Higher-Priced Mortgage Loan Escrow Exemption (Regulation Z)

As Enacted ( Federal Register)

Cited authorities 17

Cited in

Published date	17 February 2021
Citation	86 FR 9840
Record Number	2021-01572
Section	Rules and Regulations
Court	Consumer Financial Protection Bureau

9840

Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations

12 CFR 1026.35(a) and (b). An HPML is defined

in 12 CFR 1026.35(a)(1) and generally means a

closed-end consumer credit transaction secured by

the consumer’s principal dwelling with an annual

percentage rate (APR) that exceeds the average

prime offer rate (APOR) for a comparable

transaction as of the date the interest rate is set by:

1.5 percentage points or more for a first-lien

transaction at or below the Freddie Mac conforming

loan limit; 2.5 percentage points or more for a first-

lien transaction above the Freddie Mac conforming

loan limit; or 3.5 percentage points or more for a

subordinate-lien transaction. The escrow

requirement only applies to first-lien HPMLs.

12 CFR 1026.35(b)(2)(i) and (iii).

Public Law 115–174, 132 Stat. 1296 (2018).

As discussed in more detail in the section-by-

section analysis of §1026.35(b)(2)(iv), this obsolete

text includes, among other text, language related to

a recently issued interpretive rule. On June 23,

2020, the Bureau issued an interpretive rule that

describes the Home Mortgage Disclosure Act of

1975 (HMDA), Public Law 94–200, 89 Stat. 1125

(1975), data to be used in determining that an area

is ‘‘underserved.’’ 85 FR 38299 (June 26, 2020). As

the Bureau explained in the interpretive rule,

certain parts of the methodology described in

comment 35(b)(2)(iv)–1.ii became obsolete because

they referred to HMDA data points replaced or

otherwise modified by a 2015 Bureau final rule

(2015 HMDA Final Rule). 80 FR 66128, 66256–58

(Oct. 28, 2015). The Bureau stated that it was

issuing the interpretive rule to supersede the

outdated portions of the commentary and to

identify current HMDA data points it will use to

determine whether a county is underserved. 85 FR

at 38299. In this final rule the Bureau amends the

comment to remove the obsolete text.

As discussed in more detail in the section-by-

section analysis of §1026.35(b)(2)(iii), the

scrivener’s errors that this rule corrects were in the

commentary from Truth in Lending Act (Regulation

Z) Adjustment to Asset-Size Exemption Threshold,

85 FR 83411 (Dec. 22, 2020).

When amending commentary, the Office of the

Federal Register requires reprinting of certain

subsections being amended in their entirety rather

than providing more targeted amendatory

instructions and related text. The sections of

commentary text included in this document show

the language of those sections with the changes as

adopted in this final rule. In addition, the Bureau

is releasing an unofficial, informal redline to assist

industry and other stakeholders in reviewing the

changes this final rule makes to the regulatory and

commentary text of Regulation Z. This redline is

posted on the Bureau’s website with the final rule.

If any conflicts exist between the redline and the

text of Regulation Z or this final rule, the

documents published in the Federal Register and

the Code of Federal Regulations are the controlling

documents.

Public Law 111–203, 124 Stat. 1376 (2010).

73 FR 44522 (July 30, 2008).

Id. at 44532.

Id. at 44557–61. Prime market loans generally

include an escrow account, which may make the

monthly payment appear higher than for a higher-

priced loan that does not include an escrow

account.

Dodd-Frank Act sections 1022, 1061, 1100A

and 1100B, 124 Stat. 1980, 2035–39, 2107–10.

Dodd-Frank Act section 1461(a); 15 U.S.C.

1639d.

Id.

78 FR 4726 (Jan. 22, 2013). This rule was

subsequently amended several times, including in

2013 and 2015. See 78 FR 30739 (May 23, 2013) and

80 FR 59944 (Oct. 2, 2015).

interpretations thereof issued by the

Small Business Administration.

* * * * *

By order of the Board of Governors of the

Federal Reserve System, February 9, 2021.

Ann Misback,

Secretary of the Board.

[FR Doc. 2021–02966 Filed 2–16–21; 8:45 am]

BILLING CODE 6210–01–P

BUREAU OF CONSUMER FINANCIAL

PROTECTION

12 CFR Part 1026

[Docket No. CFPB–2020–0023]

RIN 3170–AA83

Higher-Priced Mortgage Loan Escrow

Exemption (Regulation Z)

AGENCY

: Bureau of Consumer Financial

Protection.

ACTION

: Final rule; official

interpretation.

SUMMARY

: The Bureau of Consumer

Financial Protection (Bureau) is issuing

this final rule to amend Regulation Z,

which implements the Truth in Lending

Act, as mandated by section 108 of the

Economic Growth, Regulatory Relief,

and Consumer Protection Act. The

amendments exempt certain insured

depository institutions and insured

credit unions from the requirement to

establish escrow accounts for certain

higher-priced mortgage loans.

DATES

: This rule is effective on February

17, 2021.

FOR FURTHER INFORMATION CONTACT

Joseph Devlin, Senior Counsel, Office of

Regulations, at 202–435–7700 or https://

reginquiries.consumerfinance.gov/. If

you require this document in an

alternative electronic format, please

contact CFPB_Accessibility@cfpb.gov.

SUPPLEMENTARY INFORMATION

I. Summary of the Final Rule

Regulation Z, 12 CFR part 1026,

implements the Truth in Lending Act

(TILA), 15 U.S.C. 1601 et seq., and

includes a requirement that creditors

establish an escrow account for certain

higher-priced mortgage loans (HPMLs),

and also provides for certain

exemptions from this requirement.

the 2018 Economic Growth, Regulatory

Relief, and Consumer Protection Act

(EGRRCPA),

Congress directed the

Bureau to issue regulations to add a new

exemption from TILA’s escrow

requirement that exempts transactions

by certain insured depository

institutions and insured credit unions.

This final rule implements the

EGRRCPA section 108 statutory

directive, removes certain obsolete text

from the Official Interpretations to

Regulation Z (commentary),

and also

corrects prior inadvertent deletions from

and two scrivener’s errors in existing

commentary.

New § 1026.35(b)(2)(vi) exempts from

the Regulation Z HPML escrow

requirement any loan made by an

insured depository institution or

insured credit union and secured by a

first lien on the principal dwelling of a

consumer if: (1) The institution has

assets of $10 billion or less; (2) the

institution and its affiliates originated

1,000 or fewer loans secured by a first

lien on a principal dwelling during the

preceding calendar year; and (3) certain

of the existing HPML escrow exemption

criteria are met, as described below in

part V.

II. Background

A. Federal Reserve Board Escrow Rule

and the Dodd-Frank Act

Prior to the enactment of the Dodd-

Frank Wall Street Reform and Consumer

Protection Act (Dodd-Frank Act),

the

Board of Governors of the Federal

Reserve System (Board) issued a rule

requiring, among other things, the

establishment of escrow accounts for

payment of property taxes and

insurance for certain ‘‘higher-priced

mortgage loans,’’ a category which the

Board defined to capture what it

deemed to be subprime loans.

The

Board explained that this rule was

intended to reduce consumer and

systemic risks by requiring the subprime

market to structure loans and disclose

their pricing similarly to the prime

market.

In 2010, Congress enacted the Dodd-

Frank Act, which amended TILA and

transferred TILA rulemaking authority

and other functions from the Board to

the Bureau.

The Dodd-Frank Act

added TILA section 129D(a), which

adopted the Board’s rule requiring that

creditors establish an escrow account

for higher-priced mortgage loans.

The

Dodd-Frank Act also excluded certain

loans, such as reverse mortgages, from

this escrow requirement. The Dodd-

Frank Act further granted the Bureau

authority to structure an exemption

based on asset size and mortgage

lending activity for creditors operating

predominantly in rural or underserved

areas.

In 2013, the Bureau exercised

this authority to exempt from the

escrow requirement creditors with

under $2 billion in assets and meeting

other criteria.

In the Helping Expand

Lending Practices in Rural Communities

Act of 2015, Congress amended TILA

section 129D again by striking the term

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Public Law 114–94, div. G, tit. LXXXIX, section

89003, 129 Stat. 1799, 1800 (2015). In 2016, the

Bureau amended Regulation Z to implement this

change. 81 FR 16074 (Mar. 25, 2016).

EGRRCPA section 108, 132 Stat. 1304–05; 15

U.S.C. 1639d(c)(2).

85 FR 44228 (July 22, 2020).

The transition period is discussed in the

section-by-section analysis of §1026.35(b)(2)(iii). In

addition to the comments described in the

paragraph above, three trade association

commenters requested that the Bureau reduce the

scope of the general HPML definition by changing

the interest rate trigger for non-jumbo first liens to

2 percent over the APOR. Because the proposed

rule did not propose to change the statutory general

HPML definition and doing so would affect

regulatory provisions that are not affected by

EGRRCPA section 108 or the proposed rule, the

Bureau considers these comments beyond the scope

of this rulemaking.

12 U.S.C. 5512(b)(1).

Dodd-Frank Act section 1002(14), 12 U.S.C.

5481(14) (defining ‘‘Federal consumer financial

law’’ to include the ‘‘enumerated consumer laws’’

and the provisions of title X of the Dodd-Frank Act);

Dodd-Frank Act section 1002(12), 12 U.S.C.

5481(12) (defining ‘‘enumerated consumer laws’’ to

include TILA).

15 U.S.C. 1604(a).

15 U.S.C. 1601(a).

Id.

15 U.S.C. 1602(bb).

‘‘predominantly’’ for creditors operating

in rural or underserved areas.

B. Economic Growth, Regulatory Relief,

and Consumer Protection Act

Congress enacted the EGRRCPA in

2018. In section 108 of the EGRRCPA,

Congress directed the Bureau to conduct

a rulemaking to create a new exemption,

this one to exempt from TILA’s escrow

requirement loans made by certain

creditors with assets of $10 billion or

less and meeting other criteria.

Specifically, section 108 of the

EGRRCPA amended TILA section

129D(c) to require the Bureau to exempt

certain loans made by certain insured

depository institutions and insured

credit unions from the TILA section

129D(a) HPML escrow requirement.

TILA section 129D(c)(2), as amended

by the EGRRCPA, requires the Bureau to

issue regulations to exempt from the

HPML escrow requirement any loan

made by an insured depository

institution or insured credit union

secured by a first lien on the principal

dwelling of a consumer if: (1) The

institution has assets of $10 billion or

less; (2) the institution and its affiliates

originated 1,000 or fewer loans secured

by a first lien on a principal dwelling

during the preceding calendar year; and

(3) certain of the existing Regulation Z

HPML escrow exemption criteria, or

those of any successor regulation, are

met. The Regulation Z exemption

criteria that the statute includes in the

new exemption are: (1) The requirement

that the creditor extend credit in a rural

or underserved area

(§ 1026.35(b)(2)(iii)(A)); (2) the

exclusion from exemption eligibility of

transactions involving forward purchase

commitments (§ 1026.35(b)(2)(v)); and

(3) the prerequisite that the institution

and its affiliates not maintain an escrow

account other than either (a) those

established for HPMLs at a time when

the creditor may have been required by

the HPML escrow rule to do so, or (b)

those established after consummation as

an accommodation to distressed

consumers (§ 1026.35(b)(2)(iii)(D)).

III. Summary of the Rulemaking

Process

The Bureau released a proposed rule

to implement EGRRCPA section 108 on

July 2, 2020, and the proposal was

published in the Federal Register on

July 22, 2020.

The comment period

closed on September 21, 2020. Twelve

commenters explicitly supported the

proposed rule and four were generally

opposed to it. Almost all of the

commenters who supported the rule

suggested one or more changes,

discussed below in the section-by-

section analysis. The commenters were

individuals and individual banks and

credit unions, as well as State, regional

and national trade associations

representing banks and credit unions.

There were also two anonymous

comments. No community or consumer

organizations commented on the

proposed rule. As discussed in more

detail below, the Bureau has considered

these comments in finalizing this final

rule as proposed, except that the final

rule provides a transition period of 120

days, rather than the 90 days set forth

in the proposed rule.

IV. Legal Authority

The Bureau is issuing this final rule

pursuant to its authority under the

Dodd-Frank Act and TILA.

A. Dodd-Frank Act Section 1022(b)

Section 1022(b)(1) of the Dodd-Frank

Act authorizes the Bureau to prescribe

rules ‘‘as may be necessary or

appropriate to enable the Bureau to

administer and carry out the purposes

and objectives of the Federal consumer

financial laws, and to prevent evasions

thereof.’’

Among other statutes, TILA

and title X of the Dodd-Frank Act are

Federal consumer financial laws.

Accordingly, in adopting this rule, the

Bureau is exercising its authority under

Dodd-Frank Act section 1022(b) to

prescribe rules that carry out the

purposes and objectives of TILA and

title X of the Dodd-Frank Act and

prevent evasion of those laws.

B. TILA

As amended by the Dodd-Frank Act,

TILA section 105(a) directs the Bureau

to prescribe regulations to carry out the

purposes of TILA, and provides that

such regulations may contain additional

requirements, classifications,

differentiations, or other provisions, and

may provide for such adjustments and

exceptions for all or any class of

transactions, that the Bureau judges are

necessary or proper to effectuate the

purposes of TILA, to prevent

circumvention or evasion thereof, or to

facilitate compliance therewith.

purpose of TILA is ‘‘to assure a

meaningful disclosure of credit terms so

that the consumer will be able to

compare more readily the various credit

terms available to him and avoid the

uninformed use of credit.’’

This stated

purpose is tied to Congress’s finding

that ‘‘economic stabilization would be

enhanced and the competition among

the various financial institutions and

other firms engaged in the extension of

consumer credit would be strengthened

by the informed use of credit.’’

Thus,

strengthened competition among

financial institutions is a goal of TILA,

achieved through the effectuation of

TILA’s purposes.

Historically, TILA section 105(a) has

served as a broad source of authority for

rules that promote the informed use of

credit through required disclosures and

substantive regulation of certain

practices. Dodd-Frank Act section

1100A clarified the Bureau’s section

105(a) authority by amending that

section to provide express authority to

prescribe regulations that contain

‘‘additional requirements’’ that the

Bureau finds are necessary or proper to

effectuate the purposes of TILA, to

prevent circumvention or evasion

thereof, or to facilitate compliance

therewith. The Dodd-Frank Act

amendment clarified that the Bureau

has the authority to use TILA section

105(a) to prescribe requirements beyond

those specifically listed in TILA that

meet the standards outlined in section

105(a). As amended by the Dodd-Frank

Act, TILA section 105(a) authority to

make adjustments and exceptions to the

requirements of TILA applies to all

transactions subject to TILA, except

with respect to the provisions of TILA

section 129 that apply to the high-cost

mortgages referred to in TILA section

103(bb).

The Bureau’s authority under TILA

section 105(a) to make exceptions,

adjustments, and additional provisions

that the Bureau finds are necessary or

proper to effectuate the purposes of

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See 15 U.S.C. 1639b(a).

Specifically, TILA section 129D(c) authorizes

the Bureau to exempt, by regulation, a creditor from

the requirement (in section 129D(a)) that escrow

accounts be established for higher-priced mortgage

loans if the creditor operates in rural or

underserved areas, retains its mortgage loans in

portfolio, does not exceed (together with all

affiliates) a total annual mortgage loan origination

limit set by the Bureau, and meets any asset-size

threshold, and any other criteria the Bureau may

establish. 15 U.S.C. 1639(c)(1).

See 78 FR 4726 and 80 FR 59944, 59945–46.

78 FR 4726, 4738–39.

The terms ‘‘original’’ and ‘‘existing’’ escrow

exemption refer throughout this document to the

regulatory exemption at §1026.35(b)(2)(iii), either

as implemented by the January 2013 final rule or

as subsequently amended through 2016. They do

not refer to the exemptions or exclusions listed at

§1026.35(b)(2)(i).

78 FR at 4738–39.

See, e.g., 80 FR 59944, 59968 (adjusting end

date to January 1, 2016).

See Operations in Rural Areas Under the Truth

in Lending Act (Regulation Z); Interim Final Rule,

81 FR 16074 (Mar. 25, 2016).

TILA applies with respect to the

purpose of TILA section 129D. That

purpose is to ensure that consumers

understand and appreciate the full cost

of home ownership. The purpose of

TILA section 129D is also informed by

the findings articulated in TILA section

129B(a) that economic stabilization

would be enhanced by the protection,

limitation, and regulation of the terms of

residential mortgage credit and the

practices related to such credit, while

ensuring that responsible and affordable

mortgage credit remains available to

consumers.

For the reasons discussed in this

document, the Bureau is amending

Regulation Z to implement EGRRCPA

section 108 to carry out the purposes of

TILA and is adopting such additional

requirements, adjustments, and

exceptions as, in the Bureau’s judgment,

are necessary and proper to carry out

the purposes of TILA, prevent

circumvention or evasion thereof, or to

facilitate compliance. In developing

these aspects of the rule pursuant to its

authority under TILA section 105(a), the

Bureau has considered: (1) The

purposes of TILA, including the

purpose of TILA section 129D; (2) the

findings of TILA, including

strengthening competition among

financial institutions and promoting

economic stabilization; and (3) the

specific findings of TILA section

129B(a)(1) that economic stabilization

would be enhanced by the protection,

limitation, and regulation of the terms of

residential mortgage credit and the

practices related to such credit, while

ensuring that responsible, affordable

mortgage credit remains available to

consumers.

In addition, in previous rulemakings,

the Bureau adopted two of the

regulatory provisions this rule now

amends. In adopting those provisions,

the Bureau relied on one or more of the

authorities discussed above, as well as

other authority.

The Bureau is

amending these provisions in reliance

on the same authority, as discussed in

detail in the Legal Authority or section-

by-section analysis parts of the Bureau’s

final rules titled ‘‘Escrow Requirements

Under the Truth in Lending Act’’ and

‘‘Amendments Relating to Small

Creditors and Rural or Underserved

Areas Under the Truth in Lending Act

(Regulation Z).’’

V. Section-by-Section Analysis

Section 1026.35—Requirements for

Higher-Priced Mortgage Loans

35(a) Definitions

35(a)(3) and (4)

The escrow requirement exemption in

EGRRCPA section 108 is available to

‘‘insured credit unions’’ and ‘‘insured

depository institutions.’’ Section 108

amends TILA to provide definitions for

these two terms, at TILA section

129D(i)(3) and (4). ‘‘Insured credit

union’’ has the meaning given the term

in section 101 of the Federal Credit

Union Act (12 U.S.C. 1752), and

‘‘insured depository institution’’ has the

meaning given the term in section 3 of

the Federal Deposit Insurance Act (12

U.S.C. 1813).

The Bureau proposed to include these

definitions with the existing definitions

regarding HPMLs, in § 1026.35(a). No

commenters discussed these definitions

or objected to the EGRRCPA’s limitation

of eligibility for the new exemption to

insured credit unions and insured

depository institutions. The Bureau now

adopts these definitions as proposed.

35(b) Escrow Accounts

35(b)(2) Exemptions

35(b)(2)(iii)

EGRRCPA section 108 amends TILA

section 129D to provide that one of the

requirements for the new escrow

exemption is that an exempted

transaction satisfy the criterion

previously established by the Bureau

and codified at Regulation Z

§ 1026.35(b)(2)(iii)(D). Section

1026.35(b)(2)(iii)(D) establishes as a

prerequisite to the exemption that a

creditor or its affiliate is not already

maintaining an escrow account for any

extension of consumer credit secured by

real property or a dwelling that the

creditor or its affiliate currently

services.

The purpose of this

prerequisite is to limit the exemption to

institutions that do not already provide

escrow accounts and thus would have to

incur the initial cost of setting up a

system to provide such accounts.

Instead, only institutions that are

otherwise eligible for the exemption but

already provide escrow accounts would

bear the burden of providing such

accounts, with the overall burden for

them being lower because they are

continuing to provide them rather than

incurring the cost of starting them up.

This prerequisite, however, is subject to

two exceptions.

First, under § 1026.35(b)(2)(iii)(D)(2),

a creditor would not lose the exemption

for providing escrow accounts as an

accommodation to distressed consumers

to assist such consumers in avoiding

default or foreclosure. The Bureau did

not propose to and is not amending this

exception.

Second, under

§ 1026.35(b)(2)(iii)(D)(1), the Bureau in

its original escrow exemption rule

granted an exception from the non-

escrowing requirement to creditors who

established escrow accounts for first-

lien HPMLs on or after April 1, 2010

(the effective date of the Board’s original

HPML escrow rule), and before June 1,

2013 (the effective date of the Bureau’s

first HPML escrow rule that included

the Dodd-Frank exemption for certain

creditors (the original escrow

exemption)). The purpose of this

exception was to avoid penalizing

creditors that had not previously

provided escrow accounts but

established them specifically to comply

with the regulation requiring escrows.

Over time, as the Bureau amended the

HPML escrow exemption criteria and

made more creditors eligible, the Bureau

also extended the end date for the

exception to the non-escrowing

requirement in § 1026.35(b)(2)(iii)(D), so

that creditors that had established

escrow accounts in order to comply

with the Bureau’s regulations could still

benefit from the relief provided by the

Bureau’s amendments to the exemption

criteria.

The Bureau most recently

extended the date to May 1, 2016,

consistent with the effective date of the

Bureau’s latest amendment to the HPML

exemption criteria.

The proposed rule proposed to amend

this exception again, explaining that the

dates in then-current

§ 1026.35(b)(2)(iii)(D)(1) between which

creditors were allowed to maintain

escrow accounts for first-lien HPMLs

without losing eligibility for the

exemption (April 1, 2010, until May 1,

2016) were necessary to allow creditors

to benefit fully from the existing escrow

exemption. However, those same dates

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84 FR 1356 (Feb. 26, 2019).

Id.

15 U.S.C. 1604(a).

Truth in Lending Act (Regulation Z)

Adjustment to Asset-Size Exemption Threshold, 85

FR 83411, 83415 (Dec. 22, 2020).

129 Stat. 1799.

would have caused most insured

depositories and insured credit unions

who would otherwise qualify under the

EGRRCPA’s new exemption criteria to

be ineligible for the exemption. The

reason they would have been ineligible

is that those depositories and credit

unions presumably had established

escrows for HPMLs after May 1, 2016,

in compliance with the then-current

escrow rule’s requirements.

In the proposed rule, to assist

otherwise exempt institutions to avoid

inadvertently making themselves

ineligible by establishing escrow

accounts before they had heard about

the rule and adjusted their compliance,

the Bureau proposed to replace the May

1, 2016, end date for the exception to

the prerequisite against maintaining

escrows with a new end date that was

approximately 90 days after the effective

date (proposed as the date of

publication in the Federal Register) of

the eventual section 108 escrow

exemption final rule. In addition, the

Bureau proposed to amend comment

35(b)(2)(iii)–1.iv to conform to this

change.

The Bureau also proposed to amend

comment 35(b)(2)(iii)(D)(1)–1 to address

the date change. Comments

35(b)(2)(iii)(D)(1)–1 and (2)–1 were

inadvertently deleted from the Code of

Federal Regulations in 2019 during an

annual inflation adjustment rulemaking,

and no change in interpretation of the

associated regulatory provisions was

intended.

The Bureau proposed to

correct this deletion by reinserting the

two comments back into Supplement I,

with comment 35(b)(2)(iii)(D)(1)–1

amended from its former language to

reflect the date change described above

and with no changes being made to

comment 35(b)(2)(iii)(D)(2)–1. In

addition, a sentence describing the

definition of ‘‘affiliate’’ in comment

35(b)(2)(iii)–1.ii.C was also

inadvertently deleted from the Code of

Federal Regulations in 2019, and no

change in interpretation was intended.

The Bureau also proposed to add the

deleted sentence back into this

comment.

Two commenters supported the

proposed extension of the non-

escrowing date to 90 days beyond the

effective (i.e., publication) date of the

rule and said they agreed with the

Bureau’s concern that small institutions

might unintentionally become

ineligible. Four other commenters

requested that the Bureau allow 120

days instead of 90, stating that small

institutions often lack the resources to

adjust to new compliance requirements

quickly and thus the extra time would

be very important. Two other

commenters asked for a longer

transition period than 90 days but did

not specify how many days the Bureau

should provide. None of the

commenters asking for more than 90

days provided factual evidence of the

need for more time beyond their stated

knowledge of creditor processes.

The Bureau is amending

§ 1026.35(b)(2)(iii)(D)(1) and comments

35(b)(2)(iii)–1.iv and (iii)(D)(1)–1

generally as proposed, but finalizing the

end date for the exception to the non-

escrowing requirement as 120 days from

the effective date (date of publication)

instead of the proposed end date of 90

days from the effective date. The small-

to mid-size institutions affected by the

rule may not be immediately aware of

the change and might make themselves

ineligible for the exemption by

establishing escrow accounts before

they become aware of the change. With

the final rule end date change, such

institutions will have 120 days to learn

of the amendment. The Bureau has no

information that extending the non-

escrowing date of the final rule from 90

to 120 days after the effective date

would harm consumers or have an

adverse impact on industry.

The Bureau initially adopted the

criterion in § 1026.35(b)(2)(iii)(D) under

its broad discretionary authority, set

forth in 15 U.S.C. 1639d(c)(4), to

establish ‘‘any other criteria [for the

escrow exemption] consistent with the

purposes’’ of the escrow provisions. In

establishing the new exemption in

EGRRCPA section 108, Congress

incorporated as a prerequisite to the

new exemption the criterion in

§ 1026.35(b)(2)(iii)(D) or ‘‘any successor

regulation.’’ The Bureau interprets the

reference to ‘‘any successor regulation’’

to authorize it to make amendments to

existing § 1026.35(b)(2)(iii)(D) consistent

with the purposes of the escrow

provisions, the same standard under

which the provision was initially

authorized. The Bureau believes the

amendment to the end date in

§ 1026.35(b)(2)(iii)(D)(1) is consistent

with the purposes of the escrow

provisions to avoid disqualifying the

majority of institutions that otherwise

would qualify for the new exemption.

Without this amendment, the Bureau

believes that very few insured

depository institutions and insured

credit unions would have been able to

benefit from the new escrow exemption.

Such institutions would only have been

institutions that (1) together with their

affiliates, had more than approximately

$2 billion in assets and, without

affiliates, less than $10 billion in assets;

(2) had not extended any HPMLs since

May 1, 2016; and (3) did not offer

mortgage escrows in the normal course

of business. Because this approach

would have restricted access to the new

HPML escrow exemption to this limited

group of institutions, the usefulness of

the exemption would have been

extremely limited. The Bureau

acknowledges the possibility that

creditors outside of the scope of the new

escrow exemption might become

eligible for the existing escrow

exemption as a result of the end-date

change. However, any such creditors

were able to so during previous date

extensions and chose not to. Therefore,

the Bureau believes that few, if any, of

such creditors would actually take

advantage of the existing escrow

exemption during this date extension.

In addition, the Bureau’s exemption is

authorized under the Bureau’s TILA

section 105(a) authority to make

adjustments to facilitate compliance

with TILA and effectuate its purposes.

Modifying the date will facilitate

compliance with TILA for the

institutions that would qualify for the

exemption but for the previous end

date.

Finally, in a recent annual inflation

adjustment rulemaking, the Bureau

erroneously amended comment

35(b)(2)(iii)–1.iii.E to include a

reference to the year ‘‘2019’’ rather than

the correct ‘‘2020,’’ and also erroneously

amended comment 35(b)(2)(iii)–1.iii.E.8

to include a reference to the year ‘‘2010’’

rather than the correct ‘‘2021.’’

The

Bureau considers these to be scrivener’s

errors that should be interpreted as

references to the year ‘‘2020’’ and

‘‘2021’’ respectively, and the Bureau is

now correcting the errors for clarity.

35(b)(2)(iv)

35(b)(2)(iv)(A)

The proposed rule explained that

existing § 1026.35(b)(2)(iv)(A)(3)

provided that a county or census block

could be designated as rural using an

application process pursuant to section

89002 of the Helping Expand Lending

Practices in Rural Communities Act.

Because the provision ceased to have

any force or effect on December 4, 2017,

the Bureau proposed to remove this

provision and make conforming changes

to § 1026.35(b)(2)(iv)(A). The Bureau

also proposed to remove references to

the obsolete provision in comments

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Bureau of Consumer Fin. Prot., Truth in

Lending (Regulation Z); Determining

‘‘Underserved’’ Areas Using Home Mortgage

Disclosure Act Data (June 23, 2020), https://

www.consumerfinance.gov/policy-compliance/

rulemaking/final-rules/truth-lending-regulation-z-

underserved-areas-home-mortgage-disclosure-act-

data/.

Although the Bureau did not receive comments

about the specific changes regarding rural or

underserved status discussed here, commenters did

express concern about the general rural or

underserved requirement of the new escrow

exemption. Those comments are discussed below in

the section-by-section analysis of

§1026.35(b)(2)(vi)(C).

EGRRCPA section 108 redesignated this

paragraph. It was previously TILA section

129D(c)(3).

78 FR 4726, 4741.

Id. at 4741–42.

EGRRCPA section 108 designates the new

exemption as TILA section 129D(c)(2) and

redesignates the paragraph that includes the

existing escrow exemption, adopted pursuant to

section 1461(a) of the Dodd-Frank Act, as TILA

section 129D(c)(1).

12 CFR 1026.35(b)(2)(iii)(B).

TILA section 129D(c)(2)(C).

See the discussion of §1026.35(b)(2)(vi)(A)

below for further explanation of the Bureau’s

adoption of grace periods in the exemption.

See 80 FR 59944, 59948–49, 59951, 59954.

35(b)(2)(iv)(A)–1.i and –2.i, as well as

comment 43(f)(1)(vi)–1.

On June 23, 2020, the Bureau issued

an interpretive rule that describes the

HMDA data to be used in determining

whether an area is ‘‘underserved.’’

the interpretive rule explained, certain

parts of the methodology described in

comment 35(b)(2)(iv)–1.ii became

obsolete because they referred to HMDA

data points replaced or otherwise

modified by the 2015 HMDA Final Rule.

In the proposed rule, the Bureau

proposed to remove as obsolete the last

two sentences from comment

35(b)(2)(iv)–1.ii and to remove

references to publishing the annual

rural and underserved lists in the

Federal Register, based on its tentative

conclusion that such publication does

not increase the ability of financial

institutions to access the information,

and that posting the lists on the

Bureau’s public website is sufficient.

The Bureau did not receive comments

on these proposed changes to

§ 1026.35(b)(2)(iv)(A), the related

changes to the official commentary, or

the changes to comment 35(b)(2)(iv)–

For the reasons discussed above, the

Bureau is finalizing these amendments

as proposed.

35(b)(2)(v)

EGRRCPA section 108 further amends

TILA section 129D to provide that one

of the requirements for the new escrow

exemption is that an exempted loan

satisfy the criterion in Regulation Z

§ 1026.35(b)(2)(v), a prerequisite to the

original escrow exemption. Existing

§ 1026.35(b)(2)(v) provides that, unless

otherwise exempted by § 1026.35(b)(2),

the exemption to the escrow

requirement would not be available for

any first-lien HPML that, at

consummation, is subject to a

commitment to be acquired by a person

that does not satisfy the conditions for

an exemption in § 1026.35(b)(2)(iii) (i.e.,

no forward commitment). In adopting

the original escrow exemption, the

Bureau stated that the prerequisite of no

forward commitments would

appropriately implement the

requirement in TILA section

129D(c)(1)(C)

that the exemption

apply only to portfolio lenders.

The

Bureau also reasoned that conditioning

the exemption on a lack of forward

commitments, rather than requiring that

all loans be held in portfolio, would

avoid consumers having to make

unexpected lump sum payments to fund

an escrow account.

To implement section 108, the Bureau

proposed to add references in

§ 1026.35(b)(2)(v) to the new exemption

to make clear that the new exemption

would also not be available for

transactions subject to forward

commitments of the type described in

§ 1026.35(b)(2)(v). The Bureau also

proposed to add similar references to

the new exemption in comment

35(b)(2)(v)–1 discussing ‘‘forward

commitments.’’ The Bureau did not

receive comments regarding these

provisions and is finalizing them as

proposed.

35(b)(2)(vi)

As explained above in part I, section

108 of the EGRRCPA amends TILA

section 129D to provide a new

exemption from the HPML escrow

requirement.

The new exemption is

narrower than the existing TILA section

129D exemption in several ways,

including the following. First, the

section 108 exemption is limited to

insured depositories and insured credit

unions that meet the statutory criteria,

whereas the existing escrow exemption

applies to any creditor (including a non-

insured creditor) that meets its criteria.

Second, the originations limit in the

section 108 exemption is specified to be

1,000 loans secured by a first lien on a

principal dwelling originated by an

insured depository institution or

insured credit union and its affiliates

during the preceding calendar year. In

contrast, TILA section 129D(c)(1) (as

redesignated) gave the Bureau discretion

to choose the originations limit for the

original escrow exemption, which the

Bureau set at 500 covered transactions,

and subsequently amended to 2,000

covered transactions (other than

portfolio loans).

Third, TILA section

129D(c)(1) also gave the Bureau

discretion to determine any asset size

threshold (which the Bureau set at $2

billion) and any other criteria the

Bureau may establish, consistent with

the purposes of TILA. EGRRCPA section

108, on the other hand, specifies an

asset size threshold of $10 billion and

does not expressly state that the Bureau

can establish other criteria. (However, as

discussed above, section 108 does

appear to allow for a more

circumscribed ability to alter certain

parameters of the new exemption by

referencing the existing regulation ‘‘or

any successor regulation.’’).

As explained in the proposed rule,

EGRRCPA section 108 carves out a

carefully circumscribed exemption

available to insured depository

institutions and insured credit unions

that do not pursue mortgage lending as

a major business line. Congress

provided an asset size limit of $10

billion, approximately eight billion

dollars above the existing escrow

exemption, but reduced the originations

limit to 1,000 loans.

The Bureau proposed to implement

the EGRRCPA section 108 exemption

consistent with this understanding of its

limited scope. Proposed new

§ 1026.35(b)(2)(vi) would have codified

the section 108 exemption by imposing

as a precondition a bar on its use with

transactions involving forward

commitments, as explained above in the

discussion of the forward commitments

provision, § 1026.35(b)(2)(v), and

limiting its use to insured depository

institutions and insured credit unions.

The other requirements for the

exemption would have been

implemented in proposed

subparagraphs (A), (B) and (C),

discussed below.

Only one commenter, a national trade

association, referred to the proposal’s

discussion of the nature and purpose of

the new exemption. That commenter

agreed with the Bureau’s reading of the

statute and supported the Bureau’s

implementation of the new exemption.

To facilitate compliance, the Bureau

also proposed to provide three-month

grace periods

for the annually applied

requirements for the EGRRCPA section

108 escrow exemption, in

§ 1026.35(b)(2)(vi)(A), (B), and (C). The

grace periods would allow exempt

creditors to continue using the

exemption for three months after they

exceed a threshold in the previous year,

to allow a transition period and

facilitate compliance.

The new

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80 FR 59944, 59948–49, 59951, 59954.

See 80 FR 7770, 7781 (Feb. 11, 2015).

15 U.S.C. 1604(a).

The Bureau also believes that the use of a grace

period with the rural or underserved requirement

is appropriate and the Bureau is proposing to

include one by citing to existing

§1026.35(b)(2)(iii)(A). However, because the

regulation already provides for that grace period,

the discussion of the use of exception and

adjustment authority does not list it.

See, e.g., §1026.3(b)(1)(ii) (Regulation Z

exemption for credit over applicable threshold),

§1026.35(c)(2)(ii) (appraisal exemption threshold);

§1026.6(b)(2)(iii) (CARD Act minimum interest

charge threshold); §1026.43(e)(3)(ii)(points and fees

thresholds for qualified mortgage status).

proposed exemption would have used

the same type of grace periods as in the

existing escrow exemption at

§ 1026.35(b)(2)(iii).

Three commenters supported the

proposed grace periods, citing

compliance uncertainty and volume and

asset fluctuations. Two of these

commenters discussed the general use

of grace periods for the different

thresholds in the rule, and one

discussed the use of a grace period with

the 1,000-loan threshold specifically. No

commenters opposed the use of grace

periods. As explained further below in

the section-by-section analysis of

§ 1026.35(b)(2)(vi)(A), the Bureau is now

adopting the grace periods as proposed.

In addition to the three-month grace

periods, the proposed exemption had

other important provisions in common

with the existing escrow exemption,

including the rural or underserved test,

the definition of affiliates, and the

application of the non-escrowing time

period requirement. Thus, the Bureau

proposed to add new comment

35(b)(2)(vi)–1, which cross-references

the commentary to § 1026.35(b)(2)(iii).

Specifically, proposed comment

35(b)(2)(vi)–1 explained that for

guidance on applying the grace periods

for determining asset size or transaction

thresholds under § 1026.35(b)(2)(vi)(A)

or (B), the rural or underserved

requirement, or other aspects of the

exemption in § 1026.35(b)(2)(vi) not

specifically discussed in the

commentary to § 1026.35(b)(2)(vi), an

insured depository institution or

insured credit union may, where

appropriate, refer to the commentary to

§ 1026.35(b)(2)(iii).

No commenters discussed proposed

comment 35(b)(2)(vi)–1 and its cross

reference to the commentary to

§ 1026.35(b)(2)(iii). For the reasons

discussed above, the Bureau now adopts

the comment as proposed.

35(b)(2)(vi)(A)

EGRRCPA section 108(1)(D) amends

TILA section 129D(c)(2)(A) to provide

that the new escrow exemption is

available only for transactions by an

insured depository or credit union that

‘‘has assets of $10,000,000,000 or less.’’

The Bureau proposed to implement this

provision in new § 1026.35(b)(2)(vi)(A)

by: (1) Using an institution’s assets

during the previous calendar year to

qualify for the exemption, but allowing

for a three-month grace period at the

beginning of a new year if the

institution loses the exemption it

previously qualified for; and (2)

adjusting the $10 billion threshold

annually for inflation using the

Consumer Price Index for Urban Wage

Earners and Clerical Workers (CPI–W),

not seasonally adjusted, for each 12-

month period ending in November, with

rounding to the nearest million dollars.

Two commenters opposed the $10

billion asset threshold, arguing that

larger financial institutions should have

access to the exemption. One of these

commenters suggested that the Bureau

make the exemption available to

financial institutions with assets of $4

billion dollars or more that originate 100

or more mortgages per year. However,

section 108 of the EGRRCPA specifically

sets a threshold of $10 billion as a

maximum. The comment provided no

basis for the Bureau to ignore the

express language of the statute in its

implementing regulations.

The existing escrow exemption at

§ 1026.35(b)(2)(iii) includes three-month

grace periods for determination of asset

size, loan volume, and rural or

underserved status. As explained above

in the section-by-section analysis of

§ 1026.35(b)(2)(vi), those grace periods

allow exempt creditors to continue

using the exemption for three months

after they exceed a threshold in the

previous year, so that there will be a

transition period to facilitate

compliance when they no longer qualify

for the exemption.

The use of grace

periods therefore addresses potential

concerns regarding the impact of asset

size and origination volume fluctuations

from year to year.

As with the grace

periods in the existing escrow

exemption, the new proposed grace

period in § 1026.35(b)(2)(vi)(A) would

cover applications received before April

1 of the year following the year that the

asset threshold is exceeded, and allow

institutions to continue to use their

asset size from the year before the

previous year.

The Bureau has determined that,

although new TILA section

129D(c)(2)(A) does not expressly

provide for a grace period, the Bureau

is justified in using the same type of

grace period in the new exemption as

provided for in the existing regulatory

exemption. EGRRCPA section 108

specifically cites to and relies on aspects

of the existing regulatory exemption,

which uses grace periods for certain

factors. In fact, section 108 incorporates

one requirement from the existing

escrow exemption, the rural or

underserved requirement at

§ 1026.35(b)(2)(iii)(A), that uses a grace

period. The Bureau believes that grace

periods are authorized under its TILA

section 105(a) authority.

The Bureau

concludes that the proposed grace

periods for the asset threshold, and the

loan origination limit in

§ 1026.35(b)(2)(vi)(B),

would facilitate

compliance with TILA for institutions

that formerly qualified for the

exemption but then exceeded the

threshold in the previous year. Those

institutions would have three months to

adjust their compliance management

systems to come into compliance and

provide the required escrow accounts.

The grace periods would reduce

uncertainties caused by yearly

fluctuations in assets or originations and

make the timing of the new and existing

exemptions consistent. They would also

ease the aggregate compliance burden of

the escrow provisions, consistent with

the overall purpose of the statutory

amendments.

As explained in the section-by-section

analysis of § 1026.35(b)(2)(vi), all

comments received that referred to grace

periods supported their use. For the

reasons discussed in that section-by-

section analysis and immediately above,

the Bureau now finalizes as proposed

the three-month grace period for the

asset threshold provision in

§ 1026.35(b)(2)(vi)(A).

Congress restricted the EGRRCPA

section 108 exemption to insured

depositories and credit unions with

assets of $10 billion or less. Although

section 108 does not expressly state that

this figure should be adjusted for

inflation, the Bureau proposed this

adjustment to effectuate the purposes of

TILA and facilitate compliance with

TILA. EGRRCPA section 108

specifically cites to and relies on criteria

in the existing escrow exemption,

whose asset threshold is adjusted for

inflation. Furthermore, monetary

threshold amounts are adjusted for

inflation in numerous places in

Regulation Z.

In addition, inflation

adjustment keeps the threshold value at

the same level in real terms as when

adopted, thereby ensuring the same

effect over time as provided for initially

in the statute. Therefore, adjusting the

threshold value to account for inflation

is necessary or proper under TILA

section 105(a) to effectuate the purposes

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15 U.S.C. 1604(a).

A different commenter acknowledged that the

statute would not allow an increase to a 2,000 loan

limit, but requested that the Bureau support future

legislation that would do so. The Bureau generally

does not take a position on pending or future

legislation.

12 CFR 1026.35(b)(2)(iii)(A).

TILA section 129D(c)(2)(C).

of TILA and facilitate compliance with

TILA.

The Bureau believes that

adjusting the threshold for inflation

would facilitate compliance by allowing

the institutions to remain exempt

despite inflation, and that failure to

adjust for inflation would interfere with

the purpose of TILA by reducing the

availability of the exemption over time

to fewer institutions than the provision

was meant to cover.

In order to facilitate compliance with

§ 1026.35(b)(2)(vi)(A), the Bureau

proposed to add comment

35(b)(2)(vi)(A)–1. Comment

35(b)(2)(vi)(A)–1 would explain the

method by which the asset threshold

will be adjusted for inflation, that the

assets of affiliates are not considered in

calculating compliance with the

threshold (consistent with EGRRCPA

section 108), and that the Bureau will

publish notice of the adjusted asset

threshold each year.

The Bureau did not receive any

comments on the proposed annual

inflation adjustment to the asset

threshold. For the reasons discussed

above, the Bureau now is finalizing this

provision and comment 35(b)(2)(vi)(A)–

1 as proposed.

35(b)(2)(vi)(B)

EGRRCPA section 108 limits use of its

escrow exemption to insured

depositories and insured credit unions

that, with their affiliates, ‘‘during the

preceding calendar year . . . originated

1,000 or fewer loans secured by a first

lien on a principal dwelling.’’ This

threshold is half the limit in the existing

regulatory exemption and does not

exclude portfolio loans from the total.

The Bureau proposed to implement

the 1,000-loan threshold in new

§ 1026.35(b)(2)(vi)(B), with a three-

month grace period similar to the one

provided in proposed

§ 1026.35(b)(2)(vi)(A) and the ‘‘rural or

underserved’’ requirement in proposed

§ 1026.35(b)(2)(vi)(C) (discussed in more

detail in the relevant section-by-section

analysis below). (For the Bureau’s

reasoning regarding the adoption of

grace periods with the new exemption,

see the section-by-section analyses of

§ 1026.35(b)(2)(vi) and (vi)(A) above.)

There are important differences

between the 2,000-loan transaction

threshold in existing

§ 1026.35(b)(2)(iii)(B) and the 1,000-loan

transaction threshold in proposed

§ 1026.35(b)(2)(vi)(B). Proposed

comment 35(b)(2)(vi)(B)–1 would aid

compliance by explaining the

differences between the transactions to

be counted toward the two thresholds

for their respective exemptions.

Four commenters discussed the

proposed loan-limit threshold. As

explained above in the section-by-

section analysis of

§ 1026.35(b)(2)(vi)(A), one commenter

suggested that the Bureau make the

exemption available to financial

institutions with assets of $4 billion

dollars or more that originate 100 or

more mortgages per year. Two

commenters stated that the threshold

should be 2,000 loans a year, the same

as the existing escrow exemption, in

order to reduce costs and allow them to

better serve their customers. However,

EGRRCPA section 108 specifies the

1,000 loan limit, and does not cite to the

2,000 loan limit in the existing escrow

exemption, even though it does cite to

the existing escrow exemption for other

requirements.

In other words,

Congress specifically addressed this

issue and chose not to use the numbers

suggested by the commenters.

For the reasons discussed above, the

Bureau is finalizing

§ 1026.35(b)(2)(vi)(B) and comment

35(b)(2)(vi)(B)–1 as proposed.

35(b)(2)(vi)(C)

EGRRCPA section 108 requires that,

in order to be eligible for the new

exemption, an insured depository

institution or insured credit union must,

among other things, satisfy the criteria

in § 1026.35(b)(2)(iii)(A) and (D), or any

successor regulation. The Bureau

proposed to implement these

requirements in new

§ 1026.35(b)(2)(vi)(C).

Section 1026.35(b)(2)(iii)(A) requires

that during the preceding calendar year,

or, if the application for the transaction

was received before April 1 of the

current calendar year, during either of

the two preceding calendar years, a

creditor has extended a covered

transaction, as defined by

§ 1026.43(b)(1), secured by a first lien on

a property that is located in an area that

is either ‘‘rural’’ or ‘‘underserved,’’ as

set forth in § 1026.35(b)(2)(iv). As

discussed above in the section-by-

section analysis of

§ 1026.35(b)(2)(vi)(A), the current

regulation includes a three-month grace

period at the beginning of a calendar

year to allow a transition period for

institutions that lose the existing escrow

exemption, and EGRRCPA section 108

incorporates that provision, including

the grace period, into the new

exemption. By following the EGRRCPA

and citing to the current regulation, the

Bureau proposed to include the criteria

for extending credit in a rural or

underserved area, including the grace

period, in the new exemption.

Four commenters stated that the final

rule should exclude small manufactured

housing loans from the ‘‘rural or

underserved’’ requirement. These

commenters raised concerns that the

cost of escrowing was taking lenders out

of this market and making these loans

less available, and they indicated that

the requirement would interfere with

many institutions’ ability to make

appropriate use of the new exemption.

Two of these commenters suggested that

the Bureau eliminate the rural or

underserved requirement for loans

under $100,000, which they said would

generally be manufactured housing

loans, as long as the lender meets all of

the other requirements for the new

HPML escrow exemption. The

commenters did not provide any data or

specific information to support their

statements.

The rural or underserved provision is

a TILA statutory requirement

incorporated in the existing regulatory

exemption.

EGRRCPA section 108

expressly cites to and adopts this

requirement,

and the proposed rule

proposed to do the same. The Bureau

does not believe that partial elimination

of this statutory requirement would

implement EGRRCPA section 108

appropriately. Furthermore, the

statutory EGRRCPA provision did not

differentiate between manufactured

housing and other real estate, the

Bureau’s proposal did not discuss the

rule’s potential effects on manufactured

housing loans, and the proposal did not

consider or include a loan amount based

carve-out. The commenters did not

provide any evidence that Congress

intended a carve-out targeted at

manufactured housing as they propose,

and such a carve-out could affect the

existing escrow exemption if adopted

fully. Moreover, these commenters did

not provide data demonstrating that the

escrow requirement interferes with the

availability of manufactured housing

loans, and the Bureau does not have

such data. For these reasons, the Bureau

declines to alter the rural or

underserved requirement for the new

exemption and finalizes the provision as

proposed. However, the Bureau will

continue to monitor the market

regarding this issue.

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5 U.S.C. 553(d).

Specifically, section 1022(b)(2)(A) of the Dodd-

Frank Act requires the Bureau to consider the

potential benefits and costs of the regulation to

consumers and covered persons, including the

potential reduction of access by consumers to

consumer financial products and services; the

impact of proposed rules on insured depository

institutions and insured credit unions with less

than $10 billion in total assets as described in

section 1026 of the Dodd-Frank Act; and the impact

on consumers in rural areas.

Section 1026.35(b)(2)(iii)(D) of the

existing escrow exemption, which

EGRRCPA section 108 makes a

requirement for the new exemption,

generally provides that a creditor may

not use the exemption if it or its affiliate

maintains an escrow account for any

extension of consumer credit secured by

real property or a dwelling that the

creditor or its affiliate currently

services. The Bureau proposed to

implement this requirement in

§ 1026.35(b)(2)(vi)(C). See the section-

by-section analysis of § 1026.35(b)(2)(iii)

above for a discussion of this

requirement and the exception to this

requirement for escrows established

between certain dates.

One mortgage lender commenter

stated that it now uses escrows often for

its customers, because it did not

previously qualify for an exemption

from the escrow rule. The commenter

further stated that stopping all escrows

would interfere with its current level of

service, and that the customer and the

lender should decide if an escrow is

appropriate for a given loan. For these

reasons, the commenter suggested that

the Bureau eliminate the non-escrowing

requirement from the new exemption.

EGRRCPA section 108 cites to and

adopts the non-escrowing requirement

in the Bureau’s existing regulation,

making the non-escrowing requirement

in the new exemption statutory. The

commenter did not provide any factual

or legal evidence to support its

suggestion that the Bureau’s regulations

not follow the statutory requirement.

For these reasons and the reasons

explained above in the discussion of

§ 1026.35(b)(2)(iii)(D), the Bureau

declines to eliminate the non-escrowing

requirement in this final rule. The

Bureau will, however, continue to

monitor the market regarding this issue.

The Bureau now finalizes the provision

as proposed, with the extension of the

end date for non-escrowing described

below and discussed above in regard to

§ 1026.35(b)(2)(iii)(D)(1).

There are two exclusions from the

non-escrowing requirement in the

existing escrow exemption and that,

therefore, were proposed for the new

escrow exemption. First, escrow

accounts established after

consummation as an accommodation to

distressed consumers to assist such

consumers in avoiding default or

foreclosure are excluded from this

prohibition. In addition, escrow

accounts established between certain

dates during which the creditor would

have been required to provide escrows

to comply with the regulation are also

excluded. As explained in the section-

by-section analysis of

§ 1026.35(b)(2)(iii)(D) above, the Bureau

proposed to change the end date of this

second exclusion to accommodate the

new section 108 exemption. Because the

Bureau proposed to make the final rule

effective upon publication in the

Federal Register (see part VI below), the

Bureau proposed to extend the end date

in § 1026.35(b)(2)(iii)(D)(1) to 90 days

after such publication. The Bureau

believed that the extra 90 days would

help potentially exempt institutions

avoid inadvertently making themselves

ineligible.

As explained above in regard to

§ 1026.35(b)(2)(iii)(D)(1), the Bureau is

adopting an end date for the non-

escrowing requirement that is 120 days

after the effective date (i.e., publication

date).

Section 1026.43—Minimum Standards

for Transactions Secured by a Dwelling

43(f) Balloon-Payment Qualified

Mortgages Made by Certain Creditors

43(f)(1) Exemption

43(f)(1)(vi)

As explained above in the section-by-

section analysis of

§ 1026.35(b)(2)(iv)(A), the Bureau

proposed to remove an obsolete

provision from that section and remove

references to that obsolete provision in

comments 35(b)(2)(iv)–1.i and –2.i, as

well as comment 43(f)(1)(vi)–1. The

Bureau did not receive any comments

on this change. For the reasons

described in that section-by-section

analysis and immediately above, the

Bureau now removes the obsolete

language in comment 43(f)(1)(vi)–1.

VI. Effective Date

The Bureau proposed that the

amendments included in the proposed

rule would take effect for mortgage

applications received by an exempt

institution on the date of the final rule’s

publication in the Federal Register.

Under section 553(d) of the

Administrative Procedure Act, the

required publication or service of a

substantive rule must be made not less

than 30 days before its effective date

except for certain instances, including

when a substantive rule grants or

recognizes an exemption or relieves a

restriction.

The final rule will grant an

exemption from a requirement to

provide escrow accounts for certain

HPMLs and relieve a restriction against

providing certain HPMLs without such

accounts. The final rule is therefore a

substantive rule that grants an

exemption and relieves requirements

and restrictions.

Two commenters discussed the

proposal to make the rule effective upon

publication and supported it. Another

commenter requested that the Bureau

extend the effective date indefinitely

and study the effect of the escrow rule

on community banks. To make the

benefits of the new EGRRCPA section

108 exemption available to eligible

financial institutions as soon as

possible, the Bureau is making this final

rule effective on the date of its

publication in the Federal Register.

VII. Dodd-Frank Act Section 1022(b)(2)

Analysis

A. Overview

The Bureau is finalizing this rule to

implement EGRRCPA section 108. See

the section-by-section analysis above for

a full description of the final rule. In

developing the final rule, the Bureau

has considered the rule’s potential

benefits, costs, and impacts as required

by section 1022(b)(2)(A) of the Dodd-

Frank Act.

In addition, the Bureau has

consulted, or offered to consult, with

the appropriate prudential regulators

and other Federal agencies, including

regarding consistency of this final rule

with any prudential, market, or systemic

objectives administered by such

agencies as required by section

1022(b)(2)(B) of the Dodd-Frank Act.

B. Data Limitations and Quantification

of Benefits, Costs, and Impacts

The discussion in this part VII relies

on information that the Bureau has

obtained from industry, other regulatory

agencies, and publicly available sources.

These sources form the basis for the

Bureau’s consideration of the likely

impacts of the final rule. The Bureau

provides the best estimates possible of

the potential benefits and costs to

consumers and covered persons of this

rule given available data. However, as

discussed further below in this part VII,

the data with which to quantify the

potential costs, benefits, and impacts of

the final rule are generally limited.

In light of these data limitations, the

analysis below generally provides a

qualitative discussion of the benefits,

costs, and impacts of the final rule.

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For information on the 2019 HMDA data, see

Feng Liu et al., An Updated Review of the New and

Revised Data Points in HMDA: Further

Observations using the 2019 HMDA Data (Aug.

2020), https://files.consumerfinance.gov/f/

documents/cfpb_data-points_updated-review-

hmda_report.pdf. The section 1022(b) analysis of

the proposal for this rule analyzed 2018 HMDA

data.

Some of the 154 entities described above were

exempt under the EGRRCPA from reporting many

variables for their loans. Non-exempt entities

originated 2,601 first-lien closed-end mortgages

with APOR spreads above 150 basis points. Such

mortgages below the conforming loan limit were

HPMLs. Such mortgages above the conforming limit

loan limit may not have been HPMLs if their APOR

spreads were less than 250 basis points. To derive

an upper limit on the number of HPMLs originated,

all such mortgages are included in the calculations.

The Bureau does not have data on the number of

potential HPMLs originated by entities exempt

under the EGRRCPA from reporting rate spread

data. Assuming the ratio of HPMLs to first-lien

mortgages is the same for these entities as it was

for non-exempt entities yields an estimate of 347

HPMLs originated by exempt entities, for a total

conservative estimate of 2,948 HPMLs in the

sample.

For evidence that the original escrow

requirement did not cause many lenders to exit the

market, see Alexei Alexandrov & Xiaoling Ang,

Regulations, Community Bank and Credit Union

Exits, and Access to Mortgage Credit (rev. Oct.

2018), https://papers.ssrn.com/sol3/

papers.cfm?abstract_id=2462128. This provides

suggestive evidence that a limited exemption from

the escrow requirement will cause few lenders to

enter the market.

General economic principles and the

Bureau’s expertise in consumer

financial markets, together with the

limited data that are available, provide

insight into these benefits, costs, and

impacts.

C. Baseline for Analysis

In evaluating the potential benefits,

costs, and impacts of the final rule, the

Bureau takes as a baseline the existing

regulations requiring the establishment

of escrow accounts for certain HPMLs

and the existing exemption from these

regulations. The final rule will create a

new exemption so that some entities

that are currently subject to the

regulations requiring the establishing of

these escrow accounts will no longer be

subject to those regulations. Therefore,

the baseline for the analysis of the final

rule is those entities remaining subject

to those requirements. The Bureau

received no comments regarding this

choice of baseline for its section 1022(b)

analysis.

The final rule should affect the market

as described in part VII.D below as long

as it is in effect. However, the costs,

benefits, and impacts of any rule are

difficult to predict far into the future.

Therefore, the analysis in part VII.D of

the benefits, costs, and impacts of the

final rule is most likely to be accurate

for the first several years following

implementation of the final rule.

D. Benefits and Costs to Consumers and

Covered Persons

The Bureau has relied on a variety of

data sources to analyze the potential

benefits, costs, and impacts of the final

rule. To estimate the number of

mortgage lenders that may be impacted

by the rule and the number of HPMLs

originated by those lenders, the Bureau

has analyzed the 2019 HMDA data.

While the HMDA data have some

shortcomings that are discussed in more

detail below, they are the best source

available to the Bureau to quantify the

impact of the final rule. For some

portions of the analysis, the requisite

data are not available or are quite

limited. As a result, portions of this

analysis rely in part on general

economic principles to provide a

qualitative discussion of the benefits,

costs, and impacts of the final rule.

For entities that currently exist, the

final rule will have a direct effect

mainly on those entities that are not

currently exempt and will become

exempt under the final rule. The Bureau

estimates that in the 2019 HMDA data

there are 154 insured depositories or

insured credit unions with assets

between $2 billion and $10 billion that

originated at least one mortgage in a

rural or underserved area and originated

fewer than 1,000 mortgages secured by

a first lien on a primary dwelling, and

as a result are likely to be impacted by

the final rule. Together, these

institutions reported originating 120,904

mortgages in 2019. The Bureau

estimates that less than 3,000 of these

were HPMLs.

Because of the amendment to the end

date in proposed 1026.35(b)(2)(iii)(D)(1),

it is possible that the final rule will also

affect entities that established escrow

accounts after May 1, 2016, but would

otherwise already be exempt under

existing regulations. These could be

entities that voluntarily established

escrow accounts after May 1, 2016, even

though they were not required to, or

entities that, together with certain

affiliates, had more than $2 billion in

total assets, adjusted for inflation, before

2016 but less than $2 billion, adjusted

for inflation, afterwards. The Bureau

does not possess the data to evaluate the

number of such creditors but believes

there to be very few of them.

The final rule could encourage entry

into the HPML market, expanding the

number of entities exempted. However,

the limited number of existing insured

depository institutions and insured

credit unions who will be exempt under

the final rule may be an indication that

the total potential market for such

institutions of this size engaging in

mortgage lending of less than 1,000

loans per year is small. This could

indicate that few such institutions

would enter the market due to the final

rule.

Moreover, the volume of lending

they could engage in while maintaining

the exemption is limited. The impact of

this final rule on such institutions that

are not exempt and would remain not

exempt, or that are already exempt, will

likely be very small. The impact of this

final rule on consumers with HPMLs

from institutions that are not exempt

and will remain not exempt, or that are

already exempt, will also likely be very

small. Therefore, the analysis in this

part VII.D focuses on entities that will

be affected by the final rule and

consumers at those entities. Because few

entities are likely to be affected by the

final rule, and these entities originate a

relatively small number of mortgages,

the Bureau notes that the benefits, costs,

and impacts of the final rule are likely

to be small. However, in localized areas

some newly exempt community banks

and small credit unions may increase

mortgage lending to consumers who

may be underserved at present.

1. Benefits and Costs to Consumers

For consumers with HPMLs

originated by affected insured

depository institutions and insured

credit unions, the main effect of the

final rule will be that those institutions

will no longer be required to provide

escrow accounts for HPMLs. As

described in part VII.D above, the

Bureau estimates that fewer than 3,000

HPMLs were originated in 2019 by

institutions likely to be impacted by the

rule. Institutions that will be affected by

the final rule could choose to provide or

not provide escrow accounts. If affected

institutions decide not to provide

escrow accounts, then consumers who

would have escrow accounts under the

baseline will instead not have escrow

accounts. Affected consumers will

experience both benefits and costs as a

result of the final rule. These benefits

and costs will vary across consumers.

The discussion of these benefits and

costs below focuses on the effects of

escrow accounts on monthly payments.

However, one commenter noted that,

because creditors often require

borrowers to make two upfront monthly

payments of escrowed items when

obtaining a loan, escrow accounts also

increase the amount consumers must

pay upfront to obtain a loan (although

these upfront payments can often

themselves be financed). Therefore,

many of the costs and benefits discussed

in this part VII.D.1 should also be

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Some States require the paying of interest on

escrow account balances. But even in those States

the consumer might be able to arrange a better

return than the escrow account provides.

Jason Allen et al., The Effect of Mergers in

Search Markets: Evidence from the Canadian

Mortgage Industry, Am. Econ. Rev. 2013, 104(10),

at 3365–96.

See Alexandrov & Ang, supra note 61.

Hongju Liu et al., Complementarities and the

Demand for Home Broadband internet Services,

Marketing Science, 29(4), 701–20 (Feb. 2010),

https://pubsonline.informs.org/doi/abs/10.1287/

mksc.1090.0551.

Francis Wong, Mad as Hell: Property Taxes and

Financial Distress (Dec. 15, 2020), available at

https://www.dropbox.com/sh/55dcwuztmo8bwuv/

AADfEOFVXZ8zVGzj0-Od5GCKa?dl=0.

Stephanie Moulton et al., Reminders to Pay

Property Tax Payments: A Field Experiment of

Older Adults with Reverse Mortgages (Sept. 6,

2019), https://papers.ssrn.com/sol3/Delivery.cfm/

SSRN_ID3445419_code1228972.pdf?abstractid=

3445419&mirid=1.

Michael S. Barr & Jane K. Dokko, Paying to

Save: Tax Withholding and Asset Allocation Among

Low- and Moderate-Income Taxpayers, Finance and

Economics Discussion Series, Federal Reserve

Board (2008), http://www.federalreserve.gov/pubs/

feds/2008/200811/200811pap.pdf.

interpreted as applying to these upfront

payments.

Affected consumers would have

mortgage escrow accounts under the

baseline but will not under the final

rule. The potential benefits to

consumers of not having mortgage

escrow accounts include: (1) More

budgetary flexibility, (2) interest or

other earnings on capital,

(3)

decreased prices passed through from

decreased servicing costs, and (4)

greater access to credit resulting from

lower mortgage servicing costs.

Escrow accounts generally require

consumers to save for infrequent

liabilities, such as property tax and

insurance, by making equal monthly

payments. Standard economic theory

predicts that many consumers may

value the budgetary flexibility to

manage tax and insurance payments in

other ways. Even without an escrow

account, those consumers who prefer to

make equal monthly payments towards

escrow liabilities may still do so by, for

example, creating a savings account for

the purpose. Other consumers who do

not like this payment structure can

come up with their own preferred

payment plans. For example, a

consumer with $100 per month in

mortgage escrow payments and $100 per

month in discretionary income might

have to resort to taking on high-interest

debt to cover an emergency $200

expense. If the same consumer were not

required to make escrow payments, she

could pay for the emergency expense

immediately without taking on high-

interest debt and still afford her

property tax and insurance payments by

increasing her savings for that purpose

by an additional $100 the following

month.

Another benefit for consumers may be

the ability to invest their money and

earn a return on amounts that might,

depending on State regulations, be

forgone when using an escrow. The

Bureau does not have the data to

estimate the interest consumers forgo

because of escrow accounts, but

numerical examples may be illustrative.

Assuming a 0 percent annual interest

rate on savings, a consumer forgoes no

interest because of escrow. Assuming a

5 percent annual interest rate on

savings, a consumer with property tax

and insurance payments of $2,500 every

six months forgoes about $65 per year

in interest because of escrow.

Finally, consumers may benefit from

the final rule from the pass-through of

lower costs incurred in servicing the

loan under the final rule compared to

under the baseline. The benefit to

consumers will depend on whether

fixed or marginal costs, or both, fall

because of the final rule. Typical

economic theory predicts that existing

firms should pass through only

decreases in marginal rather than fixed

costs. The costs to servicers of providing

escrow accounts for consumers are

likely to be predominantly fixed rather

than marginal, which may limit the

pass-through of lower costs on to

consumers in the form of lower prices

or greater access to credit. Research also

suggests that the mortgage market may

not be perfectly competitive and

therefore that creditors may not fully

pass through reductions even in

marginal costs.

Therefore, the benefit

to consumers from receiving decreased

costs at origination because decreased

servicing costs are passed through is

likely to be small. Lower servicing costs

could also benefit consumers by

encouraging new originators to enter the

market. New exempt originators may be

better able to compete with incumbent

originators and potentially provide

mortgages to underserved consumers

because they will not have to incur the

costs of establishing and maintaining

escrow accounts. They in turn could

provide more credit at lower costs to

consumers. However, recent research

suggests that the size of this benefit may

be small.

One commenter suggested an

additional benefit to consumers of not

having escrow accounts. This

commenter noted that some consumers

with escrow accounts may erroneously

believe they still have to make their

property insurance or tax payments

themselves. Consumers who

unnecessarily make these payments may

then have to spend time and effort to get

their payments refunded. The

commenter did not provide, and the

Bureau does not have, data to quantify

this benefit.

The potential costs to consumers of

not having access to an escrow account

include: (1) The difficulty of paying

several bills instead of one, (2) a loss of

a commitment and budgeting device,

and (3) reduced transparency of

mortgage costs potentially leading some

consumers to spend more on house

payments than they want, need, or can

afford.

Consumers may find it less

convenient to separately pay a mortgage

bill, an insurance bill, and potentially

several tax bills, instead of one bill from

the mortgage servicer with all required

payments included. Servicers who

maintain escrow accounts effectively

assume the burden of tracking whom to

pay, how much, and when, across

multiple payees. Consumers without

escrow accounts assume this burden

themselves. This cost varies across

consumers, and there is no current

research to estimate it. An

approximation may be found, however,

in an estimate of around $20 per month

per consumer, depending on the

household’s income, coming from the

value of paying the same bill for phone,

cable television, and internet.

The loss of escrow accounts may hurt

consumers who value the budgetary

predictability and commitment that

escrow accounts provide. Recent

research finds that many homeowners

do not pay full attention to property

taxes,

and are more likely to pay

property tax bills on time if sent

reminders to plan for these payments.

Other research suggests that many

consumers, in order to limit their

spending, prefer to pay more for income

taxes than necessary through payroll

deductions and receive a tax refund

check from the IRS in the spring, even

though consumers who do this forgo

interest they could have earned on the

overpaid taxes.

This could suggest that

some consumers may value mortgage

escrow accounts because they provide a

form of savings commitment. The

Bureau recognizes that the budgeting

and commitment benefits of mortgage

escrow accounts vary across consumers.

These benefits will be particularly large

for consumers who would otherwise

miss payments or even experience

foreclosure. Research suggests that a

nontrivial fraction of consumers may be

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Moulton et al., supra note 67. See also Nathan

B. Anderson & Jane K. Dokko, Liquidity Problems

and Early Payment Default Among Subprime

Mortgages, Finance and Economics Discussion

Series, Federal Reserve Board (2011), http://

www.federalreserve.gov/pubs/feds/2011/201109/

201109pap.pdf.

Susan E. Woodward & Robert E. Hall,

Consumer Confusion in the Mortgage Market:

Evidence of Less than a Perfectly Transparent and

Competitive Market, Am. Econ. Rev.: Papers &

Proceedings, 100(2), 511–15 (2010).

See Moulton et al., supra note 67; see also

Anderson & Dokko, supra note 69.

Because of this potential, many creditors

currently verify that consumers without escrow

accounts make the required insurance and tax

payments. The final rule may increase these

monitoring costs for creditors by increasing the

number of consumers without escrow accounts,

even if many of these consumers do not default.

Some States may require interest rates that are

higher than market rates, imposing a cost on

creditors who provide escrow accounts.

in this group.

One commenter who

argued against the general escrow

requirement reported that none of its

customers defaulted on property taxes

or insurance payments, but that

commenter currently provides escrow

accounts for its customers with HPMLs,

and so the commenter provided little

evidence regarding tax and insurance

default rates when escrows are not

established. As discussed previously,

some consumers may assign no benefit

to escrow accounts, or even consider the

budgeting and commitment aspects of

escrow accounts to be a cost to them.

Finally, escrow accounts may make it

easier for consumers to shop for

mortgages by reducing the number of

payments consumers have to compare.

Consumers considering mortgages

without escrow accounts may not be

fully aware of the costs they would be

assuming and may end up paying more

on mortgage and housing costs than

they want, need, or can afford. Research

suggests that some consumers make

suboptimal decisions when obtaining a

mortgage, in part because of the

difficulty of comparing different

mortgage options across a large number

of dimensions, and that consumers

presented with simpler mortgage

choices make better decisions.

For

example, if a consumer compares a

monthly mortgage payment that

includes an escrow payment, as most

consumer mortgages do, with a payment

that does not include an escrow

payment, the consumer may mistakenly

believe the non-escrow loan is less

expensive, even though the non-escrow

loan may in fact be more expensive. In

practice, the magnitude and frequency

of these mistakes likely depend in part

on the effectiveness of cost disclosures

consumers receive while shopping for

mortgages. As one commenter noted,

estimated insurance and tax payments

must be disclosed under existing

regulations.

2. Costs and Benefits to Affected

Creditors

For affected creditors, the main effect

of the final rule is that they will no

longer be required to establish and

maintain escrow accounts for HPMLs.

As described in part VII.D above, the

Bureau estimates that fewer than 3,000

HPMLs were originated in 2019 by

institutions likely to be impacted by the

rule. Of the 154 institutions that are

likely to be impacted by the final rule

as described above, 103 were not

exempt under the EGRRCPA from

reporting APOR rate spreads. Of these

103, no more than 70 originated at least

one HPML in 2019.

The main benefit of the rule on

affected entities will be cost savings.

There are startup and operational costs

of providing escrow accounts.

Operational costs of maintaining

escrow accounts for a given time period

(such as a year) can be divided into

costs associated with maintaining any

escrow account for that time period and

marginal costs associated with

maintaining each escrow account for

that time period. The cost of

maintaining software to analyze escrow

accounts for under- or overpayments is

an example of the former. Because the

entities affected by the rule are small

and do not originate large numbers of

mortgages, this kind of cost will not be

spread among many loans. The per-

letter cost of mailing consumers escrow

statements is an example of the latter.

The Bureau does not have data to

estimate these costs.

The startup costs associated with

creating the infrastructure to establish

and maintain escrow accounts may be

substantial. However, many creditors

who will not be required to establish

and maintain escrow accounts under the

final rule are currently required to do so

under the existing regulation. These

creditors have already paid these startup

costs and will therefore not benefit from

lower startup costs under the final rule.

However, the final rule will lower

startup costs for new firms that enter the

market. The final rule will also lower

startup costs for insured depositories

and insured credit unions that are

sufficiently small that they are currently

exempt from mortgage escrow

requirements under the existing

regulation, but that will grow in size

such that they would no longer be

exempt under the existing regulation,

but will still be exempt under the final

rule.

Affected creditors could still provide

escrow accounts for consumers if they

choose to do so. Therefore, the final rule

will not impose any cost on creditors.

However, the benefits to firms of the

final rule will be partially offset by

forgoing the benefits of providing

escrow accounts. The two main benefits

to creditors of providing escrow

accounts to consumers are (1) decreased

default risk for consumers, and (2) the

loss of interest income from escrow

accounts.

As noted previously, research

suggests that escrow accounts reduce

mortgage default rates.

Eliminating

escrow accounts may therefore increase

default rates, offsetting some of the

benefits to creditors of lower servicing

costs.

In the event of major damage to

the property, the creditor might end up

with little or nothing if the homeowner

had not been paying home insurance

premiums. If the homeowner had not

been paying taxes, there might be a

claim or lien on the property interfering

with the creditor’s ability to access the

full collateral. Therefore, the costs to

creditors of foreclosures may be

especially severe in the case of

homeowners without mortgage escrow

accounts.

The other cost to creditors of

eliminating escrow accounts is the

interest that they otherwise would have

earned on escrow account balances.

Depending on the State, creditors might

not be required to pay interest on the

money in the escrow account or might

be required to pay a fixed interest rate

that is less than the market rate.

The

Bureau does not have the data to

determine the interest that creditors

earn on escrow account balances, but

numerical examples may be illustrative.

One commenter reported earning

interest of around 0.1 percent on escrow

account balances. Assuming a 0 percent

annual interest rate, the servicer earns

no interest because of escrow. Assuming

a 5 percent annual interest rate and a

mortgage account with property tax and

insurance payments of $2,500 every six

months, the servicer earns about $65 a

year in interest because of escrow.

The Bureau does not have the data to

estimate the benefits of lower default

rates or escrow account interest for

creditors. However, the Bureau believes

that for most lenders the marginal

benefits of maintaining escrow accounts

outweigh the marginal costs, on average,

because in the current market lenders

and servicers often do not relieve

consumers of the obligation to have

escrow accounts unless those

consumers meet requirements related to

credit scores, home equity, and other

measures of default risk. In addition,

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In 2018, entities likely to be affected by the

final rule originated roughly 0.9 percent of all

mortgages reported to HMDA. In 2018, such entities

originated roughly 1.6 percent of all mortgages in

rural areas reported to HMDA.

5 U.S.C. 601 et seq.

Public Law 104–121, tit. II, 110 Stat. 857

(1996).

5 U.S.C. 609.

The current SBA size standards can be found

on SBA’s website at https://www.sba.gov/sites/

default/files/2019-08/SBA%20Table%20of

%20Size%20Standards_Effective%20Aug%2019

%2C%202019_Rev.pdf.

44 U.S.C. 3501 et seq.

5 U.S.C. 801 et seq.

creditors often charge consumers a fee

for eliminating escrow accounts, in

order to compensate the creditors for the

increase in default risk associated with

the removal of escrow accounts.

However, for small lenders that do not

engage in a high volume of mortgage

lending and could benefit from the final

rule, the analysis may be different.

E. Specific Impacts of the Final Rule

1. Insured Depository Institutions and

Credit Unions With $10 Billion or Less

in Total Assets, as Described in Section

1026

The final rule will apply only to

insured depository instructions and

credit unions with $10 billion or less in

assets. Therefore, the consideration of

the benefits, costs, and impacts of the

final rule on covered persons presented

in part VII.D represents in full the

Bureau’s analysis of the benefits, costs,

and impacts of the final rule on insured

depository institutions and credit

unions with $10 billion or less in assets.

2. Impact of the Final Provisions on

Consumer Access to Credit and on

Consumers in Rural Areas

The final rule will affect insured

depositories and insured credit unions

that operate at least in part in rural or

underserved areas. As discussed in part

VII.D, the Bureau does not expect the

costs, benefits, or impacts of the rule to

be large in aggregate, but because

affected entities must operate in rural or

underserved areas, the costs, benefits,

and impacts of the rule may be expected

to be larger in rural areas. Entities likely

to be affected by the final rule originated

roughly 0.6 percent of all mortgages

reported to HMDA in 2019. Such

entities originated roughly 1.0 percent

of all mortgages in rural areas reported

to HMDA in 2019.

Therefore, entities

likely to be affected by the final rule

have a small share of the overall market,

and a small but somewhat larger share

of the rural market. This suggests the

costs, benefits, and impacts of the rule

will be small in rural areas, but larger

in rural areas than in other areas.

As discussed in part VII.D, the final

rule may increase consumer access to

credit. It may also present other costs,

benefits, and impacts for affected

consumers. Because creditors likely to

be affected by this rule have a

disproportionately large market share in

rural areas, the Bureau expects that the

costs, benefits, and impacts of the final

rule on rural consumers will be

proportionally larger than the costs,

benefits, and impacts of the final rule on

other consumers.

VIII. Regulatory Flexibility Act

Analysis

The Regulatory Flexibility Act

(RFA),

as amended by the Small

Business Regulatory Enforcement

Fairness Act of 1996,

generally

requires an agency to conduct an initial

regulatory flexibility analysis (IRFA)

and a final regulatory flexibility analysis

(FRFA) of any rule subject to notice-

and-comment rulemaking requirements,

unless the agency certifies that the rule

will not have a significant economic

impact on a substantial number of small

entities. The Bureau also is subject to

certain additional procedures under the

RFA involving the convening of a panel

to consult with small business

representatives prior to proposing a rule

for which an IRFA is required.

A depository institution is considered

‘‘small’’ if it has $600 million or less in

assets.

Under existing regulations,

most depository institutions with less

than $2 billion in assets are already

exempt from the mortgage escrow

requirement, and there would be no

difference if they chose to use the new

exemption. The final rule will affect

only insured depository institutions and

insured credit unions, and in general

will affect only certain of such

institutions with over approximately $2

billion in assets. Since depository

institutions with over $2 billion in

assets are not small under the SBA

definition, the final rule will affect very

few, if any, small entities.

Furthermore, affected institutions

could still provide escrow accounts for

their consumers if they chose to.

Therefore, the final rule will not impose

any substantial burden on any entities,

including small entities.

Accordingly, the Director hereby

certifies that this final rule will not have

a significant economic impact on a

substantial number of small entities.

Thus, a FRFA of the final rule is not

required.

IX. Paperwork Reduction Act

Under the Paperwork Reduction Act

of 1995 (PRA),

Federal agencies are

generally required to seek the Office of

Management and Budget’s (OMB’s)

approval for information collection

requirements prior to implementation.

The collections of information related to

Regulation Z have been previously

reviewed and approved by OMB and

assigned OMB Control number 3170–

0015. Under the PRA, the Bureau may

not conduct or sponsor and,

notwithstanding any other provision of

law, a person is not required to respond

to an information collection unless the

information collection displays a valid

control number assigned by OMB.

The Bureau has determined that this

final rule will not impose any new or

revised information collection

requirements (recordkeeping, reporting,

or disclosure requirements) on covered

entities or members of the public that

would constitute collections of

information requiring OMB approval

under the PRA.

X. Congressional Review Act

Pursuant to the Congressional Review

Act,

the Bureau will submit a report

containing this rule and other required

information to the U.S. Senate, the U.S.

House of Representatives, and the

Comptroller General of the United

States prior to the rule’s taking effect.

The Office of Information and

Regulatory Affairs has designated this

rule as not a ‘‘major rule’’ as defined by

5 U.S.C. 804(2).

XI. Signing Authority

Director of the Bureau Kathleen L.

Kraninger, having reviewed and

approved this document, is delegating

the authority to electronically sign this

document to Grace Feola, Bureau

Federal Register Liaisons, for purposes

of publication in the Federal Register.

List of Subjects in 12 CFR Part 1026

Advertising, Banks, Banking,

Consumer protection, Credit, Credit

unions, Mortgages, National banks,

Reporting and recordkeeping

requirements, Savings associations,

Truth-in-lending.

Authority and Issuance

For the reasons set forth in the

preamble, the Bureau amends

Regulation Z, 12 CFR part 1026, as set

forth below:

PART 1026—TRUTH IN LENDING

(REGULATION Z)

■1. The authority citation for part 1026

continues to read as follows:

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Authority: 12 U.S.C. 2601, 2603–2605,

2607, 2609, 2617, 3353, 5511, 5512, 5532,

5581; 15 U.S.C. 1601 et seq.

Subpart E—Special Rules for Certain

Home Mortgage Transactions

■2. Amend § 1026.35 by:

■a. Adding paragraphs (a)(3) and (4);

■b. Revising paragraphs (b)(2)(iii)(D)(1),

(iv)(A), and (v); and

■c. Adding paragraph (b)(2)(vi).

The additions and revisions read as

follows:

§ 1026.35 Requirements for higher-priced

mortgage loans.

(a) * * *

(3) ‘‘Insured credit union’’ has the

meaning given in Section 101 of the

Federal Credit Union Act (12 U.S.C.

1752).

(4) ‘‘Insured depository institution’’

has the meaning given in Section 3 of

the Federal Deposit Insurance Act (12

U.S.C. 1813).

(b) * * *

(2) * * *

(iii) * * *

(D) * * *

(1) Escrow accounts established for

first-lien higher-priced mortgage loans

for which applications were received on

or after April 1, 2010, and before June

17, 2021; or

* * * * *

(iv) * * *

(A) An area is ‘‘rural’’ during a

calendar year if it is:

(1) A county that is neither in a

metropolitan statistical area nor in a

micropolitan statistical area that is

adjacent to a metropolitan statistical

area, as those terms are defined by the

U.S. Office of Management and Budget

and as they are applied under currently

applicable Urban Influence Codes

(UICs), established by the United States

Department of Agriculture’s Economic

Research Service (USDA–ERS); or

(2) A census block that is not in an

urban area, as defined by the U.S.

Census Bureau using the latest

decennial census of the United States.

* * * * *

(v) Notwithstanding paragraphs

(b)(2)(iii) and (vi) of this section, an

escrow account must be established

pursuant to paragraph (b)(1) of this

section for any first-lien higher-priced

mortgage loan that, at consummation, is

subject to a commitment to be acquired

by a person that does not satisfy the

conditions in paragraph (b)(2)(iii) or (vi)

of this section, unless otherwise

exempted by this paragraph (b)(2).

(vi) Except as provided in paragraph

(b)(2)(v) of this section, an escrow

account need not be established for a

transaction made by a creditor that is an

insured depository institution or

insured credit union if, at the time of

consummation:

(A) As of the preceding December

31st, or, if the application for the

transaction was received before April 1

of the current calendar year, as of either

of the two preceding December 31sts,

the insured depository institution or

insured credit union had assets of

$10,000,000,000 or less, adjusted

annually for inflation using the

Consumer Price Index for Urban Wage

Earners and Clerical Workers, not

seasonally adjusted, for each 12-month

period ending in November (see

comment 35(b)(2)(vi)(A)–1 for the

applicable threshold);

(B) During the preceding calendar

year, or, if the application for the

transaction was received before April 1

of the current calendar year, during

either of the two preceding calendar

years, the creditor and its affiliates, as

defined in § 1026.32(b)(5), together

extended no more than 1,000 covered

transactions secured by a first lien on a

principal dwelling; and

criteria in paragraphs (b)(2)(iii)(A) and

(D) of this section.

* * * * *

■3. Amend supplement I to part 1026

by:

■a. Under Section 1026.35—

Requirements for Higher-Priced

Mortgage Loans:

■i. Revising paragraph 35(b)(2)(iii);

■ii. Adding paragraphs

35(b)(2)(iii)(D)(1) and 35(b)(2)(iii)(D)(2);

■iv. Revising paragraphs 35(b)(2)(iv)

and 35(b)(2)(v);

■vi. Adding paragraphs 35(b)(2)(vi) and

35(b)(2)(vi)(A).

■b. Under Section 1026.43—Minimum

Standards for Transactions Secured by

a Dwelling, revising paragraph

43(f)(1)(vi).

The revisions and additions read as

follows:

Supplement I to Part 1026—Official

Interpretations

* * * * *

Section 1026.35—Requirements for

Higher-Priced Mortgage Loans

* * * * *

35(b) Escrow Accounts

* * * * *

35(b)(2) Exemptions

* * * * *

Paragraph 35(b)(2)(iii).

1. Requirements for exemption. Under

§ 1026.35(b)(2)(iii), except as provided

in § 1026.35(b)(2)(v), a creditor need not

establish an escrow account for taxes

and insurance for a higher-priced

mortgage loan, provided the following

four conditions are satisfied when the

higher-priced mortgage loan is

consummated:

i. During the preceding calendar year,

or during either of the two preceding

calendar years if the application for the

loan was received before April 1 of the

current calendar year, a creditor

extended a first-lien covered

transaction, as defined in

§ 1026.43(b)(1), secured by a property

located in an area that is either ‘‘rural’’

or ‘‘underserved,’’ as set forth in

§ 1026.35(b)(2)(iv).

A. In general, whether the rural-or-

underserved test is satisfied depends on

the creditor’s activity during the

preceding calendar year. However, if the

application for the loan in question was

received before April 1 of the current

calendar year, the creditor may instead

meet the rural-or-underserved test based

on its activity during the next-to-last

calendar year. This provides creditors

with a grace period if their activity

meets the rural-or-underserved test (in

§ 1026.35(b)(2)(iii)(A)) in one calendar

year but fails to meet it in the next

calendar year.

B. A creditor meets the rural-or-

underserved test for any higher-priced

mortgage loan consummated during a

calendar year if it extended a first-lien

covered transaction in the preceding

calendar year secured by a property

located in a rural-or-underserved area. If

the creditor does not meet the rural-or-

underserved test in the preceding

calendar year, the creditor meets this

condition for a higher-priced mortgage

loan consummated during the current

calendar year only if the application for

the loan was received before April 1 of

the current calendar year and the

creditor extended a first-lien covered

transaction during the next-to-last

calendar year that is secured by a

property located in a rural or

underserved area. The following

examples are illustrative:

1. Assume that a creditor extended

during 2016 a first-lien covered

transaction that is secured by a property

located in a rural or underserved area.

Because the creditor extended a first-

lien covered transaction during 2016

that is secured by a property located in

a rural or underserved area, the creditor

can meet this condition for exemption

for any higher-priced mortgage loan

consummated during 2017.

2. Assume that a creditor did not

extend during 2016 a first-lien covered

transaction secured by a property that is

located in a rural or underserved area.

Assume further that the same creditor

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extended during 2015 a first-lien

covered transaction that is located in a

rural or underserved area. Assume

further that the creditor consummates a

higher-priced mortgage loan in 2017 for

which the application was received in

November 2017. Because the creditor

did not extend during 2016 a first-lien

covered transaction secured by a

property that is located in a rural or

underserved area, and the application

was received on or after April 1, 2017,

the creditor does not meet this

condition for exemption. However,

assume instead that the creditor

consummates a higher-priced mortgage

loan in 2017 based on an application

received in February 2017. The creditor

meets this condition for exemption for

this loan because the application was

received before April 1, 2017, and the

creditor extended during 2015 a first-

lien covered transaction that is located

in a rural or underserved area.

ii. The creditor and its affiliates

together extended no more than 2,000

covered transactions, as defined in

§ 1026.43(b)(1), secured by first liens,

that were sold, assigned, or otherwise

transferred by the creditor or its

affiliates to another person, or that were

subject at the time of consummation to

a commitment to be acquired by another

person, during the preceding calendar

year or during either of the two

preceding calendar years if the

application for the loan was received

before April 1 of the current calendar

year. For purposes of

§ 1026.35(b)(2)(iii)(B), a transfer of a

first-lien covered transaction to

‘‘another person’’ includes a transfer by

a creditor to its affiliate.

A. In general, whether this condition

is satisfied depends on the creditor’s

activity during the preceding calendar

year. However, if the application for the

loan in question is received before April

1 of the current calendar year, the

creditor may instead meet this condition

based on activity during the next-to-last

calendar year. This provides creditors

with a grace period if their activity falls

at or below the threshold in one

calendar year but exceeds it in the next

calendar year.

B. For example, assume that in 2015

a creditor and its affiliates together

extended 1,500 loans that were sold,

assigned, or otherwise transferred by the

creditor or its affiliates to another

person, or that were subject at the time

of consummation to a commitment to be

acquired by another person, and 2,500

such loans in 2016. Because the 2016

transaction activity exceeds the

threshold but the 2015 transaction

activity does not, the creditor satisfies

this condition for exemption for a

higher-priced mortgage loan

consummated during 2017 if the

creditor received the application for the

loan before April 1, 2017, but does not

satisfy this condition for a higher-priced

mortgage loan consummated during

2017 if the application for the loan was

received on or after April 1, 2017.

C. For purposes of

§ 1026.35(b)(2)(iii)(B), extensions of

first-lien covered transactions, during

the applicable time period, by all of a

creditor’s affiliates, as ‘‘affiliate’’ is

defined in § 1026.32(b)(5), are counted

toward the threshold in this section.

‘‘Affiliate’’ is defined in § 1026.32(b)(5)

as ‘‘any company that controls, is

controlled by, or is under common

control with another company, as set

forth in the Bank Holding Company Act

of 1956 (12 U.S.C. 1841 et seq.).’’ Under

the Bank Holding Company Act, a

company has control over a bank or

another company if it directly or

indirectly or acting through one or more

persons owns, controls, or has power to

vote 25 per centum or more of any class

of voting securities of the bank or

company; it controls in any manner the

election of a majority of the directors or

trustees of the bank or company; or the

Federal Reserve Board determines, after

notice and opportunity for hearing, that

the company directly or indirectly

exercises a controlling influence over

the management or policies of the bank

or company. 12 U.S.C. 1841(a)(2).

iii. As of the end of the preceding

calendar year, or as of the end of either

of the two preceding calendar years if

the application for the loan was

received before April 1 of the current

calendar year, the creditor and its

affiliates that regularly extended

covered transactions secured by first

liens, together, had total assets that are

less than the applicable annual asset

threshold.

A. For purposes of

§ 1026.35(b)(2)(iii)(C), in addition to the

creditor’s assets, only the assets of a

creditor’s ‘‘affiliate’’ (as defined by

§ 1026.32(b)(5)) that regularly extended

covered transactions (as defined by

§ 1026.43(b)(1)) secured by first liens,

are counted toward the applicable

annual asset threshold. See comment

35(b)(2)(iii)–1.ii.C for discussion of

definition of ‘‘affiliate.’’

B. Only the assets of a creditor’s

affiliate that regularly extended first-lien

covered transactions during the

applicable period are included in

calculating the creditor’s assets. The

meaning of ‘‘regularly extended’’ is

based on the number of times a person

extends consumer credit for purposes of

the definition of ‘‘creditor’’ in

§ 1026.2(a)(17). Because covered

transactions are ‘‘transactions secured

by a dwelling,’’ consistent with

§ 1026.2(a)(17)(v), an affiliate regularly

extended covered transactions if it

extended more than five covered

transactions in a calendar year. Also

consistent with § 1026.2(a)(17)(v),

because a covered transaction may be a

high-cost mortgage subject to § 1026.32,

an affiliate regularly extends covered

transactions if, in any 12-month period,

it extends more than one covered

transaction that is subject to the

requirements of § 1026.32 or one or

more such transactions through a

mortgage broker. Thus, if a creditor’s

affiliate regularly extended first-lien

covered transactions during the

preceding calendar year, the creditor’s

assets as of the end of the preceding

calendar year, for purposes of the asset

limit, take into account the assets of that

affiliate. If the creditor, together with its

affiliates that regularly extended first-

lien covered transactions, exceeded the

asset limit in the preceding calendar

year—to be eligible to operate as a small

creditor for transactions with

applications received before April 1 of

the current calendar year—the assets of

the creditor’s affiliates that regularly

extended covered transactions in the

year before the preceding calendar year

are included in calculating the creditor’s

assets.

C. If multiple creditors share

ownership of a company that regularly

extended first-lien covered transactions,

the assets of the company count toward

the asset limit for a co-owner creditor if

the company is an ‘‘affiliate,’’ as defined

in § 1026.32(b)(5), of the co-owner

creditor. Assuming the company is not

an affiliate of the co-owner creditor by

virtue of any other aspect of the

definition (such as by the company and

co-owner creditor being under common

control), the company’s assets are

included toward the asset limit of the

co-owner creditor only if the company

is controlled by the co-owner creditor,

‘‘as set forth in the Bank Holding

Company Act.’’ If the co-owner creditor

and the company are affiliates (by virtue

of any aspect of the definition), the co-

owner creditor counts all of the

company’s assets toward the asset limit,

regardless of the co-owner creditor’s

ownership share. Further, because the

co-owner and the company are mutual

affiliates the company also would count

all of the co-owner’s assets towards its

own asset limit. See comment

35(b)(2)(iii)–1.ii.C for discussion of the

definition of ‘‘affiliate.’’

D. A creditor satisfies the criterion in

§ 1026.35(b)(2)(iii)(C) for purposes of

any higher-priced mortgage loan

consummated during 2016, for example,

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if the creditor (together with its affiliates

that regularly extended first-lien

covered transactions) had total assets of

less than the applicable asset threshold

on December 31, 2015. A creditor that

(together with its affiliates that regularly

extended first-lien covered transactions)

did not meet the applicable asset

threshold on December 31, 2015

satisfies this criterion for a higher-

priced mortgage loan consummated

during 2016 if the application for the

loan was received before April 1, 2016

and the creditor (together with its

affiliates that regularly extended first-

lien covered transactions) had total

assets of less than the applicable asset

threshold on December 31, 2014.

E. Under § 1026.35(b)(2)(iii)(C), the

$2,000,000,000 asset threshold adjusts

automatically each year based on the

year-to-year change in the average of the

Consumer Price Index for Urban Wage

Earners and Clerical Workers, not

seasonally adjusted, for each 12-month

period ending in November, with

rounding to the nearest million dollars.

The Bureau will publish notice of the

asset threshold each year by amending

this comment. For calendar year 2021,

the asset threshold is $2,230,000,000. A

creditor that together with the assets of

its affiliates that regularly extended

first-lien covered transactions during

calendar year 2020 has total assets of

less than $2,230,000,000 on December

31, 2020, satisfies this criterion for

purposes of any loan consummated in

2021 and for purposes of any loan

consummated in 2022 for which the

application was received before April 1,

2022. For historical purposes:

1. For calendar year 2013, the asset

threshold was $2,000,000,000. Creditors

that had total assets of less than

$2,000,000,000 on December 31, 2012,

satisfied this criterion for purposes of

the exemption during 2013.

2. For calendar year 2014, the asset

threshold was $2,028,000,000. Creditors

that had total assets of less than

$2,028,000,000 on December 31, 2013,

satisfied this criterion for purposes of

the exemption during 2014.

3. For calendar year 2015, the asset

threshold was $2,060,000,000. Creditors

that had total assets of less than

$2,060,000,000 on December 31, 2014,

satisfied this criterion for purposes of

any loan consummated in 2015 and, if

the creditor’s assets together with the

assets of its affiliates that regularly

extended first-lien covered transactions

during calendar year 2014 were less

than that amount, for purposes of any

loan consummated in 2016 for which

the application was received before

April 1, 2016.

4. For calendar year 2016, the asset

threshold was $2,052,000,000. A

creditor that together with the assets of

its affiliates that regularly extended

first-lien covered transactions during

calendar year 2015 had total assets of

less than $2,052,000,000 on December

31, 2015, satisfied this criterion for

purposes of any loan consummated in

2016 and for purposes of any loan

consummated in 2017 for which the

application was received before April 1,

2017.

5. For calendar year 2017, the asset

threshold was $2,069,000,000. A

creditor that together with the assets of

its affiliates that regularly extended

first-lien covered transactions during

calendar year 2016 had total assets of

less than $2,069,000,000 on December

31, 2016, satisfied this criterion for

purposes of any loan consummated in

2017 and for purposes of any loan

consummated in 2018 for which the

application was received before April 1,

2018.

6. For calendar year 2018, the asset

threshold was $2,112,000,000. A

creditor that together with the assets of

its affiliates that regularly extended

first-lien covered transactions during

calendar year 2017 had total assets of

less than $2,112,000,000 on December

31, 2017, satisfied this criterion for

purposes of any loan consummated in

2018 and for purposes of any loan

consummated in 2019 for which the

application was received before April 1,

2019.

7. For calendar year 2019, the asset

threshold was $2,167,000,000. A

creditor that together with the assets of

its affiliates that regularly extended

first-lien covered transactions during

calendar year 2018 had total assets of

less than $2,167,000,000 on December

31, 2018, satisfied this criterion for

purposes of any loan consummated in

2019 and for purposes of any loan

consummated in 2020 for which the

application was received before April 1,

2020.

8. For calendar year 2020, the asset

threshold was $2,202,000,000. A

creditor that together with the assets of

its affiliates that regularly extended

first-lien covered transactions during

calendar year 2019 had total assets of

less than $2,202,000,000 on December

31, 2019, satisfied this criterion for

purposes of any loan consummated in

2020 and for purposes of any loan

consummated in 2021 for which the

application was received before April 1,

2021.

iv. The creditor and its affiliates do

not maintain an escrow account for any

mortgage transaction being serviced by

the creditor or its affiliate at the time the

transaction is consummated, except as

provided in § 1026.35(b)(2)(iii)(D)(1)

and (2). Thus, the exemption applies,

provided the other conditions of

§ 1026.35(b)(2)(iii) (or, if applicable, the

conditions for the exemption in

§ 1026.35(b)(2)(vi)) are satisfied, even if

the creditor previously maintained

escrow accounts for mortgage loans,

provided it no longer maintains any

such accounts except as provided in

§ 1026.35(b)(2)(iii)(D)(1) and (2). Once a

creditor or its affiliate begins escrowing

for loans currently serviced other than

those addressed in

§ 1026.35(b)(2)(iii)(D)(1) and (2),

however, the creditor and its affiliate

become ineligible for the exemptions in

§ 1026.35(b)(2)(iii) and (vi) on higher-

priced mortgage loans they make while

such escrowing continues. Thus, as long

as a creditor (or its affiliate) services and

maintains escrow accounts for any

mortgage loans, other than as provided

in § 1026.35(b)(2)(iii)(D)(1) and (2), the

creditor will not be eligible for the

exemption for any higher-priced

mortgage loan it may make. For

purposes of § 1026.35(b)(2)(iii) and (vi),

a creditor or its affiliate ‘‘maintains’’ an

escrow account only if it services a

mortgage loan for which an escrow

account has been established at least

through the due date of the second

periodic payment under the terms of the

legal obligation.

Paragraph 35(b)(2)(iii)(D)(1).

1. Exception for certain accounts.

Escrow accounts established for first-

lien higher-priced mortgage loans for

which applications were received on or

after April 1, 2010, and before June 17,

2021, are not counted for purposes of

§ 1026.35(b)(2)(iii)(D). For applications

received on and after June 17, 2021,

creditors, together with their affiliates,

that establish new escrow accounts,

other than those described in

§ 1026.35(b)(2)(iii)(D)(2), do not qualify

for the exemptions provided under

§ 1026.35(b)(2)(iii) and (vi). Creditors,

together with their affiliates, that

continue to maintain escrow accounts

established for first-lien higher-priced

mortgage loans for which applications

were received on or after April 1, 2010,

and before June 17, 2021, still qualify

for the exemptions provided under

§ 1026.35(b)(2)(iii) and (vi) so long as

they do not establish new escrow

accounts for transactions for which they

received applications on or after June

17, 2021, other than those described in

§ 1026.35(b)(2)(iii)(D)(2), and they

otherwise qualify under

§ 1026.35(b)(2)(iii) or (vi).

Paragraph 35(b)(2)(iii)(D)(2).

1. Exception for post-consummation

escrow accounts for distressed

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consumers. An escrow account

established after consummation for a

distressed consumer does not count for

purposes of § 1026.35(b)(2)(iii)(D).

Distressed consumers are consumers

who are working with the creditor or

servicer to attempt to bring the loan into

a current status through a modification,

deferral, or other accommodation to the

consumer. A creditor, together with its

affiliates, that establishes escrow

accounts after consummation as a

regular business practice, regardless of

whether consumers are in distress, does

not qualify for the exception described

in § 1026.35(b)(2)(iii)(D)(2).

Paragraph 35(b)(2)(iv).

1. Requirements for ‘‘rural’’ or

‘‘underserved’’ status. An area is

considered to be ‘‘rural’’ or

‘‘underserved’’ during a calendar year

for purposes of § 1026.35(b)(2)(iii)(A) if

it satisfies either the definition for

‘‘rural’’ or the definition for

‘‘underserved’’ in § 1026.35(b)(2)(iv). A

creditor’s extensions of covered

transactions, as defined by

§ 1026.43(b)(1), secured by first liens on

properties located in such areas are

considered in determining whether the

creditor satisfies the condition in

§ 1026.35(b)(2)(iii)(A). See comment

35(b)(2)(iii)–1.

i. Under § 1026.35(b)(2)(iv)(A), an area

is rural during a calendar year if it is:

A county that is neither in a

metropolitan statistical area nor in a

micropolitan statistical area that is

adjacent to a metropolitan statistical

area; or a census block that is not in an

urban area, as defined by the U.S.

Census Bureau using the latest

decennial census of the United States.

Metropolitan statistical areas and

micropolitan statistical areas are defined

by the Office of Management and

Budget and applied under currently

applicable Urban Influence Codes

(UICs), established by the United States

Department of Agriculture’s Economic

Research Service (USDA–ERS). For

purposes of § 1026.35(b)(2)(iv)(A)(1),

‘‘adjacent’’ has the meaning applied by

the USDA–ERS in determining a

county’s UIC; as so applied, ‘‘adjacent’’

entails a county not only being

physically contiguous with a

metropolitan statistical area but also

meeting certain minimum population

commuting patterns. A county is a

‘‘rural’’ area under

§ 1026.35(b)(2)(iv)(A)(1) if the USDA–

ERS categorizes the county under UIC 4,

6, 7, 8, 9, 10, 11, or 12. Descriptions of

UICs are available on the USDA–ERS

website at http://www.ers.usda.gov/

data-products/urban-influence-codes/

documentation.aspx. A county for

which there is no currently applicable

UIC (because the county has been

created since the USDA–ERS last

categorized counties) is a rural area only

if all counties from which the new

county’s land was taken are themselves

rural under currently applicable UICs.

ii. Under § 1026.35(b)(2)(iv)(B), an

area is underserved during a calendar

year if, according to Home Mortgage

Disclosure Act (HMDA) data for the

preceding calendar year, it is a county

in which no more than two creditors

extended covered transactions, as

defined in § 1026.43(b)(1), secured by

first liens, five or more times on

properties in the county. Specifically, a

county is an ‘‘underserved’’ area if, in

the applicable calendar year’s public

HMDA aggregate dataset, no more than

two creditors have reported five or more

first-lien covered transactions, with

HMDA geocoding that places the

properties in that county.

iii. A. Each calendar year, the Bureau

applies the ‘‘underserved’’ area test and

the ‘‘rural’’ area test to each county in

the United States. If a county satisfies

either test, the Bureau will include the

county on a list of counties that are rural

or underserved as defined by

§ 1026.35(b)(2)(iv)(A)(1) or

§ 1026.35(b)(2)(iv)(B) for a particular

calendar year, even if the county

contains census blocks that are

designated by the Census Bureau as

urban. To facilitate compliance with

appraisal requirements in § 1026.35(c),

the Bureau also creates a list of those

counties that are rural under the

Bureau’s definition without regard to

whether the counties are underserved.

To the extent that U.S. territories are

treated by the Census Bureau as

counties and are neither metropolitan

statistical areas nor micropolitan

statistical areas adjacent to metropolitan

statistical areas, such territories will be

included on these lists as rural areas in

their entireties. The Bureau will post on

its public website the applicable lists for

each calendar year by the end of that

year to assist creditors in ascertaining

the availability to them of the

exemption during the following year.

Any county that the Bureau includes on

these lists of counties that are rural or

underserved under the Bureau’s

definitions for a particular year is

deemed to qualify as a rural or

underserved area for that calendar year

for purposes of § 1026.35(b)(2)(iv), even

if the county contains census blocks that

are designated by the Census Bureau as

urban. A property located in such a

listed county is deemed to be located in

a rural or underserved area, even if the

census block in which the property is

located is designated as urban.

B. A property is deemed to be in a

rural or underserved area according to

the definitions in § 1026.35(b)(2)(iv)

during a particular calendar year if it is

identified as such by an automated tool

provided on the Bureau’s public

website. A printout or electronic copy

from the automated tool provided on the

Bureau’s public website designating a

particular property as being in a rural or

underserved area may be used as

‘‘evidence of compliance’’ that a

property is in a rural or underserved

area, as defined in § 1026.35(b)(2)(iv)(A)

and (B), for purposes of the record

retention requirements in § 1026.25.

C. The U.S. Census Bureau may

provide on its public website an

automated address search tool that

specifically indicates if a property is

located in an urban area for purposes of

the Census Bureau’s most recent

delineation of urban areas. For any

calendar year that began after the date

on which the Census Bureau announced

its most recent delineation of urban

areas, a property is deemed to be in a

rural area if the search results provided

for the property by any such automated

address search tool available on the

Census Bureau’s public website do not

designate the property as being in an

urban area. A printout or electronic

copy from such an automated address

search tool available on the Census

Bureau’s public website designating a

particular property as not being in an

urban area may be used as ‘‘evidence of

compliance’’ that the property is in a

rural area, as defined in

§ 1026.35(b)(2)(iv)(A), for purposes of

the record retention requirements in

§ 1026.25.

D. For a given calendar year, a

property qualifies for a safe harbor if

any of the enumerated safe harbors

affirms that the property is in a rural or

underserved area or not in an urban

area. For example, the Census Bureau’s

automated address search tool may

indicate a property is in an urban area,

but the Bureau’s rural or underserved

counties list indicates the property is in

a rural or underserved county. The

property in this example is in a rural or

underserved area because it qualifies

under the safe harbor for the rural or

underserved counties list. The lists of

counties posted on the Bureau’s public

website, the automated tool on its

public website, and the automated

address search tool available on the

Census Bureau’s public website, are not

the exclusive means by which a creditor

can demonstrate that a property is in a

rural or underserved area as defined in

§ 1026.35(b)(2)(iv)(A) and (B). However,

creditors are required to retain

‘‘evidence of compliance’’ in accordance

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with § 1026.25, including

determinations of whether a property is

in a rural or underserved area as defined

in § 1026.35(b)(2)(iv)(A) and (B).

2. Examples. i. An area is considered

‘‘rural’’ for a given calendar year based

on the most recent available UIC

designations by the USDA–ERS and the

most recent available delineations of

urban areas by the U.S. Census Bureau

that are available at the beginning of the

calendar year. These designations and

delineations are updated by the USDA–

ERS and the U.S. Census Bureau

respectively once every ten years. As an

example, assume a creditor makes first-

lien covered transactions in Census

Block X that is located in County Y

during calendar year 2017. As of

January 1, 2017, the most recent UIC

designations were published in the

second quarter of 2013, and the most

recent delineation of urban areas was

announced in the Federal Register in

2012, see U.S. Census Bureau,

Qualifying Urban Areas for the 2010

Census, 77 FR 18652 (Mar. 27, 2012). To

determine whether County Y is rural

under the Bureau’s definition during

calendar year 2017, the creditor can use

USDA–ERS’s 2013 UIC designations. If

County Y is not rural, the creditor can

use the U.S. Census Bureau’s 2012

delineation of urban areas to determine

whether Census Block X is rural and is

therefore a ‘‘rural’’ area for purposes of

§ 1026.35(b)(2)(iv)(A).

ii. A county is considered an

‘‘underserved’’ area for a given calendar

year based on the most recent available

HMDA data. For example, assume a

creditor makes first-lien covered

transactions in County Y during

calendar year 2016, and the most recent

HMDA data are for calendar year 2015,

published in the third quarter of 2016.

The creditor will use the 2015 HMDA

data to determine ‘‘underserved’’ area

status for County Y in calendar year

2016 for the purposes of qualifying for

the ‘‘rural or underserved’’ exemption

for any higher-priced mortgage loans

consummated in calendar year 2017 or

for any higher-priced mortgage loan

consummated during 2018 for which

the application was received before

April 1, 2018.

Paragraph 35(b)(2)(v).

1. Forward commitments. A creditor

may make a mortgage loan that will be

transferred or sold to a purchaser

pursuant to an agreement that has been

entered into at or before the time the

loan is consummated. Such an

agreement is sometimes known as a

‘‘forward commitment.’’ Even if a

creditor is otherwise eligible for an

exemption in § 1026.35(b)(2)(iii) or

§ 1026.35(b)(2)(vi), a first-lien higher-

priced mortgage loan that will be

acquired by a purchaser pursuant to a

forward commitment is subject to the

requirement to establish an escrow

account under § 1026.35(b)(1) unless the

purchaser is also eligible for an

exemption in § 1026.35(b)(2)(iii) or

§ 1026.35(b)(2)(vi), or the transaction is

otherwise exempt under § 1026.35(b)(2).

The escrow requirement applies to any

such transaction, whether the forward

commitment provides for the purchase

and sale of the specific transaction or for

the purchase and sale of mortgage

obligations with certain prescribed

criteria that the transaction meets. For

example, assume a creditor that

qualifies for an exemption in

§ 1026.35(b)(2)(iii) or §1026.35(b)(2)(vi)

makes a higher-priced mortgage loan

that meets the purchase criteria of an

investor with which the creditor has an

agreement to sell such mortgage

obligations after consummation. If the

investor is ineligible for an exemption

in § 1026.35(b)(2)(iii) or

§ 1026.35(b)(2)(vi), an escrow account

must be established for the transaction

before consummation in accordance

with § 1026.35(b)(1) unless the

transaction is otherwise exempt (such as

a reverse mortgage or home equity line

of credit).

Paragraph 35(b)(2)(vi).

1. For guidance on applying the grace

periods for determining asset size or

transaction thresholds under

§ 1026.35(b)(2)(vi)(A), (B) and (C), the

rural or underserved requirement, or

other aspects of the exemption in

§ 1026.35(b)(2)(vi) not specifically

discussed in the commentary to

§ 1026.35(b)(2)(vi), an insured

depository institution or insured credit

union may refer to the commentary to

§ 1026.35(b)(2)(iii), while allowing for

differences between the features of the

two exemptions.

Paragraph 35(b)(2)(vi)(A).

1. The asset threshold in

§ 1026.35(b)(2)(vi)(A) will adjust

automatically each year, based on the

year-to-year change in the average of the

Consumer Price Index for Urban Wage

Earners and Clerical Workers, not

seasonally adjusted, for each 12-month

period ending in November, with

rounding to the nearest million dollars.

Unlike the asset threshold in

§ 1026.35(b)(2)(iii) and the other

thresholds in § 1026.35(b)(2)(vi),

affiliates are not considered in

calculating compliance with this

threshold. The Bureau will publish

notice of the asset threshold each year

by amending this comment. For

calendar year 2021, the asset threshold

is $10,000,000,000. A creditor that

during calendar year 2020 had assets of

$10,000,000,000 or less on December 31,

2020, satisfies this criterion for purposes

of any loan consummated in 2021 and

for purposes of any loan secured by a

first lien on a principal dwelling of a

consumer consummated in 2022 for

which the application was received

before April 1, 2022.

Paragraph 35(b)(2)(vi)(B).

1. The transaction threshold in

§ 1026.35(b)(2)(vi)(B) differs from the

transaction threshold in

§ 1026.35(b)(2)(iii)(B) in two ways. First,

the threshold in § 1026.35(b)(2)(vi)(B) is

1,000 loans secured by first liens on a

principal dwelling, while the threshold

in § 1026.35(b)(2)(iii)(B) is 2,000 loans

secured by first liens on a dwelling.

Second, all loans made by the creditor

and its affiliates secured by a first lien

on a principal dwelling count toward

the 1,000-loan threshold in

§ 1026.35(b)(2)(vi)(B), whether or not

such loans are held in portfolio. By

contrast, under § 1026.35(b)(2)(iii)(B),

only loans secured by first liens on a

dwelling that were sold, assigned, or

otherwise transferred to another person,

or that were subject at the time of

consummation to a commitment to be

acquired by another person, are counted

toward the 2,000-loan threshold.

* * * * *

Section 1026.43—Minimum Standards

for Transactions Secured by a Dwelling

* * * * *

43(f) Balloon-Payment Qualified

Mortgages Made by Certain Creditors

* * * * *

43(f)(1) Exemption

* * * * *

Paragraph 43(f)(1)(vi).

1. Creditor qualifications. Under

§ 1026.43(f)(1)(vi), to make a qualified

mortgage that provides for a balloon

payment, the creditor must satisfy three

criteria that are also required under

§ 1026.35(b)(2)(iii)(A), (B) and (C),

which require:

i. During the preceding calendar year

or during either of the two preceding

calendar years if the application for the

transaction was received before April 1

of the current calendar year, the creditor

extended a first-lien covered

transaction, as defined in

§ 1026.43(b)(1), on a property that is

located in an area that is designated

either ‘‘rural’’ or ‘‘underserved,’’ as

defined in § 1026.35(b)(2)(iv), to satisfy

the requirement of § 1026.35(b)(2)(iii)(A)

(the rural-or-underserved test). Pursuant

to § 1026.35(b)(2)(iv), an area is

considered to be rural if it is: A county

that is neither in a metropolitan

statistical area, nor a micropolitan

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statistical area adjacent to a

metropolitan statistical area, as those

terms are defined by the U.S. Office of

Management and Budget; or a census

block that is not in an urban area, as

defined by the U.S. Census Bureau

using the latest decennial census of the

United States. An area is considered to

be underserved during a calendar year

if, according to HMDA data for the

preceding calendar year, it is a county

in which no more than two creditors

extended covered transactions secured

by first liens on properties in the county

five or more times.

A. The Bureau determines annually

which counties in the United States are

rural or underserved as defined by

§ 1026.35(b)(2)(iv)(A)(1) or

§ 1026.35(b)(2)(iv)(B) and publishes on

its public website lists of those counties

to assist creditors in determining

whether they meet the criterion at

§ 1026.35(b)(2)(iii)(A). Creditors may

also use an automated tool provided on

the Bureau’s public website to

determine whether specific properties

are located in areas that qualify as

‘‘rural’’ or ‘‘underserved’’ according to

the definitions in § 1026.35(b)(2)(iv) for

a particular calendar year. In addition,

the U.S. Census Bureau may also

provide on its public website an

automated address search tool that

specifically indicates if a property

address is located in an urban area for

purposes of the Census Bureau’s most

recent delineation of urban areas. For

any calendar year that begins after the

date on which the Census Bureau

announced its most recent delineation

of urban areas, a property is located in

an area that qualifies as ‘‘rural’’

according to the definitions in

§ 1026.35(b)(2)(iv) if the search results

provided for the property by any such

automated address search tool available

on the Census Bureau’s public website

do not identify the property as being in

an urban area.

B. For example, if a creditor extended

during 2017 a first-lien covered

transaction that is secured by a property

that is located in an area that meets the

definition of rural or underserved under

§ 1026.35(b)(2)(iv), the creditor meets

this element of the exception for any

transaction consummated during 2018.

C. Alternatively, if the creditor did

not extend in 2017 a transaction that

meets the definition of rural or

underserved test under

§ 1026.35(b)(2)(iv), the creditor satisfies

this criterion for any transaction

consummated during 2018 for which it

received the application before April 1,

2018, if it extended during 2016 a first-

lien covered transaction that is secured

by a property that is located in an area

that meets the definition of rural or

underserved under § 1026.35(b)(2)(iv).

ii. During the preceding calendar year,

or, if the application for the transaction

was received before April 1 of the

current calendar year, during either of

the two preceding calendar years, the

creditor together with its affiliates

extended no more than 2,000 covered

transactions, as defined by

§ 1026.43(b)(1), secured by first liens,

that were sold, assigned, or otherwise

transferred to another person, or that

were subject at the time of

consummation to a commitment to be

acquired by another person, to satisfy

the requirement of

§ 1026.35(b)(2)(iii)(B).

iii. As of the preceding December

31st, or, if the application for the

transaction was received before April 1

of the current calendar year, as of either

of the two preceding December 31sts,

the creditor and its affiliates that

regularly extended covered transactions

secured by first liens, together, had total

assets that do not exceed the applicable

asset threshold established by the

Bureau, to satisfy the requirement of

§ 1026.35(b)(2)(iii)(C). The Bureau

publishes notice of the asset threshold

each year by amending comment

35(b)(2)(iii)–1.iii.

* * * * *

Dated: January 19, 2021.

Grace Feola,

Federal Register Liaison, Bureau of Consumer

Financial Protection.

[FR Doc. 2021–01572 Filed 2–16–21; 8:45 am]

BILLING CODE 4810–AM–P

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Part 52

[EPA–R02–OAR–2019–0720; FRL–10017–

00–Region 2]

Approval of Source-Specific Air

Quality Implementation Plans; New

Jersey

AGENCY

: Environmental Protection

Agency.

ACTION

: Final rule.

SUMMARY

: The Environmental Protection

Agency (EPA) approves a revision to the

State of New Jersey’s State

Implementation Plan (SIP) for the ozone

National Ambient Air Quality Standard

(NAAQS) related to a source-specific

SIP for CMC Steel New Jersey, located

at 1 N Crossman, Sayreville, New Jersey

(Facility). The control options in this

source-specific SIP address volatile

organic compounds (VOC) and nitrogen

oxide (NO

) Reasonably Available

Control Technology (RACT) for the

Facility’s electric arc furnace (Sayreville

EAF) to continue to operate under the

current New Jersey Department of

Environmental Protection (NJDEP)

approved VOC and NO

emission limits

for the Sayreville EAF.

DATES

: The final rule is effective on

March 19, 2021.

ADDRESSES

: The EPA has established a

docket for this action under Docket ID

Number EPA–R02–OAR–2019–0720. All

documents in the docket are listed on

the http://www.regulations.gov website.

Although listed in the index, some

information is not publicly available,

e.g., Confidential Business Information

or other information whose disclosure is

restricted by statute. Certain other

material, such as copyrighted material,

is not placed on the internet and will be

publicly available only in hard copy

form. Publicly available docket

materials are available electronically

through http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT

Linda Longo, Air Programs Branch,

Environmental Protection Agency,

Region 2 Office, 290 Broadway, 25th

Floor, New York, New York 10007–

1866, (212) 637–3565, or by email at

longo.linda@epa.gov.

SUPPLEMENTARY INFORMATION

Table of Contents

I. Background

II. The EPA’s Evaluation of New Jersey’s

Submittal

III. What comments were received in

response to the EPA’s proposed action?

IV. Summary of EPA’s Final Action

V. Incorporation by Reference

VI. Statutory and Executive Order Reviews

I. Background

The EPA approves a revision to the

State of New Jersey’s (the State) SIP for

attainment and maintenance of the

ozone National Ambient Air Quality

Standards (NAAQS). On July 15, 2020

(85 FR 42803), the EPA proposed to

approve the State’s April 30, 2019, SIP

revision, which relates to the

application of the New Jersey

Administrative Code (NJAC) Title 7,

Chapter 27, Subchapter 16, ‘‘Control

and Prohibition of Air Pollution from

Volatile Organic Compounds’’ (NJAC

7:27–16) and the NJAC, Title 7, Chapter

27, Subchapter 19, ‘‘Control and

Prohibition of Air Pollution from Oxides

of Nitrogen’’ (NJAC 7:27–19) to the

Sayreville EAF. Under this SIP revision,

the emission limits for VOC and NO

for the Sayreville EAF are the lowest

emission limits achievable with the

application of control technology that is

reasonably available given the

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Founded over 20 years ago, vLex provides a first-class and comprehensive service for lawyers, law firms, government departments, and law schools around the world.

Subscribers are able to see a visualisation of a case and its relationships to other cases. An alternative to lists of cases, the Precedent Map makes it easier to establish which ones may be of most relevance to your research and prioritise further reading. You also get a useful overview of how the case was received.

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Updated daily, vLex brings together legal information from over 750 publishing partners, providing access to over 2,500 legal and news sources from the world’s leading publishers.
Find What You Need, Quickly

Advanced A.I. technology developed exclusively by vLex editorially enriches legal information to make it accessible, with instant translation into 14 languages for enhanced discoverability and comparative research.
Over 2 million registered users

Founded over 20 years ago, vLex provides a first-class and comprehensive service for lawyers, law firms, government departments, and law schools around the world.

Subscribers are able to see the list of results connected to your document through the topics and citations Vincent found.

You can sign up for a trial and make the most of our service including these benefits.

Request your trial

Why Sign-up to vLex?

Over 100 Countries

Search over 120 million documents from over 100 countries including primary and secondary collections of legislation, case law, regulations, practical law, news, forms and contracts, books, journals, and more.
Thousands of Data Sources

Updated daily, vLex brings together legal information from over 750 publishing partners, providing access to over 2,500 legal and news sources from the world’s leading publishers.
Find What You Need, Quickly

Advanced A.I. technology developed exclusively by vLex editorially enriches legal information to make it accessible, with instant translation into 14 languages for enhanced discoverability and comparative research.
Over 2 million registered users

Founded over 20 years ago, vLex provides a first-class and comprehensive service for lawyers, law firms, government departments, and law schools around the world.

Higher-Priced Mortgage Loan Escrow Exemption (Regulation Z)

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Over 100 Countries

Thousands of Data Sources

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Over 2 million registered users

You can sign up for a trial and make the most of our service including these benefits.

Why Sign-up to vLex?

Over 100 Countries

Thousands of Data Sources

Find What You Need, Quickly

Over 2 million registered users

You can sign up for a trial and make the most of our service including these benefits.

Why Sign-up to vLex?

Over 100 Countries

Thousands of Data Sources

Find What You Need, Quickly

Over 2 million registered users

You can sign up for a trial and make the most of our service including these benefits.

Why Sign-up to vLex?

Over 100 Countries

Thousands of Data Sources

Find What You Need, Quickly

Over 2 million registered users

You can sign up for a trial and make the most of our service including these benefits.

Why Sign-up to vLex?

Over 100 Countries

Thousands of Data Sources

Find What You Need, Quickly

Over 2 million registered users

Why Sign-up to vLex?

Over 100 Countries

Thousands of Data Sources

Find What You Need, Quickly

Over 2 million registered users

You can sign up for a trial and make the most of our service including these benefits.

Why Sign-up to vLex?

Over 100 Countries

Thousands of Data Sources

Find What You Need, Quickly

Over 2 million registered users