9840 Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations 

1 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 firstlien 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. 

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

3Public Law 115–174, 132 Stat. 1296 (2018). 

4As discussed in more detail in the section-bysection 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outdated portions of the commentary and to 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. 

5As discussed in more detail in the section-bysection 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). 

6When 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. 

7Public Law 111–203, 124 Stat. 1376 (2010). 

8 73 FR 44522 (July 30, 2008). 

9 Id. at 44532. 

10 Id. at 44557–61. Prime market loans generally 

include an escrow account, which may make the 

monthly payment appear higher than for a higherpriced loan that does not include an escrow 

account. 

11 Dodd-Frank Act sections 1022, 1061, 1100A 

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

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

1639d. 

13 Id. 

14 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),1

and also provides for certain 

exemptions from this requirement.2 In 

the 2018 Economic Growth, Regulatory 

Relief, and Consumer Protection Act 

(EGRRCPA),3 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),4 and also 

corrects prior inadvertent deletions from 

and two scrivener’s errors in existing 

commentary.5

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.6

II. Background 

A. Federal Reserve Board Escrow Rule 

and the Dodd-Frank Act 

Prior to the enactment of the DoddFrank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act),7 the 

Board of Governors of the Federal 

Reserve System (Board) issued a rule 8

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.9 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.10

In 2010, Congress enacted the DoddFrank Act, which amended TILA and 

transferred TILA rulemaking authority 

and other functions from the Board to 

the Bureau.11 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.12 The 

Dodd-Frank Act also excluded certain 

loans, such as reverse mortgages, from 

this escrow requirement. The DoddFrank 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.13 In 2013, the Bureau exercised 

this authority to exempt from the 

escrow requirement creditors with 

under $2 billion in assets and meeting 

other criteria.14 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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15Public 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). 

16EGRRCPA section 108, 132 Stat. 1304–05; 15 

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

17 85 FR 44228 (July 22, 2020). 

18The 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. 

19 12 U.S.C. 5512(b)(1). 

20 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). 

21 15 U.S.C. 1604(a). 

22 15 U.S.C. 1601(a). 

23 Id. 

24 15 U.S.C. 1602(bb). 

‘‘predominantly’’ for creditors operating 

in rural or underserved areas.15

B. Economic Growth, Regulatory Relief, 

and Consumer Protection Act 

Congress enacted the EGRRCPA in 

2018. In section 108 of the EGRRCPA,16

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, 2020.17 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-bysection 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.18

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.’’ 19 Among other statutes, TILA 

and title X of the Dodd-Frank Act are 

Federal consumer financial laws.20

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.21 A 

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.’’ 22 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.’’ 23 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).24

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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25See 15 U.S.C. 1639b(a). 

26Specifically, 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). 

27See 78 FR 4726 and 80 FR 59944, 59945–46. 

28 78 FR 4726, 4738–39. 

29The 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). 

30 78 FR at 4738–39. 

31See, e.g., 80 FR 59944, 59968 (adjusting end 

date to January 1, 2016). 

32See 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.25

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.26 The Bureau is 

amending these provisions in reliance 

on the same authority, as discussed in 

detail in the Legal Authority or sectionby-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).’’ 27

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.28 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 29

granted an exception from the nonescrowing requirement to creditors who 

established escrow accounts for firstlien 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.30

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.31 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.32

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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33 84 FR 1356 (Feb. 26, 2019). 

34 Id. 

35 15 U.S.C. 1604(a). 

36Truth in Lending Act (Regulation Z) 

Adjustment to Asset-Size Exemption Threshold, 85 

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

37 129 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.33 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.34

The Bureau also proposed to add the 

deleted sentence back into this 

comment. 

Two commenters supported the 

proposed extension of the nonescrowing 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 nonescrowing 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 smallto 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 nonescrowing 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.35

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.’’ 36 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.37

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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9844 Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations 

38Bureau 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-zunderserved-areas-home-mortgage-disclosure-actdata/. 

39Although 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). 

40EGRRCPA section 108 redesignated this 

paragraph. It was previously TILA section 

129D(c)(3). 41 78 FR 4726, 4741. 

42 Id. at 4741–42. 

43EGRRCPA 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). 

44 12 CFR 1026.35(b)(2)(iii)(B). 

45TILA section 129D(c)(2)(C). 

46See the discussion of § 1026.35(b)(2)(vi)(A) 

below for further explanation of the Bureau’s 

adoption of grace periods in the exemption. 

47See 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.’’ 38 As 

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)– 

1.39 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) 40 that the exemption 

apply only to portfolio lenders.41 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.42

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.43 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 noninsured 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).44 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.’’).45

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 46 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.47 The new 


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Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations 9845 

48 80 FR 59944, 59948–49, 59951, 59954. 

49See 80 FR 7770, 7781 (Feb. 11, 2015). 

50 15 U.S.C. 1604(a). 

51The 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. 

52See, 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.48 The use of grace 

periods therefore addresses potential 

concerns regarding the impact of asset 

size and origination volume fluctuations 

from year to year.49 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.50 The Bureau 

concludes that the proposed grace 

periods for the asset threshold, and the 

loan origination limit in 

§ 1026.35(b)(2)(vi)(B),51 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-bysection 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.52 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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53 15 U.S.C. 1604(a). 

54A 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. 

55 12 CFR 1026.35(b)(2)(iii)(A). 

56TILA section 129D(c)(2)(C). 

of TILA and facilitate compliance with 

TILA.53 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 threemonth 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-bysection 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.54 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-bysection 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.55 EGRRCPA section 108 

expressly cites to and adopts this 

requirement,56 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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57 5 U.S.C. 553(d). 

58Specifically, section 1022(b)(2)(A) of the DoddFrank 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 sectionby-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 sectionby-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 nonescrowing 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-bysection 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.57 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 DoddFrank Act.58 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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59For 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-reviewhmda_report.pdf. The section 1022(b) analysis of 

the proposal for this rule analyzed 2018 HMDA 

data. 

60Some 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. 

61For 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.59

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.60

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.61 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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62Some 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. 

63 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. 

64See Alexandrov & Ang, supra note 61. 

65Hongju 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. 

66Francis Wong, Mad as Hell: Property Taxes and 

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

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

AADfEOFVXZ8zVGzj0-Od5GCKa?dl=0. 

67Stephanie 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. 

68Michael 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,62 (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 highinterest 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.63 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.64

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.65

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,66 and are more likely to pay 

property tax bills on time if sent 

reminders to plan for these payments.67

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.68 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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69Moulton 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. 

70Susan 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). 

71See Moulton et al., supra note 67; see also 

Anderson & Dokko, supra note 69. 

72Because 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. 

73Some States may require interest rates that are 

higher than market rates, imposing a cost on 

creditors who provide escrow accounts. 

in this group.69 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.70 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 perletter 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.71 Eliminating 

escrow accounts may therefore increase 

default rates, offsetting some of the 

benefits to creditors of lower servicing 

costs.72 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.73 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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74 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. 

75 5 U.S.C. 601 et seq. 

76Public Law 104–121, tit. II, 110 Stat. 857 

(1996). 

77 5 U.S.C. 609. 

78The 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. 

79 44 U.S.C. 3501 et seq. 80 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 2019.74 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),75 as amended by the Small 

Business Regulatory Enforcement 

Fairness Act of 1996,76 generally 

requires an agency to conduct an initial 

regulatory flexibility analysis (IRFA) 

and a final regulatory flexibility analysis 

(FRFA) of any rule subject to noticeand-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.77

A depository institution is considered 

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

assets.78 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),79 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,80 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 

(C) The transaction satisfies the 

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-orunderserved 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-orunderserved 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-orunderserved 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 firstlien 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 firstlien 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 firstlien 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 coowner 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 higherpriced 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 firstlien 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 higherpriced 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 firstlien 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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9856 Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations 

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 firstlien 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 higherpriced 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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Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations 9857 

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 firstlien 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 (NOX) 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 NOX 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 NOX

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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