Vol. 78 Thursday, No. 153 August 8, 2013

Part II

Department of the Treasury Office of the Comptroller of the Currency 12 CFR Part 34

Board of Governors of the Federal Reserve System 12 CFR Part 226

Bureau of Consumer Financial Protection 12 CFR Part 1026 Appraisals for Higher-Priced Mortgage Loans—Supplemental Proposal; Proposed Rule

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DEPARTMENT OF THE TREASURY requirements; specifically, the Agencies • Electronic: http:// are proposing exemptions from the rules www.regulations.gov. Follow the Office of the Comptroller of the for: transactions secured by existing instructions for submitting comments. Currency manufactured homes and not land; • Mail: Monica Jackson, Office of the certain ‘‘streamlined’’ refinancings; and Executive Secretary, Bureau of 12 CFR Part 34 transactions of $25,000 or less. Consumer Financial Protection, 1700 G Street NW., Washington, DC 20552. [Docket No. OCC–2013–0009] DATES: Comments must be received on • or before September 9, 2013, except that Hand Delivery/Courier in Lieu of RIN 1557–AD70 comments on the Paperwork Reduction Mail: Monica Jackson, Office of the Act analysis in part VIII of the Executive Secretary, Bureau of BOARD OF GOVERNORS OF THE Supplementary Information must be Consumer Financial Protection, 1700 G FEDERAL RESERVE SYSTEM received on or before October 7, 2013. Street NW., Washington, DC 20552. All submissions must include the 12 CFR Part 226 ADDRESSES: Interested parties are agency name and docket number or encouraged to submit written comments Regulatory Information Number (RIN) [Docket No. R–1443] jointly to all of the Agencies. for this rulemaking. In general, all RIN 7100–AD90 Commenters are encouraged to use the comments received will be posted title ‘‘Appraisals for Higher-Priced without change to http:// BUREAU OF CONSUMER FINANCIAL Mortgage Loans—Supplemental www.regulations.gov. In addition, PROTECTION Proposal’’ to facilitate the organization comments will be available for public and distribution of comments among the inspection and copying at 1700 G Street 12 CFR Part 1026 Agencies. Commenters also are NW., Washington, DC 20552, on official encouraged to identify the number of business days between the hours of 10 [Docket No. CFPB–2013–0020] the specific question for comment to a.m. and 5 p.m. Eastern Time. You can RIN 3170–AA11 which they are responding. Interested make an appointment to inspect the parties are invited to submit written documents by telephoning (202) 435– Appraisals for Higher-Priced Mortgage comments to: 7275. Loans—Supplemental Proposal Board: You may submit comments, All comments, including attachments identified by Docket No. R–1443 or RIN and other supporting materials, will AGENCIES: Board of Governors of the 7100–AD90, by any of the following become part of the public record and Federal Reserve System (Board); Bureau methods: subject to public disclosure. Sensitive of Consumer Financial Protection • Agency Web site: http:// personal information, such as account (Bureau); Federal Deposit Insurance www.federalreserve.gov. Follow the numbers or social security numbers, Corporation (FDIC); Federal Housing instructions for submitting comments at should not be included. Comments will Finance Agency (FHFA); National http://www.federalreserve.gov/ not be edited to remove any identifying Credit Union Administration (NCUA); generalinfo/foia/ProposedRegs.cfm. or contact information. and Office of the Comptroller of the • Federal eRulemaking Portal: http:// FDIC: You may submit comments by Currency, Treasury (OCC). www.regulations.gov. Follow the any of the following methods: ACTION: Proposed rule; request for instructions for submitting comments. • Federal eRulemaking Portal: http:// public comment. • Email: www.regulations.gov. Follow the instructions for submitting comments. SUMMARY: The Board, Bureau, FDIC, [email protected]. • Include the docket number in the Agency Web site: http:// FHFA, NCUA, and OCC (collectively, www.FDIC.gov/regulations/laws/ the Agencies) are proposing to amend subject line of the message. • Fax: (202) 452–3819 or (202) 452– federal/propose.html. Regulation Z, which implements the • Mail: Robert E. Feldman, Executive 3102. Truth in Lending Act (TILA), and the Secretary, Attention: Comments/Legal • Mail: Address to Robert deV. official interpretation to the regulation. ESS, Federal Deposit Insurance Frierson, Secretary, Board of Governors This proposal relates to a final rule Corporation, 550 17th Street NW., of the Federal Reserve System, 20th issued by the Agencies on January 18, Washington, DC 20429. 2013 (2013 Interagency Appraisals Final Street and Constitution Avenue NW., • Hand Delivered/Courier: The guard Rule or Final Rule), which goes into Washington, DC 20551. station at the rear of the 550 17th Street effect on January 18, 2014. The Final All public comments will be made Building (located on F Street), on Rule implements a provision added to available on the Board’s Web site at business days between 7:00 a.m. and TILA by the Dodd-Frank Wall Street http://www.federalreserve.gov/ 5:00 p.m. Reform and Consumer Protection Act generalinfo/foia/ProposedRegs.cfm as • Email: [email protected]. (the Dodd-Frank Act or Act) requiring submitted, unless modified for technical Comments submitted must include appraisals for ‘‘higher-risk mortgages.’’ reasons. Accordingly, comments will ‘‘FDIC’’ and ‘‘Truth in Lending Act For certain mortgages with an annual not be edited to remove any identifying (Regulation Z).’’ Comments received percentage rate that exceeds the average or contact information. Public will be posted without change to prime offer rate by a specified comments may also be viewed http://www.FDIC.gov/regulations/laws/ percentage, the Final Rule requires electronically or in paper in Room MP– federal/propose.html, including any creditors to obtain an appraisal or 500 of the Board’s Martin Building (20th personal information provided. appraisals meeting certain specified and C Streets NW., Washington, DC FHFA: You may submit your standards, provide applicants with a 20551) between 9:00 a.m. and 5:00 p.m. comments, identified by regulatory notification regarding the use of the on weekdays. information number (RIN) 2590–AA58, appraisals, and give applicants a copy of Bureau: You may submit comments, by any of the following methods: the written appraisals used. The identified by Docket No. CFPB–2013– • Email: Comments to Alfred M. Agencies are proposing amendments to 0020 or RIN 3170–AA11, by any of the Pollard, General Counsel, may be sent the Final Rule implementing these following methods: by email to [email protected].

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Please include ‘‘RIN 2590–AA58’’ in the • Hand Delivery/Courier in Lieu of you consider confidential or subject line of the message. Mail: Same as mail address. inappropriate for public disclosure. • Federal eRulemaking Portal: http:// You can view all public comments on You may review comments and other www.regulations.gov. Follow the NCUA’s Web site at http:// related materials that pertain to this instructions for submitting comments. If www.ncua.gov/Legal/Regs/Pages/ rulemaking action by any of the you submit your comment to the PropRegs.aspx as submitted, except for following methods: Federal eRulemaking Portal, please also those we cannot post for technical • Viewing Comments Electronically: send it by email to FHFA at reasons. NCUA will not edit or remove Go to http://www.regulations.gov. Enter [email protected] to ensure any identifying or contact information ‘‘Docket ID OCC–2013–0009’’ in the timely receipt by the Agency. Please from the public comments submitted. Search box and click ‘‘Search.’’ include ‘‘RIN 2590–AA58’’ in the You may inspect paper copies of Comments can be filtered by Agency subject line of the message. comments in NCUA’s law library at using the filtering tools on the left side • Hand Delivered/Courier: The hand 1775 Duke Street, Alexandria, Virginia of the screen. delivery address is: Alfred M. Pollard, 22314, by appointment weekdays • Click on the ‘‘Help’’ tab on the General Counsel, Attention: Comments/ between 9:00 a.m. and 3:00 p.m. To Regulations.gov home page to get RIN 2590–AA58, Federal Housing make an appointment, call (703) 518– information on using Regulations.gov, Finance Agency, Eighth Floor, 400 6546 or send an email to including instructions for viewing Seventh Street SW., Washington, DC [email protected]. public comments, viewing other 20024. The package should be logged in OCC: Because paper mail in the supporting and related materials, and at the Guard Desk, First Floor, on Washington, DC area and at the OCC is viewing the docket after the close of the subject to delay, commenters are comment period. business days between 9 a.m. and 5 p.m. • • U.S. Mail, United Parcel Service, encouraged to submit comments by the Viewing Comments Personally: You Federal Express, or Other Mail Service: Federal eRulemaking Portal or email, if may personally inspect and photocopy The mailing address for comments is: possible. Please use the title ‘‘Appraisals comments at the OCC, 400 7th Street Alfred M. Pollard, General Counsel, for Higher-Priced Mortgage Loans— SW., Washington, DC. For security Attention: Comments/RIN 2590–AA58, Supplemental Proposal’’ to facilitate the reasons, the OCC requires that visitors Federal Housing Finance Agency, organization and distribution of the make an appointment to inspect Eighth Floor, 400 Seventh Street SW., comments. You may submit comments comments. You may do so by calling Washington, DC 20024. by any of the following methods: (202) 649–6700. Upon arrival, visitors Copies of all comments will be posted • Federal eRulemaking Portal— will be required to present valid without change, including any personal ‘‘regulations.gov’’: Go to http:// government-issued photo identification information you provide, such as your www.regulations.gov. Enter ‘‘Docket ID and to submit to security screening in name, address, email address, and OCC–2013–0009’’ in the Search Box and order to inspect and photocopy phone number, on the FHFA Internet click ‘‘Search’’. Results can be filtered comments. Web site at http://www.fhfa.gov. In using the filtering tools on the left side Docket: You may also view or request addition, copies of all comments of the screen. Click on ‘‘Comment Now’’ available background documents and received will be available for to submit public comments. project summaries using the methods examination by the public on business • Click on the ‘‘Help’’ tab on the described above. days between the hours of 10 a.m. and Regulations.gov home page to get FOR FURTHER INFORMATION CONTACT: 3 p.m., Eastern Time, at the Federal information on using Regulations.gov, Board: Lorna Neill or Mandie Aubrey, Housing Finance Agency, Eighth Floor, including instructions for submitting Counsels, Division of Consumer and 400 Seventh Street SW., Washington, public comments. Community Affairs, at (202) 452–3667, DC 20024. To make an appointment to • Email: Carmen Holly, Supervisory Financial inspect comments, please call the Office [email protected]. Analyst, Division of Banking • of General Counsel at (202) 649–3804. Mail: Legislative and Regulatory Supervision and Regulation, at (202) NCUA: You may submit comments, Activities Division, Office of the 973–6122, or Kara Handzlik, Counsel, identified by RIN 3133–AE21, by any of Comptroller of the Currency, 400 7th Legal Division, (202) 452–3852, Board of the following methods (Please send Street SW., Suite 3E–218, Mail Stop Governors of the Federal Reserve comments by one method only): 9W–11, Washington, DC 20219. System, Washington, DC 20551. • Federal eRulemaking Portal: http:// • Hand Delivery/Courier: 400 7th Bureau: Owen Bonheimer, Counsel, www.regulations.gov. Follow the Street SW., Suite 3E–218, Mail Stop or William W. Matchneer, Senior instructions for submitting comments. 9W–11, Washington, DC 20219. Counsel, Division of Research, Markets, • NCUA Web site: http:// • Fax: (571) 465–4326. and Regulations, Bureau of Consumer www.ncua.gov/Legal/Regs/Pages/ Instructions: You must include Financial Protection, 1700 G Street NW., PropRegs.aspx. Follow the instructions ‘‘OCC’’ as the agency name and ‘‘Docket Washington, DC 20552, at (202) 435– for submitting comments. ID OCC–2013–0009’’ in your comment. 7000. • Email: Address to In general, OCC will enter all comments FDIC: Beverlea S. Gardner, Senior [email protected]. Include ‘‘[Your received into the docket and publish Examination Specialist, Risk name] Comments on Appraisals for them on the Regulations.gov Web site Management Section, at (202) 898–3640, Higher-Priced Mortgage Loans— without change, including any business Sandra S. Barker, Senior Policy Analyst, Supplemental Proposal’’ in the email or personal information that you Division of Consumer Protection, at subject line. provide such as name and address (202) 898–3615, Mark Mellon, Counsel, • Fax: (703) 518–6319. Use the information, email addresses, or phone Legal Division, at (202) 898–3884, subject line described above for email. numbers. Comments received, including Kimberly Stock, Counsel, Legal • Mail: Address to Mary Rupp, attachments and other supporting Division, at (202) 898–3815, or Secretary of the Board, National Credit materials, are part of the public record Benjamin Gibbs, Senior Regional Union Administration, 1775 Duke and subject to public disclosure. Do not Attorney, at (678) 916–2458, Federal Street, Alexandria, Virginia 22314– enclose any information in your Deposit Insurance Corporation, 550 17th 3428. comment or supporting materials that St. NW., Washington, DC 20429.

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FHFA: Susan Cooper, Senior Policy whether an alternative valuation type II. Background Analyst, (202) 649–3121, Lori Bowes, should be required. In general, the Truth in Lending Act Policy Analyst, Office of Housing and The Agencies propose to retain (TILA), 15 U.S.C. 1601 et seq., seeks to Regulatory Policy, (202) 649–3111, coverage of loans secured by existing promote the informed use of consumer manufactured homes and land. The Ming-Yuen Meyer-Fong, Assistant credit by requiring disclosures about its Agencies also propose to retain the General Counsel, Office of General costs and terms, as well as other exemption for transactions secured by Counsel, (202) 649–3078, Federal information. TILA requires additional new manufactured homes, but are Housing Finance Agency, 400 Seventh disclosures for loans secured by seeking further comment on the scope of Street SW., Washington, DC, 20024. consumers’ homes and permits NCUA: John Brolin and Pamela Yu, this exemption and whether certain consumers to rescind certain Staff Attorneys, or Frank Kressman, conditions on the exemption might be transactions that involve their principal Associate General Counsel, Office of appropriate. dwelling. For most types of creditors, General Counsel, at (703) 518–6540, or TILA directs the Bureau to prescribe Vincent Vieten, Program Officer, Office B. Proposed Exemption for Certain regulations to carry out the purposes of of Examination and Insurance, at (703) Refinancings 518–6360, or 1775 Duke Street, The Agencies are also proposing to the law and specifically authorizes the Alexandria, Virginia, 22314. exempt from the HPML appraisal rules Bureau to issue regulations that contain OCC: Robert L. Parson, Appraisal certain types of refinancings with such classifications, differentiations, or Policy Specialist, (202) 649–6423, G. characteristics common to refinance other provisions, or that provide for Kevin Lawton, Appraiser (Real Estate products often referred to as such adjustments and exceptions for Specialist), (202) 649–7152, Carolyn B. ‘‘streamlined’’ refinances. Specifically, any class of transactions, that in the Engelhardt, Bank Examiner (Risk the Agencies propose to exempt an Bureau’s judgment are necessary or Specialist—Credit), (202) 649–6404, extension of credit that is a refinancing proper to effectuate the purposes of Charlotte M. Bahin, Senior Counsel or where the owner or guarantor of the TILA, or prevent circumvention or 1 Mitchell Plave, Special Counsel, refinance loan is the current owner or evasion of TILA. 15 U.S.C. 1604(a). Legislative & Regulatory Activities guarantor of the existing obligation. In For most types of creditors and most Division, (202) 649–5490, Krista addition, the periodic payments under provisions of the TILA, TILA is LaBelle, Special Counsel, Community the refinance loan must not result in implemented by the Bureau’s and Consumer Law Division, (202) 649– negative amortization, cover only Regulation Z. See 12 CFR part 1026. 6350, or 400 Seventh Street SW., interest on the loan, or result in a Official Interpretations provide Washington DC 20219. balloon payment. Finally, the proceeds guidance to creditors in applying the SUPPLEMENTARY INFORMATION: from the refinance loan may only be rules to specific transactions and used to pay off the outstanding interpret the requirements of the I. Summary of the Proposed Rule principal balance on the existing regulation. See 12 CFR part 1026, Supp. As discussed in detail under part II of obligation and to pay closing or I. However, as explained in the Final this Supplementary Information, section settlement charges. Rule, the new appraisal section of TILA 1471 of the Dodd-Frank Act created new addressed in the Final Rule (TILA TILA section 129H, which establishes C. Proposed Exemption for Extensions section 129H, 15 U.S.C. 1639h) is special appraisal requirements for of Credit of $25,000 or Less implemented not only for all affected ‘‘higher-risk mortgages.’’ 15 U.S.C. Finally, the Agencies are also creditors by the Bureau’s Regulation Z, 1639h. The Agencies adopted the 2013 proposing an exemption from the HPML but also by OCC regulations and the Interagency Appraisals Final Rule to appraisal rules for extensions of credit Board’s Regulation Z (for creditors implement these requirements (adopting of $25,000 or less, indexed every year overseen by the OCC and the Board, the term ‘‘higher-priced mortgage loans’’ for inflation. respectively). See 12 CFR parts 34 and (HPMLs) instead of ‘‘higher-risk 164 (OCC regulations) and part 226 (the mortgages’’). The Agencies believe that D. Effective Date Board’s Regulation Z); see also several additional exemptions from the The Agencies intend that exemptions § 1026.35(c)(7) and 78 FR 10368, 10415 new appraisal rules may be appropriate. adopted as a result of this supplemental (Feb. 13, 2013). The Bureau’s, the OCC’s Specifically, the Agencies are proposing proposal will be effective on January 18, and the Board’s versions of the 2013 an exemption for transactions secured 2014, the same date on which the Final Interagency Appraisals Final Rule and by an existing manufactured home and Rule will become effective. In the corresponding official interpretations not land, certain types of refinancings, section-by-section analysis below, the are substantively identical. The FDIC, and transactions of $25,000 or less Agencies request comment on a number NCUA, and FHFA adopted the Bureau’s (indexed for inflation). The Agencies of conditions that might be appropriate version of the regulations under the solicit comment on these proposed to require creditors to meet to qualify for Final Rule.2 exemptions. In addition, the Agencies the proposed exemptions. If the The Dodd-Frank Act 3 was signed into are proposing a different definition of Agencies adopt any conditions on an law on July 21, 2010. Section 1471 of ‘‘business day’’ than the definition used exemption, the Agencies will consider the Dodd-Frank Act’s Title XIV, Subtitle in the Final Rule, as well as a few non- establishing a later effective date for substantive technical corrections. those conditions, to allow creditors 1 For motor vehicle dealers as defined in section sufficient time to adjust their 1029 of the Dodd-Frank Act, TILA directs the Board A. Proposed Exemption for Transactions to prescribe regulations to carry out the purposes compliance systems, if necessary. of TILA and authorizes the Board to issue Secured Solely by an Existing Question 1: The Agencies request Manufactured Home and Not Land regulations. 15 U.S.C. 5519; 15 U.S.C. 1604(i). comment on the need for a later 2 See NCUA: 12 CFR 722.3; FHFA: 12 CFR part The Agencies propose to exempt effective date for any condition on a 1222. The FDIC adopted the Bureau’s version of the transactions secured solely by an proposed exemption discussed in the regulations, but did not adopt a cross-reference to the Bureau’s regulations in FDIC regulations. See 78 existing (used) manufactured home and section-by-section analysis below, and FR 10368, 10370 (Feb. 13, 2013). not land from the HPML appraisal the appropriate effective date for those 3 Public Law 111–203, 124 Stat. 1376 (Dodd- requirements, but seek comment on conditions. Frank Act).

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F (Appraisal Activities), added TILA with an original principal obligation statutory thresholds. These rate section 129H, 15 U.S.C. 1639h, which amount that does not exceed the amount thresholds are substantially similar to establishes appraisal requirements that for ‘‘jumbo’’ loans (i.e., the maximum rate triggers that have been in use under apply to ‘‘higher-risk mortgages.’’ limitation on the original principal Regulation Z for HPMLs.5 Specifically, Specifically, new TILA section 129H obligation of a mortgage in effect for a consistent with TILA section 129H, a prohibits a creditor from extending residence of the applicable size, as of loan is an HPML under the Final Rule credit in the form of a ‘‘higher-risk the date of the interest rate set, pursuant if the APR exceeds the APOR by 1.5 mortgage’’ loan to any consumer to the sixth sentence of section 305(a)(2) percentage points for first-lien without first: of the Federal Home Loan Mortgage conventional or conforming loans, 2.5 • Obtaining a written appraisal Corporation Act (12 U.S.C. 1454)); percentage points for first-lien jumbo performed by a certified or licensed • By 2.5 or more percentage points, loans, and 3.5 percentage points for appraiser who conducts an appraisal for a first lien residential mortgage subordinate-lien loans.6 that includes a physical inspection of ‘‘jumbo’’ loan (i.e., having an original Consistent with TILA, the Final Rule the interior of the property and is principal obligation amount that exempts ‘‘qualified mortgages’’ from the performed in compliance with the exceeds the amount for the maximum requirements of the rule. Qualified Uniform Standards of Professional limitation on the original principal mortgages are defined in § 1026.43(e) of Appraisal Practice (USPAP) and title XI obligation of a mortgage in effect for a the Bureau’s final rule implementing the of the Financial Institutions Reform, residence of the applicable size, as of Dodd-Frank Act’s ability-to-repay Recovery, and Enforcement Act of 1989 the date of the interest rate set, pursuant requirements in TILA section 129C (FIRREA), and the regulations to the sixth sentence of section 305(a)(2) (2013 ATR Final Rule).7 15 U.S.C. prescribed thereunder. of the Federal Home Loan Mortgage 1639c. • Obtaining an additional appraisal Corporation Act (12 U.S.C. 1454)); or In addition, the Interagency from a different certified or licensed • By 3.5 or more percentage points, Appraisals Final Rule excludes from its appraiser if the ‘‘higher-risk mortgage’’ for a subordinate lien residential coverage the following classes of loans: finances the purchase or acquisition of mortgage loan. (1) Transactions secured by a new a property from a seller at a higher price The definition of ‘‘higher-risk manufactured home; than the seller paid, within 180 days of mortgage’’ expressly excludes ‘‘qualified (2) transactions secured by a mobile the seller’s purchase or acquisition. The mortgages,’’ as defined in TILA section home, boat, or trailer; additional appraisal must include an 129C, and ‘‘reverse mortgage loans that (3) transactions to finance the initial analysis of the difference in sale prices, are qualified mortgages,’’ as defined in construction of a dwelling; changes in market conditions, and any TILA section 129C. 15 U.S.C. 1639c. (4) loans with maturities of 12 months improvements made to the property The Agencies published proposed or less, if the purpose of the loan is a between the date of the previous sale regulations for public comment on ‘‘bridge’’ loan connected with the and the current sale. September 5, 2012, that would acquisition of a dwelling intended to A creditor that extends a ‘‘higher-risk implement these higher-risk mortgage become the consumer’s principal mortgage’’ must also: dwelling; and • appraisal provisions (2012 Interagency Provide the applicant, at the time of Appraisals Proposed Rule or 2012 (5) reverse mortgage loans. the initial mortgage application, with a Proposed Rule). 77 FR 54722 (Sept. 5, B. Requirements That Apply to All statement that any appraisal prepared 2012). The Agencies issued the 2013 Appraisals Performed for Non-Exempt for the mortgage is for the sole use of the Interagency Appraisals Final Rule on HPMLs creditor, and that the applicant may January 18, 2013. The Final Rule was Consistent with TILA, the Final Rule choose to have a separate appraisal published in the Federal Register on allows a creditor to originate an HPML conducted at the applicant’s expense. February 13, 2013, and is effective on • that is not exempt from the Final Rule Provide the applicant with one January 18, 2014. See 78 FR 10368 (Feb. only if the following conditions are met: copy of each appraisal conducted in 13, 2013). accordance with TILA section 129H • The creditor obtains a written without charge, at least three days prior III. Summary of the 2013 Interagency appraisal; to the transaction closing date. Appraisals Final Rule • The appraisal is performed by a New TILA section 129H(f) defines a certified or licensed appraiser; and A. Loans Covered ‘‘higher-risk mortgage’’ with reference to • The appraiser conducts a physical the annual percentage rate (APR) for the To implement the statutory definition property visit of the interior of the transaction. A ‘‘higher-risk mortgage’’ is of ‘‘higher-risk mortgage,’’ the Final property. a ‘‘residential mortgage loan’’4 secured Rule used the term ‘‘higher-priced Also consistent with TILA, the by a principal dwelling with an APR mortgage loan’’ or HPML, a term already following requirements also apply with that exceeds the average prime offer rate in use under the Bureau’s Regulation Z respect to HPMLs subject to the Final (APOR) for a comparable transaction as with a meaning substantially similar to Rule: • of the date the interest rate is set— the meaning of ‘‘higher-risk mortgage’’ At application, the consumer must • By 1.5 or more percentage points, in the Dodd-Frank Act. In response to be provided with a statement regarding for a first lien residential mortgage loan commenters, the Agencies used the term the purpose of the appraisal, that the HPML to refer generally to the loans that 4 See Dodd-Frank Act section 1401; TILA section could be subject to the Final Rule 5 Added to Regulation Z by the Board pursuant 103(cc)(5), 15 U.S.C. 1602(cc)(5) (defining because they are closed-end credit and to the Home Ownership and Equity Protection Act ‘‘residential mortgage loan’’). New TILA section of 1994 (HOEPA), the HPML rules address unfair 103(cc)(5) defines the term ‘‘residential mortgage meet the statutory rate triggers, but the or deceptive practices in connection with subprime loan’’ as any consumer credit transaction that is Agencies separately exempted several mortgages. See 73 FR 44522, July 30, 2008; 12 CFR secured by a mortgage, deed of trust, or other types of HPML transactions from the 1026.35. equivalent consensual security interest on a rule. The term ‘‘higher-risk mortgage’’ 6 The existing HPML rules apply the 2.5 percent dwelling or on residential real property that over APOR trigger for jumbo loans only with includes a dwelling, other than a consumer credit encompasses a closed-end consumer respect to a requirement to establish escrow transaction under an open-end credit plan. 15 credit transaction secured by a principal accounts. See 12 CFR 1026.35(b)(3)(v). U.S.C. 1602(cc)(5). dwelling with an APR exceeding certain 7 78 FR 6408 (Jan. 30, 2013).

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creditor will provide the applicant a IV. Legal Authority consummation of the loan.’’ copy of any written appraisal, and that TILA section 129H(b)(4)(A), added by § 1026.35(6)(i) and (ii). The Agencies propose to define the applicant may choose to have a the Dodd-Frank Act, authorizes the ‘‘business day’’ in the Final Rule to separate appraisal conducted for the Agencies jointly to prescribe regulations applicant’s own use at his or her own mean ‘‘all calendar days except Sundays implementing section 129H. 15 U.S.C. and the legal public holidays specified expense; and 1639h(b)(4)(A). In addition, TILA • The consumer must be provided in 5 U.S.C. 6103(a), such as New Year’s section 129H(b)(4)(B) grants the Day, the Birthday of Martin Luther King, with a free copy of any written Agencies the authority jointly to appraisals obtained for the transaction Jr., Washington’s Birthday, Memorial exempt, by rule, a class of loans from Day, Independence Day, Labor Day, at least three business days before the requirements of TILA section consummation. Columbus Day, Veterans Day, 129H(a) or section 129H(b) if the Thanksgiving Day, and Christmas Day.’’ C. Requirement To Obtain an Agencies determine that the exemption § 1026.2(a)(6). The Agencies propose Additional Appraisal in Certain HPML is in the public interest and promotes this definition for consistency with Transactions the safety and soundness of creditors. 15 disclosure timing requirements under U.S.C. 1639h(b)(4)(B). both the existing Regulation Z mortgage In addition, the Final Rule V. Section-by-Section Analysis disclosure timing requirements and the implements the Act’s requirement that Bureau’s proposed rules for combined the creditor of a ‘‘higher-risk mortgage’’ For ease of reference, unless mortgages disclosures under TILA and obtain an additional written appraisal, otherwise noted, the Supplementary the Real Estate Settlement Procedures at no cost to the borrower, when the Information refers to the section Act (RESPA), 12 U.S.C. 2601 et seq. loan will finance the purchase of the numbers of the proposed provisions that (2012 TILA–RESPA Proposed Rule). See consumer’s principal dwelling and there would be published in the Bureau’s § 1026.19(a)(1)(ii) and (a)(2); see also 77 has been an increase in the purchase Regulation Z at 12 CFR 1026.35(c). As FR 51116 (Aug. 23, 2012) (e.g., proposed price from a prior acquisition that took explained in the Final Rule, separate § 1026.19(e)(1)(iii) (early mortgage place within 180 days of the current versions of the regulations and disclosures) and (f)(1)(ii) (final mortgage purchase. TILA section 129H(b)(2)(A), accompanying commentary were issued disclosures). 15 U.S.C. 1639h(b)(2)(A). In the Final as part of the Final Rule by the OCC, the Under existing Regulation Z, early Rule, using their exemption authority, Board, and the Bureau, respectively. 78 disclosures must be delivered or placed the Agencies set thresholds for the FR 10367, 10415 (Feb. 13, 2013). No in the mail not later than the seventh increase that will trigger an additional substantive difference among the three business day before consummation of appraisal. An additional appraisal will sets of rules was intended. The NCUA the transaction; if the disclosures need be required for an HPML (that is not and FHFA adopted the rules as to be corrected, the consumer must otherwise exempt) if either: published in the Bureau’s Regulation Z receive corrected disclosures no later • The seller is reselling the property at 12 CFR 1026.35(a) and (c), by cross- than three business days before within 90 days of acquiring it and the referencing these rules in 12 CFR 722.3 consummation (the consumer is deemed resale price exceeds the seller’s and 12 CFR Part 1222, respectively. The to have received the corrected acquisition price by more than 10 FDIC adopted the rules as published in disclosures three business days after percent; or the Bureau’s Regulation Z at 12 CFR they are mailed or delivered). See • The seller is reselling the property 1026.35(a) and (c), but did not cross- § 1026.19(a)(2)(i)–(ii). For these within 91 to 180 days of acquiring it and reference the Bureau’s Regulation Z. purposes, ‘‘business day’’ is defined as the resale price exceeds the seller’s Accordingly, in this Federal Register quoted previously. One reason that the acquisition price by more than 20 notice, the proposed provisions are Agencies propose to align the definition percent. separately published in the HPML of ‘‘business day’’ under the Final Rule appraisal regulations of the OCC, the with the definition of ‘‘business day’’ for The additional written appraisal, from Board, and the Bureau. No substantive these disclosures is to avoid the creditor a different licensed or certified difference among the three sets of having to provide the copy of the appraiser, generally must include the proposed rules is intended. appraisal under the HPML rules and following information: an analysis of the corrected Regulation Z disclosures at Section 1026.2 Definitions and Rules difference in sale prices (i.e., the sale different times (because different of Construction price paid by the seller and the definitions of ‘‘business day’’ would acquisition price of the property as set 2(a) Definitions apply).8 forth in the consumer’s purchase The proposed definition of ‘‘business 2(a)(6) Business Day agreement), changes in market day’’ is also intended to align with the conditions, and any improvements The term ‘‘business day’’ is used with definition of ‘‘business day’’ for the made to the property between the date respect to two requirements in the Final timing requirements of mortgage of the previous sale and the current sale. Rule. First, the Final Rule requires the disclosures under the 2012 TILA– Finally, in the Final Rule the creditor to provide the consumer with a RESPA Proposal. See proposed Agencies expressed their intention to disclosure that ‘‘shall be delivered or § 1026.2(a)(6). The 2012 TILA–RESPA publish a supplemental proposal to placed in the mail not later than the Proposal would require the creditor to request comment on possible third business day after the creditor deliver the early mortgage disclosures exemptions for ‘‘streamlined’’ refinance receives the consumer’s application for ‘‘not later than the third business day programs and smaller dollar loans, as a higher-priced mortgage loan’’ subject after the creditor receives the well as loans secured by certain other to § 1026.35(c). § 1026.35(c)(5)(i) and property types, such as existing (ii). Second, the Final Rule requires the 8 If the Agencies do not adopt the proposed manufactured homes. See 78 FR 10368, creditor to provide to the consumer a definition of ‘‘business day,’’ the definition that would apply would be ‘‘a day on which the 10370 (Feb. 13, 2013). Accordingly, the copy of each written appraisal obtained creditor’s offices are open to the public for carrying Agencies are publishing this Proposed under the Final Rule ‘‘[n]o later than on substantially all of its business functions.’’ Rule. three business days prior to § 1026.2(a)(6).

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consumer’s application.’’ Proposed Development (HUD), U.S. Department of appropriate. The Agencies further § 1026.19(e)(1)(iii). The 2012 TILA– Veterans Affairs (VA), U.S. Department propose to re-number and revise RESPA Proposal would require the final of Agriculture (USDA), and the Rural comment 35(c)(2)(ii)–1 as proposed mortgage disclosures ‘‘not later than Housing Service (RHS), which is a part comment 35(c)(2)(ii)(A)–1. The three business days before of USDA, to define the types of loans proposed revisions to this comment are consummation.’’ Proposed ‘‘insure[d], guarantee[d], or for clarity only; no substantive change is § 1026.19(f)(1)(ii). For these purposes, administer[ed]’’ by those agencies, intended. ‘‘business day’’ would be defined as the respectively, that are qualified Loans secured solely by a new Agencies propose to define ‘‘business mortgages. TILA section manufactured home and not land. As day’’ in the Final Rule. 129H(b)(3)(B)(ii), 15 U.S.C. noted previously, the Final Rule If the Bureau adopts this aspect of the 1639h(b)(3)(B)(ii). The Agencies exempted HPMLs secured solely by a 2012 TILA–RESPA Proposal, then using recognize that HUD, VA, USDA, and new manufactured home and not land the proposed definition of ‘‘business RHS may issue rules defining qualified from the HPML appraisal rules—thus, day’’ in the Final Rule would ensure mortgages pursuant to their TILA the Final Rule applies no valuation that the HPML appraisal notice and the section 129C authority. Therefore, the requirement to these transactions. early mortgage disclosures have to be Agencies propose to expand the Question 3: However, based on provided at the same time (no later than definition of qualified mortgages that additional research and outreach, the three ‘‘business days’’ after the creditor are exempt from the HPML appraisal Agencies seek comment on whether receives the consumer’s application). rules to cover qualified mortgages as consumers in these transactions would This would also ensure that the copy of defined by HUD, VA, USDA, and RHS. benefit by receiving from the creditor a the HPML appraisal and the final 15 U.S.C. 1639c. unit value estimate from an objective mortgage disclosures have to be Question 2: The Agencies request third-party source, such as an provided at the same time (no later than comment on this proposed revision. independent cost guide. Since the Final Rule was issued, three ‘‘business days’’ before 35(c)(2)(ii) consummation). The Agencies believe consumer advocates have expressed that this alignment will facilitate 35(c)(2)(ii)(A) concerns that some transactions in the compliance and reduce consumer Loans Secured by a New Manufactured lending channel for new home-only confusion by reducing the number of Home (chattel) transactions can result in consumers owing more than the disclosures that consumers might In the Final Rule, the Agencies receive at different times. manufactured home is worth. For this exempted several classes of loans from type of loan, consumer and affordable Section 1026.35 Requirements for the HPML appraisal rules, including housing advocates assert that networks Higher-Priced Mortgage Loans transactions secured by a ‘‘new of manufacturers, broker/dealers, and manufactured home.’’ 9 lenders are common, and that these 35(c) Appraisals for Higher-Priced § 1026.35(c)(2)(ii). The exemption for Mortgage Loans parties can coordinate sales prices and transactions secured by a new loan terms to increase manufacturer, 35(c)(2) Exemptions manufactured home applies regardless dealer, and lender profits, even where 35(c)(2)(i) of whether the transaction is also this leads to loan amounts that exceed secured by the land on which it is sited. the collateral value. Advocates have Qualified Mortgages See comment 35(c)(2)(ii)–1. The reasons raised concerns that, where the original By statute, qualified mortgages ‘‘as for the exemption were discussed in the loan amount exceeds the collateral 10 defined in [TILA] section 129C’’ are Final Rule. The Agencies’ general value and the consumer is unaware of exempt from the special appraisal rules rationale was that alternative means for this fact, the consumer is often for ‘‘higher-risk mortgages.’’ 15 U.S.C. valuing new manufactured homes exist unprepared for difficulties that can arise 1639c; TILA section 129H(f)(1), 15 that, based upon the Agencies’ when seeking to refinance or sell the U.S.C. 1639h(f)(1). The Agencies understanding of historical practice, home at a later date. They have also implemented this exemption in the appeared more appropriate for these noted that that chattel manufactured Interagency Appraisals Final Rule by types of transactions. The Final Rule did home loan transactions tend to have cross-referencing § 1026.43(e), the not address loans secured by ‘‘existing’’ much higher rates than conventional definition of qualified mortgage issued (used) manufactured homes, which are, mortgage loans.11 Some consumer by the Bureau in its 2013 ATR Final therefore, subject to the appraisal advocates have suggested that giving the Rule. See § 1026.35(c)(2)(i). The Bureau requirements unless the Agencies adopt consumer third-party information about defined qualified mortgage under an exemption. the unit value could be helpful in The Agencies propose to retain the authority granted to the Bureau to issue educating the consumer, particularly as exemption for transactions secured by ability-to-repay rules and define to the risk that the loan amount might new manufactured homes in re- qualified mortgage. See, e.g., TILA exceed the collateral value, and might numbered § 1026.35(c)(2)(ii)(A), but are section 129C(a)(1), (b)(3)(A), and prompt the consumer to ask questions seeking further comment on the scope of (b)(3)(B)(i), 15 U.S.C. 1639c(a)(1), about the transaction. Consumer (b)(3)(A), and (b)(3)(B)(i). this exemption and whether certain conditions on the exemption might be To align the regulation with the 11 See, e.g., Howard Baker and Robin LeBaron, statute, the Agencies propose to revise Fair Mortgage Collaborative, Toward a Sustainable the cross-referenced definition of 9 The Final Rule also exempts qualified and Responsible Expansion of Affordable Mortgages mortgages; reverse mortgage loans; transactions for Manufactured Homes (March 2013) at 10 qualified mortgage to include all secured by a mobile home, boat, or trailer; (reporting that ‘‘[c]hattel loans typically feature qualified mortgages ‘‘as defined transactions to finance the initial construction of a higher interest rates than mortgages: current rates pursuant to TILA section 129C.’’ 15 dwelling; and loans with maturities of 12 months range between 6% and 14%, depending on the U.S.C. 1639c. In addition to authority or less, if the purpose of the loan is a ‘‘bridge’’ loan borrower’s credit history and the size of the connected with the acquisition of a dwelling downpayment, compared to 2.5% to 5% for granted to the Bureau, TILA section intended to become the consumer’s principal mortgages at the present time.’’). This report is 129C grants authority to the U.S. dwelling. See § 1026.35(c)(2). available at http://cfed.org/assets/pdfs/IM_HOME_ Department of Housing and Urban 10 78 FR 10368, 10379–80 (Feb. 13, 2013). Loan_Data_Collection_Project_Report.pdf.

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advocates and other outreach Question 7: The Agencies request some regularity in these transactions.16 participants had questions about the comment on whether the consumer The Agencies understand that these accuracy of available cost services for typically receives unit cost information appraisals value the land and the home estimating the unit value of new in a new manufactured home chattel together as a package based upon manufactured homes. They asserted, for transaction and what, if any, cost comparable transactions that have been example, that where a manufactured information from an independent third exposed to the open market (as would home will be sited can have a major party source might be reasonably be done with a site-built home or any impact on the value of the home and available to creditors, reliable, and other existing home).17 They also can that cost services do not in all cases useful to a consumer. document additional value based on sufficiently account for that aspect of Question 8: The Agencies further siting costs and the home’s location, and the value.12 Nonetheless, some request comment on the utility of third- in some cases can identify visible advocates expressed the view that party unit cost information to discrepancies between the giving the consumer some cost estimate consumers in these transactions (even if manufacturer’s specifications and the would be beneficial. the creditor is using a different method actual home once it is sited. Based on input from lenders and to value the home). In addition, USPAP-compliant real manufactured home valuation property appraisals are regularly providers, the Agencies understand that Question 9: The Agencies understand conducted for all transactions under in new home-only transactions, third- that the location of the property can federal government agency and party cost services are not typically used impact the value of the home, even if government-sponsored enterprise (GSE) to value the property. Instead, many the property on which the unit is sited manufactured home loan programs.18 creditors use the manufacturer’s is not owned by the consumer, and seek HUD Title II program standards, for invoice, or wholesale unit price, and more information about the impact on example, which apply to transactions lend a percentage of that amount, which home value of a unit’s location and secured by a manufactured home and might exceed 100 percent to reflect, for whether cost services are available that land titled together as real property, example, a dealer mark-up and siting account adequately for differences in require USPAP-compliant appraisals.19 costs. As discussed in the location. A representative of manufactured Supplementary Information to the Question 10: The Agencies further home appraisers and a manufactured Proposed Rule, outreach participants request comment on whether readily- home community development have indicated that this practice— accessible, publicly-available financial institution (CDFI) similar to that sometimes used for information exists that consumers could representative stated that they conduct automobiles—is longstanding in new use to determine whether their loan appraisals for loans secured by a new manufactured home transactions.13 amount exceeds the collateral value in manufactured home and land before the Lenders asserted that this method saves a new manufactured home chattel home is sited based on plans and costs for consumers and creditors and transaction, and whether consumers are specifications for the new home. An has been found to be reasonably generally aware of this information.15 interior property inspection occurs once effective and accurate for purposes of Question 11: Finally, the Agencies the home is sited (although the CDFI ensuring a safe and sound loan. request comment on potential burdens representative indicated that it did not Question 4: In light of additional and costs of imposing this condition on always use a state-certified or -licensed concerns expressed about valuations in the exemption, and any implications for appraiser for the final inspection). These new manufactured home chattel consumer access to credit (again, noting outreach participants suggested that, in transactions, the Agencies request that any of these loans that are qualified their experience, qualified certified- or comment on whether it may be mortgages are exempt under the -licensed appraisers are not unduly appropriate to condition the exemption separate exemption for qualified from the HPML appraisal requirements mortgages, § 1026.35(c)(2)(i)). 16 Comments on the Proposed Rule from a large on the creditor providing the consumer real estate agent trade association also suggested Loans secured by a new manufactured that exempting these transactions may not be with a third-party estimate of the home and land. Since issuing the Final appropriate. manufactured home unit cost. Rule, the Agencies have obtained 17 See, e.g., Texas Appraiser Licensing and Question 5: If so, the Agencies request additional information on valuation Certification Board, ‘‘Assemblage As Applied to comment on which third-party Manufactured Housing,’’ available at http:// methods for manufactured homes. estimate(s) should be used for this www.talcb.state.tx.us/pdf/USPAP/AssemblageAs AppliedToMfdHousing.pdf. purpose. Appraisers and state appraiser boards consulted in outreach efforts confirmed 18 See, e.g., HUD: 24 CFR 203.5(e); HUD Question 6: The Agencies also request Handbook 4150.2, Valuations for Analysis for Home comment on when this information that USPAP-compliant real property Mortgage Insurance for Single Family One- to Four- should be required to be provided.14 appraisals with interior inspections are Unit Dwellings (HUD Handbook 4150.2), chapter possible and conducted with at least 8.4 and App. D; USDA: 7 CFR 3550.62(a) and 3550.73; USDA Direct Single Family Housing Loans 12 The National Automobile Dealers Association and Grants Field Office Handbook (USDA (NADA) Manufactured Housing Cost Guide to include only loans secured by residential real Handbook), chapters 5.16 and, 9.18; VA: VA provides for adjustments based on, among other property). Therefore, the Agencies believe that in Lenders Handbook, VA Pamphlet 26–7 (VA factors, the state in which the home is located and some chattel transactions, the time between Handbook), chapters 7.11, 11.3, and 11.4; Fannie the quality of the land-lease community in which application and consummation may be relatively Mae: Fannie Mae Single Family 2013 Selling Guide the home is located, if applicable. See short. B5–2.2–04, Manufactured Housing Appraisal NADAguides.com Value Report, available at 15 The Bureau’s new Regulation B valuation Requirements (04/01/2009); Freddie Mac: Freddie www.nadaguides.com/Manufactured-Homes/ disclosure rules under the Equal Credit Opportunity Mac Single Family Seller/Servicer Guide, H33: images/forms/MHOnlineSample.pdf. Act (ECOA), 15 U.S.C. 1691 et seq. (2013 ECOA Manufactured Homes/H33.6: Appraisal 13 See 77 FR 54722, 54732–33 (Sept. 5, 2012). Valuations Rule), consistent with current ECOA requirements (02/10/12). 14 Unless the manufactured home alone, without Regulation B, does not provide for the consumer to 19 Title II appraisal standards are available in land, is titled as real property under state law, loans receive a copy of the manufacturer’s invoice. See 12 HUD Handbook 4150.2. For supplemental standards secured solely by a manufactured home are not CFR 1002.14(c) and comment 14(c)–2.iii (current for manufactured housing, see HUD Handbook subject to the early disclosure requirements under Regulation B); see also 78 FR 7216 (Jan. 31, 2013) 4150.2, chapters 8–1 through 8–4. The valuation Regulation Z, 12 CFR 1026.19, because they are not (issuing new 12 CFR 1002.14(b)(3) and comment protocol in Appendix D of HUD Handbook 4150.2 subject to RESPA. See § 1026.19(a)(1)(i) and 12 CFR 1002.14(b)(3)–3.iv, with an effective date of January calls for a certification that the appraisal is USPAP 1024.2 (defining ‘‘federally related mortgage loan’’ 18, 2014). compliant (page D–9).

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difficult to find to perform these Question 13: The Agencies also seek extent to which consumers in these appraisals.20 comment on whether some other transactions typically receive In commenting on the Proposed Rule valuation method should be required as information about the value of their and in outreach, lenders have raised a condition of the exemption from the land and home and, if so, what concerns that comparable sales HPML appraisal requirements. information is received. (‘‘comparables’’) of other manufactured At the same time, the Agencies 35(c)(2)(ii)(B) homes can be particularly difficult to believe that questions remain about the find. The Agencies understand that this impact on the industry and consumers Loans Secured Solely by an Existing can be a barrier to obtaining a of requiring USPAP-compliant real Manufactured Home and Not Land property appraisals with interior manufactured home appraisal, In new § 1026.35(c)(2)(ii)(B), the inspections in transactions secured by a especially in certain loan programs that Agencies propose to exempt new manufactured home and land for require appraisals of manufactured transactions secured solely by an which these types of appraisals are not homes to use a certain number of existing (used) manufactured home and already required. For example, manufactured home comparables and not land from the HPML appraisal manufactured home lenders commented have other restrictions on the requirements. Proposed comment 21 on the Proposed Rule and shared in comparables that may be used. The 35(c)(2)(ii)(B)-1 would clarify that an subsequent outreach that they typically Agencies note, however, that USPAP HPML secured by a manufactured home do not conduct an interior inspection does not require that manufactured and not land would not be subject to the home comparables be used. USPAP appraisal of a new manufactured home, but use other methods, such as relying appraisal requirements of § 1026.35(c), allows the appraiser to use site-built or regardless of whether the home is titled other types of home construction as on the manufacturer’s invoice for the new home and conducting a separate, as realty by operation of state law. The comparables with adjustments where Agencies recognize that in certain states necessary.22 A current version of the USPAP-compliant appraisal of the land.24 Thus, requiring a USPAP- residential structures such as Appraisal Institute seminar on manufactured homes may be deemed manufactured housing appraisals compliant appraisal with an interior inspection could require systems real property, even though they are not confirms that when necessary, USPAP titled together with the land.25 The appraisals can use non-manufactured changes for some manufactured home lenders. If the USPAP-compliant Agencies believe that the barriers homes as comparables, making discussed in more detail below to 23 appraisal with an interior inspection adjustments where needed. Based on producing USPAP-compliant real their experience, an appraiser required under the Final Rule were more expensive than existing methods, property appraisals with interior representative and a manufactured property inspections for manufactured home CDFI representative in informal then imposing the requirements of the Final Rule on these transactions would homes in home-only transactions are the outreach with the Agencies stated that same regardless of whether a comparable properties have not been lead to additional costs that could be passed on in whole or in part to jurisdiction categorizes the unduly difficult to find, even in rural manufactured home as personal areas. consumers. Question 14: Accordingly, the property (chattel) or real property. Question 12: Based on this Agencies request data on the extent to Question 17: The Agencies request information, the Agencies request which a USPAP-compliant real property comment on this view and approach. comment and information concerning appraisal with an interior property The Agencies also considered an whether to require USPAP-compliant inspection would be of comparable cost exemption for loans secured by both an appraisals with interior property to, or more or less expensive than, a existing manufactured home and land, inspections conducted by a state- USPAP-compliant appraisal of a lot but are not proposing an exemption for licensed or -certified appraiser for combined with an invoice price for the these HPMLs. A discussion of the HPMLs secured by both a new home unit. proposed treatment of both types of manufactured home and land. Question 15: The Agencies also loans (secured solely by an existing request comment on the potential manufactured home and secured by an 20 For HUD-insured loans secured by real burdens on creditors and consumers existing manufactured home plus land) property—a manufactured home and lot together— the Federal Housing Administration (FHA) requires and any potential reduction in access to is below. creditors to use a HUD Title II Roster appraiser that credit that might result from imposing Loans secured solely by an existing can certify to prior experience appraising requirement for a USPAP-compliant manufactured home and not land. The manufactured homes as real property. See HUD appraisal with an interior property Agencies propose an exemption for Title I Letter 481, Appendix 10–5. inspection on all manufactured home transactions secured solely by an 21 See Robin LeBaron, FAIR MORTGAGE COLLABORATIVE, Real Homes, Real Value: creditors of loans secured by both a new existing manufactured home and not Challenges, Issues and Recommendations manufactured home and land. In this land based on additional research and Concerning Real Property Appraisals of regard, the Agencies ask commenters to outreach. For the loans secured solely Manufactured Homes (Dec. 2012) at 19–28. This bear in mind that any of these by an existing manufactured home and report is available at http://cfed.org/assets/pdfs/ Appraising_Manufacture_Housing.pdf. transactions that are qualified mortgages not land, the Agencies understand that 22 See HUD Handbook 4150.2, chapter 8.4 are exempt from the HPML appraisal current valuation practices generally do (providing the following instructions on appraisals requirements under the separate not involve using a state-certified or for manufactured homes insured under HUD’s Title exemption for qualified mortgages. See -licensed appraiser to perform a USPAP- II program: ‘‘If there are no manufactured housing § 1026.35(c)(2)(i). sales within a reasonable distance from the subject and FIRREA-compliant real property property, use conventionally built homes. Make the Question 16: Finally, the Agencies appraisal with an interior property appropriate and justifiable adjustments for size, request comment on whether and the inspection, as required under TILA site, construction materials, quality, etc. As a point section 129H and the Final Rule. 15 of reference, sales data for manufactured homes can 24 Some consumer and affordable housing U.S.C. 1639h. Outreach to manufactured usually be found in local transaction records.’’). advocates and appraisers in outreach have 23 See Appraisal Institute, ‘‘Appraising expressed the view that separately valuing the home lenders indicated that they Manufactured Housing—Seminar Handbook,’’ Doc. component parts of a manufactured home plus land PS009SH–F (2008) at Part 8, 8–110. transaction can result in material inaccuracies. 25 See, N.H. Rev. Stat. Ann Sec. 477:44 (2013).

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typically obtain replacement cost At the same time, consumer and methods used for these loans. Some of estimates derived from nationally- affordable housing advocates have these methods are discussed below. published cost services, taking into raised concerns about consumers As noted, the Agencies are aware that account the age (to derive depreciated borrowing more money than the home HUD has property valuation standards values) and regional location of the is worth in these transactions, which, as for HUD-insured loans secured by an home. One cost service adjustment form noted, also tend to have much higher existing manufactured home and not often used for this purpose also allows rates than conventional loans secured land.30 In addition, for appraisals of for an adjustment based upon the by site-built homes.28 The Agencies manufactured homes ‘‘classified as quality of the land-lease community generally believe that consumers and personal property,’’ HUD standards call where the property is located (if creditors benefit when an accurate for, among other requirements, the use applicable).26 Lenders have indicated valuation is obtained for a credit of ‘‘an independent fee appraiser who that this method saves costs for transaction secured by the consumer’s has been certified by NADA to use consumers and creditors and has been home. The Agencies further recognize NADA’s National Appraisal System.’’ 31 found to be reasonably effective and that a manufactured home that has been Specifically, among other requirements, accurate for purposes of ensuring a safe previously occupied is subject to creditors of these types of HUD-insured and sound loan. depreciation and might have wear and loans must obtain an appraisal reflecting In addition, lender commenters on the tear or other physical changes that can the retail value of comparable Proposed Rule raised concerns about the make the property value more difficult manufactured homes in similar availability of data on comparable sales to assess than that of a new condition and in the same geographic that may be used by appraisers for loans manufactured home.29 The value of the area.32 Relevant HUD appraisal secured by an existing manufactured home also may have changed as a result requirements for these loans also home and not land. They indicated that of changes in the broader housing include specifications for appraiser data from used manufactured home market. qualifications, information that the sales not involving land (usually titled Question 18: The Agencies request creditor must provide to the appraiser, as personal property) are not currently comment on whether the proposed and the creditor’s review of the 33 recorded in multiple listing services of exemption should be conditioned on the appraisal. The Agencies have most states, for example, so an creditor obtaining an alternative concerns, however, that appraisers appraiser’s ability to obtain information valuation (i.e., a valuation other than a trained to conduct the types of on comparable manufactured homes USPAP- and FIRREA-compliant real appraisals required by HUD for its Title without land is more limited than in property appraisal with an interior I program may be limited, but seek real estate transactions. A provider of property inspection) that is tailored to information on the availability of manufactured home valuation services estimating the value of an existing individuals to perform appraisals subsequently confirmed to the Agencies manufactured home without land and compliant with HUD Title I standards. USPAP Standards 7 and 8 for that manufactured home sales providing a copy of it to the consumer. personal property provide guidance for information is generally not available The Agencies believe that an appraising personal property based on through standard real estate data exemption conditioned in this way may several approaches—the sales sources. The Agencies also understand be in keeping with the intent behind comparison approach, cost approach, that, in many states, appraisers are not TILA section 129H to ensure that and income approach—which are to be currently required to be licensed or consumers have access to information used as the appraiser determines certified in order to perform personal about the value of the home that would necessary to produce a credible property appraisals. secure the loan before entering into an appraisal.34 The Agencies are aware that Accordingly, the Agencies believe HPML. See TILA section 129H(c), 15 there are comparable-based methods of that an exemption for these transactions U.S.C. 1639h(c) (requiring a creditor to valuing existing manufactured homes from the HPML appraisal rules would provide the applicant with a copy of any without land other than the method be in the public interest because it appraisal obtained under TILA section prescribed for the HUD Title I program. would facilitate continued consumer 129H). In addition, for the cost approach, cost access to HPML financing for existing Question 19: To inform the Agencies services are available for creditors to manufactured homes, which are an in considering this condition, the consult and make adjustments based on important source of affordable Agencies request information on several factors (which might differ housing.27 The Agencies believe that whether creditors typically obtain depending on the cost service used), this exemption also would promote the valuations for loans secured solely by an such as the property age, condition, the safety and soundness of creditors, existing manufactured home and not because creditors would be able to land and, if so, what types of valuations 30 See HUD Title I Letter 481 (Aug. 14, 2009), continue using currently prevalent they obtain. Appendices 8–9, C, and 10–5. The Agencies note valuation methods, which can facilitate Question 20: The Agencies also seek that the HUD Title I program appraisal offering products that they have relied commenters’ views on the efficacy and requirements are for determining eligibility for on to ensure profitability and product insurance that benefits the creditor. accuracy of any prevailing valuation 31 See HUD Title I Letter 481 (Aug. 14, 2009), diversity to mitigate risk. Appendices 8–9, C, and 10–5, issued pursuant to 28 See, e.g., Howard Baker and Robin LeBaron, authority granted to HUD under section 2(b)(10) of 26 See NADA, Manufactured Housing Cost Guide, FAIR MORTGAGE COLLABORATIVE, Toward a the National Housing Act, 12 U.S.C. 1703(b)(10). available at NADAguides.com Value Report, Sustainable and Responsible Expansion of The Agencies understand that the NADA National available at www.nadaguides.com/Manufactured- Affordable Mortgages for Manufactured Homes Appraisal System is an appraisal method involving Homes/images/forms/MHOnlineSample.pdf. (March 2013) at 10. both the comparable sales and the cost approach. 27 See generally, Howard Baker and Robin 29 The Agencies understand that appraisers 32 See id. LeBaron, FAIR MORTGAGE COLLABORATIVE, typically limit their valuations to clearly visible 33 See id. VA and USDA manufactured home Toward a Sustainable and Responsible Expansion features or physical changes to the home that can programs do not involve transactions secured solely of Affordable Mortgages for Manufactured Homes impact value. Detailed examinations of wear and by a manufactured home and not land; thus, these (March 2013) at 9. This report is available at http:// tear are the purview of home inspections, which programs do not incorporate special requirements cfed.org/assets/pdfs/IM_HOME_Loan_Data_ generally are the responsibility of the consumer to for valuing these types of properties. Collection_Project_Report.pdf. obtain. 34 See, e.g., USPAP Standards Rule 7–4.

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land-lease community, and the home’s obtaining an alternative valuation as a addition, the regular periodic payments geographic location.35 These resources condition of this exemption. under the refinance loan must not result enable the creditor to obtain a Loans secured by an existing in negative amortization, cover only depreciated replacement cost for an manufactured home and land. The interest on the loan, or result in a existing manufactured home. Agencies considered also exempting balloon payment. Finally, the proceeds Question 21: The Agencies request transactions that are secured by both an from the refinance loan may be used comment on whether, to obtain the existing manufactured home and land. solely to pay off the outstanding proposed exemption from the HPML However, at this stage, the Agencies principal balance on the existing appraisal rules for HPMLs secured by an believe that an exemption for these obligation and to pay closing or existing manufactured home without transactions from the USPAP-compliant settlement charges. land, a creditor should have to comply real property appraisal standards in the As discussed more fully below, the with the appraisal requirements for a Final Rule would not be in the public Agencies believe that this exemption manufactured home classified as interest and promote the safety and would be in the public interest and personal property under HUD’s Title I soundness of creditors. As discussed in promote the safety and soundness of Manufactured Home Loan Insurance the section-by-section analysis of creditors. The following discussion of Program, or similar requirements § 1026.35(c)(2)(ii)(A), federal this proposed exemption includes a involving comparable sales. government and GSE manufactured description of ‘‘streamlined’’ Question 22: In this regard, the home loan programs generally require refinancing programs; a summary of the Agencies also seek additional comment compliance with USPAP real property comments regarding an exemption for and information on the availability of: appraisal standards for appraisals in refinancings received on the 2012 (1) Comparable sales data for appraisers connection with transactions secured by Interagency Appraisals Proposed Rule; to use in an appraisal of a manufactured both a manufactured home and land. and an explanation of the requirements home alone, without land; and (2) state- The Agencies believe that these of, and conditions on, the proposed certified or -licensed appraisers to requirements may reflect that exemption. appraise these properties. conducting a USPAP-compliant Background Question 23: The Agencies also appraisal following USPAP Standards 1 In an environment of historically low request comment on whether the and 2 for real property appraisals are interest rates, the federal government proposed exemption would feasible for existing manufactured has supported ‘‘streamlined’’ refinance appropriately be conditioned on the homes together with land. This view programs as a way to promote the creditor obtaining, and providing to the was affirmed by several participants in ongoing recovery of the consumer consumer, a valuation of the dwelling informal outreach with experience in mortgage market. Notably, the Home that uses an independently published the area of manufactured home loan Affordable Refinance Program (HARP) cost guide with appropriate adjustments appraisals, who indicated that USPAP- was introduced by the U.S. Treasury for factors such as home condition, compliant real property appraisals with Department in 2009 to provide refinance accessories, location, and community an interior inspection are feasible and relief options to consumers following features, as applicable. performed with regularity in these types the steep decline in housing prices as a Question 24: The Agencies request of transactions. For these reasons, the Agencies are result of the financial crisis. The HARP comment on whether use of a cost program was expanded in 2011 and is service with adjustments generally not proposing to exempt loans secured by an existing manufactured home and currently set to expire in 2015. involves a physical inspection of the Federal government agencies—HUD, property, who conducts that physical land from the HPML appraisal requirements. The Agencies note that VA, and USDA—as well as the GSEs inspection, and whether any condition have developed ‘‘streamlined’’ refinance on the proposed exemption allowing some commenters on the Proposed Rule recommended that the Agencies exempt programs to address consumer, creditor use of a cost service estimate with and investor risks.37 These programs adjustments should require a physical these types of ‘‘land/home’’ transactions.36 enable many consumers to refinance the inspection of the unit. balance of those mortgages through an Question 25: In addition, the Agencies Question 26: The Agencies request further comment whether to exempt abbreviated application and seek comment on whether an underwriting process.38 Under these appropriate condition for an exemption these transactions and, if so, why an exemption would be in the public from the HPML appraisal rules would 37 Under existing GSE ‘‘streamlined’’ refinance be more generally that the creditor have interest and promote the safety and programs, Freddie Mac and Fannie Mae purchase obtained and provided to the consumer soundness of creditors. and guarantee ‘‘streamlined’’ refinance loans for consumers under HARP (whose existing loans have an appraisal compliant with USPAP 35(c)(2)(vii) loan-to-value ratios (LTVs) over 80 percent) as well Standards 7 and 8 for personal property. Certain Refinancings as for consumers whose existing loans have LTVs The Agencies are considering whether it at or below 80 percent. would be appropriate to provide the The Agencies are also proposing to 38 See Fannie Mae Single Family Selling Guide, ® creditor with more than one option for exempt from the HPML appraisal rules chapter B5–5, section B5–5.2 (Refi Plus and DU Refi Plus® loans); Freddie Mac Single Family certain types of refinancings with Seller/Servicer Guide, chapters A24, B24, and C24 35 See, e.g., NADAguides.com Value Report, characteristics common to refinance (Relief Refinance® Loans); HUD Handbook 4155.1, available at www.nadaguides.com/Manufactured- products often referred to as chapters 3.C and 6.C (Streamline Refinances) and Homes/images/forms/MHOnlineSample.pdf; see ‘‘streamlined’’ refinances. Specifically, Title I Appendix 11–3 (manufactured home also Fannie Mae Single Family 2013 Selling Guide streamline refinances); USDA Rural Development B5–2.2–04, Manufactured Housing Appraisal the Agencies propose to exempt an Admin. Notice 4615 (Rural Refinance Pilot); and Requirements (04/01/2009) and Freddie Mac Single extension of credit that is a refinancing VA Lenders Handbook, chapter 6 (Interest Rate Family Seller/Servicer Guide, H33: Manufactured where the owner or guarantor of the Reduction Refinance Loans, or IRRRLs). Homes/H33.6: Appraisal requirements (02/10/12) refinance loan is the current owner or Creditworthiness evaluations generally are not (referencing the NADA Manufactured Housing required for Refi Plus, Relief Refinance, HUD Appraisal Guide® and the Marshall & Swift® guarantor of the existing obligation. In Streamline Refinance, or IRRRL loans unless Residential Cost Handbook as resources for borrower monthly payments would increase by 20 manufactured home cost information). 36 See 78 FR 10368, 10379–80 (Feb. 13, 2013). Continued

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programs, consumers with little or no (AVM)—may be obtained to estimate programs discussed above) when no equity in their homes,39 as well as LTV for determining the appropriate appraisal is conducted.45 consumers with significant equity in securitization pool for the loan. LTV as Public Comments on the 2012 Proposed their homes,40 can restructure their determined by this valuation can also Rule mortgage debt, often at lower interest affect the terms offered to the consumer. rates or payment amounts than under Sometimes an appraisal is required A number of commenters on the 2012 their existing loans.41 when the property is not standardized, Proposed Rule—a trade association Valuation requirements of or the current holder of the loan does representing community banks, a credit ‘‘streamlined’’ refinance programs. The not have what it deems to be sufficient union association, a bank, and GSEs— ‘‘streamlined’’ underwriting for certain information about the property in its recommended that the Agencies exempt refinancings often, but not always, does databases. refinancings. Some of these commenters not include a USPAP-compliant Fannie Mae and Freddie Mac. Fannie expressed a view that the Dodd-Frank appraisal with an interior-inspection Mae and Freddie Mac each have Act’s ‘‘higher-risk mortgage’’ appraisal appraisal. One reason for this is that, in ‘‘streamlined’’ refinance programs: rules were not appropriate for currently prevailing ‘‘streamlined’’ Fannie Mae DU (‘‘Desktop refinancings designed to move a refinance programs, the value of the Underwriter®’’) Refi Plus and Refi Plus® borrower into a more stable mortgage property securing the existing and and Freddie Mac Relief Refinance-Same product with affordable payments. refinance obligations is not considered Servicer/Open Access®. Under these These types of refinancings often to determine borrower eligibility for the programs, Fannie Mae must hold both involve an abbreviated or ‘‘streamlined’’ refinance. The owner or guarantor of the the old and new loan, as must Freddie underwriting process to facilitate the existing loan retains the credit risk, and Mac under its program. An appraisal is reduction of risks that the existing loan the ‘‘streamlined’’ refinance does not not required when the GSEs are may pose for the consumer, the primary change the collateral component of that confident in an estimate of value, which market creditor, and secondary market risk. is then provided to lenders originating investors. Commenters pointed out, For ‘‘streamlined’’ refinances where loans under these programs.42 among other things, that these types of the LTV exceeds or nearly exceeds 100 refinancings can be important credit risk percent, the principal concern is not HUD/FHA. The HUD ‘‘Streamline’’ management tools in the primary and whether the creditor or investor could Refinance program administered by the secondary markets, and can reduce in the near term recoup the mortgage Federal Housing Administration (FHA) foreclosures, stabilize communities, and amount by foreclosing upon and selling permits but generally does not require a 43 stimulate the economy. GSE the securing property. The immediate creditor to obtain an appraisal. The commenters indicated that in many goals for these loans are to secure Agencies understand that almost all payment relief for the borrower and FHA ‘‘streamlined’’ refinances are done cases loans originated under federal thereby avoid default and foreclosure; to without requiring an appraisal.44 The government ‘‘streamlined’’ refinance allow the borrower to take advantage of FHA program does not require an programs do not require appraisals and lower interest rates; or to restructure alternative valuation type for asserted that doing so would interfere their mortgage obligation to build equity transactions that do not have appraisals. with these programs. more quickly—all of which reduce risk VA and USDA. VA and USDA Consumer advocates did not comment for creditors and investors and benefit programs do not require appraisals. The on the 2012 Proposed Rule, but in consumers. FHA, VA, and USDA streamline subsequent informal outreach with the However, a valuation—usually refinance programs also do not require Agencies for this proposal, expressed through an automated valuation model an alternative valuation type for concerns about not requiring appraisals transactions that do not have appraisals. in HPML ‘‘streamlined’’ refinance percent or more. See HUD Handbook 4155.1, Private ‘‘streamlined’’ refinance programs. They expressed the view that chapter 6.C.2.d; Fannie Mae Single Family Selling a quality appraisal that is also required Guide, chapter B5–5, section B5–5.2 (Refi Plus and programs. The Agencies also believe DU Refi Plus loans); Freddie Mac Single Family that private creditors may offer to be made available to the consumer Seller/Servicer Guide, chapters A24, B24, and C24; ‘‘streamlined’’ refinance programs for can be a tool to prevent fraud in VA Lenders Handbook, chapter 6.1.c. borrowers meeting certain eligibility refinance transactions. They also 39 For example, HARP supports refinancing requirements. pointed out instances in which an through the GSEs for borrowers whose LTV exceeds appraisal on a refinance transaction 80 percent and whose existing loans were Question 27: The Agencies seek consummated on or before May 31, 2009. See comment and relevant data on how revealed appraisal fraud on the original http://www.makinghomeaffordable.gov/programs/ often private creditors obtain alternative purchase transaction. lower-rates/Pages/harp.aspx. Question 28: The Agencies invite 40 See, e.g., Freddie Mac 2011 Annual Report at valuation estimates in these transactions Table 52, reporting that the majority of Freddie Mac (i.e., streamlined refinances outside of further comment on these and related funding for Relief Refinances in 2011 was for the government agency and GSE concerns, and appropriate means of borrowers with LTVs at or below 80%. This report addressing these concerns as part of this is available at http://www.freddiemac.com/ rulemaking. investors/er/pdf/10k_030912.pdf. 42 For GSE ‘‘streamlined’’ refinance transactions 41 Over two million streamlined refinance purchased in 2012 at LTVs of above 80 percent, transactions occurred under FHA and GSE AVM estimates were obtained for approximately 81 45 In general, FIRREA regulations governing programs in 2012 (including both HPML and non- percent and appraisals (either interior inspection or appraisal requirements permit the use of an HPML refinances). According to public data exterior-only) were obtained for approximately 19 ‘‘evaluation’’ (or in the case of NCUA, a ‘‘written recently reported by FHFA, 1,803,980 streamlined percent. For GSE ‘‘streamlined’’ refinance estimate of market value’’) rather than an appraisal refinance loans occurred under Fannie Mae or transactions purchased in 2012 at LTVs of 80 in same-creditor refinances that involve no new Freddie Mac streamlined refinance programs. See percent or below, AVM estimates were obtained for monies except to pay reasonable closing costs and, FHFA Refinance Report for February 2013, approximately 87 and appraisals (either interior in the case of the NCUA, no obvious and material available at http://www.fhfa.gov/webfiles/25164/ inspection or exterior-only) were obtained for change in market conditions or physical adequacy Feb13RefiReportFinal.pdf. The Agencies estimate, approximately 13 percent. of the collateral. See OCC: 12 CFR 34.43 and 164.3; based upon data received from FHA during 43 See, e.g., HUD Handbook 4155.1, chapter 6.C.1. Board: 12 CFR 225.63; FDIC: 12 CFR 323.3; NCUA: outreach to prepare this proposal, that the FHA 44 According to data from FHA, in calendar year 12 CFR 722.3. See also OCC, Board, FDIC, NCUA, insured 378,000 loans under its ‘‘Streamline’’ 2012, only 1.1 percent of FHA streamline refinances Interagency Appraisal and Evaluation Guidelines, program in 2012. required an appraisal. App. A–5, 75 FR 77450, 77466–67 (Dec. 10, 2010).

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Discussion requirements are not introduced into § 1026.43(e)(1), (e)(4). (Of course, they The Agencies decline to propose an HPML transactions that are not qualified also can be ‘‘qualified mortgages’’ if they exemption for all refinance loans, as a mortgages but that are part of programs meet all the ability-to-repay criteria few commenters suggested. The to help consumers avoid defaults and under the general definition of appraisal rules in TILA Section 129H improve their financial positions, and ‘‘qualified mortgage’’ See apply to ‘‘residential mortgage loans’’ help creditors and investors avoid losses § 1026.43(e)(2).) As qualified mortgages, that are higher-priced and secured by and mitigate credit risk. they are exempt from the HPML the consumer’s principal dwelling. As discussed previously, the Agencies appraisal rules. See § 1026.35(c)(2)(i). TILA section 129H(f), 15 U.S.C. understand that, under the However, the Agencies believe that 1639h(f). The term ‘‘residential ‘‘streamlined’’ underwriting standards the separate exemption for certain mortgage loan’’ includes refinance for several government and GSE refinances from the HPML appraisal loans.46 Accordingly, the Agencies refinancing programs, a full interior requirement proposed in believe that an exemption for all HPML inspection appraisal is often not § 1026.35(c)(2)(vii) may be needed. refinances would be overbroad. For required. One reason for this is that the First, the 2013 ATR Final Rule limits example, in refinances involving current value of the property securing the qualified mortgage status of loans additional cash out to the consumer, the existing and refinance obligations purchased or guaranteed by Fannie Mae consumer equity in the home can generally is not considered to determine and Freddie Mac under the special rules decrease significantly, increasing risks, borrower eligibility for the refinance. of § 1026.43(e)(4). However, these loans so the Agencies do not believe an The owner or guarantor of the existing will not be eligible to be qualified exemption from this rule would be loan retains the credit risk, and the mortgages if consummated on or after appropriate. ‘‘streamlined’’ refinance does not January 10, 2021, unless they meet the The Agencies do, however, believe change the collateral component of that general definition of a qualified that a narrower exemption for certain risk. mortgage in § 1026.43(e)(2). See types of HPML refinance loans, In a ‘‘streamlined refinance,’’ the § 1026.43(c)(4)(iii)(B). For loans eligible generally consistent with the program principal concern is not valuing the to be insured or guaranteed under a criteria for ‘‘streamlined’’ refinances collateral to determine whether the HUD, VA, USDA, or RHA program, the under GSE and federal government creditor or investor could in the near qualified mortgage status conferred agency programs, would be in the term recoup the mortgage amount by under § 1026.43(e)(4)(i) would be public interest and promote the safety foreclosing upon and selling the replaced for each type of loan when and soundness of creditors. The securing property if necessary. Goals for those agencies respectively issue rules Agencies recognize that, by reducing the these loan programs include securing defining a qualified mortgage based on risk of foreclosures and helping payment relief for the borrower and each agency’s own programs. See borrowers better afford their mortgages, thereby avoid default and foreclosure; § 1026.43(e)(4)(iii)(A); see also TILA ‘‘streamlined’’ refinancing programs can allowing the borrower to take advantage section 129C(b)(3)(ii), 15 U.S.C. contribute to stabilizing communities of lower interest rates; and enabling the 1639c(b)(3)(ii). and the economy, both now and in the borrower to restructure his or her Second, the Agencies believe that future. ‘‘Streamlined’’ HPML refinances mortgage obligation to build equity many private ‘‘streamlined’’ mortgage can help borrowers who are at risk of more quickly—all of which reduce risk programs are likely to have similar default in the near future, as well as of default and thereby promote the benefits to consumers, creditors, and those who might not default in the near safety and soundness of creditors and credit markets as those under GSE and term, but could significantly benefit by investors and benefit consumers. government agency programs. However, refinancing into a lower rate mortgage Relationship to the 2013 ATR Final not all private ‘‘streamlined’’ refinances for considerable cost savings over time. Rule. Under the Bureau’s 2013 ATR that are HPMLs will be qualified The Agencies also recognize that Final Rule, loans eligible to be mortgages because some could exceed ‘‘streamlined’’ refinancing programs purchased, guaranteed, or insured by the 43 percent debt-to-income ratio cap assist creditors and secondary market Fannie Mae, Freddie Mac, HUD, VA, or fail to meet other qualified mortgage investors in managing credit risks. USDA, or RHS are subject to the general conditions. See, e.g., § 1026.42(e)(2). Originating HPML refinances that are ability-to-repay rules (found in The Agencies believe that an exemption beneficial to consumers can be § 1026.43(c)). See § 1026.43(e)(4)(ii). for not only GSE and government important to creditors to ensure the However, if they meet certain criteria,47 agency ‘‘streamlined’’ refinances, but continuing performance of loans on they are considered ‘‘qualified also refinance loans under proprietary their books and to strengthen customer mortgages’’ entitled to either a ‘‘streamlined’’ refinance programs, may relations. For investors holding these presumption of compliance or a safe be warranted. loans, the ‘‘streamlined’’ refinances can harbor ensuring compliance with the The Agencies considered limiting an reduce financial risks associated with general ability-to-repay rules, depending exemption from the HPML appraisal potential defaults and foreclosures. on the loan’s interest rate.48 See rules for private ‘‘streamlined’’ The Agencies believe that an refinances to refinances of non-standard exemption from the HPML appraisal 47 See § 1026.43(e)(4)(i)(A) (cross-referencing to standard mortgages that would rules for certain HPML refinances § 1026.43(e)(2)(i) through (iii), which require that qualify for an exemption from the would ensure that the time and cost the loan not result in negative amortization or ability-to-repay rules under new provide for interest-only or balloon payments; limit generated by new appraisal the loan term at 30 years; and cap points and fees § 1026.43(d) of the 2013 ATR Final to three percent of the loan amount (with a higher 46 ‘‘The term ‘residential mortgage loan’ means cap for loans under $100,000). Rule is a transaction covered by the general ability- any consumer credit transaction that is secured by 48 Creditors making qualified mortgages that are to-repay rules ‘‘with an annual percentage rate that a mortgage, deed of trust, or other equivalent ‘‘higher-priced’’ are entitled to a rebuttal exceeds the average prime offer rate for a consensual security interest on a dwelling or on presumption of compliance with the general ability- comparable transaction as of the date the interest residential real property that includes a dwelling, to-repay rules, while creditors making qualified rate is set by 1.5 or more percentage points for a other than a consumer credit transaction under an mortgages that are not ‘‘higher-priced’’ are entitled first-lien covered transaction, or by 3.5 or more open end credit plan . . .’’ TILA section 103(cc)(5), to a safe harbor of compliance. A ‘‘higher-priced percentage points for a subordinate-lien covered 15 U.S.C. 1602(cc)(5). covered transaction’’ under the Bureau’s 2013 ATR transaction.’’ § 1026.43(b)(4).

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Rule. However, the Agencies believe the safety and soundness of financial original credit risk, as well as ongoing that the refinances exempt from the institutions and in turn benefits the portfolio monitoring. By contrast, when ability-to-repay rules under § 1026.43(d) public. the owner or guarantor of the include a universe of refinances that is The proposed rule uses the terms ‘‘streamlined’’ refinance is not also the narrower than the Agencies believe ‘‘owner or guarantor’’ rather than the owner or guarantor of the existing loan, desirable for an exemption from the term ‘‘holder’’ to clarify that the then the ‘‘streamlined’’ refinance HPML appraisal rules. For example, to proposed regulation refers to the entity involves new risk to the owner or qualify for the ability-to-repay that either owns the credit risk because guarantor of the ‘‘streamlined’’ exemption as a refinance under the loan is held in its portfolio or that refinance, whose safety and soundness § 1026.43(d), the existing obligation guarantees the credit risk on a loan held would therefore be better served by a must be an adjustable-rate mortgage in an asset-backed securitization. For USPAP-compliant appraisal with an (ARM), an interest-only loan, or a example, assume Fannie Mae holds an interior inspection.50 negative amortization loan. See existing obligation in its portfolio, The Agencies generally believe that § 1026.43(d)(1)(i). In addition, among which is then refinanced under one of the ‘‘same owner or guarantor’’ criterion other conditions, the creditor must have Fannie Mae’s ‘‘streamlined’’ refinance for the proposed exemption makes it considered whether the refinance loan programs into a loan with a better rate unnecessary to require that the creditor ‘‘likely will prevent a default by the and lower payments for the consumer. (which is not necessarily the owner of consumer on the non-standard mortgage Fannie Mae might then decide to place the loan) also be the same for both the once the loan is recast’’ out of the the new refinance loan into a pool of existing obligation and the refinance introductory rate under an ARM or loans guaranteed by Fannie Mae; in this loan. If consumers can shop for a higher payments under an interest-only case, Fannie Mae would technically be ‘‘streamlined’’ refinancing among or negative amortization loan. See the guarantor, not the ‘‘owner.’’ multiple creditors without having to § 1026.43(d)(3)(ii). However, the However, under the proposal, the obtain an appraisal, they may be able to Agencies believe that ‘‘streamlined’’ refinance would meet the condition of obtain better rates and terms. refinance programs can benefit proposed § 1026.35(c)(2)(vii)(A)(1) As a general matter, the purpose of consumers and promote the safety and because the owner or guarantor remains the exemption for certain refinance soundness of financial institutions even the same on the refinance loan as on the transactions is to facilitate transactions where the consumer is not at risk of existing obligation. Proposed comment that can be beneficial to borrowers even imminent default. 35(c)(2)(vii)(A)–1 clarifies that the term though they are higher-priced loans. Definition of ‘‘refinancing.’’ Proposed ‘‘owner’’ in § 1026.35(c)(2)(vii)(A) refers When the consumer is not obtaining § 1026.35(c)(2)(vii) defines a to an entity that owns and holds a loan additional funds to increase the amount ‘‘refinancing’’ to mean ‘‘refinancing’’ in in its portfolio. of the debt, and the entity that will own § 1026.20(a).49 However, in contrast to This comment would further clarify or guaranty the refinance loan is already the definition of ‘‘refinancing’’ under that ‘‘owner’’ does not refer to an the credit risk holder on the existing § 1026.20(a), a ‘‘refinancing’’ under investor in a mortgage-backed security. loan, there may be insufficient benefit proposed § 1026.35(c)(2)(vii) does not This proposed clarification is intended from obtaining a new appraisal to restrict who the creditor is for either the to ensure that creditors do not have to warrant the additional cost. refinancing or the existing obligation. look to the individual owners of Questions have been raised, however, Commentary to § 1026.20(a) clarifies mortgage-backed securities to determine about whether safety and soundness that a ‘‘refinancing’’ under § 1026.20(a) the same-owner status. The rationale for issues might arise in some situations includes ‘‘only refinancings undertaken the same-owner requirement is not that would warrant an appraisal, even by the original creditor or a holder or based upon the pooled mortgage when the risk holder will remain the servicer of the original obligation.’’ See situation where more than one investor same. Specifically, in some private comment 20(a)–5. By contrast, the holds an indirect interest in a loan refinance transactions, the originating proposed exemption allows a different through ownership of a mortgage- creditor for the refinance loan may be creditor to extend the refinance loan, as backed security. Accordingly, this assuming ‘‘put-back’’ risk. This risk may long as the owner or guarantor remains comment also clarifies that the term be lessened if the holder or guarantor is the same on both the existing loan and ‘‘guarantor’’ in proposed a federal agency or GSE that operates the refinance. This aspect of the § 1026.35(c)(2)(vii)(A)(1) refers to the under guidelines that limit the put-back proposal is discussed more fully below. entity that guarantees the credit risk on risk for the originator. a loan held by the entity in a mortgage- Question 29: Accordingly, the 35(c)(2)(vii)(A) backed security. Agencies solicit comment on the Same owner or guarantor. Consistent The Agencies believe that with ‘‘streamlined’’ refinance programs conditioning the exemption on the 50 Legislative history of the Dodd-Frank Act also owner or guarantor remaining the same suggests that Congress believed that certain discussed previously, proposed underwriting requirements were not necessary in § 1026.35(c)(2)(vii)(A) requires that, for helps to promote the safety and refinances where the holder of the credit risk the exemption for certain refinancings soundness of creditors. This includes remains the same: ‘‘However, certain refinance to apply, the owner or guarantor of the situations in which the refinancing loans, such as VA-guaranteed mortgages refinanced creditor either owns the existing loan or under the VA Interest Rate Reduction Loan Program refinance loan must be the current or the FHA streamlined refinance program, which owner or guarantor of the existing has arranged to transfer the loan to a are rate-term refinance loans and are not cash-out obligation. The Agencies propose to GSE or other entity that owns the refinances, may be made without fully include this requirement as a condition existing loan. In these cases, the owner reunderwriting the borrower. . . . It is the or guarantor of the refinance already conferees’ intent that the Federal Reserve Board and of obtaining the refinance loan the CFPB use their rulemaking authority . . . to exemption from the HPML appraisal holds the credit risk. In addition, the extend the same benefit for conventional rules because the Agencies believe that owner or guarantor of the existing streamlined refinance programs where the party obligation may have familiarity with the making the refinance loan already owns the credit this restriction is important to promote risk. This will enable current homeowners to take property or relevant market conditions advantage of current loan interest rates to refinance 49 See § 1026.20(a) for the definition of as a result of having evaluated property their mortgages.’’ Statement of Sen. Dodd, 156 ‘‘refinancing.’’ value documents when taking on the Cong. Rec. S5928 (July 15, 2010).

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circumstances in which the originator’s comment would also clarify that a single something unexpected happens and the assumption of put-back risk raises safety payment transaction is not a refinancing consumer cannot do so. To protect the and soundness concerns that weigh in meeting the requirements of creditor’s safety and soundness, the favor of requiring the originator to § 1026.35(c)(2)(vii) because it does not creditor should have a firm obtain a USPAP-compliant appraisal require ‘‘regular periodic payments.’’ understanding of the value of the with an interior property inspection for The information provided by a collateral and the trajectory of property a ‘‘streamlined’’ refinance loan. USPAP-compliant real property values in the area in making a balloon Question 30: The Agencies also seek appraisal with an interior property mortgage. This can help the creditor information on the valuation practices inspection may be particularly adjust loan and payment terms to of private creditors for refinanced loans important for creditors and consumer mitigate default risk, which benefits where the private owner or guarantor where these features are present. For both the creditor and the consumer. remains the same and the loans are not example, additional equity may be The Agencies note that the GSE and sold to a GSE or insured or guaranteed needed to support a loan with negative government ‘‘streamlined’’ refinance by a federal government agency, amortization, and the risk of default programs described above do not allow including how often no valuation is might be higher for loans with interest- these features, in part because helping a obtained.51 only and balloon payment features. consumer pay off debt more quickly is The Agencies recognize that 55 35(c)(2)(vii)(B) one of the goals of these programs. In consumers who need immediate relief addition, the prohibition on risky Prohibition on certain risky features. from payments that they cannot afford features for this proposed exemption is Proposed § 1026.35(c)(2)(vii)(B) would might benefit in the near term by consistent with provisions in the Dodd- require that a refinancing eligible for an refinancing into a loan that allows Frank Act reflecting congressional exemption from the HPML appraisal interest-only payments for a period of concerns about these loan terms. For rules not allow for negative amortization time. However, the Agencies believe example, in Dodd-Frank Act provisions (‘‘cause the principal balance to that a reliable valuation of the collateral regarding exemptions from certain increase’’), interest-only payments is important when the consumer will ability-to-repay requirements for (‘‘allow the consumer to defer not be building any equity for a period refinancings under HUD, VA, USDA, repayment of principal’’), or a balloon of time. In that situation, the consumer and RHS programs, Congress similarly payment, as defined in and credit risk holder may be more required that the refinance loan be fully 52 § 1026.18(s)(5)(i). vulnerable should the property decline amortizing and prohibited balloon Proposed comment 35(c)(2)(vii)(B)–1 in value than they would be if the payments.56 The proposal is also would state that, under consumer were paying some principal consistent with a provision in the § 1026.35(c)(2)(vii)(D), a refinancing as well.54 Bureau’s 2013 ATR Final Rule that must provide for regular periodic The Agencies also recognize that, in exempts from all ability-to-repay payments that do not: result in an most cases, balloon payment mortgages requirements the refinancing of a ‘‘non- increase of the principal balance are originated with the expectation that standard mortgage’’ into a ‘‘standard (negative amortization), allow the a consumer will be able to refinance the mortgage.’’ See § 1026.43(d). To be consumer to defer repayment of loan when the balloon payment comes eligible for this exemption from the principal (see comment 43(e)(2)(i)–2), or due. These loans are made for a number ability-to-repay rules, the refinance loan result in a balloon payment. The of reasons, such as to control interest must, among other criteria, not allow for comment would thus clarify that the rate risk for the creditor or as a wealth negative amortization, interest-only terms of the legal obligation must management tool, usually for higher- payments, or a balloon payment. See require the consumer to make payments asset consumers. Regardless of why a § 1026.43(d)(1)(ii). Further, no GSE or of principal and interest on a monthly balloon mortgage is made, however, federal government agency or other periodic basis that will repay there is always risk that a consumer will ‘‘streamlined’’ refinance program allows the loan amount over the loan term. The not be able to either independently these features. The Agencies believe that comment would further state that, make the balloon payment or refinance, these statutory provisions and program except for payments resulting from any with significant consequences if restrictions reflect a judgment on the interest rate changes after part of Congress, government agencies, consummation in an adjustable-rate or repay the loan amount over the loan term need not and the GSEs that refinances with step-rate mortgage, the periodic be equal, but the monthly payments should be substantially the same without significant variation negative amortization, interest-only payments must be substantially equal. in the monthly combined payments of both payment features, or balloon payments The comment would cross-reference principal and interest. For example, where no two may increase risks to consumers and comment 43(c)(5)(i)–4 of the Bureau’s monthly payments vary from each other by more creditors. 2013 ATR Final Rule for an explanation than 1 percent (excluding odd periods, such as a 53 long or short first or last payment period), such of the term ‘‘substantially equal.’’ The monthly payments would be considered 55 See, e.g., Fannie Mae, ‘‘Home Affordable substantially equal for purposes of this section. In Refinance (DU Refi Plus and Refi Plus) FAQs’’ (June 51 See OCC: 12 CFR 34.43 and 164.3; Board: 12 general, creditors should determine whether the 7, 2013) at 11 (describing options for meeting the CFR 225.63; FDIC: 12 CFR 323.3; NCUA: 12 CFR monthly, fully amortizing payments are requirement that the refinance provide a borrower 722.3. See also OCC, Board, FDIC, NCUA, substantially equal based on guidance provided in benefit); Freddie Mac, ‘‘Freddie Mac Relief Interagency Appraisal and Evaluation Guidelines, § 1026.17(c)(3) (discussing minor variations), and Refinance MortgagesSM—Open Access Eligibility App. A–5, 75 FR 77450, 77466–67 (Dec. 10, 2010). § 1026.17(c)(4)(i) through (iii) (discussing payment- Requirements’’ (January 2013) at 1 (describing 52 Section 1026.18(s)(5)(i) defines ‘‘balloon schedule irregularities and measuring odd periods options for meeting the requirement that the payment’’ as ‘‘a payment that is more than two due to a long or short first period) and associated refinance provide a borrower benefit). times a regular periodic payment.’’ commentary.’’ 56 See Dodd-Frank Act section 1411(a)(2), TILA 53 Comment 43(c)(5)(i)–4 states as follows: ‘‘In 54 The Agencies acknowledge that these increased section 129C(a)(5)(E) and (F), 15 U.S.C. determining whether monthly, fully amortizing risks may be lower where the interest-only period 1639c(a)(5)(E) and (F). TILA section 129C(a)(5) payments are substantially equal, creditors should is relatively short (such as one or two years), authorizes HUD, VA, USDA, and RHS to exempt disregard minor variations due to payment- because the payments in the early years of a ‘‘refinancings under a streamlined refinancing’’ schedule irregularities and odd periods, such as a mortgage are heavily weighted toward interest; thus from the Act’s income verification requirement of long or short first or last payment period. That is, the consumer would be paying down little principal the ability-to-repay rules. 15 U.S.C. 1639c(a)(5). See monthly payments of principal and interest that even in making fully amortizing payments. also TILA section 129c(a)(4), 15 U.S.C. 1639c(a)(4).

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In sum, the Agencies are concerned the holder of the credit risk is not taking property appraisal with an interior that negative amortization, interest-only on significant new risk, in which case inspection) and providing a copy to the payments, and balloon payments are a full interior inspection appraisal to consumer three days before loan features that may increase a loan’s assess the change in risk could be consummation. In requesting comment risk to consumers as well as to primary beneficial to both parties. on this issue, the Agencies note that the and secondary mortgage markets. 57 The Agencies also note that limiting purpose of TILA section 129H is, in Thus, in the Agencies’ view, permitting the use of proceeds to allow for no extra part, to protect consumers by ensuring these non-qualified mortgage HPML cash out for the consumer other than that they receive a copy of an appraisal refinances to proceed without USPAP- closing costs is consistent with with an interior property inspection of compliant real property appraisals with prevailing ‘‘streamlined’’ refinance the home before entering into a HPML interior inspections would not be programs.58 It is also consistent with the that is not a qualified mortgage. 15 consistent with the Agencies’ exemption exemption from the Bureau’s ability-to- U.S.C. 1639h. Specifically, TILA section authority, which permits exemptions repay rules for refinances of ‘‘non- 129H mandates providing a copy of an only if they promote the safety and standard mortgages’’ into ‘‘standard appraisal with an interior property soundness of creditors and are in the mortgages.’’ 59 See § 1026.43(d)(1)(ii)(E). inspection for HPMLs that are not public interest. The Agencies believe that consistency exempt from the appraisal requirements, Question 31: The Agencies request across mortgage rules can help facilitate three days before closing, with no comment on whether prohibiting the compliance and ease compliance option to waive this right. See TILA regular periodic payments on the burden. section 129H(c), 15 U.S.C. 1639h(c).60 refinance loan from resulting in negative Question 32: The Agencies request The Agencies’ Final Rule implements amortization, payment of only interest, comment on this proposed condition on these requirements. See § 1026.35(c)(6). or a balloon payment is an appropriate the ‘‘streamlined’’ refinance exemption, A refinanced mortgage loan is a condition for an exemption from the and whether other protections are significant financial commitment: For HPML appraisal rules for ‘‘streamlined’’ warranted to ensure that the loan’s example, the refinance loan can have an refinances. principal balance and overall costs to extended term, typically as long as 30 or the consumer do not materially 40 years; the refinance loan can be an 35(c)(2)(vii)(C) increase. adjustable-rate mortgage that creates No cash out. Proposed Question 33: In this regard, the interest rate risk in the future; the § 1026.35(c)(2)(vii)(C) would require Agencies specifically seek comment on refinance loan may actually have that the proceeds from a refinancing whether the Agencies should require increased payments (for example, if the eligible for an exemption from the that financed points and fees on the term of the new loan is shorter); and a HPML appraisal rules be used for only refinance loan not exceed a certain ‘‘streamlined’’ refinance transaction has two purposes: (1) To pay off the percent, such as the percentage caps for transaction costs. outstanding principal balance on the points and fees on qualified mortgages. Question 35: Because refinances do existing first-lien mortgage obligation; See § 1026.43(e)(3); see also involve potential risks and costs, the and (2) to pay closing or settlement § 1026.43(d)(1)(ii)(B) (capping points Agencies seek comment on whether charges required to be disclosed under and fees for refinances of ‘‘non-standard conditioning the proposed exemption RESPA. mortgages’’ into ‘‘standard mortgages’’ on creditors obtaining an alternative Proposed comment 35(c)(2)(vii)(C)–1 exempt from ability-to-repay valuation and giving a copy to the would state that the exemption for a requirements). For example, the consumer would better position refinancing under § 1026.35(c)(2)(vii) is Agencies heard from consumer consumers to consider alternatives to available only if the proceeds from the advocates that frequent, serial refinancing, and whether consumers refinancing are used exclusively for two refinancing with higher points and fees seeking refinances typically need or purposes: paying off the consumer’s could lead to a significant loss of equity, want to consider alternatives. These existing first-lien mortgage obligation and increased exposure for creditors, alternatives might include, among and paying for closing costs, including that would warrant a new appraisal for others, remaining in the home with the paying escrow amounts required at or the same or similar reasons that an existing loan; refinancing through a before closing. According to this appraisal would be important where different program that would involve comment, if the proceeds of a additional cash out is obtained. underwriting, potentially at a better rate refinancing are used for other purposes, Additional condition: obtaining an or other improved terms; seeking a such as to pay off other liens or to alternative valuation and providing a possible loan modification; or selling provide additional cash to the consumer copy to the consumer. the home. for discretionary spending, the Question 34: The Agencies also seek Question 36: The Agencies seek transaction does not qualify for the comment on whether the exemption for comment and relevant data on whether refinancing exemption from the HPML refinance loans should be conditioned this additional condition would be appraisal rules under on the creditor obtaining an alternative necessary. In this regard, the Agencies § 1026.35(c)(2)(vii). valuation (i.e., a valuation other than a understand that some type of estimate of The Agencies also view the proposed FIRREA- and USPAP-compliant real value is typically developed in a limitation on the use of the refinance loan’s proceeds as necessary to ensure 58 See, e.g., Fannie Mae Single Family Selling 60 A similar requirement under ECOA permits the Guide, chapter B5–5, Section B5–5.2; Freddie Mac consumer to waive the right to receive a copy of that the principal balance of the loan Single Family Seller/Servicer Guide, chapters A24, valuations or appraisals in connection with an does not increase, or increases only B24 and C24. application for a first-lien mortgage secured by a minimally. This in turn helps ensure 59 Under the 2013 ATR Final Rule, a refinance dwelling no later than three days before closing. that the consumer is not losing loan or ‘‘standard mortgage’’ is one for which, The consumer may not, however, waive the right among other criteria, the proceeds from the loan are to receive copies of valuations or appraisals significant additional equity and that used solely for the following purposes: (1) To pay altogether. See ECOA section 701(e)(2), 15 U.S.C. off the outstanding principal balance on the non- 1691(e)(2). Regulations implementing this provision 57 See also OCC, Board, FDIC, NCUA, standard mortgage; and (2) to pay closing or were adopted by the Bureau earlier this year in the ‘‘Interagency Guidance on Nontraditional Mortgage settlement charges required to be disclosed under 2013 ECOA Valuations Rule. See 78 FR 7216 (Jan. Product Risks,’’ 71 FR 58609 (Oct. 4, 2006). RESPA. See § 1026.43(d)(1)(ii)(E). 31, 2013); Regulation B, 12 CFR 1002.14(a)(1).

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

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The commenters on this issue shared small loan amounts, the cost of a profitability and an institution’s ability concerns that requiring an appraisal for traditional interior inspection appraisal to spread risk over a variety of products. smaller dollar residential mortgage is ‘‘extremely expensive’’ and could Public comments on the 2012 Proposed loans would result in excessive costs to reduce manufactured home lending. Rule suggested that applying the rule to consumers without sufficient offsetting Similarly, a bank representative asserted smaller dollar loans might affect smaller benefits. Some asserted that applying that when the purchase price is $30,000, institutions in particular, and that for the HPML appraisal rules to smaller for example, the cost of a traditional these institutions the reduction in costs loans might disproportionately burden appraisal is ‘‘substantial.’’ Comments and burdens associated with this smaller institutions and potentially from a community bank representative, exemption would be most beneficial. reduce access to credit for their the community development Question 40: The Agencies seek data consumers. organization, and another individual from commenters on this point. In outreach since the Final Rule was indicated that loans of $50,000 or less Finally, the Agencies believe that issued, however, a consumer advocacy might be appropriately exempted. A creditors would generally be better able group expressed the view that low- to state bank commenter suggested that to absorb losses that might be associated moderate-income (LMI) consumers loans of $100,000 or less should be with a loan of $25,000 or less than with, obtaining or refinancing loans secured exempt. Finally, a state manufactured for example, a typical home purchase by lower-value homes may have a housing trade association recommended loan, which is several times larger than particular need for the protections of the exempting manufactured home loans a $25,000 loan.69 HPML appraisal rules. During informal under $125,000. $25,000 threshold. A $25,000 outreach with the Agencies for this Discussion threshold is within the range of proposal, consumer advocates expressed thresholds recommended by proponents the view that requiring quality The Agencies are concerned that the of a smaller dollar loan exemption in appraisals for smaller dollar loans, and potential burden and expense of their comments on the 2012 Proposed requiring that they be provided to the imposing the HPML appraisal Rule, noted previously. In light of consumer, can help prevent the kinds of requirements on HPMLs of $25,000 or public comments, the Agencies appraisal fraud that can lead to less (that are not qualified mortgages) examined data submitted under the consumers borrowing more money than will outweigh potential consumer Home Mortgage Disclosure Act (HMDA), is supported by the equity in their home protection benefits in many cases. The 12 U.S.C. 2801 et seq., as one reference or taking out loans that are otherwise primary concern is the expense to the point for informing an exemption for consumer of an interior inspection not appropriate for them. smaller dollar loans. A subordinate-lien appraisal, which could be significant Regarding the appropriate threshold home improvement loan is one example and unduly burdensome to consumers for a smaller loan exemption, the of a loan type for which, in the of smaller loans. Thus, an appraisal comments varied widely. One Agencies’ view, an interior inspection requirement could hamper consumers’ individual commenter suggested that a appraisal might be burdensome on a use of smaller home equity loans for smaller dollar loan amount appropriate consumer without sufficient off-setting home improvements, educational or for an exemption from the final rule consumer protection or safety and medical expenses, and debt would be $10,000 or less. A comment soundness benefits.70 Based on HMDA consolidation.68 The interior inspection letter from a community bank indicated data, the Agencies found that in 2009, appraisal requirement also may pose an that a $25,000 home improvement loan additional cost for consumers who seek the mean loan size for subordinate-lien might not be an appropriate transaction to purchase lower-dollar homes (using home improvement loans that were type to cover in a final rule; this HPMLs that are not qualified HPMLs was $26,000 and the median commenter asserted that to avoid the loan size for this category of loans was mortgages); these tend to be LMI 71 burden and expense to the consumer of consumers who are less able to afford $17,000. In 2010, the mean loan size the HPML appraisal rules, a community extra financing costs than higher- was $24,900 for subordinate-lien home bank would have to lower its rates on income consumers. improvement loans that were HPMLs smaller loans to below HPML levels, In addition, the Agencies believe that and the median loan size for this which could make them unprofitable.66 the proposed exemption can facilitate category of loans was $19,000.72 In A national manufactured housing creditors’ ability to meet consumers’ 2011, the corresponding loan sizes for trade association asserted that the smaller dollar credit needs. This could subordinate-lien home improvement median price of a manufactured home is in turn promote the soundness of an $27,000 67 and that, relative to these institution’s operations by supporting 69 Based on HMDA data, for example, the mean loan size in 2011 for a first-lien, home purchase 66 HPML secured by a one- to four-family site-built This comment was filed before the Agencies 2013, the average price was $62,400. See http:// had finalized exemptions from the HPML appraisal property was $141,600; the median loan size for www.census.gov/construction/mhs/mhsindex.html. this category of loans was 109,000. See Robert B. rules, including the exemption for ‘‘qualified 68 The Agencies recognize that, absent an Avery, Neil Bhutta, Kenneth B. Brevoort, and Glenn mortgages.’’ See § 1026.35(c)(2); see also 2013 ATR exemption for smaller dollar loans from the HPML Final Rule (defining ‘‘qualified mortgage’’ at Canner, ‘‘The Mortgage Market in 2011: Highlights appraisal rules (which apply solely to closed-end from the Data Reported under the Home Mortgage § 1026.42(e)). loans), consumers might have the option of 67 The trade association’s estimate of median Disclosure Act,’’ Table 10, FR Bulletin, Vol. 98, no. borrowing a home equity line of credit (HELOC) 6 (Dec. 2012) http://www.federalreserve.gov/pubs/ manufactured home prices was based on the U.S. rather than a closed-end home equity loan (HEL) to _ Census Bureau’s 2009 American Housing Survey. bulletin/2012/PDF/2011 HMDA.pdf. avoid the costs of an appraisal. However, the 70 According to the 2011 American Housing Survey, Agencies are aware that HELs and HELOCs are not Consumer advocates have expressed concerns the median purchase price of all existing occupied in all cases readily interchangeable. HELs and to the Agencies that home improvement loans can manufactured homes is $30,000 (median value self- HELOCs are different product types used by be part of schemes that are abusive to consumers reported by respondents also is the same). See consumers for different purposes; they also present in some cases, such as when little or no work or http://factfinder2.census.gov/faces/tableservices/ different risks for creditors. As a consequence, they substandard work is performed. Whether an jsf/pages/productview.xhtml?pid=AHS_2011_ are priced differently and are subject to different appraisal requirement could be used to combat C13OO&prodType=table. However, this median sets of rules. See, e.g., § 1026.42(a)(1) these abuses is unclear. price reflects purchases that may have occurred as (implementing a statutory exemption for HELOCs 71 See Federal Financial Institutions Examination much as a decade earlier (see id. for acquisition from TILA’s ability-to-repay rules; see TILA Council (FFIEC), Home Mortgage Disclosure Act dates). The average price of manufactured homes sections 103(cc)(5) and 129C(a)(1), 15 U.S.C. (HMDA), http://www.ffiec.gov/Hmda/default.htm. purchased more recently is higher; as of March 1602(cc)(5) and 1639c(a)(1)). 72 See id.

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loans that were HPMLs were $26,500 increase in the threshold amount will be underwater or nearly underwater.75 In (mean) and $20,000 (median).73 rounded to the nearest $100 increment, addition, based upon HMDA data, more The Agencies recognize that loan and provides the following examples: if than half of subordinate liens originated types other than home improvement the percentage increase in the CPI–W in 2011 were at or below $25,000.76 loans would qualify for the proposed would result in a $950 increase in the Studies suggest that subordinate-lien exemption and that other data and threshold amount, the threshold amount loans and other forms of equity considerations may be relevant to will be increased by $1,000. However, if extraction can make consumers more determining the appropriate threshold. the percentage increase in the CPI–W likely to default, as they reduce the Question 41: The Agencies are would result in a $949 increase in the amount of equity in the home and raise proposing a threshold for a smaller threshold amount, the threshold amount LTVs.77 Receiving a written valuation dollar loan exemption of $25,000 or will be increased by $900. Finally, the might be helpful in informing a less, but request comment on whether a comment states that, from January 18, consumer’s decision to take the loan by lower or higher threshold is appropriate 2014, through December 31, 2014, the making the consumer better aware of and, if so, why. The Agencies strongly threshold amount is $25,000. how the value of the home compares to encourage commenters to offer data to Proposed comment 35(c)(2)(viii)–2 the amount that the consumer might support their view of an appropriate states that a transaction meets the borrow. threshold. condition for an exemption under Question 44: The Agencies seek Annual adjustment for inflation. The § 1026.35(c)(2)(viii) if the creditor makes comment on the risks that smaller dollar Agencies also propose to adjust the an extension of credit at consummation loans could lead to high LTV or threshold for inflation every year, based that is equal to or below the threshold ‘‘underwater’’ loans without the on the percentage increase of Consumer amount in effect at the time of knowledge of the consumer, including Price Index for Urban Wage Earners and consummation. whether these risks outweigh the Clerical Workers (CPI–W). Thus, under Proposed comment 35(c)(2)(viii)–3 burden to the consumer of added the proposal, if the CPI–W decreases in clarifies that a transaction does not meet appraisal costs and transaction time in an annual period, the percentage the condition for an exemption under covered transactions. See § 1026.35(c)(2) increase would be zero, and the dollar § 1026.35(c)(2)(viii) merely because it is for additional exemptions. amount threshold for the exemption used to satisfy and replace an existing Question 45: The Agencies also would not change. The Agencies note exempt loan, unless the amount of the request comment on protections that that inflation adjustments for other new extension of credit is equal to or may reduce these risks if loans of thresholds in Regulation Z are also $25,000 or less are generally exempt annual, and believe that consistency less than the applicable threshold amount. As an example, the comment from the HPML requirement for a across mortgage rules can facilitate USPAP-compliant appraisal with an compliance.74 assumes a closed-end loan that qualified for an exemption under interior inspection. Question 42: The Agencies request Question 46: In particular, the § 1026.35(c)(2)(viii) at consummation in comment on whether the threshold for Agencies request comment on whether year one is refinanced in year ten and a smaller dollar loan exemption should the exemption should be conditioned on that the new loan amount is greater than be adjusted periodically for inflation the creditor providing the consumer the threshold amount in effect in year and whether the period for adjustments with any estimate of the value of the ten. The comment states that, in these should be one year or some other home that the creditor relied on in circumstances, the creditor must period. making the credit decision.78 In comments 35(c)(2)(viii)–1, –2, and comply with all of the applicable requirements of § 1026.35(c) with –3, the Agencies propose to provide the 75 As of 2011, approximately 2.8 million homes threshold amount and additional respect to the year ten transaction if the had a value of less than $20,000. See 2011 guidance on applying it. Proposed original loan is satisfied and replaced by American Housing Survey, ‘‘Value, Purchase Price, comment 35(c)(2)(viii)–1 sets forth the the new loan, unless another exemption and Source of Down Payment—Owner Occupied from the requirements of § 1026.35(c) Units (NATIONAL),’’ available at http://fact applicable threshold to be updated finder2.census.gov/faces/tableservices/jsf/pages/ every year. This comment states that, for applies. The comment cross-references productview.xhtml?pid=AHS_2011_C13OO&prod purposes of § 1026.35(c)(2)(viii), the § 1026.35(c)(2) and § 1026.35(c)(4)(vii) Type=table. A recent study shows that at the end threshold amount in effect during a for other exemptions from the HPML of 2012, 10.4 million properties with a residential appraisal rules. mortgage (21.5 percent of residential properties particular one-year period is the amount with a mortgage) were in ‘‘negative equity’’ and an stated in comment 35(c)(2)(viii) for that Additional Condition: Providing a Copy additional 11.3 million had less than 20 percent period. The comment states that the of a Valuation to the Consumer. equity. This study also suggests that negative equity threshold amount is adjusted effective is greater with smaller home values (i.e., below Question 43: The Agencies seek $200,000). See Core Logic Press Release and January 1 of every year by the Negative Equity Report Q4 2012 (Mar. 19, 2013) percentage increase in the CPI–W that comment on whether certain conditions available at http://www.corelogic.com. was in effect on the preceding June 1. should be placed on the proposed 76 See FFIEC, HMDA, http://www.ffiec.gov/ The comment goes on to state that every exemption from the HPML appraisal Hmda/default.htm. year, the comment will be amended to requirements for loans of $25,000 or 77 See, e.g., Steven Laufer, ‘‘Equity Extraction and less. Mortgage Default,’’ Financial and Economics provide the threshold amount for the Discussion Series, Federal Reserve Board Division upcoming one-year period after the In particular, the Bureau has concerns of Research & Statistics and Monetary Affairs annual percentage change in the CPI–W that, as a result of borrowing so-called (2013–30), available at http://www.federal that was in effect on June 1 becomes ‘‘smaller’’ dollar home purchase or reserve.gov/pubs/feds/2013/201330/201330pap.pdf. home equity loans, some consumers See also, e.g., Michael LaCour-Little, California available. The comment states that any State University-Fullerton, Eric Rosenblatt and may be at risk of high LTVs, including Vincent Yao, Fannie Mae, ‘‘A Close Look at Recent 73 See id. LTVs that lead to going ‘‘underwater’’— Southern California Foreclosures,’’ (May 23, 2009), 74 See 12 CFR 1026.3(b) (exempting from owing more than their home is worth. available at http://www.areuea.org/conferences/ Regulation Z for loans over the applicable threshold Data suggest that many existing homes papers/download.phtml?id=2133. dollar amount, adjusted annually); 12 CFR 78 Subordinate-lien loans are not covered by 1026.32(a)(1)(ii) (setting the points and fees trigger are worth under $25,000 and that many ECOA’s requirement that the creditor provide the for high-cost mortgages, adjusted annually). consumers with lower value homes are Continued

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Question 47: To inform the Agencies’ 35(c)(6) Copy of Appraisals parties to provide general information, consideration of this condition, the 35(c)(6)(ii) Timing data, research results and other Agencies seek data from commenters on information that may inform the the extent to which creditors anticipate In the Final Rule, comment analysis of the benefits, costs, and originating HPMLs of $25,000 or less 35(c)(6)(ii)–2 provides that, for impacts. that are not qualified mortgages. appraisals prepared by the creditor’s internal appraisal staff, the date that a A. Potential Benefits and Costs to Question 48: The Agencies also seek Consumers and Covered Persons comment on the extent to which consumer receives a copy of an creditors typically obtain an estimate of appraisal as required under This analysis considers the benefits, the value of the home to calculate the § 1026.35(c)(6) is the date on which the costs, and impacts of the key provisions LTV or combined LTV (CLTV) appraisal is completed. The Agencies of the Interagency Appraisals associated with a transaction of $25,000 propose to delete this comment as Supplemental Proposal relative to the or less. The Agencies note that unnecessary, because the relevant baseline provided by existing law, FIRREA’s appraisal and evaluation timing requirement is based on when including the 2013 Interagency regulations apply to federally-regulated the creditor provides the appraisal, not Appraisals Final Rule and the Bureau’s 82 depositories, but that certain non- when the consumer receives it. See ATR Rules. depositories and depositories are not § 1026.35(c)(6)(i). The Bureau has relied on a variety of data sources to analyze the potential subject to FIRREA.79 VI. Bureau’s Dodd-Frank Act Section benefits, costs and impacts of the Question 49: In addition, the Agencies 80 1022(b)(2) Analysis proposed rule.83 However, in some request comment on whether and what In developing this supplemental instances, the requisite data are not guidance would be needed regarding the proposal, the Bureau has considered available or are quite limited. Data with type and quality of valuation that would potential benefits, costs, and impacts to which to quantify the benefits of the meet the condition (or, if the creditor consumers and covered persons.81 In proposed rule are particularly limited. obtained more than one valuation, addition, the Bureau has consulted, or As a result, portions of this analysis rely which valuation the creditor should offered to consult with HUD and the in part on general economic principles provide). Federal Trade Commission, including to provide a qualitative discussion of Question 50: The Agencies further regarding consistency with any the benefits, costs, and impacts of the request comment on whether other prudential, market, or systemic rule. limitations on the exemption might be objectives administered by such The primary source of data used in more appropriate. One alternative might agencies. The Bureau also held this analysis is data collected under the be to limit the exemption to loans that discussions with or solicited feedback Home Mortgage Disclosure Act (HMDA). do not bring the consumer’s CLTV over from the USDA, RHS, and VA regarding The empirical analysis generally uses a certain threshold. The Agencies seek the potential impacts of this 2011 data, including from the 4th comment on what an appropriate supplemental proposal on their loan quarter 2011 bank and thrift Call threshold would be and the valuation programs. Reports,84 the 4th quarter 2011 credit sources on which a creditor should In this supplemental proposal, the appropriately rely to calculate CLTV for Agencies are proposing to exempt three 82 The Bureau has discretion in future this alternative limitation on the additional classes of HPMLs from the rulemakings to choose the most appropriate exemption. baseline for that particular rulemaking. 2013 Interagency Appraisals Final Rule: 83 The estimates in this analysis are based upon Question 51: The Agencies request (1) Certain refinance HPMLs whose data and statistical analyses performed by the comment and data on whether adding proceeds are used exclusively to satisfy Bureau. To estimate counts and properties of these or similar criteria to qualify for a an existing first-lien loan and to pay for mortgages for entities that do not report under the smaller dollar exemption is an Home Mortgage Disclosure Act (HMDA), the Bureau closing costs; (2) new HPMLs that have has matched HMDA data to Call Report data and appropriate and adequate means for a principal amount of $25,000 or less National Mortgage Licensing System (NMLS) and addressing the concerns raised about (indexed to inflation); and (3) HPMLs has statistically projected estimated loan counts for high LTV lending. those depository institutions that do not report secured by existing manufactured these data either under HMDA or on the NCUA call Question 52: Finally, the Agencies homes but not land. As discussed in the report. The Bureau has projected originations of also seek comment and data on whether section-by-section analysis, the HPMLs in a similar fashion for depositories that do these conditions would likely result in Agencies also are seeking comment on not report HMDA. These projections use Poisson creditors of smaller dollar HPMLs (that regressions that estimate loan volumes as a function whether to place conditions on these of an institution’s total assets, employment, are not exempt as qualified mortgages) proposed exemptions that would ensure mortgage holdings, and geographic presence. deciding to forego the exemption and the consumer receives a copy of a home Neither HMDA nor the Call Report data have loan charge the consumer for an appraisal, level estimates of debt-to-income (DTI) ratios that, value estimate in transactions covered in some cases, determine whether a loan is a offer the consumer an open-end home by the exemptions. qualified mortgage. To estimate these figures, the equity product instead (which is not The Bureau will further consider the Bureau has matched the HMDA data to data on the covered by the HPML appraisal rules), benefits, costs and impacts of the historic-loan-performance (HLP) dataset provided or not offer a loan at all. proposed provisions and asks interested by the FHFA. This allows estimation of coefficients in a prohibit model to predict DTI using loan amount, consumer with a copy of valuations and appraisals 80 The analysis and views in this Part VI reflect income, and other variables. This model is then obtained in connection with an application. See 15 those of the Bureau only, and not necessarily those used to estimate DTI for loans in HMDA. U.S.C. 1691(e)(1), implemented by the 2013 ECOA of all of the Agencies. 84 Every national bank, State member bank, and Valuations Rule at 12 U.S.C. 1002.14 (eff. Jan. 18, 81 Specifically, Section 1022(b)(2)(A) calls for the insured nonmember bank is required by its primary 2014). Thus, the consumer of a subordinate-lien Bureau to consider the potential benefits and costs Federal regulator to file consolidated Reports of smaller dollar loan would not have a right to of a regulation to consumers and covered persons, Condition and Income, also known as Call Report receive valuations from the creditor under ECOA. including the potential reduction of access by data, for each quarter as of the close of business on 79 See OCC: 12 CFR 34.43 and 164.3; Board: 12 consumers to consumer financial products or the last day of each calendar quarter (the report CFR 225.63; FDIC: 12 CFR 323.3; NCUA: 12 CFR services; the impact on depository institutions and date). The specific reporting requirements depend 722.3. See also OCC, Board, FDIC, NCUA, credit unions with $10 billion or less in total assets upon the size of the bank and whether it has any Interagency Appraisal and Evaluation Guidelines, as described in section 1026 of the Act; and the foreign offices. For more information, see http:// App. A–5, 75 FR 77450, 77466–67 (Dec. 10, 2010). impact on consumers in rural areas. www2.fdic.gov/call_tfr_rpts/.

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union call reports from the NCUA, and by the Final Rule. The 2013 Interagency The Bureau seeks data from de-identified data from the National Appraisal Rule exempts all qualified commenters on this point. Accordingly, Mortgage Licensing System (NMLS) mortgages under the Bureau’s 2013 ATR the Bureau believes that almost all if not Mortgage Call Reports (MCR) 85 for the Final Rule. See § 1026.35(c)(2)(i).87 all of the loans that would be exempted 4th quarter of 2011 also were used to Therefore, the only additional loans that solely by virtue of the proposed identify financial institutions and their would be exempted by the proposed exemptions would be transactions characteristics. Most of the analysis rule would be HPMLs that are not originated by private lenders for their relies on a dataset that merges this qualified mortgages. Under special own portfolio, which are not eligible for depository institution financial data temporary provisions in the Bureau’s purchase, insurance, or guarantee by from Call Reports with the data from 2013 ATR Final Rule, any loans eligible HUD, USDA, VA, or GSEs,89 and which HMDA including HPML counts that are for purchase or guarantee by HUD, also are not qualified mortgages under created from the loan-level HMDA USDA, or VA (until they adopt their the general definition at § 1026.43(e)(2). dataset. The unit of observation in this own qualified mortgage rules or 2021, This definition includes the criteria in analysis is the entity: if there are whichever is earlier), or by GSEs (until § 1026.43(e)(2)(i)–(iii) discussed above multiple subsidiaries of a parent 2021), generally would be qualified as well as one additional criterion—a company, then their originations are mortgages. See § 1026.43(e)(4). This maximum debt-to-income ratio of 43 summed and revenues are total temporary qualified mortgage definition percent at § 1026.43(e)(2)(iv). revenues for all subsidiaries. incorporates the criteria in As discussed in the Section 1022(b) Other portions of the analysis rely on § 1026.43(e)(2)(i)–(iii)—a limit on the analysis in the 2013 Final Interagency property-level data regarding parcels mortgage term of 30 years, regular Appraisals Rule, the Bureau estimates, and their related financing from periodic payments without changes in based upon 2011 HMDA data, that there DataQuick 86 Tabulations of the payment amounts except as part of an were 26,000 HPMLs that would not DataQuick data are used for estimation adjustable-rate or step-rate product, no have been qualified mortgages, 12,000 of of the frequency of properties being sold negative amortization, no balloon which were purchase-money mortgages, within 180 days of a previous sale. In payments except in certain cases, and a 12,000 of which were first-lien addition, in analyzing alternatives for cap on points and with points and fees transactions that were refinancings, and the proposed exemption for certain of three percent. The Bureau believes 2,000 of which were closed-end refinances, the Bureau has considered that virtually all transactions that are subordinate lien mortgages that were data provided by FHFA and FHA eligible for purchase, insurance, or not part of a purchase transaction. For regarding valuation practices under guarantee by HUD, FHA, VA, or GSEs, purposes of this Section 1022(b) their streamlined refinance programs as applicable, would meet these criteria. analysis, the Bureau refers to these loans (and in particular regarding the The Bureau requests additional data as ‘‘covered loans.’’ The impact on frequency with which appraisals or from commenters on the extent to which creditors and consumers of the automated valuations are conducted). the three transaction types covered by proposed exemptions—which at most These FHFA and FHA data are this proposal may exceed the three would exempt some of these estimated described below in greater detail. percent cap on points and fees and 26,000 covered loans annually—is 1. Overview: Estimated Number of therefore not satisfy the definition of a discussed below. 88 The impact of the proposed Covered HPMLs qualified mortgage. exemptions on creditors and consumers To estimate the number of additional 87 This exemption implemented the statute, generally varies by exemption. It should HPMLs that could be exempted by the which excluded qualified mortgages from the scope be noted, however, that there are no proposal, it is first necessary to recall of the HPML appraisal requirements. 15 U.S.C. 1639h(f)(1). The Bureau notes, however, that in mandatory costs imposed on creditors the number of HPMLs that are covered order for qualified mortgages to be eligible for the as a result of any of the proposed qualified residential mortgage (QRM) exemption exemptions. Creditors are not required 85 The NMLS is a national registry of non- from Dodd-Frank Act risk retention requirements, a to utilize an exemption. Therefore, any depository financial institutions including mortgage USPAP appraisal would be required under rules loan originators. Portions of the registration proposed under other provisions of the Dodd-Frank associated burdens are also optional. information are public. The Mortgage Call Report Act. See Proposed Credit Retention Rule, 76 FR Moreover, voluntary compliance costs data are reported at the institution level and include 24090, 24125 (April 29, 2011) (QRM Proposal should be minimal: Creditors complying information on the number and dollar amount of ‘‘proposing that a QRM be supported by a written with the 2013 Interagency Appraisals loans originated, and the number and dollar amount appraisal that conforms to generally accepted of loans brokered. The Bureau noted in its summer appraisal standards, as evidenced by [USPAP]’’ and 2012 mortgage proposals that it sought to obtain other specified laws). fees. See Amendments to the 2013 Mortgage Rules additional data to supplement its consideration of 88 In the absence of data indicating otherwise, the under the Equal Credit Opportunity Act (Regulation the rulemakings, including additional data from the Bureau believes few if any streamlined refinance B), Real Estate Settlement Procedures Act NMLS and the NMLS Mortgage Call Report, loan HPMLs would fail to meet qualified mortgage (Regulation X), and the Truth in Lending Act file extracts from various lenders, and data from the definitions by virtue of having points and fees in (Regulation Z) (proposed rule issued June 24, 2013), pilot phases of the National Mortgage Database. excess of three percent. Indeed, points and fees on available at http://files.consumerfinance.gov/f/ _ _ _ Each of these data sources was not necessarily streamlined refinances may be lower than other 201306 cfpb proposed-modifications mortgage- relevant to each of the rulemakings. The Bureau mortgage loans because of the reduced complexity rules.pdf. Finally, for smaller dollar closed-end used the additional data from NMLS and NMLS in refinance transactions generally and the further dwelling-secured transactions, such as home equity Mortgage Call Report data to better corroborate its reduced complexity of the streamlined origination loans up to $25,000, the Bureau has not identified estimate the contours of the non-depository process. In addition, for HPMLs secured by existing data indicating that in the current market a segment of the mortgage market. The Bureau has manufactured homes, the Bureau believes that the significant number of these transactions have points received loan file extracts from three lenders, but points and fees threshold for qualified mortgages and fees at the elevated levels for smaller loans in at this point, the data from one lender is not usable would be less likely to be exceeded, insofar as these the 2013 ATR Final Rule. See § 1026.43(e)(3)(i)(C)– and the data from the other two is not sufficiently transactions are less likely to include loan (E) (setting points and fees caps of eight percent for standardized nor representative to inform originator compensation to dealers or their loans up to $12,500, $1,000 for loans from $12,500 consideration of the Final Rule or this supplemental employees, whose business focuses more on new up to $20,000, and five percent for loans from proposal. Additionally, the Bureau has thus far not manufactured homes. (In any event, the Bureau also $20,000 up to $60,000). yet received data from the National Mortgage has proposed comment 32(b)(1)(ii)–5 to the 2013 89 Focusing on whether the loan is insured or Database pilot phases. ATR Final Rule to clarify that the sales price for guaranteed, instead of eligible for insurance or 86 DataQuick is a database of property manufactured homes does not include points and guarantee, is conservative; the qualified mortgage characteristics on more than 120 million properties fees, and that payments of the sales commission to exemption, at § 1026.43(e)(4), is defined in terms of and 250 million property transactions. dealer employees also does not count as points and eligibility.

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Final Rule should be able to incorporate appraisal. For an alternative valuation refinances. In the current market, cash- these exemptions into their method such as an AVM, the Bureau out refinances have become less underwriting process and personnel believes the cost may be as little as $5 common.92 In addition, when the training with little additional cost. and the time to obtain it may be only a consumer’s existing loan is a ‘‘non- few minutes.91 The Bureau seeks 2. Streamlined Refinances standard’’ loan, creditors may seek to comment on the costs, benefits, and qualify for the exemption from the The Agencies are proposing to exempt impacts of conditioning the proposed ability-to-repay rules of the 2013 ATR first-lien refinances that satisfy certain exemption on the requirement that the Final Rule for the refinance of a ‘‘non- restrictions, many of which are creditor obtain an estimate of value and standard’’ mortgage into a ‘‘standard’’ commonly referred to as ‘‘streamlined provide a copy of it to the consumer. mortgage. To qualify, the ‘‘standard’’ refinances.’’ As discussed in the The Bureau also seeks data on the refinance must involve no cash out to preceding section-by-section analysis, accuracy of AVMs relative to full the consumer: the proceeds may be used the Agencies are seeking comment on interior appraisals. only to pay off the existing principal whether this proposed exemption Discussion of Proposed Exemption obligation and for closing costs. See should be subject to the condition that In practice, the refinances eligible for § 1026.43(d)(1)(ii)(E). Thus, the Bureau the creditor obtain an estimate of the believes that the most reasonable value of the dwelling that will secure the proposed exemption would fall into two categories. The first category is assumption is that lenders are unlikely the refinancing and provide a copy of it to originate private cash-out HPML to the consumer before consummation. refinances held in the portfolios of private creditors or sold to a private refinance mortgages that are not Background on Possible Condition on investor that satisfy all of the criteria for qualified mortgages. Moreover, the Proposed Exemption an exempt refinance under proposed proposed exemption from this rule would reduce costs of the loan if an Before discussing the proposed § 1026.35(c)(2)(vii). The second category appraisal is not otherwise required, and exemption in detail, it would be useful is refinances under GSE, FHA, USDA, or therefore create an additional economic to first discuss the request for comment VA programs that satisfy the proposed incentive to refinance without taking on conditioning the exemption on criteria. The Bureau believes that cash out. From the 2013 Interagency obtaining and providing a home value virtually all transactions in the second estimate to the consumer. This category (under any public refinance Appraisals Final Rule, Section 1022(b) condition would apply to any loan that programs) already would be exempted Analysis, 78 FR 10419, the Bureau from this rule by virtue of being estimates that roughly 12,000 refinances is otherwise eligible for the streamlined 93 refinance exemption and that is not qualified mortgages under § 1043(e)(4). were covered loans. Because the exempt under another provision of the As discussed in the section-by-section Bureau does not estimate that non- Final Rule, such as the exemption for analysis above, however, under the 2013 qualified mortgages will be originated qualified mortgages, § 1026.35(c)(2)(i). ATR Final Rule streamlined refinances under public programs, the Bureau Other types of valuations 90 that are under GSE programs originated in or estimates that these 12,000 covered offered in the marketplace typically after 2021 would not be qualified loans would be private refinances. Some include exterior appraisals, automated mortgages if they do not meet all of the of these private refinances would be valuation model (AVM) reports, and general criteria for a qualified mortgage ineligible for the proposed exemption broker-price opinions, among others. in the 2013 ATR Final Rule, including due to having a different holder/ Alternative forms of valuation might not debt-to-income limits. See guarantor, having negative amortization be as accurate as a USPAP- and FIRREA- § 1026.43(e)(2). or interest-only features, or having compliant appraisal with an interior Private Refinances balloon payments. The Bureau seeks inspection; for example, they might data from commenters on how many of Refinances originated by private implicitly assume an interior of average these private refinance loans would creditors that are not eligible under quality. Nonetheless, the Bureau have these features. However, the public programs still could satisfy the believes a valuation provides the Bureau believes that the vast majority of criteria in the proposed exemption. The consumer with more information with private refinance loans will not have Bureau believes that the condition in which to make decisions than no these features. Accordingly, the Bureau the proposed exemption of no cash-out valuation. Obviously, more accurate believes this is a reasonable estimate of except for closing costs would be valuations (including valuations that are the number of refinance loans that satisfied in most private HPML more current and based upon more would be covered by the proposed exemption. rigorous, validated methods) provide 91 Based upon research in anticipation of this more meaningful information than less proposal, the Bureau has not identified easily- accurate valuations. However, the cost accessible public information on current pricing 92 See Fannie Mae Annual Report 2011, at 156, of providing this information also must practices of AVM providers. The Bureau notes, and Fannie Mae Annual Report 2012, at 127 however, that one GSE charges a flat fee of $20 per (reporting that ‘‘cash out’’ refinances have been be considered, particularly in a loan for a report that includes an estimated home decreasing from 2009–2012, including for the streamlined refinance transaction value. This report is primarily a risk assessment conventional business, from 27% to 20% to 17% to because the consumer already owns the tool to assist loan originators (http:// 14% in these four years, just as other refinances home and thus the appraisal would not www.loanprospector.com/about/#howmuch). It have been increasing). See also American Housing provides many features, including a no-fee home Survey (2011), Table C–14b–OO (approximately inform a home purchase decision. The estimate (http://www.freddiemac.com/hve/ 14% of homes with a refinance had obtained the Bureau estimates the cost of a full faq.html#3). Given that the home estimate is not refinance for purposes of receiving cash), available appraisal with an interior inspection to listed on the report’s Web page (http:// at http://factfinder2.census.gov/faces/tableservices/ be approximately $350 in addition to www.loanprospector.com/about/#howmuch), the jsf/pages/productview.xhtml?pid=AHS_2011_ Bureau assumes that the value of the estimate itself C14BOO&prodType=table. the time required to obtain the is relatively minor, in particular far less than $20 93 The actual number may be lower, however, to per loan. Even if the estimate itself is not available the extent any of these refinances do not meet the 90 In this analysis under Section 1022(b) of the for a much lower price than $20, the price additional restriction in the proposed exemption— Dodd-Frank Act, the Bureau uses the term introduces competitive pressure that constrains that the owner or guarantor of the new refinance ‘‘valuation’’ generically to refer to any estimate of other AVM providers from charging more for their loan is the same as the owner or guarantor of the value of the dwelling. services. existing loan being refinanced.

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

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The Bureau is uncertain, however, Of course, in a refinance transaction, applicable law is well below the cost of whether the proposed exemption would a consumer having better home value a USPAP-compliant appraisal. The make it more likely that the transaction information through an appraisal will Bureau seeks comment on these is consummated for these consumers. not affect the consumer’s decision of assumptions. As noted above, when an appraisal is whether to buy the home in the first As discussed in the section-by-section not conducted, an evaluation is place. Nonetheless, when considering a analysis above, the Agencies also are generally required under FIRREA refinance loan, the appraisal can inform requesting comment on whether regulations for depository institutions. the consumer with respect to options to consumers would benefit from a The Bureau does not believe, and had pursue such as those listed above, condition on the exemption relating to not identified any data indicating, that which could be more beneficial or the amount of transaction costs that can an appraisal is any more or less likely appropriate for the consumer than be charged. One of the principal reasons than an evaluation to cause a refinancing the loan.102 why an appraisal may be less important transaction to fail (for example because For example, if the appraisal to a consumer in a streamlined the valuation exceeds the price, or establishes that the value of the refinance transaction is that, except for causes the loan to exceed any LTV dwelling is higher than otherwise closing costs that may be financed by limits). Accordingly, the Bureau estimated, the consumer’s cost of credit the loan, the consumer is not losing requests data from commenters on could decrease and the consumer might equity. This rationale appears to be whether the exemption would increase even be able to borrow at rates below strongest if the exemption cannot be the likelihood of consummation for HPML thresholds. On the other hand, if used in refinance transactions that also refinances eligible for the exemption. If an appraisal establishes that the value of finance high transaction costs, the exemption made consummation of the dwelling is lower than otherwise especially given that consumers can the transaction more likely for these estimated, the consumer might be better engage in serial refinancing. Serial consumers, the Bureau believes this positioned to consider alternative refinancing at high points and fees that would provide a benefit to these options discussed above. The new are financed can reduce a consumer’s consumers whenever the refinance appraisal also may alert the consumer, equity as much if not more than a cash- transaction is beneficial for the in some cases, to flaws or even to an out refinance. inflated valuation in the original consumer. 3. Smaller Dollar Loans As discussed in the Bureau’s analysis appraisal used to purchase the home. under Section 1022 in the 2013 The cost to consumers of the As discussed in the section-by-section Interagency Appraisals Final Rule, in proposed exemption therefore would be analysis above, the Agencies are general, consumers who are borrowing the loss of these potential benefits for proposing to exempt HPMLs secured by HPMLs that are covered loans and who the number of covered loans that would new loans with principal amounts of would not otherwise have appraisals be newly-exempted by the proposed $25,000 or less (indexed to inflation) conducted for the transaction could exemption and which would not have from the HPML appraisal rules, while benefit from an appraisal being otherwise included an appraisal. As seeking comment on whether the conducted.100 Benefits of appraisals in noted above, the Bureau estimates this threshold for the exemption should be residential mortgage transactions would be very few transactions. different. The Agencies also are seeking generally can range from having a Nonetheless, to mitigate the loss of comment on whether to condition this valuation that better accounts for the potential benefits to consumers arising exemption on the creditor providing the interior and exterior of their particular from not having an appraisal in an consumer with a copy of a valuation, as property, to having information that can exempt refinance transaction, the described in more detail in the section- be used to evaluate insurance coverage Agencies are seeking comment on by-section analysis above. The Bureau levels and real estate tax valuations, to whether to condition the proposed estimates the number of transactions being better informed as to the value of exemption on the creditor obtaining and potentially eligible for this exemption as their property before making a final providing to the consumer an follows: HMDA data for 2011 indicates decision to enter into a new transaction, alternative valuation as a condition of there were approximately 25,000 among others. Consumers who are better the loan being eligible for the proposed HPMLs at or below $25,000 that were informed before consummating a streamlined refinance exemption. The not insured or guaranteed by streamlined refinance loan would be Bureau believes that, in general, a government agencies or purchased by better able to assess their alternatives, consumer’s receipt of a home value the GSEs (so, not qualified mortgages on which can include the following, among estimate other than an appraisal can that basis). Of these, the Bureau others: mitigate the information disadvantage estimates that 4,800 were HPMLs with • Remaining in the home with the when an appraisal is not obtained. More debt-to-income above 43 percent (so existing loan; specifically, the Bureau believes that the they would not meet the more general • Refinancing through a different cost of getting an AVM estimate is definition of a qualified mortgage). program at a better rate or other minimal and that it is already done as Accordingly, the Bureau estimates that improved terms (such as not requiring a standard business practice in many approximately 4,800 covered loans are mortgage insurance); 101 cases. Also, the Bureau believes that the originated annually in an amount up to 103 • Seeking a modification; cost of a broker price opinion (BPO) or $25,000. Of these estimated 4,800 • Selling the home; or any other reasonable valuation method covered loans at or below $25,000, the • Negotiating with the servicer to that would be permitted under Bureau estimates that the types most provide the deed-in-lieu without 102 Indeed, unlike in a home purchase 103 As discussed above, the Bureau does not defaulting, among others. transaction, in a streamlined refinance transaction believe that a significant number of smaller dollar (unless the originating creditor on the new loan is HPML would exceed the points and fees threshold 100 Section 1022(b) Analysis, 78 FR 10417–18. the same as on the existing loan), the consumer has in the 2013 ATR Final Rule, but is requesting data 101 The proposed exemption already excludes an absolute three-day right of rescission under from commenters on this issue. If a significant loans with terms that are generally viewed as Regulation Z, § 1026.23. This right underscores the number of smaller dollar HPMLs did exceed that reducing consumer protection, such as negative need for consumers to be informed prior to its threshold, then the number of loans eligible for the amortization, interest-only, or balloons. expiration. proposed exemption would increase.

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affected by this proposed exemption, in estimate of some type. In first lien appraisal in the original purchase that they would be unlikely to include transactions, providing copies of transaction. Nonetheless, having an appraisals if the exemption applies, valuations is already required under the appraisal could provide a particularly would be home improvement loans, 2013 ECOA Valuations Rule, so the significant benefit to those consumers subordinate lien transactions not for condition would impose no added who are informed by the appraisal that home improvement purposes, and burden. See 12 CFR 1002.14(a)(1). For they have significantly less equity in transactions secured by manufactured subordinate lien transactions, the cost of their home than they realize. A smaller homes. The HPML appraisal rules could such a condition would not be more dollar mortgage could push these lead to significant changes in valuation than the small cost of copying and consumers even further into negative methods used for these types of loans. mailing a valuation, or scanning and equity, without the consumers realizing For example, current practice includes transmitting it electronically.106 The it. This effect is even more pronounced appraisals for only an estimated five Bureau seeks data from commenters on for consumers whose homes have lower percent of subordinate lien transactions the extent to which depository value. All else equal, a $25,000 loan will as explained in the 2013 Interagency institutions, credit unions, and non- pose greater risk to a consumer whose Appraisals Final Rule.104 depository institutions obtain appraisals home is worth $20,000, than to a or other types of valuations in these a. Covered Persons consumer whose house is worth transactions. $200,000. According to a periodic Creditors originating smaller dollar government survey, as of 2011 more covered loans would experience some b. Consumers than 2.75 million homes were worth reduced burden as a result of the For consumers who seek to borrow proposed exemption for HPMLs of smaller dollar loans, such as home less than $20,000, including a greater $25,000 or less. If the proposed improvement loans and other proportion of homes whose owners exemption were adopted, these loans subordinate lien transactions, and who were below the poverty level or 108 would not be subject to the estimated are not able to obtain a qualified elderly. In addition, according to a per-loan costs described in the 2013 mortgage, the proposed exemption for recent study, as of the end of 2012, 10.4 Interagency Appraisals Finale Rule.105 smaller dollar HPMLs (at or less than million properties with a residential For these transactions, creditors would $25,000) would provide some benefits. mortgage were in ‘‘negative equity’’ and not need to spend time or resources on Industry practice prior to an additional 11.3 million had less than complying with the requirements in the implementation of the 2013 Final Rule 20 percent equity.109 In addition, some HPML appraisal rules: Checking for suggests that appraisals are not recent studies suggest that subordinate applicability of the second appraisal otherwise frequently done for home liens can increase the risk of default, as requirement on a flipped property (in a improvement and subordinate lien they reduce the amount of equity in the purchase transaction) and paying for transactions.107 Thus, by not requiring home.110 Moreover, based upon HMDA that appraisal when the requirement an appraisal, the cost of which typically applies, obtaining and reviewing the would be passed on to consumers, the 108 See 2011 American Housing Survey, ‘‘Value, appraisals conducted for conformity to proposed exemption could facilitate Purchase Price, and Source of Down Payment— Owner Occupied Units (NATIONAL),’’ C–13–OO, this rule, providing a copy of the access to smaller dollar HPMLs that are available at http://factfinder2.census.gov/faces/ required disclosure, and providing not otherwise exempt from the HPML tableservices/jsf/pages/productview.xhtml? copies of these appraisals to applicants. appraisal rules. Without an exemption, pid=AHS_2011_C13OO&prodType=table. In Creditors therefore may find it relatively some consumers may try to avoid the addition, in seven metropolitan statistical areas, as of the end 2012 the median home value was less easier to originate HPMLs that are cost of an appraisal by either not than $100,000. See National Association of eligible for this exemption, for example entering into a smaller dollar HPML Realtors® Median Sales Price of Existing Single- if they are not qualified mortgages. (unless it is otherwise exempt from the Family Homes for Metropolitan Statistical Areas Q4 Even if the proposed exemption rules, such as a qualified mortgage) or 2012, available at http://www.realtor.org/sites/ default/files/reports/2013/embargoes/hai-metro-2- reduces the number of interior pursuing an alternative source of credit 11-asdlp/metro-home-prices-q4-2012-single-family- inspection appraisals conducted for that is not subject to the rules, such as 2013-02-11.pdf. smaller dollar HPMLs, the overall an open-end home equity line of credit. 109 Core Logic Press Release and Negative Equity impact of this proposed exemption on Under the proposed exemption, Report Q4 2012 (Mar. 19, 2013), available at creditors is likely minimal for most consumers in smaller dollar HPMLs http://www.corelogic.com. (that are not otherwise exempt) would 110 See Steven Laufer, ‘‘Equity Extraction and creditors given that only 4,800 such Mortgage Default,’’ Financial and Economics loans were made among 12,000 lose the benefits of the Final Rule, Discussion Series Federal Reserve Board Division of creditors. however. As discussed in the Bureau’s Research & Statistics and Monetary Affairs (2013– Finally, the Bureau does not estimate analysis under Section 1022 in the Final 30), available at http://www.federalreserve.gov/ that the burden reduced by the Rule, in general, consumers who are pubs/feds/2013/201330/201330pap.pdf. The study concludes, at 2, that ‘‘through cash-out refinances, exemption would be significantly borrowing HPMLs could benefit from an second mortgages and home equity lines of credit, lowered by conditioning the exemption appraisal. For HPMLs that are not . . . homeowners [in the sample studied] had on the creditor providing the consumer purchase transactions, the general extracted much of the equity created by the rising a copy of a valuation that the creditor benefits discussed above may be value of their homes. As a result, their loan-to-value (LTV) ratios were on average more than 50 relied on in extending credit. As noted relatively less valuable to the consumer percentage points higher than they would have above, for depository institutions and in some cases, given the lower size of been without this additional borrowing and the credit unions, FIRREA regulations the loan and also the likelihood that the majority had mortgage balances that exceeded the generally require evaluations when an consumer already would have had an value of their homes.’’). See also Michael LaCour- Little, California State University-Fullerton, Eric appraisal is not obtained because the Rosenblatt and Vincent Yao, Fannie Mae, ‘‘A Close transaction amount is below $250,000; 106 Of course, this cost also would not be more Look at Recent Southern California Foreclosures,’’ thus, the Bureau estimates that most than the cost of complying with the Final Rule (May 23, 2009) at 17 (finding that, based upon a transactions of $25,000 involve a home without the proposed exemption, as the Final Rule sample of homes, the existence of a subordinate lien requires providing a copy of an appraisal to the is correlated more strongly with default than consumer in covered transactions. See whether the home was purchased in 2005–06 104 See 78 FR 10419. § 1026.35(c)(6). period), available at http://www.areuea.org/ 105 See Section 1022(b) analysis, 78 FR 10418–21. 107 78 FR 10419. conferences/papers/download.phtml?id=2133.

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data, more than half of subordinate liens 4. Proposed Approach to Transactions under the proposed smaller dollar originated in 2011 were at or below Secured by Manufactured Homes exemption discussed above. For $25,000. As discussed in the section-by-section purposes of this discussion, however, Therefore, smaller dollar loans of analysis above, the market for the Bureau analyzes all manufactured $25,000 or less could still pose manufactured home loans can be home loans regardless of amount. significant risks to consumers who own classified according to collateral type: Transactions financing the purchase these lower-value homes or other homes New home only, new home and land, of a new manufactured home. Census that are highly leveraged, consuming existing home only, and existing home data reports shipment of approximately most or all of any remaining equity. In and land. The proposal seeks comment 51,000 new manufactured homes in some of those cases, knowledge of the on whether changes are warranted to the 2011, with approximately 17 percent current value of the home could prevent exemption adopted 2013 Interagency titled as real estate.114 For purposes of consumers from unwittingly using up Appraisals Final Rules regarding this analysis, the Bureau assumes that too much equity in their homes or going transactions secured by new homes. all of these homes were used as underwater or going further underwater, Such changes may include narrowing principal dwellings for consumers and which could make it more difficult for the exemption to apply only to that all of these purchases were them to sell or refinance in the future. transactions secured by a new financed. In addition, the Bureau The Bureau therefore seeks comment on manufactured home but not land. The believes that the proportion of homes the extent to which smaller dollar loans proposal also seeks comment on titled as real estate is a reasonable of $25,000 or less are nonetheless higher conditioning the exemption for estimate of the number of new LTV loans, for example resulting in transactions secured by new manufactured home purchase combined loan-to-value of 90 percent or manufactured homes on obtaining and transactions that are secured in part by more.111 In addition, the section-by- providing the consumer with a home land.115 The Bureau therefore estimates section analysis above seeks comment value estimate other than a USPAP- and that based upon 2011 data on whether the exemption should FIRREA-compliant appraisal with an approximately 42,400 new include a condition—such as providing interior inspection prior to manufactured home sales were financed the consumer with a copy of a valuation consummation. (The types of estimates by chattel loans (which can include relied upon by the creditor in the that might satisfy such a condition are homes located on leased land such as in transaction; 112 the purpose of the discussed in the section-by-section trailer parks and other land-lease condition would be to prevent analysis above.) As also discussed in the communities) and 8,600 transactions consumers from entering into loans that section-by-section analysis above, the were secured by new manufactured unwittingly use up most or all of the Agencies are proposing to exempt homes and land. Applying a factor of equity in their homes and which also HPMLs secured by existing approximately eight percent, the Bureau could impede their ability to refinance manufactured homes, and are seeking estimates that, of these, almost 3,400 or sell their home in the future. comment on conditioning this proposed were chattel HPMLs that were not In summary, the cost of the proposed exemption on obtaining and providing a qualified mortgages, and almost 700 exemption to consumers would be the home value estimate to the consumer. were land and home-secured HPMLs loss of benefits generally associated The Agencies’ proposed exemption for that were not qualified mortgages.116 with appraisals for the number of existing manufactured homes would not Transactions financing the purchase covered loans that would be newly- apply when land provides security; as of an existing manufactured home. exempted by the proposed exemption indicated in the section-by-section Census data also reports an estimated for smaller dollar loans—that is, for an analysis above, the Agencies believe 369,000 move-ins to owner-occupied estimated 4,800 loans annually, that USPAP-compliant appraisals are manufactured homes in 2011.117 As assuming that none of these loans feasible and commonly performed for noted above, approximately 51,000 new currently get full interior appraisals. these transactions. manufactured homes were shipped. This cost could be mitigated by To assess the impact of the proposal’s Therefore, the Bureau estimates that conditioning the exemption in a manner provisions concerning manufactured approximately 318,000 existing that reduces the risk the consumer housing, it is necessary to estimate the manufactured homes were purchased in would unwitting borrow an amount that volume of transactions potentially 2011. Again, the Bureau assumes that all consumes available equity in the home. affected, by collateral type. The of these purchases were financed. Bureau’s analysis of 2011 HMDA data, Further, based upon a review of nearly 111 See, e.g., GAO Report GAO/GCD–98–169, matched with the historic loan High Loan-to-Value Lending—Information on Loans performance (HLP) data from the FHFA, 114 See Cost & Size Comparisons: New Manufactured Homes, available at http:// Exceeding Home Value (Aug. 1998), available at indicates that roughly eight percent of http://www.gao.gov/assets/230/226291.pdf at 2 www.census.gov/construction/mhs/pdf/ (‘‘data provided by a lender responsible for about all manufactured home purchases were sitebuiltvsmh.pdf. one-third of HLTV lending showed that, in 1997, covered loans: HPMLs that were not 115 Only a few states provide for treating HLTV loans averaged about $30,000. The data also qualified mortgages because the debt-to- manufactured homes sited on leased land as real showed that the average contract interest rate was income ratio exceeded 43 percent and property. between 13 and 14 percent, with an average loan 116 This estimate would increase to the extent any term of 25 years. The average combined the loan was not insured, guaranteed, or other manufactured home purchase HPMLs would indebtedness of the first mortgage and the HLTV purchased by a federal government not be qualified mortgages solely because they loan represented about 110 percent of the agency or GSE.113 Because HMDA data exceed caps on points and fees in the Bureau’s ATR borrower’s property value, although in some cases does not differentiate between Rule. As noted in the footnote at the outset of the the combined loans reached or exceeded 125 Section 1022 analysis above, however, the Bureau percent of value.’’). transactions with each of the relevant believes this is less likely based upon existing and 112 The consumer would not otherwise receive a collateral types, including new versus potentially forthcoming clarifications on this issue. copy of valuations for a subordinate lien transaction used, the Bureau is applying this ratio 117 The Census report refers to these homes as because the requirement to provide the consumer to each of the transaction types to derive ‘‘manufactured/mobile homes’’, but the Census with a copy of valuations obtained in connection definitions note that all of these homes are ‘‘HUD with an application for credit under Regulation B, the estimated number of covered loans Code homes’’, which is the fundamental 12 CFR 1002.14(a), does not apply to subordinate- below. Manufactured home loans of characteristic of what are currently referred to as lien loans. $25,000 or less also would be exempt manufactured homes.

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two decades of Census data on NADAGuides.com Value Report 120 or obtained in outreach and research from shipments of new manufactured homes, other methods discussed in more detail a large manufactured housing lender the Bureau estimates that approximately in the section-by-section analysis. The and a large bank indicate that it is one third of the existing manufactured proposal also seeks comment on common to obtain at least an appraisal homes are titled as real property. maintaining the exemption for of the land in these transactions. The Therefore, the Bureau estimates that transactions secured by both new Bureau believes that the cost of a approximately 105,000 purchases of manufactured homes and land but USPAP-complaint appraisal of a vacant existing manufactured homes also conditioning that exemption on use of lot is unlikely to cost more than the involved the acquisition of land which an alternative valuation method. average $350 cost for a USPAP- provided security for the purchase If the exemption were narrowed to no compliant appraisal of a home. loan,118 while approximately 213,000 longer cover HPMLs secured by both a Therefore, based upon available purchases were secured only by the new manufactured home and land, the information, the Bureau does not manufactured home (chattel loans). creditor would need to obtain USPAP- believe that narrowing the exemption to Applying the same eight percent factor and FIRREA-compliant appraisal with exclude these transactions is likely to for other purchases discussed above, of an interior inspection in these lead to significant new costs for these, approximately 17,000 were transactions. The Bureau believes the creditors. chattel HPMLs that were not qualified cost of this appraisal is not likely to be If the exemption were conditioned on mortgages, and approximately 8,400 significantly higher than the cost of obtaining an estimate of the value of the were land- and home-secured HPMLs current valuation practices in these new manufactured home from a that were not qualified mortgages. As transactions. As discussed in the published cost service (such as a NADA with new homes, this estimate would section-by-section analysis above, the Guide Valuation Report or a report from increase to the extent that any other Bureau understands that GSE, HUD the Marshall & Swift Cost Estimator) manufactured home purchase HPMLs Title II, USDA, and VA manufactured and providing this to the consumer, the would not be qualified mortgages solely housing finance programs all require costs likely would be minimal. The because they exceed caps on points and USPAP-compliant appraisals on Bureau has received information in fees in the Bureau’s 2013 ATR Rule. standard GSE forms for transactions outreach indicating that annual Refinances and home improvement secured by manufactured homes and subscriptions to the NADA Guide may loans on existing manufactured homes. land, and that thousands of these cost between $100 and $200 for an The Bureau’s analysis of 2011 HMDA transactions occur each year in these unlimited number of value reports, data, matched with the HLP data from programs, some at HPML rates. Even if while similar unlimited-use the FHFA, indicates that, a creditor’s appraisal does not meet the subscriptions to the Marshall & Swift approximately, for every four covered appraisal standards for these programs service may cost approximately 123 purchase manufactured housing loans, (for example, GSE requirements $1,200. In addition, for transactions there is one refinance or home mandating a minimum number of secured by both a new manufactured improvement loan. Applying this factor manufactured homes be used as home and land, if this condition also of 4:1, approximately 4,300 (17,000/4) comparables), it still may comply with required obtaining an appraisal of the 121 were chattel HPMLs that were not USPAP. In addition, based upon land, costs are unlikely to increase in qualified mortgages, and approximately further research, the Bureau has many of these transactions because 2,100 (8,400/4) were land and home- confirmed that USPAP appraisals of information obtained in outreach suggests appraisals of the land already secured HPMLs that were not qualified manufactured homes and land cost are a common practice in these mortgages.119 approximately the same on average as USPAP appraisals of other types of transactions. The Bureau seeks a. Covered Persons homes and land titled together as real comment on the frequency with which Transactions Secured by New property.122 Moreover, information the type of valuation information is Manufactured Homes described in this paragraph is obtained 120 A sample of this report, as noted in the in a new manufactured home The proposal seeks comment on section-by-section analysis, is available at http:// transaction. narrowing the exemption adopted in the www.nadaguides.com/Manufactured-Homes/ Finally, the proposal requests Final Rule to cover only transactions images/forms/MHOnlineSample.pdf. comment on whether any condition on 121 Outreach to a large appraiser trade association secured solely by a new manufactured indicates that between 1998 and 2007 nearly 10,000 the exemption also should call for the home but not land. The proposal also individuals took their in-person or online seminars consumer to receive a copy of the seeks comment on conditioning the on appraising manufactured housing. The current valuation obtained before exemption for those transactions on version of these seminar materials, as well as consummation. The Bureau does not outreach to state appraisal boards and related providing to the consumer an estimate research, confirms that when necessary USPAP believe this aspect of any condition on of the replacement cost of the new appraisals can use non-manufactured homes as an exemption would add significant manufactured home, including any comparables, making adjustments where needed. appropriate adjustments, using a third- Therefore, the Bureau does not believe that for fees that are the same or lower than single- party published cost service such as the appraiser availability and appraisal feasibility family appraisals. should affect its cost estimates here. 123 The average cost per-loan would therefore 122 For example, a survey in Texas—the state with depending on the covered person’s total level of 118 According to data provided by HUD for the the highest number of new manufactured home lending activity. This cost also could increase to the fiscal year 2011, approximately 5,900 existing purchases—estimated that manufactured home extent the condition were to require the creditor to manufactured homes were purchased together with appraisals cost approximately the same as single- gather information necessary to make adjustments land under the FHA Title II program. family appraisals. See Texas A&M Univ. Real Estate to the estimate from the published cost service, 119 These estimates would increase to the extent Center, Univ. of Chicago, and Univ. of Houston, such as information on the land lease community any other manufactured home purchase HPMLs ‘‘The Texas Appraisers and Appraisal Management or location, or information necessary to confirm the would not be qualified mortgages solely because Company Survey’’ (Oct. 2012) at Table 2 (indicating accuracy of the estimate from the published cost they exceed caps on points and fees in the Bureau’s that manufactured home appraisal costs cluster in service, such as verifying by interior inspection that ATR Rule. As noted in the footnote at the outset of the range of $351–400). In addition, in all nine the proper model was sited. The extent of cost the Section 1022 analysis above, however, the Veterans Administration (VA) regions, VA appraiser increase generated by these steps would depend on Bureau believes this is less likely based proposed fee schedules either do not separately break out the how often they are performed under existing clarifications on this issue. cost of manufactured home appraisals or provide practice.

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burden. For first-lien transactions, While the Bureau believes that this is a without the consumer’s knowledge.127 delivery already would be required reasonable assumption, it seeks Obtaining an appraisal, or in some cases under Regulation B. See 12 CFR nationally-representative data from an alternative valuation, can be an 1002.14(a)(1). For first- and subordinate- commenters on valuation practices for important means of informing the lien transactions, transmission generally these transactions. Meanwhile, the consumer (and creditor) of the equity would occur electronically and the cost estimated burden reduced as a result of position in the home at the time of would be minimal, as discussed in the this proposed exemption would be the consummation and preventing Bureau’s Section 1022(b) analysis in the difference between the cost of a USPAP- transactions where the consumer Final Rule, 78 FR 10421. complaint appraisal (which the Bureau unknowingly begins home ownership in assumes would be no more than the cost a negative equity position. This type of Transactions Secured by Existing of an appraisal in a transaction secured knowledge can be critical to making Manufactured Homes and Not Land by a site-built home, i.e., $350) and the informed choices about what type of Creditors originating covered cost of current valuation practices, such transactions to pursue. If a consumer transactions secured by existing as obtaining an estimate from a who purchases a manufactured home manufactured homes but not land that published cost service or an evaluation has negative equity at the time of would be covered loans would in the case of financial institutions purchase (or a consumer who seeks to experience some reduced burden as a subject to FIRREA regulations. The make home improvements has negative result of the proposed exemption. In Bureau believes that most lenders obtain equity at the time of the improvements), particular, these loans would not be estimates from published cost services this decreases the chance that the subject to the estimated per-loan costs in most if not all of these transactions, consumer will build equity for a for a USPAP-complaint appraisal thus, the Bureau believes the burden significant period of time and, according described in the 2013 Interagency reduction of the exemption would be to outreach with a consumer advocacy Appraisals Final Rule.124 For these approximately the same, regardless of group, the consumer is more likely to transactions, creditors also would not whether the exemption were face impediments when seeking to need to spend time or resources on conditioned on the creditor obtaining an refinance the HPML (which in the case complying with the requirements in the estimate based upon a published cost of chattel lending is more often at a high HPML appraisal rules: checking for service.126 rate than loans for other types of applicability of the second appraisal housing) or sell the home (which can be b. Consumers requirement on a flipped property (in a an important loss mitigation option if purchase transaction) and paying for The Bureau believes that consumers the HPML becomes difficult to afford). that appraisal when the requirement using HPMLs that are not qualified mortgages in an amount over $25,000 to Transactions Secured by New applies, obtaining and reviewing the Manufactured Homes appraisals conducted for conformity to purchase, improve, or refinance any this rule, and providing disclosures and manufactured home generally would For HPMLs secured by new appraisal report copies to applicants. benefit as much as any other type of manufactured homes, as discussed in USPAP-complaint appraisals may homeowner from an estimate of the the section-by-section analysis above, currently be conducted for transactions value of the home, including an the Agencies are seeking comment on secured by existing manufactured appraisal, in the ways discussed in the options for ensuring the consumer is homes but not land much less Bureau’s analysis under Section 1022 in informed of the value of the dwelling frequently than in connection with the 2013 Interagency Appraisals Final serving as collateral—whether via HPMLs overall. For example, the Bureau Rule. In some cases, this benefit could narrowing or placing conditions on the believes that USPAP is a set of be even greater; some recent data exemption. If the exemption were standards typically followed by suggests the risk of negative equity may narrowed to exclude transactions appraisers who are state-certified or be as much as two times greater for secured by both manufactured homes licensed, and that state laws generally owners of manufactured homes than for and land so that an appraisal is required do not require certifications or licenses owners of other types of housing. One and consumers receive an appraisal to appraise personal property. reason that negative equity may be a report copy, then, as noted above, Therefore, even though USPAP includes more acute risk in manufactured home information obtained in outreach standards for the appraisal of personal transactions is that, according to suggests that the cost of the valuation property, it is unclear that these research and outreach conducted by the (which typically is passed on to the standards are applied when individuals Agencies, the loan amount can consumer) would not necessarily who are not state-licensed or state- frequently exceed the collateral value increase relative to existing practice. certified value manufactured homes. from the outset of the transaction Similarly, valuation costs would not Indeed, the Bureau believes that necessarily increase if the exemption currently, in some transactions, lenders transactions secured by the home but not land were conditioned on following an may simply prepare their own estimates indicates that they provide these reports to some of alternative practice, such as adding the the lenders in the industry, and sell a total of of the value of the home without appraised value of the land alone to the approximately 3,000 reports at an average price of estimated value of the home using a cost engaging a licensed or certified nearly $300. In addition, a large industry trade appraiser. association also maintains a service that provides approach, because that practice appears As a result, for purposes of analyzing reports on comparables for manufactured homes to be common currently. located in larger lease communities. the benefits of the proposed exemption, 126 The creditor also may have some per- 127 See American Housing Survey, ‘‘Mortgage the Bureau assumes that very few, if transaction costs for obtaining information about Characteristics—Owner Occupied Units any, transactions secured by existing the condition of the home, including through an (NATIONAL),’’ Table C14a–OO (2011) (as of 2011, manufactured homes but not land inspection, used to develop the cost estimate. The 39% of manufactured homes had outstanding loan- include USPAP-compliant appraisals.125 Bureau believes, however, that it is standard to-value (LTV) ratios of over 100%, while the industry practice for lenders to obtain information overall rate for owner-occupied housing was only about the condition of the home as part of their 19%), available at http://factfinder2.census.gov/ 124 See Section 1022(b) analysis, 78 FR 10418–21. underwriting process, whether by hiring a third faces/tableservices/jsf/pages/product 125 Outreach to a provider of reports including party property inspector or obtaining photos of the view.xhtml?pid=AHS_2011_C14AOO&prod comparables on existing manufactured homes in home from the borrower. Type=table.

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Finally, for transactions secured by a land is adopted, these benefits could be both new and existing manufactured new manufactured home but not land, lost if creditors do not obtain a reliable homes, the Bureau requests data from published cost estimates are not likely home estimate in the transaction.129 The commenters on the cost and accuracy of to add a significant expense, as Agencies therefore have sought valuations developed from local market discussed above. Any of these options comment on conditioning the proposed comparables, and valuations based upon also would ensure that consumers are exemption on use of a different type of published cost services that provide for informed of an estimate of the value of home estimate, such as an independent adjustments such as those noted above. the manufactured home. Otherwise, the estimate based upon comparables (as is manufacturer’s invoice may be the only required in HUD Title I transactions) or Transactions Secured by Existing document relating to the value of the an estimate from a published cost Manufactured Homes and Land home, and the consumer would not service is more likely to achieve all of have a right to receive a copy of that these same benefits. At least the latter Finally, as noted above, the Bureau document under the ECOA Valuations type of valuation appears to be more does not believe that continuing to Rule.128 common for these types of transactions require USPAP-compliant appraisals for based upon industry comments on the transactions secured by existing Transactions Secured by Existing 2012 Interagency Appraisals Proposal manufactured homes and land would Manufactured Homes and Not Land and further outreach and research in pose any significant impediment to For consumers seeking refinances or preparation for this proposal. As a these transactions, as the cost of the home improvement loans secured by result, the proposed exemption with appraisal is on par with that of other existing manufactured homes, seeking such a condition would help to preserve homes and the process used of selecting to sell existing manufactured homes, or access to credit for consumers seeking and adjustment comparables also is seeking to buy existing manufactured HPMLs secured by existing standard. homes without using land as collateral manufactured homes but not land (and for the transaction, the proposed not otherwise exempt as a qualified B. Potential Specific Impacts of the exemption for transactions secured by mortgage or in an amount of $25,000 or Supplemental Proposal existing manufactured homes but not less) because the transactions could be 1. Potential Reduction in Access by supported not only by a market value land could provide a significant benefit Consumers to Consumer Financial (comparable-based) appraisal if if it would be difficult for a significant Products or Services number of these transactions to be available but also by an estimate from a consummated without an exemption. published cost service. Allowing for a The proposed rule includes only The Bureau does not have information broader range of valuation options helps exemptions. Exempting loans from the indicating that USPAP-complaint to ensure access to this type of credit for requirements of the HPML Appraisal appraisals by state-certified or state- consumers who own or are seeking to Rule will not reduce access to credit. buy existing manufactured homes licensed appraisers for these While the Agencies are seeking without offering land as security for the transactions are common industry comment on whether to include certain practice. In the section-by-section transaction. As noted in the section-by-section conditions on these proposed analysis above, the Agencies also have exemptions as discussed in the section- requested comment on how often state- analysis, consumer advocates in outreach raised questions about the by-section analysis, these conditions certified or state-licensed appraisers are would not reduce access to credit. The available to service these transactions. If accuracy of estimates derived from a cost of complying with any conditions, such appraisers are not consistently published cost service such as the if adopted, would not exceed the cost of available in these transactions, then NADA Guide value report in part without the exemption, buyers using because this method of estimating home complying with the HPML Appraisal HPMLs to purchase, and owners using values does not analyze the market Rule (which in turn could increase the HPMLs to refinance, existing value of the home in the particular cost of credit) because any exemptions manufactured homes without offering location based upon comparables. The are optional and thus cost or burdens of land as security could be faced with a Bureau notes, however, that one cost exemptions also are optional. In significant barrier. Consumers selling method—the NADAGuide.com Value addition, as discussed above, the their homes could be similarly affected Report—provides for adjustments based Agencies are seeking comment on upon region and land-ease community because the Bureau believes that many whether to narrow the exemption for which can take into account location buyers of these properties use HPMLs new manufactured homes and/or to factors. In addition, comparable-based that are not qualified mortgages, which include conditions on this exemption. estimates for existing manufactured would make it difficult to find a buyer The Bureau does not believe that homes can cost nearly $300 according to who could close the loan using an requiring a USPAP- and FIRREA- outreach to one provider, which the available valuation method. Bureau believes would be significantly compliant appraisal with an interior As discussed in the Bureau’s analysis more costly than an estimate based inspection for transactions secured by a under Section 1022 in the 2013 upon a published cost service. If such a new manufactured home and land or Interagency Appraisals Final Rule, in valuation for a new manufactured home conditioning these or other new general, consumers who are borrowing would be similarly priced, then it would manufactured home transactions on the HPMLs that are covered by the rule be significantly more expensive than the alternative valuation methods described nonetheless could benefit if an appraisal cost estimate noted above (which can be above would reduce access to credit in can be conducted. If the proposed used for new manufactured homes as these transactions. Such valuation exemption is for transactions secured by well as existing manufactured homes). methods at most would entail only existing manufactured homes and not The Bureau believes that a lower-cost slightly increased costs where different method would result in less cost passed from existing methods, such that they 128 See 12 CFR 1002.14(a); comment 14(b)(3)–3.iv (clarifying that the manufacturer’s invoice is not a along to the consumer. In any event, for do not carry the potential to impede valuation that must be provided to the consumer access to credit. under Regulation B). 129 Section 1022(b) Analysis, 78 FR 10417–18.

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2. Impact of the Proposed Rule on transactions secured by these homes comments received during the public Depository Institutions and Credit (but not land) would proportionally comment period. Unions With $10 Billion or Less in Total accrue more often to rural consumers. The Board requests public comment Assets, as Described in Section 1026 of With respect to streamlined refinances, on all aspects of this analysis. the Dodd-Frank Act the Bureau does not believe that A. Reasons for the Proposed Rule Small depository banks and credit streamlined refinances are more or less common in rural areas. Accordingly, the This proposal relates to the 2013 unions may originate loans of $25,000 Interagency Appraisals Final Rule, Bureau currently believes that the or less more often, relative to their issued jointly by the Agencies on proposed exemption for streamlined overall origination business, than other January 18, 2013, which goes into effect refinances would generate a similar depository institutions (DIs) and credit on January 18, 2014. See 78 FR 10368 benefit for consumers in rural areas as unions. Therefore, relative to their (Feb. 13, 2013). The Final Rule overall origination business, these small for consumers in non-rural areas. implements a provision added to TILA depository banks and credit unions may Finally, the Bureau does not believe the by the Dodd-Frank Act requiring experience relatively benefits from the magnitude of the difference of the appraisals for ‘‘higher-risk mortgages.’’ proposed exemption for smaller dollar smaller dollar loans originated, between For certain mortgages with an annual loans. These benefits would not be high consumers in rural areas and not in percentage rate that exceeds the APOR in absolute dollar terms, however, rural areas, is significant. The Bureau by a specified percentage (designated as because the number of transactions that requests comment and relevant data on ‘‘HPMLs’’ in the Final Rule), the Final would be uniquely exempted by the the impact of the proposed rule on rural Rule requires creditors, among other proposed small loan exemption is still areas. requirements, to obtain an appraisal or relatively low—less than 5,000, as VII. Regulatory Flexibility Act appraisals meeting certain specified discussed above. standards, provide applicants with a Otherwise, the Bureau does not Board notification regarding the use of the believe that the impact of the proposal appraisals, and give applicants a copy of would be substantially different for the The Regulatory Flexibility Act (RFA), the written appraisals used. The DIs and credit unions with total assets 5 U.S.C. 601 et seq., requires an agency definition of higher-risk mortgage in below $10 billion than for larger DIs and either to provide an initial regulatory new TILA section 129H expressly credit unions. The Bureau has not flexibility analysis with a proposed rule excludes qualified mortgages, as defined identified data indicating that small or certify that the proposed rule will not in TILA section 129C, as well as open- depository institutions or small credit have a significant economic impact on end mortgages reverse mortgage loans unions disproportionately engage in a substantial number of small entities. that are qualified mortgages as defined lending secured by manufactured The proposed amendments apply to in TILA section 129C. homes. Finally, the Bureau has not certain banks, other depository The Agencies are now proposing identified data indicating that these institutions, and non-bank entities that amendments to the Final Rule to exempt institutions engage in streamlined extend HPMLs.131 The Small Business the following transactions: (1) refinances that would be newly- Administration (SBA) establishes size Transactions secured by existing exempted by the proposed exemption at standards that define which entities are manufactured homes and not land; (2) any greater rate than other financial small businesses for purposes of the certain ‘‘streamlined’’ refinancings; and institutions. The Bureau requests RFA.132 The size standard to be (3) transactions of $25,000 or less. The relevant data on the impact of the considered a small business is: $175 Agencies are also proposing to revise proposed rule on DIs and credit unions million or less in assets for banks and the Final Rule’s definition of ‘‘business with total assets below $10 billion. other depository institutions; and $7 day.’’ 3. Impact of the Proposed Rule on million or less in annual revenues for B. Statement of Objectives and Legal Consumers in Rural Areas the majority of nonbank entities that are Basis The Bureau understands that a likely to be subject to the proposed significantly greater proportion of regulations.133 Based on its analysis, As discussed above, section 1471 of existing manufactured homes are and for the reasons stated below, the the Dodd-Frank Act created new TILA located in rural areas compared to other Board believes that the proposed rule section 129H, which establishes special single-family homes.130 Therefore, any will not have a significant economic appraisal requirements for ‘‘higher-risk impacts of the proposed exemption for impact on a substantial number of small mortgages.’’ 15 U.S.C. 1639h. The Final entities. Nevertheless, the Board is Rule implements these requirements 130 Census data from 2011 indicates that publishing an initial regulatory and includes certain exemptions from approximately 45 percent of owner-occupied flexibility analysis. The Board will, if the Rule’s requirements. The Agencies manufactured homes are located outside of necessary, conduct a final regulatory believe that several additional metropolitan statistical areas, compared with 21 exemptions from the new appraisal percent of owner-occupied single-family homes. flexibility analysis after consideration of See U.S. Census Bureau, 2011 American Housing rules may be appropriate. Specifically, Survey, General Housing Data—Owner-Occupied 131 For its RFA analysis, the Board considered all the Agencies are proposing an Units (National), available at creditors to which the Final Rule applies. The exemption for transactions secured by http://factfinder2.census.gov/faces/tableservices/jsf Board’s Regulation Z at 12 CFR 226.43 applies to /pages/productview.xhtml?pid=AHS_2011_C01OO an existing manufactured home (and not &prodType=table. See also Housing Assistance a subset of these creditors. See § 226.43(g). land), certain types of refinancings, and Council Rural Housing Research Note, ‘‘Improving 132 U.S. Small Business Administration, Table of transactions of $25,000 or less (indexed Small Business Size Standards Matched to North HMDA: A Need to Better Understand Rural for inflation). In addition, the Agencies Mortgage Markets,’’ (Oct. 2010), available at http:// American Industry Classification System Codes, www.ruralhome.org/storage/documents/noteh available at http://www.sba.gov/sites/default/files/ are proposing to revise the Final Rule’s mdasm.pdf. Industry comments on the 2012 files/Size_Standards_Table.pdf. definition of ‘‘business day’’ for Interagency Appraisals Proposed Rule noted that 133 The Board recognizes that the SBA’s revised consistency with disclosure timing manufactured homes sited on land owned by the size standards will be effective July 22, 2013 (see requirements under existing Regulation buyer are predominantly located in rural areas; one 78 FR 37409 (June 20, 2013)). The Board will commenter estimated that 60 percent of update its regulatory flexibility analysis accordingly Z mortgage disclosure timing manufactured homes are located in rural areas. in its final rule. requirements and the Bureau’s proposed

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rules for combined mortgage disclosures are subject to the requirements of the agency certifies that the rule will not under TILA and the RESPA (2012 Final Rule. The Final Rule generally have a significant economic impact on TILA–RESPA Proposed Rule). See applies to creditors that make HPMLs a substantial number of small § 1026.19(a)(1)(ii) and (a)(2); see also 77 subject to 12 CFR 1026.35(c) (published entities.137 The Bureau also is subject to FR 51116 (Aug. 23, 2012) (e.g., proposed by the Board in 12 CFR 226.43), which certain additional procedures under the § 1026.19(e)(1)(iii) (early mortgage are generally mortgages with an APR RFA involving the convening of a panel disclosures) and (f)(1)(ii) (final mortgage that exceeds the APOR by a specified to consult with small business disclosures). percentage, subject to certain representatives prior to proposing a rule The legal basis for the proposed rule exemptions. The proposal would for which an IRFA is required.138 is TILA section 129H(b)(4). 15 U.S.C. exempt three additional classes of An IRFA is not required for this 1639h(b)(4). TILA section 129H(b)(4)(A), HPMLs from the Final Rule: HPMLs proposal because if adopted it would added by the Dodd-Frank Act, secured by existing manufactured loans not have a significant economic impact authorizes the Agencies jointly to (but not land); certain refinance HPMLs on a substantial number of small prescribe regulations implementing whose proceeds are used exclusively to entities. section 129H. 15 U.S.C. 1639h(b)(4)(A). satisfy an existing first-lien loan and to The analysis below evaluates the In addition, TILA section 129H(b)(4)(B) pay for closing costs; and new HPMLs potential economic impact of the grants the Agencies the authority jointly that have a principal amount of $25,000 proposed rule on small entities as to exempt, by rule, a class of loans from or less (indexed to inflation). defined by the RFA. The analysis the requirements of TILA section Accordingly, the proposal would generally examines the regulatory 129H(a) or section 129H(b) if the decrease the burden on creditors by impact of the provisions of the proposed Agencies determine that the exemption reducing the number of loan rule against the baseline of the Final is in the public interest and promotes transactions that are subject to the Final Rule the Agencies issued on January 18, the safety and soundness of creditors. 15 Rule. 2013. U.S.C. 1639h(b)(4)(B). E. Identification of Duplicative, A. Number and Classes of Affected C. Description of Small Entities to Overlapping, or Conflicting Federal Entities Which the Regulation Applies Regulations The proposed rule would apply to all The proposed rule applies to creditors The Board has not identified any creditors that extend closed-end credit that make HPMLs subject to 12 CFR Federal statutes or regulations that secured by a consumer’s principal 1026.35(c) (published by the Board in would duplicate, overlap, or conflict dwelling. All small entities that extend these loans are potentially subject to at 12 CFR 226.43). In the Board’s with the proposed revisions. Regulatory Flexibility Analysis for the least some aspects of the proposal. This F. Discussion of Significant Alternatives Final Rule, the Board relied primarily proposal may impact small businesses, small nonprofit organizations, and small on data provided by the Bureau to The Board is not aware of any government jurisdictions. A ‘‘small estimate the number of small entities significant alternatives that would business’’ is determined by application that would be subject to the further minimize the economic impact of SBA regulations and reference to the requirements of the rule.134 According of the proposed rule on small entities. North American Industry Classification to the data provided by the Bureau, The proposed rule would exempt three System (NAICS) classifications and size approximately 3,466 commercial banks, additional classes of HPMLs from the standards.139 Under such standards, 373 savings institutions, 3,240 credit Final Rule and not impose any new depository institutions with $175 unions, and 2,294 non-depository recordkeeping, reporting, or compliance million or less in assets are considered institutions are considered small requirements on small entities. small; other financial businesses are entities and extend mortgages, and Bureau considered small if such entities have therefore are potentially subject to the The RFA generally requires an agency average annual receipts (i.e., annual Final Rule. revenues) that do not exceed $7 million. Data currently available to the Board to conduct an initial regulatory flexibility analysis (IRFA) and a final Thus, commercial banks, savings are not sufficient to estimate how many institutions, and credit unions with small entities that extend mortgages will regulatory flexibility analysis (FRFA) of any rule subject to notice-and-comment $175 million or less in assets are small be subject to 12 CFR 1026.35(c) businesses, while other creditors (published by the Board in 12 CFR rulemaking requirements.135 These analyses must ‘‘describe the impact of extending credit secured by real 226.43), given the range of exemptions property or a dwelling are small provided in the Final Rule, including the proposed rule on small entities.’’ 136 An IRFA or FRFA is not required if the businesses if average annual receipts do the exemption for qualified mortgages. not exceed $7 million. Further, the number of these small The Bureau can identify through data entities that will make HPMLs that 135 5 U.S.C. 601 et seq. 136 under HMDA, Reports of Condition and would qualify for the proposed Id. at 603(a). For purposes of assessing the impacts of the proposed rule on small entities, Income (Call Reports), and data from the exemptions is unknown. ‘‘small entities’’ is defined in the RFA to include National Mortgage Licensing System small businesses, small not-for-profit organizations, (NMLS) the approximate numbers of D. Projected Reporting, Recordkeeping and small government jurisdictions. Id. at 601(6). A and Other Compliance Requirements ‘‘small business’’ is determined by application of small depository institutions that would Small Business Administration regulations and be subject to the final rule. Origination The proposed rule does not impose reference to the North American Industry data is available for entities that report any new recordkeeping, reporting, or Classification System (NAICS) classifications and in HMDA, NMLS or the credit union compliance requirements on small size standards. Id. at 601(3). A ‘‘small organization’’ entities. The proposed rule would is any ‘‘not-for-profit enterprise which is independently owned and operated and is not 137 Id. at 605(b). reduce the number of transactions that dominant in its field.’’ Id. at 601(4). A ‘‘small 138 Id. at 609. governmental jurisdiction’’ is the government of a 139 5 U.S.C. 601(3). The current SBA size 134 See the Bureau’s Regulatory Flexibility city, county, town, township, village, school standards are located on the SBA’s Web site at Analysis in the Final Rule (78 FR 10368, 10424 district, or special district with a population of less http://www.sba.gov/content/table-small-business- (Feb. 13, 2013)). than 50,000. Id. at 601(5). size-standards.

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

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

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

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However, the Bureau believes it already payment of principal, or result in a presumes that a small entity would not is a common existing practice for balloon payment. do so unless the proposed exemption creditors in these transactions to obtain This provision would remove the provided a net burden reduction. The either (1) an appraisal of the land and burden to small entities extending any Bureau requests comment on the impact a separate estimate of the value of the HPMLs covered by the Final Rule under of this proposed exemption on small home or (2) an appraisal of the land and ‘‘streamlined’’ refinance programs of entities. providing a consumer notice and home together. As discussed in the C. Conclusion Section 1022 analysis above, the Bureau obtaining, reviewing, and disclosing to does not believe that there is a consumers USPAP- and FIRREA- Each element of this proposal would significant difference in cost between compliant appraisals. Under an reduce economic burden for small these methods. As also discussed in the alternative discussed in the section-by- entities. The proposed exemption for Section 1022 analysis above, the Bureau section analysis above, to be eligible for HPMLs secured by existing does not believe there would be a this burden-reducing exemption, the manufactured homes and not land significant cost to obtaining an estimate creditor would need to obtain a would lessen any economic impact of the value of the home using a valuation—which need not be a USPAP- resulting from the HPML appraisal published cost service, including with and FIRREA-compliant appraisal—and requirements. The proposed exemption adjustments. Accordingly, if the provide it to the consumer no later than for ‘‘streamlined’’ refinance HPMLs also exemption from the requirement to three business days before closing. would lessen any economic impact on obtain an appraisal were removed, or if The regulatory burden reduction small entities extending credit pursuant the exemption were conditioned on might be lower since a creditor would to those programs, particularly those obtaining an appraisal of the land and have to determine whether the relating to the refinancing of existing an estimate of the home using a refinancing loan is of the type that loans held on portfolio. The proposed published cost service, the Bureau does meets the exemption requirements. exemption for smaller-dollar HPMLs not believe these changes would impose However, the Bureau believes that little similarly would lessen burden on small significant economic impacts. Further, if any additional time would be needed entities extending credit in the form of regardless, the requirements relating to to make these determinations, as they HPMLs up to the threshold amount. ‘‘flipped’’ properties would not apply to depend upon basic information relating These impacts would be reduced to a new home. to the transaction that is typically the extent the transactions are not already known to the creditor. already exempt from the Final Rule as Finally, as discussed in the Bureau’s Regulatory burden reduction might also qualified mortgages. While all of these Section 1022(b) analysis and in the be lower due to any additional proposed exemptions may entail section-by-section analysis, the condition the Agencies could adopt additional recordkeeping costs, the Agencies are seeking comment on such as the condition of obtaining a Bureau believes that these costs are whether to require the creditor to valuation and providing it to the minimal and outweighed by the cost provide the consumer with a cost consumer, if one is not otherwise reductions resulting from the proposal. estimate of the value of the new obtained through the normal creditor Small entities for which such cost manufactured home in transactions that process as required by FIRREA reductions are outweighed by additional are secured by a new manufactured regulations for some creditors and record keeping costs may choose not to home but not land. If adopted, this disclosed to the consumer as already utilize the proposed exemptions. condition would not significantly required by the 2013 ECOA Valuations change the amount of burden reduced Rule. In either case, however, the Certification by the existing exemption in these decision to ensure eligibility for the Accordingly, the undersigned certifies transactions, which comprise the exemption is voluntary and the Bureau that if adopted this proposal would not significant majority of transactions presumes that a small entity would not have a significant economic impact on involving new manufactured homes. do so unless the exemption provided a a substantial number of small entities. The Bureau believes that the cost of net burden reduction. The Bureau The Bureau requests comment on the obtaining an estimate of the value of the requests comment on the impact of this analysis above and requests any relevant new manufactured home using a third- proposed exemption on small entities. data. party cost source, and making appropriate adjustments, would be 3. Proposed Exemption for Smaller FDIC significantly less than the cost of Dollar Loans The RFA generally requires that, in obtaining a USPAP-complaint appraisal. The proposed rule would exempt connection with a notice of proposed 2. Proposed Exemption for from the HPML appraisal requirements rulemaking, an agency prepare and ‘‘Streamlined’’ Refinancing Programs loans equal to or less than $25,000, make available for public comment an adjusted annually for inflation. This initial regulatory flexibility analysis that The proposed rule would provide an provision would remove burden describes the impact of a proposed rule exemption for any transaction that is a imposed by the final rule on small on small entities.141 A regulatory refinancing satisfying certain entities extending any HPMLs covered flexibility analysis is not required, conditions. In brief, the proceeds of the by the final rule up to $25,000. however, if the agency certifies that the loan may only be used to pay off an Regulatory burden reduction might rule will not have a significant existing first lien loan and to pay also be lower due to any additional economic impact on a substantial closing or settlement charges is exempt condition the Agencies could adopt number of small entities (defined in from the HPML appraisal requirements, such as the condition of obtaining a regulations promulgated by the SBA to provided the new loan has the same valuation and/or providing the include banking organizations with total owner or guarantor as the existing loan, consumer with a copy of any valuation assets of less than or equal to $175 and provided further that the new loan the creditor has obtained in connection million) and publishes its certification provides for periodic payments that do with the application. However, the and a short, explanatory statement in not cause the principal balance to decision to ensure eligibility for the increase, allow for deferment in exemption is voluntary and the Bureau 141 See 5 U.S.C. 601 et seq.

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the Federal Register together with the The Agencies are now proposing to in the secondary mortgage markets. In rule. amend the 2013 Interagency Appraisals addition, these entities do not come As of March 31, 2013, there were Final Rule to provide the following within the meaning of small entities as approximately 3,711 small FDIC- changes and exemptions to defined in the RFA. See 5 U.S.C. 601(6). supervised banks, which include 2,275 requirements of the Final Rule: NCUA state nonmember banks and 158 state- • To provide a different definition of chartered savings banks. The FDIC ‘‘business day’’ than the definition used The RFA generally requires that, in analyzed the 2011 HMDA142 dataset to in the Final Rule, as well as a few non- connection with a notice of proposed determine how many loans by FDIC- substantive technical corrections. rulemaking, an agency prepare and supervised banks might qualify as • To exempt transactions secured make available for public comment an HPMLs under section 129H of the TILA solely by an existing (used) initial regulatory flexibility analysis that as added by section 1471 of the Dodd- manufactured home and not land. describes the impact of the proposed Frank Act. This analysis reflects that • To exempt certain types of rule on small entities.143 A regulatory only 70 FDIC-supervised banks refinancings with characteristics flexibility analysis is not required, originated at least 100 HPMLs, with common to refinance products often however, if the agency certifies that the only four banks originating more than referred to as ‘‘streamlined’’ refinances. rule will not have a significant 500 HPMLs. Further, the FDIC- • To exempt extensions of credit of economic impact on a substantial supervised banks that met the definition $25,000 or less, indexed every year for number of small entities and publishes of a small entity originated on average inflation. its certification and a short, explanatory less than 8 HPMLs of $25,000 or less The proposed rule would exempt statement in the Federal Register each in 2011. certain transactions that qualify as together with the rule. NCUA defines The proposed rule relates to the 2013 HPMLs under the 2013 Interagency small entities as small credit unions Interagency Appraisals Final Rule, Appraisals Final Rule from the appraisal having less than fifty million dollars in issued by the Agencies on January 18, requirements of the Final Rule, resulting assets144 in contrast to the definition of 2013, which goes into effect on January in reduced regulatory burden to FDIC- small entities in the rules issued by the 18, 2014. The 2013 Interagency supervised institutions that would have SBA, which include banking Appraisals Final Rule requires that otherwise been required to obtain an organizations with total assets of less creditors satisfy the following appraisal and comply with the than or equal to $175 million. requirements for each HPML they requirements for such HPML However, for purposes of the 2013 originate that is not exempt from the transactions. Interagency Appraisals Final Rule and Final Rule: It is the opinion of the FDIC that the for consistency with the Agencies, • The creditor must obtain a written proposed rule will not have a significant NCUA reviewed the dataset for FICUs appraisal; the appraisal must be economic impact on a substantial that met the small entity standard for performed by a certified or licensed number of small entities that it regulates banking organizations under the SBA’s appraiser; and the appraiser must in light of the fact that: (1) The proposed regulations. As of March 31, 2012, there conduct a physical property visit of the rule would reduce regulatory burden on were approximately 6,060, FICUs with interior of the property. small institutions by exempting certain total assets of $175 million or less. Of • At application, the consumer must transactions from the requirements of the FICUs which reported 2010 HMDA be provided with a statement regarding the 2013 Interagency Appraisals Final data, 452 reported at least one HPML. the purpose of the appraisal, that the Rule; and (2) the FDIC previously The data reflects that only three FICUs creditor will provide the applicant a certified that the 2013 Interagency originated at least 100 HPMLs, with no copy of any written appraisal, and that Appraisals Final Rule would not have a FICUs originating more than 500 the applicant may choose to have a significant economic impact on a HPMLs, and eighty-eight percent of separate appraisal conducted for the substantial number of small entities. reporting FICUs originating 10 HPMLs applicant’s own use at his or her own Accordingly, the FDIC certifies that the or less. Further, FICUs that met the expense. proposed rule, if adopted in final form, SBA’s definition of a small entity • The consumer must be provided would not have a significant economic originated an average of 4 HPML loans with a free copy of any written impact on a substantial number of small each in 2010. 145 appraisals obtained for the transaction entities. Therefore, a regulatory The 2013 Interagency Appraisals at least three (3) business days before flexibility analysis is not required. Final Rule requires that creditors satisfy consummation. the following requirements for each • Nonetheless, the FDIC seeks comment The creditor of an HPML must on whether the proposed rule, if HPML they originate that is not exempt obtain an additional written appraisal, adopted in final form, would impose from the Final Rule: • at no cost to the borrower, when the undue burden on, or have unintended The creditor must obtain a written loan will finance the purchase of a consequences for, small FDIC- appraisal; the appraisal must be consumer’s principal dwelling and there supervised institutions and whether has been an increase in the purchase 143 See 5 U.S.C. 601 et seq. there are ways such potential burden or 144 price from a prior acquisition that took consequences could be minimized in a NCUA Interpretative Ruling and Policy place within 180 days of the current Statement (IRPS) 87–2, 52 FR 35231 (Sept. 18, manner consistent with section 129H of 1987); as amended by IRPS 03–2, 68 FR 31951 (May purchase. TILA. 29, 2003); and IRPS 13–1, 78 FR 4032, 4037 (Jan. 18, 2013). 142 The FDIC based its analysis on the HMDA FHFA 145 With only a fraction of small FICUs reporting data, as it provided a proxy for the characteristics data to HMDA, NCUA also analyzed FICUs not of HPMLs. While the FDIC recognizes that fewer The supplemental proposal to amend observed in the HMDA data. Using the total number higher-price loans were generated in 2011, a more the 2013 Interagency Appraisals Final of real estate loans originated by FICUs with less historical review is not possible because the average Rule applies only to institutions in the than $175M in total assets, NCUA estimated the offer price (a key data element for this review) was primary mortgage market that originate average number of HPMLs per real estate loan not added until the fourth quarter of 2009. The originated. Using this ratio to interpolate the likely FDIC also recognizes that the HMDA data provides mortgage loans. FHFA’s regulated number of HPML originations, the analysis suggests information relative to mortgage lending in entities—Fannie Mae, Freddie Mac, and that small FICUs originate on average less than 2 metropolitan statistical areas, but not in rural areas. the Federal Home Loan Banks—operate HPML loans each year.

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performed by a certified or licensed been required to obtain an appraisal and which have been established by the appraiser; and the appraiser must comply with the requirements for such CFPB as an exemption from its new conduct a physical property visit of the HPML transactions. NCUA believes TILA mortgage ‘‘ability to repay’’ interior of the property. these proposed changes will only serve underwriting requirements rule. In • At application, the consumer must to lessen regulatory burdens imposed by addition, the Agencies may jointly be provided with a statement regarding the Final Rule. exempt a class of loans from the the purpose of the appraisal, that the In light of the fact that few loans made requirements of the statute if the creditor will provide the applicant a by FICUs would qualify as HPMLs, the Agencies determine that the exemption copy of any written appraisal, and that fact that the NCUA certified that the is in the public interest and promotes the applicant may choose to have a 2013 Interagency Appraisal Final Rule the safety and soundness of creditors. separate appraisal conducted for the would not have a significant economic The Agencies issued the Final Rule on applicant’s own use at his or her own impact on a substantial number of small January 18, 2013, which will be expense. entities, and that the proposal would effective on January 18, 2014. Pursuant • The consumer must be provided only further reduce any regulatory to the general exemption authority in with a free copy of any written burdens imposed on small credit unions the statute, the Final Rule exempts from appraisals obtained for the transaction by the Final Rule, NCUA believes the coverage of the HPML appraisal rules at least three (3) business days before proposed rule will not have a significant the following transactions: Transactions consummation. economic impact on small FICUs. • secured by new manufactured homes; The creditor of an HPML must For the reasons provided above, transactions secured by mobile homes, obtain an additional written appraisal, NCUA certifies that the proposed rule boats, or trailers; transactions to finance at no cost to the borrower, when the will not have a significant economic the initial construction of a dwelling; loan will finance the purchase of a impact on a substantial number of small temporary or ‘‘bridge’’ loans with a term consumer’s principal dwelling and there entities. Accordingly, a regulatory of twelve months or less, such as a loan has been an increase in the purchase flexibility analysis is not required. to purchase a new dwelling where the price from a prior acquisition that took OCC consumer plans to sell a current place within 180 days of the current dwelling within twelve months; and Pursuant to section 605(b) of the RFA, purchase. reverse mortgage loans. The Agencies The Agencies are now proposing to 5 U.S.C. 605(b), the regulatory flexibility are issuing this supplemental proposed amend the 2013 Interagency Appraisals analysis otherwise required under rule to include three additional Final Rule to provide the following section 603 of the RFA is not required exemptions from the HPML appraisal changes and exemptions to if the agency certifies that the proposed requirements of section 129H of TILA: requirements of the Final Rule: rule will not, if promulgated, have a Transactions secured solely by an • To provide a different definition of significant economic impact on a existing manufactured home and not ‘‘business day’’ than the definition used substantial number of small entities land; certain ‘‘streamlined’’ in the Final Rule, as well as a few non- (defined for purposes of the RFA to refinancings; and extensions of credit of substantive technical corrections. include banks, savings institutions and $25,000 or less, indexed every year for • To exempt transactions secured other depository credit intermediaries inflation. solely by an existing (used) with assets less than or equal to $500 manufactured home and not land from million and trust companies with total The OCC currently supervises 1,842 the HPML appraisal requirements. assets of $35.5 million or less 146) and banks (1,204 commercial banks, 63 trust • To exempt from the HPML publishes its certification and a short, companies, 527 federal savings appraisal rules certain types of explanatory statement in the Federal associations, and 48 branches or refinancings with characteristics Register along with its proposed rule. agencies of foreign banks). We estimate common to refinance products often As described previously in this that less than 1,291 of the banks referred to as ‘‘streamlined’’ refinances. preamble, section 1471 of the Dodd- supervised by the OCC are currently • To exempt from the HPML Frank Act establishes a new TILA originating one- to four-family appraisal rules extensions of credit of section 129H, which sets forth appraisal residential mortgage loans that could be $25,000 or less, indexed every year for requirements applicable to higher-risk HPMLs. Approximately 867 OCC inflation. mortgages (termed ‘‘higher-priced supervised banks are small entities As previously explained, the mortgage loans’’ or HPMLs in the 2013 based on the SBA’s definition of small proposed rule would align the Interagency Appraisals Final Rule). The entities for RFA purposes. Of these, the definition of ‘‘business day’’ under the statute expressly excludes from these OCC estimates that 428 banks originate Final Rule with the definition of appraisal requirements coverage of mortgages and therefore may be ‘‘business day’’ for the required ‘‘qualified mortgages,’’ the terms of impacted by the proposed rule. disclosures to, among other things, The OCC classifies the economic improve streamlining and consistency 146 ‘‘Based on the number of banks and their size impact of total costs on a bank as in Regulation Z disclosures by avoiding (as of December 31, 2012) the OCC supervises 1,291 significant if the total costs in a single the creditor having to provide the copy small entities. We base our estimate of the number year are greater than 5 percent of total of small entities on the SBA’s size thresholds for of the appraisal under the HPML rules commercial banks and savings institutions, and salaries and benefits, or greater than 2.5 and corrected Regulation Z disclosures trust companies, which are $500 million and $35.5 percent of total non-interest expense. at different times (because different million, respectively. Consistent with the General The OCC estimates that the average cost definitions of ‘‘business day’’ would Principles of Affiliation, 13 CFR 121.103(a), we per small bank, if the proposed rule is count the assets of affiliated financial institutions apply). In addition, the proposed rule when determining if we should classify a bank we promulgated, will be zero. The proposal would exempt certain transactions that supervise as a small entity. We use December 31, does not impose new requirements on qualify as HPMLs under the 2013 2012, to determine size because a ‘‘financial banks or include new mandates. The Interagency Appraisal Final Rule from institution’s assets are determined by averaging the OCC assumes any costs (e.g., alternative assets reported on its four quarterly financial the requirements of the Final Rule, statements for the preceding year.’’ See footnote 8 valuations) or requirements that may be resulting in reduced regulatory burden of the U.S. Small Business Administration’s Table associated with the proposed to FICUs that would have otherwise of Size Standards. exemptions will be less than the cost of

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compliance for a comparable loan under Board: State member banks, property and the resale price exceeds the Final Rule. uninsured state branches and agencies the seller’s acquisition price by more Therefore, we believe the proposed of foreign banks. than 20 percent. See 12 CFR rule will not have a significant NCUA: Federally-insured credit 1026.35(c)(4). The Additional Written economic impact on a substantial unions. Appraisal must meet the requirements number of small entities. The OCC Abstract: described above and also analyze: (1) certifies that the proposed rule would The collection of information The difference between the price at not, if promulgated, have a significant requirements in the 2013 Final Rule are which the seller acquired the property economic impact on a substantial found in paragraphs (c)(3)(i), (c)(3)(ii), and the price the consumer agreed to number of small entities. (c)(4), (c)(5), and (c)(6) of 12 CFR pay; (2) changes in market conditions 1026.35.149 This information is required VIII. Paperwork Reduction Act between the date the seller acquired the to protect consumers and promote the property and the date the consumer Board, Bureau, FDIC, NCUA and OCC safety and soundness of creditors agreed to acquire the property; and (3) Certain provisions of the 2013 making HPMLs subject to 12 CFR any improvements made to the property Interagency Appraisals Final Rule 1026.35(c). This information is used by between the date the seller acquired the contain ‘‘collection of information’’ creditors to evaluate real estate property and the date on which the requirements within the meaning of the collateral securing HPMLs subject to 12 consumer agreed to acquire the Paperwork Reduction Act (PRA) of 1995 CFR 1026.35(c) and by consumers property. See 12 CFR 1026.35(c)(4)(iv). (44 U.S.C. 3501 et seq.). See 78 FR entering these transactions. The A creditor is also required to provide a 10368, 10429 (Feb. 13, 2013). Under the collections of information are copy of the Additional Written PRA, the Agencies may not conduct or mandatory for creditors making HPMLs Appraisal to the consumer. 12 CFR sponsor, and a person is not required to subject to 12 CFR 1026.35(c). The 2013 1026.35(c)(6). respond to, an information collection Final Rule requires that, within three The requirements provided in the unless the information collection business days of application, a creditor 2013 Final Rule were described in the displays a valid Office of Management provide a disclosure that informs PRA section of that rule. See 78 FR and Budget (OMB) control number. The consumers of the purpose of the 10368, 10429 (February 13, 2013). As information collection requirements appraisal, that the creditor will provide described in its section 1022 analysis in contained in this joint notice of the consumer a copy of any appraisal, the 2013 Final Rule and in Table 3 to proposed rulemaking to amend the 2013 and that the consumer may choose to that rule, the estimated burdens Final Rule have been submitted to OMB have a separate appraisal conducted at allocated to the Bureau reflected an for review and approval by the Bureau, the expense of the consumer (Initial institution count based upon data that FDIC, NCUA, and OCC under section Appraisal Disclosure). See 12 CFR had been updated from the proposal 3506 of the PRA and section 1320.11 of 1026.35(c)(5). If a loan is a HPML stage and reduced to reflect those the OMB’s implementing regulations (5 subject to 12 CFR 1026.35(c), then the exemptions in the 2013 Final Rule for CFR part 1320). The Board reviewed the creditor is required to obtain a written which the Bureau has identified data. As discussed in the 2013 Final Rule, the proposed rule under the authority appraisal prepared by a certified or other Agencies did not adjust the delegated to the Board by OMB. licensed appraiser who conducts a Title of Information Collection: HPML physical visit of the interior of the calculations to account for the exempted Appraisals. property that will secure the transaction transactions provided in the 2013 Final Frequency of Response: Event (Written Appraisal), and provide a copy Rule. Accordingly, the estimated burden generated. of the Written Appraisal to the calculations in Table 3 in the 2013 Final Affected Public: Businesses or other consumer. See 12 CFR 1026.35(c)(3)(i) Rule are overstated. for-profit and not-for-profit and (c)(6). To qualify for the safe harbor Calculation of Estimated Burden organizations.147 provided under the 2013 Final Rule, a Bureau: Insured depository creditor is required to review the As explained in the 2013 Final Rule, institutions with more than $10 billion Written Appraisal as specified in the for the Initial Appraisal Disclosure, the in assets, their depository institution text of the rule and Appendix N. See 12 creditor is required to provide a short, affiliates, and certain non-depository CFR 1026.35(c)(3)(ii). written disclosure within three days of mortgage institutions.148 A creditor is required to obtain an application. Because the disclosure is FDIC: Insured state non-member additional appraisal (Additional Written classified as a warning label supplied by banks, insured state branches of foreign Appraisal) for a HPML that is subject to the Federal government, the Agencies banks, and certain subsidiaries of these have assigned it no burden for purposes 12 CFR 1026.35(c) if (1) the seller 150 entities. acquired the property securing the loan of this PRA analysis. The estimated burden for the Written OCC: National banks, Federal savings 90 or fewer days prior to the date of the Appraisal requirements includes the associations, Federal branches or consumer’s agreement to acquire the creditor’s burden of reviewing the agencies of foreign banks, or any property and the resale price exceeds Written Appraisal in order to satisfy the operating subsidiary thereof. the seller’s acquisition price by more safe harbor criteria set forth in the rule than 10 percent; or (2) the seller and providing a copy of the Written 147 The burdens on the affected public generally acquired the property securing the loan Appraisal to the consumer. are divided in accordance with the Agencies’ 91 to 180 days prior to the date of the respective administrative enforcement authority Additionally, as discussed above, an under TILA section 108, 15 U.S.C. 1607. consumer’s agreement to acquire the Additional Written Appraisal 148 The Bureau and the Federal Trade containing additional analyses is Commission (FTC) generally both have enforcement 149 As explained in the section-by-section authority over non-depository institutions for analysis, these requirements are also published in required in certain circumstances. The Regulation Z. Accordingly, for purposes of this PRA regulations of the OCC (12 CFR 34.203(c)(1), (c)(2), analysis, the Bureau has allocated to itself half of (d), (e) and (f)) and the Board (12 CFR 226.43(c)(1), 150 The public disclosure of information the Bureau’s estimated burden for non-depository (c)(2), (d), (e), and (f)). For ease of reference, this originally supplied by the Federal government to mortgage institutions. The FTC is responsible for PRA analysis refers to the section numbers of the the recipient for the purpose of disclosure to the estimating and reporting to OMB its share of burden requirements as published in the Bureau’s public is not included within the definition of under this proposal. Regulation Z at 12 CFR 1026.35(c). ‘‘collection of information.’’ 5 CFR 1320.3(c)(2).

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Additional Written Appraisal must meet and NCUA respondents has been covered by the proposed exemption for the standards of the Written Appraisal. updated to account for the exemption certain refinances), or smaller dollar The Additional Written Appraisal is for qualified mortgages adopted in the loans (which cover many types of also required to be prepared by a 2013 Final Rule, which had not been manufactured housing transactions).151 certified or licensed appraiser different accounted for in the table published at While covered HPMLs above smaller from the appraiser performing the that time, as discussed in the PRA dollar levels that are secured by existing Written Appraisal, and a copy of the section of the Final Rule. See 78 FR manufactured homes and not land may Additional Written Appraisal must be 10368, 10430–31 (February 13, 2013). In be newly-exempted, these transactions provided to the consumer. The creditor addition, the impact of the proposed may need alternative valuations must separately review the Additional rule has been considered as follows: depending upon how the exemption is Written Appraisal in order to qualify for First, the Agencies find that, finalized. The Agencies therefore the safe harbor provided in the 2013 currently, only a small minority of conservatively make no adjustment to Final Rule. refinances involves cash out beyond the the data in the first panel of Table 3 in The Agencies continue to estimate levels eligible for this proposed the 2013 Final Rule as a result of that that respondents will take, on average, exemption, and as a result most proposed exemption.152 15 minutes for each HPML that is refinance loans may qualify for this The numbers above affect only the subject to 12 CFR 1026.35(c) to review exemption. The Agencies therefore first panel in the Table 3 of the PRA the Written Appraisal and to provide a assume that the proposed exemption for section of the Final Rule. Refinances are copy of the Written Appraisal. The certain refinances affects all the not subject to the requirement to obtain Agencies further continue to estimate refinance loans discussed in the an Additional Written Appraisal under that respondents will take, on average, analysis under Section 1022(b)(2) of the the 2013 Final Rule, and it is 15 minutes for each HPML that is 2013 Final Rule, and thus would conservatively assumed that none of the subject to 12 CFR 1026.35(c) to eliminate all of the approximately 1,200 smaller dollar loans or the loans secured investigate and verify the need for an new appraisals that had been estimated by manufactured homes sited on leased Additional Written Appraisal and, to result from these refinances as a land were used to purchase homes being where necessary, an additional 15 result of Final Rule (out of the 3,800 resold within 180 days with the minutes to review the Additional total new Written Appraisals estimated requisite price increases to trigger that Written Appraisal and to provide a copy to occur in the Final Rule, or roughly requirement (and thus the proposed of the Additional Written Appraisal. For 32%). exemptions for those loans will not the small fraction of loans requiring an Second, based on the HMDA 2011 reduce any burden associated with that Additional Written Appraisal, the data, the Agencies find that 12 percent requirement). Accordingly, only the first burden is similar to that of the Written of all HPMLs are under $25,000. The panel in Table 3 from the 2013 Final Appraisal. Agencies believe that this implies that Rule is being updated and the estimates The Agencies use the estimated there will be, proportionately, 12 in the second and third panels remain burden from the PRA section of the percent fewer appraisals based on the the same. The updated table is 2013 Final Rule as the starting baseline exemption for small dollar loans. reproduced below. The one-time costs for analyzing the impact the three Third, the Agencies find that many of are also not affected. exemptions in the proposal would have the transactions secured by existing The following table summarizes the on PRA burden if adopted. The manufactured homes and not land resulting burden estimates. estimated number of appraisals per involve either refinances (all of which respondent for the FDIC, Board, OCC, are conservatively assumed to be Estimated PRA Burden

SUMMARY OF PRA BURDEN HOURS FOR INFORMATION COLLECTIONS IN HPML APPRAISALS FINAL RULE IF THE EXEMPTIONS IN THE SUPPLEMENTAL PROPOSAL ARE ADOPTED 153

Estimated Estimated Estimated Estimated number of number of burden hours total annual respondents appraisals per per appraisal burden hours respondent 154

[a] [b] [c] [d] = (a*b*c)

Review and Provide a Copy of Written Appraisal

Bureau: 155 156 157 158 Depository Inst. > $10 B in total assets + Depository Inst. Af- filiates ...... 132 3.73 0.25 123 Non-Depository Inst. and Credit Unions ...... 2,853 0.23 0.25 159 82 FDIC ...... 2,571 0. 0.25 93 Board 160 ...... 418 0.18 0.25 19

151 In particular, the Bureau believes that a Survey, the term ‘‘value’’ is defined as ‘‘the 152 The Bureau assumes that manufactured substantial proportion of the existing manufactured respondent’s estimate of how much the property housing loans secured solely by a manufactured homes that are sold would be sold for less than (house and lot) would sell for if it were for sale. Any home and not land mortgages are reflected in the $25,000. According to the Census Bureau 2011 nonresidential portions of the property, any rental data provided by the institutions to the datasets that American Housing Survey Table C–13–OO, the units, and land cost of mobile homes, are excluded are used by the Bureau (Call Reports for Banks and average value of existing manufactured homes is from the value. For vacant units, value represents $30,000. See http://factfinder2.census.gov/faces/ the sales price asked for the property at the time Thrifts, Call Reports for Credit Unions, and NMLS’s tableservices/jsf/pages/productview.xhtml?pid= of the interview, and may differ from the price at Mortgage Call Reports), and thus are reflected in the AHSl2011lC13OO&prodType = table. The which the property is sold. In the publications, Bureau’s loan projections utilized for the table estimate includes not only the value of the home, medians for value are rounded to the nearest below. The Bureau is asking for comment if any but also appears to include the value of the lot dollar.’’ See http://www.census.gov/housing/ahs/ institutions believe that this is not the case. where the lot is also owned. According to the AHS files/Appendix%20A.pdf.

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SUMMARY OF PRA BURDEN HOURS FOR INFORMATION COLLECTIONS IN HPML APPRAISALS FINAL RULE IF THE EXEMPTIONS IN THE SUPPLEMENTAL PROPOSAL ARE ADOPTED 153—Continued

Estimated Estimated Estimated Estimated number of number of burden hours total annual respondents appraisals per per appraisal burden hours respondent 154

[a] [b] [c] [d] = (a*b*c)

OCC ...... 1,399 0.16 0.25 55 NCUA ...... 2,437 0.07 0.25 44

Total ...... 9,810 ...... 416

Investigate and Verify Requirement for Additional Written Appraisal

Bureau: Depository Inst. > $10 B in total assets + Depository Inst. Af- filiates ...... 132 20.05 0.25 662 Non-Depository Inst. and Credit Unions ...... 2,853 1.22 0.25 435 FDIC ...... 2,571 0.78 0.25 502 Board ...... 418 0.97 0.25 102 OCC ...... 1,399 0.85 0.25 299 NCUA ...... 2,437 0.38 0.25 232

Total ...... 9,810 ...... 2,232

Review and Provide a Copy of Additional Written Appraisal

Bureau: Depository Inst. > $10 B in total assets + Depository Inst. Af- filiates ...... 132 0.64 0.25 21 Non-Depository Inst. and Credit Unions ...... 2,853 0.04 0.25 14 FDIC ...... 2,571 0.02 0.25 15 Board ...... 418 0.03 0.25 3 OCC ...... 1,399 0.02 0.25 8 NCUA ...... 2,437 0.01 0.25 5

Total ...... 9,810 ...... 66 Notes: (1) Respondents include all institutions estimated to originate HPMLs that are subject to 12 CFR 1026.35(c). (2) There may be an additional ongoing burden of roughly 75 hours for privately-insured credit unions estimated to originate HPMLs that are subject to 12 CFR 1026.35(c). The Bureau will assume half of the burden for non-depository institutions and the privately-insured credit unions.

Finally, as explained in the PRA addition, there are 146 privately-insured credit section of the 2013 Final Rule, unions that are subject to the Bureau’s 153 Some of the intermediate numbers are administrative enforcement authority. For purposes respondents must also review the rounded, resulting in Estimated Total Annual Hours instructions and legal guidance not precisely matching up with columns a, b, and of this PRA analysis, the Bureau’s respondents c. under Regulation Z are 135 depository institutions associated with the Final Rule and train 154 The ‘‘Estimated Number of Appraisals Per that originate either open or closed-end mortgages; loan officers regarding the requirements Respondent’’ reflects the estimated number of 77 privately-insured credit unions that originate of the Final Rule. The Agencies Written Appraisals and Additional Written either open or closed-end mortgages; and an continue to estimate that these one-time Appraisals that will be performed solely to comply estimated 2,787 non-depository institutions that are with the 2013 Final Rule. It does not include the subject to the Bureau’s administrative enforcement costs are as follows: Bureau: 36,383 number of appraisals that will continue to be authority. Unless otherwise specified, all references hours; FDIC: 10,284 hours; Board 3,344 performed under current industry practice, without to burden hours and costs for the Bureau hours; OCC: 19,586 hours; NCUA: 7,311 regard to the Final Rule’s requirements. respondents for the collection under Regulation Z hours.161 155 The information collection requirements (ICs) are based on a calculation that includes half of the in the 2013 Final Rule (and this proposed rule) will burden for the estimated 2,787 non-depository The Agencies have a continuing be incorporated with the Bureau’s existing institutions and 77 privately-insured credit unions. interest in the public opinion of our collection associated with Truth in Lending Act 158 The Bureau calculates its burden by including collections of information. At any time, (Regulation Z) 12 CFR 1026 (OMB No. 3170–0015/ both HMDA reporting creditors and the HMDA non- comments regarding the burden 3170–0026). reporting creditors, based on the 2012 counts. The 156 The burden estimates allocated to the Bureau other Agencies only report the burden for HMDA this proposed rule pertain only to the ICs associated are updated using the data described in the reporting creditors, based on the 2011 counts. Bureau’s section 1022 analysis in the 2013 Final with the Final Rule. 159 The Bureau assumes half of the burden for the Rule and in the Bureau’s section 1022 analysis 161 As discussed in the PRA section of the 2013 non-depository mortgage institutions and the credit above, including significant burden reductions after Final Rule, estimated one-time burden continues to accounting for qualified mortgages that are exempt unions supervised by the Bureau. The FTC assumes be calculated assuming a fixed burden per from the Final Rule, and burden reductions after the burden for the other half. institution to review the regulations and fixed accounting for loans in rural areas that are exempt 160 The ICs in the 2013 Final Rule will be burden per estimated loan officer in training costs. from the Additional Written Appraisal requirement incorporated with the Board’s Reporting, As a result of the different size and mortgage in the Final Rule. Recordkeeping, and Disclosure Requirements activities across institutions, the average per- 157 There are 153 depository institutions (and associated with Regulation Z (Truth in Lending), 12 institution one-time burdens vary across the their depository affiliates) that are subject to the CFR part 226, and Regulation AA (Unfair or Agencies. See 78 FR 10368, 10432 (February 13, Bureau’s administrative enforcement authority. In Deceptive Acts or Practices), 12 CFR part 227 (OMB 2013). No. 7100–0199). The burden estimates provided in

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estimate, or any other aspect of this PART 34—REAL ESTATE LENDING (A) To pay off the outstanding collection of information, including AND APPRAISALS principal balance on the existing suggestions for reducing the burden, obligation; and may be sent to the OMB desk officer for ■ 1. The authority citation for part 34 (B) To pay closing or settlement the Agencies by mail to U.S. Office of continues to read as follows: charges required to be disclosed under Management and Budget, Office of Authority: 12 U.S.C. 1 et seq., 25b, 29, 93a, the Real Estate Settlement Procedures Information and Regulatory Affairs, 371, 1463, 1464, 1465, 1701j–3, 1828(o), 3331 Act, 12 U.S.C. 2601 et seq.; and Washington, DC 20503, or by the et seq., 5101 et seq., 5412(b)(2)(B) and 15 (8) An extension of credit for which internet to U.S.C. 1639h. the amount of credit extended is equal [email protected], with ■ 2. Section 34.202 is amended by to or less than the applicable threshold copies to the Agencies at the addresses adding new paragraph (a) and amount, which is adjusted every year to reflect increases in the Consumer Price listed in the ADDRESSES section of this redesignating current paragraphs (a) Index for Urban Wage Earners and SUPPLEMENTARY INFORMATION. through (c) as paragraphs (b) through (d) as follows: Clerical Workers, as applicable, and FHFA published in Appendix C to Subpart § 34.202 Definitions applicable to higher G—OCC Interpretations, see Section The 2013 Final Rule and this proposal priced mortgage loans. 34.203(b)(8) of Appendix C to Subpart do not contain any collections of * * * * * G. information applicable to the FHFA, (a) Business day has the same * * * * * requiring review by OMB under the meaning as in 12 CFR 1026.2(a)(6). ■ 4. In Appendix C to Subpart G—OCC PRA. Therefore, FHFA has not * * * * * Interpretations: submitted any materials to OMB for ■ 3. Section 34.203 is amended by ■ a. Paragraph 34.203(b)(2) is review. revising paragraphs (b) introductory redesignated Paragraph 34.203(b)(2)(i). ■ b. Under redesignated Paragraph Text of Proposed Revisions text, (b)(1), (b)(2), and (b)(5) and adding paragraphs (b)(2)(i), (b)(2)(ii), (b)(7) and 34.203(b)(2)(i), paragraph 1 is revised. Certain conventions have been used (b)(8) as follows: ■ c. New Paragraph 34.203(b)(2)(ii) is to highlight the Federal Reserve added. § 34.203 Appraisalsfor higher-priced ■ d. New Paragraph 34.203(b)(7) is System’s proposed revisions. New mortgage loans. language is shown inside flbold-faced added. ■ e. New Paragraph 34. 203(b)(8) is arrowsfi, while language that would be * * * * * (b) Exemptions. The requirements in added. deleted is shown inside [bold-faced paragraphs (c) through (f) of this section ■ f. Under Paragraph 34.203(f)(2), brackets]. do not apply to the following types of paragraph 2 is removed and current List of Subjects transactions: paragraph 3 is redesignated paragraph 2. (1) A qualified mortgage pursuant to The revisions read as follows: 12 CFR Part 34 15 U.S.C. 1639c; Appendix C to Subpart G—OCC (2) A transaction: Interpretations Appraisal, Appraiser, Banks, Banking, (i) Secured by a new manufactured Consumer protection, Credit, Mortgages, home; or * * * * * National banks, Reporting and (ii) Secured solely by an existing 34.203(b) Exemptions. recordkeeping requirements, Savings manufactured home and not land. Paragraph 34.203(b)(2)(i). associations, Truth in lending. 1. Secured by new manufactured home. A * * * * * higher-priced mortgage loan secured by a 12 CFR Part 226 (5) A loan with a maturity of 12 new manufactured home is not subject to the months or less, if the purpose of the appraisal requirements of Subpart G, Advertising, Appraisal, Appraiser, loan is a ‘‘bridge’’ loan connected with regardless of whether the transaction is also Consumer protection, Credit, Federal the acquisition of a dwelling intended to secured by the land on which it is sited is Reserve System, Mortgages, Reporting become the consumer’s principal not a ‘‘higher-priced mortgage loan’’ subject and recordkeeping requirements, Truth dwelling. to the appraisal requirements of Subpart G. in lending. Paragraph 34.203(b)(2)(ii). * * * * * 1. Secured solely by an existing (7) An extension of credit that is a 12 CFR Part 1026 manufactured home and not land. A higher- refinancing, as defined under 12 CFR priced mortgage loan secured by a Advertising, Appraisal, Appraiser, 1026.20(a) except that the creditor need manufactured home and not land is not Banking, Banks, Consumer protection, not be the original creditor or a holder subject to the appraisal requirements of Credit, Credit unions, Mortgages, or servicer of the original obligation, Subpart G, regardless of whether the home is National banks, Reporting and and that meets the following criteria: titled as realty by operation of state law. recordkeeping requirements, Savings (i) The owner or guarantor of the * * * * * associations, Truth in lending. refinance loan is the current owner or Paragraph 34.203(b)(7). guarantor of the existing obligation; Paragraph 34.203(b)(7)(i). Department of the Treasury (ii) The regular periodic payments 1. Owner or guarantor. The term ‘‘owner’’ under the refinance loan do not: in § 34.203(b)(7)(i)(A) means an entity that Office of the Comptroller of the (A) Cause the principal balance to owns and holds a loan in its portfolio. Currency increase; ‘‘Owner’’ does not refer to an investor in a (B) Allow the consumer to defer mortgage-backed security. The term Authority and Issuance ‘‘guarantor’’ in § 34.203(b)(7)(i)(A)(1) refers to repayment of principal; or For the reasons set forth in the the entity that guarantees the credit risk on (C) Result in a balloon payment, as a loan that the entity holds in a mortgage- preamble, the OCC proposes to amend defined in 12 CFR 1026.18(s)(5)(i); and backed security. 12 CFR Part 34, as previously amended (iii) The proceeds from the refinance Paragraph 34.203(b)(7)(ii). at 78 FR 10368, 10432 (Feb. 13, 2013), loan are used solely for the following 1. Regular periodic payments. Under effective January 18, 2014, as follows: purposes: § 34.203(b)(7)(ii), the regular periodic

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payments on the refinance loan must not: condition for an exemption under § 226.43—Appraisals for higher-priced result in an increase of the principal balance § 34.203(b)(8) merely because it is used to mortgage loans. (negative amortization); allow the consumer satisfy and replace an existing exempt loan, * * * * * to defer repayment of principal (see Official unless the amount of the new extension of (b) Exemptions. The requirements in Staff Interpretations to the Bureau’s credit is equal to or less than the applicable fl Regulation Z, comment 43(e)(2)(i)–2); or threshold amount. For example, assume a paragraphs [(c)(3) through (6)] (c) result in a balloon payment. Thus, the terms closed-end loan that qualified for a through (f)fi of this section do not of the legal obligation must require the § 34.203(b)(8) exemption at consummation in apply to the following types of consumer to make payments of principal and year one is refinanced in year ten and that transactions: interest on a monthly or other periodic basis the new loan amount is greater than the (1) A qualified mortgage as defined [in that will repay the loan amount over the loan threshold amount in effect in year ten. In 12 CFR 1026.43(e)]flpursuant to 15 term. Except for payments resulting from any these circumstances, the creditor must U.S.C. 1639cfi; interest rate changes after consummation in comply with all of the applicable (2) A transactionfl: an adjustable-rate or step-rate mortgage, the requirements of Subpart G with respect to the (i) Sfi[s]ecured by a new periodic payments must be substantially year ten transaction if the original loan is manufactured home;fl or equal. For an explanation of the term satisfied and replaced by the new loan, ‘‘substantially equal,’’ see Official Staff unless another exemption from the (ii) Secured solely by an existing Interpretations to the Bureau’s Regulation Z, requirements of Subpart G applies. See manufactured home and not land.fi comment 43(c)(5)(i)–4. In addition, a single- § 34.203(b) and § 34.203(d)(7). * * * * * payment transaction is not a refinancing * * * * * (5) A loan with flafi maturity of 12 meeting the requirements of § 34.203(b)(7) months or less, if the purpose of the because it does not require ‘‘regular periodic Board of Governors of the Federal loan is a ‘‘bridge’’ loan connected with payments.’’ Reserve System Paragraph 34.203(b)(7)(iii). the acquisition of a dwelling intended to 1. Permissible use of proceeds. The Authority and Issuance become the consumer’s principal exemption for a refinancing under dwelling. For the reasons stated above, the § 34.203(b)(7) is available only if the * * * * * Board of Governors of the Federal proceeds from the refinancing are used fl(7) An extension of credit that is a Reserve System proposes to amend exclusively for two purposes: paying off the refinancing, as defined under 12 CFR Regulation Z, 12 CFR Part 226, as consumer’s existing first-lien mortgage 1026.20(a), except that the creditor need obligation and paying for closing costs, previously amended at 78 FR 10368, not be the original creditor or a holder including paying escrow amounts required at 10437 (Feb. 13, 2013), effective January or servicer of the original obligation, or before closing. If the proceeds of a 18, 2014, as follows: refinancing are used for other purposes, such and that meets the following criteria: as to pay off other liens or to provide PART 226—TRUTH IN LENDING ACT (i) The owner or guarantor of the additional cash to the consumer for (REGULATION Z) refinance loan is the current owner or discretionary spending, the transaction does guarantor of the existing obligation; not qualify for the exemption for a ■ 5. The authority citation for part 226 (ii) The regular periodic payments refinancing under § 34.203(b)(7) from the continues to read as follows: under the refinance loan do not: appraisal requirements in Subpart G. (A) Cause the principal balance to Paragraph 34.203(b)(8). Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1. Threshold amount. For purposes of 1637(c)(5), 1639(l), and 1639h; Pub. L. 111– increase; § 34.203(b)(8), the threshold amount in effect 24 section 2, 123 Stat. 1734; Pub. L. 111–203, (B) Allow the consumer to defer during a particular one-year period is the 124 Stat. 1376. repayment of principal; or (C) Result in a balloon payment, as amount stated below for that period. The ■ 6. Section 226.2 is amended by defined in 12 CFR 1026.18(s)(5)(i); and threshold amount is adjusted effective revising paragraph (a)(6) as follows: January 1 of every year by the percentage (iii) The proceeds from the refinance increase in the Consumer Price Index for § 226.2—Definitions and rules of loan are used solely for the following Urban Wage Earners and Clerical Workers construction. purposes: (CPI–W) that was in effect on the preceding (a) Definitions. For purposes of this (A) To pay off the outstanding June 1. Every year, this comment will be principal balance on the existing amended to provide the threshold amount for part, the following definitions apply: the upcoming one-year period after the obligation; and * * * * * (B) To pay closing or settlement annual percentage change in the CPI–W that (6) Business day means a day on was in effect on June 1 becomes available. charges required to be disclosed under Any increase in the threshold amount will be which the creditor’s offices are open to the Real Estate Settlement Procedures rounded to the nearest $100 increment. For the public for carrying on substantially Act, 12 U.S.C. 2601 et seq.; and example, if the percentage increase in the all of its business functions. However, (8) An extension of credit for which CPI–W would result in a $950 increase in the for purposes of rescission under the amount of credit extended is equal threshold amount, the threshold amount will §§ 1026.15 and 1026.23, and for to or less than the applicable threshold be increased by $1,000. However, if the purposes of §§ 226.19(a)(1)(ii), amount, which is adjusted every year to percentage increase in the CPI–W would 226.19(a)(2), 226.31, fl226.43, fiand reflect increases in the Consumer Price result in a $949 increase in the threshold 226.46(d)(4), the term means all Index for Urban Wage Earners and amount, the threshold amount will be calendar days except Sundays and the increased by $900. Clerical Workers, as applicable, and i. From January 18, 2014, through legal public holidays specified in 5 published in the official staff December 31, 2014, the threshold amount is U.S.C. 6103(a), such as New Year’s Day, commentary to this paragraph (b)(8).fi $25,000. the Birthday of Martin Luther King, Jr., * * * * * 2. Qualifying for exemption—in general. A Washington’s Birthday, Memorial Day, ■ 8. In Supplement I to part 226, under transaction is exempt under § 34.203(b)(8) if Independence Day, Labor Day, Section 226.43—Appraisals for Higher- the creditor makes an extension of credit at Columbus Day, Veterans Day, consummation that is equal to or below the Priced Mortgage Loans: Thanksgiving Day, and Christmas Day. ■ threshold amount in effect at the time of a. Paragraph 43(b)(2) is redesignated consummation. * * * * * Paragraph 43(b)(2)(i). 3. Qualifying for exemption—subsequent ■ 7. Section 226.43 is amended by ■ b. Under redesignated Paragraph changes. A transaction does not meet the revising paragraph (b) as follows: 43(b)(2)(i), paragraph 1 is revised.

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■ c. New Paragraph 43(b)(2)(ii) is § 226.43(b)(7) is available only if the appraisal staff, the date of ‘‘receipt’’ is the added. proceeds from the refinancing are used date on which the appraisal is completed.]. ■ d. New Paragraph 43(b)(7) is added. exclusively for two purposes: Paying off the fl2fi[3]. No waiver. Regulation B, 12 CFR ■ e. New Paragraph 43(b)(8) is added. consumer’s existing first-lien mortgage 1002.14(a)(1), allowing the consumer to ■ f. Under Paragraph 43(f)(2), paragraph obligation and paying for closing costs, waive the requirement that the appraisal including paying escrow amounts required at copy be provided three business days before 2 is removed and current paragraph 3 is or before closing. If the proceeds of a consummation, does not apply to higher- redesignated as paragraph 2. refinancing are used for other purposes, such priced mortgage loans subject to § 226.43. A The revisions read as follows: as to pay off other liens or to provide consumer of a higher-priced mortgage loan Supplement I to Part 226—Official additional cash to the consumer for subject to § 226.43 may not waive the timing discretionary spending, the transaction does requirement to receive a copy of the appraisal Interpretations not qualify for the exemption for a under § 226.43(f)(1). refinancing under § 226.43(b)(7) from the * * * * * * * * * * appraisal requirements in § 226.43. Section 226.43—Appraisals for Higher-Priced Paragraph 43(b)(8). Bureau of Consumer Financial 1. Threshold amount. For purposes of Mortgage Loans Protection * * * * * § 226.43(b)(8), the threshold amount in effect during a particular one-year period is the 43(b) Exemptions. Authority and Issuance amount stated below for that period. The Paragraph 43(b)(2)fl(i)fi. threshold amount is adjusted effective For the reasons stated above, the 1. Secured by new manufactured home. A January 1 of every year by the percentage Bureau proposes to amend Regulation Z, flhigher-priced mortgage loanfi[transaction] increase in the Consumer Price Index for 12 CFR part 1026, as previously secured by a new manufactured homefl is Urban Wage Earners and Clerical Workers amended, including on February 13, not subject to the appraisal requirements of (CPI–W) that was in effect on the preceding fi 2013 (78 FR 10368, 10442 (Feb. 13, § 226.43, regardless of whether the June 1. Every year, this comment will be transaction is also secured by the land on 2013)), effective January 18, 2014, as amended to provide the threshold amount for follows: which it is sited [is not a ‘‘higher-priced the upcoming one-year period after the mortgage loan’’ subject to the appraisal annual percentage change in the CPI–W that PART 1026—TRUTH IN LENDING ACT requirements of § 226.43]. was in effect on June 1 becomes available. flParagraph 43(b)(2)(ii). Any increase in the threshold amount will be (REGULATION Z) 1. Secured solely by an existing rounded to the nearest $100 increment. For ■ 9. The authority citation for part 1026 manufactured home and not land. A higher- example, if the percentage increase in the priced mortgage loan secured by a CPI–W would result in a $950 increase in the continues to read as follows: manufactured home and not land is not threshold amount, the threshold amount will Authority: 12 U.S.C. 2601, 2603–2605, subject to the appraisal requirements of be increased by $1,000. However, if the 2607, 2609, 2617, 5511, 5512, 5532, 5581; 15 § 226.43, regardless of whether the home is percentage increase in the CPI–W would U.S.C. 1601 et seq. titled as realty by operation of state law.fi result in a $949 increase in the threshold ■ 10. Section 1026.2 is amended by * * * * * amount, the threshold amount will be revising paragraph (a)(6) to read as fl Paragraph 43(b)(7). increased by $900. follows: Paragraph 43(b)(7)(i). i. From January 18, 2014, through 1. Owner or guarantor. The term ‘‘owner’’ December 31, 2014, the threshold amount is § 1026.2—Definitions and rules of in § 226.43(b)(7)(i) means an entity that owns $25,000. construction. 2. Qualifying for exemption—in general. A and holds a loan in its portfolio. ‘‘Owner’’ (a) Definitions. For purposes of this does not refer to an investor in a mortgage- transaction is exempt under § 226.43(b)(8) if backed security. The term ‘‘guarantor’’ in the creditor makes an extension of credit at part, the following definitions apply: § 226.43(b)(7)(i) refers to the entity that consummation that is equal to or below the * * * * * guarantees the credit risk on a loan that the threshold amount in effect at the time of (6) Business day means a day on entity holds in a mortgage-backed security. consummation. which the creditor’s offices are open to PParagraph 43(b)(7)(ii). 3. Qualifying for exemption—subsequent the public for carrying on substantially 1. Regular periodic payments. Under changes. A transaction does not meet the all of its business functions. However, § 226.43(b)(7)(ii), the regular periodic condition for an exemption under for purposes of rescission under payments on the refinance loan must not: § 226.43(b)(8) merely because it is used to Result in an increase of the principal balance satisfy and replace an existing exempt loan, sections 1026.15 and 1026.23, and for (negative amortization); allow the consumer unless the amount of the new extension of purposes of sections 1026.19(a)(1)(ii), to defer repayment of principal (see Official credit is equal to or less than the applicable 1026.19(a)(2), 1026.31, 1026.35(c), and Staff Interpretations to the Bureau’s threshold amount. For example, assume a 1026.46(d)(4), the term means all Regulation Z, comment 43(e)(2)(i)–2); or closed-end loan that qualified for a calendar days except Sundays and the result in a balloon payment. Thus, the terms § 226.43(b)(8) exemption at consummation in legal public holidays specified in 5 of the legal obligation must require the year one is refinanced in year ten and that U.S.C. 6103(a), such as New Year’s Day, consumer to make payments of principal and the new loan amount is greater than the the Birthday of Martin Luther King, Jr., interest on a monthly or other periodic basis threshold amount in effect in year ten. In that will repay the loan amount over the loan these circumstances, the creditor must Washington’s Birthday, Memorial Day, term. Except for payments resulting from any comply with all of the applicable Independence Day, Labor Day, interest rate changes after consummation in requirements of § 226.43 with respect to the Columbus Day, Veterans Day, an adjustable-rate or step-rate mortgage, the year ten transaction if the original loan is Thanksgiving Day, and Christmas Day. periodic payments must be substantially satisfied and replaced by the new loan, ■ 11. Section 1026.35 is amended by equal. For an explanation of the term unless another exemption from the revising paragraphs (c) heading, (c)(2)(i), ‘‘substantially equal,’’ see Official Staff requirements of § 226.43 applies. See (c)(2)(ii), (c)(2)(v) and adding paragraphs Interpretations to the Bureau’s Regulation Z, § 226.43(b) and § 226.43(d)(7).fi (c)(2)(ii)(A), (c)(2)(ii)(B), (c)(2)(vii), and comment 43(c)(5)(i)–4. In addition, a single- * * * * * (c)(2)(viii) to read as follows: payment transaction is not a refinancing 43(f) Copy of appraisals. meeting the requirements of § 226.43(b)(7) * * * * * § 1026.35—Requirements for higher-priced because it does not require ‘‘regular periodic mortgage loans. payments.’’ 43(f)(2) Timing. Paragraph 43(b)(7)(iii). * * * * * * * * * * 1. Permissible use of proceeds. The [2. ‘‘Receipt’’ of the appraisal. For (c) Appraisals.* * * exemption for a refinancing under appraisals prepared by the creditor’s internal * * * * *

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(2) *** ■ f. Under Paragraph 35(c)(6)(ii), obligation and paying for closing costs, (i) A qualified mortgage as defined paragraph 2 is removed and current including paying escrow amounts required at pursuant to 15 U.S.C. 1639c; paragraph 3 is redesignated paragraph 2. or before closing. If the proceeds of a (ii) A transaction: The revisions read as follows: refinancing are used for other purposes, such (A) Secured by a new manufactured as to pay off other liens or to provide Supplement I to Part 1026—Official home; or additional cash to the consumer for Interpretations (B) Secured solely by an existing discretionary spending, the transaction does manufactured home and not land. * * * * * not qualify for the exemption for a * * * * * refinancing under § 1026.35(c)(2)(vii) from Section 1026.35—Requirements for Higher- the appraisal requirements in § 1026.35(c). (v) A loan with a maturity of 12 Priced Mortgage Loans months or less, if the purpose of the Paragraph 35(c)(2)(viii) * * * * * loan is a ‘‘bridge’’ loan connected with 1. Threshold amount. For purposes of the acquisition of a dwelling intended to 35(c)(2) Exemptions § 1026.35(c)(2)(viii), the threshold amount in become the consumer’s principal Paragraph 35(c)(2)(ii)(A) effect during a particular one-year period is dwelling. 1. Secured by new manufactured home. A the amount stated below for that period. The * * * * * higher-priced mortgage loan secured by a threshold amount is adjusted effective (vii) An extension of credit that is a new manufactured home is not subject to the January 1 of every year by the percentage refinancing, as defined under appraisal requirements of § 1026.35(c), increase in the Consumer Price Index for § 1026.20(a) except that the creditor regardless of whether the transaction is also Urban Wage Earners and Clerical Workers need not be the original creditor or a secured by the land on which it is sited. (CPI–W) that was in effect on the preceding holder or servicer of the original Paragraph 35(c)(2)(ii)(B) June 1. Every year, this comment will be obligation, and that meets the following 1. Secured solely by an existing amended to provide the threshold amount for criteria: manufactured home and not land. A higher- the upcoming one-year period after the (A) The owner or guarantor of the priced mortgage loan secured by a annual percentage change in the CPI–W that refinance loan is the current owner or manufactured home and not land is not was in effect on June 1 becomes available. guarantor of the existing obligation; subject to the appraisal requirements of Any increase in the threshold amount will be (B) The regular periodic payments § 1026.35(c), regardless of whether the home rounded to the nearest $100 increment. For under the refinance loan do not: is titled as realty by operation of state law. example, if the percentage increase in the (1) Cause the principal balance to * * * * * CPI–W would result in a $950 increase in the increase; Paragraph 35(c)(2)(vii) threshold amount, the threshold amount will be increased by $1,000. However, if the (2) Allow the consumer to defer Paragraph 35(c)(2)(vii)(A) repayment of principal; or percentage increase in the CPI–W would (3) Result in a balloon payment, as 1. Owner or guarantor. The term ‘‘owner’’ result in a $949 increase in the threshold in § 1026.35(c)(2)(vii)(A) means an entity that defined in § 1026.18(s)(5)(i); and amount, the threshold amount will be owns and holds a loan in its portfolio. increased by $900. (C) The proceeds from the refinance ‘‘Owner’’ does not refer to an investor in a loan are used solely for the following i. From January 18, 2014, through mortgage-backed security. The term December 31, 2014, the threshold amount is purposes: ‘‘guarantor’’ in § 1026.35(c)(2)(vii)(A)(1) $25,000. (1) To pay off the outstanding refers to the entity that guarantees the credit principal balance on the existing risk on a loan that the entity holds in a 2. Qualifying for exemption—in general. A obligation; and mortgage-backed security. transaction is exempt under § 1026.35(c)(2)(viii) if the creditor makes an (2) To pay closing or settlement Paragraph 35(c)(2)(vii)(B) extension of credit at consummation that is charges required to be disclosed under 1. Regular periodic payments. Under the Real Estate Settlement Procedures equal to or below the threshold amount in § 1026.35(c)(2)(vii)(D), the regular periodic effect at the time of consummation. Act, 12 U.S.C. 2601 et seq.; and payments on the refinance loan must not: 3. Qualifying for exemption—subsequent (viii) An extension of credit for which result in an increase of the principal balance changes. A transaction does not meet the the amount of credit extended is equal (negative amortization); allow the consumer condition for an exemption under to or less than the applicable threshold to defer repayment of principal (see comment § 1026.35(c)(2)(viii) merely because it is used amount, which is adjusted every year to 43(e)(2)(i)–2); or result in a balloon payment. to satisfy and replace an existing exempt reflect increases in the Consumer Price Thus, the terms of the legal obligation must require the consumer to make payments of loan, unless the amount of the new extension Index for Urban Wage Earners and principal and interest on a monthly or other of credit is equal to or less than the Clerical Workers, as applicable, and periodic basis that will repay the loan applicable threshold amount. For example, published in the official staff amount over the loan term. Except for assume a closed-end loan that qualified for commentary to this paragraph payments resulting from any interest rate a § 1026.35(c)(2)(viii) exemption at (c)(2)(viii). changes after consummation in an adjustable- consummation in year one is refinanced in rate or step-rate mortgage, the periodic * * * * * year ten and that the new loan amount is payments must be substantially equal. For an ■ 12. In Supplement I to part 1026, greater than the threshold amount in effect in explanation of the term ‘‘substantially under Section 1026.35—Requirements equal,’’ see comment 43(c)(5)(i)–4. In year ten. In these circumstances, the creditor for Higher-Priced Mortgage Loans: addition, a single-payment transaction is not must comply with all of the applicable ■ a. Paragraph 35(c)(2)(ii) is a refinancing meeting the requirements of requirements of § 1026.35(c) with respect to redesignated Paragraph 35(c)(2)(ii)(A). § 1026.35(c)(2)(vii) because it does not the year ten transaction if the original loan ■ b. Under redesignated Paragraph require ‘‘regular periodic payments.’’ is satisfied and replaced by the new loan, 35(c)(2)(ii)(A), paragraph 1 is revised. Paragraph 35(c)(2)(vii)(C) unless another exemption from the ■ c. New Paragraph 35(c)(2)(ii)(B) is requirements of § 1026.35(c) applies. See 1. Permissible use of proceeds. The added. exemption for a refinancing under § 1026.35(c)(2) and § 1026.35(c)(4)(vii). ■ d. New Paragraph 35(c)(2)(vii) is § 1026.35(c)(2)(vii) is available only if the * * * * * added. proceeds from the refinancing are used ■ e. New Paragraph 35(c)(2)(viii) is exclusively for two purposes: Paying off the added. consumer’s existing first-lien mortgage

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Dated: July 9, 2013. By order of the Board of Directors. Thomas J. Curry, Federal Deposit Insurance Corporation. Comptroller of the Currency. Robert E. Feldman, By order of the Board of Governors of the Executive Secretary. Federal Reserve System, July 10, 2013. Dated: July 8, 2013. Robert deV. Frierson, Edward J. DeMarco, Secretary of the Board. Acting Director, Federal Housing Finance Dated: July 9, 2013. Agency. Richard Cordray, [FR Doc. 2013–17086 Filed 8–7–13; 8:45 am] Director, Bureau of Consumer Financial BILLING CODE 6210–01–P; 4810–33–P; 4810–AM–P; Protection. 8070–01–P; 7590–01–P By the National Credit Union Administration Board on July 9, 2013. Mary Rupp, Secretary of the Board. Dated at Washington, DC, this 9th day of July 2013.

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