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Rules and Regulations Federal Register Vol. 76, No. 41

Wednesday, March 2, 2011

This section of the FEDERAL REGISTER consumer credit providers would be as of the date the transaction’s interest contains regulatory documents having general strengthened by the informed use of rate is set, by 1.5 or more percentage applicability and legal effect, most of which credit resulting from consumers’ points for loans secured by a first lien, are keyed to and codified in the Code of awareness of the cost of credit. One of or by 3.5 or more percentage points for Federal Regulations, which is published under the purposes of TILA is to provide loans secured by a subordinate lien. See 50 titles pursuant to 44 U.S.C. 1510. meaningful disclosure of credit terms, to § 226.35(a)(1). enable consumers to compare credit The Code of Federal Regulations is sold by C. The Dodd-Frank Act the Superintendent of Documents. Prices of terms available in the marketplace more new books are listed in the first FEDERAL readily and avoid the uninformed use of On July 21, 2010, the Dodd-Frank REGISTER issue of each week. credit. Wall Street Reform and Consumer TILA’s disclosures differ depending Protection Act (the Dodd-Frank Act) on whether credit is an open-end was signed into law.1 Section 1461 of FEDERAL RESERVE SYSTEM (revolving) plan or a closed-end the Dodd-Frank Act creates TILA (installment) loan. TILA also contains Section 129D.2 TILA Section 129D 12 CFR Part 226 procedural and substantive protections substantially codifies the requirement in [Regulation Z; Docket No. R–1392] for consumers. TILA is implemented by Regulation Z that escrow accounts for the Board’s Regulation Z. An Official taxes and insurance be established for RIN No. AD 7100–AD54 Staff Commentary interprets the first-lien higher-priced mortgage loans, requirements of Regulation Z. By adopted by the Board as part of the 2008 Truth in Lending statute, creditors that follow in good HOEPA Final Rule. As discussed above, the 2008 HOEPA Final Rule imposed AGENCY: Board of Governors of the faith Board or official staff Federal Reserve System. interpretations are insulated from civil the escrow requirement on first-lien liability, criminal penalties, and mortgage transactions having an APR ACTION: Final rule; official staff administrative sanction. that exceeds the average prime offer rate commentary. In 1994, Congress amended TILA by for a comparable transaction by 1.5 or more percentage points. The Dodd- SUMMARY: The Board is publishing a enacting the Home Ownership and final rule to amend Regulation Z, which Equity Protection Act (HOEPA). The Frank Act incorporates this coverage implements the Truth in Lending Act HOEPA amendments created special test in new TILA Section 129D for loans (TILA). The final rule implements substantive protections for consumers that do not exceed the maximum original principal obligation for a Section 1461 of the recently enacted obtaining mortgage loans with annual mortgage to be eligible for purchase by Dodd-Frank Wall Street Reform and percentage rates (APRs) or total points . TILA Section Consumer Protection Act. Section 1461 and fees exceeding prescribed thresholds. In addition, TILA Section 129D(b)(3)(A) (to be codified at 15 amends TILA to provide a separate, 129(l)(2)(A), as added by HOEPA, U.S.C. 1639d(b)(3)(A)). higher rate threshold for determining authorizes the Board to prohibit acts For loans with an original principal when the Board’s escrow requirement and practices the Board finds to be obligation that exceeds the applicable applies to higher-priced mortgage loans unfair and deceptive in connection with Freddie Mac maximum principal that exceed the maximum principal mortgage loans. 15 U.S.C. 1639(l)(2)(A). obligation, TILA Section 129D requires obligation eligible for purchase by escrow accounts only if the APR Freddie Mac. B. The 2008 HOEPA Final Rule exceeds the applicable average prime DATES: The final rule is effective on In July of 2008, the Board adopted offer rate by 2.5 or more percentage April 1, 2011, for covered loans for final rules pursuant to the Board’s points. TILA Section 129D(b)(3)(B) (to which an application is received by a authority in Section 129(l)(2)(A). 73 FR be codified at 15 U.S.C. 1639d(b)(3)(B)). creditor on or after that date. 44522, July 30, 2008 (2008 HOEPA Final The current maximum principal FOR FURTHER INFORMATION CONTACT: Rule). The 2008 HOEPA Final Rule obligation for a to be Jamie Z. Goodson, Attorney, or Paul defined a class of ‘‘higher-priced eligible for purchase in 2011 by Freddie Mondor, Senior Attorney, Division of mortgage loans’’ and prohibited certain Mac is $417,000 for a single-family Consumer and Community Affairs, lending and servicing practices in that is not located in a Board of Governors of the Federal connection with such transactions. designated ‘‘high-cost’’ area.3 (Higher Reserve System, Washington, DC 20551, Among other things, the Board limits apply for mortgage loans secured at (202) 452–2412 or (202) 452–3667. prohibited extending a higher-priced by a property with two to four For users of Telecommunications mortgage loan secured by a first lien residential units.) Thus, if the original Device for the Deaf (TDD) only, contact unless an escrow account is established principal obligation for a mortgage loan (202) 263–4869. before consummation for payment of secured by a single-family property in property taxes and premiums for SUPPLEMENTARY INFORMATION: such an area is $415,000, the mortgage-related insurance required by determination of whether the loan is I. Background the creditor. See § 226.35(b)(3). Under the 2008 HOEPA Final Rule, a 1 A. TILA and Regulation Z Public Law 111–203, 124 Stat. 1376. higher-priced mortgage loan is a 2 Public Law 111–203, § 1461, 124 Stat. 1376, Congress enacted the Truth in consumer credit transaction secured by 2178 (to be codified at 15 U.S.C. 1639D). Lending Act (TILA) based on findings the consumer’s principal dwelling with 3 See Freddie Mac, Bulletin No. 2010–28, 2011 Loan Limits, available at http:// that economic stability would be an APR that exceeds the average prime www.freddiemac.com/sell/guide/bulletins/pdf/ enhanced and competition among offer rate for a comparable transaction, bll1028.pdf.

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subject to the escrow requirement in 1454(a)(2), should be used in construction of a dwelling, temporary or § 226.35(b)(3) would be made using an determining whether or not a loan is a ‘‘bridge’’ loans with a term of 12 months APR threshold of 1.5 percentage points ‘‘jumbo’’ loan. (Currently, the amount or less, or reverse mortgages. See over the applicable average prime offer specified in that sentence as the § 226.35(a)(3). This final rule is effective rate; by contrast, if the original principal maximum principal obligation for a loan on April 1, 2011 for covered loans for obligation is $420,000, the secured by a single-family residence is which an application is received on or determination would be made using a $417,000.) In particular, these after that date, as discussed in detail threshold of 2.5 percentage points over commenters stated that the higher below in Part VI of this SUPPLEMENTARY the applicable average prime offer rate. maximum principal obligation set for INFORMATION. Loans that are not eligible for purchase ‘‘high-cost’’ areas under Section by Freddie Mac because their original 305(a)(2) should not be considered in IV. Legal Authority determining whether a loan is a ‘‘jumbo’’ principal obligation is too large are The Board amends § 226.35(b)(3) loan. For example, if the maximum widely referred to in the mortgage pursuant to its authority under TILA principal obligation eligible for market as ‘‘jumbo’’ mortgages. The term Section 105(a) to prescribe regulations purchase by Freddie Mac in a particular ‘‘jumbo’’ also is used in this final rule to to carry out the purposes of TILA and ‘‘high-cost’’ area were $500,000 for a refer to such loans. to provide for such requirements, single-family residence, these II. The Board’s September 2010 Escrow commenters believe that a loan with a adjustments, and exceptions as Proposal principal obligation between $417,000 necessary or proper to effectuate the and $500,000 secured by a single-family purposes of, to prevent circumvention A. Summary of the September 2010 of, and facilitate compliance with TILA, Escrow Proposal residence in that area should be classified as a ‘‘jumbo’’ loan subject to as discussed in detail below. See 15 On September 24, 2010, the Board the higher rate threshold for U.S.C. 1604(a) (as revised). published a proposed rule in the classification as a higher-priced V. Section-by-Section Analysis Federal Register to implement TILA mortgage loan, even though Freddie Section 129D(b)(3)(B), as enacted by Mac may purchase that loan. Section 226.1 Authority, Purpose, Section 1461 of the Dodd-Frank Act. See Other commenters recommended Coverage, Organization, Enforcement 75 FR 58505 (September 2010 Escrow exemptions from the escrow and Liability Proposal). Accordingly, the Board requirement for higher-priced mortgage 1(d) Organization proposed to raise the rate threshold for loans. Recommended exemptions coverage by the escrow account included for: (1) Loans a creditor holds Section 226.1(d) describes how requirement for first-lien, higher-priced in portfolio; (2) loans made by Regulation Z is organized. Section ‘‘jumbo’’ mortgage loans. Specifically, community banks; (3) loans made in 226.1(d)(5) describes Subpart E of the Board proposed to require escrows rural areas; and (4) small retail loans Regulation Z, which this interim final for ‘‘jumbo’’ loans whose APR exceeds that are first-lien loans because a rule amends by revising § 226.35(a)(1) the average prime offer rate for a consumer has paid off his larger and (b)(3)(v). Comment 1(d)(5)–1 is comparable transaction, as of the date mortgage. Such exceptions are outside revised to add a new subpart 1(d)(5)– the transaction’s interest rate is set, by the scope of this rulemaking. The Board 1.iii, stating that this final rule is 2.5 or more percentage points. The is publishing elsewhere in today’s effective on April 1, 2011, for covered Board did not propose to implement Federal Register a proposed rule that transactions for which an application is other provisions of the Dodd-Frank Act addresses several of those proposed received on or after April 1, 2011. related to escrow accounts under the exceptions. September 2010 Escrow Proposal. The Section 226.35 Prohibited Acts or Board is proposing rules to implement III. Summary of the Final Rule Practices in Connection With Higher- other escrow-related provisions of the This final rule revises § 226.35(b)(3), Priced Mortgage Loans Dodd-Frank Act in a separate notice as proposed, to provide a higher APR 35(a) Higher-Priced Mortgage Loans published elsewhere in today’s Federal threshold for determining whether Register. ‘‘jumbo’’ mortgage loans secured by a 35(a)(1) first lien on a consumer’s principal B. Overview of Comments Received dwelling are higher-priced mortgage As discussed below, the Board revises The comment period on the loans for which an escrow account must § 226.35(b)(3) to provide a higher September 2010 Escrow Proposal closed be established. As revised, the threshold threshold for determining whether on October 25, 2010. The Board for coverage of the escrow requirement escrow accounts must be established for received 15 comment letters in response for ‘‘jumbo’’ loans is 2.5 percentage certain closed-end mortgage loans to the proposed rule, from creditors, points (rather than 1.5 percentage secured by a first lien on the consumer’s loan originators, banking trade points) in excess of the average prime principal dwelling, pursuant to the associations, and state banking offer rate for a comparable transaction, Dodd-Frank Act. As revised, the regulators. No comments were received as of the date the transaction’s rate is threshold for coverage of the escrow from consumers or consumer advocates. set. Raising the APR threshold requirement for ‘‘jumbo’’ loans is 2.5 Commenters generally supported the applicable to ‘‘jumbo’’ loans eliminates percentage points (rather than the 1.5 proposed increase in the coverage the mandatory escrow requirement for percentage points generally applicable threshold for the escrow requirement, loans with an APR above the existing under § 226.35(a)(1)) in excess of the for ‘‘jumbo’’ loans. threshold but below the new threshold. average prime offer rate for a Several commenters, however, Creditors may, at their option, elect to comparable transaction, as of the date requested that the Board clarify that continue to use the 1.5 percentage point the transaction’s rate is set. The Board only the dollar amount specified in the threshold for ‘‘jumbo’’ loans. Section is making a conforming amendment to sixth sentence of Section 305(a)(2) of the 226.35 and this final rule do not apply § 226.35(a)(1) to reflect this exception to Federal Home Loan Mortgage to open-end credit plans subject to the general coverage test for higher- Corporation Act (FHLMCA), 12 U.S.C. § 226.5b or to loans to finance the initial priced mortgage loans.

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35(b) Rules for Higher-Priced Mortgage Economic Recovery Act of 2008 (HERA), adjustments also should apply in Loans also provides that its principal determining if a loan is a ‘‘jumbo’’ loan 35(b)(3) Escrows obligation limitations are subject to for purposes of § 226.35(b)(3)(v). The other limitations in that paragraph.4 See Board believes such adjustments are 35(b)(3)(v) ‘‘Jumbo’’ Loans 12 U.S.C. 1454(a)(2). Other limitations made pursuant to Section 305(a)(2), The Board adds a new in that paragraph include annual because they incorporate FHLMCA § 226.35(b)(3)(v) to implement TILA adjustments based on changes in the Section 305(a)(2) in the formula used to Section 129D(b)(3)(B), as enacted by housing price index maintained by determine the maximum principal Section 1461 of the Dodd-Frank Act. FHFA and adjustments to increase the obligation eligible for purchase by Section 226.35(b)(3)(v) provides a maximum principal obligation for loans Freddie Mac. higher threshold for determining secured by property in ‘‘high-cost’’ areas. Nevertheless, even if the adjustments whether escrow accounts must be See 12 U.S.C. 1454(a)(2). The plain made pursuant to this legislation are not established for certain closed-end language of the sixth sentence of deemed to be made pursuant to Section mortgage loans secured by a first lien on FHLMCA Section 305(a)(2) incorporates 305(a)(2), the Board believes it is a consumer’s principal dwelling. by reference limitations set by other appropriate to use its authority under Currently, under § 226.35(a)(1), such a sentences in Section 305(a)(2). The TILA Section 105(a) to require loan is considered a higher-priced Board believes, therefore, that consideration of such adjustments. 15 mortgage loan and is subject to the adjustments made pursuant to Section U.S.C. 1604(a). TILA Section 105(a) escrow requirement if its APR exceeds 305(a)(2) should apply in determining authorizes the Board to provide for such requirements, adjustments, and the average prime offer rate for a whether a loan is a ‘‘jumbo’’ loan subject exceptions for all or any class of comparable transaction, as of the date to the higher APR threshold for transactions as in the Board’s judgment the transaction’s rate is set, by 1.5 or classification as a higher-priced are necessary or proper to effectuate the more percentage points. Pursuant to mortgage loan. purposes of, to prevent circumvention TILA Section 129D(b)(3)(B), for a The Board believes this is also or evasion of, or to facilitate compliance closed-end, first-lien mortgage loan consistent with statutory intent, because with TILA. The Board believes it is whose original principal obligation taking into account adjustments to the necessary and proper, to effectuate the exceeds the current maximum principal maximum principal obligation will purposes of TILA Section 129D(b)(3)(B), obligation for loans eligible for purchase ensure similar treatment of all loans eligible for purchase by Freddie Mac. to make adjustments consistent with the by Freddie Mac, the applicable rate provisions of federal law other than threshold is 2.5 percentage points or The higher threshold for ‘‘jumbo’’ loans reflects the higher price typically FHLMCA Section 305(a)(2) to ensure all more above the average prime offer rate loans eligible for purchase by Freddie for a comparable transaction, as of the associated with loans that are not eligible for purchase by Freddie Mac (or Mac are treated similarly for purposes of date the transaction’s rate is set. the escrow requirements. Further, Comment 35(b)(3)(v)–1 clarifies that by , which is subject to the same limit on the maximum principal considering the additional adjustments adjustments to the maximum principal made by other federal laws is consistent obligation that are made by the Federal obligation). Using the higher APR threshold for loans that are eligible for with the language in TILA Section Housing Finance Agency (FHFA) 129D(b)(3)(B), which states that the pursuant to FHLMCA Section 305(a)(2) purchase by Freddie Mac after adjustments to the maximum principal determination of whether or not a loan or by other federal law will apply in is a ‘‘jumbo’’ loan subject to a higher obligation pursuant to FHLMCA Section determining whether a mortgage loan is APR threshold shall be based on the 305(a)(2) would not be consistent with a ‘‘jumbo’’ loan subject to the higher APR maximum principal obligation ‘‘in the statutory intent. threshold under § 226.35(b)(3)(v). effect’’ for Freddie Mac as of the date the Adjustments pursuant to other federal Comment 35(b)(3)(v)–2 clarifies that the transaction’s rate is set. The maximum law. Legislation enacted by Congress in higher APR threshold applies solely in principal obligation in effect is the 2009 and 2010 provides for further determining if a ‘‘jumbo’’ loan is subject obligation FHFA establishes pursuant to adjustments to the maximum principal to the escrow requirement. The both FHLMCA Section 305(a)(2) and obligation eligible for purchase by determination of whether ‘‘jumbo’’ first- other federal law. lien loans are subject to the other Freddie Mac. In light of declines in The Board also believes those protections in § 226.35, such as the home values in certain areas, Congress adjustments are necessary and proper to ability to repay requirements under provided in that legislation that the facilitate compliance with TILA Section § 226.35(b)(1) and the restrictions on maximum principal obligation eligible 129D(b)(3)(B). Considering only prepayment penalties under for purchase by Freddie Mac shall be adjustments made under FHLMCA § 226.35(b)(2), would continue to be the greater of: (1) The maximum Section 305(a)(2) would require based on the 1.5 percentage point principal obligation determined creditors that sell loans to Freddie Mac threshold. pursuant to FHLMCA Section 305(a)(2); to use one dollar limit to ascertain what Adjustments pursuant to FHLMCA and (2) the maximum principal rate threshold to apply in determining Section 305(a)(2). TILA Section obligation established for 2008 under whether a loan is subject to the escrow 129D(b)(3)(B) provides that a separate, Section 201 of the Economic Stimulus requirements and a different limit to higher APR threshold applies to a first- Act of 2008.5 The Board believes such determine whether they may sell loans lien mortgage loan that exceeds the to Freddie Mac. The same burden would applicable maximum principal 4 Section 1124 of HERA revises Section 305(a)(2) apply for creditors that sell loans to of the FHLMCA. See Public Law 110–289, 122 Stat. obligation eligible for purchase by 2654, 2692. Fannie Mae, which is subject to the Freddie Mac, established pursuant to 5 See Public Law 111–242, § 146, 124 Stat. 2607, same maximum principal obligation the sixth sentence of FHLMCA Section 2615 (2010) (providing for adjustments under a limits. Considering adjustments under 305(a)(2) (the ‘‘general maximum continuing resolution); Public Law 111–88, § 167, both FHLMCA Section 305(a)(2) and ’’ 122 Stat. 2904, 2973 (2009) (same); see also Public principal obligation ). However, the Law 110–185, § 201, 122 Stat. 613, 620 (Feb. 13, other applicable federal law would sixth sentence of FHLMCA Section 2008) (providing for adjustments under the facilitate compliance by eliminating that 305(a)(2), as revised by the Housing and Economic Stimulus Act). burden.

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For the reasons discussed above, and and again subsequently to comply with institutions and $7 million or less in pursuant to its authority under TILA Board regulations. revenues for non-bank mortgage Section 105(a), the final rule provides The Dodd-Frank Act does not provide lenders.6 that FHFA’s adjustments to the general an effective date specifically for rules A. Statement of the Need for, and maximum principal obligation stated in implementing TILA Section FHLMCA Section 305(a)(2) which are 129D(b)(3)(B). The Riegle Community Objectives of, the Final Rule made pursuant to other applicable Development and Regulatory Congress enacted TILA based on federal law shall be considered in Improvement Act of 1994 requires that findings that economic stability would determining whether a loan is a ‘‘jumbo’’ agency regulations that impose be enhanced and competition among loan subject to § 226.35(b)(3)(v). See additional reporting, disclosure, and consumer credit providers would be comment 35(b)(3)(v)–1. other requirements on insured strengthened by the informed use of depository institutions take effect on the VI. Effective Date of Final Rule credit resulting from consumers’ first day of a calendar quarter following awareness of the cost of credit. Congress The Board is changing the escrow publication in final form. 12 U.S.C. enacted HOEPA in 1994 as an requirement’s coverage threshold to 4802(b). Consistent with the Riegle amendment to TILA. TILA is implement the statutory amendment Community Development Act, this final implemented by the Board’s Regulation made by the Dodd-Frank Act, as rule is effective on April 1, 2011, for Z. HOEPA imposed additional discussed above. The amendment covered loans for which an application substantive protections on certain high- relieves mortgage creditors of is received by a creditor on or after that cost mortgage transactions. HOEPA also compliance with the escrow date. See comment 1(d)(5)–1.iii. The charged the Board with prohibiting acts requirement for certain ‘‘jumbo’’ loans. Board believes that this time period will or practices in connection with When relief is granted from Regulation afford creditors sufficient time to adjust mortgage loans that are unfair, Z’s escrow requirement, the affected their systems to eliminate escrow deceptive, or designed to evade the loans could become subject to any state accounts for covered loans to comply purposes of HOEPA, and acts or or local laws that prohibit mandatory with any applicable state or local laws practices in connection with escrow accounts. As a result, some that prohibit requiring an escrow of mortgage loans that are associated creditors might need time to make the account or imposing other escrow with abusive lending or are otherwise system changes necessary to comply requirements. not in the interest of borrowers. The with state or local laws. Accordingly, Under this final rule, creditors can Board adopted the requirement to the Board sought comment on the choose to continue to escrow for establish an escrow account for higher- amount of time necessary for creditors ‘‘jumbo’’ loans with an APR below the priced mortgage loans under 2008 to implement the change in their new threshold (subject to applicable HOEPA Final Rule pursuant to this systems and procedures. state or local laws). This final rule does mandate. Almost all commenters that discussed not require termination of any existing The Dodd-Frank Act amended TILA the implementation period stated that escrow account. the Board should allow creditors to to increase the threshold for coverage of immediately use the higher APR VII. Paperwork Reduction Act the escrow requirement, for certain threshold for classification of a ‘‘jumbo In accordance with the Paperwork loans ineligible for purchase by Freddie loan’’ as a higher-priced mortgage loan. Reduction Act (PRA) of 1995 (44 U.S.C. Mac because their original principal One banking trade association stated 3506; 5 CFR part 1320 Appendix A.1), obligation is too high (‘‘jumbo’’ loans), as that creditors easily can adjust their the Board reviewed the final rule under discussed above in the SUPPLEMENTARY systems to stop escrowing for such the authority delegated to the Board by INFORMATION. This final rule implements loans. Most of the commenters that the Office of Management and Budget that change by amending Regulation Z. addressed the effective date stated that (OMB). The rule contains no collections These amendments are made in compliance with the higher threshold of information under the PRA. See 44 furtherance of the Board’s responsibility should be optional until final rules are U.S. C. 3502(3). Accordingly, there is no to prescribe regulations to carry out the issued to implement other escrow- paperwork burden associated with the purposes of TILA. The legal basis for the related requirements under the Dodd- rule. final rule is in Section 105(a) of TILA. Frank Act. Those commenters stated 15 U.S.C. 1604(a). that creditors would prefer to adjust VIII. Final Regulatory Flexibility Analysis B. Summary of Significant Issues Raised their training and systems to implement by Comments in Response to the Initial all escrow-related statutory and In accordance with Section 4 of the Regulatory Flexibility Analysis regulatory requirements at one time. Regulatory Flexibility Act (RFA), 5 Some of those commenters stated that, U.S.C. 604, the Board is publishing a In accordance with Section 3(a) of the at a minimum, compliance should be final regulatory flexibility analysis for RFA, 5 U.S.C. 603(a), the Board optional for a period of time; the the amendments to Regulation Z. The prepared an initial regulatory flexibility recommended periods ranged between RFA generally requires an agency to analysis (IRFA) in connection with the six months and one year. An industry assess the impact a rule is expected to proposed rule. The IRFA stated that the trade association and a bank stated that have on small entities. The RFA Board believed the proposed rule would the effective date for the final rule requires an agency either to provide a not have a significant economic effect should be delayed until other escrow- final regulatory flexibility analysis with on a substantial number of small related requirements are implemented. a final rule or certify that the final rule entities. The Board requested comment The industry trade association will not have a significant economic on the IRFA and on any costs, suggested, in the alternative, at least a impact on a substantial number of small compliance requirements, or changes in six-month delay. The industry trade entities. Under standards the Small operating procedures arising from the association also stated that creditors Business Administration (SBA) sets, the application of the proposed rule to should not have to adjust their systems threshold for an entity to be considered small businesses. to comply with state or local laws ‘‘small’’ is $175 million or less in assets prohibiting mandatory escrow accounts for banks and other depository 6 13 CFR 121.201.

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No commenter specifically addressed companies and data reported under the E. Steps Taken To Minimize the the Board’s IRFA, but several Home Mortgage Disclosure Act (HMDA), Economic Impact on Small Entities commenters stated that compliance with the Board can estimate the approximate The final rule implements a specific recent statutory and regulatory changes number of small entities that would be numerical adjustment to an annual to requirements for mortgage lending, subject to the rules. For the majority of percentage rate (APR) threshold including amendments to TILA and HMDA respondents that are not mandated by Section 1461 the Dodd- Regulation Z, is burdensome in the depository institutions, however, exact Frank Act for ‘‘jumbo’’ loans, which aggregate. Most commenters that revenue information is not available. limits the Board’s flexibility to establish discussed the effective date stated that Based on the best information alternative APR thresholds. The higher creditors should be able to use the available, the Board makes the following APR threshold may be used in higher annual percentage rate threshold estimate of small entities that are connection with a ‘‘jumbo’’ loan, that is, immediately, to provide relief in affected by this final rule: According to a loan with an original principal connection with ‘‘jumbo’’ loans that September 2010 Call Report data, would be subject to the higher threshold obligation that exceeds the maximum approximately 8,669 small depository principal obligation for loans eligible for for the escrow requirement. Those institutions would be subject to the rule. commenters generally recommended, purchase by Freddie Mac. As discussed Approximately 15,627 depository above in Part V of the SUPPLEMENTARY however, that compliance with the final institutions in the United States filed rule be optional until the Board INFORMATION, the Board believes that, Call Report data, approximately 10,993 under the Dodd-Frank Act, loans are implements other escrow-related of which had total domestic assets of requirements under the Dodd-Frank ‘‘jumbo’’ loans for purposes of TILA $175 million or less and thus were Section 129D if they are ‘‘jumbo’’ loans Act. An industry trade association and considered small entities for purposes of a bank opposed an immediate effective ineligible for purchase by Freddie Mac the RFA. Of the 3,788 banks, 507 thrifts, because their original principal date for the final rule. Both commenters 6,632 credit unions, and 66 branches of that recommended allowing creditors to obligation is too high. Some foreign banks that filed Call Report data commenters recommended that the use the higher threshold immediately and were considered small entities, and commenters that recommended Board construe Section 1461 of the 3,667 banks, 479 thrifts, 4,520 credit Dodd-Frank Act narrowly to consider delaying the effective date of the rule unions, and 3 branches of foreign banks, suggested that, at a minimum, the Board only the general maximum principal totaling 8,669 institutions, extended obligation for loans eligible for purchase make compliance optional for a period mortgage credit. For purposes of this of time. Recommended periods ranged by Freddie Mac, despite the fact that the Call Report analysis, thrifts include maximum principal obligation is higher from 6 months to one year. savings banks, savings and loan entities, As discussed above in Part VI of the in certain high-cost areas. co-operative banks and industrial banks. SUPPLEMENTARY INFORMATION, the Board The Board is not adopting that Further, 1,303 non-depository believes that the effective date of April suggested alternative. As discussed in 1, 2011, provides sufficient time for institutions (independent mortgage greater detail in Part V of the creditors to adjust their training and companies, subsidiaries of a depository SUPPLEMENTARY INFORMATION, the Board systems to apply the higher APR institution, or affiliates of a bank believes that the Dodd-Frank Act threshold for ‘‘jumbo’’ loans. The rule is holding company) filed HMDA reports requires consideration of adjustments to effective on that date for loans where in 2010 for 2009 lending activities. the general maximum principal the creditor receives an application on Based on the small volume of lending obligation made by the Federal Housing or after April 1, 2011. Escrow accounts activity reported by these institutions, Finance Agency (FHFA) pursuant to typically are established when the loan most are likely to be small entities. Section 305(a)(2) of the Federal Home is consummated some time after the D. Reporting, Recordkeeping, and Other Loan Mortgage Corporation Act application is processed and approved. Compliance Requirements (FHLMCA). Further, the Board believes Further, creditors can choose to that it is necessary to consider continue to escrow for ‘‘jumbo’’ loans The changes to compliance additional adjustments FHFA makes with an APR below the new threshold, requirements that the final rule makes pursuant to other applicable federal law subject to applicable state or local laws are described in the SUPPLEMENTARY to effectuate the purposes of and prohibiting mandatory escrow or INFORMATION. The effect of the revisions facilitate compliance with TILA, as imposing other escrow requirements. If to Regulation Z on small entities is discussed above. a creditor elects not to apply the higher minimal because the revisions bring APR threshold to such loans, it is likely about burden relief; certain mortgage List of Subjects in 12 CFR Part 226 that few or no training or systems loans that otherwise would be subject to Advertising, Consumer protection, changes will be necessary. the escrow account requirement in Federal Reserve System, Mortgages, § 226.35(b)(3) are relieved of that Reporting and recordkeeping C. Description and Estimate of Small requirement. To take advantage of that requirements, Truth in lending. Entities to Which the Final Rule Applies relief, some small entities will need to The final rule applies to all modify their home-secured credit Authority and Issuance institutions and entities that engage in origination processes once to implement For the reasons set forth in the closed-end lending secured by a the revised coverage test. The precise preamble, the Board amends Regulation consumer’s principal dwelling. TILA costs to small entities of updating their Z, 12 CFR part 226, as set forth below: and Regulation Z have broad systems are difficult to predict. These applicability to individuals and costs will depend on a number of PART 226—TRUTH IN LENDING businesses that originate even small unknown factors, including, among (REGULATION Z) numbers of home-secured loans. See other things, the specifications of the § 226.1(c)(1). Using data from Reports of current systems used by such entities to ■ 1. The authority citation for part 226 Condition and Income (Call Reports) of originate mortgage loans and test them is revised to read as follows: depository institutions and certain for ‘‘higher-priced mortgage loan’’ Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, subsidiaries of banks and bank holding coverage. 1637(c)(5), and 1639(l); Pub. L. 111–24 § 2,

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123 Stat. 1734; Pub. L. 111–203, 124 Stat. iii. The final rule revising escrow DEPARTMENT OF TRANSPORTATION 1376. requirements under § 226.35(b)(3) published on March 2, 2011 applies to certain closed- Federal Aviation Administration Subpart E—Special Rules for Certain end extensions of consumer credit secured by Home Mortgage Transactions the consumer’s principal dwelling. See 14 CFR Part 39 § 226.35(a). Covered transactions for which ■ [Docket No. FAA–2011–0149; Directorate 2. Section 226.35 is amended by an application is received by a creditor on or revising paragraph (a)(1) and adding Identifier 2011–CE–001–AD; Amendment after April 1, 2011 are subject to 39–16616; AD 2011–05–07] paragraph (b)(3)(v) to read as follows: § 226.35(b)(3), as revised. RIN 2120–AA64 § 226.35 Prohibited acts or practices in * * * * * connection with higher-priced mortgage loans. Subpart E—Special Rules for Certain Airworthiness Directives; Allied Ag Cat Home Mortgage Transactions Productions, Inc. Models G–164, G– (a) Higher-priced mortgage loans—(1) 164A, G–164B, G–164B With 73″ Wing For purposes of this section, except as * * * * * Gap, G–164B–15T, G–164B–34T, G– provided in paragraph (b)(3)(v) of this Section 226.35—Prohibited Acts or Practices 164B–20T, G–164C, G–164D, and G– section, a higher-priced mortgage loan is 164D With 73″ Wing Gap Airplanes a consumer credit transaction secured in Connection With Higher-Priced Mortgage Loans by the consumer’s principal dwelling AGENCY: Federal Aviation with an annual percentage rate that * * * * * Administration (FAA), DOT. 35(b) Rules for higher-priced mortgage exceeds the average prime offer rate for ACTION: Final rule; request for a comparable transaction as of the date loans. comments. the interest rate is set by 1.5 or more * * * * * percentage points for loans secured by 35(b)(3) Escrows. SUMMARY: We are superseding an a first lien on a dwelling, or by 3.5 or * * * * * existing airworthiness directive (AD) for more percentage points for loans 35(b)(3)(v) ‘‘Jumbo’’ loans. the products listed above. That AD secured by a subordinate lien on a 1. Special threshold for ‘‘jumbo’’ loans. For currently requires repetitively dwelling. purposes of the escrow requirement in inspecting the interior and the exterior * * * * * § 226.35(b)(3) only, the coverage threshold of the main tubular spar of the rudder (b) * * * stated in § 226.35(a)(1) for first-lien loans (1.5 assembly for corrosion, taking necessary (3) * * * or more percentage points greater than the corrective action if corrosion is found, (v) ‘‘Jumbo’’ loans. For purposes of average prime offer rate) does not apply to a and applying corrosion protection. This this § 226.35(b)(3), for a transaction with loan with a principal obligation that exceeds AD retains the requirements of the a principal obligation at consummation the limit in effect as of the date the loan’s rate previous AD and changes the that exceeds the limit in effect as of the is set for the maximum principal obligation compliance time for certain products date the transaction’s interest rate is set eligible for purchase by Freddie Mac listed above. This AD was prompted by for the maximum principal obligation (‘‘jumbo’’ loans). The Federal Housing our determination that the compliance eligible for purchase by Freddie Mac, Finance Agency (FHFA) establishes and time specified for Models G–164, G– the coverage threshold set forth in adjusts the maximum principal obligation 164A, and G–164B airplanes does not paragraph (a)(1) of this section for loans pursuant to 12 U.S.C. 1454(a)(2) and other adequately address the unsafe secured by a first lien on a dwelling provisions of federal law. Adjustments to the condition. We are issuing this AD to shall be 2.5 or more percentage points maximum principal obligation made by detect and correct corrosion in the greater than the applicable average FHFA apply in determining whether a rudder main tubular spar, which could prime offer rate. mortgage loan is a ‘‘jumbo’’ loan to which the result in failure of the rudder main spar * * * * * separate coverage threshold in tube. This failure could lead to loss of § 226.35(b)(3)(v) applies. ■ directional control. 3. In Supplement I to Part 226: 2. Escrow requirements only. Under ■ A. Under Section 226.1—Authority, DATES: This AD is effective March 17, § 226.35(b)(3)(v), for ‘‘jumbo’’ loans, the 2011. Purpose, Coverage, Organization, annual percentage rate threshold is 2.5 or Enforcement and Liability, new The Director of the Federal Register more percentage points greater than the approved the incorporation by reference paragraph 1(d)(5)–1.iii is added. average prime offer rate. This threshold ■ of certain publications listed in this AD B. Under Section 226.35—Prohibited applies solely in determining whether a Acts or Practices in Connection With as of December 19, 2008 (73 FR 67372, ‘‘jumbo’’ loan is subject to the escrow November 14, 2008). Higher-Priced Mortgage Loans, 35(b) requirement of § 226.35(b)(3). The Rules for higher-priced mortgage loans, We must receive any comments on determination of whether ‘‘jumbo’’ first-lien this AD by April 18, 2011. 35(b)(3) Escrows, new heading loans are subject to the other protections in 35(b)(3)(v) ‘‘Jumbo’’ loans and new § 226.35, such as the ability to repay ADDRESSES: You may send comments by paragraphs 1 and 2 are added. any of the following methods: requirements under § 226.35(b)(1) and the • restrictions on prepayment penalties under Federal eRulemaking Portal: Go to Supplement I to Part 226—Official Staff http://www.regulations.gov. Follow the Interpretations § 226.35(b)(2), is based on the 1.5 percentage point threshold stated in § 226.35(a)(1). instructions for submitting comments. * * * * * • Fax: 202–493–2251. * * * * * • Mail: U.S. Department of Subpart A—General By order of the Board of Governors of the Transportation, Docket Operations, Section 226.1—Authority, Purpose, Coverage, Federal Reserve System, February 23, 2011. M–30, West Building Ground Floor, Organization, Enforcement and Liability Jennifer J. Johnson, Room W12–140, 1200 New Jersey Paragraph 1(d)(5). Secretary of the Board. Avenue, SE., Washington, DC 20590. • Hand Delivery: U.S. Department of 1. Effective dates. [FR Doc. 2011–4384 Filed 3–1–11; 8:45 am] i. * * * Transportation, Docket Operations, ii. * * * BILLING CODE 6210–01–P M–30, West Building Ground Floor,

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