Vol. 76 Wednesday, 

No. 41 March 2, 2011 

Part III 

Federal Reserve System 

12 CFR Part 226 

Truth in Lending; Proposed Rule 

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11598 Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Proposed Rules 

FEDERAL RESERVE SYSTEM 

12 CFR Part 226 

[Regulation Z; Docket No. R–1406] 

RIN No. 7100–AD 65 

Truth in Lending 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Proposed rule; request for 

public comment. 

SUMMARY: The Board is publishing for 

public comment a proposed rule that 

would amend Regulation Z (Truth in 

Lending) to implement certain 

amendments to the Truth in Lending 

Act made by the Dodd-Frank Wall Street 

Reform and Consumer Protection Act. 

Regulation Z currently requires 

creditors to establish escrow accounts 

for higher-priced mortgage loans 

secured by a first lien on a dwelling. 

The proposal would implement 

statutory changes made by the DoddFrank Act that lengthen the time for 

which a mandatory escrow account 

established for a higher-priced mortgage 

loan must be maintained. In addition, 

the proposal would implement the Act’s 

disclosure requirements regarding 

escrow accounts. The proposal also 

would exempt certain loans from the 

statute’s escrow requirement. The 

primary exemption would apply to 

mortgage loans extended by creditors 

that operate predominantly in rural or 

underserved areas, originate a limited 

number of mortgage loans, and do not 

maintain escrow accounts for any 

mortgage loans they service. 

DATES: Comments must be received on 

or before May 2, 2011. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1406 and 

RIN No. 7100–AD 65, by any of the 

following methods: 

• Agency Web Site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regs.comments@federalreserve.gov. 

Include the docket number in the 

subject line of the message. 

• Fax: (202) 452–3819 or (202) 452– 

3102. 

• Mail: Address to Jennifer J. Johnson, 

Secretary, Board of Governors of the 

Federal Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

All public comments will be made 

available on the Board’s Web site at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm as 

submitted, unless modified for technical 

reasons. Accordingly, comments will 

not be edited to remove any identifying 

or contact information. Public 

comments may also be viewed 

electronically or in paper in Room MP– 

500 of the Board’s Martin Building (20th 

and C Streets, NW.,) between 9 a.m. and 

5 p.m. on weekdays. 

FOR FURTHER INFORMATION CONTACT: 

Samantha Pelosi, Attorney, or Paul 

Mondor, Senior Attorney, Division of 

Consumer and Community Affairs, 

Board of Governors of the Federal 

Reserve System, Washington, DC 20551, 

at (202) 452–2412 or (202) 452–3667. 

For users of Telecommunications 

Device for the Deaf (TDD) only, contact 

(202) 263–4869. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Congress enacted the Truth in 

Lending Act (TILA) based on findings 

that economic stability would be 

enhanced and competition among 

consumer credit providers would be 

strengthened by the informed use of 

credit resulting from consumers’ 

awareness of the cost of credit. One of 

the purposes of TILA is to provide 

meaningful disclosure of credit terms to 

enable consumers to compare credit 

terms available in the marketplace more 

readily and avoid the uninformed use of 

credit. 

TILA’s disclosures differ depending 

on whether credit is an open-end 

(revolving) plan or a closed-end 

(installment) loan. TILA also contains 

procedural and substantive protections 

for consumers. TILA is implemented by 

the Board’s Regulation Z. An Official 

Staff Commentary interprets the 

requirements of Regulation Z. By 

statute, creditors that follow in good 

faith Board or official staff 

interpretations are insulated from civil 

liability, criminal penalties, and 

administrative sanction. 

On July 30, 2008, the Board published 

a final rule amending Regulation Z to 

establish new regulatory protections for 

consumers in the residential mortgage 

market. 73 FR 44522; July 30, 2008 (the 

HOEPA Final Rule). Among other 

things, the HOEPA Final Rule defined a 

class of higher-priced mortgage loans 

that are subject to additional 

protections. A higher-priced mortgage 

loan is a transaction secured by a 

consumer’s principal dwelling with an 

annual percentage rate that exceeds the 

average prime offer rate for a 

comparable transaction by 1.5 or more 

percentage points for loans secured by 

a first lien, or by 3.5 or more percentage 

points for loans secured by a 

subordinate lien. The HOEPA Final 

Rule included a requirement that 

creditors establish escrow accounts for 

taxes and insurance on higher-priced 

mortgage loans secured by a first lien on 

a principal dwelling. The escrow 

requirement was effective on April 1, 

2010, for loans secured by site-built 

homes, and on October 1, 2010, for 

loans secured by manufactured housing. 

On August 26, 2009, the Board 

published a proposed rule to amend 

Regulation Z. 74 FR 43232; Aug. 26, 

2009 (the 2009 Closed-End Proposal). 

Among other things, the 2009 ClosedEnd Proposal proposed new staff 

commentary to address questions that 

some creditors had raised concerning 

the determination of the average prime 

offer rate that is used to determine 

whether a transaction is a higher-priced 

mortgage loan covered by the HOEPA 

Final Rule. No final action has been 

taken on this proposal. 

On July 21, 2010, the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act) was 

signed into law. Among other 

provisions, Title XIV of the Dodd-Frank 

Act amends TILA to establish certain 

requirements for escrow accounts for 

consumer credit transactions secured by 

a first lien on a consumer’s principal 

dwelling. The escrow provisions of the 

Dodd-Frank Act are similar, but not 

identical, to the provisions adopted by 

the Board in the HOEPA Final Rule. 

Sections 1461 and 1462 of the DoddFrank Act create new TILA Section 

129D, which substantially codifies the 

Board’s escrow requirement for higherpriced mortgage loans but also adds 

disclosure requirements, lengthens the 

period for which escrow accounts are 

required, and adjusts the rate threshold 

for determining whether escrow 

accounts are required for ‘‘jumbo loans,’’ 

whose principal amounts exceed the 

maximum eligible for purchase by 

Freddie Mac. The new section also 

authorizes the Board to create an 

exemption from the escrow requirement 

for transactions originated by creditors 

meeting certain prescribed criteria. 

On September 24, 2010, the Board 

published two other proposed rules that 

would affect the escrow requirement for 

higher-priced mortgage loans. First, the 

Board proposed, among other 

amendments, to replace the APR as the 

metric a creditor compares to the 

average prime offer rate to determine 

whether a transaction is a higher-priced 

mortgage loan. Creditors instead would 

use a ‘‘transaction coverage rate’’ that 

would be closely comparable to the 

average prime offer rate and would not 

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be disclosed to consumers. 75 FR 58539; 

Sept. 24, 2010 (the 2010 Mortgage 

Proposal). No final action has been 

taken on this proposal. Second, the 

Board proposed to implement one of the 

amendments to the TILA made by the 

Dodd-Frank Act. That amendment 

establishes a separate threshold above 

the average prime offer rate for 

determining coverage of the escrow 

requirement for ‘‘jumbo’’ loans, as 

discussed above. 75 FR 58505; Sept. 24, 

2010 (the ‘‘Jumbo’’ Threshold Proposal). 

Simultaneous with this proposal, the 

Board is publishing a final rule to adopt 

the provisions in the ‘‘Jumbo’’ Threshold 

Proposal (the ‘‘Jumbo’’ Final Rule). 

II. Summary of the Proposed Rule 

The Board is proposing amendments 

to Regulation Z’s escrow requirement, in 

accordance with the Dodd-Frank Act. 

First, the proposed rule would expand 

the minimum period for mandatory 

escrow accounts from one to five years, 

and under certain circumstances longer. 

Second, the proposed rule would extend 

the partial exemption for certain loans 

secured by a condominium unit to 

planned unit developments and other, 

similar property types that have 

governing associations that maintain a 

master insurance policy. Third, the 

proposed rule would create an 

exemption from the escrow requirement 

for any loan extended by a creditor that 

makes most of its first-lien higher-priced 

mortgage loans in counties designated 

by the Board as ‘‘rural or underserved,’’ 

has annual originations of 100 or fewer 

first-lien mortgage loans, and does not 

escrow for any mortgage transaction it 

services. 

The Board also is proposing to 

establish two new disclosure 

requirements relating to escrow 

accounts. One disclosure would be 

required three business days before 

consummation of a mortgage transaction 

for which an escrow account will be 

established. The Dodd-Frank Act 

requires such disclosures for higherpriced mortgage loans, for which such 

an escrow account is required; the 

Board is proposing to require the same 

disclosure for all mortgage loans for 

which an escrow account is established. 

The disclosure would explain what an 

escrow account is and how it works. It 

would state the risk of not having an 

escrow account. The disclosure would 

state the estimated amount of the first 

year’s disbursements, the amount to be 

paid at consummation to fund the 

escrow account initially, and the 

amount of the consumer’s regular 

mortgage payments to be paid into the 

escrow account. Finally, the disclosure 

would state that the amount of the 

regular escrow payment may change in 

the future. 

Also, pursuant to the Dodd-Frank Act, 

the Board is proposing a second 

disclosure that would be given when a 

mortgage transaction is entered into 

without an escrow account or when an 

escrow account on an existing mortgage 

loan will be cancelled. The disclosure 

would be required to be delivered at 

least three business days before 

consummation or cancellation of the 

existing escrow account, as applicable. 

This disclosure would explain what an 

escrow account is, how it works, and 

the risk of not having an escrow 

account. It also would state the potential 

consequences of failing to pay homerelated costs such as taxes and 

insurance in the absence of an escrow 

account. In addition, it would state why 

there will be no escrow account or why 

it is being cancelled, as applicable, the 

amount of any fee imposed for not 

having an escrow account, and how the 

consumer can request that an escrow 

account be established or left in place, 

along with any deadline for such 

requests. 

III. Consumer Testing for This Proposal 

As noted above, the Dodd-Frank Act 

amended TILA to require new 

disclosures regarding escrow accounts. 

Consistent with its practice concerning 

disclosures required by Regulation Z, 

the Board conducted consumer testing 

to develop the disclosures in this 

proposal. The Board retained ICF 

Macro, a research and consulting firm 

that specializes in designing and testing 

documents, to design and test model 

disclosure forms for this proposal. 

ICF Macro worked closely with the 

Board to conduct one round of testing 

(eight interviews) on the Board’s 

proposed disclosures regarding escrow 

accounts. Interview participants were 

asked to review model forms and 

provide their reactions, and they then 

were asked a series of questions 

designed to test their understanding of 

the content. Data were collected on 

which elements and features of each 

form were most successful in providing 

information clearly and effectively. The 

findings were incorporated in revised 

model forms, which are included in this 

proposal. 

Key findings of the Board’s consumer 

testing are discussed where relevant in 

the section-by-section analysis below. 

ICF Macro prepared a report of the 

results of the testing, which is available 

on the Board’s public Web site along at: 

http://www.federalreserve.gov. 

IV. Section-by-Section Analysis 

Section 226.2 Definitions and Rules of 

Construction 

2(a) Definitions 

2(a)(6) Business Day 

The Board is proposing revisions to 

§ 226.2(a)(6) to define ‘‘business day’’ for 

purposes of the timing of the new 

disclosures for escrow account. 

Currently, § 226.2(a)(6) contains two 

definitions of business day. Under the 

general definition, a business day is a 

day on which the creditor’s offices are 

open to the public for carrying on 

substantially all of its business 

functions. See comment 2(a)(6)–1. For 

some purposes, however, a more precise 

definition of business day applies: All 

calendar days except Sundays and 

specified Federal legal holidays. 

TILA Section 129D(h) requires 

creditors to disclose certain information 

regarding a mandatory escrow account 

at least three business days before 

consummation of the transaction giving 

rise to such account or in accordance 

with timeframes established by 

regulation. The Board is proposing to 

revise § 226.2(a)(6) and comment 

2(a)(6)–2 to apply the more precise 

definition of business day for this 

purpose. This proposed application of 

the more precise definition of business 

day is being made so that the same 

definition of business day would be 

used for the three-business-day waiting 

period proposed in § 226.19(f)(4) as in 

the seven-business day waiting period 

for the early disclosures and threebusiness-day waiting period for the 

corrected disclosures in § 226.19(a)(2), 

which should simplify compliance. This 

proposal would also apply the more 

precise definition of business day to the 

requirement in proposed § 229.20(d)(4) 

that servicers provide disclosures 

regarding the cancellation of an escrow 

account at least three business days 

before closure of the escrow account. 

Section 226.19 Certain Transactions 

Secured by Real Property or a Dwelling 

19(f) Escrow Accounts 

Requirements of TILA Section 129D 

The Board is proposing a new 

§ 226.19(f) to implement the escrow 

account disclosure requirements of 

TILA Section 129D, as enacted by 

Sections 1461 and 1462 of the DoddFrank Act. TILA Section 129D(a) 

contains the statutory requirement that 

an escrow account be established in 

connection with the consummation of 

any consumer credit transaction secured 

by a first lien on a consumer’s principal 

dwelling (other than an open-end credit 

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plan or a reverse mortgage). Section 

129D(b), however, limits that 

requirement to four specified 

circumstances: (1) Where an escrow 

account is required by federal or state 

law; (2) where the loan is made, 

guaranteed, or insured by a state or 

federal agency; (3) where the 

transaction’s annual percentage rate 

exceeds the average prime offer rate by 

prescribed margins; and (4) where an 

escrow account is ‘‘required pursuant to 

regulation.’’ TILA Section 129D(h) 

requires certain disclosures when an 

escrow account mandated by TILA 

Section 129D(b) is established. TILA 

Section 129D(j) requires certain other 

disclosures when an escrow account for 

a transaction secured by real property is 

not established or is cancelled. 

The Board’s Proposal 

For a closed-end transaction secured 

by a first-lien on real property or a 

dwelling, proposed § 226.19(f) would 

require the creditor to disclose the 

information about escrow accounts 

specified in § 226.19(f)(2)(i) when an 

escrow account is established and 

specified in § 226.19(f)(2)(ii) when an 

escrow account is not established in 

connection with the consummation. 

Proposed § 226.19(f) would require the 

creditor to disclose this information in 

accordance with the format 

requirements of § 226.19(f)(1) and the 

timing requirements of § 226.19(f)(4). In 

addition, the proposal would provide 

that for purposes of § 226.19(f), the term 

‘‘escrow account’’ has the same meaning 

as under Regulation X (24 CFR 

3500.17(b)), which implements the Real 

Estate Settlement Procedures Act 

(RESPA), and is subject to any 

interpretations by the Department of 

Housing and Urban Development 

(HUD). This proposed definition would 

parallel existing § 226.35(b)(3)(iv). 

Proposed comment 19(f)–1 would 

clarify that the term ‘‘real property’’ 

includes vacant and unimproved land. 

It also would clarify that the term 

‘‘dwelling’’ includes vacation and 

second homes and mobile homes, boats, 

and trailers used as residences and refer 

to additional guidance regarding the 

term provided by § 226.2(a)(19) and the 

related commentary. 

Secured by a first-lien transaction. 

Proposed § 226.19(f) would require 

disclosures for the establishment or 

non-establishment of an escrow account 

in connection with consummation of a 

transaction secured by a first lien, but 

not a subordinate lien. TILA Sections 

129D(a) and (b) require the 

establishment of an escrow account in 

connection with only first-lien mortgage 

loans. TILA Sections 129D(h) and (j) 

require disclosures when such an 

escrow account is established or is not 

established in connection with 

consummation. Proposed § 226.19(f) 

would not require disclosures for 

subordinate-lien mortgages because 

TILA does not require the establishment 

of escrow accounts for subordinate-lien 

mortgages and the Board understands 

that creditors rarely offer or establish 

escrow accounts for such mortgages. 

Nevertheless, the Board seeks comment 

on whether this approach is 

appropriate. 

Disclosures for establishment of 

voluntary escrow accounts. Proposed 

§ 226.19(f) would implement the TILA 

Section 129D(h) disclosure 

requirements for the establishment of 

escrow accounts mandated by TILA 

Section 129D(b) and also would impose 

disclosure requirements for the 

establishment of escrow accounts that 

are not mandated by TILA. Under the 

proposal, creditors would have to make 

the same disclosures for any escrow 

account that will be established in 

connection with the consummation of a 

loan secured by a first lien. The 

proposed disclosure requirement would 

inform all consumers obtaining an 

escrow account, whether mandatory or 

voluntary, about the function and 

purpose of escrow accounts generally 

and the funding of their escrow account 

specifically. 

The proposed § 226.19(f) requirement 

that disclosures be provided for the 

establishment of both mandatory and 

voluntary escrow accounts would 

parallel the TILA Section 129D(j) 

requirement that disclosures be 

provided for the non-establishment or 

cancellation of any type of escrow 

account. Conforming the types of 

escrow accounts that trigger the 

establishment disclosures to those that 

trigger the non-establishment and 

cancellation disclosures avoids the 

anomalous result of a consumer 

receiving information about escrow 

accounts when an escrow account is not 

established or is cancelled, but not 

when it is established in the first place. 

The Board proposes that the TILA 

Section 129D(h) disclosures be provided 

for voluntary as well as mandatory 

escrow accounts pursuant to its 

authority under TILA Section 105(a). It 

authorizes the Board to prescribe 

regulations that contain classifications, 

differentiations, or other provisions, and 

may provide for adjustments and 

exceptions for any class of transactions, 

to effectuate the purposes of TILA and 

Regulation Z, to prevent circumvention 

or evasion, or to facilitate compliance. 

15 U.S.C. 1604(a). One purpose of the 

statute is to assure meaningful 

disclosure of credit terms so that the 

consumer will be able to compare more 

readily the various credit terms 

available and avoid the uninformed use 

of credit. 15 U.S.C. 1601(a). The Board 

believes that providing disclosures to 

consumers that will have a voluntary 

escrow account established would 

enable those consumers to compare the 

costs of different mortgage loans 

available to them more easily and to 

avoid the uninformed use of credit. The 

information provided would allow 

consumers to compare the cost and fees 

of mortgage loans that have and do not 

have an escrow account, to identify the 

premium that different creditors may be 

charging for a mortgage loan with an 

escrow account, and to understand the 

total obligation of the mortgage loan that 

they ultimately may choose. 

Real property or a dwelling. With 

§ 226.19(f), the Board covers real 

property and principal dwellings as 

well as dwellings that are not used as a 

principal residence. TILA Section 

129D(h) requires certain disclosures 

when an escrow account mandated by 

TILA Section 129D(b) is established in 

connection with the consummation of a 

closed-end transaction secured by a 

consumer’s principal dwelling. TILA 

Section 129D(j) requires certain other 

disclosures when an escrow account for 

a transaction secured by real property is 

not established or is cancelled. 

Proposed § 226.19(f)(2) implements 

TILA Section 129D(h) regarding 

disclosures when an escrow account is 

established in connection with 

consummation of a transaction secured 

by a consumer’s principal dwelling, but 

also covers other dwellings and real 

property without a dwelling. In 

addition, proposed § 226.19(f)(2) 

implements TILA Section 129D(j) 

regarding disclosures when an escrow 

account is not established in connection 

with consummation of a transaction 

secured by real property, but also covers 

dwellings that would be considered 

personal property under state law. The 

Board believes that coverage of the same 

types of property under the disclosure 

requirements for the establishment as 

well as the non-establishment of an 

escrow account would promote the 

informed use of credit by consumers 

and compliance by creditors. The 

disclosures for the establishment of an 

escrow account likely would be just as 

useful to a consumer entering into a 

transaction secured by a second or 

vacation home or vacant or unimproved 

land as it would to a consumer entering 

into a transaction secured by a principal 

dwelling. Similarly, the disclosures for 

the non-establishment of an escrow 

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account should cover all dwellings, 

whether or not they are deemed to be 

real or personal property under state 

law. Furthermore, the coverage of all 

dwellings would eliminate the analysis 

that creditors would have to undertake 

to determine whether and which 

disclosures would be triggered when a 

transaction will be secured by any one 

of various types of dwellings. 

The Board proposes the § 229.19(f) 

coverage of real property and dwellings 

pursuant to its authority under TILA 

Section 105(a). 15 U.S.C. 1604(a). TILA 

Section 105(a) authorizes the Board to 

prescribe regulations that contain 

classifications, differentiations, or other 

provisions, and may provide for 

adjustments and exceptions for any 

class of transactions, to effectuate the 

purposes of TILA and Regulation Z, to 

prevent circumvention or evasion, or to 

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

One purpose of the statute is to assure 

meaningful disclosure of credit terms so 

that the consumer will be able to 

compare more readily the various credit 

terms available and avoid the 

uninformed use of credit. 15 U.S.C. 

1601(a). The class of transactions that 

would be affected is transactions 

secured by real property or a dwelling. 

As mentioned above, providing 

disclosures regarding an escrow account 

to consumers entering into a transaction 

secured by real estate or a dwelling 

would both educate consumers and ease 

compliance burdens for creditors. 

19(f)(1) Format Requirements 

Proposed § 226.19(f)(1) contains 

format requirements for the disclosures 

required by § 226.19(f)(2). Proposed 

§ 226.19(f)(1)(i) requires that creditors 

provide the § 226.19(f)(2) disclosures in 

a minimum 10-point font, grouped 

together on the front side of a one-page 

document, separate from all other 

material, with the headings, content, 

order, and format substantially similar 

to Model Form H–24 (when an escrow 

account is established) or Model Form 

H–25 (when an escrow account is not 

established) in Appendix H. Consumer 

testing has shown that the location and 

order in which information was 

presented affected consumers’ ability to 

locate and comprehend the information 

disclosed. Proposed comment 

19(f)(1)(i)–1 clarifies that the disclosures 

required by § 226.19(f)(2) and any 

optional information permitted by 

§ 226.19(f)(3) must be grouped together 

on the front side of a separate one-page 

document that contains no other 

material. The proposed comment also 

clarifies that the § 226.19(f)(2)(i) 

disclosures may not appear in the same 

document as the escrow disclosures 

required under § 226.18 or under 

RESPA or Regulation X. Proposed 

comment 19(f)(1)(i)–2 clarifies that the 

notice containing the disclosures 

required by § 226.19(f)(2) and any 

optional information permitted by 

§ 226.19(f)(3) must be in writing in a 

form that the consumer may keep. 

Proposed § 226.19(f)(1)(ii) would 

require that the heading ‘‘Information 

About Your Mortgage Escrow Account’’ 

required by § 226.19(f)(2)(i) or the 

heading ‘‘Required Direct Payment of 

Property Taxes and Insurance’’ required 

by § 226.19 (f)(2)(ii) be more 

conspicuous than and precede the other 

disclosures. The heading would be 

required to be outside the table that is 

required by proposed § 226.19(f)(1)(iii). 

Proposed § 226.19(f)(1)(iii) would 

require the creditor to provide the 

disclosures regarding the establishment 

of an escrow account under 

§ 226.19(f)(2)(i) in the form of a table 

containing four rows or the nonestablishment of an escrow account 

under § 226.19(f)(2)(ii) in the form of a 

table containing no more than seven 

rows. The disclosures regarding the 

non-establishment of an escrow account 

under § 226.19(f)(2)(ii) would be in the 

form of a table containing five rows 

when the creditor does not offer the 

option of having an escrow account. In 

such a case, the creditor would be 

required by to omit the 

§§ 226.19(f)(2)(ii)(D) and (G) disclosures 

from the table because they would be 

inapplicable. Only the information 

required or permitted by § 226.19(f)(2)(i) 

or (ii) would be allowed to appear in the 

table. Proposed § 226.19(f)(1)(iv) would 

require the creditor to present the 

disclosures in the format of a question 

and answer in a manner substantially 

similar to Model Form H–24 or H–25 in 

Appendix H. Consumer testing has 

shown that using a tabular, question and 

answer format improved participants’ 

ability to identify and understand key 

information. Proposed § 226.19(f)(1)(iv) 

also would require the creditor to 

present the disclosures appearing in the 

table in the order listed in 

§ 226.19(f)(2)(i)(A)–(D) or (ii)(A)–(G), as 

applicable. This order would ensure 

that consumers receive the disclosed 

information in a logical progression. 

Proposed § 226.19(f)(1)(v) would 

require the creditor to highlight certain 

disclosures because consumer testing 

has shown that such emphasis allows 

consumers to locate and identify 

important information more quickly. 

The Board proposes that all dollar 

amounts be presented in bold font. It 

also proposes implementation of the 

requirement in TILA Section 

129D(j)(2)(B) that the notice regarding 

the non-establishment of an escrow 

account contain a ‘‘prominent’’ 

statement of the consumer’s 

responsibility for covering home-related 

costs through potentially large semiannual or annual payments by requiring 

presentation of that information in bold 

format. 

19(f)(2) Content Requirements 

19(f)(2)(i) Establishment of Escrow 

Account 

Proposed § 226.19(f)(2)(i) would 

implement TILA Section 129D(h) by 

setting forth the required content for the 

disclosure notice regarding the 

establishment of an escrow account 

before the end of the 45-day period 

following consummation of a 

transaction subject to § 226.19(f). The 

proposed 45-day period reflects the 

requirement in § 3500.17(g)(1) of 

Regulation X, which implements 

RESPA, that the servicer submit an 

initial escrow account statement to the 

borrow at settlement or within 45 

calendar days of settlement for escrow 

accounts that are established as a 

condition of the loan. The Board solicits 

comment on whether the 45-day period 

is appropriate for deeming an account to 

be established in connection with 

consummation of a mortgage 

transaction. Proposed comment 

19(f)(2)(i)–2 would clarify that neither 

creditors nor servicers are required to 

provide the § 226.19(f)(2)(i) disclosures 

when an escrow account is established 

solely in connection with the 

consumer’s delinquency or default on 

the underlying debt obligation. 

Proposed § 226.19(f)(2)(i) also would 

require the disclosures to be made 

clearly and conspicuously. Proposed 

comment 19(f)(2)(i)–1 would clarify 

that, to meet the clear and conspicuous 

standard, disclosures must be made in 

a reasonably understandable form and 

readily noticeable to the consumer. 

Proposed § 226.19(f)(2)(i) also would 

require the disclosure notice to bear the 

heading ‘‘Information About Your 

Mortgage Escrow Account.’’ 

19(f)(2)(i)(A) Purpose of Notice 

Proposed § 226.19(f)(2)(i)(A) would 

require a statement that the purpose of 

the notice is to inform the consumer 

that the consumer’s mortgage with the 

creditor will have an escrow account. 

This proposed provision would 

implement the requirement of TILA 

Section 129D(h)(1) that the creditor 

disclose the fact that an escrow account 

will be established. 

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11602 Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Proposed Rules 

19(f)(2)(i)(B) Explanation of Escrow 

Account 

Proposed § 226.19(f)(2)(i)(B) would 

require the creditor to provide a 

statement that an escrow account is an 

account used to pay home-related costs 

such as property taxes and insurance 

together with a statement that an escrow 

account is sometimes called an 

‘‘impound’’ or ‘‘trust’’ account. This 

information would be followed by a 

statement that the consumer will pay 

into the escrow account over time and 

that the creditor will take money from 

the account to pay costs as needed. The 

Board is proposing these statements 

explaining an escrow account, the other 

names sometimes used for an escrow 

account, and how an escrow account 

works pursuant to its authority under 

TILA Section 129D(h)(6) to prescribe 

regulations requiring the creditor to 

disclose such other information as the 

Board determines necessary for the 

protection of the consumer. The Board 

believes that informing consumers of 

the other names for an escrow account 

would prevent consumers in Western 

regions of the country from confusing an 

escrow account for the payment of 

home-related costs such as property 

taxes and insurance premiums with the 

escrow that is commonly used for the 

closing and settlement of a credit 

transaction. The Board also believes that 

the basic information explaining what 

an escrow account is and how it works 

provides needed context for the other 

disclosures in the notice. 

Proposed § 226.19(f)(2)(i)(B) also 

would require a statement of the 

estimated dollar amount that the 

consumer’s home-related costs will total 

for the first year of the mortgage. TILA 

Section 129D(h)(3) requires creditors 

establishing an escrow account in 

connection with a transaction to 

disclose the amount, in the initial year 

after consummation, of the estimated 

taxes and hazard insurance. The 

statement regarding the total dollar 

amount of the estimated home-related 

costs would implement the TILA 

Section 129D(h)(3) requirement. 

Proposed comment 19(f)(2)(i)–1 states 

that the creditor may comply with the 

numerical content requirement of 

§ 226.19(f)(2)(i)(B) by using the amount 

derived from the escrow account 

analysis conducted pursuant to 

Regulation X. 

19(f)(2)(i)(C) Risk of Not Having Escrow 

Account 

Proposed § 226.19(f)(2)(i)(C) would 

require a statement that, if the consumer 

did not have an escrow account, the 

consumer would be responsible for 

directly paying home-related costs 

through potentially large semi-annual or 

annual payments. This is consistent 

with the requirements of TILA Section 

129D(h)(5). The Board is proposing the 

statement regarding the consumer’s 

direct responsibility, in the absence of 

an escrow account, for paying homerelated costs through potentially large 

payments to implement TILA Section 

129D(h)(5) and to conform the 

disclosure with the similar disclosure 

required by TILA Section 129D(j)(2)(B) 

regarding the non-establishment of an 

escrow account. 

19(f)(2)(i)(D) Funding of Escrow 

Account 

Proposed § 226.19(f)(2)(i)(D) would 

implement TILA Section 129D(h)(2) by 

requiring a statement of the dollar 

amount that the consumer will be 

required to deposit at closing to initially 

fund the escrow account. Proposed 

§ 226.19(f)(2)(i)(D) also would 

implement TILA Section 129D(h)(4) by 

requiring a statement of the dollar 

amount that the consumer’s periodic 

mortgage payments will include for 

deposit into the escrow account. In 

addition, proposed § 226.19(f)(2)(i)(D) 

would require a third statement that the 

amount of this escrow payment may 

change in the future. The Board is 

proposing to require this last statement 

pursuant to its authority under TILA 

Section 129D(h)(6) to prescribe 

regulations requiring the creditor to 

disclose such other information as the 

Board determines necessary for the 

protection of the consumer. This 

information notifies a consumer that his 

or her periodic mortgage payment could 

change with an increase or decrease in 

property tax or hazard insurance costs. 

Proposed comment 19(f)(2)(i)–1 states 

that the creditor may comply with the 

numerical content requirement of 

§ 226.19(f)(2)(i)(D) by using the amount 

derived from the escrow account 

analysis conducted pursuant to 

Regulation X. 

19(f)(2)(ii) Non-Establishment of Escrow 

Account 

Proposed § 226.19(f)(2)(ii) would 

implement TILA Section 129D(j)(2) by 

setting forth the required content for the 

disclosure notice regarding escrow 

accounts when an escrow account will 

not be established before the end of the 

45-day period following consummation 

of a transaction subject to § 226.19(f). 

Proposed § 226.19(f)(2)(ii) would 

require that the disclosures be made 

clearly and conspicuously. Proposed 

comment 19(f)(2)(ii)–1 refers to 

comment 19(f)(2)(i)–1, which clarifies 

that, to meet the clear and conspicuous 

standard, disclosures must be made in 

a reasonably understandable form and 

readily noticeable to the consumer. 

Proposed § 226.19(f)(2)(ii) also would 

require the disclosure notice to bear the 

heading ‘‘Required Direct Payment of 

Property Taxes and Insurance.’’ 

19(f)(2)(ii)(A) Purpose of Notice 

Proposed § 226.19(f)(2)(ii)(A) would 

require a statement that the purpose of 

the notice is to inform the consumer 

that the consumer’s mortgage with the 

creditor will not have an escrow 

account and to explain the risk of not 

having an escrow account. The Board is 

proposing these disclosures pursuant to 

the Board’s authority under TILA 

Section 129D(j)(2)(D) to include in the 

notice such other information as the 

Board determines necessary for the 

protection of the consumer. The Board 

believes that these disclosures are 

necessary to draw the consumer’s 

attention to the fact that his or her 

mortgage will not have an escrow 

account and the implications of such 

absence. 

19(f)(2)(ii)(B) Explanation of Escrow 

Account 

Proposed § 226.19(f)(2)(ii)(B) would 

require the creditor to provide a 

statement that an escrow account is an 

account that is used to pay home-related 

costs such as property taxes and 

insurance together with a statement that 

an escrow account is sometimes called 

an ‘‘impound’’ or ‘‘trust’’ account. This 

information would be followed by a 

statement that the borrower pays into 

the escrow account over time and that 

the creditor takes money from the 

account to pay costs as needed. The 

Board is proposing these statements 

explaining an escrow account, the other 

names sometimes used for an escrow 

account, and how an escrow account 

works pursuant to its authority under 

TILA Section 129D(h)(6) to prescribe 

regulations requiring the creditor to 

disclose such other information as the 

Board determines necessary for the 

protection of the consumer. The Board 

believes that informing consumers of 

the other names for an escrow account 

would prevent consumers in Western 

regions of the country from confusing an 

escrow account for the payment of 

home-related costs such as property 

taxes and insurance premiums with the 

escrow that is commonly used for the 

closing and settlement of a credit 

transaction. The Board also believes that 

the basic information explaining what 

an escrow account is and how it works 

provides needed context for the other 

disclosures in the notice. 

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Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Proposed Rules 11603 

19(f)(2)(ii)(C) Reason Why Mortgage 

Will Not Have an Escrow Account 

Proposed § 226.19(f)(2)(ii)(C) would 

require a statement that the consumer 

was given the option of having an 

escrow account but that the consumer 

waived it or a statement that the creditor 

does not offer the option of having an 

escrow account, as applicable. The 

Board is proposing this disclosure 

pursuant to the Board’s authority under 

TILA Section 129D(j)(2)(D) to include in 

the notice such other information as the 

Board determines necessary for the 

protection of the consumer. This 

disclosure would provide the consumer 

with the background information 

necessary to understand the disclosure 

required by § 226.19(f)(2)(ii)(G) at the 

end of the notice as to whether the 

consumer has an option to request the 

establishment of an escrow account. 

19(f)(2)(ii)(D) Fee for Choosing Not To 

Have Escrow Account 

Proposed § 226.19(f)(2)(ii)(D) would 

implement TILA Section 129D(j)(2)(A) 

by requiring disclosure of any fee 

charged for not establishing an escrow 

account. Proposed § 226.19(f)(2)(ii)(D) 

would require, if the consumer waives 

establishment of an escrow account, a 

statement of the dollar amount of any 

fee that the consumer will be charged 

for choosing not to have an escrow 

account, or a statement that the 

consumer will not be charged a fee. If 

the creditor is not establishing an 

escrow account because it does not offer 

escrow accounts to consumers, 

proposed § 226.19(f)(2)(ii)(D) would 

require the creditor to omit this 

disclosure from the table. 

The Board understands that creditors 

only charge a fee for the nonestablishment of an escrow account 

when the creditor usually offers and 

establishes escrow accounts for all firstlien transactions, but a particular 

consumer requests that an escrow 

account not be established for his or her 

transaction. A creditor that offers and 

establishes escrow accounts for all firstlien transactions typically benefits from 

this practice because the funds in the 

escrow accounts provide interest 

income to the creditor and additional 

capital reserves. The Board believes that 

a creditor that is asked by a consumer 

not to engage in its usual practice of 

establishing an escrow account for his 

or her particular transaction may charge 

that consumer a fee for foregoing such 

financial benefits with respect the 

transaction. Creditors that do not 

regularly offer or establish escrow 

accounts do not charge consumers for 

the non-establishment of an escrow 

account, because those creditors are not 

foregoing a financial benefit. The 

proposal would require creditors that do 

not offer escrow accounts to omit the 

disclosure regarding a fee because the 

Board understands that those creditors 

do not charge these fees and that the 

disclosure, therefore, would be 

inapplicable. Nevertheless, the Board 

seeks comment on this approach. 

19(f)(2)(ii)(E) Risk of Not Having Escrow 

Account 

Proposed § 226.19(f)(2)(ii)(E) would 

require a statement that the consumer 

will be responsible for directly paying 

home-related costs through potentially 

large semi-annual or annual payments. 

TILA Section 129D(j)(2)(B) requires a 

clear and prominent statement that the 

consumer is responsible for personally 

and directly paying the non-escrowed 

items, in addition to paying the 

mortgage loan payment, in the absence 

of an escrow account, and that the costs 

for taxes and insurance can be 

substantial. Proposed 

§ 226.19(f)(2)(ii)(E) would implement 

these TILA Section 129D(j)(2)(B) 

requirements. 

19(f)(2)(ii)(F) Consequences of Failure 

To Pay Home-Related Costs 

Proposed § 226.19(f)(2)(ii)(F) would 

require a statement that, if the consumer 

does not pay the applicable homerelated costs, the creditor could require 

an escrow account on the mortgage or 

add the costs to the loan balance. This 

information would be followed by a 

statement that the creditor could also 

require the consumer to pay for 

insurance that the creditor buys on the 

consumer’s behalf and a statement that 

this insurance would likely be more 

expensive and provide fewer benefits 

than traditional homeowner’s insurance. 

TILA Section 129D(j)(2)(C) requires an 

explanation of the consequences of any 

failure to pay non-escrowed items, 

including the possible requirement for 

the forced placement of insurance and 

the potentially higher cost or reduced 

coverage for the consumer for such 

insurance. Proposed § 226.19(f)(2)(ii)(F) 

would implement TILA Section 

129D(j)(2)(C) by providing examples of 

the possible consequences of a failure to 

pay home-related costs, such as a 

decision by the creditor to require an 

escrow account, to add the home-related 

costs to the loan balance, or to purchase 

‘‘forced-placed’’ insurance. Proposed 

§ 226.19(f)(2)(ii)(F) would require a 

description of ‘‘forced-placed’’ 

insurance, rather than use of that term, 

because consumer testing showed that 

consumers were unfamiliar with the 

term and that the term itself distracted 

consumers from recognizing the other 

possible consequences of a failure to 

pay home-related costs. 

19(f)(2)(ii)(G) Option To Establish 

Escrow Account 

Proposed § 226.19(f)(2)(ii)(G) would 

require disclosure of the telephone 

number that the consumer can use to 

request an escrow account and the latest 

date by which the consumer can make 

the request. The Board is proposing this 

disclosure pursuant to its authority 

under TILA Section 129D(j)(2)(D) to 

include in the notice such other 

information as it determines necessary 

for the protection of the consumer. The 

Board believes that, after considering 

the risks of not having an escrow 

account as disclosed in the notice, a 

consumer who originally waived the 

establishment of an escrow account may 

wish to set one up. The information to 

contact the creditor with a request to 

establish an escrow account should be 

readily available to such consumers in 

the notice. The proposed rule would not 

require a creditor to obtain a toll-free 

telephone number that consumers may 

use to request the establishment of an 

escrow account. The Board proposes 

that a creditor disclose the telephone 

number that it has obtained for 

consumers to contact it regarding a 

variety of issues and that also may be 

used to request establishment of an 

escrow account. If the creditor does not 

offer the option of having an escrow 

account, proposed § 226.19(f)(2)(ii)(G) 

would require the creditor to omit this 

disclosure from the table. 

The proposal does not require a 

creditor to disclose whether a fee will be 

charged when a consumer changes his 

or her decision and asks for an escrow 

account to be established. The Board 

understands that a creditor that usually 

offers and establishes escrow accounts 

for all first-lien transactions would not 

charge a consumer for changing his or 

her decision. The Board seeks comment 

on this approach. 

19(f)(3) Optional Information 

Proposed § 226.19(f)(3) would permit 

the creditor, at its option, include the 

creditor’s name or logo, or the 

consumer’s name, property address, or 

loan number on the disclosure notice, 

outside of the table. Proposed comment 

19(f)(3)–1 clarifies that § 226.19(f)(3) 

lists the information that the creditor 

may, at its option, include on the 

disclosure notice, outside of the table 

described in § 226.19(f)(1)(iii) that 

contains the required content of 

§ 226.19(f)(2). 

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11604 Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Proposed Rules 

19(f)(4) Waiting Period for Disclosures 

Proposed § 226.19(f)(4) would require 

the creditor to provide the disclosures 

regarding the establishment or the nonestablishment of an escrow account, as 

applicable, so that the consumer 

receives them no later than three 

business days prior to consummation. 

This proposed provision would 

implement the requirement of TILA 

Section 129D(h) for disclosures 

regarding the establishment of an 

escrow account three business days 

before consummation and the 

requirement of TILA Section 

129D(j)(1)(A) for disclosures regarding 

the non-establishment of an escrow 

account in a ‘‘timely’’ manner. Proposed 

§ 226.19(f)(4) would conform the timing 

requirement of TILA Section 

129D(j)(1)(A) to that of TILA Section 

129D(h) so that a consumer that will not 

have an escrow account would have 

sufficient time to consider the attendant 

responsibilities and risks before 

consummating the transaction. 

Proposed comment 19(f)(4)–1 would 

clarify that, for purposes of 

§ 226.19(f)(4), ‘‘business day’’ means all 

calendar days except for Sundays and 

specified legal public holidays. The 

Board believes that the definition of 

business day that excludes Sundays and 

public holidays is more appropriate 

than the more general definition 

because consumers should not be 

presumed to have received disclosures 

in the mail on a day on which there is 

no mail delivery. Proposed comment 

19(f)(4)–2 would provide guidance 

regarding the timing requirement with 

an example that states if consummation 

is to occur on Thursday, June 11, the 

consumer must receive the disclosures 

on or before Monday, June 8, assuming 

there are no legal public holidays. 

19(f)(5) Timing of Receipt 

Proposed § 226.19(f)(5) states that, if 

the disclosures are mailed to the 

consumer or delivered by a means other 

than in person, the consumer is 

considered to have received the 

disclosures three business days after 

they are mailed or delivered. Proposed 

comment 19(f)(5)–1 states that, if the 

creditor provides the disclosures to the 

consumer in person, consummation 

may occur any time on the third 

business day following delivery. If the 

creditor provides the disclosures by 

mail, receipt is presumed three business 

days after they are placed in the mail, 

for purposes of determining when the 

three-business-day waiting period 

required under § 226.19(f)(4) begins. 

The proposed comment also permits 

creditors that use electronic mail or 

courier to follow this approach. 

Whatever method is used to provide 

disclosures, creditors may rely on 

documentation of receipt in determining 

when the waiting period begins. 

19(f)(6) Consumer’s Waiver of Waiting 

Period Before Consummation 

Proposed § 226.19(f)(6) would permit 

consumers to modify or waive the threebusiness-day waiting period following 

receipt of the escrow account 

disclosures required by § 226.19(f)(2) for 

bona fide personal financial 

emergencies. Proposed § 226.19(f)(6) 

would require the consumer waiving the 

waiting period to give the creditor a 

dated, written statement that describes 

the emergency, specifically modifies or 

waives the waiting period, and bears the 

signature of all the consumers primarily 

liable on the legal obligation. Proposed 

§ 226.19(f)(6) would prohibit the use of 

printed forms to effectuate a waiver. 

Proposed comment 19(f)(6)–1 would 

provide additional guidance regarding 

the waiver procedure. For example, the 

proposed comment would clarify that a 

consumer may modify or waive the 

waiting period only after receiving the 

required disclosures. It also would 

clarify that a waiver is effective only if 

each consumer primarily liable on the 

legal obligation signs a waiver 

statement. Where there are multiple 

consumers, they may sign the same 

waiver statement. Proposed comment 

19(f)(6)–1 would allow the consumer to 

include the waiver statement that 

specifically waives or modifies the 

three-business-day waiting period 

required by § 226.19(f)(4) in the same 

document that contains a waiver 

statement that specifically waives or 

modifies the seven-business-day waiting 

period for early disclosures or the threebusiness-day waiting period for 

corrected disclosures required by 

§ 226.19(a)(2). 

Proposed comment 19(f)(5)–2 would 

clarify that, to qualify as a bona fide 

personal financial emergency, the 

situation must require disbursement of 

loan proceeds before the end of the 

waiting period. Proposed comment 

19(f)(5)–2 would further clarify that a 

bona fide personal financial emergency 

typically, but not always, will involve 

imminent loss of or harm to a dwelling 

or harm to the health and safety of a 

natural person. It also would provide 

that a waiver is not effective if the 

consumer’s statement is inconsistent 

with facts known to the creditor. 

The Board proposes this waiver 

provision pursuant to the Board’s 

authority under TILA Section 105(f). 

15 U.S.C. 1604(f). TILA Section 105(f) 

generally authorizes the Board to 

exempt all or any class of transactions 

from coverage under TILA and 

Regulation Z if the Board determines 

that coverage under that part does not 

provide a meaningful benefit to 

consumers in the form of useful 

information or protection. 15 U.S.C. 

1604(f)(1). The Board is proposing to 

exempt closed-end transactions secured 

by a first lien on real property or a 

dwelling from the three-business-day 

waiting period required by TILA Section 

129D(h) and § 226.19(f)(4) when the 

consumer determines that the loan 

proceeds are needed before the waiting 

period ends to meet a bona fide personal 

financial emergency. TILA Section 

105(f) directs the Board to make the 

determination of whether coverage of 

such transactions under TILA Section 

129D(h) and § 226.19(f)(4) provides a 

meaningful benefit to consumers in light 

of specific factors. 15 U.S.C. 1604(f)(2). 

These factors are (1) the amount of the 

loan and whether the provision 

provides a benefit to consumers who are 

parties to such transactions; (2) the 

extent to which the requirement 

complicates, hinders, or makes more 

expensive the credit process for the 

class of transactions; (3) the status of the 

borrower, including any related 

financial arrangements of the borrower, 

the financial sophistication of the 

borrower relative to the type of 

transaction, and the importance to the 

borrower of the credit, related 

supporting property, and coverage 

under TILA and Regulation Z; 

(4) whether the loan is secured by the 

principal residence of the borrower; and 

(5) whether the exemption would 

undermine the goal of consumer 

protection. 

The Board has considered each of 

these factors carefully and, based on 

that review, believes that the proposed 

exemption is appropriate. Generally, a 

first-lien mortgage is the largest loan 

that a consumer will obtain. The waiting 

period would harm consumers 

experiencing a bona fide personal 

financial emergency because those 

consumers would need access to the 

proceeds of their loans during that 

period. The waiting period would 

hinder the credit process for consumers 

experiencing a bona fide personal 

financial emergency by forcing them to 

wait three business days before 

consummating the loan. For consumers 

experiencing a bona fide personal 

financial emergency, the proceeds of the 

mortgage loan will be extremely 

important in meeting other financial 

obligations. Most first-lien mortgage 

loans are secured by the consumer’s 

principal dwelling. The exemption 

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Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Proposed Rules 11605 

would not undermine the goal of 

consumer protection because the 

disclosure required by § 226.19(f)(2) 

must be provided to the consumer 

before the consumer may modify or 

waive the waiting period. Delivery of 

the disclosure itself promotes the 

informed use of credit. In addition, 

§ 226.19(f)(5) would require a consumer 

wishing to modify or waive the waiting 

period to provide the creditor with a 

dated, written statement that describes 

the emergency, specifically modifies or 

waives the waiting period, and bears the 

consumer’s signature. The use of a 

printed form as the written statement 

would be prohibited. 

The Board’s exemption authority 

under Section 105(f) does not apply in 

the case of a mortgage referred to in 

Section 103(aa), which are high-cost 

mortgages generally referred to as 

‘‘HOEPA loans.’’ The Board does not 

believe that this limitation restricts its 

ability to apply the proposed waiver 

provision to all closed-end transactions 

secured by a first lien on real property 

or a dwelling when the consumer is 

experiencing a bona fide personal 

financial emergency, including HOEPA 

loans. This limitation on the Board’s 

general exemption authority is a 

necessary corollary to the decision of 

the Congress, as reflected in TILA 

Section 129(l)(1), to grant the Board 

more limited authority to exempt 

HOEPA loans from the prohibitions 

applicable only to HOEPA loans in 

Section 129(c) through (i) of TILA. See 

15 U.S.C. 1639(l)(1). In this case, the 

Board is not proposing any exemptions 

from the HOEPA prohibitions. This 

limitation does raise a question as to 

whether the Board could use its 

exemption authority under Section 

105(f) to exempt HOEPA loans, but not 

other types of mortgage loans, from 

other, generally applicable TILA 

provisions. That question, however, is 

not implicated by this proposal. 

The Board proposes to apply its 

general exemption authority for all first 

lien loans secured by real property or a 

dwelling where a consumer is 

experiencing a bona fide personal 

financial emergency, including both 

HOEPA and non-HOEPA loans, to 

permit the modification or waiver of the 

pre-consummation waiting period 

because the waiting period does not 

benefit consumers in such 

circumstances. It would not be 

consistent with the statute or with 

Congressional intent to interpret the 

Board’s authority under Sections 105(f) 

in such a way that the proposed waiver 

provision could apply only to mortgage 

loans that are not subject to HOEPA. 

Reading the statute in a way that would 

require HOEPA borrowers who are 

experiencing a bona fide personal 

financial emergency to wait three 

business days before consummating the 

transaction that will provide the needed 

proceeds is not a reasonable 

construction of the statute. 

The Board solicits comment on all 

aspects of this proposal, including the 

cost, burden, and benefits to consumers 

and to industry regarding the proposed 

disclosures regarding escrow accounts. 

The Board also requests comment on 

any alternatives to the proposal that 

would further the purposes of TILA and 

provide consumers with more useful 

disclosures. 

Section 226.20 Subsequent Disclosure 

Requirements 

20(d) Cancellation of Escrow Account 

Requirements of TILA Section 129D(j) 

The Board is proposing a new 

§ 226.20(d) to implement the disclosure 

requirements of TILA Sections 

129D(j)(1)(B) and 129D(j)(2), as enacted 

by Section 1462 of the Dodd-Frank Act. 

TILA Section 129D(j)(1)(B) requires a 

creditor or servicer to provide the 

disclosures set forth in TILA Section 

129D(j)(2) when a consumer requests 

closure of an escrow account that was 

established in connection with a 

transaction secured by real property. 

The Board’s Proposal 

For a closed-end transaction secured 

by a first lien on real property or a 

dwelling for which an escrow account 

was established and will be cancelled, 

proposed § 226.20(d) would require the 

creditor or servicer to disclose the 

information about escrow accounts 

specified in § 226.20(d)(2). Proposed 

§ 226.20(d) would require the creditor to 

disclose this information in accordance 

with the format requirements of 

§ 226.20(d)(1) and the timing 

requirements of § 226.20(d)(4). In 

addition, the proposal would provide 

that for purposes of § 226.20(d), the term 

‘‘escrow account’’ and the term 

‘‘servicer’’ have the same respective 

meanings as under §§ 3500.17(b) and 

3500.2(b) of Regulation X, which 

implements RESPA, and is subject to 

any interpretations by HUD. These 

proposed definitions would parallel 

existing § 226.35(b)(3)(iv) and 

§ 226.36(c)(3), respectively. Proposed 

comment 20(d)–1 would clarify that the 

term ‘‘real property’’ includes vacant and 

unimproved land. It also would clarify 

that the term ‘‘dwelling’’ includes 

vacation and second homes and mobile 

homes, boats, and trailers used as 

residences and refer to additional 

guidance regarding the term provided 

by § 226.2(a)(19) and the related 

commentary. 

Secured by a first-lien transaction. 

Proposed § 226.20(d) would require 

disclosures for the cancellation of an 

escrow account that was established in 

connection with consummation of a 

transaction secured by a first lien, but 

not a subordinate lien. TILA Sections 

129D(a) and (b) require the 

establishment of an escrow account in 

connection with only first-lien mortgage 

loans. TILA Section 129D(j) requires 

disclosures when such an escrow 

account is established and later 

cancelled. Proposed § 226.20(d) would 

not require disclosures for cancellation 

of an escrow account that was 

established in connection with a 

subordinate-lien mortgages because 

TILA does not require the establishment 

of escrow accounts for such mortgages. 

In addition, the Board understands that, 

in practice, creditors rarely offer or 

establish escrow accounts for such 

mortgages and therefore, the 

cancellation disclosures seldom would 

be triggered. Nevertheless, the Board 

seeks comment on whether this 

approach is appropriate. 

Real property or a dwelling. With 

§ 226.20(d), the Board covers real 

property and dwellings. Proposed 

§ 226.20(d) implements TILA Section 

129D(j), which requires disclosures 

when an escrow account that was 

established in connection with a 

transaction secured by real property will 

be cancelled. But, the proposal also 

covers cancellation of an escrow 

account that was established in 

connection with a transaction secured 

by a dwelling that is considered to be 

personal property under state law. The 

coverage of the proposal would parallel 

the coverage of proposed § 226.19(f), 

which would require disclosures for the 

establishment or non-establishment of 

an escrow account. Board believes this 

coverage would promote informed use 

of credit by consumers and compliance 

by creditors. The information disclosed 

when an escrow account will be 

cancelled likely would be just as useful 

to a consumer who has a loan secured 

by a mobile home as it would to a 

consumer who has a mortgage loan 

secured by a single-family home. 

Similarly, the disclosures should cover 

all dwellings, whether or not they are 

deemed personal rather than real 

property under state law. Furthermore, 

the coverage of all dwellings would 

eliminate the analysis that creditors 

would have to undertake to determine 

whether the cancellation of the escrow 

account established for a loan secured 

by a particular type of dwelling would 

trigger the disclosures. 

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The Board proposes the § 229.19(f) 

coverage of real property and dwellings 

pursuant to its authority under TILA 

Section 105(a). 15 U.S.C. 1604(a). TILA 

Section 105(a) authorizes the Board to 

prescribe regulations that contain 

classifications, differentiations, or other 

provisions, and may provide for 

adjustments and exceptions for any 

class of transactions, to effectuate the 

purposes of TILA and Regulation Z, to 

prevent circumvention or evasion, or to 

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

One purpose of the statute is to assure 

meaningful disclosure of credit terms so 

that the consumer will be able to 

compare more readily the various credit 

terms available and avoid the 

uninformed use of credit. 15 U.S.C. 

1601(a). The class of transactions that 

would be affected is transactions 

secured by real property or a dwelling. 

For the reasons set forth in the above 

discussion regarding proposed 

§ 226.19(f), the Board believes that 

coverage of transactions secured by a 

dwelling as well as real property would 

provide promote the informed use of 

credit by consumers. 

Creditor’s or servicer’s independent 

decision to cancel escrow account. TILA 

Section 129D(j)(1)(B) requires a creditor 

or servicer to provide the TILA Section 

129D(j)(2) cancellation disclosures 

when the consumer chooses and 

provides written notice the choice to 

close his or her escrow account in 

accordance with any statute, regulation, 

or contractual agreement. Proposed 

§ 226.20(d) would implement TILA 

Section 129D(j)(1)(B), but also would 

require provision of the cancellation 

disclosures when the creditor or 

servicer decides independently to 

cancel an escrow account. The Board 

believes that a consumer whose escrow 

account will be closed should be 

informed of the risks attendant with not 

having an escrow account, even if the 

consumer is not requesting the 

cancellation of the account. 

The Board proposes this requirement 

pursuant to its authority under TILA 

Section 105(a). 15 U.S.C. 1604(a) and (f). 

TILA Section 105(a) authorizes the 

Board to prescribe regulations that 

contain classifications, differentiations, 

or other provisions, and may provide for 

adjustments and exceptions for any 

class of transactions, to effectuate the 

purposes of TILA and Regulation Z, to 

prevent circumvention or evasion, or to 

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

One purpose of the statute is to assure 

meaningful disclosure of credit terms so 

that the consumer will be able to 

compare more readily the various credit 

terms available and avoid the 

uninformed use of credit. 15 U.S.C. 

1601(a). The Board believes provision of 

the cancellation disclosures when 

creditors and servicers independently 

make decisions to close escrow accounts 

will help consumers to avoid the 

uninformed use of credit. The 

cancellation disclosures would 

consumers of their responsibility to 

personally and directly pay property 

taxes and insurance premiums and of 

the consequences for failure to do so. 

Indirectly, the disclosure would inform 

consumers that they would need to 

budget or save to meet these potentially 

large obligations when due, but that the 

total amount of their regular periodic 

mortgage payments would decrease. 

20(d)(1) Format Requirements 

Proposed § 226.20(d)(1) contains 

format requirements for the disclosures 

required by § 226.20(d)(2). Proposed 

§ 226.20(d)(1)(i) would require that the 

creditor or servicer provide the 

§ 226.20(d)(2) disclosures in a minimum 

10-point font, grouped together on the 

front side of a one-page document, 

separate from all other material, with 

the headings, content, order, and format 

substantially similar to Model Form H– 

26 in Appendix H. Consumer testing has 

shown that the location and order in 

which information was presented 

affected consumers’ ability to locate and 

comprehend the information disclosed. 

Proposed comment 20(d)(1)(i)–1 

clarifies that the disclosures required by 

§ 226.20(d)(2) and any optional 

information permitted by § 226.20(d)(3) 

must be grouped together on the front 

side of a separate one-page document 

that contains no other material. 

Proposed comment 20(d)(1)(i)–2 

clarifies that the notice containing the 

disclosures required by § 226.20(d)(2) 

and any optional information permitted 

by § 226.20(d)(3) must be in writing in 

a form that the consumer may keep. 

Proposed § 226.20(d)(1)(ii) would 

require that the heading ‘‘Required 

Direct Payment of Property Taxes and 

Insurance’’ required by § 226.20(d)(2) be 

more conspicuous than and precede the 

other disclosures. The heading would be 

required to be outside of the table that 

is required by proposed 

§ 226.20(d)(1)(iii). 

Proposed § 226.20(d)(1)(iii) would 

require the creditor or servicer to 

provide the disclosures regarding the 

cancellation of an escrow account under 

§ 226.20(d)(2) in the form of a table 

containing no more than seven rows. 

The disclosures would be in the form of 

a table containing six rows when the 

creditor or servicer makes a unilateral 

decision to close an escrow account and 

does not impose a fee for closure. In 

such a case, the creditor or servicer 

would be required to omit the 

§ 226.20(d)(2)(iv) disclosure from the 

table because it would be unnecessary. 

Only the information required or 

permitted by § 226.20(d)(2) would be 

permitted in the table. Proposed 

§ 226.20(d)(1)(iv) would require the 

creditor or servicer to present the 

disclosures in the format of a question 

and answer in a manner substantially 

similar to Model Form H–26 in 

Appendix H. Consumer testing has 

shown that using a tabular, question and 

answer format improved participants’ 

ability to identify and understand key 

information. Proposed § 226.20(d)(1)(iv) 

also would require the creditor or 

servicer to present the disclosures 

appearing in the table in the order listed 

in § 226.20(d)(2)(i)–(vii). This order 

would ensure that consumers receive 

the disclosed information in a logical 

progression. 

Proposed § 226.20(d)(1)(v) would 

require the creditor or servicer to 

highlight certain disclosures because 

consumer testing has shown that such 

emphasis allows consumers to locate 

and identify important information 

more quickly. The Board proposes that 

the dollar amount in the disclosure 

required by § 226.20(d)(2)(iv) be 

presented in bold font. It also proposes 

implementation of the requirement in 

TILA Section 129D(j)(2)(B) that the 

notice regarding the cancellation of an 

escrow account contain a ‘‘prominent’’ 

statement of the consumer’s 

responsibility for covering home-related 

costs through potentially large semiannual or annual payments by requiring 

presentation of that information in bold 

format. 

20(d)(2) Content Requirements 

Proposed § 226.20(d)(2) would 

implement TILA Section 129D(j)(2) by 

setting forth the required content for the 

disclosure notice regarding the 

cancellation of an escrow account that 

was established in connection with 

consummation of a transaction subject 

to § 226.20(d). Proposed comment 

20(d)(2)–2 would clarify that neither 

creditors nor servicers are required to 

provide the § 226.20(d)(2) disclosures if 

an escrow account established solely in 

connection with the consumer’s 

delinquency or default on the 

underlying debt obligation will be 

cancelled. Proposed comment 20(d)(2)– 

3 would clarify that neither creditors 

nor servicers are required to provide the 

disclosures when the underlying debt 

obligation for which an escrow account 

was established is terminated, including 

by repayment, refinancing, rescission, or 

foreclosure. 

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Proposed § 226.20(d)(2) also would 

require that the disclosures be made 

clearly and conspicuously. Proposed 

comment 20(d)(2)–1 would clarify that, 

to meet the clear and conspicuous 

standard, disclosures must be made in 

a reasonably understandable form and 

readily noticeable to the consumer. 

Proposed § 226.20(d)(2) also would 

require the disclosure notice to bear the 

heading ‘‘Required Direct Payment of 

Property Taxes and Insurance.’’ 

20(d)(2)(i) Purpose of Notice 

Proposed § 226.20(d)(2)(i) would 

require a statement that the purpose of 

the notice is to inform the consumer 

that the escrow account on the 

consumer’s mortgage with the creditor 

or servicer is being closed and to 

explain the risk of not having an escrow 

account. The Board is proposing these 

disclosures pursuant to its authority 

under TILA Section 129D(j)(2)(D) to 

include in the notice such other 

information as it determines necessary 

for the protection of the consumer. The 

Board believes that these disclosures are 

necessary to draw the consumer’s 

attention to the fact that the absence of 

an escrow account will carry some risk. 

20(d)(2)(ii) Explanation of Escrow 

Account 

Proposed § 226.20(d)(2)(ii) would 

require the creditor or servicer to 

provide a statement that an escrow 

account is an account that is used to pay 

home-related costs such as property 

taxes and insurance together with a 

statement that an escrow account is 

sometimes called an ‘‘impound’’ or 

‘‘trust’’ account. This information would 

be followed by a statement that the 

consumer pays into the escrow account 

over time and that the creditor or 

servicer takes money from the account 

to pay costs as needed. The Board is 

proposing these statements explaining 

an escrow account, the other names 

sometimes used for an escrow account, 

and how an escrow account works 

pursuant to its authority under TILA 

Section 129D(j)(2)(D) to include in the 

notice such other information as the 

Board determines necessary for the 

protection of the consumer. The Board 

believes that informing consumers of 

the other names for an escrow account 

would prevent consumers in Western 

regions of the country from confusing an 

escrow account for the payment of 

home-related costs such as property 

taxes and insurance premiums with the 

escrow that is commonly used for the 

closing and settlement of a credit 

transaction. The Board also believes that 

the basic information explaining what 

an escrow account is and how it works 

provides needed context for the other 

disclosures in the notice. 

20(d)(2)(iii) Reason Why Mortgage Will 

Not Have an Escrow Account 

Proposed § 226.20(d)(2)(iii) would 

require a statement that the consumer 

had an escrow account but, as 

applicable, the consumer asked the 

creditor or servicer to close it or the 

creditor or servicer independently 

decided to cancel it. The Board is 

proposing this disclosure pursuant to 

the Board’s authority under TILA 

Section 129D(j)(2)(D) to include in the 

notice such other information as the 

Board determines necessary for the 

protection of the consumer. This 

disclosure would provide the consumer 

with the background information 

necessary to understand the disclosure 

required by § 226.20(d)(2)(vii) at the end 

of the notice as to whether the consumer 

has an option to keep the escrow 

account. 

20(d)(2)(iv) Fee for Closing Escrow 

Account 

Proposed § 226.20(d)(2)(iv) would 

implement TILA Section 129D(j)(2)(A) 

by requiring disclosure of any fee 

charged for closing an escrow account. 

Proposed § 226.20(d)(2)(iv) would 

require, if the consumer has asked the 

creditor or servicer to close the escrow 

account, a statement of the dollar 

amount of any fee that the consumer 

will be charged in connection with the 

closure or a statement that the consumer 

will not be charged a fee. If the creditor 

or servicer independently decided to 

cancel the escrow account, rather than 

agreeing to close it pursuant to the 

request of the consumer, and does not 

charge a fee in connection with the 

cancellation, proposed § 226.20(d)(2)(iv) 

would require the creditor or servicer to 

omit this disclosure from the table. 

20(d)(2)(v) Risk of Not Having Escrow 

Account 

Proposed § 226.20(d)(2)(v) would 

require a statement that the consumer 

will be responsible for directly paying 

home-related costs through potentially 

large semi-annual or annual payments. 

TILA Section 129D(j)(2)(B) requires a 

clear and prominent statement that the 

consumer is responsible for personally 

and directly paying the non-escrowed 

items, in addition to paying the 

mortgage loan payment, in the absence 

of an escrow account, and that the costs 

for taxes and insurance can be 

substantial. Proposed § 226.20(d)(2)(v) 

would implement these TILA Section 

129D(j)(2)(B) requirements. 

20(d)(2)(vi) Consequences of Failure To 

Pay Home-Related Costs 

Proposed § 226.20(d)(2)(vi) would 

require a statement that, if the consumer 

does not pay the applicable homerelated costs, the creditor or servicer 

could require an escrow account on the 

mortgage or add the costs to the loan 

balance. This information would be 

followed by a statement that the creditor 

or servicer could also require the 

consumer to pay for insurance that the 

creditor or servicer buys on the 

consumer’s behalf and a statement that 

this insurance would likely be more 

expensive and provide fewer benefits 

than traditional homeowner’s insurance. 

TILA Section 129D(j)(2)(C) requires 

provision of a clear explanation of the 

consequences of any failure to pay nonescrowed items, including the possible 

requirement for the forced placement of 

insurance and the potentially higher 

cost or reduced coverage for the 

consumer for such insurance. Proposed 

§ 226.20(d)(2)(vi) would implement 

TILA Section 129D(j)(2)(C) by providing 

examples of the possible consequences 

of a failure to pay home-related costs, 

such as a decision by the creditor to 

require an escrow account, to add the 

home-related costs to the loan balance, 

or to purchase ‘‘forced-placed’’ 

insurance. Proposed § 226.20(d)(2)(vi) 

would require a description of ‘‘forcedplaced’’ insurance, rather than use of 

that term, because consumer testing 

showed that consumers were unfamiliar 

with the term and that the term itself 

distracted consumers from recognizing 

the other possible consequences of a 

failure to pay home-related costs. 

20(d)(2)(vii) Option To Keep Escrow 

Account 

Proposed § 226.20(d)(2)(vii) would 

require, as applicable, a statement of the 

telephone number that the consumer 

can use to request that the escrow 

account be kept open and the latest date 

by which the consumer can make the 

request, or a statement that the creditor 

or servicer does not offer the option of 

keeping the escrow account. The Board 

is proposing this disclosure pursuant to 

its authority under TILA Section 

129D(j)(2)(D) to include in the notice 

such other information as it determines 

necessary for the protection of the 

consumer. The Board believes that, after 

considering the risks of not having an 

escrow account as disclosed in the 

notice, a consumer who originally 

requested cancellation of his or her 

escrow account may wish to keep it. 

The information to contact the creditor 

or servicer with a request to keep the 

escrow account should be readily 

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11608 Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Proposed Rules 

available to such consumers in the 

notice. The proposed rule would not 

require a creditor to obtain a toll-free 

telephone number that consumers may 

use to request the establishment of an 

escrow account. The Board proposes 

that a creditor disclose the telephone 

number that it has obtained for 

consumers to contact it regarding a 

variety of issues and that also may be 

used request establishment of an escrow 

account. 

The Board is not proposing that 

creditors disclose whether a fee will be 

charged when a consumer changes his 

or her decision to cancel and requests to 

keep the escrow account. The Board 

understands that creditors do not charge 

a fee in such circumstances because the 

creditor has yet to expend resources in 

closing the escrow account. The Board 

seeks comment on this approach. 

20(d)(3) Optional Information 

Proposed § 226.20(d)(3) would permit 

the creditor or servicer providing the 

disclosure notice, at its option, to 

include its name or logo, or the 

consumer’s name, property address, or 

loan number on the disclosure notice, 

outside of the table. Proposed comment 

20(d)(3)–1 clarifies that § 226.20(d)(3) 

lists the information that the creditor or 

servicer may, at its option, include on 

the disclosure notice, outside of the 

table described in § 226.20(d)(1)(iii) that 

contains the required content of 

§ 226.20(d)(2). 

20(d)(4) Waiting Period for Disclosures 

Proposed § 226.20(d)(4) would require 

the creditor or servicer to provide the 

disclosures regarding the cancellation of 

an escrow account so that the consumer 

receives them no later than three 

business days prior to closure of the 

escrow account. This proposed 

provision would implement the 

requirement of TILA Section 

129D(j)(1)(B) for disclosures regarding 

cancellation of an escrow account in a 

‘‘timely’’ manner. The waiting period in 

proposed § 226.20(d)(4) would parallel 

the waiting period in proposed 

§ 226.19(f)(4) and would serve a similar 

purpose of providing a consumer 

sufficient time to consider the attendant 

responsibilities and risks of not having 

an escrow account. 

Proposed comment 20(d)(4)–1 would 

clarify that, for purposes of 

§ 226.20(d)(4), ‘‘business day’’ means all 

calendar days except for Sundays and 

specified legal public holidays. The 

Board believes that the definition of 

business day that excludes Sundays and 

public holidays is more appropriate 

than the more general definition 

because consumers should not be 

presumed to have received disclosures 

in the mail on a day on which there is 

no mail delivery. Proposed comment 

20(d)(4)–2 would provide guidance 

regarding the timing requirement with 

an example that states if consummation 

is to occur on Thursday, June 11, the 

consumer must receive the disclosures 

on or before Monday, June 8, assuming 

there are no legal public holidays. 

20(d)(5) Timing of Receipt 

Proposed § 226.20(d)(5) also states 

that, if the disclosures are mailed to the 

consumer or delivered by means other 

than in person, the consumer is deemed 

to have received the disclosures three 

business days after they are mailed or 

delivered. Proposed comment 20(d)(5)– 

1 states that, if the creditor or servicer 

provides the disclosures in person, the 

escrow account may be closed any time 

on the third business day following 

delivery. If the creditor or servicer 

provides the disclosures by mail, receipt 

is presumed three business days after 

they are placed in the mail, for purposes 

of determining when the three-businessday waiting period required under 

§ 226.20(d)(4) begins. The proposed 

comment also permits creditors or 

servicers that use electronic mail or 

courier to follow this approach. 

Whatever method is used to provide 

disclosures, creditors or servicers may 

rely on documentation of receipt in 

determining when the waiting period 

begins. 

Section 226.34 Prohibited Acts or 

Practices in Connection With Credit 

Subject to § 226.32 

34(a) Prohibited Acts or Practices for 

Loans Subject to § 226.32 

34(a)(4) Repayment Ability 

34(a)(4)(i) Mortgage-Related Obligations 

The Board is proposing conforming 

amendments to § 226.34(a)(4)(i) and 

staff comment 34(a)(4)(i)–1. Both 

provisions contain cross-references to 

§ 226.35(b)(3)(i). As discussed below, 

this proposal would remove and reserve 

§ 226.35(b)(3)(i) and would preserve the 

substance of that provision in proposed 

new § 226.45(b)(1). This proposal would 

revise the two cross-references 

accordingly. 

Section 226.35 Prohibited Acts or 

Practices in Connection With HigherPriced Mortgage Loans 

35(b) Rules for Higher-Priced Mortgage 

Loans 

35(b)(3) Escrows 

The Board is proposing to remove and 

reserve § 226.35(b)(3), which currently 

contains the Board’s escrow 

requirement for higher-priced mortgage 

loans. As discussed below, the escrow 

provisions of the Dodd-Frank Act would 

be implemented under this proposal by 

the addition of new § 226.45(b). To 

prevent duplication with new proposed 

§ 226.45(b), this proposal would remove 

§ 226.35(b)(3) and its accompanying 

commentary, including the special 

threshold for ‘‘jumbo’’ loans, as 

implemented by the ‘‘Jumbo’’ Final Rule 

in § 226.35(b)(3)(v). As discussed below, 

however, proposed § 226.45(a)(1) would 

preserve the ‘‘jumbo’’ threshold. 

The Dodd-Frank Act also establishes 

new TILA provisions concerning a 

consumer’s ability to repay and 

prepayment penalties that apply to all 

closed-end mortgage loans (other than 

loans secured by a timeshare), not just 

higher-priced mortgage loans. See TILA 

Sections 129C(a) and 129C(c). For 

higher-priced mortgage loans, those two 

matters currently are addressed by 

§ 226.35(b)(1) and (2). The provisions of 

the Dodd-Frank Act regarding 

repayment ability and prepayment 

penalties will be implemented through 

future rulemakings. To preserve those 

existing protections for higher-priced 

mortgage loans until such future 

rulemakings are completed, however, 

the Board is not proposing to remove 

§ 226.35(b)(1) and (2) at this time. 

Section 226.45 Escrow Requirements 

for Higher-Priced Mortgage Loans 

45(a) Higher-Priced Mortgage Loans 

45(a)(1) 

Proposed § 226.45(a)(1) would 

provide that a higher-priced mortgage 

loan is a consumer credit transaction 

secured by the consumer’s principal 

dwelling that has a loan pricing 

benchmark that exceeds the applicable 

threshold as of the date the transaction’s 

rate is set. This definition tracks the 

meaning of ‘‘higher-priced mortgage 

loan’’ in current § 226.35(a)(1), with two 

differences. First, consistent with the 

2010 Mortgage Proposal, the loan 

pricing benchmark would be the 

transaction coverage rate rather than the 

annual percentage rate. The transaction 

coverage rate is discussed in more detail 

below. Second, the applicable 

thresholds would be revised to reflect 

the special, separate coverage threshold 

for ‘‘jumbo’’ loans, as provided by the 

Dodd-Frank Act. 

As noted above, the Dodd-Frank Act 

substantially codified the Board’s 

escrow requirement for higher-priced 

mortgage loans, but with certain 

differences. One of those differences is 

the higher threshold above the average 

prime offer rate established by the 

Dodd-Frank Act for determining when 

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Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Proposed Rules 11609 

1Sections 1411, 1412, and 1414 of the DoddFrank Act create new TILA Section 129C, which 

establishes requirements for all residential mortgage 

loans relating to ability to repay and prepayment 

penalties. As these requirements are not limited to 

higher-priced mortgage loans, when implemented 

by rulemaking, they will leave the scope of existing 

§ 226.35 limited to the escrow requirement. Section 

1471 of the Dodd-Frank Act also creates new TILA 

Section 129H, which establishes certain new 

appraisal requirements, applicable to ‘‘higher-risk 

mortgages.’’ New TILA Section 129H(f) defines 

‘‘higher-risk mortgages’’ identically to the higherpriced mortgage loan definition in existing 

§ 226.35(a)(1), with the addition of the separate 

threshold for ‘‘jumbo’’ loans. Thus, ultimately, the 

scope of the requirements applicable to ‘‘higher-risk 

mortgages’’ and the identically defined ‘‘higherpriced mortgage loans’’ will consist of the escrow 

and appraisal requirements. 

escrow accounts are required for loans 

that exceed the maximum principal 

balance eligible for sale to Freddie Mac. 

In general, the coverage thresholds are 

1.5 percentage points above the average 

prime offer rate for first-lien loans and 

3.5 percentage points above the average 

prime offer rate for subordinate-lien 

loans. Under the Dodd-Frank Act, the 

threshold is 2.5 percentage points above 

the average prime offer rate for ‘‘jumbo’’ 

loans. 

The ‘‘Jumbo’’ Final Rule implements 

this special coverage test for ‘‘jumbo’’ 

loans by amending § 226.35(b)(3), which 

contains the Board’s existing escrow 

requirement for higher-priced mortgage 

loans. This proposal would incorporate 

the threshold for ‘‘jumbo’’ loans 

contained in § 226.35(b)(3)(v) in 

proposed § 226.45(a)(1) because, after 

other provisions of the Dodd-Frank Act 

are implemented, the thresholds in 

existing § 226.35 will be necessary only 

to implement the escrow account 

requirement and certain appraisalrelated requirements.1 Accordingly, this 

proposal would implement the coverage 

test for higher-priced mortgage loans 

established by the Dodd-Frank Act, 

including the special coverage threshold 

for ‘‘jumbo’’ loans, in new § 226.45(a)(1). 

45(a)(2) Definitions 

Proposed § 226.45(a)(2) would define 

‘‘transaction coverage rate’’ and ‘‘average 

prime offer rate.’’ The latter definition, 

in § 226.45(a)(2)(ii), would be identical 

to the existing definition in current 

§ 226.35(a)(2). This is consistent with 

the provisions of the Dodd-Frank Act, 

which codify the regulation’s existing 

definition of ‘‘average prime offer rate.’’ 

See TILA Section 129D(b)(3). 

The definition of ‘‘transaction 

coverage rate’’ is the same definition 

included in the Board’s 2010 Mortgage 

Proposal, discussed above. Accordingly, 

proposed § 226.45(a)(1) provides that 

the transaction coverage rate, rather 

than the annual percentage rate, is the 

metric used to determine whether a 

transaction is a higher-priced mortgage 

loan subject to § 226.45. 

Under the proposal, the transaction 

coverage rate is a transaction-specific 

rate that would be used solely for 

coverage determinations; it would not 

be disclosed to consumers. The creditor 

would calculate the transaction 

coverage rate based on the rules in 

Regulation Z for calculation of the 

annual percentage rate, with one 

exception: The creditor would make the 

calculation using a modified value for 

the prepaid finance charge, as discussed 

below. 

In the 2010 Mortgage Proposal, the 

Board explained the background and 

rationale for the proposed transaction 

coverage rate. See 75 FR 58539, 58660– 

61; Sept. 24, 2010. Briefly, the Board 

recognized that the use of the annual 

percentage rate as the coverage metric 

for the higher-priced mortgage loan 

protections poses a risk of overinclusive coverage, which was intended 

to be limited to the subprime market. 

The Board noted that the average prime 

offer rate, against which the coverage 

metric is compared to determine 

whether a transaction is a higher-priced 

mortgage loan, is based on Freddie 

Mac’s Primary Mortgage Market 

Survey® (PMMS). The PMMS surveys 

creditors for the loan pricing they 

currently offer consumers with low-risk 

transaction terms and credit profiles. 

The data the PMMS obtains, and 

therefore on which the average prime 

offer rate is based, are limited to 

contract interest rates and points. 

Annual percentage rates, on the other 

hand, are based on a broader set of 

charges, including some third-party 

charges such as mortgage insurance 

premiums. The Board also recognized 

that, under the 2009 Closed-End 

Proposal, the annual percentage rate 

would be based on a finance charge that 

includes most third-party fees in 

addition to points, origination fees, and 

any other fees the creditor retains. Thus, 

that proposal would expand the existing 

difference between fees included in the 

annual percentage rate and fees 

included in the average prime offer rate. 

For the same reasons, the Board again 

is proposing to require creditors to 

compare the transaction coverage rate, 

rather than the annual percentage rate, 

to the average prime offer rate to 

determine whether a transaction is 

covered by the protections for higherpriced mortgage loans. The Board is 

making this proposal pursuant to its 

authority under Section 1461(b) of the 

Dodd-Frank Act to ‘‘prescribe rules that 

revise, add to, or subtract from the 

criteria of section 129D(b) of the Truth 

in Lending Act if the Board determines 

that such rules are in the interest of 

consumers and in the public interest.’’ 

TILA Section 129D(b)(3) applies the 

escrow requirement to transactions with 

annual percentage rates that exceed the 

applicable thresholds. For the reasons 

discussed above, however, the Board 

believes that it is in the interest of 

consumers and the public to revise the 

coverage metric so that the protections 

for higher-priced mortgage loans are not 

inappropriately extended to prime 

loans, which may result in more limited 

credit availability where those 

protections are not warranted. 

As noted above, the transaction 

coverage rate would be calculated 

according to the rules in Regulation Z 

for the calculation of the annual 

percentage rate, with one difference: 

The creditor would use a modified 

value for the prepaid finance charge in 

making this calculation. Under 

proposed § 226.45(a)(2)(i), the prepaid 

finance charge for purposes of 

calculating the transaction coverage rate 

would include only prepaid finance 

charges that will be retained by the 

creditor, a mortgage broker, or an 

affiliate of either. As discussed in the 

2010 Mortgage Proposal, this test would 

make the coverage metric more similar 

to the average prime offer rate, which is 

based on contract interest rates and 

points only. This test also would avoid 

any uncertainty about what is included 

and would prevent creditors from 

evading coverage by shifting points into 

other charges or to affiliated third 

parties. 

The Board also is proposing the same 

guidance in staff commentary under 

proposed § 226.45(a)(2) as currently 

exists under § 226.35(a) and as was 

proposed in the 2010 Mortgage 

Proposal. Proposed comment 

45(a)(2)(i)–1 would clarify that the 

transaction coverage rate is not the 

annual percentage rate that is disclosed 

to the consumer and that it would be 

solely for coverage determination 

purposes. Proposed comment 

45(a)(2)(i)–2 would clarify that the 

inclusion of charges retained by a 

mortgage broker would be limited to 

compensation that otherwise constitutes 

a prepaid finance charge and would 

illustrate this principle with an 

example. Proposed comments 

45(a)(2)(ii)–1 through –4 would 

duplicate existing comments 35(a)(2)–1 

through –4 with no substantive change. 

Proposed comment 45(a)(2)(ii)–5 

would be added to direct creditors to 

additional guidance on the average 

prime offer rate that is available in the 

staff commentary under Regulation C 

(Home Mortgage Disclosure) and other 

related authorities. This proposed 

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comment is identical to guidance the 

Board proposed in the 2009 Closed-End 

Proposal. See 74 FR 43232, 43279; Aug. 

26, 2009. 

45(a)(3) 

Proposed § 226.45(a)(3) would 

provide that a ‘‘higher-priced mortgage 

loan’’ does not include a transaction to 

finance the initial construction of a 

dwelling, a temporary or ‘‘bridge’’ loan 

with a term of twelve months or less, a 

reverse mortgage transaction, or a home 

equity line of credit. This provision is 

identical to existing § 226.35(a)(3). In 

addition, the Board is proposing to 

adopt comment 45(a)(3)–1 to clarify 

how § 226.45 applies to cases where a 

creditor that extends financing for the 

initial construction of a dwelling also 

may permanently finance the home 

purchase. The proposed comment states 

that the construction phase is not a 

higher-priced mortgage loan, as 

provided in § 226.45(a)(3), regardless of 

the creditor’s election to disclose such 

cases as either a single transaction or as 

separate transactions, pursuant to 

§ 226.17(c)(6)(ii). This guidance would 

track the same guidance the Board 

proposed in the 2010 Mortgage 

Proposal. See 75 FR 58539, 58662–63; 

Sept. 24, 2010. 

45(b) Escrow Accounts 

45(b)(1) Requirement To Escrow for 

Property Taxes and Insurance 

Proposed § 226.45(b)(1) would 

provide that a creditor may not extend 

a higher-priced mortgage loan secured 

by a first lien on a consumer’s principal 

dwelling unless an escrow account is 

established before consummation for 

payment of property taxes and 

premiums for mortgage-related 

insurance required by the creditor. This 

provision parallels existing 

§ 226.35(b)(3)(i). Proposed comments 

45(b)(1)–1 through –3 parallel existing 

comments 35(b)(3)(i)–1 through –3. In 

addition, the Board is proposing 

comment 45(b)(1)–4 to clarify that the 

requirement to establish an escrow 

account for a first-lien higher-priced 

mortgage loan does not affect a 

creditor’s right or obligation, pursuant 

to the terms of the legal obligation or 

applicable law, to offer or require an 

escrow account for a transaction that is 

not subject to § 226.45(b)(1). 

Proposed § 226.45(b)(1) would 

implement TILA Section 129D(b)(3), as 

added by Section 1461 of the DoddFrank Act. TILA Section 129D(a) 

contains the general requirement that an 

escrow account be established for any 

consumer credit transaction secured by 

a consumer’s principal dwelling (other 

than an open-end credit plan or a 

reverse mortgage). Section 129D(b), 

however, restricts that general 

requirement to four specified 

circumstances: (1) Where an escrow 

account is required by federal or state 

law; (2) where the loan is made, 

guaranteed, or insured by a state or 

federal agency; (3) where the 

transaction’s annual percentage rate 

exceeds the average prime offer rate by 

prescribed amounts; and (4) where an 

escrow account is ‘‘required by 

regulation.’’ This proposal would 

implement only the third of the four 

circumstances, pursuant to TILA 

Section 129D(b)(3), because the other 

three either are self-effectuating or are 

effectuated by other agencies’ 

regulations. The thresholds in proposed 

§ 226.45(a)(1) for determining whether a 

transaction is a higher-priced mortgage 

loan, discussed above, reflect the 

amounts over the average prime offer 

rate that trigger coverage of the statutory 

escrow requirement in TILA Section 

129D(b)(3). 

Proposed § 226.45(b)(1) also would 

state that, for purposes of § 226.45(b), 

‘‘escrow account’’ has the same meaning 

as under Regulation X. This proposed 

provision would parallel existing 

§ 226.35(b)(3)(iv). 

45(b)(2) Exemptions 

45(b)(2)(i) 

Proposed § 226.45(b)(2)(i) would 

provide that escrow accounts need not 

be established for loans secured by 

shares in a cooperative. This provision 

would track existing 

§ 226.35(b)(3)(ii)(A). It also is consistent 

with new TILA Section 129D(e), as 

added by Section 1461 of the DoddFrank Act. 

45(b)(2)(ii) 

Proposed § 226.45(b)(2)(ii) would 

provide that insurance premiums need 

not be included in escrow accounts for 

loans secured by dwellings in 

condominiums, planned unit 

developments (PUDs), or similar 

arrangements in which ownership 

requires participation in a governing 

association, where the governing 

association has an obligation to the 

dwelling owners to maintain a master 

policy insuring all dwellings. This 

provision would parallel existing 

§ 226.35(b)(3)(ii)(B), with respect to 

condominium units. It also would 

implement new TILA Section 129D(e), 

as added by Section 1461 of the DoddFrank Act. That provision codifies the 

exemption for condominiums and also 

expands it to other, similar ownership 

arrangements involving associations 

that have an obligation to maintain a 

master insurance policy, such as PUDs. 

The Board is proposing comment 

45(b)(2)(ii)–1 to parallel existing 

comment 35(b)(3)(ii)(B)–1 but with 

conforming amendments to reflect the 

expanded scope of the exemption. The 

Board is also proposing comment 

45(b)(2)(ii)–2 to provide details about 

the nature of PUDs and to clarify that 

the exemption is available for not only 

condominium and PUD units but also 

any other type of property ownership 

arrangement that has a governing 

association with an obligation to 

maintain a master insurance policy. 

45(b)(2)(iii) 

Under TILA Section 129D(c), the 

Board is authorized to exempt from the 

escrow requirement a creditor that (1) 

operates predominantly in rural or 

underserved areas; (2) together with all 

affiliates has total annual mortgage loan 

originations that do not exceed a limit 

set by the Board; (3) retains its mortgage 

loan originations in portfolio; and (4) 

meets any asset-size threshold and any 

other criteria the Board may establish. 

Proposed § 226.45(b)(2)(iii) would 

provide an exemption consistent with 

that provision. Under proposed 

§ 226.45(b)(2)(iii), the escrow 

requirement would not apply to a 

higher-priced mortgage loan extended 

by a creditor that makes most of its firstlien higher-priced mortgage loans in 

counties designated by the Board as 

‘‘rural or underserved,’’ together with its 

affiliates originates and services 100 or 

fewer first-lien mortgage loans, and 

together with its affiliates does not 

escrow for any mortgage loan it services. 

Operates Predominantly in Rural or 

Underserved Areas 

Under proposed § 226.45(b)(2)(iii)(A), 

to obtain the exemption, a creditor must 

have made during the preceding 

calendar year more than 50% of its total 

first-lien, higher-priced mortgage loans 

in counties designated by the Board as 

‘‘rural or underserved.’’ Proposed 

comment 45(b)(2)(iii)–1 would state that 

the Board publishes annually a list of 

counties that qualify as ‘‘rural’’ or 

‘‘underserved.’’ The Board’s annual 

determinations would be based on the 

criteria set forth in proposed 

§ 226.45(b)(2)(iv), discussed below. 

‘‘Areas.’’ In determining what is a 

rural or underserved area, the Board is 

proposing to use counties as the 

relevant area. The Board believes that 

the county level is the most appropriate 

area for this purpose, even though the 

sizes of counties can vary. In 

determining the relevant area for 

consumers who are shopping for 

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mortgage loans, census tracts would be 

too small, while states generally would 

be too large. Because a single standard 

nationwide would facilitate compliance, 

the Board is proposing to use counties 

for all geographic areas. The Board seeks 

comment on the appropriateness of this 

approach. 

‘‘Operates predominantly.’’ As noted, 

the proposed rule requires a creditor to 

have made during the preceding 

calendar year more than 50% of its total 

first-lien higher-priced mortgage loans 

in ‘‘rural or underserved’’ counties. The 

Board believes that ‘‘predominantly’’ 

indicates a portion greater than half, 

hence the proposed regulatory 

requirement of more than 50%. The 

Board proposes to implement ‘‘operates’’ 

consistently with the scope of the 

escrow requirement. Thus, because the 

escrow requirement applies only to firstlien higher-priced mortgage loans, only 

those loans would be counted toward 

this element of the exemption. The 

Board solicits comment on the 

appropriateness of both of these 

proposed interpretations. 

Total Annual Mortgage Loan 

Originations 

As noted above, the Dodd-Frank Act 

authorizes the Board to establish an 

annual limit on loans originated in 

adopting any exemption. Under 

proposed § 226.45(b)(2)(iii)(B), to obtain 

the exemption, a creditor and its 

affiliates together during either of the 

preceding two calendar years must have 

originated and retained the servicing 

rights to 100 or fewer loans secured by 

a first lien on real property or a 

dwelling. The Board is also establishing 

three criteria not specified in the statute: 

(1) A requirement that the lender retain 

servicing rights in addition to 

originating loans; (2) the establishment 

of 100 or fewer as the originations limit; 

and (3) the use of either of the preceding 

two calendar years. 

Retention of servicing rights. Proposed 

§ 226.45(b)(2)(iii)(B) would provide that 

the creditor, together with any affiliates, 

must have originated and retained the 

servicing rights to 100 or fewer loans. 

As noted above, the statute does not 

include retention of the servicing rights 

in this condition of the exemption. The 

Board is proposing this adjustment to 

the requirement for an annualoriginations limit pursuant to its 

authority under TILA Section 105(a), 15 

U.S.C. 1604(a), to provide for such 

adjustments and exceptions as are 

necessary or proper to effectuate the 

purposes of TILA. The Board believes 

that, to effectuate meaningfully the 

purpose of the exemption, this test 

should include only those loans both 

made and serviced by the creditor and 

its affiliates. 

The Board believes the purpose of the 

exemption is to recognize that 

maintaining escrow accounts is 

burdensome, and not cost-effectively 

feasible, unless a servicer maintains at 

least a certain minimum portfolio size. 

The proposed exemption thus permits 

creditors that do not possess these 

economies of scale to continue to offer 

credit to consumers, rather than leave 

the higher-priced mortgage loan market, 

provided the other criteria for the 

exemption also are satisfied. But the 

economies of scale needed to escrow 

cost-effectively are achieved only to the 

extent a creditor actually services its 

originations. Accordingly, the Board’s 

proposal would base the exemption on 

only originations for which the creditor 

(or its affiliates) retained the servicing 

rights. 

100 or fewer loans. TILA Section 

129D(c)(2) requires the Board to 

establish a limit on annual originations 

for purposes of the exemption. As 

discussed above, in approaching this 

element of the exemption, the Board 

seeks to limit the exemption to creditors 

that maintain servicing portfolios too 

small to be able to escrow costeffectively. Based on a review of 

mortgage subservicers’ fee schedules, 

the Board estimates that, on average, the 

monthly cost per loan to outsource 

servicing (including escrowing) is $17 

for a 500-loan portfolio and $21 for a 

250-loan portfolio. Data obtained from 

the Mortgage Bankers Association’s 

Quarterly Mortgage Bankers 

Performance Report for the third quarter 

of 2008 indicate that the average 

monthly cost per loan to service a 

portfolio in-house (including but not 

limited to escrowing), for portfolios 

averaging 472 loans, is approximately 

$20; this figure represents ongoing costs, 

including personnel, technology, 

equipment, and similar recurring costs, 

but it does not include initial set-up 

costs. The Board believes from the 

available information that the 

economies of scale necessary to escrow 

cost-effectively, or else to satisfy the 

escrow requirement by outsourcing to a 

sub-servicer, generally exist when a 

mortgage servicer has a portfolio of at 

least 500 mortgage loans. 

TILA Section 129D(c)(2) calls for an 

annual-originations limit, however, as 

opposed to a portfolio-size limit. In light 

of the statutory provision, to effectuate 

the purpose of the exemption, the Board 

is proposing to set the cut-off for this 

element of the exemption at 100 or 

fewer mortgage loans originated and 

serviced; an assumed average of five 

years until an institution’s loans are 

paid off would suggest that originating 

(and retaining the servicing rights to) 

100 or fewer mortgages per year should 

correspond to servicing 500 or fewer 

loans. The Board seeks comment on the 

validity of this assumption and whether 

some other number of originations 

might better serve the purpose of the 

exemption. 

Either of the preceding two calendar 

years. The Board is proposing that the 

test be satisfied as long as the creditor’s 

(and its affiliates’) servicing-retained 

originations do not exceed 100 during 

either of the preceding two calendar 

years. Under this two-year ‘‘look back,’’ 

an institution that has been exempt 

would not have to begin complying with 

the escrow requirement until at least 

one full year after it first exceeds the 

threshold. Proposed comment 

45(b)(2)(iii)–1 would clarify that a 

creditor would lose the exemption if it 

exceeds the threshold for two 

consecutive calendar years and would 

illustrate this rule with an example. 

As indicated above, the Board 

believes the purpose of the exemption is 

to permit creditors that lack the 

economies of scale necessary to escrow 

cost-effectively to continue to offer 

credit to consumers, rather than leave 

the higher-priced mortgage loan market, 

provided the other criteria for the 

exemption also are satisfied. The Board 

recognizes that the originations limit, if 

applied for only one year, could cause 

operational problems when institutions 

first exceed the threshold. An 

institution that was exempt and 

becomes subject to the requirement 

because it first originates and services 

over 100 loans could not establish 

escrow accounts retroactively on its 

existing portfolio without the agreement 

of its existing customers. Such an 

institution then would face the prospect 

of establishing escrows for the small 

number of loans it makes going forward 

and still would not have achieved the 

necessary economies of scale. The 

proposed two-year coverage test should 

afford an institution sufficient time after 

first exceeding the threshold to acquire 

an escrowing capacity. The Board 

solicits comment on the appropriateness 

of this two-year coverage test. 

Creditor and Affiliates Do Not Maintain 

Escrows 

Under proposed § 226.45(b)(2)(iii)(C), 

to obtain the exemption, the creditor 

and its affiliates must not maintain an 

escrow account for any mortgage loan 

they currently service. The Board is 

proposing this provision pursuant to its 

authority in TILA Section 129D(c)(4) to 

include in this exemption ‘‘any other 

criteria the Board may establish.’’ The 

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2See http://www.ers.usda.gov/briefing/Rurality/ 

UrbanInf/. 

Board believes this additional condition 

is necessary to effectuate the purpose of 

the exemption. 

If a creditor already establishes or 

maintains escrow accounts, it has the 

capacity to escrow and therefore has no 

need for the exemption. Moreover, a 

creditor’s capacity to escrow should 

reflect not only its own activities but 

those of any affiliate. The Board believes 

a creditor’s affiliate that has the capacity 

to escrow can enable the creditor to 

meet the escrow requirement. The Board 

seeks comment, however, on whether an 

affiliate’s capacity to escrow should be 

considered. Proposed comment 

45(b)(2)(iii)–1 would explain that this 

restriction applies only to mortgage 

loans serviced by the creditor and its 

affiliates at the time a transaction is 

consummated. Thus, the exemption still 

could apply even if, in the past, any of 

them has established and maintained 

escrows for mortgage loans it no longer 

services. If a creditor or an affiliate 

escrows for loans currently serviced, 

however, they all would become 

ineligible for the exemption on higherpriced mortgage loans that they make 

thereafter. 

The Board recognizes that a creditor 

sometimes may hold a loan for a short 

period after consummation to take the 

steps necessary before transferring and 

assigning it to its intended investor. 

This period on occasion may extend 

even beyond the loan’s first installment 

due date, especially if the first payment 

due date comes shortly after 

consummation. The proposed rule 

would recognize that, in such cases, a 

creditor that establishes an escrow 

account for the investor is not deemed 

to have established an escrow account 

in connection with a loan for which it 

retains the servicing rights. Accordingly, 

proposed comment 45(b)(2)(iii)–1 also 

would clarify that a creditor or its 

affiliate ‘‘maintains’’ an escrow account 

for a loan only if it services the mortgage 

loan at least through the due date of the 

second periodic payment under the 

terms of the legal obligation. The Board 

seeks comment on whether the second 

payment due date is the appropriate cutoff point for this purpose. 

Under § 226.45(b)(2)(iii)(C), as 

proposed, a creditor would not be 

eligible for the exemption if it escrows 

for even a single loan. A creditor that 

lacks the capacity to escrow costeffectively and does not maintain 

escrow accounts as a general matter 

nevertheless may undertake to escrow 

for one customer, or possibly only a few 

customers, as an accommodation to 

those customers at their request. The 

Board therefore solicits comment on 

whether this provision instead should 

allow some de minimis number of loans 

for which escrows are maintained and, 

if so, what that number should be. For 

example, would a limit of not more than 

five loans for which escrows are 

currently maintained be appropriate? 

Asset-Size Threshold Not Proposed 

The Board is not proposing an assetsize threshold as a condition of the 

exemption, even though TILA Section 

129D(c)(4) authorizes the Board to do 

so. As discussed above, the Board 

believes that a creditor’s ability to 

establish escrow accounts, and thus 

continue offering higher-priced 

mortgage loans, depends mainly on 

whether the creditor services enough 

mortgage loans to make escrow accounts 

a cost-effective option. The annual 

originations test discussed above serves 

as a proxy for having a small servicing 

portfolio. Mortgage creditors with 

limited assets likely also would satisfy 

the annual originations test. 

Nevertheless, the Board believes that a 

relatively large creditor (based on asset 

size) might make and service only a 

small number of mortgage loans. If such 

a creditor may cease making higherpriced mortgage loans because it lacks 

the necessary economies of scale to 

escrow for so few mortgage loans, the 

Board believes the creditor should not 

be denied the exemption merely 

because it happens to have substantial 

non-mortgage assets. Thus, the Board 

solicits comment on whether such a 

condition should be established and, if 

so, what asset-size threshold would be 

appropriate. 

45(b)(2)(iv) 

Proposed § 226.45(b)(2)(iv) would set 

out the criteria for a county to be 

designated by the Board as ‘‘rural or 

underserved’’ for purposes of 

§ 226.45(b)(2)(iii)(A), discussed above. 

Under that section, a creditor’s 

originations of first-lien higher-priced 

mortgage loans in all counties 

designated as ‘‘rural or underserved’’ 

during a calendar year are measured as 

a percentage of the creditor’s total such 

originations during that calendar year to 

determine whether the creditor may be 

eligible for the exemption during the 

following calendar year. If the creditor’s 

first-lien higher-priced mortgage loan 

originations in ‘‘rural or underserved’’ 

counties during a calendar year exceeds 

50% of the creditor’s total such 

originations in that calendar year, the 

creditor satisfies § 226.45(b)(2)(iii)(A) 

for purposes of the following calendar 

year. 

Proposed § 226.45(b)(2)(iv) would 

establish separate criteria for both 

‘‘rural’’ and ‘‘underserved,’’ thus a county 

could qualify for designation by the 

Board under either definition. Under 

proposed § 226.45(b)(2)(iv)(A), a county 

would be designated as ‘‘rural’’ during a 

calendar year if it is not in a 

metropolitan area or a micropolitan area 

and either (1) it is not adjacent to any 

metropolitan or micropolitan area; or (2) 

it is adjacent to a metropolitan area with 

fewer than one million residents or 

adjacent to a micropolitan area, and it 

contains no town with 2500 or more 

residents. Under proposed 

§ 226.45(b)(2)(iv)(B), a county would be 

designated as ‘‘underserved’’ during a 

calendar year if no more than two 

creditors extend consumer credit 

secured by a first lien on real property 

or a dwelling five or more times in that 

county. These two definitions are 

discussed in more detail below. 

‘‘Rural’’ 

The Board is proposing to limit the 

definition of ‘‘rural’’ areas to those areas 

most likely to have only limited sources 

of mortgage credit. The test for ‘‘rural’’ in 

proposed § 226.45(b)(2)(iv)(A), 

described above, is based on the ‘‘urban 

influence codes’’ numbered 7, 10, 11, 

and 12, maintained by the Economic 

Research Service (ERS) of the United 

States Department of Agriculture. The 

ERS devised the urban influence codes 

to reflect such factors as counties’ 

relative population sizes, degrees of 

‘‘urbanization,’’ access to larger 

communities, and commuting patterns.2

The four codes captured in the proposed 

‘‘rural’’ definition represent the most 

remote rural areas, where ready access 

to the resources of larger, more urban 

communities and mobility are most 

limited. Proposed comment 45(b)(2)(iv)– 

1 would state that the Board classifies 

a county as ‘‘rural’’ if it is categorized 

under ERS urban influence code 7, 10, 

11, or 12. The Board seeks comment on 

all aspects of this approach to 

designating ‘‘rural’’ counties, including 

whether the definition should be 

broader or narrower, as well as whether 

the designation should be based on 

information other than the ERS urban 

influence codes. 

‘‘Underserved’’ 

In determining what areas should be 

considered ‘‘underserved,’’ the Board 

has considered the minimum number of 

creditors that must be engaged in 

significant mortgage operations in an 

area for consumers to have meaningful 

access to mortgage credit. The test for 

‘‘underserved’’ in proposed 

§ 226.45(b)(2)(iv)(B), described above, is 

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based on the Board’s judgment that, 

where no more than two creditors are 

significantly active (measured by 

extending mortgage credit at least five 

times in a year), the inability of one 

creditor to offer a higher-priced 

mortgage loan would be detrimental to 

consumers who would have limited 

credit options. Thus, proposed 

§ 226.45(b)(2)(iv)(B) would designate a 

county as ‘‘underserved’’ during a 

calendar year if no more than two 

creditors extend consumer credit 

secured by a first lien on real property 

or a dwelling five or more times in that 

county. Proposed comment 45(b)(2)(iv)– 

1 would state that the Board bases its 

determinations of whether counties are 

‘‘rural’’ for purposes of 

§ 226.45(b)(2)(iii)(A) by reference to data 

submitted by mortgage lenders under 

the Home Mortgage Disclosure Act 

(HMDA). 

The Board believes the purpose of the 

exemption is to permit creditors that 

lack the economies of scale necessary to 

escrow cost-effectively to continue to 

offer credit to consumers, rather than 

leave the higher-priced mortgage loan 

market, if such creditors’ withdrawal 

would significantly limit consumers’ 

ability to obtain mortgage credit. In light 

of this rationale, the Board believes that 

‘‘underserved’’ should be implemented 

in a way that protects consumers from 

losing meaningful access to mortgage 

credit. The Board is proposing to do so 

by designating as ‘‘underserved’’ only 

those areas where the withdrawal of a 

creditor from the market could leave no 

meaningful competition for consumers’ 

mortgage business. The Board seeks 

comment on the appropriateness of both 

the proposed use of two or fewer 

existing competitors to delineate areas 

that are ‘‘underserved’’ and the proposed 

use of five or more first-lien mortgage 

originations to identify competitors with 

a significant presence in a market. 

45(b)(2)(v) 

Proposed § 226.45(b)(2)(v) would 

provide that the exemption is not 

available for certain transactions that, at 

consummation, are subject to ‘‘forward 

commitments,’’ which are agreements 

entered into at or before consummation 

of a transaction under which a 

purchaser is committed to acquire the 

loan from the creditor after 

consummation. Mortgage creditors often 

make loans for which they already have 

obtained such a commitment from a 

purchaser, which may be obligated to 

purchase the specific loan or to 

purchase loans meeting prescribed 

criteria. In the latter case, if a 

transaction meets the criteria, it is 

subject to the purchaser’s forward 

commitment. The Board is proposing 

this provision to implement TILA 

Section 129D(c)(3), which requires that 

a creditor retain its mortgage loan 

originations in portfolio to qualify for 

the exemption from the escrow 

requirement. 

The Board considered requiring that a 

transaction be held in portfolio as a 

condition of the exemption. This 

approach, however, would raise 

operational problems. Whether a loan is 

held in portfolio can be determined only 

after consummation, but a creditor 

making a higher-priced mortgage loan 

must know by consummation whether it 

is subject to the escrow requirement. 

The Board expects that a creditor would 

be reluctant to make a loan it does not 

intend to keep in portfolio unless it has 

the assurance of a committed buyer 

before extending the credit. Thus, 

proposed § 226.45(b)(2)(v) would serve 

as a means of indirectly limiting the 

exemption to loans that are to be held 

in portfolio. 

The Board believes that the rationale 

for the exemption is not present when 

a loan will be acquired pursuant to a 

forward commitment by a purchaser 

that does not qualify for the exemption, 

even if the creditor making the loan is 

exempt. Accordingly, under proposed 

§ 226.45(b)(2)(v), the escrow 

requirement would apply to a higherpriced mortgage loan that, at 

consummation, is subject to a forward 

commitment to be acquired by a person 

that is not exempt. Proposed comment 

45(b)(2)(v)–1 would clarify that the 

transaction is not exempt, whether the 

forward commitment provides for the 

purchase and sale of the specific 

transaction or for the purchase and sale 

of loans with certain criteria that the 

transaction meets. 

The Board seeks comment on whether 

institutions could easily evade the 

escrow requirement by making higherpriced mortgage loans without a forward 

commitment in place and thereafter 

selling them to non-exempt purchasers. 

The Board also seeks comment on how 

it might address this possibility without 

relying on post-consummation events as 

part of the test. For instance, should the 

Board include a provision making it a 

violation of the escrow requirement to 

engage in a pattern or practice of making 

higher-priced mortgage loans without 

escrows under the exemption (with no 

forward commitment in place) and then 

selling them within some defined 

period after consummation? 

45(b)(3) Cancellation 

Proposed § 226.45(b)(3) would 

establish minimum durations for escrow 

accounts required by § 226.45(b)(1). 

Proposed § 226.45(b)(3)(i) would 

implement TILA Section 129D(d)(4) by 

requiring the creditor or servicer to 

maintain an escrow account established 

pursuant to proposed § 226.45(b)(1) for 

a minimum of five years following 

consummation, unless the underlying 

debt obligation is terminated earlier. 

Proposed § 226.45(b)(3)(i) would allow, 

but not require, a creditor or servicer to 

cancel the escrow account after five 

years upon receipt of a request from the 

consumer. Proposed § 226.45(b)(3)(ii) 

would implement TILA Sections 

129D(d)(1)–(3) by prohibiting the 

cancellation of an escrow account 

pursuant to a consumer’s request under 

proposed § 226.45(b)(3)(i) unless at least 

20% of the original value of the 

property securing the underlying debt 

obligation is unencumbered and the 

consumer currently is not delinquent or 

in default on the underlying debt 

obligation. Assuming the requirements 

of § 226.45(b)(3) were met, a creditor 

could, but would not be required to, 

cancel consumer’s escrow account 

pursuant to the consumer’s request, 

even if the consumer had been 

delinquent in making mortgage 

payments in the past. As long as the 

consumer brought his or her account 

current and had been making timely 

payments when the request was made, 

the creditor could close the escrow 

account. 

The Board’s proposed provisions to 

implement TILA Section 129D(d)(1)–(3) 

are modeled after the prerequisites for 

borrower cancellation of private 

mortgage insurance coverage under the 

Homeowners Protection Act of 1998 

(HPA), 12 U.S.C. 4901–4910. The Board 

seeks comment on the appropriateness 

of those standards, in light of the 

language used in TILA Section 

129D(d)(1)–(3). In particular, TILA 

Section 129D(d)(1) states that an escrow 

account mandated by TILA Section 

129D(b) must remain in existence, even 

if five years have elapsed, unless and 

until the ‘‘borrower has sufficient equity 

in the dwelling securing the consumer 

credit transaction so as to no longer be 

required to maintain private mortgage 

insurance.’’ The Board seeks comment 

on whether TILA Section 129D(d)(1) 

should be interpreted narrowly to mean 

that, among consumers with escrow 

accounts required pursuant to proposed 

§ 226.45(b)(1), only those that in fact 

have private mortgage insurance must 

meet the minimum equity requirement 

under the HPA as a prerequisite for 

cancelling their escrow accounts. 

Proposed comment 45(b)(3)–1 would 

clarify that termination of the 

underlying credit obligation could 

include, among other things, repayment, 

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refinancing, rescission, and foreclosure. 

Proposed comment 45(b)(3)–2 would 

clarify that proposed § 226.45(b)(3) does 

not affect the right or obligation of a 

creditor or servicer, pursuant to the 

terms of the legal obligation or 

applicable law, to offer or require an 

escrow account after the minimum 

period dictated by § 226.45(b)(3). 

Proposed comment 45(b)(3)–3 would 

clarify that the term ‘‘original value’’ in 

§ 226.45(b)(3)(ii)(A) means the lesser of 

the sales price reflected in the sales 

contract for the property, if any, or the 

appraised value of the property at the 

time the transaction was consummated. 

This meaning of ‘‘original value’’ is 

adopted from Section 2(12) of the HPA. 

12 U.S.C. 4901(12). The Board is 

cognizant of the recent nation-wide 

decline of property values. The Board 

recognizes that, under the proposal, a 

creditor or servicer may honor a 

consumer’s request to cancel their 

escrow account when the consumer has 

met all of the pre-conditions of 

§ 226.45(b)(3) even when the consumer 

does not have 20% equity in their home 

because of depressed property values at 

the time. The Board believes that using 

some method other than the HPA as a 

model for determining when a borrower 

has sufficient equity in the property 

would prove too complicated and create 

uncertainty. However, the Board solicits 

comment on the proposed approach. 

Proposed comment 45(b)(3)–3 also 

would clarify that, in determining 

whether 20% of the original value of the 

property securing the underlying debt 

obligation is unencumbered, the 

creditor or servicer must count any 

subordinate lien of which it has reason 

to know. The proposed comment would 

further state that, if the consumer 

certifies in writing that the equity in the 

property is unencumbered by a 

subordinate lien, the creditor or servicer 

may rely upon the certification in 

making its determination. This 

approach is derived from Section 

3(a)(4)(B) of the HPA, 12 U.S.C. 

4902(a)(4)(B). Under that provision, the 

mortgagor must certify that there is no 

subordinate lien on the property as a 

prerequisite for cancellation of private 

mortgage insurance. The Board is 

proposing a modified version of this 

approach. Under the proposal, an 

escrow account could be cancelled, 

provided that all liens do not exceed 

80% of the property’s original value. 

The Board seeks comment on whether 

this approach is appropriate. 

Alternatively, the Board solicits 

comment on whether subordinate-lien 

loans should be disregarded when 

calculating the consumer’s equity. 

45(c) 

The Board is proposing to reserve 

§ 226.45(c) for future use in 

implementing Section 1471 of the DoddFrank Act, which creates new TILA 

Section 129H to establish certain 

appraisal requirements applicable to 

‘‘higher-risk mortgages.’’ 

45(d) Evasion; Open-End Credit 

Proposed § 226.45(d) would provide 

that, in connection with credit secured 

by a consumer’s principal dwelling that 

does not meet the definition of openend credit in § 226.2(a)(20), a creditor 

shall not structure a home-secured loan 

as an open-end plan to evade the 

requirements of § 226.45. This proposed 

provision would parallel existing 

§ 226.35(b)(4). 

Appendices G and H—Open-End and 

Closed-End Model Forms and Clauses 

The Board is proposing to revise staff 

comment App. G and H–1 to provide 

guidance on permissible changes to the 

new model forms the Board is 

proposing. Appendices G and H set 

forth model forms, model clauses and 

sample forms that may be used to 

comply with the requirements of 

Regulation Z. Appendix G contains 

model forms, model clauses and sample 

forms applicable to open-end plans. 

Appendix H contains model forms, 

model clauses and sample forms 

applicable to closed-end loans. 

Although use of the model forms and 

clauses is not required, proper use will 

be deemed to be in compliance with the 

regulation with regard to those 

disclosures. As discussed above, the 

Board proposes to add several model 

forms to Appendix H for the disclosure 

requirements applicable to the 

establishment, non-establishment, and 

cancellation of escrow accounts. The 

new model forms are discussed above in 

the section-by-section analysis 

applicable to the regulatory provisions 

to which the forms relate. See 

discussion under §§ 226.19(f) 

(establishment or non-establishment of 

escrow account at consummation) and 

226.20(d) (cancellation of escrow 

account after consummation). 

Existing comment App. G and H–1 

discusses changes that may be made to 

the model forms and clauses. The 

comment also lists the models to which 

formatting changes may not be made 

because the disclosures must be made in 

a form substantially similar to that in 

the models to retain the safe harbor from 

liability. The Board is proposing to add 

Model Forms H–24 (establishment of 

escrow account at consummation), H–25 

(non-establishment of escrow account at 

consummation), and H–26 (cancellation 

of an escrow account after 

consummation) to the list of forms to 

which formatting changes may not be 

made. As discussed in more detail in 

the section-by-section analysis to 

proposed § 226.19(f)(1), proposed 

§ 226.19(f)(1)(i) requires that creditors 

provide the § 226.19(f)(2) disclosures 

with the headings, content, order, and 

format substantially similar to Model 

Form H–24 or H–25. As discussed in 

more detail in the section-by-section 

analysis to proposed § 226.20(d)(1), 

proposed § 226.20(d)(1)(i) requires that 

servicers provide the § 226.20(d)(2) 

disclosures with the headings, content, 

order, and format substantially similar 

to Model Form H–26. 

Appendix H—Closed-End Model Forms 

and Clauses 

The Board is proposing to add three 

new model forms to Appendix H for use 

in complying with the new disclosure 

requirements discussed above. 

Appendix H to part 226 sets forth model 

forms, model clauses and sample forms 

that may be used to comply with 

requirements of Regulation Z for closedend credit. Although use of the model 

forms and clauses generally is not 

required, proper use is deemed to be in 

compliance with the regulation with 

regard to those disclosures. 

The proposed new model forms could 

be used by creditors to comply with the 

disclosure requirements of proposed 

§ 226.19(f) regarding the establishment 

or non-establishment of an escrow 

account and of proposed § 226.20(d) 

regarding the cancellation of an escrow 

account established in connection with 

a closed-end transaction secured by a 

first lien on real property or a dwelling. 

Accordingly, the Board proposes to add 

Model Form H–24 Establishment of 

Escrow Account; Model Form H–25 

Non-Establishment of Escrow Account; 

and Model Form H–26 Cancellation of 

Escrow Account to illustrate the 

disclosures required under proposed 

§§ 226.19(f) and 226.20(d). 

The Board also proposes new 

comment App. H–29, which would 

provide guidance on how to use Model 

Forms H–24 through H–26. Proposed 

comment App. H–29.i states that the 

model forms illustrate, in the tabular 

format, the disclosures required by 

proposed §§ 226.19(f) and 226.20(d). 

Proposed comment App. H–29.ii 

specifies that a creditor satisfies 

§ 226.19(f)(2) if it provides the 

appropriate model form (H–24 or H–25) 

and a servicer satisfies § 226.20(d)(2) if 

it provides Model Form H–26, or a 

substantially similar notice, which is 

properly completed with the disclosures 

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3See comments 25(a)–3 and –4. 

4The burden estimate for this rulemaking does 

not include the burden addressing changes to 

implement the following provisions announced in 

separate rulemakings: 

1. Closed-End Mortgages (Docket No. R–1366) (74 

FR 43232); 

2. Home-Equity Lines of Credit (Docket No. R– 

1367) (74 FR 43428); or 

3. Mortgage Disclosure Improvement Act (Docket 

No. R–1366). 

required by § 226.19(f)(2) or 

§ 226.20(d)(2), respectively. Proposed 

comment App. H–29.iii provides that, 

although creditors are not required to 

use a certain paper size in disclosing the 

rescission notice required under 

§§ 226.19(f) and 226.20(d), Model Forms 

H–24 through H–26 are designed to be 

printed on an 81⁄2 x 11 inch sheet of 

paper. In addition, proposed comment 

App. H–29.iii provides details of the 

formatting techniques that were used in 

presenting the information in the model 

forms to ensure that the information is 

readable. 

Proposed comment App. H–29.iv 

states that, while the regulation does not 

require creditors or servicers to use the 

formatting techniques described in 

comment App. H–29.iii (except for the 

10-point minimum font requirement), 

creditors and servicers are encouraged 

to consider these techniques when 

deciding how to disclose information in 

the notice to ensure that the information 

is presented in a readable format. 

Proposed comment App. H–29.v 

clarifies that creditors and servicers may 

use color, shading and similar graphic 

techniques with respect to the notice, so 

long as the notice remains substantially 

similar to the model forms in Appendix 

H. 

V. Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act (PRA) of 1995 (44 U.S.C. 

3506; 5 CFR part 1320 appendix A.1), 

the Board reviewed the proposed rule 

under the authority delegated to the 

Board by the Office of Management and 

Budget (OMB). The collection of 

information that is required by this 

proposed rule is found in 12 CFR part 

226. The Board may not conduct or 

sponsor, and an organization is not 

required to respond to, this information 

collection unless the information 

collection displays a currently valid 

OMB control number. The OMB control 

number is [7100–0199]. 

This information collection is 

required to provide benefits for 

consumers and is mandatory (15 U.S.C. 

1601 et seq.). Since the Board does not 

collect any information, no issue of 

confidentiality arises. The respondents/ 

recordkeepers are creditors and other 

entities subject to Regulation Z. 

TILA and Regulation Z are intended 

to ensure effective disclosure of the 

costs and terms of credit to consumers. 

For open-end credit, creditors are 

required to, among other things, 

disclose information about the initial 

costs and terms and to provide periodic 

statements of account activity, notice of 

changes in terms, and statements of 

rights concerning billing error 

procedures. Regulation Z requires 

specific types of disclosures for credit 

and charge card accounts and home 

equity plans. For closed-end loans, such 

as mortgage and installment loans, cost 

disclosures are required to be provided 

prior to consummation. Special 

disclosures are required in connection 

with some products, such as reverse 

mortgages, certain variable-rate loans, 

and certain mortgages with rates and 

fees above specified thresholds. TILA 

and Regulation Z also contain rules 

concerning credit advertising. Creditors 

are required to retain evidence of 

compliance for twenty-four months, 

§ 226.25, but Regulation Z identifies 

only a few specific types of records that 

must be retained.3

Under the PRA, the Board accounts 

for the paperwork burden associated 

with Regulation Z for the state member 

banks and other creditors supervised by 

the Federal Reserve that engage in 

consumer credit activities covered by 

Regulation Z and, therefore, are 

respondents under the PRA. Appendix 

I of Regulation Z defines the Federal 

Reserve-regulated institutions as: State 

member banks, branches and agencies of 

foreign banks (other than Federal 

branches, Federal agencies, and insured 

state branches of foreign banks), 

commercial lending companies owned 

or controlled by foreign banks, and 

organizations operating under section 

25 or 25A of the Federal Reserve Act. 

Other Federal agencies account for the 

paperwork burden imposed on the 

entities for which they have 

administrative enforcement authority. 

The current total annual burden to 

comply with the provisions of 

Regulation Z is estimated to be 

1,497,362 hours for the 1,138 Federal 

Reserve-regulated institutions that are 

deemed to be respondents for the 

purposes of the PRA. A detailed 

discussion of revised burden is 

presented in the following two 

paragraphs. To ease the burden and cost 

of complying with Regulation Z 

(particularly for small entities), the 

Board provides model forms, which are 

appended to the regulation. 

As discussed in the preamble, the 

Board proposes the addition of format, 

timing, and content requirements for the 

new disclosures regarding escrow 

accounts for closed-end mortgages 

secured by a first lien on real property 

or a dwelling that shall be provided 

three business days before 

consummation or before closure of an 

escrow account. The proposed rule 

would impose a one-time increase in the 

total annual burden under Regulation Z 

for all respondents regulated by the 

Federal Reserve by 45,520 hours, from 

1,497,362 to 1,542,882 hours. In 

addition, the Board estimates that, on a 

continuing basis, the proposed rule 

would increase the total annual burden 

by 109,248 hours from 1,497,362 to 

1,606,610 hours.4

The Board estimates that the 1,138 

respondents regulated by the Federal 

Reserve would take, on average, 40 

hours (one business week) to update 

their systems and internal procedure 

manuals and to provide training for 

relevant staff to comply with the new 

disclosure requirements in §§ 226.19(f) 

and 226.20(d). This one-time revision 

will increase the burden by 45,520 

hours. On a continuing basis, the Board 

estimates that 1,138 respondents 

regulated by the Federal Reserve will 

take, on average, 8 hours a month to 

comply with the new disclosure 

requirements and that the new 

requirements will increase the ongoing 

burden by 109,248 hours from 304,756 

to 353,276 hours. To ease the burden 

and cost of complying with the new 

requirements under Regulation Z, the 

Board is adding several model forms to 

Appendix H. 

The total estimated burden increase, 

as well as the estimates of the burden 

increase associated with each major 

section of the proposed rule as set forth 

below, represents averages for all 

respondents regulated by the Federal 

Reserve. The Board expects that the 

amount of time required to implement 

each of the proposed changes for a given 

institution may vary based on the size 

and complexity of the respondent. 

The other Federal financial agencies— 

Office of the Comptroller of the 

Currency (OCC), Office of Thrift 

Supervision (OTS), the Federal Deposit 

Insurance Corporation (FDIC), and the 

National Credit Union Administration 

(NCUA)—are responsible for estimating 

and reporting to OMB the total 

paperwork burden for the domestically 

chartered commercial banks, thrifts, and 

Federal credit unions and U.S. branches 

and agencies of foreign banks for which 

they have primary administrative 

enforcement jurisdiction under TILA 

Section 108(a), 15. U.S.C. 1607(a). These 

agencies are permitted, but are not 

required, to use the Board’s burden 

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5 13 CFR 121.201; see also SBA, Table of Small 

Business Size Standards Matched to North 

American Industry Classification System Codes, 

available at http://www.sba.gov/idc/groups/public/ 

documents/sba_homepage/serv_sstd_tablepdf.pdf. 

6Regulation Z generally applies to ‘‘each 

individual or business that offers or extends credit 

when four conditions are met: (i) The credit is 

offered or extended to consumers; (ii) the offering 

or extension of credit is done regularly, (iii) the 

credit is subject to a finance charge or is payable 

by a written agreement in more than four 

installments, and (iv) the credit is primarily for 

personal, family, or household purposes.’’ 

§ 226.1(c)(1). 

estimation methodology. Using the 

Board’s method, the total current 

estimated annual burden for the 

approximately 16,200 domestically 

chartered commercial banks, thrifts, and 

Federal credit unions and U.S. branches 

and agencies of foreign banks 

supervised by the Federal Reserve, OCC, 

OTS, FDIC, and NCUA under TILA 

would be approximately 21,813,445 

hours. The proposed rule would impose 

a one-time increase in the estimated 

annual burden for such institutions by 

648,000 hours to 22,461,445 hours. On 

a continuing basis the proposed rule 

would impose an increase in the 

estimated annual burden by 1,555,200 

to 23,368,645 hours. The above 

estimates represent an average across all 

respondents; the Board expects 

variations between institutions based on 

their size, complexity, and practices. 

Comments are invited on: (1) Whether 

the proposed collection of information 

is necessary for the proper performance 

of the Board’s functions; including 

whether the information has practical 

utility; (2) the accuracy of the Board’s 

estimate of the burden of the proposed 

information collection, including the 

cost of compliance; (3) ways to enhance 

the quality, utility, and clarity of the 

information to be collected; and (4) 

ways to minimize the burden of 

information collection on respondents, 

including through the use of automated 

collection techniques or other forms of 

information technology. Comments on 

the collection of information should be 

sent to Cynthia Ayouch, Acting Federal 

Reserve Board Clearance Officer, 

Division of Research and Statistics, Mail 

Stop 95–A, Board of Governors of the 

Federal Reserve System, Washington, 

DC 20551, with copies of such 

comments sent to the Office of 

Management and Budget, Paperwork 

Reduction Project ([7100–0199]), 

Washington, DC 20503. 

VI. Regulatory Flexibility Act 

In accordance with section 3(a) of the 

Regulatory Flexibility Act (RFA), 5 

U.S.C. 601–612, the Board is publishing 

an initial regulatory flexibility analysis 

for the proposed amendments to 

Regulation Z. The RFA requires an 

agency either to provide an initial 

regulatory flexibility analysis with a 

proposed rule or to certify that the 

proposed rule will not have a significant 

economic impact on a substantial 

number of small entities. Under 

regulations issued by the Small 

Business Administration (SBA), an 

entity is considered ‘‘small’’ if it has 

$175 million or less in assets for banks 

and other depository institutions, and 

$7 million or less in revenues for nonbank mortgage lenders and loan 

servicers.5

Based on its analysis and for the 

reasons stated below, the Board believes 

that this proposed rule will have a 

significant economic impact on a 

substantial number of small entities. A 

final regulatory flexibility analysis will 

be conducted after consideration of 

comments received during the public 

comment period. The Board requests 

public comment in the following areas. 

A. Reasons for the Proposed Rule 

Congress enacted TILA based on 

findings that economic stability would 

be enhanced and competition among 

consumer credit providers would be 

strengthened by the informed use of 

credit resulting from consumers’ 

awareness of the cost of credit. One of 

the stated purposes of TILA is providing 

a meaningful disclosure of credit terms 

to enable consumers to compare credit 

terms available in the marketplace more 

readily and avoid the uninformed use of 

credit. TILA’s disclosures differ 

depending on whether credit is an openend (revolving) plan or a closed-end 

(installment) loan. TILA also contains 

procedural and substantive protections 

for consumers. TILA is implemented by 

the Board’s Regulation Z. 

Congress enacted Sections 1461 and 

1462 of the Dodd-Frank Act as 

amendments to TILA. As amended, 

TILA requires the establishment of 

escrow accounts for certain transactions, 

provides for certain exemptions from 

the requirement, establishes minimum 

periods for which such required escrow 

accounts must be maintained, and 

requires certain disclosures relating to 

escrow accounts. The proposed 

amendments to Regulation Z would 

implement those requirements. These 

amendments are proposed in 

furtherance of the Board’s responsibility 

to prescribe regulations to carry out the 

purposes of TILA, including promoting 

consumers’ awareness of the cost of 

credit and their informed use thereof. 

B. Statement of Objectives and Legal 

Basis 

Part IV of the SUPPLEMENTARY

INFORMATION contains a detailed 

statement of the proposed rule’s 

objectives and legal basis. In summary, 

the proposed amendments to Regulation 

Z are intended (1) to implement the 

definition of ‘‘higher-priced mortgage 

loan’’ and the requirement that creditors 

establish escrow accounts for such 

loans, in §§ 226.45(a) and 226.45(b)(1); 

(2) to provide exemptions from the 

escrow requirement for loans secured by 

shares in a cooperative, for insurance 

premiums for loans secured by 

dwellings in condominiums, plannedunit developments, and similar 

arrangements, and for loans made by 

certain small creditors that operate 

predominantly in rural or underserved 

areas, in § 226.45(b)(2); (3) to revise the 

rules setting the minimum durations for 

which required escrow accounts must 

be maintained, in § 226.45(b)(3); and (4) 

to require that creditors provide 

consumers with certain disclosures 

regarding escrow accounts, in 

§§ 226.19(f) and 226.20(d). All of these 

proposed provisions are pursuant to 

amendments to TILA adopted by the 

Dodd-Frank Act. The legal basis for the 

proposed rule is in TILA Sections 

105(a), 105(f), and 129D. 15 U.S.C. 

1604(a), 1604(f), and 1638D. 

C. Description of Small Entities to 

Which the Proposed Rule Would Apply 

The proposed regulations would 

apply to all institutions and entities that 

engage in originating or extending 

home-secured credit, as well as 

servicers of these loans. The Board is 

not aware of a reliable source for the 

total number of small entities likely to 

be affected by the proposal, and the 

credit provisions of TILA and 

Regulation Z have broad applicability to 

individuals and businesses that 

originate, extend, and service even 

small numbers of home-secured credit. 

See § 226.1(c)(1).6 All small entities that 

originate, extend, or service closed-end 

loans secured by real property or a 

dwelling potentially could be subject to 

at least some aspects of the proposed 

rules. 

The Board can, however, identify 

through data from Reports of Condition 

and Income (‘‘Call Reports’’) 

approximate numbers of small 

depository institutions that would be 

subject to the proposed rules. According 

to September 2010 Call Report data, 

approximately 8,669 small depository 

institutions would be subject to the rule. 

Approximately 15,627 depository 

institutions in the United States filed 

Call Report data, approximately 10,993 

of which had total domestic assets of 

$175 million or less and thus were 

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considered small entities for purposes of 

the RFA. Of the 3,788 banks, 507 thrifts, 

6,632 credit unions, and 66 branches of 

foreign banks that filed Call Report data 

and were considered small entities, 

3,667 banks, 479 thrifts, 4,520 credit 

unions, and 3 branches of foreign banks, 

totaling 8,669 institutions, extended 

mortgage credit. For purposes of this 

Call Report analysis, thrifts include 

savings banks, savings and loan entities, 

co-operative banks and industrial banks. 

Further, 1,303 non-depository 

institutions (independent mortgage 

companies, subsidiaries of a depository 

institution, or affiliates of a bank 

holding company) filed HMDA reports 

in 2010 for 2009 lending activities. 

Based on the small volume of lending 

activity reported by these institutions, 

most are likely to be small entities. 

Certain parts of the proposed rule 

would also apply to mortgage servicers. 

The Board is not aware, however, of a 

source of data for the number of small 

mortgage servicers. The available data 

are not sufficient for the Board 

realistically to estimate the number of 

mortgage servicers that would be subject 

to the proposed rules and that are small 

as defined by SBA. 

D. Projected Reporting, Recordkeeping, 

and Other Compliance Requirements 

The compliance requirements of the 

proposed rules are described in part III 

of the SUPPLEMENTARY INFORMATION. The 

effect of the proposed revisions to 

Regulation Z on small entities is 

unknown. Some small entities would be 

required, among other things, to 

implement the new disclosures and 

processes for delivery thereof, as well as 

their systems for determining which 

transactions are subject to the escrow 

requirement, to comply with the revised 

rules. The precise costs to small entities 

of updating their systems and 

disclosures are difficult to predict. 

These costs will depend on a number of 

unknown factors, including, among 

other things, the specifications of the 

current systems used by such entities to 

prepare and provide disclosures and to 

administer and maintain escrow 

accounts. 

Small entities would have broader 

exemptions from the escrow 

requirement potentially available, thus 

enjoying cost savings. The proposed 

rule also would provide creditors with 

additional guidance on the 

determination of the average prime offer 

rate for a comparable transaction and 

clarification of the higher-priced 

mortgage loan protections’ applicability 

to construction-permanent financing, 

accordingly lowering compliance costs 

for small entities. 

The proposed rule would require 

creditors to determine whether a loan is 

a higher-priced mortgage loan by 

comparing the loan’s rate without thirdparty fees (the ‘‘transaction coverage 

rate’’) to the average prime offer rate. 

The transaction coverage rate would be 

calculated using the loan’s interest rate 

and the points and any other origination 

charges the creditor keeps for itself, and 

thus would be more closely comparable 

to the average prime offer rate. The 

precise costs to small entities of 

updating their systems to implement 

this change are difficult to predict. The 

proposal would reduce potential 

compliance burden for all entities, 

including small entities, by ensuring 

that prime loans are not erroneously 

classified as higher-priced mortgage 

loans subject to the special protections 

for such loans. 

The Board believes that costs of the 

proposed rule as a whole will have a 

significant economic effect on small 

entities, including small mortgage 

creditors and servicers. The Board seeks 

information and comment on any costs, 

compliance requirements, or changes in 

operating procedures arising from the 

application of the proposed rules to 

small businesses. 

E. Identification of Duplicative, 

Overlapping, or Conflicting Federal 

Rules 

Duplicative and Conflicting Federal 

Rules 

The Board has not identified any 

Federal rules that conflict with the 

proposed revisions to Regulation Z. 

Overlap With RESPA 

Regulation X, which implements the 

Real Estate Settlement Procedures Act 

(RESPA), includes rules governing the 

administration of escrow accounts and 

requires certain periodic escrow 

analyses and delivery of escrow account 

statements to consumers. See 24 CFR 

3500.17. The escrow account statements 

required by Regulation X must include 

dollar amounts representing, among 

other things, the amount required 

initially to fund the escrow account, the 

periodic payment amount required to 

maintain the escrow account, and the 

annual amounts estimated to be paid 

out of the account for items covered by 

the escrow account such as taxes and 

insurance. These items overlap with 

dollar amounts that would be required 

as part of the disclosures this proposed 

rule would adopt. To ease compliance, 

the proposed rule would provide that 

creditors comply with the requirement 

to disclose those amounts if they use the 

same amounts determined in 

accordance with Regulation X. 

F. Identification of Duplicative, 

Overlapping, or Conflicting State Laws 

State Equivalents to TILA and HOEPA 

Many states regulate consumer credit 

through statutory disclosure schemes 

similar to TILA. Under TILA Section 

111, the proposed rules would not 

preempt such state laws except to the 

extent they are inconsistent with the 

proposal’s requirements. 15 U.S.C. 1610. 

The Board also is aware that many 

states regulate ‘‘high-cost’’ or ‘‘highpriced’’ mortgage loans under laws that 

resemble HOEPA. Many of these state 

laws involve coverage tests that partly 

depend on the APR of the transaction. 

The proposed rules would overlap with 

these laws by requiring lenders to 

determine whether a loan is a higherpriced mortgage loan by comparing the 

loan’s transaction coverage rate to the 

average prime offer rate. Such state laws 

would not be affected, however, by the 

proposed transaction coverage rate 

approach to coverage of the Board’s 

protections for higher-priced mortgage 

loans. 

State Laws Regulating Escrow Accounts 

Some state laws deal with escrow 

account administration, including laws 

that require the payment to consumers 

of interest on required escrow accounts 

and laws that prohibit a creditor from 

requiring an escrow account under 

specified circumstances. The proposed 

rules would not preempt such state laws 

except to the extent they are 

inconsistent with the proposal’s 

requirements. Id. 

The Board seeks comment regarding 

any state or local statutes or regulations 

that would duplicate, overlap, or 

conflict with the proposed rules. 

G. Discussion of Significant Alternatives 

The steps the Board has taken to 

minimize the economic impact and 

compliance burden on small entities, 

including the factual, policy, and legal 

reasons for selecting the alternatives 

adopted and why each one of the other 

significant alternatives was not 

accepted, are described above in the 

SUPPLEMENTARY INFORMATION. The Board 

has provided a different standard for 

defining higher-priced mortgage loans to 

correspond more accurately to mortgage 

market conditions and to exclude from 

the definition some prime loans that 

might otherwise have been classified as 

higher-priced. The Board believes that 

this standard will decrease the 

economic impact of the proposed rules 

on small entities by limiting their 

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compliance costs for prime loans that 

the Board does not intend to cover 

under the higher-priced mortgage loan 

rules. In addition, as noted above, the 

Board has proposed to provide that 

creditors may comply with certain 

disclosure content requirements by 

using the same amounts determined for 

purposes of overlapping RESPA 

disclosure requirements. The Board 

expects that this approach will 

minimize compliance burden on small 

entities by relying on another disclosure 

requirement with which they already 

must comply. 

The Board welcomes comments on 

any significant alternatives, consistent 

with the requirements of TILA, that 

would minimize the impact of the 

proposed rules on small entities. 

List of Subjects in 12 CFR Part 226 

Advertising, Consumer protection, 

Federal Reserve System, Mortgages, 

Reporting and recordkeeping 

requirements, Truth in lending. 

Text of Proposed Revisions 

Certain conventions have been used 

to highlight the proposed revisions. 

New language is shown inside bold 

arrows, and language that would be 

deleted is set off with bold brackets. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Board proposes to amend 

Regulation Z, 12 CFR part 226, as set 

forth below: 

PART 226—TRUTH IN LENDING 

(REGULATION Z) 

1. The authority citation for part 226 

continues to read as follows: 

Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 

1637(c)(5), and 1639(l); Pub. L. 111–24 § 2, 

123 Stat. 1734. 

Subpart A—General 

2. Section 226.2 is amended by 

revising paragraph (a)(6) to read as 

follows: 

§ 226.2 Definitions and rules of 

construction. 

(a) * * * 

(6) Business day means a day on 

which the creditor’s offices are open to 

the public for carrying on substantially 

all of its business functions. However, 

for purposes of rescission under 

§§ 226.15 and 226.23, and for purposes 

of § 226.19(a)(1)(ii), § 226.19(a)(2), 

fl§ 226.19(f)(4), § 226.20(d)(4), fi 

§ 226.31, and § 226.46(d)(4), the term 

means all calendar days except Sundays 

and the legal public holidays specified 

in 5 U.S.C. 6103(a), such as New Year’s 

Day, the Birthday of Martin Luther King, 

Jr., Washington’s Birthday, Memorial 

Day, Independence Day, Labor Day, 

Columbus Day, Veterans Day, 

Thanksgiving Day, and Christmas Day. 

* * * * * 

Subpart C—Closed-End Credit 

3. Section 226.19 is amended by 

revising the heading and adding 

paragraph (f) to read as follows: 

§ 226.19 øCertain mortgage and variablerate transactions.¿flCertain transactions 

secured by real property or a dwelling.fi 

* * * * * 

fl(f) Disclosures for escrow accounts. 

For a closed-end transaction secured by 

a first lien on real property or a 

dwelling, the creditor shall disclose the 

information about escrow accounts as 

specified in paragraph (f)(2) of this 

section in accordance with the format 

requirements in paragraph (f)(1) of this 

section and the timing requirements in 

paragraph (f)(4) of this section. For 

purposes of this § 226.19(f), the term 

‘‘escrow account’’ has the same meaning 

as under Regulation X (24 CFR 

3500.17(b)), which implements the Real 

Estate Settlement Procedures Act 

(RESPA), and is subject to any 

interpretations by the Department of 

Housing and Urban Development 

(HUD). 

(1) Format requirements—(i) General. 

The disclosures required by paragraph 

(f)(2) of this section shall be provided in 

a minimum 10-point font, grouped 

together on the front side of a one-page 

document, separate from all other 

material, with the headings, content, 

order, and format substantially similar 

to Model Form H–24 in Appendix H to 

this part, if an escrow account is 

established, or Model Form H–25 in 

Appendix H to this part, if an escrow 

account is not established. 

(ii) Disclosure of heading. The 

disclosure of the heading required by 

paragraph (f)(2)(i) or (ii) of this section 

shall be more conspicuous than, and 

shall precede, the other disclosures 

required by paragraph (f)(2)(i) or (ii) of 

this section and shall be located outside 

the table, as required by paragraph 

(f)(1)(iii) of this section, containing 

those other disclosures. 

(iii) Form of disclosures; tabular 

format. The creditor shall provide the 

disclosures required by paragraphs 

(f)(2)(i)(A) through (D) or (f)(2)(ii)(A) 

through (G) of this section in the form 

of a table. The table shall contain only 

the information required or permitted 

by paragraphs (f)(2)(i)(A) through (D) or 

(f)(2)(ii)(A) through (G) of this section, 

as applicable. The table containing the 

disclosures required by paragraphs 

(f)(2)(i)(A) through (D) of this section 

shall consist of four rows while the table 

containing the disclosures required by 

paragraphs (f)(2)(ii)(A) through (G) of 

this section shall consist of no more 

than seven rows. 

(iv) Question and answer format. The 

creditor shall provide the disclosures 

required by paragraphs (f)(2)(i)(A) 

through (D) or (f)(2)(ii)(A) through (G) of 

this section in the format of a question 

and answer and in the order listed, as 

applicable. 

(v) Highlighting. The dollar amounts 

required to be disclosed in paragraphs 

(f)(2)(i)(B), (f)(2)(i)(D), and (f)(2)(ii)(D) of 

this section and the disclosure required 

by paragraph (f)(2)(ii)(E) of this section 

shall appear in bold-face font. 

(2) Content requirements—(i) 

Establishment of escrow account. If an 

escrow account will be established 

before the end of the 45-day period 

following consummation of a 

transaction subject to this § 226.19(f), 

the creditor shall clearly and 

conspicuously disclose, under the 

heading ‘‘Information About Your 

Mortgage Escrow Account,’’ the 

following information: 

(A) Purpose of notice. A statement 

that the notice is to inform the 

consumer that the consumer’s mortgage 

with the creditor, which shall be 

identified by name, will have an escrow 

account. 

(B) Explanation of escrow account. A 

statement that an escrow account is an 

account that is used to pay home-related 

costs such as property taxes and 

insurance together with a statement that 

an escrow account is sometimes called 

an ‘‘impound’’ or ‘‘trust’’ account. A 

statement that the consumer will pay 

into the escrow account over time and 

that the creditor will take money from 

the account to pay costs as needed. A 

statement of the estimated dollar 

amount that the consumer’s homerelated costs will total for the first year 

of the mortgage. 

(C) Risk of not having escrow account. 

A statement that, if the consumer did 

not have an escrow account, the 

consumer would be responsible for 

directly paying home-related costs 

through potentially large semi-annual or 

annual payments. 

(D) Funding of escrow account. A 

statement of the dollar amount that the 

consumer will be required to deposit at 

closing to initially fund the escrow 

account. A statement of the additional 

dollar amount that the consumer’s 

regular mortgage payments will include 

for deposit into the escrow account. A 

statement that the amount of this escrow 

payment may change in the future. 

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(ii) Non-establishment of escrow 

account. If an escrow account will not 

be established before the end of the 45- 

day period following consummation of 

a transaction subject to this § 226.19(f), 

the creditor shall clearly and 

conspicuously disclose, under the 

heading ‘‘Required Direct Payment of 

Property Taxes and Insurance,’’ the 

following information: 

(A) Purpose of notice. A statement 

that the notice is to inform the 

consumer that the consumer’s mortgage 

with the creditor, which shall be 

identified by name, will not have an 

escrow account and to explain the risk 

of not having an escrow account. 

(B) Explanation of escrow account. A 

statement that an escrow account is an 

account that is used to pay home-related 

costs such as property taxes and 

insurance together with a statement that 

an escrow account is sometimes called 

an ‘‘impound’’ or ‘‘trust’’ account. A 

statement that the borrower pays into an 

escrow account over time and that the 

creditor takes money from the account 

to pay costs as needed. 

(C) Reason why mortgage will not 

have an escrow account. As applicable, 

a statement that the consumer was given 

the option of having an escrow account 

but the consumer told the creditor that 

the consumer did not want one, or a 

statement that the creditor does not offer 

the option of having an escrow account. 

(D) Fee for choosing not to have 

escrow account. If the consumer has 

chosen not to have an escrow account, 

a statement of the dollar amount of any 

fee that the consumer will be charged 

for choosing not to have an escrow 

account, or a statement that the 

consumer will not be charged a fee. If 

the creditor does not offer the option of 

having an escrow account, the creditor 

shall omit this disclosure from the table. 

(E) Risk of not having escrow account. 

A statement that the consumer will be 

responsible for paying home-related 

costs through potentially large semiannual or annual payments. 

(F) Consequences of failure to pay 

home-related costs. A statement that, if 

the consumer does not pay the 

applicable home-related costs, the 

creditor could require an escrow 

account on the mortgage or add the 

costs to the loan balance. A statement 

that the creditor could also require the 

consumer to pay for insurance that the 

creditor buys on the consumer’s behalf 

and a statement that this insurance 

likely would be more expensive and 

provide fewer benefits than traditional 

homeowner’s insurance. 

(G) Option to establish escrow 

account. The telephone number that the 

consumer can use to request an escrow 

account and the latest date by which the 

consumer can make the request. If the 

creditor does not offer the option of 

having an escrow account, the creditor 

shall omit this disclosure from the table. 

(3) Optional information. The creditor 

may, at its option, include the creditor’s 

name or logo, or the consumer’s name, 

property address, or loan number on the 

disclosure notice required by this 

§ 226.19(f), outside of the table 

described in § 226.19(f)(1)(iii) that 

contains the required content of 

§ 226.19(f)(2). 

(4) Waiting period for disclosures. The 

creditor shall provide the disclosures 

required by paragraph (f)(2) of this 

section so that the consumer receives 

them no later than three business days 

before consummation. 

(5) Timing of receipt. If the 

disclosures required by paragraph (f)(2) 

of this section are mailed to the 

consumer or delivered by means other 

than in person, the consumer is 

considered to have received the 

disclosures three business days after 

they are mailed or delivered. 

(6) Consumer’s waiver of waiting 

period before consummation. The 

consumer may modify or waive the 

three-business-day waiting period 

required by paragraph (f)(4) of this 

section, after receiving the disclosures 

required by paragraph (f)(2) of this 

section, if the consumer determines that 

the loan proceeds are needed before the 

waiting period ends to meet a bona fide 

personal financial emergency. To 

modify or waive a waiting period, each 

consumer primarily liable on the 

obligation shall give the creditor a 

dated, written statement that describes 

the emergency, specifically modifies or 

waives the waiting period, and bears the 

consumer’s signature. Printed forms for 

this purpose are prohibited.fi 

4. Section 226.20 is amended by 

adding paragraph (d) to read as follows: 

§ 226.20 Subsequent disclosure 

requirements. 

* * * * * 

fl(d) Cancellation of escrow account. 

For a closed-end transaction secured by 

a first lien on real property or a dwelling 

for which an escrow account was 

established and will be cancelled, the 

creditor or servicer shall disclose the 

information about escrow accounts as 

specified in paragraph (d)(2) of this 

section in accordance with the format 

requirements in paragraph (d)(1) of this 

section and the timing requirements in 

paragraph (d)(4) of this section. For 

purposes of this § 226.20(d), the term 

‘‘escrow account’’ and the term 

‘‘servicer’’ have the same respective 

meanings as under §§ 3500.17(b) and 

3500.2(b) of Regulation X, which 

implements the Real Estate Settlement 

Procedures Act (RESPA), and is subject 

to any interpretations by the Department 

of Housing and Urban Development 

(HUD). 

(1) Format requirements—(i) General. 

The disclosures required by paragraph 

(d)(2) of this section shall be provided 

in a minimum 10-point font, grouped 

together on the front side of a one-page 

document, separate from all other 

material, with the headings, content, 

order, and format substantially similar 

to Model Form H–26 in Appendix H to 

this part. 

(ii) Disclosure of heading. The 

disclosure of the heading required by 

paragraph (d)(2) of this section shall be 

more conspicuous than, and shall 

precede, the other disclosures required 

by paragraph (d)(2) of this section and 

shall be located outside the table, as 

required by paragraph (d)(1)(iii) of this 

section, containing those other 

disclosures. 

(iii) Form of disclosures; tabular 

format. The creditor or servicer shall 

provide the disclosures required by 

paragraphs (d)(2)(i) through (vii) of this 

section in the form of a table. The table 

shall contain only the information 

required or permitted by paragraphs 

(d)(2)(i) through (vii) of this section and 

shall consist of no more than seven 

rows. 

(iv) Question and answer format. The 

creditor or servicer shall provide the 

disclosures required by paragraphs 

(d)(2)(i) through (vii) of this section in 

the format of a question and answer and 

in the order listed. 

(v) Highlighting. The dollar amount 

required to be disclosed in paragraph 

(d)(2)(iv) of this section and the 

disclosure required by paragraph 

(d)(2)(v) of this section shall appear in 

bold-face font. 

(2) Content requirements. If an escrow 

account was established in connection 

with consummation of a transaction 

subject to this § 226.20(d) and the 

escrow account will be cancelled, the 

creditor or servicer shall clearly and 

conspicuously disclose, under the 

heading ‘‘Required Direct Payment of 

Property Taxes and Insurance,’’ the 

following information: 

(i) Purpose of notice. A statement that 

the notice is to inform the consumer 

that the escrow account on the 

consumer’s mortgage with the creditor 

or servicer, which shall be identified by 

name, is being closed and to explain the 

risk of not having an escrow account. 

(ii) Explanation of escrow account. A 

statement that an escrow account is an 

account that is used to pay home-related 

costs such as property taxes and 

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insurance together with a statement that 

an escrow account is sometimes called 

an ‘‘impound’’ or ‘‘trust’’ account. A 

statement that the consumer pays into 

an escrow account over time and that 

the creditor or the servicer takes money 

from the account to pay costs as needed. 

(iii) Reason why mortgage will not 

have an escrow account. A statement 

that the consumer had an escrow 

account but, as applicable, the 

consumer asked to close it or the 

creditor or servicer independently 

decided to cancel it. 

(iv) Fee for closing escrow account. If 

the consumer has asked the creditor or 

servicer to close the escrow account, a 

statement of the dollar amount of any 

fee that the consumer will be charged in 

connection with the closure, or a 

statement that the consumer will not be 

charged a fee. If the creditor or servicer 

independently decided to cancel the 

escrow account, rather than agreeing to 

close it at the request of the consumer, 

and does not charge a fee in connection 

with the cancellation, the creditor or 

servicer shall omit this disclosure from 

the table. 

(v) Risk of not having escrow account. 

A statement that the consumer will be 

responsible for paying home-related 

costs through potentially large semiannual or annual payments. 

(vi) Consequences of failure to pay 

home-related costs. A statement that, if 

the consumer does not pay the 

applicable home-related costs, the 

creditor or servicer could require an 

escrow account on the mortgage or add 

the costs to the loan balance. A 

statement that the creditor or servicer 

could also require the consumer to pay 

for insurance that the creditor or 

servicer buys on the consumer’s behalf 

and a statement that this insurance 

likely would be more expensive and 

provide fewer benefits than traditional 

homeowner’s insurance. 

(vii) Option to keep escrow account. 

As applicable, the telephone number 

that the consumer can use to request 

that the escrow account be kept open 

and the latest date by which the 

consumer can make the request, or a 

statement that the creditor or servicer 

does not offer the option of keeping the 

escrow account. 

(3) Optional information. The creditor 

or servicer providing the disclosure 

notice may, at its option, include its 

name or logo, or the consumer’s name, 

property address, or loan number on the 

disclosure notice required by this 

§ 226.20(d), outside of the table 

described in § 226.20(d)(1)(iii) that 

contains the required content of 

§ 226.20(d)(2). 

(4) Waiting period for disclosures. The 

creditor or servicer shall provide the 

disclosures required by paragraph (d)(2) 

of this section so that the consumer 

receives them no later than three 

business days before closure of the 

escrow account. 

(5) Timing of receipt. If the 

disclosures required by paragraph (d)(2) 

of this section are mailed to the 

consumer or delivered by means other 

than in person, the consumer is 

considered to have received the 

disclosures three business days after 

they are mailed or delivered.fi 

Subpart E—Special Rules for Certain 

Home Mortgage Transactions 

5. Section 226.34 is amended by 

revising paragraph (a)(4)(i) to read as 

follows: 

§ 226.34 Prohibited acts or practices in 

connection with credit subject to § 226.32. 

(a) * * * 

(4) * * * 

(i) Mortgage-related obligations. For 

purposes of this paragraph (a)(4), 

mortgage-related obligations are 

expected property taxes, premiums for 

mortgage-related insurance required by 

the creditor as set forth in 

fl§ 226.45(b)(1),fi [§ 226.35(b)(3)(i),] 

and similar expenses. 

* * * * * 

6. Section 226.35 is amended by 

revising paragraph (b)(3) to read as 

follows: 

§ 226.35 Prohibited acts or practices in 

connection with higher-priced mortgage 

loans. 

* * * * * 

(b) * * * 

(3) fl[Reserved]fi øEscrows—(i) 

Failure to escrow for property taxes and 

insurance. Except as provided in 

paragraph (b)(3)(ii) of this section, a 

creditor may not extend a loan secured 

by a first lien on a principal dwelling 

unless an escrow account is established 

before consummation for payment of 

property taxes and premiums for 

mortgage-related insurance required by 

the creditor, such as insurance against 

loss of or damage to property, or against 

liability arising out of the ownership or 

use of the property, or insurance 

protecting the creditor against the 

consumer’s default or other credit loss. 

(ii) Exemptions for loans secured by 

shares in a cooperative and for certain 

condominium units—(A) Escrow 

accounts need not be established for 

loans secured by shares in a 

cooperative; and 

(B) Insurance premiums described in 

paragraph (b)(3)(i) of this section need 

not be included in escrow accounts for 

loans secured by condominium units, 

where the condominium association has 

an obligation to the condominium unit 

owners to maintain a master policy 

insuring condominium units. 

(iii) Cancellation. A creditor or 

servicer may permit a consumer to 

cancel the escrow account required in 

paragraph (b)(3)(i) of this section only in 

response to a consumer’s dated written 

request to cancel the escrow account 

that is received no earlier than 365 days 

after consummation. 

(iv) Definition of escrow account. For 

purposes of this section, ‘‘escrow 

account’’ shall have the same meaning 

as in 24 CFR 3500.17(b) as amended.¿ 

* * * * * 

7. Section 226.45 is added to read as 

follows: 

fl§ 226.45 Escrow requirements for 

higher-priced mortgage loans. 

(a) Higher-priced mortgage loans—(1) 

For purposes of this section, except as 

provided in paragraph (a)(3) of this 

section, a higher-priced mortgage loan is 

a consumer credit transaction secured 

by the consumer’s principal dwelling 

that has a transaction coverage rate that 

exceeds the average prime offer rate for 

a comparable transaction as of the date 

the interest rate is set: 

(i) By 1.5 or more percentage points 

for a loan secured by a first lien on a 

dwelling, except as provided in 

paragraph (a)(1)(ii) of this section; 

(ii) By 2.5 or more percentage points 

for a loan secured by a first lien on a 

dwelling, if the principal balance at 

consummation exceeds the limit in 

effect as of the date the transaction’s 

interest rate is set for the maximum 

principal obligation eligible for 

purchase by Freddie Mac; or 

(iii) By 3.5 or more percentage points 

for a loan secured by a subordinate lien 

on a dwelling. 

(2) Definitions—(i) ‘‘Transaction 

coverage rate’’ means the rate used to 

determine whether a transaction is a 

higher-priced mortgage loan subject to 

this section. The transaction coverage 

rate is determined in accordance with 

the applicable rules of this part for the 

calculation of the annual percentage rate 

for a closed-end transaction, except that 

the prepaid finance charge for purposes 

of calculating the transaction coverage 

rate shall include only the amount of 

the prepaid finance charge that will be 

retained by the creditor, a mortgage 

broker, or an affiliate of either. 

(ii) ‘‘Average prime offer rate’’ means 

an annual percentage rate that is derived 

from average interest rates, points, and 

other loan pricing terms currently 

offered to consumers by a representative 

sample of creditors for mortgage 

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Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Proposed Rules 11621 

transactions that have low-risk pricing 

characteristics. The Board publishes 

average prime offer rates for a broad 

range of types of transactions in a table 

updated at least weekly as well as the 

methodology the Board uses to derive 

these rates. 

(3) Notwithstanding paragraph (a)(1) 

of this section, the term ‘‘higher-priced 

mortgage loan’’ does not include a 

transaction to finance the initial 

construction of a dwelling, a temporary 

or ‘‘bridge’’ loan with a term of twelve 

months or less, such as a loan to 

purchase a new dwelling where the 

consumer plans to sell a current 

dwelling within twelve months, a 

reverse-mortgage transaction subject to 

§ 226.33, or a home equity line of credit 

subject to § 226.5b. 

(b) Escrow accounts—(1) Requirement 

to escrow for property taxes and 

insurance. Except as provided in 

paragraph (b)(2) of this section, a 

creditor may not extend a higher-priced 

mortgage loan secured by a first lien on 

a consumer’s principal dwelling unless 

an escrow account is established before 

consummation for payment of property 

taxes and premiums for mortgagerelated insurance required by the 

creditor, such as insurance against loss 

of or damage to property, or against 

liability arising out of the ownership or 

use of the property, or insurance 

protecting the creditor against the 

consumer’s default or other credit loss. 

For purposes of this § 226.45(b), the 

term ‘‘escrow account’’ has the same 

meaning as under Regulation X (24 CFR 

3500.17(b)), which implements the Real 

Estate Settlement Procedures Act 

(RESPA), and is subject to any 

interpretations by the Department of 

Housing and Urban Development 

(HUD). 

(2) Exemptions—(i) Escrow accounts 

need not be established for loans 

secured by shares in a cooperative. 

(ii) Insurance premiums described in 

paragraph (b)(1) of this section need not 

be included in escrow accounts for 

loans secured by dwellings in 

condominiums, planned unit 

developments, or similar arrangements 

in which dwelling ownership requires 

participation in a governing association, 

where the governing association has an 

obligation to the dwelling owners to 

maintain a master policy insuring all 

dwellings. 

(iii) Except as provided in paragraph 

(b)(2)(v) of this section, paragraph (b)(1) 

of this section does not apply to a 

transaction if, at the time of 

consummation: 

(A) During the preceding calendar 

year, the creditor extended more than 

50% of its total first-lien higher-priced 

mortgage loans in counties designated 

by the Board as ‘‘rural or underserved’’ 

under paragraph (b)(2)(iv) of this 

section; 

(B) During either of the preceding two 

calendar years, the creditor and its 

affiliates together originated and 

retained the servicing rights to 100 or 

fewer loans secured by a first lien on 

real property or a dwelling; and 

(C) Neither the creditor nor its affiliate 

maintains an escrow account of the type 

described in paragraph (b)(1) of this 

section for any extension of consumer 

credit secured by real property or a 

dwelling that the creditor or its affiliate 

currently services. 

(iv) For purposes of paragraph 

(b)(2)(iii)(A) of this section: 

(A) A county is ‘‘rural’’ during a 

calendar year if it is not in a 

metropolitan statistical area or a 

micropolitan statistical area, as those 

terms are defined by the U.S. Office of 

Management and Budget, and: 

(1) it is not adjacent to any 

metropolitan area or micropolitan area; 

or 

(2) it is adjacent to a metropolitan area 

with fewer than one million residents or 

adjacent to a micropolitan area, and it 

contains no town with 2500 or more 

residents. 

(B) A county is ‘‘underserved’’ during 

a calendar year if no more than two 

creditors extend consumer credit five or 

more times secured by a first lien on 

real property or a dwelling during the 

calendar year in the county. 

(v) Notwithstanding paragraph 

(b)(2)(iii) of this section, the 

requirement to establish an escrow 

account in paragraph (b)(1) of this 

section applies to a first-lien higherpriced 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) of this section. 

(3) Cancellation—(i) General. Except 

as provided in paragraph (b)(3)(ii) of 

this section, a creditor or servicer may 

cancel an escrow account required in 

paragraph (b)(1) of this section only 

upon the earlier of: 

(A) Termination of the underlying 

debt obligation; or 

(B) Receipt no earlier than five years 

after consummation of a consumer’s 

request to cancel the escrow account. 

(ii) Delayed cancellation. A creditor 

or servicer shall not cancel an escrow 

account pursuant to a consumer’s 

request described in paragraph 

(b)(3)(i)(B) of this section unless the 

following conditions are satisfied: 

(A) At least 20% of the original value 

of the property securing the underlying 

debt obligation is unencumbered; and 

(B) The consumer currently is not 

delinquent or in default on the 

underlying debt obligation. 

(c) [Reserved] 

(d) Evasion; open-end credit. In 

connection with credit secured by a 

consumer’s principal dwelling that does 

not meet the definition of open-end 

credit in § 226.2(a)(20), a creditor shall 

not structure a home-secured loan as an 

open-end plan to evade the 

requirements of this section.fi 

8. Appendix H to part 226 is amended 

by: 

A. Adding entries for H–24, H–25, 

and H–26 in the table of contents at the 

beginning of the appendix; and 

B. Adding new Model Forms H–24, 

H–25, and H–26 in numerical order. 

Appendix H to Part 226—Closed-End 

Model Forms and Clauses 

flH–24—Establishment of Escrow Account 

Model Form (§ 226.19(f)(2)(i)) 

H–25—Non-Establishment of Escrow 

Account Model Form (§ 226.19(f)(2)(ii)) 

H–26—Cancellation of Escrow Account 

Model Form (§ 226.20(d))fi 

* * * * * 

flH–24—Establishment of Escrow Account 

Model Form (§ 226.19(f)(2)(i)) 

BILLING CODE 6210–01–P 

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fi 

BILLING CODE 6210–01–C 

9. In Supplement I to Part 226: 

A. Under Section 226.2—Definitions 

and Rules of Construction, 2(a) 

Definitions, 2(a)(6) Business day, 

paragraph 2 is revised. 

B. Under Section 226.19—Certain 

Mortgage and Variable-Rate 

Transactions, the heading is revised and 

19(f) Disclosures for escrow accounts is 

added. 

C. Under Section 226.20—Subsequent 

Disclosure Requirements, new 20(d) 

Cancellation of escrow account is 

added. 

D. Under Section 226.34—Prohibited 

Acts or Practices in Connection with 

Credit Subject to § 226.32, 34(a) 

Prohibited acts or practices for loans 

subject to § 226.32, 34(a)(4) Repayment 


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ability, 34(a)(4)(i) Mortgage-related 

obligation, paragraph 1 is revised. 

E. Under Section 226.35—Prohibited 

Acts or Practices in Connection With 

Higher-Priced Mortgage Loans, 35(b) 

Rules for higher-priced mortgage loans, 

the heading 35(b)(3) Escrows, the 

heading Paragraph 35(b)(3)(i) and 

paragraphs 1 through 3 thereunder, the 

heading Paragraph 35(b)(3)(ii)(B) and 

paragraph 1 thereunder, and the 

heading 35(b)(3)(v) ‘‘Jumbo’’ loans and 

paragraphs 1 and 2 thereunder are 

removed. 

F. New Section 226.45—Requirements 

for Higher-Priced Mortgage Loans is 

added. 

G. Under Appendices G and H— 

Open-End and Closed-End Model Forms 

and Clauses, paragraph 1 is revised. 

H. Under Appendix H—Closed-End 

Model Forms and Clauses, new 

paragraph 29 is added. 

The revisions and additions read as 

follows: 

Supplement I to Part 226—Official Staff 

Interpretations 

* * * * * 

Subpart A—General 

* * * * * 

Section 226.2—Definitions and Rules of 

Construction 

* * * * * 

2(a) Definitions. 

* * * * * 

2(a)(6) Business day. 

* * * * * 

2. Rule for rescission, disclosures for 

certain mortgage transactions, and private 

education loans. A more precise rule for 

what is a business day (all calendar days 

except Sundays and the Federal legal 

holidays specified in 5 U.S.C. 6103(a)) 

applies when the right of rescission, the 

receipt of disclosures for certain ødwellingsecured¿ mortgage transactions under 

§§ 226.19(a)(1)(ii), 226.19(a)(2), 

fl226.19(f)(4), 226.20(d)(4),fi 226.31(c), or 

the receipt of disclosures for private 

education loans under § 226.46(d)(4) is 

involved. Four Federal legal holidays are 

identified in 5 U.S.C. 6103(a) by a specific 

date: New Year’s Day, January 1; 

Independence Day, July 4; Veterans Day, 

November 11; and Christmas Day, December 

25. When one of these holidays (July 4, for 

example) falls on a Saturday, Federal offices 

and other entities might observe the holiday 

on the preceding Friday (July 3). In cases 

where the more precise rule applies, the 

observed holiday (in the example, July 3) is 

a business day. 

* * * * * 

Subpart C—Closed-End Credit 

* * * * * 

Section 226.19—øCertain Mortgage and 

Variable-Rate Transactions¿flCertain 

Transactions Secured by Real Property or a 

Dwellingfi 

* * * * * 

fl19(f) Disclosures for escrow accounts. 

1. Real property or a dwelling. The term 

‘‘real property’’ includes vacant and 

unimproved land. The term ‘‘dwelling’’ 

includes vacation and second homes and 

mobile homes, boats, and trailers used as 

residences. See § 226.2(a)(19) and related 

commentary for additional guidance 

regarding the term ‘‘dwelling.’’ 

19(f)(1) Format requirements. 

19(f)(1)(i) General. 

1. Grouped and separate. The disclosures 

required by § 226.19(f)(2) and any optional 

information permitted by § 226.19(f)(3) must 

be grouped together on the front side of a 

separate one-page document that contains no 

other material. The § 226.19(f)(2)(i) 

disclosures may not appear in the same 

document as the escrow disclosures required 

under § 226.18 or under RESPA or Regulation 

X. 

2. Notice must be in writing in a form that 

the consumer may keep. The notice 

containing the disclosures required by 

§ 226.19(f)(2) and any optional information 

permitted by § 226.19(f)(3) must be in writing 

in a form that the consumer may keep. See 

§ 226.17(a). 

19(f)(2) Content requirements. 

1. Clear and conspicuous standard. The 

clear and conspicuous standard generally 

requires that disclosures be in a reasonably 

understandable form and readily noticeable 

to the consumer. 

19(f)(2)(i) Establishment of escrow account. 

1. Reliance on Regulation X escrow 

account analysis. Regulation X, 24 CFR 

3500.17(c)(2), requires the mortgage servicer 

to conduct an escrow account analysis before 

establishing an escrow account. Disclosures 

comply with the numerical content 

requirements of § 226.19(f)(2)(i)(B) and (D) if 

the creditor uses the amounts derived from 

the escrow account analysis to provide the 

total dollar amount of estimated taxes and 

insurance for the initial year following 

consummation, the dollar amount for the 

initial escrow deposit at closing, and the 

additional dollar amount for escrow included 

in the regular mortgage payments. 

2. Escrow accounts established in 

connection with consumer’s delinquency or 

default. Neither creditors nor servicers are 

required to provide the § 226.19(f)(2)(i) 

disclosures when an escrow account is 

established solely in connection with the 

consumer’s delinquency or default on the 

underlying debt obligation. 

19(f)(3) Optional information. 

1. Section 226.19(f)(3) lists information 

that the creditor may, at its option, include 

on the disclosure notice outside of the table 

that is required by § 226.19(f)(1)(iii). 

19(f)(4) Waiting period for disclosures. 

1. Business day definition. For purposes of 

§ 226.19(f)(4), ‘‘business day’’ means all 

calendar days except Sundays and the legal 

public holidays referred to in § 226.2(a)(6). 

See comment 2(a)(6)–2. 

2. Timing. The creditor must provide the 

disclosures required by § 226.19(f)(2) so that 

the consumer receives them not later than the 

third business day before consummation. For 

example, for consummation to occur on 

Thursday, June 11, the consumer must 

receive the disclosures on or before Monday, 

June 8, assuming there are no legal public 

holidays. 

19(f)(5) Timing of receipt. 

1. General. If the creditor delivers the 

disclosures required by § 226.19(f)(2) to the 

consumer in person, consummation may 

occur any time on the third business day 

following the day of delivery. If the creditor 

provides the disclosures required by 

§ 226.19(f)(2) by mail, the consumer is 

considered to have received them three 

business days after they are placed in the 

mail, for purposes of determining when the 

three-business-day waiting period required 

under § 226.19(f)(4) begins. Creditors that use 

electronic mail or a courier to provide 

disclosures may also follow this approach. 

Whatever method is used to provide 

disclosures, creditors may rely on 

documentation of receipt in determining 

when the three-business-day waiting period 

begins. 

19(f)(6) Consumer’s waiver of waiting 

period before consummation. 

1. Procedure. A consumer may modify or 

waive the right to a waiting period required 

by § 226.19(f)(4) only after the consumer 

receives the disclosures required by 

§ 226.19(f)(2). After receiving the required 

disclosures, the consumer may waive or 

modify the waiting period by giving the 

creditor a dated, written statement that 

specifically waives or modifies the waiting 

period and describes the bona fide personal 

financial emergency. A waiver is effective 

only if each consumer primarily liable on the 

legal obligation signs a waiver statement. 

Where there are multiple such consumers, 

the consumers may, but need not, sign the 

same waiver statement. The consumer may, 

but need not, include the waiver statement 

that specifically waives or modifies the threebusiness-day waiting period required by 

§ 226.19(f)(4) in the same document that 

contains a waiver statement that specifically 

waives or modifies the seven-business-day 

waiting period for early disclosures or the 

three-business-day waiting period for 

corrected disclosures required by 

§ 226.19(a)(2). 

2. Bona fide personal financial emergency. 

To modify or waive the waiting period 

required by § 226.19(f)(4), there must be a 

bona fide personal financial emergency that 

requires disbursement of loan proceeds 

before the end of the waiting period. Whether 

there is a bona fide personal financial 

emergency is determined by the facts 

surrounding individual circumstances. A 

bona fide personal financial emergency 

typically, but not always, will involve 

imminent loss of or harm to a dwelling or 

harm to the health or safety of a natural 

person. A waiver is not effective if the 

consumer’s statement is inconsistent with 

facts known to the creditor.fi 

Section 226.20—Subsequent Disclosure 

Requirements 

* * * * * 

fl20(d) Cancellation of escrow account. 

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1. Real property or a dwelling. The term 

‘‘real property’’ includes vacant and 

unimproved land. The term ‘‘dwelling’’ 

includes vacation and second homes and 

mobile homes, boats, and trailers used as 

residences. See § 226.2(a)(19) and related 

commentary for additional guidance 

regarding the term ‘‘dwelling.’’ 

20(d)(1) Format requirements. 

20(d)(1)(i) General. 

1. Grouped and separate. The disclosures 

required by § 226.20(d)(2) and any optional 

information permitted by § 226.20(d)(3) must 

be grouped together on the front side of a 

separate one-page document that contains no 

other material. 

2. Notice must be in writing in a form that 

the consumer may keep. The notice 

containing the disclosures required by 

§ 226.20(d)(2) and any optional information 

permitted by § 226.20(d)(3) must be in 

writing in a form that the consumer may 

keep. See § 226.17(a). 

20(d)(2) Content requirements. 

1. Clear and conspicuous standard. The 

clear and conspicuous standard generally 

requires that disclosures be in a reasonably 

understandable form and readily noticeable 

to the consumer. 

2. Escrow account established in 

connection with consumer’s delinquency or 

default. Neither creditors nor servicers are 

required to provide the § 226.20(d)(2) 

disclosures when an escrow account that was 

established solely in connection with the 

consumer’s delinquency or default on the 

underlying debt obligation will be cancelled. 

3. Termination of underlying debt 

obligation. Neither creditors nor servicers are 

required to provide the § 226.20(d)(2) 

disclosures when the underlying debt 

obligation for which an escrow account was 

established is terminated, including by 

repayment, refinancing, rescission, and 

foreclosure. 

20(d)(3) Optional information. 

1. Section 226.20(d)(3) lists information 

that the creditor or servicer may, at its 

option, include on the disclosure notice 

outside of the table that is required by 

§ 226.20(d)(1)(iii). 

20(d)(4) Waiting period for disclosures. 

1. Business day definition. For purposes of 

§ 226.20(d)(4), ‘‘business day’’ means all 

calendar days except Sundays and the legal 

public holidays referred to in § 226.2(a)(6). 

See comment 2(a)(6)–2. 

2. Timing. The creditor or servicer must 

provide the disclosures required by 

§ 226.20(d)(2) so that the consumer receives 

them not later than the third business day 

before consummation. For example, for 

consummation to occur on Thursday, June 

11, the consumer must receive the 

disclosures on or before Monday, June 8, 

assuming there are no legal public holidays. 

20(d)(5) Timing of receipt. 

1. General. If the creditor or servicer 

delivers the disclosures required by 

§ 226.20(d)(2) to the consumer in person, the 

escrow account may be closed any time on 

the third business day following the date of 

delivery. If the creditor or servicer provides 

the disclosures required by § 226.20(d)(2) by 

mail, the consumer is considered to have 

received them three business days after they 

are placed in the mail, for purposes of 

determining when the three-business-day 

waiting period required under § 226.20(d)(4) 

begins. Creditors and servicers that use 

electronic mail or a courier to provide 

disclosures may also follow this approach. 

Whatever method is used to provide 

disclosures, creditors and servicers may rely 

on documentation of receipt in determining 

when the three-business-day waiting period 

begins.fi 

* * * * * 

Subpart E—Special Rules for Certain Home 

Mortgage Transactions 

* * * * * 

34(a)(4)(i) Mortgage-related obligations. 

1. Mortgage-related obligations. A creditor 

must include in its repayment ability 

analysis the expected property taxes and 

premiums for mortgage-related insurance 

required by the creditor as set forth in 

fl§ 226.45(b)(1),fi ø§ 226.35(b)(3)(i),¿ as 

well as similar mortgage-related expenses. 

Similar mortgage-related expenses include 

homeowners’ association dues and 

condominium or cooperative fees. 

* * * * * 

ø35(b)(3) Escrows. 

Paragraph 35(b)(3)(i). 

1. Section 226.35(b)(3) applies to principal 

dwellings, including structures that are 

classified as personal property under state 

law. For example, an escrow account must be 

established on a higher-priced mortgage loan 

secured by a first lien on a mobile home, boat 

or a trailer used as the consumer’s principal 

dwelling. See the commentary under 

§§ 226.2(a)(19), 226.2(a)(24), 226.15 and 

226.23. Section 226.35(b)(3) also applies to 

higher-priced mortgage loans secured by a 

first lien on a condominium or a cooperative 

unit if it is in fact used as principal 

residence. 

2. Administration of escrow accounts. 

Section 226.35(b)(3) requires creditors to 

establish before the consummation of a loan 

secured by a first lien on a principal dwelling 

an escrow account for payment of property 

taxes and premiums for mortgage-related 

insurance required by creditor. Section 6 of 

RESPA, 12 U.S.C. 2605, and Regulation X 

address how escrow accounts must be 

administered. 

3. Optional insurance items. Section 

226.35(b)(3) does not require that escrow 

accounts be established for premiums for 

mortgage-related insurance that the creditor 

does not require in connection with the 

credit transaction, such as an earthquake 

insurance or debt-protection insurance. 

Paragraph 35(b)(3)(ii)(B). 

1. Limited exception. A creditor is required 

to escrow for payment of property taxes for 

all first lien loans secured by condominium 

units regardless of whether the creditors 

escrows insurance premiums for 

condominium unit.¿ 

* * * * * 

flSection 226.45—Requirements for HigherPriced Mortgage Loans 

45(a) Higher-priced mortgage loans. 

Paragraph 45(a)(1). 

1. Threshold for ‘‘jumbo’’ loans. Section 

226.45(a)(1)(ii) provides a separate threshold 

for determining whether a transaction is a 

higher-priced mortgage loan subject to 

§ 226.45 when the principal balance exceeds 

the limit in effect as of the date the 

transaction’s rate is set for the maximum 

principal obligation eligible for purchase by 

Freddie Mac (a ‘‘jumbo’’ loan). The Federal 

Housing Finance Agency (FHFA) establishes 

and adjusts the maximum principal 

obligation pursuant to rules under 12 U.S.C. 

1454(a)(2) and other provisions of federal 

law. Adjustments to the maximum principal 

obligation made by FHFA apply in 

determining whether a mortgage loan is a 

‘‘jumbo’’ loan to which the separate coverage 

threshold in § 226.45(a)(1)(ii) applies. 

45(a)(2) Definitions. 

Paragraph 45(a)(2)(i). 

1. Transaction coverage rate. The 

transaction coverage rate is calculated solely 

for purposes of determining whether a 

transaction is subject to § 226.45. The 

creditor is not required to disclose the 

transaction coverage rate to the consumer. 

The creditor determines the transaction 

coverage rate in the same manner as the 

transaction’s annual percentage rate, except 

that, for purposes of calculating the 

transaction coverage rate and determining 

coverage under § 226.45, the amount of the 

prepaid finance charge is modified in 

accordance with § 226.45(a)(2)(i). Under 

§ 226.45(a)(2)(i), only the amount of the 

prepaid finance charge retained by the 

creditor, a mortgage broker, or an affiliate of 

either is included in calculating the 

transaction coverage rate; any other fees or 

charges included in the prepaid finance 

charge for purposes of calculating the annual 

percentage rate are disregarded. For example, 

assume a transaction in which, at 

consummation, one discount point is paid to 

the creditor, an underwriting fee is paid to 

an affiliate of the creditor, an origination fee 

is paid to a mortgage broker, and a mortgage 

insurance premium is paid to a mortgage 

insurer that is not affiliated with the creditor 

or the mortgage broker. For purposes of the 

annual percentage rate disclosed to the 

consumer, all of the listed charges are 

included in the prepaid finance charge; for 

purposes of calculating the transaction 

coverage rate, however, the mortgage 

insurance premium is excluded from the 

modified prepaid finance charge. The 

transaction coverage rate that results from 

these special rules must be compared to the 

average prime offer rate to determine whether 

the transaction is subject to § 226.45. 

2. Inclusion of finance charges in modified 

prepaid finance charge; mortgage broker 

charges. For purposes of the special rules 

under § 226.45(a)(2)(i), only charges that are 

included in the prepaid finance charge to 

calculate the annual percentage rate are 

included in the modified prepaid finance 

charge to calculate the transaction coverage 

rate. Compensation paid by the creditor to a 

mortgage broker that comes from a ‘‘yield 

spread premium’’ is not included in the 

modified prepaid finance charge because 

such compensation is not a prepaid finance 

charge. See comment 4(a)(3)–3. 

Paragraph 45(a)(2)(ii). 

1. Average prime offer rate. Average prime 

offer rates are annual percentage rates 

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derived from average interest rates, points, 

and other loan pricing terms currently 

offered to consumers by a representative 

sample of creditors for mortgage transactions 

that have low-risk pricing characteristics. 

Other pricing terms include commonly used 

indices, margins, and initial fixed-rate 

periods for variable-rate transactions. 

Relevant pricing characteristics include a 

consumer’s credit history and transaction 

characteristics such as the loan-to-value ratio, 

owner-occupant status, and purpose of the 

transaction. To obtain average prime offer 

rates, the Board uses a survey of creditors 

that both meets the criteria of 

§ 226.45(a)(2)(ii) and provides pricing terms 

for at least two types of variable-rate 

transactions and at least two types of nonvariable-rate transactions. An example of 

such a survey is the Freddie Mac Primary 

Mortgage Market Survey®. 

2. Comparable transaction. A higherpriced mortgage loan is a consumer credit 

transaction secured by the consumer’s 

principal dwelling with a transaction 

coverage rate that exceeds the average prime 

offer rate for a comparable transaction as of 

the date the interest rate is set by the 

specified amount. The table of average prime 

offer rates published by the Board indicates 

how to identify the comparable transaction. 

3. Rate set. A transaction’s transaction 

coverage rate is compared to the average 

prime offer rate as of the date the 

transaction’s interest rate is set (or ‘‘locked’’) 

before consummation. Sometimes a creditor 

sets the interest rate initially and then re-sets 

it at a different level before consummation. 

The creditor should use the last date the 

interest rate is set before consummation. 

4. Board table. The Board publishes on the 

FFIEC’s Web site, in table form, average 

prime offer rates for a wide variety of 

transaction types. See http://www.ffiec.gov/ 

hmda. The Board calculates an annual 

percentage rate, consistent with Regulation Z 

(see § 226.22 and appendix J), for each 

transaction type for which pricing terms are 

available from a survey. The Board estimates 

annual percentage rates for other types of 

transactions for which direct survey data are 

not available based on the loan pricing terms 

available in the survey and other 

information. The Board publishes on the 

FFIEC’s Web site the methodology it uses to 

arrive at these estimates. 

5. Additional guidance on determination of 

average prime offer rates. The average prime 

offer rate has the same meaning in § 226.45 

as in Regulation C, 12 CFR part 203. See 12 

CFR 203.4(a)(12)(ii). Guidance on the average 

prime offer rate under § 226.45(a)(2)(ii), such 

as when a transaction’s rate is set and 

determination of the comparable transaction, 

is provided in the staff commentary under 

Regulation C, the Board’s A Guide to HMDA 

Reporting: Getting it Right!, and the relevant 

‘‘Frequently Asked Questions’’ on Home 

Mortgage Disclosure Act (HMDA) compliance 

posted on the FFIEC’s Web site at http:// 

www.ffiec.gov/hmda. 

Paragraph 45(a)(3). 

1. Construction-permanent loans. Under 

§ 226.45(a)(3), § 226.45 does not apply to a 

transaction to finance the initial construction 

of a dwelling. Section 226.45 may apply, 

however, to permanent financing that 

replaces a construction loan, whether the 

permanent financing is extended by the same 

or a different creditor. When a construction 

loan may be permanently financed by the 

same creditor, § 226.17(c)(6)(ii) permits the 

creditor to give either one combined 

disclosure for both the construction financing 

and the permanent financing, or a separate 

set of disclosures for each of the two phases 

as though they were two separate 

transactions. See also comment 17(c)(6)–2. 

Section 226.17(c)(6)(ii) addresses only how a 

creditor may elect to disclose a constructionpermanent transaction. Which disclosure 

option a creditor elects under 

§ 226.17(c)(6)(ii) does not affect the 

determination of whether the permanent 

phase of the transaction is subject to § 226.45. 

Whether the creditor discloses the two 

phases as a single transaction or as two 

separate transactions, a single transaction 

coverage rate, reflecting the appropriate 

charges from both phases, must be calculated 

in accordance with § 226.45(a)(2)(i). The 

transaction coverage rate must be compared 

to the average prime offer rate for a 

comparable transaction to determine 

coverage under § 226.45. If the transaction is 

determined to be a higher-priced mortgage 

loan, only the permanent phase is subject to 

the requirements of § 226.45. Thus, for 

example, the requirement under § 226.45(b) 

to establish an escrow account prior to 

consummation of a higher-priced mortgage 

loan secured by a first lien on a principal 

dwelling applies only to the permanent 

phase and not to the construction phase. 

Accordingly, the escrow account must be 

established by the time the transaction 

converts from the construction phase to the 

permanent phase, even though the 

permanent phase may have been 

consummated earlier, and the period for 

which the escrow account must remain in 

place under § 226.45(b)(3) is measured from 

the time the conversion to the permanent 

phase occurs. 

45(b) Escrow accounts. 

45(b)(1) Requirement to escrow for 

property taxes and insurance. 

1. Principal dwelling. Section 226.45(b)(1) 

applies to principal dwellings, including 

structures that are classified as personal 

property under state law. For example, an 

escrow account must be established on a 

higher-priced mortgage loan secured by a 

first lien on a mobile home, boat, or trailer 

used as the consumer’s principal dwelling. 

See the commentary under §§ 226.2(a)(19), 

226.2(a)(24), 226.15 and 226.23. Section 

226.45(b)(1) also applies to a higher-priced 

mortgage loan secured by a first lien on a 

condominium or a cooperative unit if it is in 

fact used as the consumer’s principal 

dwelling. But see § 226.45(b)(2) for 

exemptions from the escrow requirement that 

may apply to such transactions. 

2. Administration of escrow accounts. 

Section 226.45(b)(1) requires creditors to 

establish an escrow account for payment of 

property taxes and premiums for mortgagerelated insurance required by the creditor 

before the consummation of a higher-priced 

mortgage loan secured by a first lien on a 

principal dwelling. Section 6 of RESPA, 12 

U.S.C. 2605, and Regulation X address how 

escrow accounts must be administered. 

3. Optional insurance items. Section 

226.45(b)(1) does not require that an escrow 

account be established for premiums for 

mortgage-related insurance that the creditor 

does not require in connection with the 

credit transaction, such as earthquake 

insurance or credit life insurance. 

4. Transactions not subject to 

§ 226.45(b)(1). Section 226.45(b)(1) requires a 

creditor to establish an escrow account before 

consummation of a first-lien higher-priced 

mortgage loan. This requirement does not 

affect a creditor’s right or obligation, 

pursuant to the terms of the legal obligation 

or applicable law, to offer or require an 

escrow account for a transaction that is not 

subject to § 226.45(b)(1). 

45(b)(2) Exemptions. 

Paragraph 45(b)(2)(ii). 

1. Limited exception. A creditor is required 

to escrow for payment of property taxes for 

all first-lien higher-priced mortgage loans 

secured by condominium, planned unit 

development, or similar dwellings or units 

regardless of whether the creditor escrows 

insurance premiums for such dwellings or 

units. 

2. Planned unit developments. Planned 

unit developments (PUDs) are a form of 

property ownership often used in retirement 

communities, golf communities, and similar 

communities made up of homes located 

within a defined geographical area. PUDs 

usually have a homeowners’ association, or 

some other governing association, analogous 

to a condominium association and with 

similar authority and obligations. Thus, as 

with condominiums, PUDs often have master 

insurance policies that cover all units in the 

PUD. Under § 226.45(b)(2)(ii), if a PUD’s 

governing association is obligated to 

maintain such a master insurance policy, an 

escrow account required by § 226.35(b)(1) for 

a transaction secured by a unit in the PUD 

need not include escrows for insurance. This 

exemption applies not only to condominiums 

and PUDs but also to any other type of 

property ownership arrangement that has a 

governing association with an obligation to 

maintain a master insurance policy. 

Paragraph 45(b)(2)(iii). 

1. Requirements for exemption. Under 

§ 226.45(b)(2)(iii), except as provided in 

§ 226.45(b)(2)(v), a creditor need not establish 

an escrow account for taxes and insurance for 

a higher-priced mortgage loan, provided the 

following three conditions are satisfied when 

the higher-priced mortgage loan is 

consummated: 

i. The creditor extended over 50% of its 

total first-lien higher-priced mortgage loans 

during the preceding calendar year in 

counties that are ‘‘rural or underserved,’’ as 

defined in § 226.45(b)(2)(iv). Pursuant to that 

section, the Board determines annually 

which counties in the United States are rural 

or underserved and publishes a list of those 

counties to enable creditors to determine 

whether they meet this condition for the 

exemption. Thus, for example, if a creditor 

originated 90 first-lien higher-priced 

mortgage loans during 2010, the creditor 

meets this condition for an exemption in 

2011 if at least 46 of those loans are secured 

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11628 Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Proposed Rules 

by properties located in one or more counties 

that are on the Board’s list for 2010. 

ii. The creditor and its affiliates together 

extended and serviced 100 or fewer first-lien 

mortgage loans during either of the preceding 

two calendar years. Thus, a creditor becomes 

ineligible for the exemption if it exceeds the 

threshold for two consecutive calendar years. 

For example, if a creditor extends and retains 

the servicing rights to 100 first-lien mortgage 

loans in 2008 and then 110 in each of 2009 

and 2010, the creditor must comply with 

§ 226.45(b)(1) beginning in 2011. On the 

other hand, if the same creditor extended and 

retained the servicing rights to only 100 firstlien mortgage loans in 2010, it would remain 

eligible for the exemption in 2011 

notwithstanding its 110 originations in 2009, 

assuming it continues to satisfy the other 

conditions of § 226.45(b)(2)(iii). 

iii. The creditor, or its affiliate, does not 

maintain an escrow account for any mortgage 

loan being serviced by the creditor or its 

affiliate at the time the transaction is 

consummated. Thus, the exemption applies, 

provided the other conditions of 

§ 226.45(b)(2)(iii) are satisfied, even if the 

creditor previously maintained escrow 

accounts for mortgage loans, provided it no 

longer maintains any such accounts. Once a 

creditor or its affiliate begins escrowing for 

loans currently serviced, however, the 

creditor and its affiliate become ineligible for 

the exemption in § 226.45(b)(2)(iii) on higherpriced mortgage loans they make thereafter. 

Thus, as long as a creditor (or its affiliate) 

services and maintains escrow accounts for 

any mortgage loans, the creditor will not be 

eligible for the exemption for any higherpriced mortgage loan it may make. For 

purposes of § 226.45(b)(2)(iii), 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 45(b)(2)(iv). 

1. Requirements for ‘‘rural or underserved’’ 

status. A county is considered ‘‘rural or 

underserved’’ for purposes of 

§ 226.45(b)(2)(iii)(A) if it satisfies either of the 

two tests in § 226.45(b)(2)(iv). The Board 

applies both tests to each county in the 

United States and, if a county satisfies either 

test, includes that county on the annual list 

of ‘‘rural or underserved’’ counties. The Board 

publishes on its public Web site the 

applicable list for each calendar year by the 

end of that year. A creditor’s first-lien higherpriced mortgage loan originations in such 

counties during that year are considered for 

purposes of whether the creditor satisfies the 

condition in § 226.45(b)(2)(iii)(A) and 

therefore is eligible for the exemption during 

the following calendar year. The Board 

determines whether each county is ‘‘rural’’ by 

reference to the currently applicable Urban 

Influence Codes (UICs), established by the 

United States Department of Agriculture’s 

Economic Research Service (USDA–ERS). 

Specifically, the Board classifies a county as 

‘‘rural’’ if the USDA–ERS categorizes the 

county under UIC 7, 10, 11, or 12. The Board 

determines whether each county is 

‘‘underserved’’ by reference to data submitted 

by mortgage lenders under the Home 

Mortgage Disclosure Act (HMDA). 

Paragraph 45(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.’’ 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 

§ 226.45(b)(1) unless the purchaser is eligible 

for the exemption in § 226.45(b)(2)(iii). 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 loans with certain 

prescribed criteria that the transaction meets. 

For example, assume a creditor that qualifies 

for the exemption in § 226.45(b)(2)(iii) makes 

a higher-priced mortgage loan that meets the 

purchase criteria of an investor with which 

the creditor has an agreement to sell such 

loans after consummation. If the investor 

currently escrows for any mortgage loans it 

services, making the investor ineligible for 

the exemption in § 226.45(b)(2)(iii), an 

escrow account must be established for the 

transaction before consummation in 

accordance with § 226.45(b)(1). 

45(b)(3) Cancellation. 

1. Termination of underlying debt 

obligation. Methods by which an underlying 

debt obligation may be terminated include, 

among other things, repayment, refinancing, 

rescission, and foreclosure. 

2. Minimum durations. Section 

226.45(b)(3) establishes minimum durations 

for which escrow accounts established 

pursuant to § 226.45(b)(1) must be 

maintained. This requirement does not affect 

a creditor’s right or obligation, pursuant to 

the terms of the legal obligation or applicable 

law, to offer or require an escrow account 

thereafter. 

3. Twenty percent equity. The term 

‘‘original value’’ in § 226.45(b)(3)(ii)(A) means 

the lesser of the sales price reflected in the 

sales contract for the property, if any, or the 

appraised value of the property at the time 

the transaction was consummated. In 

determining whether 20% of the original 

value of the property securing the underlying 

debt obligation is unencumbered, the creditor 

or servicer shall count any subordinate lien 

of which it has reason to know. If the 

consumer certifies in writing that the equity 

in the property securing the underlying debit 

obligation is unencumbered by a subordinate 

lien, the creditor or servicer may rely upon 

the certification in making its 

determination.fi 

* * * * * 

Appendices G and H—Open-End and 

Closed-End Model Forms and Clauses 

1. Permissible changes. Although use of the 

model forms and clauses is not required, 

creditors using them properly will be deemed 

to be in compliance with the regulation with 

regard to those disclosures. Creditors may 

make certain changes in the format or content 

of the forms and clauses and may delete any 

disclosures that are inapplicable to a 

transaction or a plan without losing the act’s 

protection from liability, except formatting 

changes may not be made to model forms and 

samples in H–18, H–19, H–20, H–21, H–22, 

H–23, flH–24, H–25, H–26,fiG–2(A), G– 

3(A), G–4(A), G–10(A)–(E), G–17(A)–(D), G– 

18(A) (except as permitted pursuant to 

§ 226.7(b)(2)), G–18(B)–(C), G–19, G–20, and 

G–21, or to the model clauses in H–4(E), H– 

4(F), H–4(G), and H–4(H). Creditors may 

modify the heading of the second column 

shown in Model Clause H–4(H) to read ‘‘first 

adjustment’’ or ‘‘first increase,’’ as applicable, 

pursuant to § 226.18(s)(2)(i)(C). The 

rearrangement of the model forms and 

clauses may not be so extensive as to affect 

the substance, clarity, or meaningful 

sequence of the forms and clauses. Creditors 

making revisions with that effect will lose 

their protection from civil liability. Except as 

otherwise specifically required, acceptable 

changes include, for example: 

i. Using the first person, instead of the 

second person, in referring to the borrower. 

ii. Using ‘‘borrower’’ and ‘‘creditor’’ instead 

of pronouns. 

iii. Rearranging the sequences of the 

disclosures. 

iv. Not using bold type for headings. 

v. Incorporating certain state ‘‘plain 

English’’ requirements. 

vi. Deleting inapplicable disclosures by 

whiting out, blocking out, filling in ‘‘N/A’’ 

(not applicable) or ‘‘0,’’ crossing out, leaving 

blanks, checking a box for applicable items, 

or circling applicable items. (This should 

permit use of multipurpose standard forms.) 

vii. Using a vertical, rather than a 

horizontal, format for the boxes in the closedend disclosures. 

* * * * * 

Appendix H—Closed-End Model Forms 

and Clauses 

* * * * * 

fl29. Models H–24 through H–26. Model 

Form H–24 contains the disclosures for the 

establishment of an escrow account, Model 

Form H–25 contains the disclosures for the 

non-establishment of an escrow account, and 

Model Form H–26 contains the disclosures 

for the cancellation of an escrow account 

established in connection with a closed-end 

transaction secured by a first lien on real 

property or a dwelling. 

i. These model forms illustrate, in the 

tabular format, the disclosures required 

generally by §§ 226.19(f) and 226.20(d). 

ii. A creditor satisfies § 226.19(f)(2) if it 

provides the appropriate model form (H–24 

or H–25) and a creditor or servicer satisfies 

§ 226.20(d)(2) if it provides Model Form H– 

26, or a substantially similar notice, which is 

properly completed with the disclosures 

required by § 226.19(f)(2) or § 226.20(d)(2), 

respectively. 

iii. Although creditors and servicers are not 

required to use a certain paper size in 

disclosing the information under §§ 226.19(f) 

and 226.20(d), Model Forms H–24 through 

H–26 are designed to be printed on an 81⁄2

× 11 inch sheet of paper. In addition, the 

following formatting techniques were used in 

presenting the information in the model 

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Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Proposed Rules 11629 

forms to ensure that the information is 

readable: 

A. A readable font style and font size (10- 

point Arial font style); 

B. Sufficient spacing between lines of the 

text; 

C. Standard spacing between words and 

characters. In other words, the text was not 

compressed to appear smaller than 10-point 

type; 

D. Sufficient white space around the text 

of the information in each row, by providing 

sufficient margins above, below and to the 

sides of the text; 

E. Sufficient contrast between the text and 

the background. Generally, black text was 

used on white paper. 

iv. While the regulation does not require 

creditors or servicers to use the above 

formatting techniques in presenting 

information in the tabular format (except for 

the 10-point minimum font requirement), 

creditors and servicers are encouraged to 

consider these techniques when deciding 

how to disclose information in the notice to 

ensure that the information is presented in a 

readable format. 

v. Creditors and servicers may use color, 

shading and similar graphic techniques with 

respect to the notice, so long as the notice 

remains substantially similar to the model 

forms in Appendix H.fi 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System, February 23, 2011. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. 2011–4385 Filed 3–1–11; 8:45 am] 

BILLING CODE 6210–01–P 

WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS2