86, No. 241 / Monday, December 20, 2021 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES Section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note) provides for Federal agencies to review most disseminations of information to the public under information quality guidelines established by each agency pursuant to general guidelines issued by OMB. OMB’s guidelines were published at 67 FR 8452 (Feb. 22, 2002), and DOE’s guidelines were published at 67 FR 62446 (Oct. 7, 2002). Pursuant to OMB Memorandum M–19–15, Improving Implementation of the Information Quality Act (April 24, 2019), DOE published updated guidelines which are available at https://www.energy.gov/sites/prod/files/ 2019/12/f70/DOE%20Final%20Up dated%20IQA%20Guidelines%20Dec% 202019.pdf. DOE has reviewed this final rule under the OMB and DOE guidelines and has concluded that it is consistent with applicable policies in those guidelines. K. Review Under Executive Order 13211 E.O. 13211, ‘‘Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use,’’ 66 FR 28355 (May 22, 2001), requires Federal agencies to prepare and submit to OIRA at OMB, a Statement of Energy Effects for any significant energy action. A ‘‘significant energy action’’ is defined as any action by an agency that promulgates or is expected to lead to promulgation of a final rule, and that (1) is a significant regulatory action under Executive Order 12866, or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, or use of energy, or (3) is designated by the Administrator of OIRA as a significant energy action. For any significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use. DOE has concluded that this regulatory action—which amends the definition of showerhead, withdraws the definition of body spray, and retains the definition of safety shower showerhead—will not have a significant adverse effect on the supply, distribution, or use of energy and, therefore, is not a significant energy action. Accordingly, DOE has not prepared a Statement of Energy Effects on this final rule. L. Congressional Notification As required by 5 U.S.C. 801, DOE will report to Congress on the promulgation VerDate Sep<11>2014 16:01 Dec 17, 2021 Jkt 256001 of this rule before its effective date. The report will state that it has been determined that the rule is not a ‘‘major rule’’ as defined by 5 U.S.C. 804(2). V. Approval of the Office of the Secretary The Secretary of Energy has approved publication of this final rule. List of Subjects in 10 CFR Part 430 Administrative practice and procedure, Confidential business information, Energy conservation, Household appliances, Imports, Incorporation by reference, Intergovernmental relations, Small businesses. Signing Authority This document of the Department of Energy was signed on December 14, 2021, by Kelly J. Speakes-Backman, Principal Deputy Assistant Secretary for Energy Efficiency and Renewable Energy, pursuant to delegated authority from the Secretary of Energy. That document with the original signature and date is maintained by DOE. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DOE Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of the Department of Energy. This administrative process in no way alters the legal effect of this document upon publication in the Federal Register. commerce for attachment to a single supply fitting, for spraying water onto a bather, typically from an overhead position, excluding safety shower showerheads. * * * * * [FR Doc. 2021–27462 Filed 12–17–21; 8:45 am] BILLING CODE 6450–01–P DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Part 43 [Docket No. OCC–2019–0012] FEDERAL RESERVE SYSTEM 12 CFR Part 244 [Docket No. OP–1688] FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 373 RIN 3064–ZA07 FEDERAL HOUSING FINANCE AGENCY 12 CFR Part 1234 [Notice No. 2021–N–14] SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 246 Signed in Washington, DC, on December 15, 2021. Treena V. Garrett, Federal Register Liaison Officer, U.S. Department of Energy. [Release No. 34–93768] For the reasons set forth in the preamble, DOE amends part 430 of chapter II, subchapter D, of title 10 of the Code of Federal Regulations, as set forth below: 24 CFR Part 267 PART 430—ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS AGENCY: DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT [FR–6172–N–04] Credit Risk Retention—Notification of Determination of Review 2. Section 430.2 is amended by removing the definition of ‘‘Body spray’’ and revising the definition of ‘‘Showerhead’’, to read as follows: Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); U.S. Securities and Exchange Commission (Commission); Federal Housing Finance Agency (FHFA); and Department of Housing and Urban Development (HUD). ACTION: Determination of results of interagency review. § 430.2 SUMMARY: 1. The authority citation for part 430 continues to read as follows: ■ Authority: 42 U.S.C. 6291–6309; 28 U.S.C. 2461 note. ■ Definitions. * * * * * Showerhead means a component or set of components distributed in PO 00000 Frm 00014 Fmt 4700 Sfmt 4700 The OCC, Board, FDIC, Commission, FHFA, and HUD (the agencies) are providing notice of the determination of the results of the E:\FR\FM\20DER1.SGM 20DER1 khammond on DSKJM1Z7X2PROD with RULES Federal Register / Vol. 86, No. 241 / Monday, December 20, 2021 / Rules and Regulations review of the definition of qualified residential mortgage, the communityfocused residential mortgage exemption, and the exemption for qualifying threeto-four unit residential mortgage loans, in each case as currently set forth in the Credit Risk Retention Regulations (as defined below) as adopted by the agencies. After completing the review, the agencies have determined not to propose any change at this time to the definition of qualified residential mortgage, the community-focused residential mortgage exemption, or the exemption for qualifying three-to-four unit residential mortgage loans. DATES: December 20, 2021. FOR FURTHER INFORMATION CONTACT: OCC: Kevin Korzeniewski, Counsel, Chief Counsel’s Office, (202) 649–5490; Maria Gloria Cobas, (202) 649–5495, Senior Financial Economist, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. Board: Flora H. Ahn, Special Counsel, (202) 452–2317, David W. Alexander, Senior Counsel, (202) 452–287, or Matthew D. Suntag, Senior Counsel, (202) 452–3694, Legal Division; Sean Healey, Lead Financial Institution Policy Analyst, (202) 912–4611, Division of Supervision and Regulation; Karen Pence, Deputy Associate Director, Division of Research & Statistics, (202) 452–2342; Nikita Pastor, Senior Counsel, Division of Consumer & Community Affairs (202) 452–3692; Board of Governors of the Federal Reserve System, 20th and C Streets NW, Washington, DC 20551. FDIC: Rae-Ann Miller, Senior Deputy Director, (202) 898–3898; Kathleen M. Russo, Counsel, (703) 562–2071, krusso@fdic.gov; Phillip E. Sloan, Counsel, (202) 898–8517, psloan@ fdic.gov, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429. Commission: Arthur Sandel, Special Counsel, (202) 551–3850, in the Office of Structured Finance, Division of Corporation Finance; or Chandler Lutz, Economist, (202) 551–6600, in the Office of Risk Analysis, Division of Economic and Risk Analysis, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. FHFA: Ron Sugarman, Principal Policy Analyst, Office of Capital Policy, (202) 649–3208, Ron.Sugarman@ fhfa.gov, or Peggy K. Balsawer, Associate General Counsel, Office of General Counsel, (202) 649–3060, Peggy.Balsawer@fhfa.gov, Federal Housing Finance Agency, Constitution Center, 400 7th Street SW, Washington, DC 20219. For TTY/TRS users with hearing and speech disabilities, dial 711 VerDate Sep<11>2014 16:01 Dec 17, 2021 Jkt 256001 and ask to be connected to any of the contact numbers above. HUD: Kurt G. Usowski, Deputy Assistant Secretary for Economic Affairs, U.S. Department of Housing & Urban Development, 451 7th Street SW, Washington, DC 20410; telephone number 202–402–5899 (this is not a tollfree number). Persons with hearing or speech impairments may access this number through TTY by calling the tollfree Federal Relay at 800–877–8339. SUPPLEMENTARY INFORMATION: The Credit Risk Retention Regulations are codified at 12 CFR part 43; 12 CFR part 244; 12 CFR part 373; 17 CFR part 246; 12 CFR part 1234; and 24 CFR part 267 (the Credit Risk Retention Regulations). The Credit Risk Retention Regulations require the OCC, Board, FDIC and Commission, in consultation with the FHFA and HUD, to commence a review of the following provisions of the Credit Risk Retention Regulations no later than December 24, 2019: (1) The definition of qualified residential mortgage (QRM) in section _.13 of the Credit Risk Retention Regulations; (2) the community-focused residential mortgage exemption in section _.19(f) of the Credit Risk Retention Regulations; and (3) the exemption for qualifying three-to-four unit residential mortgage loans in section _.19(g) of the Credit Risk Retention Regulations (collectively, the subject residential mortgage provisions). Notification announcing the commencement of the review was published in the Federal Register on December 20, 2019 (84 FR 70073). Notification announcing the agencies’ decision to extend to June 20, 2021, the period for completion of the review and publication of notification disclosing determination of the review was published in the Federal Register on June 30, 2020 (85 FR 39099). On July 22, 2021, the agencies published another notification in the Federal Register, announcing their decision to extend the period to complete the review further to December 20, 2021 (86 FR 38607). The agencies have completed their review of the subject residential mortgage provisions and this notification discloses the agencies’ determination as a result of the review. Overview Section 15G of the Securities Exchange Act, as added by section 941(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), required the Board, FDIC, OCC (collectively, the Federal banking agencies) and the Commission, together with, in the case of the securitization of any ‘‘residential mortgage asset,’’ HUD and FHFA, to PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 71811 jointly prescribe regulations that (i) require a securitizer to retain not less than five percent of the credit risk of any asset that the securitizer, through the issuance of an asset-backed security (ABS), transfers, sells, or conveys to a third party, and (ii) prohibit a securitizer from directly or indirectly hedging or otherwise transferring the credit risk that the securitizer is required to retain under section 15G and the agencies’ implementing rules.1 Section 941 of the Dodd-Frank Act also provides that a securitizer shall not be required to retain any part of the credit risk for an asset that is transferred, sold, or conveyed through the issuance of ABS interests by the securitizer, if all of the assets that collateralize the ABS interests are QRMs, as that term is jointly defined by the agencies. Section 941 provides that the definition of QRM can be ‘‘no broader than’’ the definition of a ‘‘qualified mortgage’’ (QM) as that term is defined under section 129C of the Truth in Lending Act (TILA),2 as amended by the Dodd-Frank Act, and regulations adopted thereunder.3 The agencies decided to align the definition of QRM with the definition of QM.4 The Credit Risk Retention Regulations define QRM to mean a QM, as defined under section 129C of TILA and Regulation Z issued thereunder at 12 CFR part 1026, as amended from time to time. As part of the Credit Risk Retention Regulations, the agencies are required to review the definition of QRM periodically to assess developments in the residential mortgage market, including the results of the statutorily required five-year review by the Consumer Financial Protection Bureau (CFPB) of the ability-to-repay rules and the QM definition. In conducting the review (the commencement of which was announced on December 20, 2019) and reaching their conclusions, the agencies considered what has been learned since 2014 about whether the loan and borrower characteristics specified in the QRM definition are predictive of a lower risk of default and also assessed how mortgage credit access conditions have changed since 2014, using data from the date on which the Credit Risk Retention Regulations were announced, October 22, 2014, through December 31, 2019 (the review period). Among other things, the agencies analyzed Fannie Mae and Freddie Mac (the Enterprises) and nonEnterprise loan-level mortgage 1 See 15 U.S.C. 78o–11(b), (c)(1)(A) and (c)(1)(B)(i). 2 15 U.S.C. 1639c. 3 See 15 U.S.C. 78o–11 (e)(4)(C). 4 See 79 FR 77740 (Dec. 24, 2014). E:\FR\FM\20DER1.SGM 20DER1 71812 Federal Register / Vol. 86, No. 241 / Monday, December 20, 2021 / Rules and Regulations origination and performance data (including data on originations, defaults, and loan and borrower characteristics), held discussions with market participants, and reviewed academic research, policy research prepared by research and advocacy organizations, and the results of the CFPB’s Ability-to-Repay and Qualified Mortgage Rule Assessment Report issued in 2019.5 The analysis also considered the effects on default risk of additional loan and borrower characteristics not included in the QRM definition. The analysis confirmed that the loan and borrower characteristics specified in the QM definition in effect during the review period were predictive of a lower risk of default. In addition, the agencies found that, while credit conditions have improved since 2014, they remain tight relative to longer-term norms.6 After analyzing those data, reviewing those analyses and considering the importance of maintaining broad access to credit, the agencies have decided, at this time, not to propose to amend the definition of QRM, the communityfocused residential mortgage exemption, or the exemption for qualifying three-tofour unit residential mortgage loans.7 Public Comments In response to the notification of commencement of the review, which included a request for comment, the agencies received one comment (on behalf of 37 organizations) prior to the end of the comment period. The comment requested that the agencies defer the review until after the CFPB completed its then-proposed rulemaking to make changes to the QM definition, which would automatically modify the QRM definition to the extent no changes are made to the definition.8 In response, the agencies note that the review is intended to consider the definition of QRM in light of changes in mortgage and securitization market khammond on DSKJM1Z7X2PROD with RULES 5 Available at https://files.consumerfinance.gov/f/ documents/cfpb_ability-to-repay-qualifiedmortgage_assessment-report.pdf. 6 Measures of mortgage credit availability, such as those produced by the Urban Institute (www.urban.org), suggest that credit availability during the review period was tight relative to levels in the early 2000s. Tight credit conditions generally refer to periods of reduced availability of credit. 7 The Credit Risk Retention Regulations require the agencies to conduct a review of the subject residential mortgage provisions upon the request of any agency, specifying the reason for such request. Accordingly, the agencies may conduct a further review of the subject residential mortgage provisions at any time. 8 The letter noted that an advance notice of proposed rulemaking had been issued by the CFPB and that the CFPB was expected to follow with a notice of proposed rulemaking. VerDate Sep<11>2014 16:01 Dec 17, 2021 Jkt 256001 conditions and practices and how the QRM definition has affected residential mortgage underwriting and securitization of residential mortgage loans under evolving market conditions during the review period. The CFPB did not issue the final QM changes until December 10, 2020, well after the review period.9 In June 2021, the agencies received a second comment letter (on behalf of six organizations), expressing support for the continued alignment of the definitions of QRM and QM.10 Definition of QRM The agencies’ decision in 2014 to equate the QRM and QM definitions in the Credit Risk Retention Regulations was based on two main factors. First, the Dodd-Frank Act mandated that the definition of QRM ‘‘tak[e] into consideration underwriting and product features that historical loan performance data indicate result in a lower risk of default.’’ 11 Second, the Dodd-Frank Act specified that the QRM definition could not be broader than the QM definition, and the agencies were concerned that a QRM definition that was narrower than the QM definition could exacerbate already-tight mortgage credit conditions existing at that time. In the current review of the definition of QRM, the agencies considered whether the loan and borrower characteristics specified in the QM definition are predictive of a lower risk of default and how mortgage credit conditions have changed since 2014. The agencies confirmed that the QRM definition that was in effect for the review period—with the requirement that debt-to-income (DTI) ratios generally not exceed 43 percent—was predictive of lower default rates. The agencies used loan-level mortgage origination and performance data on Enterprise and non-Enterprise loans in the review.12 The agencies followed the performance of loans originated 9 The agencies nonetheless reviewed what were, at the time of the review, the CFPB’s changes to the general definition of a QM (from a definition based, in part, on debt-to-income (DTI) to one based on loan pricing). Based upon the information provided by the CFPB to support the changes, the agencies concluded that these changes, if implemented, were not likely to significantly affect the overall impact of the QRM definition on the mortgage market. 10 While this comment letter also praised the agencies for delaying the issuance of the review determination until the CFPB changes were finalized, as noted above, the agencies did not delay the issuance of their determination to consider those changes as those changes occurred outside of the review period. 11 15 U.S.C. 78o–11(e)(4)(B). 12 Mortgage servicing data from the Enterprises was used for this analysis, and the Commission staff contributed its analysis using mortgage servicing data from CoreLogic. PO 00000 Frm 00016 Fmt 4700 Sfmt 4700 between 2012 and 2015 and found that, after four years, loans with a DTI ratio greater than 43 percent were more likely to have become 90-days delinquent than loans with lower DTI ratios. The review also confirmed that the measurement of DTI had improved from when the analysis was last conducted, with a greater proportion of full documentation mortgage loans in the dataset in 2019 than in 2014. In the review, the agencies also considered the effects of additional loan and borrower characteristics on default risk.13 The agencies also considered whether the QRM definition, as aligned with the QM definition, affected the availability of credit. While credit conditions had improved since 2014, they remained tight during the review period relative to longer-term norms.14 However, the agencies determined that the QRM definition did not appear to be a material factor in credit conditions during the review period, in part because so much of the market was funded through Enterprise and Ginnie Mae securitizations.15 More generally, the agencies concluded from the review that risk retention remains an effective tool for aligning the interests of securitizers, originators, and investors, and reducing default risk on certain loans. In addition, the Credit Risk Retention Regulations do not appear to be weighing materially on mortgage credit availability. Finally, the agencies considered whether the QRM definition, as aligned with the QM definition, affected the securitization market. As the agencies anticipated, the QRM definition contributed to the bifurcation of the 13 The agencies confirmed that loan-to-value (LTV) ratio and credit score, which the agencies considered in the 2014 rulemaking but did not incorporate into the QRM definition, also predict default. 14 Measures of mortgage credit availability, such as those produced by the Urban Institute, suggest that credit availability during the review period was tight relative to levels in the early 2000s. 15 The Enterprises are subject to risk retention, but benefit from a provision in the Credit Risk Retention Regulations that allows their full guarantee of principal and interest on mortgage backed securities to count as an eligible form of risk retention while they are under conservatorship or receivership and have capital support from the U.S. Treasury. In contrast to the Enterprises, Ginnie Mae, a wholly owned U.S. Government corporation within HUD, is exempt from risk retention pursuant to statutory direction in the Dodd-Frank Act. See 15 U.S.C. 78o–11(c)(1)(G)(ii) and (e)(3)(B). According to estimates by Inside Mortgage Finance and the Urban Institute, the annual share of the dollar volume of first-lien mortgage originations that were either acquired by the Enterprises or securitized through an FHA or VA program has ranged from about 62 to 76 percent over the period 2015 to 2020(https:// www.urban.org/sites/default/files/publication/ 104602/july-chartbook-2021_2.pdf). E:\FR\FM\20DER1.SGM 20DER1 Federal Register / Vol. 86, No. 241 / Monday, December 20, 2021 / Rules and Regulations private-label securitization market between securitizations of ‘‘prime/ jumbo’’ loans 16 which typically meet the characteristics of QM and are, therefore, exempt from risk retention as QRM, and securitizations of ‘‘non-QM’’ loans that are not QRM and, therefore, generally not exempt from risk retention. However, according to industry sources, the market for securitizations of non-QM loans was quite competitive through the end of 2019, which suggests that risk retention did not materially affect the ability of issuers in this market to obtain capital needed for mortgage originations.17 In light of the foregoing, the agencies are not proposing to amend the definition of QRM at this time. Community-Focused Residential Mortgages khammond on DSKJM1Z7X2PROD with RULES Community-focused residential mortgages are mortgages made by community development financial institutions (CDFIs), community housing development organizations, certain non-profits, or certain secondary financing providers, or through a state housing finance agency (HFA) program. These entities frequently make mortgage loans using flexible underwriting criteria that are not compatible with the TILA ability-to-repay requirements. To ensure continued borrower access to these loan programs, the CFPB exempted these loans from the TILA ability-to-repay requirement and, as a result, such loans are unable to be made as QMs. Similarly, the agencies provided a separate exemption for these loans from the risk retention requirement. The agencies justified this exemption by citing the ‘‘strong underwriting procedures to maximize affordability and borrower success in keeping their homes’’ and noted that the exemption ‘‘serve[s] the public interest because these entities have stated public mission purposes to make safe, sustainable loans available primarily to [low-to moderate-income] communities.’’ 18 In the years since adoption of the Credit Risk Retention Regulations, only a few CDFIs have used this exemption.19 While HFAs have not 16 These securitizations are typically collateralized by jumbo mortgages that are ineligible for purchase by the Enterprises because they exceed the conventional loan limits set by the FHFA and by prime loans that are offered to highly qualified borrowers. These mortgages typically meet the QRM standards. 17 See, e.g., ‘‘On the Rise: Trading Desks Focusing on Non-QM Paper.’’ Inside MBS & ABS, Inside Mortgage Finance Publications, 2019.30, 6. 18 79 FR 77602, 77694 (December 24, 2014). 19 The agencies identified seven securitizations that relied upon this exemption since 2019; these VerDate Sep<11>2014 16:01 Dec 17, 2021 Jkt 256001 used this exemption, discussions with market participants revealed that private securitization could become a more attractive option if a state HFA needed to issue bonds in excess of its taxexempt allotment. Therefore, the agencies, at this time, are not proposing to amend the exemption for communityfocused residential mortgages. Three-to-Four Unit Residential Mortgages Mortgages that are collateralized by three-to-four-unit properties are defined as ‘‘business purpose’’ loans rather than consumer credit transactions under TILA, and as such are not subject to the ability-to-repay requirement, and are unable to qualify as QMs. The agencies recognized that securitization markets typically pool mortgages collateralizing three-to-four-unit residential mortgages with other residential mortgage loans. The agencies also provided an exemption for three-to-four-unit residential mortgages that otherwise would qualify as QMs to ensure that credit did not contract to this part of the market. The number of mortgages collateralized by three-to-four-unit properties, and the percentage of such mortgages funded through private-label securitizations, is small.20 The exemption also does not appear to be spurring any significant speculative activity in the securitization market and, at the same time, these properties are a source of affordable housing. Therefore, the agencies are not proposing to amend this exemption at this time. Michael J. Hsu, Acting Comptroller of the Currency. By order of the Board of Governors of the Federal Reserve System. Ann E. Misback, Secretary of the Board. Federal Deposit Insurance Corporation. By order of the Board of Directors. Dated at Washington, DC, on December 14, 2021. James P. Sheesley, Assistant Executive Secretary. Dated: December 14, 2021. securitizations funded approximately $610 million in community-focused residential mortgages. 20 Based on data reported under the Home Mortgage Disclosure Act (HMDA), there were about 35,000 such purchase originations in 2018 and 2019 combined, and of these, less than 2 percent appear to have been funded through private-label securitizations. PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 71813 By the Securities and Exchange Commission. Vanessa A. Countryman, Secretary. Sandra L. Thompson, Acting Director, Federal Housing Finance Agency. By the Department of Housing and Urban Development. Lopa P. Kolluri, Principal Deputy Assistant Secretary for Housing, Federal Housing Commissioner. [FR Doc. 2021–27561 Filed 12–17–21; 8:45 am] BILLING CODE 4210–67;4810–33; 6210–01; 6714– 01;2011–018070–01–P FEDERAL RESERVE SYSTEM 12 CFR Part 228 [Regulation BB; Docket No. R–1763] RIN 7100–AG 25 FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 345 RIN 3064–AF79 Community Reinvestment Act Regulations Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC). ACTION: Joint final rule; technical amendment. AGENCY: The Board and the FDIC (collectively, the Agencies) are amending their Community Reinvestment Act (CRA) regulations to adjust the asset-size thresholds used to define ‘‘small bank’’ and ‘‘intermediate small bank.’’ As required by the CRA regulations, the adjustment to the threshold amount is based on the annual percentage change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI–W). DATES: Effective January 1, 2022. FOR FURTHER INFORMATION CONTACT: Board: Amal S. Patel, Counsel, (202) 912–7879, or Cathy Gates, Senior Project Manager, (202) 452–2099, Division of Consumer and Community Affairs; or Gavin L. Smith, Senior Counsel, (202) 452–3474, or Cody M. Gaffney, Attorney, (202) 452–2674, Legal Division, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. FDIC: Patience R. Singleton, Senior Policy Analyst, Supervisory Policy Branch, Division of Depositor and Consumer Protection, (202) 898–6859; or Richard M. Schwartz, Counsel, Legal SUMMARY: E:\FR\FM\20DER1.SGM 20DER1

Agencies

[Federal Register Volume 86, Number 241 (Monday, December 20, 2021)]
[Rules and Regulations]
[Pages 71810-71813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27561]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 43

[Docket No. OCC-2019-0012]

FEDERAL RESERVE SYSTEM

12 CFR Part 244

[Docket No. OP-1688]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 373

RIN 3064-ZA07

FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1234

[Notice No. 2021-N-14]

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 246

[Release No. 34-93768]

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 267

[FR-6172-N-04]


Credit Risk Retention--Notification of Determination of Review

AGENCY: Office of the Comptroller of the Currency, Treasury (OCC); 
Board of Governors of the Federal Reserve System (Board); Federal 
Deposit Insurance Corporation (FDIC); U.S. Securities and Exchange 
Commission (Commission); Federal Housing Finance Agency (FHFA); and 
Department of Housing and Urban Development (HUD).

ACTION: Determination of results of interagency review.

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SUMMARY: The OCC, Board, FDIC, Commission, FHFA, and HUD (the agencies) 
are providing notice of the determination of the results of the

[[Page 71811]]

review of the definition of qualified residential mortgage, the 
community-focused residential mortgage exemption, and the exemption for 
qualifying three-to-four unit residential mortgage loans, in each case 
as currently set forth in the Credit Risk Retention Regulations (as 
defined below) as adopted by the agencies. After completing the review, 
the agencies have determined not to propose any change at this time to 
the definition of qualified residential mortgage, the community-focused 
residential mortgage exemption, or the exemption for qualifying three-
to-four unit residential mortgage loans.

DATES: December 20, 2021.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Kevin Korzeniewski, Counsel, Chief Counsel's Office, (202) 
649-5490; Maria Gloria Cobas, (202) 649-5495, Senior Financial 
Economist, Office of the Comptroller of the Currency, 400 7th Street 
SW, Washington, DC 20219.
    Board: Flora H. Ahn, Special Counsel, (202) 452-2317, David W. 
Alexander, Senior Counsel, (202) 452-287, or Matthew D. Suntag, Senior 
Counsel, (202) 452-3694, Legal Division; Sean Healey, Lead Financial 
Institution Policy Analyst, (202) 912-4611, Division of Supervision and 
Regulation; Karen Pence, Deputy Associate Director, Division of 
Research & Statistics, (202) 452-2342; Nikita Pastor, Senior Counsel, 
Division of Consumer & Community Affairs (202) 452-3692; Board of 
Governors of the Federal Reserve System, 20th and C Streets NW, 
Washington, DC 20551.
    FDIC: Rae-Ann Miller, Senior Deputy Director, (202) 898-3898; 
Kathleen M. Russo, Counsel, (703) 562-2071, [email protected]; Phillip E. 
Sloan, Counsel, (202) 898-8517, [email protected], Federal Deposit 
Insurance Corporation, 550 17th Street NW, Washington, DC 20429.
    Commission: Arthur Sandel, Special Counsel, (202) 551-3850, in the 
Office of Structured Finance, Division of Corporation Finance; or 
Chandler Lutz, Economist, (202) 551-6600, in the Office of Risk 
Analysis, Division of Economic and Risk Analysis, U.S. Securities and 
Exchange Commission, 100 F Street NE, Washington, DC 20549.
    FHFA: Ron Sugarman, Principal Policy Analyst, Office of Capital 
Policy, (202) 649-3208, [email protected], or Peggy K. Balsawer, 
Associate General Counsel, Office of General Counsel, (202) 649-3060, 
[email protected], Federal Housing Finance Agency, Constitution 
Center, 400 7th Street SW, Washington, DC 20219. For TTY/TRS users with 
hearing and speech disabilities, dial 711 and ask to be connected to 
any of the contact numbers above.
    HUD: Kurt G. Usowski, Deputy Assistant Secretary for Economic 
Affairs, U.S. Department of Housing & Urban Development, 451 7th Street 
SW, Washington, DC 20410; telephone number 202-402-5899 (this is not a 
toll-free number). Persons with hearing or speech impairments may 
access this number through TTY by calling the toll-free Federal Relay 
at 800-877-8339.

SUPPLEMENTARY INFORMATION: The Credit Risk Retention Regulations are 
codified at 12 CFR part 43; 12 CFR part 244; 12 CFR part 373; 17 CFR 
part 246; 12 CFR part 1234; and 24 CFR part 267 (the Credit Risk 
Retention Regulations). The Credit Risk Retention Regulations require 
the OCC, Board, FDIC and Commission, in consultation with the FHFA and 
HUD, to commence a review of the following provisions of the Credit 
Risk Retention Regulations no later than December 24, 2019: (1) The 
definition of qualified residential mortgage (QRM) in section _.13 of 
the Credit Risk Retention Regulations; (2) the community-focused 
residential mortgage exemption in section _.19(f) of the Credit Risk 
Retention Regulations; and (3) the exemption for qualifying three-to-
four unit residential mortgage loans in section _.19(g) of the Credit 
Risk Retention Regulations (collectively, the subject residential 
mortgage provisions).
    Notification announcing the commencement of the review was 
published in the Federal Register on December 20, 2019 (84 FR 70073). 
Notification announcing the agencies' decision to extend to June 20, 
2021, the period for completion of the review and publication of 
notification disclosing determination of the review was published in 
the Federal Register on June 30, 2020 (85 FR 39099). On July 22, 2021, 
the agencies published another notification in the Federal Register, 
announcing their decision to extend the period to complete the review 
further to December 20, 2021 (86 FR 38607).
    The agencies have completed their review of the subject residential 
mortgage provisions and this notification discloses the agencies' 
determination as a result of the review.

Overview

    Section 15G of the Securities Exchange Act, as added by section 
941(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act), required the Board, FDIC, OCC (collectively, the 
Federal banking agencies) and the Commission, together with, in the 
case of the securitization of any ``residential mortgage asset,'' HUD 
and FHFA, to jointly prescribe regulations that (i) require a 
securitizer to retain not less than five percent of the credit risk of 
any asset that the securitizer, through the issuance of an asset-backed 
security (ABS), transfers, sells, or conveys to a third party, and (ii) 
prohibit a securitizer from directly or indirectly hedging or otherwise 
transferring the credit risk that the securitizer is required to retain 
under section 15G and the agencies' implementing rules.\1\ Section 941 
of the Dodd-Frank Act also provides that a securitizer shall not be 
required to retain any part of the credit risk for an asset that is 
transferred, sold, or conveyed through the issuance of ABS interests by 
the securitizer, if all of the assets that collateralize the ABS 
interests are QRMs, as that term is jointly defined by the agencies. 
Section 941 provides that the definition of QRM can be ``no broader 
than'' the definition of a ``qualified mortgage'' (QM) as that term is 
defined under section 129C of the Truth in Lending Act (TILA),\2\ as 
amended by the Dodd-Frank Act, and regulations adopted thereunder.\3\ 
The agencies decided to align the definition of QRM with the definition 
of QM.\4\ The Credit Risk Retention Regulations define QRM to mean a 
QM, as defined under section 129C of TILA and Regulation Z issued 
thereunder at 12 CFR part 1026, as amended from time to time.
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    \1\ See 15 U.S.C. 78o-11(b), (c)(1)(A) and (c)(1)(B)(i).
    \2\ 15 U.S.C. 1639c.
    \3\ See 15 U.S.C. 78o-11 (e)(4)(C).
    \4\ See 79 FR 77740 (Dec. 24, 2014).
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    As part of the Credit Risk Retention Regulations, the agencies are 
required to review the definition of QRM periodically to assess 
developments in the residential mortgage market, including the results 
of the statutorily required five-year review by the Consumer Financial 
Protection Bureau (CFPB) of the ability-to-repay rules and the QM 
definition. In conducting the review (the commencement of which was 
announced on December 20, 2019) and reaching their conclusions, the 
agencies considered what has been learned since 2014 about whether the 
loan and borrower characteristics specified in the QRM definition are 
predictive of a lower risk of default and also assessed how mortgage 
credit access conditions have changed since 2014, using data from the 
date on which the Credit Risk Retention Regulations were announced, 
October 22, 2014, through December 31, 2019 (the review period). Among 
other things, the agencies analyzed Fannie Mae and Freddie Mac (the 
Enterprises) and non-Enterprise loan-level mortgage

[[Page 71812]]

origination and performance data (including data on originations, 
defaults, and loan and borrower characteristics), held discussions with 
market participants, and reviewed academic research, policy research 
prepared by research and advocacy organizations, and the results of the 
CFPB's Ability-to-Repay and Qualified Mortgage Rule Assessment Report 
issued in 2019.\5\ The analysis also considered the effects on default 
risk of additional loan and borrower characteristics not included in 
the QRM definition.
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    \5\ Available at https://files.consumerfinance.gov/f/documents/cfpb_ability-to-repay-qualified-mortgage_assessment-report.pdf.
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    The analysis confirmed that the loan and borrower characteristics 
specified in the QM definition in effect during the review period were 
predictive of a lower risk of default. In addition, the agencies found 
that, while credit conditions have improved since 2014, they remain 
tight relative to longer-term norms.\6\
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    \6\ Measures of mortgage credit availability, such as those 
produced by the Urban Institute (www.urban.org), suggest that credit 
availability during the review period was tight relative to levels 
in the early 2000s. Tight credit conditions generally refer to 
periods of reduced availability of credit.
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    After analyzing those data, reviewing those analyses and 
considering the importance of maintaining broad access to credit, the 
agencies have decided, at this time, not to propose to amend the 
definition of QRM, the community-focused residential mortgage 
exemption, or the exemption for qualifying three-to-four unit 
residential mortgage loans.\7\
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    \7\ The Credit Risk Retention Regulations require the agencies 
to conduct a review of the subject residential mortgage provisions 
upon the request of any agency, specifying the reason for such 
request. Accordingly, the agencies may conduct a further review of 
the subject residential mortgage provisions at any time.
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Public Comments

    In response to the notification of commencement of the review, 
which included a request for comment, the agencies received one comment 
(on behalf of 37 organizations) prior to the end of the comment period. 
The comment requested that the agencies defer the review until after 
the CFPB completed its then-proposed rulemaking to make changes to the 
QM definition, which would automatically modify the QRM definition to 
the extent no changes are made to the definition.\8\
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    \8\ The letter noted that an advance notice of proposed 
rulemaking had been issued by the CFPB and that the CFPB was 
expected to follow with a notice of proposed rulemaking.
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    In response, the agencies note that the review is intended to 
consider the definition of QRM in light of changes in mortgage and 
securitization market conditions and practices and how the QRM 
definition has affected residential mortgage underwriting and 
securitization of residential mortgage loans under evolving market 
conditions during the review period. The CFPB did not issue the final 
QM changes until December 10, 2020, well after the review period.\9\
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    \9\ The agencies nonetheless reviewed what were, at the time of 
the review, the CFPB's changes to the general definition of a QM 
(from a definition based, in part, on debt-to-income (DTI) to one 
based on loan pricing). Based upon the information provided by the 
CFPB to support the changes, the agencies concluded that these 
changes, if implemented, were not likely to significantly affect the 
overall impact of the QRM definition on the mortgage market.
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    In June 2021, the agencies received a second comment letter (on 
behalf of six organizations), expressing support for the continued 
alignment of the definitions of QRM and QM.\10\
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    \10\ While this comment letter also praised the agencies for 
delaying the issuance of the review determination until the CFPB 
changes were finalized, as noted above, the agencies did not delay 
the issuance of their determination to consider those changes as 
those changes occurred outside of the review period.
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Definition of QRM

    The agencies' decision in 2014 to equate the QRM and QM definitions 
in the Credit Risk Retention Regulations was based on two main factors. 
First, the Dodd-Frank Act mandated that the definition of QRM ``tak[e] 
into consideration underwriting and product features that historical 
loan performance data indicate result in a lower risk of default.'' 
\11\ Second, the Dodd-Frank Act specified that the QRM definition could 
not be broader than the QM definition, and the agencies were concerned 
that a QRM definition that was narrower than the QM definition could 
exacerbate already-tight mortgage credit conditions existing at that 
time.
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    \11\ 15 U.S.C. 78o-11(e)(4)(B).
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    In the current review of the definition of QRM, the agencies 
considered whether the loan and borrower characteristics specified in 
the QM definition are predictive of a lower risk of default and how 
mortgage credit conditions have changed since 2014. The agencies 
confirmed that the QRM definition that was in effect for the review 
period--with the requirement that debt-to-income (DTI) ratios generally 
not exceed 43 percent--was predictive of lower default rates.
    The agencies used loan-level mortgage origination and performance 
data on Enterprise and non-Enterprise loans in the review.\12\ The 
agencies followed the performance of loans originated between 2012 and 
2015 and found that, after four years, loans with a DTI ratio greater 
than 43 percent were more likely to have become 90-days delinquent than 
loans with lower DTI ratios. The review also confirmed that the 
measurement of DTI had improved from when the analysis was last 
conducted, with a greater proportion of full documentation mortgage 
loans in the dataset in 2019 than in 2014. In the review, the agencies 
also considered the effects of additional loan and borrower 
characteristics on default risk.\13\
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    \12\ Mortgage servicing data from the Enterprises was used for 
this analysis, and the Commission staff contributed its analysis 
using mortgage servicing data from CoreLogic.
    \13\ The agencies confirmed that loan-to-value (LTV) ratio and 
credit score, which the agencies considered in the 2014 rulemaking 
but did not incorporate into the QRM definition, also predict 
default.
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    The agencies also considered whether the QRM definition, as aligned 
with the QM definition, affected the availability of credit. While 
credit conditions had improved since 2014, they remained tight during 
the review period relative to longer-term norms.\14\ However, the 
agencies determined that the QRM definition did not appear to be a 
material factor in credit conditions during the review period, in part 
because so much of the market was funded through Enterprise and Ginnie 
Mae securitizations.\15\ More generally, the agencies concluded from 
the review that risk retention remains an effective tool for aligning 
the interests of securitizers, originators, and investors, and reducing 
default risk on certain loans. In addition, the Credit Risk Retention 
Regulations do not appear to be weighing materially on mortgage credit 
availability.
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    \14\ Measures of mortgage credit availability, such as those 
produced by the Urban Institute, suggest that credit availability 
during the review period was tight relative to levels in the early 
2000s.
    \15\ The Enterprises are subject to risk retention, but benefit 
from a provision in the Credit Risk Retention Regulations that 
allows their full guarantee of principal and interest on mortgage 
backed securities to count as an eligible form of risk retention 
while they are under conservatorship or receivership and have 
capital support from the U.S. Treasury. In contrast to the 
Enterprises, Ginnie Mae, a wholly owned U.S. Government corporation 
within HUD, is exempt from risk retention pursuant to statutory 
direction in the Dodd-Frank Act. See 15 U.S.C. 78o-11(c)(1)(G)(ii) 
and (e)(3)(B).
    According to estimates by Inside Mortgage Finance and the Urban 
Institute, the annual share of the dollar volume of first-lien 
mortgage originations that were either acquired by the Enterprises 
or securitized through an FHA or VA program has ranged from about 62 
to 76 percent over the period 2015 to 2020(https://www.urban.org/sites/default/files/publication/104602/july-chartbook-2021_2.pdf).
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    Finally, the agencies considered whether the QRM definition, as 
aligned with the QM definition, affected the securitization market. As 
the agencies anticipated, the QRM definition contributed to the 
bifurcation of the

[[Page 71813]]

private-label securitization market between securitizations of ``prime/
jumbo'' loans \16\ which typically meet the characteristics of QM and 
are, therefore, exempt from risk retention as QRM, and securitizations 
of ``non-QM'' loans that are not QRM and, therefore, generally not 
exempt from risk retention. However, according to industry sources, the 
market for securitizations of non-QM loans was quite competitive 
through the end of 2019, which suggests that risk retention did not 
materially affect the ability of issuers in this market to obtain 
capital needed for mortgage originations.\17\
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    \16\ These securitizations are typically collateralized by jumbo 
mortgages that are ineligible for purchase by the Enterprises 
because they exceed the conventional loan limits set by the FHFA and 
by prime loans that are offered to highly qualified borrowers. These 
mortgages typically meet the QRM standards.
    \17\ See, e.g., ``On the Rise: Trading Desks Focusing on Non-QM 
Paper.'' Inside MBS & ABS, Inside Mortgage Finance Publications, 
2019.30, 6.
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    In light of the foregoing, the agencies are not proposing to amend 
the definition of QRM at this time.

Community-Focused Residential Mortgages

    Community-focused residential mortgages are mortgages made by 
community development financial institutions (CDFIs), community housing 
development organizations, certain non-profits, or certain secondary 
financing providers, or through a state housing finance agency (HFA) 
program. These entities frequently make mortgage loans using flexible 
underwriting criteria that are not compatible with the TILA ability-to-
repay requirements. To ensure continued borrower access to these loan 
programs, the CFPB exempted these loans from the TILA ability-to-repay 
requirement and, as a result, such loans are unable to be made as QMs. 
Similarly, the agencies provided a separate exemption for these loans 
from the risk retention requirement. The agencies justified this 
exemption by citing the ``strong underwriting procedures to maximize 
affordability and borrower success in keeping their homes'' and noted 
that the exemption ``serve[s] the public interest because these 
entities have stated public mission purposes to make safe, sustainable 
loans available primarily to [low-to moderate-income] communities.'' 
\18\ In the years since adoption of the Credit Risk Retention 
Regulations, only a few CDFIs have used this exemption.\19\ While HFAs 
have not used this exemption, discussions with market participants 
revealed that private securitization could become a more attractive 
option if a state HFA needed to issue bonds in excess of its tax-exempt 
allotment. Therefore, the agencies, at this time, are not proposing to 
amend the exemption for community-focused residential mortgages.
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    \18\ 79 FR 77602, 77694 (December 24, 2014).
    \19\ The agencies identified seven securitizations that relied 
upon this exemption since 2019; these securitizations funded 
approximately $610 million in community-focused residential 
mortgages.
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Three-to-Four Unit Residential Mortgages

    Mortgages that are collateralized by three-to-four-unit properties 
are defined as ``business purpose'' loans rather than consumer credit 
transactions under TILA, and as such are not subject to the ability-to-
repay requirement, and are unable to qualify as QMs. The agencies 
recognized that securitization markets typically pool mortgages 
collateralizing three-to-four-unit residential mortgages with other 
residential mortgage loans. The agencies also provided an exemption for 
three-to-four-unit residential mortgages that otherwise would qualify 
as QMs to ensure that credit did not contract to this part of the 
market. The number of mortgages collateralized by three-to-four-unit 
properties, and the percentage of such mortgages funded through 
private-label securitizations, is small.\20\ The exemption also does 
not appear to be spurring any significant speculative activity in the 
securitization market and, at the same time, these properties are a 
source of affordable housing. Therefore, the agencies are not proposing 
to amend this exemption at this time.
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    \20\ Based on data reported under the Home Mortgage Disclosure 
Act (HMDA), there were about 35,000 such purchase originations in 
2018 and 2019 combined, and of these, less than 2 percent appear to 
have been funded through private-label securitizations.

Michael J. Hsu,
Acting Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System.
Ann E. Misback,
Secretary of the Board.
    Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on December 14, 2021.
James P. Sheesley,
Assistant Executive Secretary.
    Dated: December 14, 2021.

    By the Securities and Exchange Commission.
Vanessa A. Countryman,
Secretary.
Sandra L. Thompson,
Acting Director, Federal Housing Finance Agency.
    By the Department of Housing and Urban Development.
Lopa P. Kolluri,
Principal Deputy Assistant Secretary for Housing, Federal Housing 
Commissioner.
[FR Doc. 2021-27561 Filed 12-17-21; 8:45 am]
BILLING CODE 4210-67;4810-33; 6210-01; 6714-01;2011-018070-01-P