Vol. 78 Tuesday, 

No. 190 October 1, 2013 

Part II 

Bureau of Consumer Financial Protection 

12 CFR Parts 1002, 1024, and 1026 

Amendments to the 2013 Mortgage Rules Under the Equal Credit 

Opportunity Act (Regulation B), Real Estate Settlement Procedures Act 

(Regulation X), and the Truth in Lending Act (Regulation Z); Final Rule 


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60382 Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Rules and Regulations 

1Specifically, on January 10, 2013, the Bureau 

issued Escrow Requirements Under the Truth in 

Lending Act (Regulation Z), 78 FR 4726 (Jan. 22, 

2013) (2013 Escrows Final Rule), High-Cost 

Mortgage and Homeownership Counseling 

Amendments to the Truth in Lending Act 

(Regulation Z) and Homeownership Counseling 

Amendments to the Real Estate Settlement 

Procedures Act (Regulation X), 78 FR 6856 (Jan. 31, 

2013) (2013 HOEPA Final Rule), and Ability-toRepay and Qualified Mortgage Standards Under the 

Truth in Lending Act (Regulation Z), 78 FR 6407 

(Jan. 30, 2013) (2013 ATR Final Rule). The Bureau 

concurrently issued a proposal to amend the 2013 

ATR Final Rule, which was finalized on May 29, 

2013. See 78 FR 6621 (Jan. 30, 2013) and 78 FR 

35430 (June 12, 2013). On January 17, 2013, the 

Bureau issued the Real Estate Settlement 

Procedures Act (Regulation X) and Truth in 

Lending Act (Regulation Z) Mortgage Servicing 

Final Rules, 78 FR 10901 (Regulation Z) (Feb. 14, 

2013) and 78 FR 10695 (Regulation X) (Feb. 14, 

2013) (2013 Mortgage Servicing Final Rules). On 

January 18, 2013, the Bureau issued the Disclosure 

and Delivery Requirements for Copies of Appraisals 

and Other Written Valuations Under the Equal 

Credit Opportunity Act (Regulation B), 78 FR 7215 

(Jan. 31, 2013) (2013 ECOA Final Rule) and, jointly 

with other agencies, issued Appraisals for HigherPriced Mortgage Loans, 78 FR 10367 (Feb. 13, 

2013). On January 20, 2013, the Bureau issued the 

Loan Originator Compensation Requirements under 

the Truth in Lending Act (Regulation Z), 78 FR 

11280 (Feb. 15, 2013) (2013 Loan Originator 

Compensation Final Rule). 

2Amendments to the 2013 Mortgage Rules Under 

the Equal Credit Opportunity Act (Regulation B), 

Real Estate Settlement Procedures Act (Regulation 

X), and the Truth in Lending Act (Regulation Z), 78 

FR 39902 (July 2, 2013). 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Parts 1002, 1024, and 1026 

[Docket No. CFPB–2013–0018] 

RIN 3170–AA37 

Amendments to the 2013 Mortgage 

Rules Under the Equal Credit 

Opportunity Act (Regulation B), Real 

Estate Settlement Procedures Act 

(Regulation X), and the Truth in 

Lending Act (Regulation Z) 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Final rule. 

SUMMARY: This final rule amends some 

of the final mortgage rules issued by the 

Bureau of Consumer Financial 

Protection (Bureau) in January 2013. 

These amendments focus primarily on 

loss mitigation procedures under 

Regulation X’s servicing provisions, 

amounts counted as loan originator 

compensation to retailers of 

manufactured homes and their 

employees for purposes of applying 

points and fees thresholds under the 

Home Ownership and Equity Protection 

Act and the Ability-to-Repay rules in 

Regulation Z, exemptions available to 

creditors that operate predominantly in 

‘‘rural or underserved’’ areas for various 

purposes under the mortgage 

regulations, application of the loan 

originator compensation rules to bank 

tellers and similar staff, and the 

prohibition on creditor-financed credit 

insurance. The Bureau also is adjusting 

the effective dates for certain provisions 

of the loan originator compensation 

rules. In addition, the Bureau is 

adopting technical and wording changes 

for clarification purposes to Regulations 

B, X, and Z. 

DATES: This final rule is effective 

January 10, 2014, except for the 

amendments to §§ 1026.35(b)(2)(iii), 

1026.36(a), (b), and (j), and commentary 

to §§ 1026.25(c)(2), 1026.35, and 

1026.36(a), (b), (d), and (f) in Supp. I to 

part 1026, which are effective January 1, 

2014, and the amendments to 

commentary to § 1002.14(b)(3) in 

Supplement I to part 1002, which are 

effective January 18, 2014. 

In addition this rule changes the 

effective date from January 10, 2014, to 

January 1, 2014, for the amendments to 

§§ 1026.25(c)(2), 1026.36(a), (b), (d), (e), 

(f), and (j) and commentary to 

§§ 1026.25(c)(2) and 1026.36(a), (b), (d), 

(e), (f), and (j) in Supp. I to part 1026, 

published February 15, 2013, at 78 FR 

11280. 

FOR FURTHER INFORMATION CONTACT: 

Whitney Patross, Attorney; Richard 

Arculin, William Corbett, Michael 

Silver, and Daniel Brown, Counsels; 

Mark Morelli and Nicholas Hluchyj, 

Senior Counsels, and Paul Ceja, Senior 

Counsel and Special Advisor, Office of 

Regulations, at (202) 435–7700. 

SUPPLEMENTARY INFORMATION: 

I. Summary of Final Rule 

In January 2013, the Bureau issued 

several final rules concerning mortgage 

markets in the United States (2013 Title 

XIV Final Rules), pursuant to the DoddFrank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act), Public 

Law 111–203, 124 Stat. 1376 (2010).1 In 

June 2013, the Bureau proposed several 

amendments to those final rules (‘‘June 

2013 Proposal’’).2 This final rule adopts 

with some revisions and additional 

clarifications the June 2013 Proposal. It 

makes several amendments to the 

provisions adopted by the 2013 Title 

XIV Final Rules to clarify or revise 

regulatory provisions and official 

interpretations primarily relating to the 

2013 Mortgage Servicing Final Rules 

and the 2013 Loan Originator 

Compensation Final Rule, as described 

further below. This final rule also makes 

modifications to the effective dates for 

provisions adopted by the 2013 Loan 

Originator Compensation Final Rule, 

and certain technical corrections and 

minor refinements to Regulations B, X, 

and Z. The specifics of these 

amendments and modifications are 

discussed in the following paragraphs. 

First, the Bureau is adopting several 

modifications to provisions of 

Regulation X adopted by the 2013 

Mortgage Servicing Final Rules, 

including those related to error 

resolution procedures and information 

requests (§§ 1024.35 and 1024.36), and 

loss mitigation (§ 1024.41). With respect 

to loss mitigation, two of the revisions 

concern the requirement in 

§ 1024.41(b)(2)(i) that a servicer review 

a borrower’s loss mitigation application 

within five days and provide a notice to 

the borrower acknowledging receipt and 

informing the borrower whether the 

application is complete or incomplete. If 

the servicer does not deem the 

application complete, the servicer’s 

notice must also list the missing items 

and suggest the borrower provide the 

information by the earliest remaining of 

four dates specified in the regulation. 

The changes replace the four specified 

dates with a requirement that a servicer 

give a borrower a reasonable date by 

which the borrower should in which to 

provide the missing information. New 

commentary explains the four dates 

previously specified in the regulation 

are now treated as milestones that the 

servicer should consider in selecting a 

reasonable date, however the final rule 

allows servicers more flexibility than 

the existing rule. The changes also set 

forth requirements and procedures for a 

servicer to follow in the event that a 

facially complete application is later 

found by the servicer to require 

additional information or corrections to 

a previously submitted document in 

order to be evaluated for loss mitigation 

options available to the borrower. 

Another modification provides servicers 

more flexibility in providing short-term 

payment forbearance plans based on an 

evaluation of an incomplete loss 

mitigation application. Other 

clarifications and revisions address the 

content of notices required under 

§ 1024.41(c)(1)(ii) and (h)(4), which 

inform borrowers of the outcomes of 

their evaluation for loss mitigation and 

any appeals filed by the borrowers. In 

addition, the amendments address how 

protections are determined to apply 

where a foreclosure sale has not been 

scheduled at the time the borrower 

submits a loss mitigation application or 

when a foreclosure sale is rescheduled. 

Finally, the amendments explain what 

actions constitute the ‘‘first notice or 

filing’’ for purposes of the general ban 

on proceeding to foreclosure before a 


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Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Rules and Regulations 60383 

3 78 FR 35430 (June 12, 2013). 

4 78 FR 32547 (May 31, 2013). 

5Sections 1011 and 1021 of the Dodd-Frank Act, 

in title X, the ‘‘Consumer Financial Protection Act,’’ 

Public Law 111–203, sections 1001–1100H, codified 

at 12 U.S.C. 5491, 5511. The Consumer Financial 

Protection Act is substantially codified at 12 U.S.C. 

5481–5603. Section 1029 of the Dodd-Frank Act 

excludes from this transfer of authority, subject to 

certain exceptions, any rulemaking authority over a 

motor vehicle dealer that is predominantly engaged 

in the sale and servicing of motor vehicles, the 

leasing and servicing of motor vehicles, or both. 12 

U.S.C. 5519. 

borrower is 120 days delinquent, and 

provide exemptions from the 120-day 

prohibition for foreclosures for certain 

reasons other than nonpayment. 

Second, the Bureau is clarifying and 

revising the definition of points and fees 

for purposes of the qualified mortgage 

points and fees cap and the high-cost 

mortgage points and fees threshold, as 

adopted in the 2013 ATR Final Rule and 

the 2013 HOEPA Final Rule, 

respectively. In particular, the Bureau is 

adding commentary to 

§ 1026.32(b)(1)(ii) to clarify for retailers 

of manufactured homes and their 

employees what compensation must be 

counted as loan originator 

compensation and thus included in the 

points and fees thresholds. The Bureau 

also is adding commentary to clarify the 

treatment of charges paid by parties 

other than the consumer, including 

third parties, for purposes of the points 

and fees thresholds. 

Third, the Bureau is revising two 

exceptions available under the 2013 

Title XIV Final Rules to small creditors 

operating predominantly in ‘‘rural’’ or 

‘‘underserved’’ areas pending the 

Bureau’s re-examination of the 

underlying definitions of ‘‘rural’’ or 

‘‘underserved’’ over the next two years, 

as it recently announced it would do in 

Ability-to-Repay and Qualified 

Mortgage Standards Under the Truth in 

Lending Act (Regulation Z) (May 2013 

ATR Final Rule).3 The Bureau is 

extending an exception to the general 

prohibition on balloon features for highcost mortgages under 

§ 1026.32(d)(1)(ii)(C) to allow all small 

creditors, regardless of whether they 

operate predominantly in ‘‘rural’’ or 

‘‘underserved’’ areas, to continue 

originating balloon high-cost mortgages 

if the loans meet the requirements for 

qualified mortgages under 

§§ 1026.43(e)(6) or 1026.43(f). In 

addition, the Bureau is amending an 

exemption from the requirement to 

establish escrow accounts for higherpriced mortgage loans under 

§ 1026.35(b)(2)(iii)(A) for small creditors 

that extend more than 50 percent of 

their total covered transactions secured 

by a first lien in ‘‘rural’’ or 

‘‘underserved’’ counties during the 

preceding calendar year. To prevent 

creditors that qualified for the 

exemption in 2013 from losing 

eligibility in 2014 or 2015 because of 

changes in which counties are 

considered rural while the Bureau is reevaluating the underlying definition of 

‘‘rural,’’ the Bureau is amending this 

provision to allow creditors to qualify 

for the exemption if they extended more 

than 50 percent of their total covered 

transactions in rural or underserved 

counties in any of the previous three 

calendar years (assuming the other 

criteria for eligibility are also met). 

Fourth, the Bureau is adopting 

revisions, as well as general technical 

and wording changes, to various 

provisions of the 2013 Loan Originator 

Compensation Final Rule in § 1026.36. 

These include revising the definition of 

‘‘loan originator’’ in the regulatory text 

and commentary, such as provisions 

addressing when employees of a 

creditor or loan originator in certain 

administrative or clerical roles (e.g., 

tellers or greeters) may become ‘‘loan 

originators’’ and thus subject to the rule, 

upon providing contact information or 

credit applications for loan originators 

or creditors to consumers; further 

clarification on the meaning of ‘‘credit 

terms,’’ which is used throughout 

§ 1026.36(a); and additional 

clarifications regarding when employees 

of manufactured housing retailers may 

be classified as loan originators. The 

Bureau also is adopting a number of 

clarifications to the commentary on 

prohibited payments to loan originators. 

Fifth, the Bureau is clarifying and 

revising three aspects of the rules 

implementing the Dodd-Frank Act 

prohibition on creditors financing credit 

insurance premiums in connection with 

certain consumer credit transactions 

secured by a dwelling. The Bureau is 

adding new § 1026.36(i)(2)(ii) to clarify 

what constitutes financing of such 

premiums by a creditor. The Bureau 

also is adding new § 1026.36(i)(2)(iii) to 

clarify when credit insurance premiums 

are considered to be calculated and paid 

on a monthly basis, for purposes of the 

statutory exclusion from the prohibition 

for certain credit insurance premium 

calculation and payment arrangements. 

And, finally, the Bureau is adding new 

comment 36(i)–1 to clarify when 

including the credit insurance premium 

or fee in the amount owed violates the 

rule. 

Sixth, the Bureau is changing the 

effective date for certain provisions 

under the 2013 Loan Originator 

Compensation Final Rule, so they take 

effect on January 1, 2014, rather than 

January 10, 2014, as originally provided. 

The affected provisions are the 

amendments to or additions of (as 

applicable) § 1026.25(c)(2) (record 

retention), § 1026.36(a) (definitions), 

§ 1026.36(b) (scope), § 1026.36(d) 

(compensation), § 1026.36(e) (antisteering), § 1026.36(f) (qualifications), 

and § 1026.36(j) (compliance policies 

and procedures for depository 

institutions) and the associated 

commentary. The Bureau believes that 

this change will facilitate compliance 

because these provisions largely focus 

on compensation plan structures, 

registration and licensing, and hiring 

and training requirements that are often 

structured on an annual basis and 

typically do not vary from transaction to 

transaction. After reviewing comments, 

the Bureau has decided to keep the date 

for implementation of the ban on 

financing credit insurance under 

§ 1026.36(i) as January 10, 2014, 

consistent with the date previously 

adopted in the Loan Originator 

Compensation Requirements under the 

Truth in Lending Act (Regulation Z); 

Prohibition on Financing Credit 

Insurance Premiums; Delay of Effective 

Date (2013 Effective Date Final Rule).4

In addition to the clarifications and 

amendments to Regulations X and Z 

discussed above, the Bureau is adopting 

technical corrections and minor 

clarifications to wording throughout 

Regulations B, X, and Z that are 

generally not substantive in nature. 

II. Background 

A. Title XIV Rules Under the DoddFrank Act 

In response to an unprecedented cycle 

of expansion and contraction in the 

mortgage market that sparked the most 

severe U.S. recession since the Great 

Depression, Congress passed the DoddFrank Act, which was signed into law 

on July 21, 2010. Public Law 111–203, 

124 Stat. 1376 (2010). In the Dodd-Frank 

Act, Congress established the Bureau 

and, under sections 1061 and 1100A, 

generally consolidated the rulemaking 

authority for Federal consumer financial 

laws, including the Equal Credit 

Opportunity Act (ECOA), Truth in 

Lending Act (TILA), and Real Estate 

Settlement Procedures Act (RESPA), in 

the Bureau.5 At the same time, Congress 

significantly amended the statutory 

requirements governing mortgage 

practices with the intent to restrict the 

practices that contributed to and 

exacerbated the crisis. Under the statute, 

most of these new requirements would 

have taken effect automatically on 

January 21, 2013, if the Bureau had not 

issued implementing regulations by that 


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60384 Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Rules and Regulations 

6 Dodd-Frank Act section 1400(c), 15 U.S.C. 1601 

note. 

7 78 FR 10367 (Feb. 13, 2013). 

8 78 FR 6622 (Jan. 30, 2013); 78 FR 35430 (June 

12, 2013). 

9Consumer Financial Protection Bureau Lays Out 

Implementation Plan for New Mortgage Rules. Press 

Release. Feb. 13, 2013. 

10 12 U.S.C. 5581(a)(1). 11Public Law 111–203, 124 Stat. 1376, section 

1061(b)(7); 12 U.S.C. 5581(b)(7). 12 Dodd-Frank Act section 1002(14), 12 U.S.C. 

5481(14) (defining ‘‘Federal consumer financial 

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

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

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

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

include TILA), Dodd-Frank section 1400(b), 15 

U.S.C. 1601 note (defining ‘‘enumerated consumer 

laws’’ to include certain subtitles and provisions of 

Title XIV). 

date.6 To avoid uncertainty and 

potential disruption in the national 

mortgage market at a time of economic 

vulnerability, the Bureau issued several 

final rules in a span of less than two 

weeks in January 2013 to implement 

these new statutory provisions and 

provide for an orderly transition. 

On January 10, 2013, the Bureau 

issued the 2013 ATR Final Rule, the 

2013 Escrows Final Rule, and the 2013 

HOEPA Final Rule. On January 17, 

2013, the Bureau issued the 2013 

Mortgage Servicing Final Rules. On 

January 18, 2013, the Bureau issued 

Appraisals for Higher-Priced Mortgage 

Loans 7 (issued jointly with other 

agencies) and the 2013 ECOA Final 

Rule. On January 20, 2013, the Bureau 

issued the 2013 Loan Originator 

Compensation Final Rule. Most of these 

rules will become effective on January 

10, 2014. 

Concurrent with the 2013 ATR Final 

Rule, on January 10, 2013, the Bureau 

issued Proposed Amendments to the 

Ability to Repay Standards Under the 

Truth in Lending Act (Regulation Z) 

(2013 ATR Concurrent Proposal), which 

the Bureau finalized on May 29, 2013 

(May 2013 ATR Final Rule).8

B. Implementation Initiative for New 

Mortgage Rules 

On February 13, 2013, the Bureau 

announced an initiative to support 

implementation of its new mortgage 

rules (Implementation Plan),9 under 

which the Bureau would work with the 

mortgage industry and other 

stakeholders to ensure that the new 

rules can be implemented accurately 

and expeditiously. The Implementation 

Plan includes: (1) Coordination with 

other agencies, including to develop 

consistent, updated examination 

procedures; (2) publication of plainlanguage guides to the new rules; (3) 

publication of additional corrections 

and clarifications of the new rules, as 

needed; (4) publication of readiness 

guides for the new rules; and (5) 

education of consumers on the new 

rules. 

In the June 2013 proposal, the Bureau 

proposed amendments to its new 

mortgage rules. This final rule adopts 

those proposed amendments with some 

additional clarifications and revisions. 

The purpose of these updates is to 

address important questions raised by 

industry, consumer groups, or other 

agencies. 

C. Comments on the Proposed Rule 

The Bureau received 280 comments 

on the proposed rule on which the final 

rule is based. Many of these comments 

discussed issues on which the proposed 

rule did not seek comment or address. 

A number of comments addressed, for 

example, the small servicer exemption, 

the general effective dates for the 2013 

Title XIV Rules finalized in January 

2013, whether the Bureau should 

reconsider replacing the § 1026.36(a) 

definition of ‘‘loan originator’’ with the 

definition provided under the SAFE 

Act, or whether the Bureau should 

amend the provision of the mortgage 

servicing rules that deals with second or 

successive loss mitigation applications. 

This final rule does not make any 

changes outside the scope of the 

proposal. As proposed, it focuses on 

specific, narrow implementation and 

interpretive issues, rather than broader 

policy changes. 

The Bureau has examined all 

comments submitted and discusses 

those that were responsive to the 

proposal in the section-by-section 

analysis below. 

III. Legal Authority 

The Bureau is issuing this final rule 

pursuant to its authority under ECOA, 

TILA, RESPA, and the Dodd-Frank Act. 

Section 1061 of the Dodd-Frank Act 

transferred to the Bureau the ‘‘consumer 

financial protection functions’’ 

previously vested in certain other 

Federal agencies, including the Board of 

Governors of the Federal Reserve 

System (Federal Reserve Board). The 

term ‘‘consumer financial protection 

function’’ is defined to include ‘‘all 

authority to prescribe rules or issue 

orders or guidelines pursuant to any 

Federal consumer financial law, 

including performing appropriate 

functions to promulgate and review 

such rules, orders, and guidelines.’’ 10

Section 1061 of the Dodd-Frank Act also 

transferred to the Bureau all of the 

Department of Housing and Urban 

Development’s (HUD) consumer 

protection functions relating to 

RESPA.11 Title X of the Dodd-Frank Act, 

including section 1061 of the DoddFrank Act, along with ECOA, TILA, 

RESPA, and certain subtitles and 

provisions of title XIV of the DoddFrank Act, are Federal consumer 

financial laws.12

A. ECOA 

Section 703(a) of ECOA authorizes the 

Bureau to prescribe regulations to carry 

out the purposes of ECOA. Section 

703(a) further states that such 

regulations may contain—but are not 

limited to—such classifications, 

differentiation, or other provision, and 

may provide for such adjustments and 

exceptions for any class of transactions 

as, in the judgment of the Bureau, are 

necessary or proper to effectuate the 

purposes of ECOA, to prevent 

circumvention or evasion thereof, or to 

facilitate or substantiate compliance. 15 

U.S.C. 1691b(a). 

B. RESPA 

Section 19(a) of RESPA, 12 U.S.C. 

2617(a), authorizes the Bureau to 

prescribe such rules and regulations, to 

make such interpretations, and to grant 

such reasonable exemptions for classes 

of transactions, as may be necessary to 

achieve the purposes of RESPA, which 

include its consumer protection 

purposes. In addition, section 6(j)(3) of 

RESPA, 12 U.S.C. 2605(j)(3), authorizes 

the Bureau to establish any 

requirements necessary to carry out 

section 6 of RESPA, and section 

6(k)(1)(E) of RESPA, 12 U.S.C. 

2605(k)(1)(E), authorizes the Bureau to 

prescribe regulations that are 

appropriate to carry out RESPA’s 

consumer protection purposes. As 

identified in the 2013 RESPA Servicing 

Final Rule, the consumer protection 

purposes of RESPA include ensuring 

that servicers respond to borrower 

requests and complaints in a timely 

manner and maintain and provide 

accurate information, helping borrowers 

avoid unwarranted or unnecessary costs 

and fees, and facilitating review for 

foreclosure avoidance options. 

C. TILA 

Section 105(a) of TILA, 15 U.S.C. 

1604(a), authorizes the Bureau to 

prescribe regulations to carry out the 

purposes of TILA. Under section 105(a), 

such regulations may contain such 

additional requirements, classifications, 

differentiations, or other provisions, and 

may provide for such adjustments and 

exceptions for all or any class of 

transactions, as in the judgment of the 

Bureau are necessary or proper to 

effectuate the purposes of TILA, to 

prevent circumvention or evasion 


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Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Rules and Regulations 60385 

13 Dodd-Frank Act section 1400(c)(3), 15 U.S.C. 

1601 note. 

14 Dodd-Frank Act section 1400(c)(1)(B), 15 

U.S.C. 1601 note. 

thereof, or to facilitate compliance 

therewith. A purpose of TILA is ‘‘to 

assure a meaningful disclosure of credit 

terms so that the consumer will be able 

to compare more readily the various 

credit terms available to him and avoid 

the uninformed use of credit.’’ TILA 

section 102(a), 15 U.S.C. 1601(a). In 

particular, it is a purpose of TILA 

section 129C, as amended by the DoddFrank Act, to assure that consumers are 

offered and receive residential mortgage 

loans on terms that reasonably reflect 

their ability to repay the loans and that 

are understandable and not unfair, 

deceptive, and abusive. Section 105(f) of 

TILA, 15 U.S.C. 1604(f), authorizes the 

Bureau to exempt from all or part of 

TILA any class of transactions if the 

Bureau determines that TILA coverage 

does not provide a meaningful benefit to 

consumers in the form of useful 

information or protection. Under TILA 

section 103(bb)(4), the Bureau may 

adjust the definition of points and fees 

for purposes of that threshold to include 

such charges that the Bureau determines 

to be appropriate. 

TILA section 129C(b)(3)(B)(i) provides 

the Bureau with authority to prescribe 

regulations that revise, add to, or 

subtract from the criteria that define a 

qualified mortgage upon a finding that 

such regulations are necessary or proper 

to ensure that responsible, affordable 

mortgage credit remains available to 

consumers in a manner consistent with 

the purposes of the ability-to-repay 

requirements; or are necessary and 

appropriate to effectuate the purposes of 

the ability-to-repay requirements, to 

prevent circumvention or evasion 

thereof, or to facilitate compliance with 

TILA sections 129B and 129C. 15 U.S.C. 

1639c(b)(3)(B)(i). In addition, TILA 

section 129C(b)(3)(A) requires the 

Bureau to prescribe regulations to carry 

out the purposes of the qualified 

mortgage provisions, such as to ensure 

that responsible and affordable mortgage 

credit remains available to consumers in 

a manner consistent with the purposes 

of TILA section 129C. 15 U.S.C. 

1639c(b)(3)(A). 

D. The Dodd-Frank Act 

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

Act authorizes the Bureau to prescribe 

rules ‘‘as may be necessary or 

appropriate to enable the Bureau to 

administer and carry out the purposes 

and objectives of the Federal consumer 

financial laws, and to prevent evasions 

thereof.’’ 12 U.S.C. 5512(b)(1). Title X of 

the Dodd-Frank Act is a Federal 

consumer financial law. Accordingly, 

the Bureau is exercising its authority 

under the Dodd-Frank Act section 

1022(b) to prescribe rules that carry out 

the purposes and objectives of ECOA, 

RESPA, TILA, title X, and the 

enumerated subtitles and provisions of 

title XIV of the Dodd-Frank Act, and 

prevent evasion of those laws. 

Section 1032(a) of the Dodd-Frank Act 

provides that the Bureau ‘‘may prescribe 

rules to ensure that the features of any 

consumer financial product or service, 

both initially and over the term of the 

product or service, are fully, accurately, 

and effectively disclosed to consumers 

in a manner that permits consumers to 

understand the costs, benefits, and risks 

associated with the product or service, 

in light of the facts and circumstances.’’ 

12 U.S.C. 5532(a). The authority granted 

to the Bureau in Dodd-Frank Act section 

1032(a) is broad, and empowers the 

Bureau to prescribe rules regarding the 

disclosure of the ‘‘features’’ of consumer 

financial products and services 

generally. Accordingly, the Bureau may 

prescribe rules containing disclosure 

requirements even if other Federal 

consumer financial laws do not 

specifically require disclosure of such 

features. 

Dodd-Frank Act section 1032(c) 

provides that, in prescribing rules 

pursuant to Dodd-Frank Act section 

1032, the Bureau ‘‘shall consider 

available evidence about consumer 

awareness, understanding of, and 

responses to disclosures or 

communications about the risks, costs, 

and benefits of consumer financial 

products or services.’’ 12 U.S.C. 5532(c). 

Accordingly, in amending provisions 

authorized under Dodd-Frank Act 

section 1032(a), the Bureau has 

considered available studies, reports, 

and other evidence about consumer 

awareness, understanding of, and 

responses to disclosures or 

communications about the risks, costs, 

and benefits of consumer financial 

products or services. 

The Bureau is amending rules 

finalized in January 2013 that 

implement certain Dodd-Frank Act 

provisions. In particular, the Bureau is 

amending regulatory provisions adopted 

by the 2013 ECOA Final Rule, the 2013 

Mortgage Servicing Final Rules, the 

2013 HOEPA Final Rule, the 2013 

Escrows Final Rule, the 2013 Loan 

Originator Compensation Final Rule, 

and the 2013 ATR Final Rule. 

IV. Effective Dates 

A. Provisions Other Than Those Related 

to the 2013 Loan Originator 

Compensation Final Rule or the 2013 

Escrows Final Rule 

In enacting the Dodd-Frank Act, 

Congress significantly amended the 

statutory requirements governing a 

number of mortgage practices. Under 

the Dodd-Frank Act, most of these new 

requirements would have taken effect 

automatically on January 21, 2013, if the 

Bureau had not issued implementing 

regulations by that date.13 Where the 

Bureau was required to prescribe 

implementing regulations, the DoddFrank Act further provided that those 

regulations must take effect not later 

than 12 months after the date of the 

regulations’ issuance in final form.14

The Bureau issued the 2013 Title XIV 

Final Rules in January 2013 to 

implement these new statutory 

provisions and provide for an orderly 

transition. To allow the mortgage 

industry sufficient time to comply with 

the new rules, the Bureau established 

January 10, 2014—one year after 

issuance of the earliest of the 2013 Title 

XIV Final Rules—as the baseline 

effective date for nearly all of the new 

requirements. In the preamble to certain 

of the various 2013 Title XIV Final 

Rules, the Bureau further specified that 

the new regulations would apply to 

transactions for which applications 

were received on or after January 10, 

2014. 

Except for the amendments regarding 

the 2013 Loan Originator Compensation 

Final Rule and the 2013 Escrows Final 

Rule discussed below, the Bureau 

proposed an effective date of January 10, 

2014. The Bureau proposed this 

effective date because it is consistent 

with the effective dates for the 2013 

Title XIV Final Rules, which this final 

rule clarifies, revises, or amends. Most 

of the proposed amendments were 

intended to clarify application of certain 

aspects of these rules in advance of the 

January 10, 2014 effective date, or 

amend them in manners that facilitate 

compliance. As discussed in the various 

2013 Title XIV Final Rules, the Bureau 

believes that having a consistent 

effective date across most of the 2013 

Title XIV Final Rules will facilitate 

compliance. This includes any 

clarifications, revisions, or other 

amendments made during the 

implementation period—particularly 

those amendments designed to facilitate 

compliance with the overarching 2013 

Title XIV Final Rules. Thus, because the 

clarifications, revisions, and 

amendments to the 2013 Title XIV Final 

Rules adopted in this final rule 

interrelate with or depend on other 

aspects of the underlying 2013 Title XIV 

Final Rules and are intended largely to 

facilitate compliance with those rules, 


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15After interpretive issues were raised concerning 

the credit insurance provision as discussed in the 

2013 Loan Originator Compensation Final Rule, the 

Bureau temporarily delayed and extended the 

effective date for § 1026.36(i) in the 2013 Effective 

Date Final Rule until January 10, 2014. 78 FR 32547 

(May 31, 2013). In the proposal, the Bureau 

requested comment on whether the effective date 

for § 1026.36(i) may be set earlier than January 10, 

2014. 

the Bureau does not believe that the 

amendments adopted by this final rule 

should become effective on a different 

date than the underlying regulations. 

The Bureau thus proposed an effective 

date of January 10, 2014 for any 

amendments adopted by this final rule. 

The Bureau received some comments 

from industry and trade associations 

that addressed the effective dates, but 

most of these comments generally 

requested a delayed effective date across 

all the rules, which the Bureau did not 

propose. The Bureau received a handful 

of comments that asked for staggered 

effective dates for the amended rules, 

but none of these comments provided a 

reasonable means of implementing the 

proposed amendments at a date later 

than the underlying regulations the 

proposal would have amended. Despite 

these comments, the Bureau remains 

persuaded that it would be 

impracticable for these amendments to 

take effect later than the underlying 

regulations they amend. Moreover, the 

Bureau believes that these amendments 

should help industry participants 

comply with the other components of 

the 2013 Title XIV Final Rules, which 

in most cases also will take effect 

January 10, 2014. The Bureau thus is 

adopting the effective date of January 

10, 2014, for the amendments in this 

document other than as discussed in 

parts IV.B and IV.C below. 

B. For Provisions Related to the 2013 

Escrows Final Rule 

The Bureau proposed an effective date 

of January 1, 2014 for the amendments 

to the new provisions in § 1026.35 that 

govern higher-priced mortgage loan 

escrow requirements, which took effect 

on June 1, 2013. While the Bureau 

established January 10, 2014 as the 

baseline effective date for most of the 

2013 Title XIV Final Rules, it identified 

certain provisions that it believed did 

not present significant implementation 

burdens for industry, including 

amendments to § 1026.35 adopted by 

the 2013 Escrows Final Rule. For these 

provisions, the Bureau set an earlier 

effective date of June 1, 2013. The 

proposal would have amended one such 

provision, § 1026.35(b)(2)(iii)(A), which 

provides an exemption from the higherpriced mortgage loan escrow 

requirement to creditors that extend 

more than 50 percent of their total 

covered transactions secured by a first 

lien in ‘‘rural’’ or ‘‘underserved’’ 

counties during the preceding calendar 

year and also meet other small creditor 

criteria, and do not otherwise maintain 

escrow accounts for loans serviced by 

themselves or an affiliate. In light of 

recent changes to which counties meet 

the definition of ‘‘rural,’’ the Bureau 

proposed to amend this provision to 

prevent creditors that qualified for the 

exemption in 2013 from losing 

eligibility in 2014 or 2015 because of 

these changes. The proposal would have 

allowed creditors to qualify for the 

exemption if they qualified in any of the 

previous three calendar years (assuming 

the other criteria for eligibility are also 

met). In addition, the proposal would 

have amended § 1026.35(b)(2)(iii)(D)(1) 

to prevent creditors that were 

previously ineligible for the exemption, 

but may now qualify in light of the 

proposed changes, from losing 

eligibility because they had established 

escrow accounts for first-lien higherpriced mortgage loans (for which 

applications were received after June 1, 

2013), as required when the final rule 

took effect and prior to the proposed 

amendments taking effect. The Bureau 

proposed to make this amendment 

effective for applications received on or 

after January 1, 2014, because the 

§ 1026.35(b)(2)(iii) exemption applies 

based on a calendar year and relates to 

a regulation that is already in effect. The 

Bureau received no comments 

addressing the proposed effective date 

of this provision, other than comments 

that generally supported the proposal. 

As discussed in the section-by-section 

analysis below, the Bureau is adopting 

amendments to § 1026.35(b)(2)(iii) as 

proposed. In addition, the Bureau is 

adopting amendments to the 

commentary to this section substantially 

as proposed with one additional 

clarification. The Bureau believes it is 

appropriate to set a January 1, 2014 

effective date for these provisions. The 

Bureau notes that a January 1, 2014 

effective date is more beneficial to 

industry, because the amendment 

would only expand eligibility for the 

exemption—thus an effective date of 

January 1, 2014, as opposed to January 

10, 2014, would mean that creditors are 

able to take advantage of this expanded 

exemption earlier. Accordingly, the 

amendments to § 1026.35(b)(2)(iii) and 

its commentary will apply to 

applications received on or after January 

1, 2014. 

C. Provisions Related to the 2013 Loan 

Originator Compensation Final Rule 

The effective date for certain 

provisions in this final rule related to 

the 2013 Loan Originator Compensation 

Final Rule, along with the related 

provisions of the 2013 Loan Originator 

Compensation Final Rule, is January 1, 

2014, for the reasons discussed below. 

V. Effective Date of the 2013 Loan 

Originator Compensation Rule 

A. General 

The Proposal 

As described in the proposal, the 

Bureau established January 10, 2014, as 

the baseline effective date for nearly all 

of the provisions in the 2013 Title XIV 

Final Rules, including most provisions 

of the 2013 Loan Originator 

Compensation Final Rule. In the 

proposal, the Bureau stated that it 

believed that having a consistent 

effective date across nearly all of the 

2013 Title XIV Final Rules would 

facilitate compliance. However, as 

explained in the proposal, the Bureau 

identified a few provisions that it 

believed did not present significant 

implementation burdens for industry, 

including § 1026.36(h) on mandatory 

arbitration clauses and waivers of 

certain consumer rights and § 1026.36(i) 

on financing credit insurance, as 

adopted by the 2013 Loan Originator 

Compensation Final Rule. As explained 

in the proposal, for these provisions 

(and associated commentary), the 

Bureau set an earlier effective date of 

June 1, 2013.15

As described in the proposal, since 

issuing the 2013 Loan Originator 

Compensation Final Rule in January 

2013, the Bureau has received a number 

of questions about transition issues, 

particularly with regard to application 

of provisions under § 1026.36(d) that 

generally prohibit basing loan originator 

compensation on transaction terms but 

permit creditors to award non-deferred 

profits-based compensation subject to 

certain limits. For instance, as discussed 

in the proposal, the Bureau has received 

inquiries about when creditors and loan 

originator organizations may begin 

taking into account transactions for 

purposes of paying compensation under 

a non-deferred profits-based 

compensation plan pursuant to 

§ 1026.36(d)(1)(iv)(B)(1) (i.e., the 10- 

percent total compensation limit, or the 

10-percent limit). As the Bureau stated 

in the proposal, while the profits-based 

compensation provisions present 

relatively complicated transition issues, 

the Bureau is also conscious of the fact 

that most other provisions in the 2013 

Loan Originator Compensation Final 


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16The comments regarding the effective date for 

§ 1026.36(i) are discussed separately below. 

17The association stated further that, under this 

approach, an institution would have to abide by 

whatever effective date methodology it selects. 

Rule are simpler to implement because 

they largely recodify and clarify existing 

requirements that were previously 

adopted by the Federal Reserve Board in 

2010 with regard to loan originator 

compensation, and by various agencies 

under the Secure and Fair Enforcement 

for Mortgage Licensing Act of 2008, 12 

U.S.C. 5106–5116 (SAFE Act), with 

regard to loan originator qualification 

requirements. The Bureau also stated in 

the proposal that these provisions are 

focused on compensation plan 

structures, registration and licensing, 

and hiring and training requirements 

that are often structured on an annual 

basis and typically do not vary from 

transaction to transaction. 

For all of these reasons, the Bureau 

proposed moving the general effective 

date for most provisions adopted by the 

2013 Loan Originator Compensation 

Final Rule to January 1, 2014. The 

Bureau stated in the proposal that, 

although this change would shorten the 

implementation period by nine days, 

the Bureau believes that the change 

would actually facilitate compliance 

and reduce implementation burden by 

providing a cleaner transition period 

that more closely aligns with changes to 

employers’ annual compensation 

structures and registration, licensing, 

and training requirements. In addition, 

the Bureau also stated that, because 

elements of the 2013 Loan Originator 

Compensation Final Rule concerning 

retention of records, definitions, scope, 

and implementing procedures affect 

multiple provisions, the Bureau was 

proposing to make the change with 

regard to the bulk of the 2013 Loan 

Originator Compensation Final Rule as 

described further below, rather than 

attempting to treat individual provisions 

in isolation. Finally, the Bureau also 

proposed changes to the effective date 

for provisions on financing of credit 

insurance under § 1026.36(i), in 

connection with proposing further 

clarifications and guidance on the 

Dodd-Frank Act requirements related to 

that provision. 

The Bureau stated in the proposal that 

it believed these changes would 

facilitate compliance and help ensure 

that the 2013 Loan Originator 

Compensation Final Rule does not have 

adverse unintended consequences. The 

Bureau requested public comment on 

these proposed effective dates, 

including on any suggested alternatives. 

Comments 

The Bureau received approximately 

30 comments addressing the proposed 

changes to the effective date for the 

2013 Loan Originator Compensation 

Final Rule other than § 1026.36(i).16 The 

comments generally were supportive of 

these proposed changes. A national 

association of credit unions and several 

state credit union associations 

supported moving up the effective date 

from January 10, 2014, to January 1, 

2014, stating that a January 1 date 

would result in a cleaner transition 

period that more closely aligns with 

changes to employers’ annual 

compensation structures and 

registration, licensing, and training 

requirements. A national trade 

association of banking institutions 

stated its appreciation for the Bureau’s 

efforts to facilitate compliance and 

establish effective dates that are better 

aligned with banker systems. This 

association wrote that it did not believe 

a January 1 effective date would 

constitute a major burden. The 

association urged the Bureau, however, 

to enact effective dates that apply to 

transactions that are either 

consummated on or after January 1, 

2014 or for which the creditor paid 

compensation on or after that date. 

According to the association, allowing 

for an alternative option would best 

accommodate the various payment 

systems and methods that exist across 

various institutions and would not, in 

its opinion, give rise to significant 

difficulties in terms of examinations.17

One community bank commented that 

it would pose unnecessary and wasteful 

burdens on financial institutions of all 

sizes to necessitate a separate 

accounting and reporting for a nine-day 

period, because accounting periods for 

compensation generally commence 

annually each January 1st. A large 

mortgage company stated that it 

supported the change because moving 

the effective date to January 1, 2014, 

would help lenders update their 

systems on a consistent basis and avoid 

any potential lapses in accounting or 

confusion that could emerge between 

January 1 and January 10. One 

community bank stated that it is 

‘‘operationally efficient’’ to apply rule 

changes at the beginning of a month and 

that there would be no real difference in 

compliance burden because ‘‘most 

lenders would naturally’’ comply as of 

the earlier date anyway. A state 

association representing banking 

institutions wrote that moving up the 

effective date by nine days aligns more 

closely with payroll records and tax 

reporting and may actually be easier to 

implement from an operational basis 

than a January 10 effective date. This 

association did report that its members 

have indicated that they will not be able 

to meet either a January 1 or a January 

10, 2014, effective date due to the 2013 

Loan Originator Compensation Final 

Rule’s complexity and pending 

amendments. 

Final Rule 

As discussed in more detail below, 

the Bureau is finalizing the effective 

dates for § 1026.36 (and interrelated 

provisions in § 1026.25(c)(2)) adopted 

by the 2013 Loan Originator 

Compensation Final Rule (and 

associated commentary), and the 

amendments to and additions to those 

sections contained in today’s final rule, 

as proposed. The Bureau discusses in 

turn below the effective dates for 

different provisions of § 1026.36 (and 

interrelated provisions in 

§ 1026.25(c)(2)). These clarifications and 

amendments to the effective date 

require only minimal revisions to the 

rule text and commentary and primarily 

are reflected in the Dates caption and 

discussion of effective dates in this 

Supplementary Information. As 

amended by the Dodd-Frank Act, TILA 

section 105(a), 15 U.S.C. 1604(a), directs 

the Bureau to prescribe regulations to 

carry out the purposes of TILA, and 

provides that such regulations may 

contain additional requirements, 

classifications, differentiations, or other 

provisions, and may provide for such 

adjustments and exceptions for all or 

any class of transactions, that the 

Bureau judges are necessary or proper to 

effectuate the purposes of TILA, to 

prevent circumvention or evasion 

thereof, or to facilitate compliance. 

Under Dodd-Frank Act section 

1022(b)(1), 15 U.S.C. 5512(b)(1), the 

Bureau has general authority to 

prescribe rules as may be necessary or 

appropriate to enable the Bureau to 

administer and carry out the purposes 

and objectives of the Federal consumer 

financial laws, and to prevent evasions 

thereof. The Bureau is changing the 

effective date of the 2013 Loan 

Originator Compensation Final Rule 

with respect to those provisions 

described above pursuant to its TILA 

section 105(a) and Dodd-Frank Act 

section 1022(b)(1) authority. 

B. Effective Date for Amendments to 

§ 1026.36(d) 

The Proposal 

The Bureau proposed three specific 

changes to the effective date for the 

amendments to § 1026.36(d) (and 

associated commentary) contained in 


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18The Bureau explained in the Supplementary 

Information to the 2013 Loan Originator 

Compensation Final Rule that it issued CFPB 

Bulletin 2012–2 (the Bulletin) to address questions 

regarding the application of § 1026.36(d)(1) to 

‘‘Qualified Plans’’ (as defined in the Bulletin). The 

Bureau noted in that Supplementary Information 

that until the final rule takes effect, the 

clarifications in CFPB Bulletin 2012–2 remain in 

effect. Moreover, as the Bureau stated in the 

proposal, the Bureau interprets ‘‘Qualified Plan’’ as 

used in the Bulletin to include the designated taxadvantaged plans described in the final rule. 

19This commenter noted its agreement with the 

Bureau’s statement in the proposal that such an 

approach could raise complexity about how the 

new rule would apply to payments under nondeferred profits-based compensation plans made on 

or after January 1, 2014, where the compensation 

payments were based on the terms of transactions 

consummated in 2013. This commenter wrote that 

such an approach would adversely affect, without 

the 2013 Loan Originator Compensation 

Final Rule. First, the Bureau proposed 

that the provisions of the 2013 Loan 

Originator Compensation Final Rule 

revising § 1026.36(d) would be effective 

January 1, 2014, not January 10, 2014. 

The Bureau discussed its concern that 

an effective date of January 10, 2014, for 

the revisions to § 1026.36(d) may result 

in creditors and loan originator 

organizations believing that they have to 

account separately for the period from 

January 1 through January 9, 2014, 

when applying the new compensation 

restrictions under § 1026.36(d). While 

recognizing that this proposal would 

mean that creditors and loan originator 

organizations would have a slightly 

shorter implementation period, the 

Bureau stated that on balance it believed 

the proposed change would have eased 

compliance burdens for creditors and 

loan originator organizations by 

eliminating any concern about a need 

for separate accountings as described 

above. As noted above, the Bureau also 

proposed to change the effective date for 

the addition of § 1026.25(c)(2) (records 

retention) (and associated commentary) 

from January 10, 2014, to January 1, 

2014, to dovetail with the proposal to 

change the effective date of § 1026.36(d) 

to January 1, 2014, to ensure that 

records on compensation paid between 

January 1 and January 10, 2014, are 

properly maintained. 

Second, the Bureau proposed that the 

revisions to § 1026.36(d) (other than the 

addition of § 1026.36(d)(1)(iii), as 

discussed below) would have applied to 

transactions that are consummated and 

for which the creditor or loan originator 

organization paid compensation on or 

after January 1, 2014. The Bureau stated 

its belief that applying the effective date 

for the revisions to § 1026.36(d) based 

on application receipt, rather than based 

on transaction consummation and 

compensation payment, could present 

compliance challenges. This proposed 

change, as the Bureau discussed in the 

proposal, would have permitted 

transactions to be taken into account for 

purposes of compensating individual 

loan originators under the exceptions 

set forth in § 1026.36(d)(1)(iv) if the 

transactions were consummated and 

compensation was paid to the 

individual loan originator on or after 

January 1, 2014, even if the applications 

for those transactions were received 

prior to January 1, 2014. The Bureau 

stated that it believes this clarification, 

in conjunction with the proposed 

change to the effective date for the 

revisions to § 1026.36(d) described 

above, would have reduced compliance 

burdens on creditors and loan originator 

organizations by allowing them to take 

into account all transactions 

consummated in 2014 (and for which 

compensation is paid to individual loan 

originators in 2014) for purposes of 

paying compensation under 

§ 1026.36(d)(1)(iv) that is earned in 

2014. This proposed revision also 

would have allowed the consumer-paid 

compensation restrictions and 

exceptions thereto in the revisions to 

§ 1026.36(d)(2) to be effective upon the 

consummation of any transaction where 

such compensation is paid in 2014 even 

if the application for that transaction 

was received in 2013. 

Third, the Bureau proposed that the 

provisions of § 1026.36(d)(1)(iii), which 

pertain to contributions to or benefits 

under designated tax-advantaged plans 

for individual loan originators, would 

apply to transactions for which the 

creditor or loan originator organization 

paid compensation on or after January 1, 

2014, regardless of when the 

transactions were consummated or the 

applications were received. The Bureau 

explained in the proposal that these 

changes regarding the effective date for 

the revisions to § 1026.36(d)(1)(iii) 

would have more clearly reflected the 

Bureau’s intent to permit payment of 

compensation related to designated taxadvantaged plans during both 2013 (as 

explained in CFPB Bulletin 2012–2 

clarifying current § 1026.36(d)(1)) 18 and 

thereafter (under the 2013 Loan 

Originator Compensation Final Rule). 

In addition to the three specific 

changes to the effective date described 

above, the Bureau solicited comment 

generally on whether the proposed 

changes to the effective date for the 

amendments to § 1026.36(d) are 

appropriate or whether other 

approaches should be considered. In 

particular, the Bureau solicited 

comment on whether the amendments 

to § 1026.36(d) should take effect on 

January 1, 2014, and apply to all 

payments of compensation made on or 

after that date, regardless of the date of 

consummation of the transactions on 

whose terms the compensation was 

based. 

Comments 

Industry commenters generally 

supported the proposed changes to the 

effective date for the amendments to 

§ 1026.36(d) that were added by the 

2013 Loan Originator Compensation 

Final Rule. There were no objections to 

the Bureau’s proposal to delete 

application receipt as the triggering 

event for the effective date provisions of 

§ 1026.36 (other than for § 1026.36(g)). 

One state trade association of banking 

institutions wrote that applying the 

effective date for revisions to 

§ 1026.36(d) based on receipt of 

applications would create ‘‘serious 

compliance and recordkeeping 

challenges.’’ Moreover, industry 

commenters generally supported the 

shift of the effective date for the 

amendments of § 1026.36(d) from 

January 10 to January 1, 2014 (see 

discussion above with regard to the 

general comments the Bureau received 

on the changes to the effective dates for 

the 2013 Loan Originator Compensation 

Final Rule). Industry commenters also 

did not raise any objections to the 

proposed revisions to the effective date 

for § 1026.36(d)(1)(iii), which would 

have applied to transactions for which 

compensation is paid on or after January 

1, 2014, without regard to when the 

transactions were consummated. Nor 

did industry commenters specifically 

object to the proposal to change the 

effective date for the addition of 

§ 1026.25(c)(2) (records retention) from 

January 10, 2014, to January 1, 2014. 

Several commenters expressly 

supported the Bureau’s proposal to 

apply the effective date for the 

amendments to § 1026.36(d) (other than 

the addition of § 1026.36(d)(1)(iii)) to 

transactions consummated on or after 

January 1, 2014, and where 

compensation was paid on or after 

January 1, 2014. A large depository 

institution wrote that this approach to 

the effective date would be a ‘‘welcome 

clarification.’’ One industry commenter 

that specializes in the financing of 

manufactured housing, in expressing 

support for proposed changes to the 

effective date, objected to the alternative 

on which the Bureau solicited comment 

(i.e., that the effective date would apply 

to compensation paid on or after 

January 1, 2014, regardless of the date 

of consummation of the transaction).19


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fair warning, those creditors and their employees 

for whom 2013 compensation plans were made in 

mid-2012. 

20For example, § 1026.36(j) requires that 

depository institutions establish written policies 

and procedures reasonably designed to ensure and 

monitor compliance with § 1026.36(d), (e), (f), and 

(g). 

A small number of industry 

commenters asked that the Bureau 

provide more flexibility as to the 

effective date for the amendments to 

§ 1026.36(d). As noted above, one 

national trade association asked that the 

effective dates for the various provisions 

of the 2013 Loan Originator 

Compensation Final Rule be triggered 

either by the consummation of 

transactions on or after January 1, 2014, 

or by the payment of compensation on 

or after January 1, 2014, with the 

complying parties having the option of 

selecting the applicable triggering event. 

A state association representing banking 

institutions similarly asked for an 

‘‘either/or’’ approach with regard to the 

proposed trigger for the effective date. A 

state association representing banking 

institutions stated that the proposed 

formula for the effective date (i.e., 

considering both the consummation 

date and the payment date) was 

unnecessarily complex, and instead 

recommended that the effective date be 

tied solely to the payment date. A 

national trade association of mortgage 

banking institutions and a mortgage 

company recommended that the Bureau 

adopt January 1, 2014, as an optional 

effective date, with mandatory 

implementation as of January 10, 2014. 

The association reasoned that while the 

earlier effective date may benefit many 

lenders, there may be some lenders that 

have already arranged compliance for 

the later date and would be forced to 

incur additional expense if compliance 

were required earlier. The mortgage 

company stated this change might assist 

in a small way in regards to payroll 

systems. 

Final Rule 

The Bureau is finalizing the effective 

date and applicability for the 

amendments to §§ 1026.36(d) and 

1026.25(c)(2) (and associated 

commentary) adopted by the 2013 Loan 

Originator Compensation Final Rule and 

the proposed amendments and 

additions thereto in the June 2013 

proposal, as proposed. That is: (1) The 

amendments to § 1026.36(d) (other than 

the addition of § 1026.36(d)(1)(iii)) and 

the provisions of § 1026.25(c)(2) will 

apply to transactions that are 

consummated and for which the 

creditor or loan originator organization 

paid compensation on or after January 1, 

2014; and (2) the provisions of 

§ 1026.36(d)(1)(iii) will apply to 

transactions for which the creditor or 

loan originator organization paid 

compensation on or after January 1, 

2014, regardless of when the 

transactions were consummated or their 

applications were received. For the 

reasons stated in the proposal and 

supported by many of the commenters, 

the Bureau believes that a January 1, 

2014, effective date will ease 

compliance burden by aligning the 

effective date for the amendments to 

§ 1026.36(d) with the date on which 

annual changes to compensation 

policies are implemented. Moreover, the 

Bureau believes that tying the 

application of the effective date for the 

amendments to § 1026.36(d) (other than 

the addition of §§ 1026.36(d)(1)(iii) and 

1026.25(c)(2)) to conjunctive triggering 

events on or after January 1, 2014 (i.e., 

the consummation of transactions and 

the payment of compensation based on 

the terms of those transactions) best 

facilitates a smooth transition from one 

set of compensation rules to another. 

The Bureau thus disagrees with the 

commenters that asked for an ‘‘either/

or’’ approach (i.e., tied to either the 

consummation date or the payment 

date) or for the effective date to be tied 

only to payment of compensation. A 

rule where the complying party has the 

option of choosing among two possible 

triggering events potentially would 

create confusion for complying parties 

and examiners about whether 

compensation earned in 2013 but paid 

in 2014 is subject to the current 

compensation rules under § 1026.36(d) 

or the amendments to § 1026.36(d) 

added by the 2013 Loan Originator 

Compensation Final Rule, and as to 

whether the amended recordkeeping 

requirements in § 1026.25(c)(2) would 

apply. Moreover, as one commenter 

suggested, permitting creditors and loan 

originator organizations to pay, in 2014, 

compensation earned in 2013—at which 

time the current compensation rules 

were still in effect—might disadvantage 

creditors or loan originator 

organizations that relied on the current 

rules in setting up their 2013 

compensation programs in 2012. 

The Bureau also believes that 

providing for an optional compliance 

date of January 1, 2014—as suggested by 

a small number of industry 

commenters—would add complexity 

which would likely outweigh the 

benefits of the flexibility that some 

complying parties might gain from this 

approach. The Bureau is concerned that 

this approach to the effective date 

would lead to unnecessary dispersion of 

compliance dates over a ten-day period 

in early 2014, which in turn would be 

difficult to track by examiners and 

enforcing parties, and potentially raise 

other legal and operational questions. It 

could potentially lead to gaps in 

recordkeeping as well. Even further 

confusion could result due to the 

continued effect of the current 

compensation rules for an additional 

nine-day period. The Bureau also notes 

that the weight of comments it received 

on the proposed effective date changes 

supported a mandatory compliance date 

of January 1, 2014. 

C. Effective Dates for Amendments to or 

Additions of § 1026.36(a), (b), (e), (f), (g), 

and (j) 

The Proposal 

Rather than implementing the 

proposed change in effective dates for 

§ 1026.36(d) in isolation, the Bureau 

also proposed to make the amendments 

to or additions of (as applicable) 

§ 1026.36(a) (definitions), § 1026.36(b) 

(scope), § 1026.36(e) (anti-steering), 

§ 1026.36(f) (qualifications) and 

§ 1026.36(j) (compliance policies and 

procedures for depository institutions) 

(and associated commentary) contained 

in the 2013 Loan Originator 

Compensation Final Rule take effect on 

January 1, 2014. The Bureau proposed 

not to tie the effective date to the receipt 

of a particular loan application, but 

rather to a date certain. Because these 

provisions rely on a common set of 

definitions and in some cases crossreference each other,20 the Bureau 

proposed to make them effective on 

January 1, 2014, and without reference 

to receipt of applications to avoid a 

potential incongruity among the 

effective dates of the substantive 

provisions and the effective dates of the 

regulatory definitions and scope 

provisions supporting those substantive 

provisions. In the proposal, the Bureau 

stated that it believes this proposed 

approach would facilitate compliance. 

The Bureau did not, however, propose 

to adjust the effective date for 

§ 1026.36(g) (and associated 

commentary), which requires that loan 

originators’ names and identifier 

numbers be provided on certain loan 

documentation, except to clarify and 

confirm that the provision takes effect 

with regard to any application received 

on or after January 10, 2014, by a 

creditor or a loan originator 

organization. Because this provision 

requires modifications to 

documentation for individual loans and 

the systems that generate such 

documentation, the Bureau stated in the 


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21While a depository institution must have its 

policies and procedures under § 1026.36(j) in place 

by January 1, 2014, including policies and 

procedures covering § 1026.36(g), the depository 

institution is, of course, not required to ensure and 

monitor compliance with § 1026.36(g) until January 

10, 2014, the effective date of § 1026.36(g). 

proposal that it believes it is appropriate 

to have this provision take effect with 

the other 2013 Title XIV Final Rules that 

affect individual loan processing. 

Comments 

As noted above, the commenters that 

addressed the proposed changes to the 

effective dates for the provisions of the 

2013 Loan Originator Compensation 

Final Rule generally expressed support 

for the proposed changes. In nearly all 

cases, these comments did not discuss 

the application of the effective date to 

specific provisions within § 1026.36, 

other than the amendments to 

§ 1026.36(d). One national trade 

association that requested an optional 

compliance date of January 1, 2014, for 

the amendments to § 1026.36(d) noted 

that, if the Bureau were to adopt a 

mandatory compliance date of January 

1, 2014, it nonetheless agreed with the 

proposal to keep the effective date for 

the provisions of § 1026.36(g) as January 

10, 2014. The association stated that 

systems changes to revise loan 

documents scheduled to take effect on 

January 10 should not be made costlier 

or less convenient as a result of the 

Bureau’s changes to the effective date 

provisions. 

Final Rule 

The Bureau is finalizing the effective 

date for the amendments to or additions 

of § 1026.36(a), (b), (e), (f), (g), and (j) 

(and associated commentary) contained 

in the 2013 Loan Originator 

Compensation Final Rule and the 

proposed amendments and additions 

thereto in the June 2013 proposal, as 

proposed. Therefore: (1) The effective 

date for the amendments to or additions 

of § 1026.36(a), (b), (e), (f), and (j) as 

finalized in this rule will be January 1, 

2014 (i.e., a date certain that is not tied 

to a triggering event, such as receipt of 

an application on or after that date); and 

(2) the effective date for the addition of 

§ 1026.36(g) will be January 10, 2014, 

and that section therefore will apply to 

all transactions for which the creditor or 

loan originator organization received an 

application on or after that date.21

While the Bureau is not changing the 

effective date for § 1026.36(g), it has 

become aware that some uncertainty 

exists with respect to the application of 

this provision where more than one loan 

originator organization is involved in 

originating the same transaction (e.g., a 

mortgage broker and a creditor 

performing origination services with 

respect to the same transaction). The 

Bureau understands that some loan 

originator organizations are planning to 

comply by including the name and 

Nationwide Mortgage Licensing System 

and Registry (NMLSR) ID (where the 

NMLSR has provided one) for multiple 

loan originator organizations involved 

in originating the transaction on the 

loan documents, while others are 

planning to comply by including the 

name and NMLSR ID (where the 

NMLSR has provided one) for just one 

of the loan originator organizations 

involved in originating the transaction 

on the loan documents. The Bureau 

believes that either approach complies 

with the rule in its current form. 

However, the Bureau is considering 

proposing to clarify at some point in the 

future that the name and NMLSR ID 

(where the NMLSR has provided one) 

for multiple loan originator 

organizations involved in originating 

the transaction must be included on the 

loan documents. If the Bureau 

ultimately adopts such a clarification, it 

will provide adequate time for 

compliance. 

D. Effective Date for § 1026.36(i) 

As discussed in the 2013 Effective 

Date Final Rule and below, the Bureau 

initially adopted a June 1, 2013 effective 

date for § 1026.36(i), but later delayed 

the provision’s effective date to January 

10, 2014, while the Bureau considered 

addressing interpretive questions 

concerning the provision’s applicability 

to transactions other than those in 

which a lump-sum premium is added to 

the loan amount at consummation. The 

Bureau sought comment on whether the 

January 10, 2014 effective date would be 

appropriate in light of the proposed 

changes, or whether an earlier effective 

date could be set that permits sufficient 

time for creditors to adjust their 

insurance premium practices as 

necessary. The Bureau received 

comments from trade associations, the 

credit insurance industry, credit unions 

and other financial institutions, as well 

as consumer groups, which addressed 

the proposed effective date. Industry 

commenters and trade associations 

strongly preferred the January 10th date 

to an earlier date, and stated that system 

adjustments will be required to 

implement the final rule. However, 

these commenters generally supported 

the January 10, 2014 effective date as 

reasonable, so long as the final rule does 

not materially differ from the proposal. 

Consumer groups suggested that the 

Bureau set the effective date at January 

1, 2014, noting that the consumer 

benefit derived from the provision has 

already been delayed from its original 

effective date of June 1, 2013. 

As discussed in the section-by-section 

analysis below, the Bureau is adopting 

amendments to § 1026.36(i) 

substantially as proposed, with some 

additional clarifications. The Bureau 

believes that creditors will need time to 

adjust certain credit insurance premium 

billing practices to account for the final 

rule, but believes that the January 10, 

2014 effective date adopted in the 2013 

Effective Date Final Rule will allow 

sufficient time for compliance. This 

approach is consistent with comments 

from industry and trade associations, as 

well as the generally applicable effective 

date for the 2013 Title XIV Final Rules, 

including for several provisions the 

Bureau is amending through this notice. 

VI. Section-by-Section Analysis 

A. Regulation B 

Section 1002.14 Rules on Providing 

Appraisals and Other Valuations 

14(b) Definitions 

14(b)(3) Valuation 

The Proposal 

The Bureau proposed to amend 

commentary to § 1002.14 to clarify the 

definition of ‘‘valuation’’ as adopted by 

the 2013 ECOA Final Rule. As the 

Bureau stated in the proposal, the DoddFrank Act section 1474 amended ECOA 

by, among other things, defining 

‘‘valuation’’ to include any estimate of 

the value of the dwelling developed in 

connection with a creditor’s decisions to 

provide credit. See ECOA section 

701(e)(6). Similarly, the 2013 ECOA 

Final Rule adopted § 1002.14(b)(3), 

which defines ‘‘valuation’’ as any 

estimate of the value of a dwelling 

developed in connection with an 

application for credit. Consistent with 

these provisions, the Bureau intended 

the term ‘‘valuation’’ to refer only to an 

estimate for purposes of the 2013 ECOA 

Final Rule’s newly adopted provisions. 

However, the 2013 ECOA Final Rule 

added two comments that refer to a 

valuation as an appraiser’s estimate or 

opinion of the value of the property: 

comment 14(b)(3)–1.i, which gives 

examples of ‘‘valuations,’’ as defined by 

§ 1002.14(b)(3); and comment 14(b)(3)– 

3.v, which provides examples of 

documents that discuss or restate a 

valuation of an applicant’s property but 

nevertheless do not constitute 

‘‘valuations’’ under § 1002.14(b)(3). 

Because the Bureau did not intend by 

these two comments to alter the 

meaning of ‘‘valuation’’ to become 

inconsistent with ECOA section 

701(e)(6) and § 1002.14(b)(3), the Bureau 


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proposed to clarify comments 14(b)(3)– 

1.i and 14(b)(3)–3.v by removing the 

words ‘‘or opinion’’ from their texts, and 

sought comment on the clarification. 

Comments 

The Bureau received a few comments 

from trade associations and credit 

unions that generally supported the 

clarification. The Bureau also received 

one comment from a trade association 

that suggested the proposed change 

could cause additional confusion, 

because the term ‘‘opinion of value’’ is 

commonly used to describe appraisals. 

This commenter also pointed out that 

appraisals are generally not considered 

to be ‘‘estimates,’’ and thus the 

application of the rule to appraisals 

could be confusing in light of the 

proposed change. The commenter 

suggested that, rather than deleting the 

word ‘‘opinion’’ altogether, the Bureau 

instead clarify that a valuation includes 

any ‘‘estimate or opinion of value.’’ 

Final Rule 

The Bureau is adopting comment 

14(b)(3)–1.i as proposed with some 

additional modifications, and also is 

adding new comment 14(b)(3)–3.vi 

based on the trade association comment. 

In proposing these amendments, the 

Bureau intended to clarify that the 

comments referred to appraisals or other 

valuation models by removing the word 

‘‘opinion,’’ which could be read broadly 

to include even speculative opinions 

not based on an appraisal or other 

valuation model. However, in light of 

the trade association’s comments the 

Bureau believes that simply deleting the 

word ‘‘opinion’’ could also cause 

confusion regarding whether and how 

the rule applies to appraisals that are 

commonly described as ‘‘opinions of 

value.’’ Thus, the Bureau is substituting 

‘‘opinion of value’’ for ‘‘opinion’’ rather 

than deleting the word entirely. The 

Bureau is adopting revised comment 

14(b)(3)–1.i with this change. The 

Bureau is adopting comment 14(b)(3)– 

3.v as proposed, and does not believe 

any additional revisions are necessary 

in light of this clarification, because the 

comment deals exclusively with reports 

reflecting property inspections and not 

appraisals. However, the Bureau is 

adding new comment 14(b)(3)–3.vi to 

clarify that appraisal reviews that do not 

provide an estimate of value or ‘‘opinion 

of value’’ are included in the list of 

examples of items that are not 

considered ‘‘valuations’’ for purposes of 

§ 1002.14(b)(3). 

B. Regulation X 

General—Technical Corrections 

In addition to the clarifications and 

amendments to Regulation X discussed 

below, the Bureau proposed technical 

corrections and minor wording 

adjustments for the purpose of clarity 

throughout Regulation X that were not 

substantive in nature. No comments 

were received on these changes, and the 

Bureau is finalizing such technical and 

wording clarifications to regulatory text 

in §§ 1024.30, 1024.39, and 1024.41; 

and to commentary to §§ 1024.17, 

1024.33 and 1024.41. 

Sections 1024.35 and .36 Error 

Resolution Procedures and Requests for 

Information 

The Bureau proposed minor 

amendments to the error resolution and 

request for information provisions of 

Regulation X, adopted by the 2013 

Mortgage Servicing Final Rules. In the 

areas in which amendments were 

proposed, the error resolution 

procedures largely parallel the 

information request procedures; thus 

the two sections are discussed together 

below. Section 1024.35 implements 

section 6(k)(1)(C) of RESPA, as amended 

by the Dodd-Frank Act, and § 1024.36 

implements section 6(k)(1)(D) of RESPA, 

as amended by the Dodd-Frank Act. To 

the extent the requirements under 

§§ 1024.35 and 1024.36 are applicable to 

qualified written requests, these 

provisions also implement sections 6(e) 

and 6(k)(1)(B) of RESPA. As discussed 

in part III (Legal Authority), the Bureau 

is finalizing these amendments pursuant 

to its authority under RESPA sections 

6(j), 6(k)(1)(E) and 19(a). As explained 

in more detail below, the Bureau 

believes these provisions are necessary 

and appropriate to achieve the 

consumer protection purposes of 

RESPA, including ensuring 

responsiveness to consumer requests 

and complaints and the provision and 

maintenance of accurate and relevant 

information. 

35(c) and 36(b) Contact Information for 

Borrowers To Assert Errors and 

Information Requests 

The Proposal 

The Bureau proposed to amend the 

commentary to § 1024.35(c) and 

§ 1024.36(b) with respect to disclosure 

of the exclusive address (a servicer may 

designate an exclusive address for the 

receipt of notifications of errors and 

requests for information) when a 

servicer discloses contact information to 

the borrower for the purpose of 

assistance from the servicer. Section 

1024.35(c), as adopted by the 2013 

Mortgage Servicing Final Rules, state 

that a servicer may, by written notice 

provided to a borrower, establish an 

address that a borrower must use to 

submit a notice of error to a servicer in 

accordance with the procedures set 

forth in § 1024.35. Comment 35(c)–2 

clarifies that, if a servicer establishes 

any such exclusive address, the servicer 

must provide that address to the 

borrower in any communication in 

which the servicer provides the 

borrower with contact information for 

assistance from the servicer. Similarly, 

§ 1024.36(b) states that a servicer may, 

by written notice provided to a 

borrower, establish an address that a 

borrower must use to submit 

information requests to a servicer in 

accordance with the procedures set 

forth in § 1024.36. Comment 36(b)–2 

clarifies that, if a servicer establishes 

any such exclusive address, the servicer 

must provide that address to the 

borrower in any communication in 

which the servicer provides the 

borrower with contact information for 

assistance from the servicer. 

In the proposal, the Bureau expressed 

concern that comments 35(c)–2 and 

36(b)–2 could be interpreted more 

broadly than the Bureau had intended. 

Section 1024.35(c) and comment 35(c)– 

2, as well as § 1024.36(b) and comment 

36(b)–2, are intended to ensure that 

servicers inform borrowers of the correct 

address for the borrower to use for 

purposes of submitting notices of error 

or information requests, so that 

borrowers do not inadvertently send 

these communications to other nondesignated servicer addresses (which 

would not provide the protections 

afforded by §§ 1024.35 and 1024.36, 

respectively). If interpreted literally, the 

existing comments would require the 

servicer to include the designated 

address for notices of error and requests 

for information when any contact 

information, even just a phone number 

or web address, for the servicer is given 

to the borrower. The Bureau did not 

intend that the servicer be required to 

inform the borrower of the designated 

address in all communications with 

borrowers where any contact 

information whatsoever for the servicer 

is provided. 

Accordingly, the Bureau proposed to 

amend comment 35(c)–2 to provide that, 

if a servicer establishes a designated 

error resolution address, the servicer 

must provide that address to a borrower 

in any communication in which the 

servicer provides the borrower with an 

address for assistance from the servicer. 

Similarly, the Bureau proposed to 

amend comment 36(b)–2 to provide 

that, if a servicer establishes a 


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designated information request address, 

the servicer must provide that address 

to a borrower in any communication in 

which the servicer provides the 

borrower with an address for assistance 

from the servicer. 

Comments 

The Bureau received comments from 

industry as well as consumer groups 

addressing these proposed 

clarifications. Industry commenters 

supported limiting the locations where 

the designated address is required, but 

asserted that the requirement was still 

overbroad and unclear as to when the 

designated address must be provided. 

These commenters expressed concern 

that they would have to provide the 

designated address on every letter that 

included a return address or an address 

in the letterhead. The commenters also 

stated this would be unduly 

burdensome as it would require 

significant programming costs. 

Commenters further stated this would 

create problems for borrowers by 

causing cluttered, confusing documents 

leading borrowers to incorrectly send 

other things to the designated address 

(e.g., a borrower may send a payment to 

the designated address, leading to a 

delay in payment processing). Finally, 

commenters stated the proposed 

clarification could create conflicts with 

other regulations, such as the forceplaced insurance letters, which include 

an address but do not allow additional 

information to be included. Industry 

commenters generally suggested the 

designated address be required only in 

a specific subset of contexts: the initial 

designation letter, the periodic 

statements and coupon book, the 

servicer’s Web site, and loss mitigation 

documents. 

Consumer group commenters 

expressed concern that borrowers will 

not be informed of their rights. Such 

commenters objected to a decision the 

Bureau made, in the 2013 Mortgage 

Servicing Final Rules, to eliminate the 

requirement that a servicer receiving a 

transferred loan include information on 

the error resolution procedures in its 

notice to the borrower about the 

transfer. Such commenters suggested 

that information on the error resolution 

and information request rights should 

be included on each periodic statement. 

Final Rule 

The Bureau is adopting revised 

versions of proposed comments 35(c)–2 

and 36(b)–2. The Bureau notes that the 

proposal only addressed when the 

designated address must be provided, 

and that comments about providing 

borrowers information about the general 

procedures to submit error notifications 

or information requests are beyond the 

scope of the proposed changes to the 

rule. 

The Bureau is persuaded that the 

proposed language of ‘‘an address for 

assistance’’ might not have fully 

addressed the concerns of the provision 

being overbroad, as the proposed 

language could have been interpreted to 

require the designated address on every 

document from the servicer that 

contains a return address. The Bureau is 

further persuaded by the concern that 

borrowers could have been confused 

and incorrectly sent items that did not 

concern error resolution to the 

designated address. To require the 

designated address on every piece of 

written communication that includes a 

return address would be unduly 

burdensome and not in the best interests 

of the borrower. Thus, under the final 

rule, the designated address need be 

included in only a specific subset of 

contexts, specifically (1) the written 

notice, required by § 1024.35(c) and 

§ 1024.36(b) if a servicer designates an 

exclusive address; (2) any periodic 

statement or coupon book required 

pursuant to 12 CFR 1026.41; (3) any 

Web site maintained by the servicer in 

connection with the servicing of the 

loan; and (4) any notice required 

pursuant to §§ 1024.39 or 1026.41 that 

includes contact information for 

assistance. 

While servicers will not specifically 

be required to provide the designated 

address in contexts other than those 

described in the amended comments, 

the Bureau notes that a servicer remains 

subject to the requirement in 

§ 1026.38(b)(5) to have policies and 

procedures reasonably designed to 

ensure that the servicer informs the 

borrower of the procedures for 

submitting written notices of error and 

information requests. Further, as 

discussed below in the section-bysection analysis of section 38(b)(5), the 

Bureau is adopting new comment 

38(b)(5)–3 clarifying a servicer’s 

obligation to ensure borrowers are 

informed of the designated address. The 

Bureau believes this the final rule will 

best balance practical considerations 

with the need to notify borrowers of the 

designated address. 

35(g) and 36(f) Requirements Not 

Applicable 

35(g)(1)(iii)(B) and 36(f)(1)(v)(B) 

The Proposal 

The Bureau proposed amendments to 

§ 1024.35(g)(1)(iii)(B) (untimely notices 

of error) and § 1024.36(f)(1)(v)(B) 

(untimely requests for information). 

Section 1024.35(g)(1)(iii)(B) provides 

that a notice of error is untimely if it is 

delivered to the servicer more than one 

year after a mortgage loan balance was 

paid in full. Similarly, current 

§ 1024.36(f)(1)(v)(B) provides that an 

information request is untimely if it is 

delivered to the servicer more than one 

year after a mortgage loan balance was 

paid in full. 

The Bureau proposed to replace the 

references to ‘‘the date a mortgage loan 

balance is paid in full’’ with ‘‘the date 

the mortgage loan is discharged.’’ The 

proposal noted that this change would 

address circumstances in which a loan 

is terminated without being paid in full, 

such as a loan that was discharged 

through foreclosure or deed in lieu of 

foreclosure without full satisfaction of 

the underlying contractual obligation. 

Further, the proposal stated that this 

change also would align more closely 

with § 1024.38(c)(1), which requires a 

servicer to retain records that document 

actions taken with respect to a 

borrower’s mortgage loan account only 

until one year after the date a mortgage 

loan is ‘‘discharged.’’ 

Comments 

The Bureau received comments from 

industry as well as consumer groups 

addressing the proposed modifications. 

Commenters were generally supportive 

of changing the rule to address 

situations when the loan is not paid in 

full, but expressed concerns about the 

use of the word ‘‘discharged,’’ stating 

that this word has a specific meaning in 

bankruptcy and that there may be some 

ambiguity as to when a loan is 

discharged in certain situations. In 

particular, commenters discussed the 

foreclosure process, as well as situations 

in which there is a deficiency balance 

after a foreclosure sale, and situations in 

which bankruptcy proceedings may 

eliminate the debt but leave a lien on 

the property. 

Final Rule 

The Bureau is adopting 

§ 1024.35(g)(1)(iii)(B) and 

§ 1024.36(f)(1)(v)(B) as proposed. The 

Bureau believes the requirement to 

resolve errors and respond to 

information requests should last over 

the same timeframe as the obligation to 

retain records. The Bureau believes it 

would be impractical to require a 

servicer to resolve errors and provide 

information at a time when Regulation 

X no longer requires the servicer to 

retain the relevant records. Conversely, 

the Bureau believes the servicer should 

be responsible to correct those records 

during the period when Regulation X 

does require a servicer to retain records, 


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22Section 1024.35(e)(3)(i)(B) requires that, if a 

borrower asserts an error related to a servicer 

making the first notice or filing required by 

applicable law for any judicial or non-judicial 

foreclosure process in violation of § 1024.41(f) or (j), 

or related to a servicer moving for foreclosure 

judgment or order of sale or conducting a 

foreclosure sale in violation of § 1024.41(g) or (j), 

the servicer must comply with the requirements of 

the error resolution procedures prior to the date of 

a foreclosure sale, or within 30 days (excluding 

legal public holidays, Saturdays, and Sundays) after 

the servicer receives the notice of error, whichever 

is earlier. 

if necessary, and provide borrowers 

information from the records. Further, 

the Bureau believes the use of the term 

‘‘discharged’’ is appropriate, especially 

given that the term is already used in 

the timing of the record-retention 

requirement. For purposes of the 

Bureau’s mortgage servicing rules, as 

opposed to bankruptcy purposes, a 

mortgage loan is discharged when both 

the debt and all corresponding liens 

have been extinguished or released, as 

applicable. The Bureau believes a 

borrower should have the benefit of the 

error resolution, information request, 

and record retention provisions so long 

as a debt or lien remains because only 

after both have been eliminated will 

there be no further possibility of a 

borrower needing to seek servicing 

information or to assert a servicing 

error. Thus, the Bureau is finalizing this 

provision as proposed. 

Section 1024.38 General Servicing 

Policies, Procedures and Requirements 

38(b) Objectives 

38(b)(5) Informing Borrowers of the 

Written Error Resolution and 

Information Request 

Procedures 

As discussed above in the section-bysection discussion of §§ 1024.35(c) and 

1024.36(b), the Bureau is amending 

comments 35(c)–2 and 36(b)–2 to clarify 

in what contexts the designated address 

for notices of error or requests for 

information must be provided. The 

finalized comments clarify that, if a 

servicer designates such an address, that 

address must be provided in any notice 

required pursuant to §§ 1024.39 or 

1024.41 that includes contact 

information for assistance. The Bureau 

notes that servicers may provide 

borrowers in delinquency with different 

addresses for different purposes. For 

example, a servicer may provide a 

borrower with the designated address 

for asserting errors, and a separate 

address for submission of loss 

mitigation applications. To mitigate the 

risk of a borrower sending a notification 

of error to the wrong address (and thus 

not triggering the associated 

protections), the Bureau is adopting new 

comment 38(b)(5)–3. 

Section 1024.35 sets out certain 

procedures a servicer must follow when 

a borrower submits a written notice of 

error. These procedures provide 

important protections to borrowers who 

in are in delinquency (as well as at other 

times). Specifically, the procedures in 

§ 1024.35(e)(3)(i)(B) require a servicer to 

take certain actions before a scheduled 

foreclosure sale if a borrower asserts 

certain errors.22 These protections are 

only triggered if a borrower submits a 

written notice of error to the designated 

address (assuming the servicer has 

designated such an address). Thus, the 

Bureau believes it is important that 

borrowers asserting errors send the 

notice of error to the proper address. 

The Bureau notes that existing 

provisions do address ensuring the 

borrower is aware of the procedures 

required to trigger the error resolution 

protections. Section 1024.38(b)(5) 

requires a servicer to have policies and 

procedures reasonably designed to 

achieve the objective of informing 

borrowers of the written error resolution 

and information request procedures. 

The Bureau acknowledges that a 

borrower in delinquency who is 

working with a continuity of contact 

representative and submitting 

documents related to loss mitigation 

may be confused about where to submit 

notices asserting errors. If such a 

borrower were to orally report the 

assertion of the error to the continuity 

of contact representative, comment 

38(b)(5)–2 explains that § 1024.38(b)(s) 

would require servicers to have policies 

and procedures reasonably designed to 

notify a borrower who is not satisfied 

with the resolution of the complaint of 

the procedures for submitting a written 

notice of error. However, the Bureau is 

concerned that, if borrowers were to 

submit written assertions of an error to 

the addresses where they were 

submitting loss mitigation documents, 

such borrowers may believe they have 

properly followed the procedures, but in 

fact would not have triggered the 

protections under § 1024.35. 

To address this concern, in 

connection with the clarification above 

on the contexts in which the designated 

address must be provided, the Bureau is 

adopting new comment 38(b)(5)–3. The 

new comment clarifies a servicer’s 

obligation pursuant to § 1024.38(b)(5) by 

stating that a servicer’s policies and 

procedures must be reasonably designed 

to ensure that if a borrower submits a 

notice of error to an incorrect address 

that was given to the borrower in 

connection with submission of a loss 

mitigation application or the continuity 

of contact pursuant to § 1024.40, the 

servicer will ensure the borrower is 

informed of the procedures for 

submitting written notices of error set 

forth in § 1024.35, including the correct 

address. Alternatively, the servicer 

could redirect notices of error that were 

sent to an incorrect address to the 

designated address established pursuant 

to § 1024.35(c). 

Section 1024.41 Loss Mitigation 

Procedures 

As discussed above in part III (Legal 

Authority), the Bureau is finalizing 

amendments to § 1024.41 pursuant to its 

authority under sections 6(j)(3), 

6(k)(1)(E), and 19(a) of RESPA. The 

Bureau believes that these amendments 

are necessary and appropriate to achieve 

the consumer protection purposes of 

RESPA and in particular of section 6 of 

RESPA, including to facilitate the 

evaluation of borrowers for foreclosure 

avoidance options. Further, the 

amendments implement, in part, section 

6(k)(1)(C) of RESPA, which obligates a 

servicer to take timely action to correct 

errors relating to avoiding foreclosure, 

by establishing servicer duties and 

procedures that must be followed where 

appropriate to avoid such errors. In 

addition, the Bureau relies on its 

authority pursuant to section 1022(b) of 

the Dodd-Frank Act to prescribe 

regulations necessary or appropriate to 

carry out the purposes and objectives of 

Federal consumer financial law, 

including the purpose and objectives 

under sections 1021(a) and (b) of the 

Dodd-Frank Act. The Bureau 

additionally relies on its authority 

under section 1032(a) of the Dodd-Frank 

Act, which authorizes the Bureau to 

prescribe rules to ensure that the 

features of any consumer financial 

product or service, both initially and 

over the terms of the product or service, 

are fully, accurately, and effectively 

disclosed to consumers in a manner that 

permits consumers to understand the 

costs, benefits, and risks associated with 

the product or service, in light of the 

facts and circumstances. 

41(b) Receipt of a Loss Mitigation 

Application 

41(b)(1) Complete Loss Mitigation 

Application 

In connection with the provisions 

addressing payment forbearance 

discussed below in the section-bysection analysis of 1024.41(c)(2)(iii), the 

Bureau is amending comment 

41(b)(1)–4 to clarify the obligation of a 

servicer to use reasonable diligence to 


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23A ‘‘complete loss mitigation application’’ is 

defined in § 1024.41(b)(1) as ‘‘an application in 

connection with which a servicer has received all 

the information the servicer requires from a 

borrower in evaluating applications for the loss 

mitigation options available to the borrower.’’ 

complete a loss mitigation application. 

See the discussion below. 

41(b)(2) Review of Loss Mitigation 

Application Submission 

41(b)(2)(i) Requirements 

The Proposal 

The Bureau proposed to amend the 

commentary to § 1024.41(b)(2)(i) to 

clarify servicers’ obligations with 

respect to providing notices to 

borrowers regarding the review of loss 

mitigation applications. Section 

1024.41(b)(2)(i) requires a servicer that 

receives a loss mitigation application 45 

days or more before a foreclosure sale to 

review and evaluate the application 

promptly and determine, based on that 

review, whether the application is 

complete or incomplete.23 The servicer 

then must notify the borrower within 

five days (excluding legal public 

holidays, Saturdays and Sundays) that 

the servicer acknowledges receipt of the 

application, and that the servicer has 

determined that the loss mitigation 

application is either complete or 

incomplete. If an application is 

incomplete, the notice must state the 

additional documents and information 

that the borrower must submit to make 

the loss mitigation application 

complete. In addition, servicers are 

obligated under § 1024.41(b)(1) to 

exercise reasonable diligence in 

obtaining documents and information 

necessary to complete an incomplete 

application, which may require, when 

appropriate, the servicer to contact the 

borrower and request such information 

as illustrated in comment 41(b)(1)–4.i. 

Following publication of the 2013 

Mortgage Servicing Final Rules, the 

Bureau received numerous inquiries 

from industry stakeholders requesting 

guidance or clarification regarding how 

this provision may apply in instances 

where a servicer determines that 

additional information from the 

borrower is needed to complete an 

evaluation of a loss mitigation 

application after either (1) the servicer 

has provided notice to the borrower 

informing the borrower that the loss 

mitigation application is complete, or 

(2) the servicer has provided notice to 

the borrower identifying other specific 

information or documentation necessary 

to complete the application and the 

borrower has furnished that 

documentation or information. As these 

stakeholders noted, servicers sometimes 

must collect additional information 

from borrowers, the need for which may 

not have been apparent at the point of 

initial application, in order to process 

the application and satisfy the 

applicable investor requirements. In 

these situations, a borrower may have 

submitted the documents and 

information identified in the initial 

notice, resulting in an application that 

is facially complete based on the 

servicer’s initial review, but the 

servicer, upon further evaluation, 

determines that additional information 

is required to evaluate the borrower for 

a loss mitigation option pursuant to 

requirements imposed by an investor or 

guarantor of a mortgage. 

The Bureau proposed additional 

commentary to address these concerns. 

As the Bureau explained in the June 

2013 Proposal, the notice required by 

§ 1024.41(b)(2)(i)(B) is intended to 

provide the borrower with timely 

notification that a loss mitigation 

application was received and either is 

considered complete by the servicer or 

is considered incomplete and that the 

borrower is required to take further 

action for the servicer to evaluate the 

loss mitigation application. The Bureau 

was conscious of concerns that servicers 

have unnecessarily prolonged loss 

mitigation processes by incomplete and 

inadequate document reviews that lead 

to repeated requests for supplemental 

information that reasonably could have 

been requested initially, and so the 

Bureau designed the rule to ensure an 

adequate up-front review. At the same 

time, the Bureau did not believe it 

would be in the best interest of 

borrowers or servicers to create a system 

that leads to borrower applications 

being denied solely because they 

contain inadequate information and the 

servicer believes it may not request the 

additional information needed. 

The Bureau therefore proposed three 

provisions to address these concerns. 

First, the Bureau proposed new 

comment 41(b)(2)(i)(B)–1, which would 

have clarified that, notwithstanding that 

a servicer has informed a borrower that 

an application is complete (or notified 

the borrower of specific information 

necessary to complete an incomplete 

application), a servicer must request 

additional information from a borrower 

if the servicer determines, in the course 

of evaluating the loss mitigation 

application submitted by the borrower, 

that additional information is required. 

Second, the Bureau proposed new 

comment 41(b)(2)(i)(B)–2, which would 

have clarified that, except as provided 

in § 1024.41(c)(2)(iv) (the Bureau’s third 

proposed new provision, discussed 

below), the protections triggered by a 

complete loss mitigation application in 

§ 1024.41 would not be triggered by an 

incomplete application. An application 

would have been considered complete 

only when a servicer has received all 

the information the servicer requires 

from a borrower in evaluating 

applications for the loss mitigation 

options available to the borrower, even 

if an inaccurate § 1024.41(b)(2)(i)(B) 

notice had been sent to the borrower. 

The Bureau noted that the proposed 

clarifications would not have allowed 

servicers deliberately to inform 

borrowers that incomplete applications 

are complete or to describe the 

information necessary to complete an 

application as something less than all of 

the necessary information. Servicers are 

required under § 1024.41(b)(2)(i)(A) to 

review a loss mitigation application to 

determine whether it is complete or 

incomplete. In addition, servicers are 

subject to the § 1024.38(b)(2)(iv) 

requirement to have policies and 

procedures reasonably designed to 

achieve the objectives of identifying 

documents and information that a 

borrower is required to submit to 

complete an otherwise incomplete loss 

mitigation application, and servicers are 

obligated under § 1024.41(b)(1) to 

exercise reasonable diligence in 

obtaining documents and information 

necessary to complete an incomplete 

application. Thus, the proposed 

clarifications were intended to address 

situations where servicers make bona 

fide mistakes in initially evaluating loss 

mitigation applications. 

Third, as described more fully below, 

the Bureau proposed new 

§ 1024.41(c)(2)(iv) to require that, if a 

servicer creates a reasonable expectation 

that a loss mitigation application is 

complete, but later discovers 

information is missing, the servicer 

must treat the application as complete 

for certain purposes until the borrower 

has been given a reasonable opportunity 

to complete the loss mitigation 

application. The Bureau believed the 

proposed rule would mitigate potential 

risks to consumers that could arise 

through a loss mitigation process 

prolonged by incomplete and 

inadequate document reviews and 

repeated requests for supplemental 

information. The Bureau believed these 

new provisions would provide a 

mechanism for servicers to correct bona 

fide mistakes in conducting up-front 

reviews of loss mitigation applications 

for completeness, while ensuring that 

borrowers do not lose the protections 

under the rule due to such mistakes and 

that servicers have incentives to 


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conduct rigorous up-front review of loss 

mitigation applications. 

Comments 

The Bureau received comments from 

industry as well as consumer groups 

addressing the proposed provisions 

addressing a facially complete 

application. Commenters were generally 

supportive of the Bureau addressing 

situations where a servicer later 

discovers additional information is 

required to evaluate an application that 

is complete according to the terms of the 

notice the servicer sent the borrower. 

Commenters generally agreed that a 

strict rule that prevents servicers from 

seeking additional information when 

needed would result in unnecessary 

denials of loss mitigation to the 

borrower and that encouraging 

communication from the servicer to the 

borrower will improve loss mitigation 

procedures for the borrower. However, 

some commenters expressed the view 

that the 2013 Mortgage Servicing Final 

Rules were sufficient in this regard and 

that revisions at a date so close to 

implementation are counterproductive 

to institutions trying to implement the 

rule. 

Final Rule 

As discussed further below in 

connection with § 1024.41(c)(2)(iv), the 

Bureau is adopting amendments that 

achieve largely the same effect as the 

proposal in addressing situations where 

a servicer requires additional 

information to review a facially 

complete loss mitigation application. 

The Bureau believes, as it suggested in 

the proposal, that there is little value in 

requiring a servicer to evaluate a loss 

mitigation application when the servicer 

has determined certain items of 

information are missing. The Bureau is 

therefore adopting comment 

41(b)(2)(i)(B)–1, which clarifies that if, a 

servicer determines, in the course of 

evaluating the loss mitigation 

application submitted by the borrower, 

that additional information is required, 

the servicer must promptly request the 

additional information from the 

borrower. The comment also references 

§ 1024.41(c)(2)(iv), a new provision that 

sets forth requirements and procedures 

for a servicer to follow in the event that 

a facially complete application is later 

found by the servicer to require 

additional information or 

documentation to be evaluated. See the 

discussion of § 1024.41(c)(2)(iv) in the 

section-by-section analysis below. 

The Bureau is not adopting proposed 

comment 41(b)(2)(i)(B)–2, which would 

have provided that protections triggered 

by a ‘‘complete’’ loss mitigation 

application would not be triggered by a 

facially complete application—i.e., 

where the servicer informs the borrower 

that the application is complete, or the 

borrower provides all the documents 

and information specified by the 

servicer in the § 1024.41(b)(2)(i)(B) 

notice as needed to render the 

application complete. The Bureau 

continues to believe that certain 

protections must be provided to 

borrowers who have submitted all the 

missing documents and information 

requested in the 1026.41(b)(2)(i)(B) 

notice, even if a servicer later 

determines additional information is 

necessary. However, the Bureau has 

been persuaded by commenters that 

argued a borrower who submits all the 

documents requested in the 

§ 1024.41(b)(2)(i)(B) notice (if any) 

should receive the protection the rule 

affords to borrowers at the time the 

borrower submits those documents. In 

accordance with this approach, 

proposed comment 41(b)(2)(i)(B)–2 has 

not been finalized. 

41(b)(2)(ii) Time Period Disclosure 

The Proposal 

The Bureau proposed to amend the 

§ 1024.41(b)(2)(ii) time period 

disclosure requirement, which requires 

a servicer to provide a date by which a 

borrower should submit any missing 

documents and information necessary to 

make a loss mitigation application 

complete. Section 1024.41(b)(2)(ii) 

requires a servicer to provide in the 

notice required pursuant to 

§ 1024.41(b)(2)(i)(B) the earliest 

remaining of four specific dates set forth 

in § 1024.41(b)(2)(ii). The four dates set 

forth in § 1024.41(b)(2)(ii) are: (1) The 

date by which any document or 

information submitted by a borrower 

will be considered stale or invalid 

pursuant to any requirements applicable 

to any loss mitigation option available 

to the borrower; (2) the date that is the 

120th day of the borrower’s 

delinquency; (3) the date that is 90 days 

before a foreclosure sale; and (4) the 

date that is 38 days before a foreclosure 

sale. 

In general, many of the protections 

afforded to a borrower by § 1024.41 are 

dependent on a borrower submitting a 

complete loss mitigation application a 

certain amount of time before a 

foreclosure sale. The later a borrower 

submits a complete application, and the 

closer in time to a foreclosure sale, the 

fewer protections the borrower receives 

under § 1024.41. It is therefore in the 

interest of borrowers to complete loss 

mitigation applications as early in the 

delinquency and foreclosure process as 

possible. However, even if a borrower 

does not complete a loss mitigation 

application sufficiently early in the 

process to secure all the protections 

possibly available under § 1024.41, that 

borrower may still benefit from some of 

the protections afforded. Borrowers 

should not be discouraged from 

completing loss mitigation applications 

merely because they cannot complete a 

loss mitigation application by the date 

that would be most advantageous in 

terms of securing the protections 

available under § 1024.41. Accordingly, 

the goal of § 1024.41(b)(2)(ii) is to 

inform borrowers of the time by which 

they should complete their loss 

mitigation applications to receive the 

greatest set of protections available, 

without discouraging later efforts if the 

borrower does not complete the loss 

mitigation application by the suggested 

date. The Bureau notes 

§ 1024.41(b)(2)(ii) requires servicers to 

inform borrowers of the date by which 

the borrower should make the loss 

mitigation application complete, as 

opposed to the date by which the 

borrower must make the loss mitigation 

application complete. 

The Bureau believed, based on 

communications with consumer 

advocates, servicers, and trade 

associations, that the requirement in 

§ 1024.41(b)(2)(ii) may be overly 

prescriptive and may prevent a servicer 

from having the flexibility to suggest an 

appropriate date by which a borrower 

should complete a loss mitigation 

application. For example, if a borrower 

submits a loss mitigation application on 

the 114th day of delinquency, the 

servicer would have to inform him or 

her by the 119th day that the borrower 

should complete the loss mitigation 

application by the 120th day under the 

current provision. A borrower is 

unlikely to be able to assemble the 

missing information within one day, 

and would be better served by being 

advised to complete the loss mitigation 

application by a reasonable later date 

that would afford the borrower most of 

the benefits of the rule as well as 

enough time to gather the information. 

In response to these concerns, and in 

accordance with the goals of the 

provision, the Bureau proposed to 

amend the requirement in 

§ 1024.41(b)(2)(ii). Specifically, the 

Bureau proposed to replace the 

requirement that a servicer disclose the 

earliest remaining date of the four 

specific dates set forth in 

§ 1024.41(b)(2)(ii) with a more flexible 

requirement that a servicer determine 

and disclose a reasonable date by which 

the borrower should submit the 

documents and information necessary to 


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make the loss mitigation application 

complete. The Bureau proposed to 

clarify this amendment in proposed 

comment 41(b)(2)(ii)–1, which would 

have explained that, in determining a 

reasonable date, a servicer should select 

the deadline that preserves the 

maximum borrower rights under 

§ 1024.41, except when doing so would 

be impracticable. Proposed comment 

41(b)(2)(ii)–1 would have clarified 

further that a servicer should consider 

the four deadlines previously set forth 

in § 1024.41(b)(2)(ii) as factors in 

selecting a reasonable date. Proposed 

comment 41(b)(2)(ii)–1 also would have 

clarified that if a foreclosure sale is not 

scheduled, for the purposes of 

determining a reasonable date, a 

servicer may make a reasonable estimate 

of when a foreclosure sale may be 

scheduled. This proposal was intended 

to provide appropriate flexibility while 

also requiring that servicers consider the 

impact of the various times, and the 

associated protections, set forth in 

§ 1024.41. 

Comments 

The Bureau received comments from 

industry as well as consumer groups 

addressing these proposed provisions. 

Industry commenters appreciated the 

extra flexibility offered by the proposal, 

but expressed concern about the 

complexity of selecting a date. Such 

commenters noted that different 

servicers might have different estimates 

of what should be a reasonable time for 

otherwise similarly situated borrowers, 

and differences in state law might also 

cause two apparently similar borrowers 

to receive different notices. 

Additionally, these commenters 

expressed concern that ambiguity in 

what is ‘‘practical’’ increases the risk of 

litigation. These commenters suggested 

either a simpler rule, under which the 

application should be complete by the 

earlier of 30 days after the borrower 

submitted the incomplete application or 

the 38th day before a scheduled 

foreclosure sale (an approach taken by 

HAMP), or that the Bureau provide 

additional guidance for determining 

what is impractical. Finally, 

commenters expressed concern about 

borrower confusion, stating that 

borrowers will not understand the 

significance of the various dates. 

Consumer groups expressed concern 

that if servicers have discretion about 

how to inform borrowers when they 

should complete their applications, 

servicers will misguide borrowers and 

cause them to complete applications too 

late to receive all the protections that 

could have been available under the 

rule. Additionally, some consumer 

groups expressed the view that this 

whole issue would be avoided if the loss 

mitigation protections were triggered by 

an initial application package, defined 

as a specific subset of documents 

required for loss mitigation, rather than 

a complete loss mitigation application. 

Final Rule 

The Bureau is amending the text of 

§ 1024.41(b)(2)(ii) to require that the 

related notice must include a reasonable 

date by which the borrower should 

submit the missing information. 

Additionally, the Bureau is adopting an 

revised version of proposed comment 

41(b)(2)(ii)–1 to clarify what is a 

reasonable date to include in a notice 

sent pursuant to § 1024.41(b)(2)(i)(B). 

Similar to the proposal, final comment 

41(b)(2)(ii)–1 states that, in determining 

a reasonable date, a servicer should 

select the date that preserves the 

maximum borrower rights possible 

under § 1024.41 (and provides the four 

milestones originally in the regulation 

text), except when doing so would be 

impracticable to permit the borrower 

sufficient time to obtain and submit the 

type of documentation needed. The 

final comment has been amended to 

state further that, generally, it would be 

impracticable for a borrower to obtain 

and submit documents in less than 

seven days. 

As discussed in the proposed rule, the 

Bureau has structured this provision so 

that borrowers receive information that 

encourages them to submit a complete 

application in time to receive the most 

protections possible under the rule, 

while not discouraging borrowers who 

miss this time from later submitting an 

application to receive a subset of the 

protections. Because some of the 

protections are triggered by the 

submission of a complete loss 

mitigation application when a certain 

amount of time remains before a 

scheduled foreclosure sale, the 

protections decrease the later a borrower 

submits an application. Thus, the 

Bureau declines to adopt a rule that 

simply suggests the borrower complete 

the application within 30 days because 

such a rule will not meet the intended 

purposes of the provision. 

The Bureau also understands that a 

borrower may not understand the 

significance of certain milestones, and 

may be confused if presented by a list 

of different dates. This is the very 

reason the rule requires the servicer to 

provide a single date by which the 

borrower should complete the 

application—it removes the burden 

from the borrower of calculating the 

different timelines and attempting to 

determine by when they should 

complete their application. 

The Bureau does appreciate the 

challenges of determining what would 

be impracticable, thus the Bureau has 

added language to the commentary 

explaining that generally it would be 

impracticable for a borrower to obtain 

and submit documents in less than 

seven days. The Bureau notes this is a 

minimum number of days, and that a 

servicer may extend this timeline if it 

believes the borrower would need more 

time to gather the information. The 

Bureau believes this approach gives 

servicers guidance as to what is 

impracticable, while allowing some 

flexibility for servicers to address 

situations where additional time would 

be required for the borrower to submit 

particular types of missing information. 

Finally, while the final rule does not 

permit servicers to estimate foreclosure 

sale dates in other contexts, such as for 

purposes of determining whether a 

borrower will be granted an appeal right 

when no foreclosure sale has actually 

been scheduled, the Bureau believes it 

appropriate to allow servicers to 

estimate a foreclosure sale date for the 

narrow purpose of this provision. The 

Bureau notes that servicers may have 

information about when a foreclosure 

sale is likely to be scheduled and that 

allowing a servicer to use this 

information in determining the time by 

which a borrower should complete the 

application would provide the most 

useful date for borrowers. Thus, the 

Bureau includes this provision in the 

comment adopted by this final rule. 

The Bureau notes that some consumer 

groups suggested loss mitigation 

protections should be triggered by an 

initial application package, defined as a 

specific subset of documents required 

for loss mitigation, rather than a 

complete loss mitigation application. 

The Bureau notes that while such an 

approach has been used in other loss 

mitigation programs, such a 

modification to the loss mitigation 

provisions of § 1024.41 is beyond the 

scope of the proposed changes to the 

rule. 

41(b)(3) Determining Protections 

The Proposal 

The Bureau proposed to add new 

§ 1024.41(b)(3) addressing the 

borrowers’ rights in situations in which 

no foreclosure sale has been scheduled 

as of the date a complete loss mitigation 

application is received, or a previously 

scheduled foreclosure sale is 

rescheduled after receipt of a complete 

application. As discussed in the 

proposal, § 1024.41 is structured to 


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provide different procedural rights to 

borrowers and impose different 

requirements on servicers depending on 

the number of days remaining until a 

foreclosure sale is scheduled to occur, 

as of the time that a complete loss 

mitigation application is received. 

However, the provisions of § 1024.41 do 

not expressly address situations in 

which a foreclosure sale has not yet 

been scheduled at the time a complete 

loss mitigation application is received, 

or is rescheduled after the application is 

received. Since issuance of the final 

rule, the Bureau has received questions 

about the applicability of the timing 

provisions in such situations. 

Specifically, industry stakeholders have 

asked whether it is appropriate to use 

estimated dates of foreclosure where a 

foreclosure sale has not been scheduled 

at the time a complete loss mitigation 

application is received. Further, 

industry stakeholders have requested 

guidance on how to apply the timelines 

if no foreclosure is scheduled as of the 

date a complete loss mitigation 

application is received, but a foreclosure 

sale is subsequently scheduled less than 

90 days after receipt of such application, 

or if a foreclosure sale has been 

scheduled for less than 90 days after a 

complete application is received, but is 

then postponed to a date that is 90 days 

or more after the receipt date. 

The Bureau proposed new 

§ 1024.41(b)(3), which stated that, for 

purposes of § 1024.41, timelines based 

on the proximity of a foreclosure sale to 

the receipt of a complete loss mitigation 

application will be determined as of the 

date a complete loss mitigation 

application is received. Proposed 

comment 41(b)(3)–1 would have 

clarified that if a foreclosure sale has not 

yet been scheduled as of the date that 

a complete loss mitigation application is 

received, the application shall be treated 

as if it were received at least 90 days 

before a foreclosure sale. Proposed 

comment 41(b)(3)–2 would have 

clarified that such timelines would 

remain in effect even if at a later date 

a foreclosure sale was rescheduled. 

The Bureau believed this approach 

would provide certainty to both 

servicers and borrowers as well as 

ensure that borrowers receive the 

broadest protections available under the 

rule in situations in which a foreclosure 

sale has not been scheduled at the time 

a borrower submits a complete loss 

mitigation application. In the proposal, 

the Bureau also discussed alternative 

modifications to the rule, which the 

Bureau declined to propose, including 

having the applicable timelines vary 

depending on the newly scheduled (or 

re-scheduled) sale date, or allowing 

servicers to estimate when a foreclosure 

sale might be scheduled. On balance, 

the Bureau believed that a 

straightforward rule under which the 

protections that attach are determined 

as of the date of receipt of a complete 

loss mitigation application, and a 

complete loss mitigation application is 

treated as having been received 90 days 

or more before a foreclosure sale if no 

sale is scheduled as of the date the 

application is received, is preferable 

because it would provide industry and 

borrowers with clarity regarding its 

application, without the unnecessary 

complexity that other approaches might 

produce. The Bureau recognized that 

the proposed rule might in some cases 

require a servicer to delay a foreclosure 

sale to allow the specified time for the 

borrower to respond to a loss mitigation 

offer and to appeal the servicer’s denial 

of a loan modification option, where 

applicable, and sought comment and 

supporting data regarding circumstances 

in which this may occur. 

Comments 

The Bureau received comments from 

industry as well as consumer groups 

addressing these proposed provisions. 

Overall, commenters appreciated the 

clarity and simplicity of the proposed 

rule. They supported the idea that 

borrower protection should be clear and 

certain. One consumer advocate 

expressed concern that the rule limits, 

but does not eliminate, dual tracking. 

This commenter was concerned that a 

sale may be scheduled with less than 37 

days’ notice. Another consumer 

advocate suggested the rule should 

always adopt the most consumerfriendly timeline. That is, if a sale is 

postponed, a borrower should receive 

the benefit of any extra protections that 

might arise given a longer time between 

the sale and the submission of a 

complete application; but if a sale is 

scheduled to occur on a short timeline, 

the borrower should not lose the 

original protections that had attached on 

the basis of the longer timeline. 

Industry commenters expressed 

concern about the feasibility of the 

proposed rule. Such commenters were 

concerned this may inappropriately 

extend the timeline of a foreclosure sale. 

These commenters urged the Bureau to 

limit the appeal right to when a 

complete application is submitted 

within 30 days of the first notice or 

filing required for a foreclosure sale. 

Alternatively, some commenters urged 

the Bureau to allow servicers to estimate 

when a foreclosure sale may occur. For 

example, one commenter suggested 

such estimates could be based on 

estimates provided by nationally 

recognized sources. Finally, industry 

commenters expressed concern the 

proposed provision may not be feasible 

because a servicer may be unable to 

move a scheduled foreclosure sale. One 

commenter recommended the Bureau 

offer an exemption from liability when 

an investor or court requires a servicer 

to continue with a foreclosure sale in 

violation of the applicable timelines. 

Final Rule 

The Bureau is finalizing 

§ 1024.41(b)(3) and its related 

commentary substantially as proposed, 

but with minor wording changes. For 

the reasons discussed in the proposal, 

the Bureau believes the final rule 

appropriately balances consumer 

protection and servicer needs. This 

approach provides certainty to both 

servicers and borrowers, as well as 

ensures that borrowers receive the 

broadest protections available under the 

rule in situations where a foreclosure 

sale has not been scheduled at the time 

a complete loss mitigation application is 

received. 

The Bureau declines to adopt other 

approaches suggested in comments. The 

Bureau notes that structuring the rule 

such that a borrower’s rights may be 

added or removed because a foreclosure 

sale was moved or rescheduled would 

not provide the certainty or simplicity 

created by the proposed rule. Further, 

the Bureau is concerned that if moving 

a foreclosure sale to a later date could 

trigger new protections, such a policy 

may provide a disincentive for a 

servicer to reschedule a foreclosure sale 

for a later date. Finally, the Bureau does 

not believe it is appropriate to limit the 

appeal rights to when a complete 

application is submitted within 30 days 

of the first notice or filing, because, 

regardless of when a first notice or filing 

is made, a servicer should be able to 

provide a borrower an appeal when 

there is sufficient time before the 

scheduled foreclosure sale. 

The Bureau does not believe that the 

rule being finalized, which grants the 

borrower certain rights if a borrower 

submits a complete loss mitigation 

application before a sale has been 

scheduled, will cause inappropriate 

delays in the foreclosure process. First, 

while some States may schedule 

foreclosure sales to occur in less than 90 

days of the scheduling of the sale, 

completing the process of reviewing a 

loss mitigation application may not 

necessitate a delay in the scheduled 

sale. For example, if the scheduling of 

a sale occurs 30 days after a complete 

loss mitigation application is submitted, 

and the sale is scheduled for 60 days 

after the scheduling occurs, the servicer 


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will have sufficient time to follow the 

complete loss mitigation procedures 

without having to move the foreclosure 

sale. Second, servicers control many of 

the timelines in the process, including 

the 30-day evaluation window, and the 

time to process an appeal. If a 

foreclosure sale is rescheduled to occur 

in less than 90 days after a borrower 

submitted a complete application, a 

servicer does have the option to review 

the application quickly and, in doing so, 

the servicer may avoid the need to 

postpone the foreclosure sale. 

In situations where there is a conflict 

(a later scheduled foreclosure sale that 

does not allow a servicer or borrower 

sufficient time to complete the 

procedures required by the loss 

mitigation rules), the Bureau expects a 

servicer to take the necessary steps to 

avoid having the foreclosure sale occur 

before the loss mitigation review 

procedures run their course, including 

asking a court to move a scheduled 

foreclosure sale, if necessary. An 

important objective of the 2013 

Mortgage Servicing Final Rules is to 

ensure that loss mitigation applications 

receive careful review, so that a servicer 

does not foreclose on a borrower who 

would have qualified for a loss 

mitigation option and who timely 

submitted a complete application for 

loss mitigation. Consistent with that 

objective, once a borrower has 

submitted an application, a servicer 

should carry out the procedures 

prescribed by the rule in light of the 

timing and content of the application. 

To permit a later scheduled (or 

rescheduled) foreclosure sale to cut 

short those procedures would be 

inconsistent with the objective just 

described. For these reasons, the Bureau 

finalizes the rule substantially as 

proposed, with minor wording changes. 

41(c) Evaluation of Loss Mitigation 

Applications 

41(c)(1) Complete Loss Mitigation 

Application 

41(c)(1)(ii) 

The Bureau proposed to amend 

§ 1024.41(c)(1)(ii) to state explicitly that 

the notice this provision requires must 

state the deadline for accepting or 

rejecting a servicer’s offer of a loss 

mitigation option, in addition to the 

requirements currently in 

§ 1024.41(d)(2) to specify, where 

applicable, that the borrower may 

appeal the servicer’s denial of a loan 

modification option, the deadline for 

doing so, and any requirements for 

making an appeal. As described in the 

proposal, the Bureau intended that the 

§ 1024.41(c)(1)(ii) notice would specify 

the time and procedures for the 

borrower to accept or to reject the 

servicer’s offer, in accordance with 

requirements specified in § 1024.41(e). 

Indeed, § 1024.41(e)(2)(i) provides that 

the servicer may deem the borrower to 

have rejected the offer if the borrower 

does not respond within the timelines 

specified under § 1024.41(e)(1). Further, 

under § 1024.41(e)(2)(ii) and that the 

servicer must give the borrower a 

reasonable opportunity to complete 

documentation necessary to accept an 

offer of a trial loan modification plan if 

the borrower does not follow the 

specified procedures but begins making 

payments in accordance with the offer 

by the deadline specified in 

§ 1024.41(e)(1). Commenters did not 

have any objections to the proposed 

provision, and the Bureau is adopting 

this provision as proposed. 

41(c)(2) Incomplete Loss Mitigation 

Application Evaluation 

41(c)(2)(iii) Payment Forbearance 

The Proposal 

The Bureau proposed to modify 

§ 1024.41(c)(2) to allow servicers to offer 

short-term forbearance to borrowers 

based on a review of an incomplete loss 

mitigation application, notwithstanding 

that provision’s restriction on servicers 

offering a loss mitigation option to a 

borrower based on the review of an 

incomplete loss mitigation application. 

In adopting the 2013 Mortgage Servicing 

Final Rules, the Bureau crafted broad 

definitions of ‘‘loss mitigation option’’ 

and ‘‘loss mitigation application’’ for 

purposes of § 1024.41, to provide a 

streamlined process in which a 

borrower will be evaluated for all 

available loss mitigation options at the 

same time, rather than having to apply 

multiple times to be evaluated for 

different options one at a time. Since 

publication of the final rule, however, 

both industry and consumer advocates 

have raised questions and concerns 

about how the rule applies in situations 

in which a borrower needs and requests 

only short-term forbearance. For 

instance, a number of servicers have 

inquired about whether the rule would 

prevent them from granting a borrower’s 

request for waiver of late fees or other 

short-term relief after a natural disaster 

until the borrower submits all 

information necessary for evaluation of 

the borrower for long-term loss 

mitigation options. Additionally, both 

consumer advocates and servicers have 

raised questions about whether a 

borrower’s request for short-term relief 

would later preclude a borrower from 

invoking the protections afforded by the 

rule if the borrower encounters a 

significant change in circumstances that 

warrants long-term loss mitigation 

alternatives. 

The Bureau was conscious of the 

difficulties involved in distinguishing 

short-term forbearance programs from 

other types of loss mitigation and of the 

concern that some servicers may have 

significantly exacerbated borrowers’ 

financial difficulties by using short-term 

forbearance programs inappropriately 

instead of reviewing the borrowers for 

long-term options. Nevertheless, the 

Bureau believed that it was possible to 

revise the rule to facilitate appropriate 

use of short-term payment forbearance 

programs without creating undue risk 

for borrowers who need to be evaluated 

for a full range of loss mitigation 

alternatives. 

At the outset, the Bureau noted that 

it does not construe the existing rule to 

require that servicers obtain a complete 

loss mitigation application prior to 

exercising their discretion to waive late 

fees. Additionally the Bureau noted 

that, under the rule as adopted, a 

servicer may offer any borrower any loss 

mitigation option if the borrower has 

not submitted a loss mitigation 

application or if the offer is not based 

on an evaluation of an incomplete loss 

mitigation application, as clarified in 

existing comment 41(c)(2)(i)–1. 

With regard to short-term forbearance 

programs that involve more than simply 

waiving late fees, such as where a 

servicer allows a borrower to forgo 

making a certain number of payments 

and then to catch up by spreading the 

unpaid amounts over some subsequent 

period of time, the Bureau believed that 

the issues raised by various stakeholders 

could most appropriately be addressed 

by providing more flexibility to 

servicers to provide such relief even if 

it is based on review of an incomplete 

loss mitigation application. Thus, the 

Bureau did not propose to change the 

current definition of loss mitigation 

option, which includes all forbearance 

programs. Rather, the Bureau proposed 

to relax the anti-evasion restriction in 

§ 1024.41(c)(2)(i), which prohibits a 

servicer from offering a loss mitigation 

option based upon an evaluation of an 

incomplete loss mitigation application. 

The Bureau thus proposed 

§ 1024.41(c)(2)(iii), which would have 

allowed short-term payment forbearance 

programs to be offered based on a 

review of an incomplete loss mitigation 

application. The proposed exemption 

would have applied only to short-term 

payment forbearance programs. 

Proposed comment 41(c)(2)(iii)–1 stated 

that a payment forbearance program is 

a loss mitigation option for which a 

servicer allows a borrower to forgo 


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making certain payments for a period of 

time. Short-term payment forbearance 

programs may be offered when a 

borrower is having a short-term 

difficulty brought on, for example, by a 

natural disaster. In such cases, the 

servicer offers a short-term payment 

forbearance arrangement to assist the 

borrower in managing the hardship. The 

Bureau explained that, in its view, it is 

appropriate for servicers to have the 

flexibility to offer short-term payment 

forbearance programs prior to receiving 

a complete loss mitigation application 

for all available loss mitigation options. 

Proposed comment 41(c)(2)(iii)–1 also 

would have explained that a short-term 

program is one that allows the 

forbearance of payments due over 

periods of up to two months. 

The Bureau noted that, under the 

proposed approach, servicers that 

receive a request for short-term payment 

forbearance and grant such requests 

would remain subject to the 

requirements triggered by the receipt of 

a loss mitigation application in 

§ 1024.41. Thus, as explained in 

proposed comment 41(c)(2)(iii)–2, if a 

servicer offers a payment forbearance 

program based on an incomplete loss 

mitigation application, the servicer still 

would be required to review the 

application for completeness, to send 

the § 1024.41(b)(2)(i)(B) notice to inform 

the borrower whether the application is 

complete or incomplete, and if 

incomplete what documents or 

additional information are required, and 

to use reasonable diligence to complete 

the loss mitigation application. If a 

borrower in this situation submits a 

complete application, the servicer must 

evaluate it for all available loss 

mitigation options. The Bureau believed 

that maintaining these requirements is 

important to ensure that borrowers are 

not inappropriately diverted into shortterm forbearance programs without 

access to the full protections of the 

regulation. At the same time, if a 

borrower in fact does not want an 

evaluation for long-term options, the 

borrower may simply refrain from 

providing the additional information 

necessary to submit a complete 

application and the servicer will 

therefore not be required to conduct a 

full assessment for all options. 

To ensure that a borrower who is 

receiving an offer of short-term payment 

forbearance understands the options 

available, proposed § 1024.41(c)(2)(iii) 

would have required a servicer offering 

a short-term payment forbearance 

program to a borrower based on an 

incomplete loss mitigation application 

to include in the § 1024.41(b)(2)(i)(B) 

notice additional information, 

specifically that: (1) The servicer has 

received an incomplete loss mitigation 

application and on the basis of that 

application the servicer is offering a 

short-term payment forbearance 

program; (2) absent further action by the 

borrower, the servicer will not be 

reviewing the incomplete application 

for other loss mitigation options; and (3) 

if the borrower would like to be 

considered for other loss mitigation 

options, he or she must submit the 

missing documents and information 

required to complete the loss mitigation 

application. The Bureau believed that 

providing borrowers this more specific 

information is important to ensure that 

borrowers do not face unwarranted 

delays and paperwork and that servicers 

do not misuse short-term forbearance to 

avoid addressing long-term problems. 

Finally, the Bureau proposed 

comment 41(c)(2)(iii)–3 to clarify 

servicers’ obligations on receipt of a 

complete loss mitigation application. 

The proposed comment would have 

stated that, notwithstanding that a 

servicer may have offered a borrower a 

payment forbearance program after an 

evaluation of an incomplete loss 

mitigation application, and even if the 

borrower accepted the payment 

forbearance offer, a servicer must still 

comply with all requirements in 

§ 1024.41 on receipt of a borrower’s 

submission of a complete loss 

mitigation application. This proposed 

comment was intended to clarify that, 

even though payment forbearance may 

be offered as short-term assistance to a 

borrower, a borrower is still entitled to 

submit a complete loss mitigation 

application and receive an evaluation of 

such application for all available loss 

mitigation options. Although payment 

forbearance may assist a borrower with 

a short-term hardship, a borrower 

should not be precluded from 

demonstrating a long-term inability to 

afford the original mortgage, and being 

considered for long-term solutions, such 

as a loan modification, when that may 

be appropriate. 

Comments 

The Bureau received comments from 

both industry and consumer group 

commenters on this provision. 

Commenters were generally very 

supportive of allowing an exclusion 

from the full loss mitigation procedures 

for short-term problems, that is, 

problems that can be quickly resolved 

(e.g., a borrower needed new tires for 

his or her car and thus falls a month 

behind on mortgage payments). They 

asserted that short-term problems are 

better resolved quickly and that the full 

loss mitigation procedures should apply 

only to consumers with long-term 

problems. One industry commenter 

stated that the paperwork of the full 

procedures would be seen as 

burdensome when a borrower had a 

short-term problem, and this would be 

perceived as poor customer service. 

Additionally, commenters pointed out 

that, under § 1024.41(i), a borrower is 

entitled to the full procedures for only 

a single complete loss mitigation 

application, and it would not be in the 

borrower’s best interest to ‘‘waste’’ that 

single evaluation under the full 

procedures on a simple, short-term 

problem. Consumer advocate 

commenters suggested that borrowers 

should be warned before they use their 

single evaluation. 

Both consumer advocate and industry 

commenters expressed concern that the 

two-month forbearance contemplated by 

the proposed rule was too brief. Such 

commenters urged the Bureau to permit 

payment forbearances of as long as six 

months or a year, to allow borrowers the 

opportunity to resolve their problems 

(for example, attempting to find a new 

job) before using up their opportunities 

to be evaluated for long-term options, 

such as a loan modification. Further, 

commenters expressed that the industry 

standard for payment forbearance 

programs was longer than two months— 

often six months or even a year. Finally, 

commenters expressed that short-term 

forbearances were particularly 

important for addressing two situations, 

unemployment and natural disasters. 

Final Rule 

The Bureau is adopting 

§ 1024.41(c)(2)(iii) generally as 

proposed. However, in light of 

comments received, the Bureau has 

made some adjustments to the proposed 

provisions. As discussed below, the 

Bureau is clarifying the servicer’s 

reasonable diligence obligation when a 

borrower has been offered a payment 

forbearance based on evaluation of an 

incomplete loss mitigation application, 

and the Bureau has adjusted the limit on 

the length of payment forbearances that 

would be allowed under this provision. 

Payment forbearance based on an 

incomplete application. The Bureau is 

adopting, with some adjustments, the 

general exclusion for short-term 

forbearance from the prohibition on 

offering loss mitigation based on an 

incomplete application. The Bureau 

continues to believe this exclusion is 

appropriate, because it should provide 

servicers greater flexibility to address 

short-term problems quickly and 

efficiently. Further, because the 

exclusion applies to decisions based on 

review of incomplete loss mitigation 


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applications, it will allow the 

borrower’s short-term problems to be 

addressed while preserving a borrower’s 

single use of the full § 1024.41 loss 

mitigation procedures. 

The Bureau declines to exclude 

payment forbearance from the definition 

of loss mitigation. The final rule 

provides the same benefits in flexibility 

that would be achieved by revising the 

definition of loss mitigation while 

preserving important consumer 

protections. If a borrower requests 

payment forbearance, he or she should 

be regarded as having requested loss 

mitigation under the terms of § 1024.41, 

and the procedures generally required 

by the rule should take place. Further, 

the Bureau notes that a borrower always 

has the option of completing his or her 

loss mitigation application and 

receiving a full evaluation for all 

options. This is reflected in comment 

41(c)(2)(iii)–3, which states that even if 

a servicer offers a borrower a payment 

forbearance program after an evaluation 

of an incomplete loss mitigation 

application, the servicer must still 

comply with all other requirements in 

§ 1024.41 if the borrower completes his 

or her loss mitigation application. 

The Bureau notes that the new 

provision addresses only payment 

forbearance that is offered based on an 

evaluation of an incomplete application. 

The Bureau is aware, as some 

commenters noted, that situations may 

arise where a borrower completes a loss 

mitigation application and goes through 

a full loss mitigation evaluation, and the 

end result is the borrower being offered 

a payment forbearance—which would 

exhaust his or her single use of the 

§ 1024.41 loss mitigation procedures. 

The Bureau notes that some consumer 

advocates asked the Bureau to exempt 

any such loss mitigation evaluation 

from the successive request provision in 

§ 1024.41(i), or require that such 

borrowers be warned so they know not 

to complete their application if they are 

seeking only payment forbearance. 

While the Bureau acknowledges these 

concerns, the Bureau notes that the 

proposal was limited to discussing 

payment forbearance based on 

incomplete applications, and comments 

addressing payment forbearance based 

on complete applications are beyond the 

scope of the proposed rule. Further, the 

Bureau notes that the loss mitigation 

rules are intended to address only 

procedures, and leave the substantive 

decisions on different loss mitigation 

programs to the discretion of the owner 

or assignee. Finally, the Bureau notes 

that any issues related to the second or 

successive request provision in 

§ 1024.41(i) would more appropriately 

be addressed in a rulemaking focusing 

on that provision. 

Payment forbearance and reasonable 

diligence. The proposed provision on 

payment forbearance included a 

modification to the § 1024.41(b)(2)(i)(B) 

notice, which would have required the 

notice to include additional information 

when a servicer was offering a borrower 

payment forbearance based on an 

incomplete application. While the 

Bureau believes it is important for 

borrowers to be informed that they are 

being offered payment forbearance 

based on an incomplete loss mitigation 

application and they may receive a full 

review for all other options by 

completing their applications, the 

Bureau believes that servicers should 

have flexibility to provide this message 

at the appropriate time. A servicer may, 

in some circumstances, need to 

communicate additional information 

regarding payment forbearance. For 

example, a servicer may require 

additional information—short of a 

complete loss mitigation application—to 

offer a borrower a payment forbearance 

program. Further, the Bureau 

acknowledges that a servicer may 

decide to offer a borrower payment 

forbearance at various stages of the loss 

mitigation process, and the message 

should be provided at the appropriate 

time. For example, if a servicer needs 

additional information before offering 

payment forbearance, the servicer might 

not decide to offer a borrower payment 

forbearance until after the 

§ 1024.41(b)(2)(i)(B) notice has been sent 

out. In light of these considerations, the 

Bureau declines to finalize the provision 

regarding modification of the 

§ 1024.41(b)(2)(i)(B) notice in the 

context of payment forbearance. Instead, 

the Bureau has amended comment 

41(b)(1)–4, added paragraph 4.iii, which 

addresses a servicer’s reasonable 

diligence obligations. The comment 

explains that, when a servicer offers a 

borrower payment forbearance based on 

an incomplete application, the servicer 

should notify the borrower that the 

borrower may complete the application 

to receive a full evaluation of all loss 

mitigation options available to the 

borrower. 

The Bureau believes a servicer’s 

diligence obligations may vary 

depending on the facts and 

circumstances. In some instances, it 

may be appropriate for servicers to 

include this additional information in 

the § 1024.41(b)(2)(i)(B) notice. For 

example, if a servicer decides to offer a 

borrower payment forbearance based on 

the initial submission that establishes 

the loss mitigation application (e.g., the 

borrower calls the servicer and, on the 

basis of that call, the servicer decides to 

offer the borrower payment 

forbearance), the servicer might include 

the message (that the borrower is being 

offered payment forbearance but may 

complete the application to receive a 

full evaluation) in the 

§ 1024.41(b)(2)(i)(B) notice, along with 

the full list of information and 

documents necessary to complete the 

loss mitigation application. 

Alternatively, if the servicer wanted to 

offer the borrower a payment 

forbearance program, but needed a few 

additional documents to do so, the 

servicer might send a 

§ 1024.41(b)(2)(i)(B) notice explaining 

that the borrower has the option of 

submitting a few items and receiving 

payment forbearance, or submitting all 

the missing information and receiving a 

full evaluation. If the borrower 

submitted only the items for the 

payment forbearance and the servicer 

offered the borrower a payment 

forbearance program, at that time the 

servicer could to notify the borrower 

that he or she has the option of 

completing the application. 

Conversely, if the servicer does not 

decide to offer a payment forbearance 

program based on an evaluation of an 

incomplete loss mitigation application 

until after the § 1024.41(b)(2)(i)(B) 

notice has been sent, the servicer would 

still have the option of offering the 

borrower payment forbearance at that 

later time. The servicer would notify the 

borrower that he or she has the option 

of completing the application at the 

time the servicer offered the payment 

forbearance program. 

In addition, the Bureau is adding a 

new subpart to comment 41(b)(1)–4 to 

further elaborate on the servicer’s 

reasonable diligence obligation when a 

borrower is considered for short-term 

forbearance under this provision. Once 

a borrower has begun a payment 

forbearance program, the Bureau 

believes the servicer need not continue 

to request missing items from the 

borrower during the course of the 

payment forbearance program, unless 

the borrower fails to comply with the 

payment forbearance program or the 

borrower indicates he or she would like 

to continue completing the application. 

Thus, comment 41(b)(1)–4.iii states that, 

once a servicer provides this 

notification, the servicer could suspend 

reasonable diligence efforts until near 

the end of the payment forbearance 

program, so long as the borrower 

remains in compliance with the 

payment forbearance program and does 

not request any further assistance. 

Finally, the Bureau believes that, 

unless the borrower has brought his or 


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her loan current, it may be necessary for 

the servicer to contact the borrower 

prior to the end of the forbearance 

period to determine if the borrower 

wishes to complete the application and 

proceed with a full loss mitigation 

evaluation. Thus, comment 41(b)(1)– 

4.iii states that near the end of the 

program, and prior to the end of the 

forbearance period, it may be necessary 

for the servicer to contact the borrower 

to determine if the borrower wishes to 

complete the application and proceed 

with a full loss mitigation evaluation. 

Length of payment forbearance. The 

Bureau is amending the proposed 

interpretation of ‘‘short-term’’ 

forbearance, in light of public comments 

that supported the general exception, 

but suggested that an exception 

permitting only two-month forbearances 

would be of limited benefit to borrowers 

and servicers. The Bureau is persuaded 

that a two-month payment forbearance 

window may not allow the borrower 

sufficient time to remedy even some 

short-term problems. As adopted, 

comment 41(b)(2)(iii)–1 explains that 

‘‘short-term’’ forbearance means a 

program that allows the forbearance of 

payments due over periods of no more 

than six months, as opposed to two 

months. The Bureau notes that this sixmonth period may cover time both 

before and after the payment 

forbearance was granted (for example, if 

a borrower is one month delinquent 

when a servicer offers a payment 

forbearance program, the program may 

only extend 5 months into the future). 

The Bureau believes the extended 

timeline allows the servicer sufficient 

flexibility to address most short-term 

situations. 

As discussed in the proposal, the 

Bureau was concerned that, if a servicer 

offered a borrower a payment 

forbearance of more than two months, 

the borrower may lose the benefit of the 

120-day foreclosure referral prohibition 

in § 1024.41(f)(1), because the 120 days 

may run out during the course of the 

forbearance plan. The Bureau believes 

that, as part of a payment forbearance 

program as contemplated by this rule, a 

servicer should not foreclose on a 

borrower who is complying with the 

payment forbearance program. To make 

explicit that this restriction is an aspect 

of the payment forbearance programs 

permissible under the new provision, 

the Bureau has added a foreclosure 

protection clause to the payment 

forbearance provision in 

§ 1024.41(c)(2)(iii). 

The Bureau received comments 

requesting longer payment forbearance 

programs and noting that existing 

programs that may be offered through 

HUD or HAMP, or by the Federal 

National Mortgage Association and 

Federal Home Loan Mortgage 

Corporation (collectively ‘‘GSEs’’), may 

offer payment forbearance for periods 

extending beyond six months to a year, 

particularly in situations such as natural 

disaster or unemployment. The Bureau 

remains convinced that, if a borrower 

has a long-term problem, such a 

borrower should, if the borrower 

chooses, receive a full evaluation for all 

loss mitigation options. Because 

forbearance programs under 

§ 1024.41(c)(2)(iii) should only be used 

for temporary problems, the Bureau 

believes it is important to reassess a 

borrower’s situation after no more than 

six months. 

However, the new rule does not 

preclude a servicer from offering 

multiple successive short-term payment 

forbearance programs. As discussed 

below in the Section 1022(b)(2) of the 

Dodd-Frank Act analysis, the Bureau 

has sought to ensure that borrowers 

would receive significant benefits from 

the additional option without losing 

protections provided by § 1024.41. 

Commenters strongly felt that a short 

forbearance period would not provide 

much additional benefit to borrowers, 

and further explained that a payment 

forbearance of less than a year may 

interfere with existing programs under 

HUD, HAMP, and the GSEs. The Bureau 

acknowledges that a borrower will 

generate a significant unpaid debt over 

the course of a long forbearance period. 

However, the Bureau notes that a 

borrower who believes the 

circumstances warrant cutting a long 

forbearance short can receive a full 

review for all loss available mitigation 

options by submitting a complete loss 

mitigation application. In addition, the 

Bureau believes that the risk servicers 

would attempt to evade the full loss 

mitigation procedures by offering 

sequential six-month forbearances to 

delinquent borrowers is low. Thus, the 

Bureau believes that borrowers benefit 

more from renewable forbearance 

agreements than they would benefit 

from any limit the Bureau might impose 

at this time on the maximum number of 

forbearances. The Bureau notes, 

however, that while the final rule does 

not prohibit a servicer from offering 

multiple short-term forbearances under 

this provision, the Bureau intends to 

monitor how temporary forbearances are 

used after this final rule becomes 

effective and, if it determines servicers 

are inappropriately offering sequential 

payment forbearances, may address the 

issue in a later rulemaking or by other 

means at a later date. 

41(c)(2)(iv) Facially Complete 

Application 

The Proposal 

As discussed above, the Bureau 

proposed new § 1024.41(c)(2)(iv), which 

stated that if a servicer creates a 

reasonable expectation that a loss 

mitigation application is complete but 

later discovers additional documents or 

information is needed to evaluate the 

application, the servicer shall treat the 

application as complete as of the date 

the borrower had reason to believe the 

application was complete, for purposes 

of applying § 1024.41(f)(2) and (g), until 

the borrower has been given a 

reasonable opportunity to complete the 

loss mitigation application. This 

provision was designed to work together 

with proposed new comments 

41(b)(2)(i)–1 and –2, as discussed above, 

to address situations when a servicer 

determines that an application the 

servicer previously determined to be 

complete (or to be missing particular 

information) is in fact is lacking 

additional information needed for 

evaluation. 

The Bureau has received questions 

about the impact of an error in the 

notice required by § 1024.41(b)(2)(i)(B), 

particularly in light of the short time the 

servicer has to review the information 

submitted by the borrower. As 

discussed above, the Bureau recognizes 

that, in certain circumstances, an 

application may appear to be complete 

(or to be missing only specific 

information), but the servicer, upon 

further evaluation, may determine that 

additional information is needed before 

the servicer can evaluate the borrower 

for all available loss mitigation options. 

The proposed commentary to 

§ 1024.41(b)(2)(i) was intended to clarify 

that servicers are required to obtain the 

missing information in such situations. 

Proposed § 1024.41(c)(2)(iv) was 

intended to protect borrowers while a 

servicer requests the missing 

information. 

Proposed comment 41(c)(2)(iv)–1 

would have clarified that a reasonable 

expectation is created when the 

borrower submits all the missing items 

(if any) identified in the 

§ 1024.41(b)(2)(i)(B) notice. When a 

reasonable expectation that a loss 

mitigation application is complete is 

created but the servicer later discovers 

that the application is incomplete, 

proposed § 1024.41(c)(2)(iv) would have 

provided that the servicer shall treat the 

application as complete for certain 

purposes until the borrower has been 

given a reasonable opportunity to 

supply the missing information 

necessary to complete the loss 


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mitigation application. Specifically, 

under this provision, the servicer would 

need to treat the application as complete 

for purposes of the foreclosure referral 

prohibition in § 1024.41(f)(2) and the 

foreclosure sale limitations in 

§ 1024.41(g). Proposed 

§ 1024.41(c)(2)(iv) would have ensured 

that servicers that made bona fide 

mistakes in making initial 

determinations of completeness need 

not be considered in violation of the 

rule, and that borrowers do not lose 

protections under the rule due to such 

mistakes. The Bureau believed that, 

once a borrower is given reason to 

believe he or she has the benefit of 

certain protections (which are triggered 

by submission of a complete loss 

mitigation application), if the servicer 

discovers that an application is 

incomplete, the borrower should have a 

reasonable opportunity to complete the 

application before losing the benefit of 

such protections. 

Proposed comment 41(c)(2)(iv)–2 

would have provided guidance on what 

would be a reasonable opportunity for 

the borrower to complete a loss 

mitigation application. The comment 

states that a reasonable opportunity 

requires that the borrower be notified of 

what information is missing and be 

given sufficient time to gather the 

information and submit it to the 

servicer. The amount of time that is 

sufficient for this purpose would 

depend on the facts and circumstances. 

The Bureau believed that proposed 

§ 1024.41(c)(2)(iv) would preserve 

servicers’ obligation to conduct rigorous 

up-front reviews, while providing 

servicers the ability to correct a goodfaith mistake or clerical error. Further, 

servicers seeking relief under the 

provision need only give borrowers a 

reasonable opportunity to provide the 

missing information, thus allowing a 

servicer to continue the foreclosure 

process if a borrower does not provide 

such information. 

Comments 

As discussed above in the section-bysection analysis of § 1024.41(b)(2)(i), the 

Bureau received comments from 

industry as well a consumer groups 

addressing these proposed provisions. 

Commenters were generally supportive 

of the Bureau addressing situations 

where a servicer later discovers 

additional documents or information are 

required to complete a loss mitigation 

application. However, commenters 

sought additional clarification on 

several aspects of the proposed 

amendment. First, commenters sought 

clarification on when a borrower’s rights 

or protections are triggered. 

Commenters also expressed concern 

that it was unclear when a reasonable 

expectation had been created. For 

example, one commenter stated that a 

servicer may argue a homeowner had no 

reasonable expectation even if a 

complete application was submitted. 

Second, commenters sought 

clarification as to what would be 

considered a reasonable amount of time 

for a borrower to complete an 

application. Commenters suggested a set 

number of days should be given. 

Finally, commenters asked what 

happens after the missing information is 

provided or a reasonable time passes 

and the borrower fails to provide the 

information. Some commenters stated 

that the application should be 

considered complete only as of the date 

the missing information was provided 

and the application was actually 

completed. Other commenters stated the 

application should be treated as if it 

were complete when the reasonable 

expectation was created. One 

commenter pointed out that the 

expectation should be created based on 

the borrower’s action (submitting the 

items requested in the 

§ 1024.41(b)(2)(i)(B) notice), rather than 

on an action (or inaction) of the servicer. 

As this commenter noted, if a borrower 

initially submits a complete application, 

the related protections of the rule 

should be triggered when the borrower 

submits the application, not when the 

servicer sends the § 1024.41(b)(2)(i)(B) 

notice. Therefore, this commenter 

asserted, if a borrower is asked to 

provide certain items, the protections 

should be triggered when those items 

are provided, not when the servicer 

deems the application to be complete. 

Finally, some commenters suggested the 

proposed revisions should go further 

and require a confirmation notice, as 

well as provide additional guidance on 

the timing and content of that notice. 

For example, one commenter suggested 

that servicers should be required to 

explain the reason a particular 

document does not meet underwriting 

guidelines, rather than simply 

requesting the document again. 

Final Rule 

The Bureau is adopting a final version 

of § 1024.41(c)(2)(iv) that is similar to 

the proposed version, but with some 

modifications. First, the Bureau is not 

including the ‘‘reasonable expectation’’ 

standard set forth in the proposal. 

Instead, the provision as adopted states 

that, if a borrower submits all the 

missing information listed in the notice 

required pursuant to 

§ 1026.41(b)(2)(i)(B), or if no additional 

information is requested in such notice, 

the application shall be considered 

‘‘facially complete’’ and will trigger 

certain borrower protections. Upon 

further consideration, the Bureau 

believes the subjective nature of the 

term ‘‘reasonable expectation’’ could 

have resulted in unnecessary 

compliance challenges and confusion as 

to when a reasonable expectation had 

been established. The Bureau believes 

the concept of facial completeness, on 

the other hand, provides greater clarity 

to servicers and borrowers. 

Second, the Bureau is modifying 

proposed § 1024.41(c)(2)(iv) to enhance 

borrower protections by providing that 

servicers are required to treat a ‘‘facially 

complete’’ application as complete for 

purposes of the § 1026.41(h) appeal 

right and the borrower response 

timelines in § 1024.41(e). As discussed 

above, proposed § 1026.41(c)(2)(iv) 

would have required servicers to treat 

the application as complete for purposes 

of the foreclosure referral ban in 

§ 1024.41(f)(2) and the foreclosure sale 

limitations in § 1024.41(g) until the 

borrower had been given a reasonable 

opportunity to supply the missing 

information necessary to complete the 

loss mitigation application. However, 

for purposes of the appeal right under 

§ 1024.41(h) and the borrower response 

timelines under § 1024.41(e), the 

proposal would have treated the 

application as complete only once the 

borrower submitted the additional 

information or documents needed to 

evaluate the application. Thus, under 

the proposal, if a servicer gave a 

borrower a reasonable expectation that 

he or she had submitted a complete 

application more than 90 days before a 

scheduled foreclosure sale but later 

requested more information pursuant to 

new § 1024.41(c)(2)(iv), the borrower 

might not have received the right to an 

appeal or to a 14-day response time 

depending on the timing of the 

supplemental information request and 

the borrower’s response. The Bureau has 

been persuaded that such a borrower 

should enjoy the benefit of the appeal 

right and the 14-day response timeline. 

Furthermore, the Bureau is persuaded 

by the comment that suggested that the 

protections of § 1024.41 should be 

triggered based on the date when a 

borrower submits all the documents and 

information as stated in the 

§ 1024.41(b)(2)(i)(B) notice, rather than 

when the servicer deems the application 

to be complete. 

Thus, under § 1026.41(c)(2)(iv) as 

adopted by the final rule, if a borrower 

submits a facially complete application 

that is later found by the servicer to 

require additional information or 

corrected documents to be evaluated, 


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and the borrower subsequently provides 

the corrected documents or information 

necessary to complete the application, 

the application is treated as complete, 

for the purposes of § 1024.41(d), (e), 

(f)(2), (g), and (h), as of the date it was 

facially complete. However, the 30-day 

window during which the servicer must 

evaluate the borrower for all available 

loss mitigation options (as required 

pursuant to § 1026.41(c)) will begin only 

when the servicer receives the missing 

information. The Bureau continues to 

believe there is little value in requiring 

a servicer to evaluate a loss mitigation 

application when a servicer has 

determined certain items of information 

are missing. 

Finally, Bureau has adopted new 

comment 41(c)(2)(iv)–2 to address 

situations in which a borrower fails to 

provide the missing information within 

a reasonable timeframe as prescribed by 

the servicer. This comment states that, 

if the borrower fails to complete the 

application within the reasonable 

timeframe, the servicer may treat the 

application as incomplete. 

The Bureau is not addressing in this 

final rule comments that suggested 

further protections for borrowers are 

needed, including additional notice 

requirements. The Bureau believes these 

concerns are adequately addressed. 

Several protections already established 

by the rule, including the requirement 

to have polices and procedures 

reasonable designed to achieve the 

objective of facilitating compliance with 

the requirement to send an accurate 

§ 1024.41(b)(2)(i)(B) notice (in 

§ 1024.38(b)(2)(iv); the continuity of 

contact requirements in § 1024.40, and 

the obligation on the servicer to use 

reasonable diligence in completing an 

application already require that 

servicers work with borrowers to 

complete a loss mitigation application. 

For example, the reasonable diligence 

obligation requires servicers to promptly 

seek documents or information 

necessary to complete a loss mitigation 

application, which the Bureau believes 

includes an obligation to work 

proactively with borrowers when they 

discover any additional documents or 

information are needed to complete the 

application, as well as notify a borrower 

when a submitted document is 

insufficient to complete an 

application—for example, because a 

signature is missing. Servicers cannot be 

dilatory in seeking such materials or 

corrected documents. Given these and 

other protections and obligations, the 

Bureau believes borrowers will be 

adequately protected, because the rules 

should ensure they receive the benefits 

of foreclosure protections at the time 

their applications are facially complete, 

and will continue to receive those 

protections once they have submitted 

the additional materials. The Bureau 

notes that a servicer that complies with 

§ 1024.41(c)(2)(iv) will be deemed to 

have satisfied the requirement to 

provide an accurate § 1024.41(b)(2)(i)(B) 

notice. The Bureau believes this 

approach appropriately balances the 

servicer’s need to collect additional 

pieces of information while still 

providing protection for the borrower. 

41(d) Denial of Loan Modification 

Options 

The Proposal 

The Bureau proposed to move the 

substance of § 1024.41(d)(2), a provision 

addressing disclosure of information on 

the borrower’s right to appeal, to 

§ 1024.41(c)(1)(ii). As a conforming 

amendment, the Bureau proposed to recodify § 1024.41(d)(1) as § 1024.41(d) 

and to re-designate the corresponding 

commentary accordingly. The Bureau is 

finalizing these provisions as proposed. 

The Bureau also proposed to clarify 

the requirement in § 1024.41(d)(1), recodified as § 1024.41(d), that a servicer 

must disclose the reasons for the denial 

of any trial or permanent loan 

modification option available to the 

borrower. The Bureau believed it was 

appropriate to clarify that the 

requirement to disclose the reasons for 

denial focuses on only those 

determinations actually made by the 

servicer and does not require a servicer 

to continue evaluating additional factors 

after the servicer has already decided to 

deny a borrower for a particular loss 

mitigation option. Thus, when a 

servicer’s automated system uses a 

program that considers a borrower for a 

loan modification by proceeding 

through a series of questions and ends 

the process if the consumer is denied, 

the servicer need not modify the system 

to continue evaluating the borrower 

under additional criteria. For example, 

suppose a borrower must meet 

qualifications A, B, and C to receive a 

loan modification, but the borrower 

does not meet any of these 

qualifications. A servicer’s system may 

start by asking if the borrower meets 

qualification A, and on the failure of 

that qualification end the analysis for 

that specific loan modification option. If 

a servicer were required to disclose all 

potential reasons why the borrower may 

have been denied for that loan 

modification option (i.e., A, B, and C), 

it would need to consider a lengthy 

series of hypothetical scenarios: for 

example, if the borrower had met 

qualification A, would the borrower also 

have met qualification B? The Bureau 

did not intend such a requirement, 

which it believes would be 

unnecessarily burdensome. 

The Bureau instead intended to 

require only the disclosure of the actual 

reason or reasons on which the 

borrower was evaluated and denied. 

Accordingly, the Bureau proposed to 

amend § 1024.41(d) to require that a 

denial notice provided by the servicer 

must state the ‘‘specific reason or 

reasons’’ for the denial and also, where 

applicable, disclose that the borrower 

was not evaluated based on other 

criteria. The notice would not be 

required to list such criteria. The Bureau 

believed that this additional information 

will help borrowers understand the 

status of their application and the fact 

that they were not fully evaluated under 

all factors (where applicable). The 

Bureau also proposed new comment 

41(d)–4 stating that, if a servicer’s 

system reaches the first issue that causes 

a denial but does not evaluate borrowers 

for additional factors, a servicer need 

only provide the reason or reasons 

actually considered. The Bureau 

believed this proposed amendment 

would appropriately balance potential 

concerns about compliance challenges 

with concerns about informing 

borrowers about the status of their 

applications and about information that 

is relevant to potential appeals. 

Comments 

The Bureau received comments from 

both industry and consumer groups 

addressing the proposed modifications. 

Commenters were generally in favor of 

this revision to the rule, and agreed it 

would be unduly burdensome for 

servicers to construct systems to 

consider hypothetical scenarios solely 

for the purpose of compiling a complete 

list of all potential denial reasons. One 

industry commenter suggested that the 

denial reasons disclosed be limited to 

‘‘primary’’ or ‘‘initial’’ reasons. One 

consumer group expressed concern that 

the proposed revision would allow 

servicers to avoid disclosing the factors 

used in the net present value analysis. 

Final Rule 

For the reasons discussed in the 

proposal, the Bureau is finalizing the 

rule as proposed. The Bureau declines 

to modify the rule to require only the 

‘‘initial’’ or ‘‘primary’’ reasons as 

suggested by some commenters because 

the Bureau believes these terms are 

unclear. The Bureau also disagrees with 

commenters that suggested that the 

modification to the rule allows a 

servicer to evade disclosure of a factor 

used in an NPV analysis. The rule 


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requires servicers to disclose the basis 

for the denial, so if a servicer denies a 

borrower for a loan modification option 

based on an NPV analysis, that servicer 

must disclose the factors used in the 

analysis. However, if a servicer denies a 

borrower a loan modification option on 

other grounds, it would be unduly 

burdensome for the servicer to disclose 

factors that would have been used, had 

the servicer done a NPV analysis. 

41(f) Prohibition on Foreclosure Referral 

First Notice or Filing 

The Proposal 

Section 1024.41(f) prohibits a servicer 

from making the first notice or filing 

required by applicable law for any 

judicial or non-judicial foreclosure 

process unless a borrower’s mortgage 

loan is more than 120 days delinquent. 

A servicer also is prohibited from 

making such a notice or filing while a 

borrower’s complete loss mitigation 

application is being evaluated. In 

response to numerous questions 

received by the Bureau about the 

meaning of the phrase ‘‘first notice or 

filing,’’ the Bureau proposed to 

redesignate comment 41(f)(1)–1 as 

comment 41(f)–1, and then revise it to 

clarify what actions § 1024.41(f) would 

prohibit. 

Specifically, the proposed comment 

would have stated that whether a 

document is considered the first notice 

or filing is determined under applicable 

State law. Under the proposal, a 

document that would be used as 

evidence of compliance with foreclosure 

practices required pursuant to State law 

would have been considered the first 

notice or filing. Thus, a servicer would 

have been prohibited from sending such 

a notice or filing such a document 

during the pre-foreclosure review period 

or during the review period for a 

complete loss mitigation application. 

Documents that would not be used in 

this fashion would not have been 

considered the first notice or filing. The 

proposed comment would have stated 

expressly that this prohibition does not 

extend to activity such as attempting to 

collect the debt, sending periodic 

statements, sending breach letters, or 

any other activity during the preforeclosure review period, so long as 

such documents would not be used as 

evidence of complying with 

requirements applicable pursuant to 

State law in connection with a 

foreclosure process. 

The Bureau acknowledged that, under 

the proposed interpretation, if a State 

law mandates a notice to a borrower of 

the availability of mediation as a 

prerequisite to commence foreclosure, 

such notices would be considered the 

‘‘first notice or filing’’ for purposes of 

§ 1024.41. The Bureau also recognized 

that existing State foreclosure processes 

often can be lengthy. The proposed 

comment sought to balance protecting 

consumers and encouraging 

communication between borrowers and 

servicers by providing borrowers 

sufficient time to submit a complete loss 

mitigation application without the stress 

and costs of foreclosure, but also 

permitting servicers to communicate 

with borrowers to respond promptly to 

requests. However, recognizing 

potential practical difficulties for 

servicers as well as borrower protection 

concerns that could arise from chilling 

early communications provided for 

borrowers under State law, the Bureau 

sought comment on the best way to 

establish a workable rule that clearly 

identifies what is prohibited, while 

balancing these goals. 

Comments 

The Bureau received substantial 

comments from trade associations, 

individual servicers including credit 

unions, the GSEs, some State 

governments, and two consumer 

advocacy groups, which generally 

disagreed with the proposed ‘‘evidence 

of compliance with State law’’ standard 

and asked the Bureau to reconsider the 

scope of the prohibition. Numerous 

commenters, including trade 

organizations, the GSEs, individual 

servicers and credit unions, asserted 

that the proposed comment would cause 

significant delays in the foreclosure 

process, especially where the first notice 

or filing would be followed by lengthy 

periods mandated by State law before 

actual initiation of court proceedings or 

establishing a foreclosure sale date. 

These commenters asserted that the 

proposal would have prohibited often 

lengthy processes from starting until 

after 120 days of delinquency have 

passed. For example, commenters noted 

that Massachusetts requires its own 

notice and opportunity to cure process 

that may take up to 150 additional days 

before foreclosure is filed. Thus, if the 

notice beginning that cure process is 

deemed the ‘‘first notice’’ for purposes 

of the prohibition on foreclosure referral 

(as it would have been under the 

proposal), foreclosure proceedings may 

be delayed until the 270th day of 

delinquency. One industry commenter 

raised concerns that such delays would 

impact compliance with regulatory 

capital requirements. 

Industry commenters expressed 

substantial concerns with the proposal’s 

use of the phrase ‘‘evidence of 

compliance with State law.’’ These 

commenters asserted that the phrase is 

vague, and that State law may often 

require proof of compliance with the 

mortgage contract’s terms, which may 

include the sending of general default 

notices not expressly required by 

statute. The commenters indicated 

servicers would have difficulty 

understanding what documents were 

prohibited and likely would be 

discouraged from sending any early 

communications to borrowers if they 

later must use such document to show 

compliance with applicable State law. 

Industry commenters, State 

governments, and some consumer 

advocates indicated that the proposal 

likely would delay notices required 

under State-mandated pre-foreclosure 

programs. As these commenters noted, 

under the proposal such notices likely 

would constitute ‘‘evidence of 

compliance with State law’’ and thus 

would be prohibited until after the 

120th day of delinquency. These 

commenters also asserted that such 

programs complement the Bureau’s 

early intervention rule and that there is 

substantial benefit to borrowers in 

receiving these notices early in their 

delinquencies. For example, many 

statutory notices require that 

counseling, legal aid, or other resources 

be identified to borrowers, and 

consumer groups agreed that borrowers 

are more likely to respond and seek loss 

mitigation when they receive notices 

clearly informing them that foreclosure 

is imminent if they do not act. Several 

commenters pointed to data or 

experience that indicated many 

borrowers do not reach out to servicers 

for loss mitigation assistance until 

foreclosure notices or notices of default 

are sent. These commenters believed 

that borrowers would receive little 

benefit if these notices were delayed 

until after the 120th day of delinquency 

because the likelihood of a successful 

resolution would be reduced. On the 

whole, these commenters indicated that 

delaying State-mandated notices 

relating to loss mitigation programs or 

statutory rights to cure delinquencies 

would frustrate State efforts at avoiding 

foreclosure by making resolutions more 

difficult or cure more costly to 

consumers. 

As an alternative to the proposed 

interpretation of ‘‘first notice or filing,’’ 

many industry commenters 

recommended that the Bureau adopt an 

interpretation based on the Federal 

Housing Administration’s (FHA) 

definition of ‘‘first legal,’’ citing 

familiarity with this concept. In the 

alternative, some industry commenters 

suggested a more uniform and objective 

definition or a State-by-State 


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determination. These commenters 

generally stated that a prohibition that 

extends to documents defined in a 

manner that closely tracks ‘‘first legal’’ 

would better facilitate compliance for 

industry, while at the same time would 

permit and encourage the early notices 

to borrowers, including those that 

provide counseling, legal aid, or other 

resources. A number of commenters 

suggested that specific notices be 

expressly permitted, including Statemandated outreach to delinquent 

borrowers and breach letters required by 

the GSEs. 

Final Rule 

The Bureau is adopting a revised 

version of proposed comment 41(f)–1 

that states a document is considered the 

‘‘first notice or filing’’ on the basis of 

foreclosure procedure under applicable 

State law, but adjusts the Bureau’s 

interpretation of what constitutes a 

‘‘first notice or filing.’’ Rather than 

relying on the general notion that any 

evidence of compliance with State 

foreclosure law constitutes a first notice 

or filing, the Bureau is revising 

comment 41(f)–1 and adopting four new 

subparts that are more specifically 

addressed to different types of 

foreclosure procedures. New comment 

41(f)–1.i explains that, when the 

foreclosure procedure under applicable 

State law requires commencement of a 

court action or proceeding, a document 

is considered the first notice or filing if 

it is the earliest document required to be 

filed with a court or other judicial body 

to commence the action or proceeding 

(e.g., a complaint, petition, order to 

docket, notice of hearing). The Bureau 

also is adopting new comment 41(f)– 

1.ii, which explains that, when the 

foreclosure procedure under applicable 

State law does not require a court action 

or proceeding, a document is considered 

the first notice or filing if it is the 

earliest document required to be 

recorded or published to initiate the 

foreclosure process. To address 

situations not already covered by 

comments (i) and (ii), new comment 

41(f)–1.iii provides that, where a 

foreclosure procedure does not require 

initiating a court action or proceeding or 

recording or publishing of any 

document, a document is considered a 

‘‘first notice or filing’’ if it is the first 

document which establishes, sets or 

schedules the foreclosure sale date. 

As noted above, the proposal sought 

to balance protecting consumers and 

encouraging communication between 

servicers and borrowers. The Bureau 

believed that, under the proposed 

interpretation of ‘‘first notice or filing,’’ 

borrowers would be ensured sufficient 

time to submit a complete loss 

mitigation application, but servicers 

would still be able to send many of the 

typical early-default communications, 

so long as they were not being used as 

evidence of compliance with State law. 

The Bureau requested comment on 

whether the proposal established a 

workable rule that was clear, in light of 

varied foreclosure procedures in 

different states, and the multiple 

purposes for notices. As noted above, 

many commenters, including consumer 

advocate groups and State governments, 

indicated concerns with the proposed 

interpretation’s impact on 

communication and its impact on Statemandated loss mitigation programs. 

Many commenters asserted that the 

proposal would result in either less or 

ineffective early default communication 

and lessen the likelihood that borrowers 

would successfully access loss 

mitigation resolutions or otherwise 

avoid foreclosure. 

The Bureau is persuaded by these 

comments that revising the 

interpretation is necessary to provide 

greater clarity and also provide for more 

effective pre-foreclosure outreach. As 

commenters noted, the proposed 

interpretation would have prohibited 

the use of many State-mandated notices 

that do not initiate foreclosure 

proceedings and are intended to provide 

borrowers with information about 

counseling and other loss mitigation 

resources as a means of avoiding 

foreclosure. In addition, the Bureau is 

persuaded by comments that the 

proposed interpretation would have 

chilled other servicer communications, 

such as cure notices or breach letters, 

based on confusion over whether such 

communications were ‘‘evidence of 

compliance’’ and thus prohibited by 

§ 1024.41. 

The Bureau believes the interpretation 

of first notice or filing adopted by this 

final rule provides an objective basis for 

determining compliance with the 

prohibition on foreclosure referral. In 

addition, it addresses the concerns 

raised in comments that the proposal 

would restrict communications 

informing borrowers of assistance and 

statutory rights to cure. The Bureau 

agrees with commenters that permitting 

communication about cure rights or preforeclosure loss mitigation assistance or 

procedures available under State law, 

even within the first 120 days of a 

borrower’s delinquency, furthers the 

objective of § 1024.41’s loss mitigation 

procedures. The Bureau believes early 

communication to borrowers about 

resources such as housing counseling, 

emergency loan programs, and preforeclosure mediation will increase the 

likelihood that borrowers will submit 

complete applications in time to benefit 

from the full loss mitigation procedures 

under § 1024.41. The Bureau 

appreciates that, under this modified 

interpretation, some borrowers who 

have not yet submitted loss mitigation 

applications may face shorter 

foreclosure timeframes after the 120th 

day of delinquency than under the 

proposed interpretation. However, the 

Bureau believes the adopted 

interpretation provides sufficient 

opportunity for borrowers to seek loss 

mitigation assistance without the 

pressure of pending litigation or 

foreclosure proceedings. The Bureau 

also believes a borrower’s ability to 

exercise a statutory or contractual right 

to cure a default likely will be greater 

where notice of the cure rights is 

provided before several months of 

arrearages have accumulated. While the 

proposed interpretation was not 

intended to prohibit sending any such 

notice, only one that would be used as 

evidence of compliance with applicable 

law, the modified interpretation 

provides greater clarity. 

The Bureau acknowledges that its 

interpretation of ‘‘first notice or filing’’ 

may prohibit, during the 120-day 

period, initiation of State-mandated loss 

mitigation efforts or opportunities to 

cure in those jurisdictions where the 

applicable foreclosure procedure 

requires such information to appear first 

in a court filing, or a document that is 

recorded or published. However, were 

the Bureau to adopt an interpretation 

that excluded such notices from the 

definition of first filing, based on their 

inclusion of information related to cure 

rights or loss mitigation assistance, this 

likely would create significant 

confusion and frustrate the purposes of 

the rule, by permitting certain 

foreclosure actions within the 120-day 

period. 

Finally, the Bureau is adding new 

comment 41(f)–1.iv to clarify that a 

document provided to a borrower that 

initially is not required to be filed, 

recorded or published is not considered 

the first notice or filing solely on the 

basis that the foreclosure procedure 

requires a copy of the document to be 

included as an attachment to a 

subsequent document required to be 

filed or recorded to carry out the 

foreclosure process. The Bureau is 

aware through comments that, in many 

states, letters or notices (including 

breach letters, notices of rights to cure) 

that are required to be sent to the 

borrower, but do not initiate formal 

foreclosure proceedings, nonetheless are 

required to be included in later filings, 

i.e., as part of a complaint or subsequent 


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24See Department of Housing and Urban 

Development, Mortgagee Letter 2005–30, July 12, 

2005. 

25 Garn-St. Germain Depository Institutions Act, 

Public Law 97–320 (1982) (codified in various 

sections). The Act generally prohibits the exercise 

of due-on-sale clauses with respect to certain 

protected transfers. See 12 U.S.C. 1701j–3. 

pleading. Such letters or notices may be 

sent during the pre-foreclosure review 

period without violating the foreclosure 

referral ban. 

The interpretation of ‘‘first notice or 

filing’’ adopted by this final rule closely 

tracks, but may not be identical in all 

jurisdictions, to the FHA’s ‘‘first legal 

action necessary to initiate foreclosure’’ 

or ‘‘first legal’’ or ‘‘first public’’ action, 

as some commenters requested.24

However, the Bureau believes to the 

extent there are jurisdictions where 

‘‘first notice or filing’’ of § 1024.41(f) is 

inconsistent with the FHA standard, it 

will not hinder servicers’ compliance 

with obligations under the FHA or 

investor requirements based upon the 

FHA’s standard. The Bureau notes that 

the ‘‘first legal’’ standard primarily 

serves to inform mortgagees of their 

contractual obligations as servicers of 

FHA-insured mortgages. In light of the 

fact that § 1024.41(f) is enforceable by 

private right of action, the Bureau is 

adopting this interpretation of ‘‘first 

notice or filing’’ in order to provide 

sufficient clarity to borrowers, servicers, 

and courts. The Bureau also believes 

this interpretation provides States with 

clarity of the application of § 1024.41(f), 

not just as to present State foreclosure 

procedure but with respect to future 

modifications of State law. 

Exceptions to the Prohibition of Early 

Foreclosure Referrals 

The Proposal 

The Bureau also proposed to amend 

§ 1024.41(f)(1) so that the prohibition on 

referral to foreclosure until after the 

120th day of delinquency would not 

apply in two situations: (1) When the 

foreclosure is based on a borrower’s 

violation of a due-on-sale clause, and (2) 

when the servicer is joining the 

foreclosure action of a subordinate 

lienholder. As discussed in the 

proposal, the Bureau is aware that there 

may be some circumstances when a 

foreclosure is not based upon a 

borrower’s delinquency, and thus 

protections designed to provide 

delinquent borrowers time to bring their 

mortgages current or apply for loss 

mitigation (such as the 120-day ban on 

foreclosure referral) may not be 

appropriate or necessary. The Bureau 

proposed amending § 1024.41(f)(1) to 

provide the two exemptions for 

foreclosures based upon due-on-sale 

clauses and for joining a subordinate 

lienholder’s foreclosure, but also 

recognized that other situations may 

exist that also warrant exclusion. Thus, 

in addition to the two situations 

described above, the Bureau sought 

comment on what other situations may 

be appropriate to exempt, or whether 

the proposed exemptions were 

appropriate in situations in which a 

borrower has submitted a complete loss 

mitigation application. 

Comments 

The Bureau received substantial 

comments from trade associations, 

individual servicers including credit 

unions, and the GSEs, which generally 

supported the added exemptions to 

§ 1024.41(f)(1). Industry commenters 

generally supported the proposed 

exemptions, citing a need to provide 

relief from the foreclosure referral ban 

where default is based upon a nonmonetary provision of a mortgage. With 

respect to the Bureau’s request for 

comment on other situations that may 

warrant exclusion, numerous 

commenters suggested the Bureau 

provide guidance or add exemptions for 

foreclosure based upon a determination 

that the property was abandoned or 

vacant. Some commenters advocated an 

exemption for abandoned properties 

and suggested the Bureau provide a list 

of factors to be considered in 

determining whether the property was 

abandoned. Consumer groups, however, 

expressed concerns that, because 

abandonment or vacancy status is 

necessarily a fact-specific 

determination, an exemption may 

facilitate evasion. 

In addition, some commenters 

suggested the Bureau exempt situations 

where the borrower is deceased without 

heirs or in other cases. Some industry 

commenters requested that the rule 

permit foreclosure within the 120-day 

period where borrowers have failed to 

maintain insurance or property tax 

payments or where the borrower had 

failed to pay late fees. Finally, some 

commenters requested an exemption for 

other situations including where 

borrowers commit waste, are nonresponsive to the servicer’s attempts to 

maintain live contact, or state a desire 

to surrender the property. 

Consumer groups acknowledged that 

situations may exist that warrant 

exclusion from the 120-day prohibition, 

such as the proposed exemptions, but 

raised concerns about their breadth. 

Specifically, these commenters 

expressed concerns that an exemption 

for all foreclosures based on violation of 

a due-on-sale clause may be overly 

broad, and could be construed to allow 

foreclosure where the transfer is to a 

deceased borrowers’ family member or 

where a transfer occurs as a result of 

State divorce decree or probate order, or 

other transfer to a borrower’s family 

member. Many of these commenters 

suggested that the exemption expressly 

exclude such transfers to the extent they 

were protected under the Garn-St. 

Germain Act.25 Consumer advocate 

commenters also suggested that the 

exemption for joining a foreclosure 

action of a subordinate lienholder 

should be limited to situations where all 

of the servicers and lienholders with 

respect to the property are separate 

entities. 

Final Rule 

The Bureau is adopting the 

amendments to § 1024.41(f)(1) as 

proposed, without adopting additional 

exemptions. The Bureau appreciates 

comments that suggested the 120-day 

prohibition was designed to protect 

delinquent borrowers, but should not 

extend to non-monetary defaults or 

breaches of the underlying mortgage 

agreement. However, the Bureau 

remains mindful of consumer protection 

concerns that could arise from a broader 

set of exemptions. For example, 

industry commenters suggested that 

foreclosure based on a borrower’s failure 

to maintain insurance or pay property 

taxes should be excluded, but, as some 

of these commenters acknowledged, 

those and other examples provided are 

likely to coincide with borrower 

delinquency. The Bureau does not 

believe that servicers should be allowed 

to sidestep the borrower protections set 

forth in § 1024.41 for delinquent 

borrowers simply because borrowers 

may have breached other components of 

the underlying mortgage, such as 

requirements to pay property taxes, 

maintain insurance, or pay late fees. The 

Bureau believes that additional 

exemptions would create uncertainty 

and could potentially be construed in a 

manner that permits evasion of the 

requirements of § 1024.41(f). Moreover, 

the Bureau does not believe exemption 

from the pre-foreclosure review period 

is appropriate merely because 

foreclosure is based upon an obligation 

other than the borrower’s monthly 

payment. In many instances, these 

borrowers are likely experiencing 

financial distress and thus may benefit 

from time to seek loss mitigation. 

For similar reasons, the Bureau does 

not believe it is appropriate to adopt an 

exemption from the 120-day prohibition 

for situations where a borrower may be 

deemed to commit ‘‘waste’’ in violation 

of an underlying mortgage agreement. 


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26 78 FR 30739 (May 23, 2013). 

As noted above, the Bureau is 

concerned that such an exemption 

could be used to circumvent the 120- 

day prohibition for borrowers who are 

also delinquent. However, the Bureau 

also notes that what constitutes waste is 

very fact-specific and the few 

commenters who suggested an 

exemption provided no precise 

definition of the term. Furthermore, 

while mortgages typically permit 

foreclosure in the event of waste, they 

also frequently provide other nonforeclosure remedies. In light of the 

absence of evidence suggesting waste 

that would necessitate rapid foreclosure 

is a significant problem, the Bureau is 

convinced that no such exemption is 

necessary. 

In addition, the Bureau does not 

believe any further narrowing or 

clarifying revisions to the due-on-sale 

clause exemption in § 1024.41(f)(1)(i), to 

protect transfers to family members or 

transfers ordered by divorce decree or 

probate proceedings, are necessary. The 

Bureau notes that, to the extent the 

Garn-St. Germain Act prohibits the 

exercise of due-on-sale clauses, the 

exemption from the 120-day period 

would not apply. The exemption does 

not alter limitations or obligations 

imposed on a servicer by another 

Federal or State law with respect to 

whether a due-on-sale clause validly 

may be exercised. Rather it merely 

provides an exception to the 120-day 

pre-foreclosure review period where the 

basis for foreclosure is a due-on-sale 

clause. The Bureau notes that servicers 

may not avail themselves of the due-onsale clause exemption and make the first 

notice or filing before the 120th day of 

delinquency unless such a clause is 

validly enforceable. 

The Bureau is also not adopting any 

limitation on the exemption for joining 

a foreclosure initiated by a subordinate 

lienholder. The Bureau does not believe 

it is appropriate to limit the exemption 

application to only those situations 

where the senior and junior liens are 

held or serviced by separate entities, as 

was requested. In the case where an 

entity services both a first and a second 

lien, the servicer will be required to 

complete the pre-foreclosure review for 

the second lien, and will be required to 

respond to a borrower’s loss mitigation 

application with respect to the first 

mortgage as well. Furthermore, the 

comments did not provide an adequate 

explanation to persuade the Bureau that 

servicers are more likely to pursue 

foreclosure in a manner that evades the 

120-day pre-foreclosure review period 

when the senior and junior lien are held 

and serviced by the same entity. 

Finally, the Bureau notes that several 

commenters requested that the Bureau 

exempt vacant or abandoned properties 

from the 120-day prohibition. However, 

while many commenters asserted that 

there is a limited benefit to prohibiting 

foreclosure referral where a property is 

‘‘vacant’’ or ‘‘abandoned’’, they also 

generally agreed that such a 

determination depends on the 

individual facts and circumstances, and 

may vary according applicable State 

law. While some commenters suggested 

the Bureau adopt a multiple-factor test 

to determine whether a property was 

‘‘abandoned,’’ the Bureau believes any 

such test would inherently rely on a 

holistic determination based on 

individual facts and circumstances, and 

would not provide the clear guideline 

that the Bureau believes is appropriate 

with respect to the prohibition on 

foreclosure referral. Moreover, as noted 

by consumer groups, a number of 

borrower protection concerns could 

arise from affording servicers too much 

discretion in determining whether a 

property is abandoned or vacant. In 

addition, some industry commenters 

conceded that it would be rare for a 

property to be determined abandoned or 

vacant earlier than the 120th day of 

delinquency. 

For these reasons, the Bureau is not 

adopting an exclusion from the 120-day 

prohibition for vacant or abandoned 

properties. However, the Bureau notes 

that the provisions of §§ 1024.39 

through 1024.41 apply only to a 

mortgage loan secured by property that 

is a borrower’s principal residence. See 

12 CFR 1024.30(c)(2). Thus, depending 

on the facts and circumstances, it is 

possible that some foreclosures against 

vacant or abandoned properties will not 

be subject to § 1024.41(f). 

41(h) Appeal Process 

41(h)(4) Appeal Determination 

The Bureau proposed to amend 

§ 1024.41(h)(4) to provide expressly that 

the notice informing a borrower of the 

determination of his or her appeal must 

also state the amount of time the 

borrower has to accept or reject an offer 

of a loss mitigation option after the 

notice is provided to the borrower. The 

Bureau did not receive any comments 

on this provision and is finalizing it as 

proposed. 

41(j) Prohibition on Foreclosure Referral 

As discussed above, the Bureau is 

adopting, as proposed, amendments to 

§ 1024.41(f)(1) that exempt two 

situations from the prohibition on 

referral to foreclosure until after the 

120th day of delinquency: When the 

foreclosure is based on a borrower’s 

violation of a due-on-sale clause and 

when the servicer is joining the 

foreclosure action of a subordinate 

lienholder. The Bureau also proposed 

corresponding amendments to the 

provision in § 1024.41(j), which 

provides the same prohibition with 

respect to small servicers. While the 

Bureau received a number of comments 

regarding the proposed amendments to 

§ 1024.41(f)(1) as discussed above, the 

Bureau received no comments 

addressing the corresponding 

amendments to § 1024.41(j). 

Accordingly, the Bureau is adopting, as 

proposed, the amendments to 

§ 1024.41(j) to allow foreclosure before 

the 120th day of delinquency when the 

foreclosure is based on a borrower’s 

violation of a due-on-sale clause and 

when the servicer is joining the 

foreclosure action of a subordinate 

lienholder, by incorporating a crossreference to § 10124.41(f)(1). 

C. Regulation Z 

General—Technical Corrections 

In addition to the clarifications and 

amendments to Regulation Z discussed 

below, the Bureau proposed technical 

corrections and minor clarifications to 

wording throughout Regulation Z that 

are not substantive in nature. The 

Bureau is adopting such technical and 

wording clarifications as proposed to 

regulatory text in §§ 1026.23, 1026.31, 

1026.32, 1026.35, and 1026.36 and to 

commentary to §§ 1026.25, 1026.32, 

1026.34, 1026.36, and 1026.41. In 

addition, the Bureau is adding 

additional technical corrections to 

regulation text in § 1026.43 and 

commentary to §§ 1026.25, 1026.32, and 

1026.43. The Bureau also is making one 

correction to an amendatory instruction 

that relates to FR Doc. 2013–16962, 

published on Wednesday July 24, 2013. 

Section 1026.23 Right of Rescission 

23(a) Consumer’s Right To Rescind 

23(a)(3)(ii) 

The Bureau proposed to amend 

§ 1026.23(a)(3)(ii) to update a crossreference within that section from 

§ 1026.35(e)(2), as adopted by the 

Bureau’s Amendments to the 2013 

Escrows Final Rule under the Truth in 

Lending Act (Regulation Z) (May 2013 

Escrows Final Rule),26 to § 1026.43(g). 

The cross-reference in the May 2013 

Escrows Final Rule is the correct crossreference during the time period that 

rule will be in effect for transactions 

where applications are received on or 

after June 1, 2013, but prior to January 


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60408 Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Rules and Regulations 

27See 78 FR 6407 (Jan. 30, 2013); 78 FR 6856 (Jan. 

31, 2013). The Bureau also addressed points and 

fees in the May 2013 ATR Final Rule. See 78 FR 

35430 (June 12, 2013). 28Section 1026.43(b)(9) provides that, for the 

qualified mortgage points and fees cap, ‘‘points and 

fees’’ has the same meaning as in § 1026.32(b)(1). 

10, 2014. For transactions where 

applications are received on or after 

January 10, 2014, the correct crossreference will be to § 1026.43(g). For 

this reason, the Bureau proposed to 

remove the cross-reference to 

§ 1026.35(e)(2) and replace it with a 

cross-reference to § 1026.43(g). The 

Bureau received no comments 

addressing this change and is finalizing 

this amendment as proposed. 

Section 1026.32 Requirements for 

High-Cost Mortgages 

32(b) Definitions 

The Bureau’s 2013 ATR Final Rule 

and 2013 HOEPA Final Rule contain 

provisions that relate to a transaction’s 

‘‘points and fees.’’ 27 As adopted by the 

2013 ATR Final Rule, § 1026.43(e)(2)(iii) 

sets forth a cap on points and fees for 

a closed-end credit transaction to 

acquire qualified mortgage status. As 

adopted by the 2013 HOEPA Final Rule, 

§ 1026.32(a)(1)(ii), sets forth a points 

and fees coverage threshold for both 

closed- and open-end credit 

transactions. Definitions of points and 

fees for closed- and open-end credit 

transactions were also provided by these 

two final rules. 

For purposes of both the qualified 

mortgage points and fees cap and the 

high-cost mortgage coverage threshold, 

§ 1026.32(b)(1) defines ‘‘points and 

fees’’ for closed-end credit 

transactions.28 Section 1026.32(b)(1)(i) 

defines points and fees for closed-end 

credit transactions to include all items 

included in the finance charge as 

specified under § 1026.4(a) and (b), with 

the exception of certain items 

specifically excluded under 

§ 1026.32(b)(1)(i)(A) through (F). These 

excluded items include interest or timeprice differential; certain types and 

amounts of mortgage insurance 

premiums; certain bona fide third-party 

charges not retained by the creditor, 

loan originator, or an affiliate of either; 

and certain bona fide discount points 

paid by the consumer. Section 

1026.32(b)(1)(ii) through (vi) lists (as 

clarified by this final rule) certain other 

items that are specifically included in 

points and fees, including compensation 

paid directly or indirectly by a 

consumer or creditor to a loan 

originator; certain real-estate related 

items listed in § 1026.4(c)(7) unless 

certain conditions are met; premiums 

for various forms of credit insurance, 

including credit life, credit disability, 

credit unemployment and credit 

property insurance; the maximum 

prepayment penalty, as defined in 

§ 1026.32(b)(6)(i), that may be charged 

or collected under the terms of the 

mortgage loan; and the total prepayment 

penalty as defined in § 1026.32(b)(6)(i) 

or (ii) incurred by the consumer if the 

consumer refinances an existing 

mortgage loan or terminates an existing 

open-end credit plan in connection with 

obtaining a new mortgage loan with the 

current holder of the existing loan or 

plan (or a servicer acting on behalf of 

the current holder, or an affiliate of 

either). 

Points and fees for open-end credit 

plans for purposes of the high-cost 

mortgage thresholds is defined in 

section 1026.32(b)(2), which essentially 

follows the inclusions and exclusions 

set out in § 1026.32(b)(1) for closed-end 

transactions, with several modifications 

and additional inclusions related to fees 

charged for open-end credit plans. 

32(b)(1) 

The Proposal 

Prior to the Dodd-Frank Act, TILA 

section 103(aa)(1)(B) provided that a 

mortgage is subject to the restrictions 

and requirements of HOEPA if the total 

points and fees ‘‘payable by the 

consumer at or before closing’’ 

(emphasis added) exceed the threshold 

amount. However, section 1431(a) of the 

Dodd-Frank Act amended the points 

and fees coverage test to provide in 

TILA section 103(bb)(1)(A)(ii) that a 

mortgage is a high-cost mortgage if the 

total points and fees ‘‘payable in 

connection with the transaction’’ 

(emphasis added) exceed newly 

established thresholds. Similarly, TILA 

section 129C(b)(2)(A)(vii) provides that 

points and fees ‘‘payable in connection 

with the loan’’ (emphasis added) are 

included in the points and fees 

calculation for qualified mortgages. As 

adopted by the 2013 ATR and HOEPA 

Final Rules, which implemented these 

changes, the definition of points and 

fees includes certain charges not paid by 

the consumer. 

Following publication of the Bureau’s 

ATR and HOEPA Final Rules, the 

Bureau received numerous questions 

from industry seeking guidance 

regarding the treatment of third partypaid charges and creditor-paid charges 

for purposes of the points and fees 

calculation. Based on these questions, 

the Bureau determined that additional 

clarification concerning the treatment of 

charges paid by parties other than the 

consumer, including third parties, for 

purposes of inclusion in or exclusion 

from points and fees would be 

beneficial to consumers and creditors 

and facilitate compliance with the final 

rules. The Bureau therefore proposed to 

add new commentary to § 1026.32(b)(1) 

to clarify when charges paid by parties 

other than the consumer, including 

third parties, are included in points and 

fees. Specifically, the Bureau proposed 

to add new comment 32(b)(1)–2 to 

clarify the treatment of charges imposed 

in connection with a closed-end credit 

transaction that are paid by a party to 

the transaction other than the consumer, 

for purposes of determining whether 

that charge is included in points and 

fees as defined in § 1026.32(b)(1). The 

proposed comment would have stated 

that charges paid by third parties that 

fall within the definition of points and 

fees set forth in § 1026.32(b)(1)(i) 

through (vi) are included in points and 

fees, and would have provided 

examples of third-party payments that 

are included and excluded. In 

discussing included charges, the 

proposed comment noted that a thirdparty payment of an item excluded from 

the finance charge under a provision of 

§ 1026.4, while not included in points 

and fees under § 1026.32(b)(1)(i), may be 

included under § 1026.32(b)(1)(ii) 

through (vi). In discussing excluded 

charges, the proposed comment stated 

that a charge paid by a third party is not 

included in points and fees under 

§ 1026.32(b)(1)(i) as a component of the 

finance charge if any of the exclusions 

from points and fees in 

§ 1026.32(b)(1)(i)(A) through (F) applies. 

The proposed comment also 

discussed the treatment of ‘‘seller’s 

points,’’ as described in § 1026.4(c)(5) 

and commentary. The proposed 

comment would have stated that seller’s 

points are excluded from the finance 

charge and thus are not included in 

points and fees under § 1026.32(b)(1)(i), 

but also would have noted that charges 

paid by the seller may be included in 

points and fees if the charges are for 

items in § 1026.32(b)(1)(ii) through (vi). 

Finally the proposed comment would 

have restated for clarification purposes 

that, pursuant to § 1026.32(b)(1)(i)(A) 

and (ii), charges that are paid by the 

creditor, other than loan originator 

compensation paid by the creditor that 

is required to be included in points and 

fees under § 1026.32(b)(1)(ii), are 

excluded from points and fees. In 

proposing this clarification, the Bureau 

noted that, to the extent that the creditor 

recovers the cost of such charges from 

the consumer, the cost is recovered 

through the interest rate, which is 

excluded from points and fees under 

§ 1026.32(b)(1)(i)(A). Specifically, the 

Bureau noted, § 1026.32(b)(1)(i) and 


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(b)(1)(i)(A) implements section 

103(bb)(4)(A) of TILA to include in 

points and fees ‘‘[a]ll items included in 

the finance charge under § 1026.4(a) and 

(b)’’ but specifically excludes ‘‘interest 

and time-price differential.’’ However, 

the Bureau noted further, under 

§ 1026.32(b)(1)(ii) compensation paid by 

the creditor to loan originators, other 

than employees of the creditor, is 

included in points and fees. 

In proposing this comment, the 

Bureau stated its belief that the 

proposed comment’s clarification of the 

treatment of charges paid by parties 

other than the consumer for points and 

fees purposes was consistent with the 

amendment to TILA made by section 

1431(a) of the Dodd-Frank Act, 

discussed above. 

Comments 

The Bureau received comments on 

this aspect of the proposal from industry 

trade associations, banks, mortgage 

companies, and a manufactured housing 

lender. Many of these comments 

expressed general concerns or 

disagreements with the points and fees 

thresholds or other aspects of points and 

fees that were not at issue in the 

proposal, or expressed general support 

or disagreement with the treatment of 

charges paid by parties other than the 

consumer for purposes of the points and 

fees determination, particularly with 

respect to charges paid to creditor 

affiliates. The Bureau notes that it 

proposed commentary clarifying only 

the application of § 1026.32(b)(1) and (2) 

to charges paid by parties other than the 

consumer, and does not consider these 

comments responsive to the proposal. 

Other commenters suggested further 

revisions to the Bureau’s comment with 

regard to its discussion of third-partypaid charges, and seller’s points. Some 

industry commenters expressed 

particular concern about the impact of 

the proposed comment on certain 

employer payments of employee 

relocation expenses, for example 

employer payment of discount points on 

behalf of their employees to encourage 

them to relocate. These commenters 

generally raised concerns that inclusion 

in points and fees could discourage 

relocation incentives, and requested that 

the Bureau exclude employer-paid 

charges from points and fees. 

Most industry commenters expressed 

support for the clarifications that seller’s 

points are generally excluded from 

points and fees (as they are not included 

as a finance charge under 

§ 1026.4(c)(5)), but some commenters 

expressed concern about the possible 

inclusion of some seller-paid charges in 

points and fees. For example, some 

industry commenters also expressed 

concern that the possible inclusion of 

some seller-paid charges would create 

difficulties for creditors in determining 

which seller payments are included in 

points and fees and which are not. 

Specifically, some commenters noted 

that creditors may have difficulty in 

determining how seller assistance is 

allocated in the transaction, because a 

seller-paid amount is often provided as 

a flat dollar amount or a percentage of 

the purchase price that allows the 

borrower to determine how it should be 

applied, or the allocation changes at the 

closing table. As a proposed solution, 

one financial institution recommended 

that the Bureau’s final comment allow 

creditors to rely on any written 

statement provided by the borrower, 

third party, or seller regarding the 

purpose of the payment. 

Industry commenters were generally 

supportive of the Bureau’s proposed 

comment with regard to creditor-paid 

charges. Commenters generally stated 

that the Bureau’s proposed comment 

provided helpful language that clarified 

that creditor-paid amounts are excluded 

from points and fees (other than loan 

originator compensation). Some 

suggested, however, that it would be 

additionally helpful if further comments 

were added to state explicitly that such 

charges are excluded from the finance 

charge, and that it is not material to this 

calculation that a creditor either absorbs 

the charges or provides a credit to pay 

them in return for a higher rate. 

Final Rule 

The Bureau is adopting comment 

32(b)(1)–2 as proposed, with several 

modifications. The Bureau believes that 

the comment as proposed, with several 

modifications, provides needed 

clarification to creditors to assist them 

in determining what is included in 

points and fees. The comment 

specifically describes when third-partypaid charges, including seller’s points, 

are to be included in points and fees 

and when they are to be excluded, and 

provides examples. In addition, the 

comment treats third-party-paid charges 

consistently with the treatment of 

consumer-paid charges under 

§ 1026.32(b)(1) and current commentary 

(i.e., comment 32(b)(1)(i)–1)). 

Specifically, it provides that a thirdparty payment of a charge is included in 

points and fees if it falls within the 

definition of points and fees set forth in 

§ 1026.32(b)(1)(i) through (vi)—which 

includes items included in the finance 

charge under § 1026.4(a) and (b). It also 

provides that, while a third-party paid 

charge may be excluded from the 

finance charge under § 1026.4, it may be 

included in the points and fees 

calculation under § 1026.32(b)(1)(ii) 

through (vi) such as, for example, if the 

third-party payment is for items such as 

compensation to a loan originator, 

certain real estate related items listed in 

§ 1026.4(c)(7), premiums for certain 

credit insurance, and a prepayment 

penalty incurred by the consumer in 

some circumstances. The comment also 

specifically describes the treatment of 

seller’s points, which, like other items 

excluded from the finance charge, are 

not included in points and fees under 

§ 1026.32(b)(1)(i) but nevertheless may 

be included in points and fees if listed 

in § 1026.32(b)(1)(ii) through (vi). In 

addition, the comment specifically 

addresses the treatment of creditor-paid 

charges and excludes them from points 

and fees with the exception of a 

payment for loan originator 

compensation. 

The Bureau further notes that the 

comment treats seller’s points 

consistently with the definition of 

points and fees in Regulation Z by 

excluding them from the points and fees 

calculation (as they are excluded from 

the finance charge), except in certain 

instances specified in Regulation Z. 

Section 1026.32(b)(1) defines points and 

fees to include all items included in the 

finance charge under § 1026.4(a) and (b), 

except for certain specified exclusions. 

This includes the § 1026.4(c)(5) 

exclusion of seller’s points from the 

finance charge. 

The Bureau notes that some 

commenters expressed concern about 

the ability of creditors to determine 

what third-party paid charges, including 

seller’s payments, should be included in 

points and fees—specifically that 

creditors may be aware that a lump-sum 

amount was advanced by the seller, but 

not aware of the breakdown of what 

exactly was paid for by the advance. 

The Bureau appreciates this concern 

and does believe creditors could be 

confronted with situations where they 

are unsure how they should account for 

the seller or third-party amount in 

points and fees, particularly as relates to 

the specific fee breakdown. For 

example, the Bureau agrees that, if a 

seller paid $1000 in excluded seller’s 

points, $500 in fees that would be 

included in points and fees, and another 

$500 in fees that would be excluded, all 

the creditor may be aware of is that 

$2,000 was advanced. Absent additional 

information, the creditor may have 

difficulty in determining what, if any, 

portion of the seller-paid amount needs 

to be included in points and fees (in the 

example above, $500). To facilitate 

compliance, the Bureau is modifying the 

final comment to clarify that creditors 


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60410 Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Rules and Regulations 

29As discussed below, the Bureau is clarifying 

what compensation must be included in points and 

fees. As discussed in the Supplementary 

Information describing revisions and clarifications 

to the rule text and commentary defining ‘‘loan 

originator,’’ the Bureau is also clarifying the 

circumstances in which employees of manufactured 

home retailers are loan originators. In addition, the 

Bureau will continue to conduct outreach with the 

manufactured home industry and other interested 

parties to address concerns about what activities are 

permissible for a retailer and its employees without 

causing them to qualify as loan originators. 

may rely on written statements from the 

borrower or third party, including the 

seller, as to the source of the funds and 

the purpose of the payment in 

calculating the points and fees involving 

third-party payments. 

As discussed, some commenters 

expressed concern that the Bureau’s 

treatment of third-party paid charges as 

provided in its proposed comment 

would adversely affect employer 

relocation assistance arrangements for 

employees that include assistance to the 

employee in financing the purchase of 

a home. The Bureau does not believe 

that the issues raised by these 

commenters provide sufficient 

justification to warrant the exercise of 

the Bureau’s exception authority under 

TILA section 105(a) to provide a blanket 

exclusion of such payments from the 

calculation of points and fees. In 

addition, employers continue to have 

flexibility with regard to such 

arrangements. For example, commenters 

who raised this issue focused, in 

particular, on the impact of the Bureau’s 

proposed comment on arrangements 

where the employer pays an employee’s 

discount points in a transaction. 

However § 1026.32(b)(1)(i)(E) provides 

for an exclusion from points and fees of 

certain bona fide discount points, which 

would extend to any such discount 

points paid by a third-party employer. 

With regard to creditor-paid charges, 

the Bureau is finalizing comment 

32(b)(1)–2, which makes clear that 

‘‘[c]harges that are paid by the creditor, 

other than loan originator compensation 

paid by the creditor that is required to 

be included in points and fees under 

§ 1026.32(b)(1)(ii), are excluded from 

points and fees.’’ This exclusion of 

creditor-paid charges therefore covers 

charges under § 1026.32(b)(1)(iii)–(vi). 

The Bureau also believes that existing 

§ 1026.4 and supporting commentary 

already address the treatment of 

creditor-paid charges for purposes of the 

finance charge under § 1026.32(b)(1)(i). 

For example, comment 4(a)–2 states that 

‘‘[c]harges absorbed by the creditor as a 

cost of doing business are not finance 

charges, even though the creditor may 

take such costs into consideration in 

determining the interest rate to be 

charged.’’ The Bureau disagrees with 

commenters that suggested additional 

guidance is needed regarding creditorpaid charges beyond what already exists 

in Regulation Z and new comment 

32(b)(1)–2, but for convenience is 

adding an express reference to comment 

4(a)–2 to the Bureau’s final 32(b)(1)–2 

comment. 

32(b)(1)(ii) and 32(b)(2)(ii) 

A. Background 

Section 1431(c)(1)(A) of the DoddFrank Act requires that points and fees 

include ‘‘all compensation paid directly 

or indirectly by a consumer or creditor 

to a mortgage originator from any source 

. . .’’ TILA section 103(bb)(4). The 2013 

ATR Final Rule implemented this 

statutory provision in amended 

§ 1026.32(b)(1)(ii), which provides that, 

for both the qualified mortgage points 

and fees limits and the high-cost 

mortgage points and fees threshold, 

points and fees include all 

compensation paid directly or indirectly 

by a consumer or creditor to a loan 

originator, as defined in § 1026.36(a)(1), 

that can be attributed to the transaction 

at the time the interest rate is set. The 

2013 HOEPA Final Rule implemented 

§ 1026.32(b)(2)(ii), which provides the 

same standard for including loan 

originator compensation in points and 

fees for open-end credit plans (i.e., a 

home equity line of credit, or HELOC). 

Concurrent with the 2013 ATR Final 

Rule, the Bureau also issued the 2013 

ATR Concurrent Proposal, which, 

among other things, proposed certain 

clarifications for calculating loan 

originator compensation for points and 

fees. The Bureau finalized the 2013 ATR 

Concurrent Proposal in the May 2013 

ATR Final Rule, which further amended 

§ 1026.32(b)(1)(ii) to exclude certain 

types of loan originator compensation 

from points and fees. In particular, the 

May 2013 ATR Final Rule excludes 

from points and fees loan originator 

compensation paid by a consumer to a 

mortgage broker when that payment has 

already been counted toward the points 

and fees thresholds as part of the 

finance charge under § 1026.32(b)(1)(i). 

See § 1026.32(b)(1)(ii)(A). It also 

excludes from points and fees 

compensation paid by a mortgage broker 

to an employee of the mortgage broker 

because that compensation is already 

included in points and fees as loan 

originator compensation paid by the 

consumer or the creditor to the mortgage 

broker. See § 1026.32(b)(1)(ii)(B). In 

addition, the May 2013 ATR Final Rule 

excludes from points and fees 

compensation paid by a creditor to its 

loan officers. See § 1026.32(b)(1)(ii)(C). 

The 2013 ATR Concurrent Proposal 

had requested comment on whether 

additional adjustment of the rules or 

additional commentary is necessary to 

clarify any overlapping definitions 

between the points and fees provisions 

in the 2013 ATR Final Rule and the 

2013 HOEPA Final Rule and the 

provisions adopted by the 2013 Loan 

Originator Compensation Final Rule. In 

particular, the Bureau sought comment 

on whether additional guidance would 

be useful regarding persons who are 

‘‘loan originators’’ under § 1026.36(a)(1) 

but are not employed by a creditor or 

mortgage broker, such as employees of 

a retailer of manufactured homes. 

In response to the 2013 ATR 

Concurrent Proposal, several industry 

and nonprofit commenters requested 

clarification of what compensation must 

be included in points and fees in 

connection with transactions involving 

manufactured homes. First, they 

requested additional guidance on what 

activities would cause a manufactured 

home retailer and its employees to 

qualify as loan originators. This issue is 

addressed below in the section-bysection analysis of § 1026.36(a)(1).29

Second, they requested additional 

guidance on what compensation paid to 

manufactured home retailers and their 

employees would be counted as loan 

originator compensation and included 

in points and fees. Industry commenters 

responding to the 2013 ATR Concurrent 

Proposal argued that it is not clear 

whether the sales price received by the 

retailer or the sales commission 

received by the retailer’s employee 

should be considered, at least in part, 

loan originator compensation. They 

urged the Bureau to clarify that 

compensation paid to a retailer and its 

employees in connection with the sale 

of a manufactured home should not be 

counted as loan originator 

compensation. Rather than provide 

additional guidance in the May 2013 

ATR Final Rule, the Bureau instead 

decided to propose and seek comment 

on additional guidance. 

B. Sections 32(b)(1)(ii)(D) and 

32(b)(2)(ii)(D) 

The Proposal 

The Bureau proposed new 

§ 1026.32(b)(1)(ii)(D), which would have 

excluded from points and fees all 

compensation paid by manufactured 

home retailers to their employees. The 

Bureau also proposed new 

§ 1026.32(b)(2)(ii)(D), which would have 

provided that, for open-end credit plans, 

compensation paid by manufactured 

home retailers to their employees is 


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30As addressed below in the discussion of 

§ 1026.36(a), several industry commenters argued 

that the Bureau should clarify and narrow the scope 

of activities that would cause a manufactured home 

retailer and its employees to qualify as loan 

originators. 

31As noted above, the Bureau is adopting as 

proposed comment 32(b)(1)(ii)–5.iii, which 

specifies that, consistent with new 

§ 1026.32(b)(1)(ii)(D), compensation paid by a 

manufactured home retailer to its employees is not 

included in points and fees. 

excluded from points and fees for 

purposes of the high-cost mortgage 

points and fees threshold. 

The Bureau noted that the May 2013 

ATR Final Rule added 

§ 1026.32(b)(1)(ii)(B), which excludes 

from points and fees compensation paid 

by mortgage brokers to their loan 

originator employees. The Bureau noted 

that it appeared that when an employee 

of a retailer would qualify as a loan 

originator, the retailer also would 

qualify as a loan originator and therefore 

would qualify as a mortgage broker. If 

the retailer qualifies as a mortgage 

broker, any compensation paid by the 

retailer to the employee would be 

excluded from points and fees under 

§ 1026.32(b)(1)(ii)(B). The Bureau noted, 

however, that if there were instances in 

which an employee of a manufactured 

home retailer would qualify as a loan 

originator but the retailer would not, the 

exclusion from points and fees in 

§ 1026.32(b)(1)(ii)(B) for compensation 

paid to an employee of a mortgage 

broker would not apply because the 

retailer would not be a mortgage broker. 

The Bureau suggested that it may still be 

appropriate to exclude such 

compensation paid to an employee of a 

manufactured home retailer because it 

may be difficult for creditors to 

determine whether employees of a 

manufactured home retailer have 

engaged in loan origination activities 

and, if so, what compensation they 

received for doing so. The Bureau noted 

that a retailer typically pays a sales 

commission to its employees, so it may 

be difficult for a creditor to know 

whether a retailer has paid any 

compensation to its employees for loan 

origination activities, as distinct from 

compensation for sales activities. To 

prevent any such uncertainty, the 

Bureau proposed new 

§ 1026.32(b)(1)(ii)(D), to exclude from 

points and fees all compensation paid 

by manufactured home retailers to their 

employees. The Bureau requested 

comment on this proposed exclusion 

and on whether there are instances in 

which an employee of a manufactured 

home retailer would qualify as a loan 

originator but the retailer would not 

qualify as a loan originator. 

In addition, to provide additional 

guidance on what compensation would 

be included in loan originator 

compensation that must be counted in 

points and fees for manufactured home 

transactions, the Bureau also proposed 

new comment 32(b)(1)(ii)–5. Proposed 

comment 32(b)(1)(ii)–5.i would have 

provided that, if a manufactured home 

retailer receives compensation for loan 

origination activities and such 

compensation can be attributed to the 

transaction at the time the interest rate 

is set, then such compensation is loan 

originator compensation that is 

included in points and fees. As noted in 

the May 2013 ATR Final Rule, the 

Bureau does not believe it is appropriate 

to use its exception authority to exclude 

from points and fees all compensation 

that may be paid to a manufactured 

home retailer. As a general matter, to the 

extent that the consumer or creditor is 

paying the retailer for loan origination 

activities, the retailer is functioning as 

a mortgage broker and compensation for 

the retailer’s loan origination activities 

should be captured in points and fees. 

Commenters did not address this 

proposed guidance, and the Bureau is 

therefore adopting it as proposed.30

Proposed comment 32(b)(1)(ii)–5.ii 

would have specified that the sales 

price of a manufactured home does not 

include loan originator compensation 

that can be attributed to the transaction 

at the time the interest rate is set and 

therefore is not included in points and 

fees.31

In proposing in comment 32(b)(1)(ii)– 

5.ii that the sales price of a 

manufactured home would not include 

compensation that must be included in 

points and fees, the Bureau indicated 

that it did not believe that the sales 

price would include compensation that 

is paid for loan origination activities 

and that can be attributed to a specific 

transaction. The Bureau noted that if a 

retailer does not increase the price to 

obtain compensation for loan 

origination activities, then it does not 

appear that the sales price would 

include loan originator compensation 

that could be attributed to that 

particular transaction. 

The Bureau acknowledged that it is 

possible that the sales price could 

include loan originator compensation 

that could be attributed to a particular 

transaction at the time the interest rate 

is set and that therefore should be 

included in points and fees. The Bureau 

noted that one approach for calculating 

loan originator compensation for 

manufactured home transactions would 

be to compare the sales price in a 

transaction in which the retailer 

engaged in loan origination activities 

and the sales prices in transactions in 

which the retailer did not do so (such 

as in cash transactions or in transactions 

in which the consumer arranged credit 

through another party). To the extent 

that there is a higher sales price in the 

transaction in which the retailer 

engaged in loan origination activities, 

then the difference in sales prices could 

be counted as loan originator 

compensation that can be attributed to 

that transaction and that therefore 

should be included in points and fees. 

However, the Bureau stated that it did 

not believe that it would be workable to 

use this comparative sales price 

approach to determine whether the sales 

price includes loan originator 

compensation that must be included in 

points and fees. The creditor is 

responsible for calculating loan 

originator compensation to be included 

in points and fees for the qualified 

mortgage and high-cost mortgage points 

and fees thresholds. The Bureau noted 

that, under the comparative sales price 

approach, the creditor would have to 

analyze a manufactured home retailer’s 

prices to determine if there were 

differences in the prices that would 

have to be included in points and fees 

as loan originator compensation. This 

would appear to be an extremely 

difficult analysis for the creditor to 

perform. Not only would the creditor 

have to compare the sales prices from 

numerous transactions, it would have to 

determine whether any differences 

between the sales prices could be 

attributed to the loan origination 

activities of the retailer and not to other 

factors. 

The Bureau requested comment on 

the proposed guidance specifying that 

the sales price does not include loan 

originator compensation that can be 

attributed to the transaction at the time 

the interest rate is set. In addition, the 

Bureau requested comment on whether 

the sales price of a manufactured home 

does in fact include loan originator 

compensation that can be attributed to 

the transaction at the time the interest 

rate is set, and, if so, whether there are 

practicable ways for a creditor to 

measure that compensation so that it 

could be included in points and fees. 

Comments 

The Bureau received few comments 

that addressed proposed 

§ 1026.32(b)(1)(ii)(D). Two industry 

commenters generally supported the 

proposal. Consumer advocates did not 

comment on this issue. 

With respect to new comment 

32(b)(1)(ii)–5, industry commenters 

supported the Bureau’s proposed 

guidance. They maintained that the 

sales price of a manufactured home does 


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60412 Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Rules and Regulations 

not include loan originator 

compensation and that, in any event, it 

would not be possible for the creditor to 

determine if the sales price did include 

any such compensation. 

Consumer advocates, however, 

opposed the proposed comment. They 

argued that retailers could easily 

conceal loan originator compensation in 

the sales price by inflating the price 

above what a cash customer would pay. 

They contended that it is difficult to 

determine the equivalent cash price for 

manufactured homes because most sales 

are on credit and, because of the variety 

of options, there are not standard cash 

prices for particular models. They stated 

that the Manufacturer’s Suggested Retail 

Price (MSRP) is not a reliable measure 

because it often does not include many 

options that are included with the sale 

and because the close relationships 

between many lenders, dealers, and 

manufacturers create an incentive to 

inflate MSRPs. They recommended that 

the commentary should instead provide 

that any originator compensation 

concealed in the sales price should be 

included in points and fees. 

Final Rule 

For the reasons noted above, the 

Bureau is adopting new 

§ 1026.32(b)(1)(ii)(D) and (b)(2)(ii)(D) as 

proposed. As discussed below, the 

Bureau is also adopting, with revisions, 

comment 32(b)(1)(ii)–5, which, among 

other things, explains in comment 

32(b)(1)(ii)–5.iii, that consistent with 

§ 1026.32(b)(1)(ii)(D), compensation 

paid by a manufactured home retailer to 

its employees is not included in points 

and fees. The Bureau notes, however, 

that it does not acknowledge that 

situations exist where a manufactured 

housing retailer’s employee is 

considered a loan originator, but the 

retailer itself is not. 

As discussed in the proposal, the 

Bureau is using its exception authority 

to adopt new § 1026.32(b)(1)(ii)(D) and 

(b)(2)(ii)(D) pursuant to its authority 

under TILA section 105(a) to make such 

adjustments and exceptions for any 

class of transactions as the Bureau finds 

necessary or proper to facilitate 

compliance with TILA and to effectuate 

the purposes of TILA, including the 

purposes of TILA section 129C of 

ensuring that consumers are offered and 

receive residential mortgage loans that 

reasonably reflect their ability to repay 

the loans. The Bureau’s understanding 

of this purpose is informed by the 

findings related to the purposes of 

section 129C of ensuring that 

responsible, affordable mortgage credit 

remains available to consumers. The 

Bureau believes that using its TILA 

exception authorities will facilitate 

compliance with the points and fees 

regulatory regime by not requiring 

creditors to investigate the 

manufactured housing retailer’s 

employee compensation practices, and 

by making sure that all creditors apply 

the provision consistently. It will also 

effectuate the purposes of TILA by 

helping to keep mortgage loans available 

and affordable by ensuring that they are 

subject to the appropriate regulatory 

framework with respect to qualified 

mortgages and the high-cost mortgage 

threshold. The Bureau is also invoking 

its authority under TILA section 

129C(b)(3)(B) to revise, add to, or 

subtract from the criteria that define a 

qualified mortgage consistent with 

applicable standards. For the reasons 

explained above, the Bureau has 

determined that it is necessary and 

proper to ensure that responsible, 

affordable mortgage credit remains 

available to consumers in a manner 

consistent with the purposes of TILA 

section 129C and necessary and 

appropriate to effectuate the purposes of 

this section and to facilitate compliance 

with section 129C. With respect to its 

use of TILA section 129C(b)(3)(B), the 

Bureau believes this authority includes 

adjustments and exceptions to the 

definitions of the criteria for qualified 

mortgages and that it is consistent with 

the purpose of facilitating compliance to 

extend use of this authority to the points 

and fees definitions for high-cost 

mortgage in order to preserve the 

consistency of the qualified mortgage 

and high-cost mortgage definitions. As 

noted above, by helping to ensure that 

the points and fees calculation is not 

artificially inflated, the Bureau is 

helping to ensure that responsible, 

affordable mortgage credit remains 

available to consumers. 

The Bureau also has considered the 

factors in TILA section 105(f) and has 

concluded that, for the reasons 

discussed above, the exemption is 

appropriate under that provision. 

Pursuant to TILA section 105(f), the 

Bureau may exempt by regulation from 

all or part of this title all or any class 

of transactions for which in the 

determination of the Bureau coverage 

does not provide a meaningful benefit to 

consumers in the form of useful 

information or protection. In 

determining which classes of 

transactions to exempt, the Bureau must 

consider certain statutory factors. For 

the reasons discussed above, the Bureau 

is excluding from points and fees 

compensation paid by a retailer of 

manufactured homes to its employees 

because including such compensation 

in points and fees does not provide a 

meaningful benefit to consumers. The 

Bureau believes that the exemption is 

appropriate for all affected consumers to 

which the exemption applies, regardless 

of their other financial arrangements 

and financial sophistication and the 

importance of the loan to them. 

Similarly, the Bureau believes that the 

exemption is appropriate for all affected 

loans covered under the exemption, 

regardless of the amount of the loan and 

whether the loan is secured by the 

principal residence of the consumer. 

Furthermore, the Bureau believes that, 

on balance, the exemption will simplify 

the credit process without undermining 

the goal of consumer protection, 

denying important benefits to 

consumers, or increasing the expense of 

the credit process. 

The Bureau notes that it is permitting 

creditors to exclude from points and 

fees compensation paid to a 

manufactured home retailer’s employees 

only where that compensation is paid 

by the retailer. To the extent that an 

employee of a manufactured home 

retailer receives from another source 

(such as the creditor) loan originator 

compensation that can be attributed to 

the transaction at the time the interest 

rate is set, then that compensation must 

be included in points and fees. 

The Bureau is adopting a modified 

version of comment 32(b)(1)(ii)–5 in 

light of comments from consumer 

groups. The Bureau is concerned that, as 

noted by consumer advocates, it is 

possible that the sales price of a 

manufactured home could include loan 

originator compensation. In particular, 

the Bureau is concerned that creditors 

and manufactured home retailers could 

work together to conceal loan originator 

compensation in the sales price. As a 

result, the Bureau does not believe that 

it can determine by rule that the sales 

price of a manufactured home does not 

include loan originator compensation 

that must be included in points and 

fees. 

However, no commenters proposed a 

practicable method for creditors to 

determine whether the sales price of a 

manufactured home does in fact include 

loan originator compensation that can 

be attributed to the transaction at the 

time the interest rate is set. As the 

Bureau noted in the proposal, the 

Bureau does not believe that it is 

workable for the creditor to attempt to 

compare sales prices in different 

transactions to try to determine if the 

sales price includes loan originator 

compensation that must be included in 

points and fees. 

Because the Bureau’s primary concern 

is that creditors and manufactured home 


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Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Rules and Regulations 60413 

retailers could work together to conceal 

loan originator compensation in the 

sales price, the Bureau is adopting new 

guidance that focuses on the knowledge 

of the creditor. Specifically, the Bureau 

is revising proposed comment 

32(b)(1)(ii)–5.ii to provide that, if the 

creditor has knowledge that the sales 

price of a manufactured home includes 

loan originator compensation, then that 

compensation must be included in 

points and fees. The creditor does not, 

however, have an obligation to 

investigate the retailer’s sales prices to 

determine if the sales price includes 

such compensation. 

This approach is consistent with the 

current rules for calculating points and 

fees and the amount of loan originator 

compensation that must be included in 

points and fees. Under § 1026.32(b)(1), 

amounts must be included in points and 

fees only if they are ‘‘known at or before 

consummation.’’ Under 

§ 1026.32(b)(1)(ii), loan originator 

compensation is included in points and 

fees only if it can be attributed to the 

transaction at the time the interest rate 

is set. In general, the Bureau does not 

believe that many creditors will know 

whether the sales price of a 

manufactured home includes loan 

originator compensation, and therefore 

would not be able to attribute any such 

compensation to the transaction at the 

time the interest rate is set. However, to 

the extent that, for example, a creditor 

and a retailer establish an arrangement 

in which the sales price of a 

manufactured home includes loan 

originator compensation, then the 

creditor would have knowledge that the 

sales price includes loan originator 

compensation and would have to 

include such compensation in points 

and fees. The Bureau believes that this 

approach will balance the goals of 

ensuring that creditors and retailers not 

evade the points and fees limits by 

working together to conceal loan 

originator compensation in the sales 

price and of avoiding a standard that 

would impose an unreasonable burden 

on creditors to investigate the pricing of 

manufactured home retailers. 

32(b)(1)(vi) and 32(b)(2)(vi) 

The Proposal 

The Bureau proposed clarifying 

changes to § 1026.32(b)(1)(vi) and 

(b)(2)(vi) to better harmonize the 

definitions of ‘‘total prepayment 

penalty’’ adopted in these two sections 

more fully with the statutory 

requirement implemented by them. 

Sections 1026.32(b)(1)(vi) and (2)(vi) 

implement TILA section 103(bb)(4)(F), 

as added by section 1431(c) of the DoddFrank Act. That provision requires that 

points and fees include ‘‘all prepayment 

fees or penalties that are incurred by the 

consumer if the loan refinances a 

previous loan made or currently held by 

the same creditor or an affiliate of the 

creditor.’’ Section 1026.32(b)(1)(vi), as 

adopted by the 2013 ATR Final Rule, 

implemented this provision as it related 

to closed-end credit transactions, and 

provided that points and fees must 

include ‘‘[t]he total prepayment penalty, 

as defined in paragraph (b)(6)(i) of this 

section, incurred by the consumer if the 

consumer refinances the existing 

mortgage loan with the current holder of 

the existing loan, a servicer acting on 

behalf of the current holder, or an 

affiliate of either.’’ Section 

1026.32(b)(2)(vi), as adopted by the 

2013 HOEPA Final Rule, implemented 

this provision as it related to open-end 

credit plans (i.e., a home equity line of 

credit, or HELOC), and provided that 

points and fees must include ‘‘[t]he total 

prepayment penalty, as defined in 

paragraph (b)(6)(ii) of this section, 

incurred by the consumer if the 

consumer refinances an existing closedend credit transaction with an open-end 

credit plan, or terminates an existing 

open-end credit plan in connection with 

obtaining a new closed- or open-end 

credit transaction, with the current 

holder of the existing plan, a servicer 

acting on behalf of the current holder, 

or an affiliate of either.’’ 

The Bureau proposed changes to 

§ 1026.32(b)(1)(vi) and (2)(vi) to clarify 

both provisions’ application. In doing so 

the Bureau stated that it intended these 

provisions to work in the same manner 

for closed-end and open-end credit 

transactions—i.e., to include in points 

and fees any prepayment charges 

triggered by the refinancing of an 

existing loan or termination of a HELOC 

by obtaining a new credit transaction 

with the current holder of the existing 

closed-end mortgage loan or open-end 

credit plan. The Bureau, therefore, 

proposed to state expressly that 

§ 1026.32(b)(1)(vi) applies to instances 

where the consumer takes out a closedend mortgage loan to pay off and 

terminate an existing open-end credit 

plan held by the same creditor and the 

plan imposes a prepayment penalty (as 

defined in § 1026.32(b)(6)(ii)) on the 

consumer. The Bureau also proposed to 

strike from the existing 

§ 1026.32(b)(2)(vi) the reference to 

obtaining a new closed-end credit 

transaction because § 1026.32(b)(2)(vi) 

relates to points and fees only for openend credit plans and § 1026.32(b)(1)(vi) 

would apply instead. The Bureau also 

proposed to insert in § 1026.32(b)(2)(vi) 

a reference to § 1026.32(b)(6)(i), the 

definition of prepayment penalties for 

closed-end credit transactions, to clarify 

that the § 1026.32(b)(6)(i) definition 

applies in calculating the prepayment 

penalties included where a consumer 

refinances a closed-end mortgage loan 

with a HELOC with the creditor holding 

the closed-end mortgage loan (i.e., the 

closed-end mortgage loan’s prepayment 

penalties are included in calculating 

points and fees for the HELOC). 

Comments 

The Bureau did not receive comments 

specific to these proposed changes. 

Final Rule 

The Bureau is adopting the changes to 

§ 1026.32(b)(1)(vi) and (2)(vi) as 

proposed. The Bureau believes that 

these changes are consistent with the 

statutory provision implemented by this 

section and provide needed clarification 

to the Bureau’s intended application of 

§ 1026.32(b)(1)(vi) and (2)(vi). In 

addition, the Bureau also is adopting as 

proposed comment 32(b)(2)–1, which 

directs readers for further guidance on 

the inclusion of charges paid by parties 

other than the consumer in points and 

fees for open-end credit plans to 

proposed comment 32(b)(1)–2 on 

closed-end credit transactions. 

32(d) Limitations 

32(d)(1) 

32(d)(1)(ii) Exceptions 

32(d)(1)(ii)(C) 

The Proposal 

The Bureau proposed to revise the 

exception to the prohibition on balloon 

payments for high-cost mortgages in 

§ 1026.32(d)(1)(ii)(c) for transactions 

that satisfy the criteria set forth in 

§ 1026.43(f), which implements TILA 

section 129C(b)(2)(E) as added by the 

Dodd-Frank Act provision, allows 

certain balloon-payment mortgages 

made by small creditors operating 

predominantly in ‘‘rural or underserved 

areas’’ to be accorded status as qualified 

mortgages under § 1026.43(f). The 

HOEPA balloon exception is based on 

the same statutory provision, which 

appears to have been designed to 

promote access to credit. TILA section 

129C as added by the Dodd-Frank Act 

generally prohibits balloon-payment 

loans from being accorded qualified 

mortgage status, but Congress appears to 

have been concerned that small 

creditors in rural areas might have 

sufficient difficulty converting from 

balloon-payment loans to adjustable rate 

mortgages that they would curtail 

mortgage lending if they could not 


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32Specifically, in the May 2013 ATR Final Rule, 

the Bureau adopted § 1026.43(e)(6), which provided 

for a temporary balloon-payment qualified mortgage 

that requires all of the same criteria be satisfied as 

the balloon-payment qualified mortgage definition 

in § 1026.43(f) except the requirement that the 

creditor extend more than 50 percent of its total 

first-lien covered transactions in counties that are 

‘‘rural’’ or ‘‘underserved.’’ This temporary balloonpayment qualified mortgage would sunset, 

however, after January 10, 2016. As discussed in the 

section-by-section analysis of § 1026.43(e)(6) in the 

May 2013 ATR Final Rule, the Bureau adopted this 

two-year transition period for small creditors to roll 

over existing balloon-payment loans as qualified 

mortgages, even if they do not operate 

predominantly in rural or underserved areas, 

because the Bureau believes it is necessary to 

preserve access to responsible, affordable mortgage 

credit for some consumers. The Bureau also noted 

that, during the two-year period for which 

§ 1026.43(e)(6) is in place, the Bureau intends to 

review whether the definitions of ‘‘rural’’ and 

‘‘underserved’’ should be adjusted further and to 

explore how it can best facilitate the transition of 

small creditors that do not operate predominantly 

in rural or underserved areas from balloon-payment 

loans to adjustable-rate mortgages. 78 FR 35430 

(June 12, 2013). 

33See, e.g., U.S Consumer Fin Prot. Bureau, 

Clarification of the 2013 Escrows Final Rule (May 

16, 2013), available at http:// 

www.consumerfinance.gov/blog/clarification-of-the2013-escrows-final-rule/. 

obtain qualified mortgage status for their 

balloon-payment loans. As adopted in 

§ 1026.43(f) by the 2013 ATR Final Rule, 

the exemption is available to creditors 

that extended more than 50 percent of 

their total covered transactions secured 

by a first lien in ‘‘rural’’ or 

‘‘underserved’’ counties during the 

preceding calendar year, as those terms 

are defined in § 1026.35(b)(2)(iv)(A) and 

(B), respectively. 

Because commenters raised similar 

concerns about the prohibition in 

HOEPA on high-cost mortgages having 

balloon-payment features, the Bureau 

decided in the 2013 HOEPA Final Rule 

to adopt § 1026.32(d)(1)(ii)(C) to allow 

balloon-payment features on loans that 

met the qualified mortgage 

requirements. The Bureau stated that, in 

its view, (1) allowing creditors in certain 

rural or underserved areas to extend 

high-cost mortgages with balloon 

payments will benefit consumers by 

expanding access to credit in these 

areas, and also will facilitate 

compliance for creditors who make 

these loans; and (2) allowing creditors 

that make high-cost mortgages in rural 

or underserved areas to originate loans 

with balloon payments if they satisfy 

the same criteria promotes consistency 

between the 2013 HOEPA Final Rule 

and the 2013 ATR Final Rule, and 

thereby facilitates compliance for 

creditors that operate in these areas. 

Since publication of the 2013 HOEPA 

Final Rule and the 2013 ATR Final 

Rule, the Bureau received extensive 

comment on the definitions of ‘‘rural’’ 

and ‘‘underserved’’ that it adopted for 

purposes of § 1026.43(f) and certain 

other purposes in the 2013 Title XIV 

Final Rules, including 

§ 1026.32(d)(1)(ii)(C). In light of these 

comments, the Bureau added 

§ 1026.43(e)(6) to allow small creditors 

during the period from January 10, 

2014, to January 10, 2016, to make 

balloon-payment qualified mortgages 

even if they do not operate 

predominantly in rural or underserved 

areas.32 In addition, the Bureau 

announced that it would reexamine 

those definitions over the next two years 

to determine whether further 

adjustments are appropriate particularly 

in light of access to credit concerns.33

In light of the Bureau’s decision to 

allow small creditors an additional two 

years to transition from balloonpayment loans to other products while 

it reevaluates the definitions of ‘‘rural’’ 

and ‘‘underserved,’’ the Bureau also 

proposed revisions to 

§ 1026.32(d)(1)(ii)(c) to also allow small 

creditors to carry over the flexibility 

provided by the revised May 2013 ATR 

Final Rule into the HOEPA balloon loan 

provisions. The proposal would have 

revised § 1026.32(d)(1)(ii)(C) to expand 

the exception to the prohibition on 

balloon payments for high-cost 

mortgages for transactions that satisfy 

the criteria in either § 1026.43(f) or 

§ 1026.43(e)(6). The Bureau sought 

comment on this aspect of the proposal. 

Comments 

The Bureau received substantial 

comments from trade associations, 

credit unions, and other industry 

advocates supporting the proposed 

amendments. Specifically, many of 

these commenters commended the 

Bureau for facilitating compliance with 

the balloon payment restrictions 

adopted by the 2013 HOEPA Final Rule, 

especially with respect to small 

creditors whose communities 

technically fail to meet the Bureau’s 

definition of ‘‘rural’’ because they lie 

within the boundaries of micropolitan 

statistical areas. These commenters 

noted that the ability to originate 

mortgages with balloons is important to 

small creditors, who often have unique 

product pricing risks and also 

commonly do not have adequate staff or 

training to produce the additional 

disclosures required by adjustable-rate 

mortgages. The Bureau received one 

comment from a housing counseling 

organization that disagreed with the 

proposed expansion of the exemption, 

but the commenter raised no specific 

issues with the proposal. Rather the 

commenter disagreed in general with 

the original exception adopted by the 

2013 HOEPA Final Rule on the premise 

that it believes balloon high-cost 

mortgages should never be permitted 

under any circumstances. 

Final Rule 

The Bureau is adopting revised 

§ 1026.32(d)(1)(ii)(c) as proposed. The 

Bureau is expanding this exception 

pursuant to its authority under TILA 

section 129(p)(1), which grants it 

authority to exempt specific mortgage 

products or categories from any or all of 

the prohibitions specified in TILA 

section 129(c) through (i) if the Bureau 

finds that the exemption is in the 

interest of the borrowing public and will 

apply only to products that maintain 

and strengthen homeownership and 

equity protections. 

The Bureau believes expanding the 

balloon-payment exception for high-cost 

mortgages to allow certain small 

creditors operating in areas that do not 

qualify as ‘‘rural’’ or ‘‘underserved’’ to 

continue to originate high-cost 

mortgages with balloon payments is in 

the interest of the borrowing public and 

will strengthen homeownership and 

equity protection. The Bureau believes 

allowing greater access to credit in 

remote areas that nevertheless may not 

meet the definitions of ‘‘rural’’ or 

‘‘underserved’’ while creditors 

transition to adjustable-rate mortgages 

(or the Bureau reconsiders those 

definitions) will help those consumers 

who otherwise may be able to obtain 

credit only from a limited number of 

creditors. Further, it will do so in a 

manner that balances consumer 

protections with access to credit. In the 

Bureau’s view, concerns about 

potentially abusive practices that may 

accompany balloon payments will be 

curtailed by the additional requirements 

set forth in § 1026.43(e)(6) and (f). 

Creditors that make these high-cost 

mortgages will be required to verify that 

the loans also satisfy the additional 

criteria discussed above, including some 

specific criteria required for qualified 

mortgages. Further, creditors that make 

balloon-payment high-cost mortgages 

under this exception will be required to 

hold the high-cost mortgages in 

portfolio for a specified time, which the 

Bureau believes also decreases the risk 

of abusive lending practices. 

Accordingly, for these reasons and for 

the purpose of consistency between the 

two rules, the Bureau is adopting an 

exception to the § 1026.32(d)(1) balloonpayment restriction for high-cost 

mortgages where the creditor satisfies 

the conditions set forth in §§ 1026.43(f) 

or the conditions set forth in 

§ 1026.43(e)(6). 


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34 78 FR 30739 (May 23, 2013). 

35The extent of such volatility in the transition 

from 2012 rural/non-rural status (for purposes of 

eligibility for the exemption during 2013) to 2013 

rural/non-rural status (for purposes of eligibility for 

the exemption during 2014) is likely far greater than 

during other year-to-year transitions. This is due to 

the fact that this first year-to-year transition under 

the Bureau’s ‘‘rural’’ definition happens to coincide 

with the redesignation by the USDA’s Economic 

Research Service of U.S. counties’ urban influence 

codes, on which the ‘‘rural’’ definition is generally 

based. This redesignation occurs only decennially, 

based on the most recent census data. Nevertheless, 

for purposes of eligibility for the exemption during 

2013 and 2014, the volatility is significant—just as 

creditors are first attempting to apply the 

exemption’s criteria. 

Section 1026.35 Requirements for 

Higher-Priced Mortgage Loans 

35(b) Escrow Accounts 

35(b)(2) Exemptions 

35(b)(2)(iii) 

35(b)(2)(iii)(A) 

The Proposal 

In addition to the HOEPA and ATR 

balloon provisions discussed above, the 

definitions of ‘‘rural’’ and 

‘‘underserved’’ also relate to the 

§ 1026.35(b)(2)(iii) exemption from the 

requirement that creditors establish 

escrow accounts for certain higherpriced mortgage loans available to small 

creditors that operate predominantly in 

‘‘rural’’ or ‘‘underserved’’ areas. The 

exemption in § 1026.35(b)(2)(iii) was 

designed to promote access to credit by 

exempting small creditors in rural or 

underserved areas that might have 

sufficient difficulty maintaining escrow 

accounts that they would curtail making 

higher-priced mortgage loans rather 

than trigger the escrow account 

requirement. As adopted in the 2013 

Escrows Final Rule, and as amended by 

the May 2013 Escrows Final Rule,34 the 

exemption is available to creditors that 

extended more than 50 percent of their 

total covered transactions secured by a 

first lien on properties that are located 

in ‘‘rural’’ or ‘‘underserved’’ counties 

during the preceding calendar year. In 

general, a county’s status as ‘‘rural’’ is 

defined in relation to Urban Influence 

Codes (UICs) established by the United 

States Department of Agriculture’s 

Economic Research Service. 

Because of updated information from 

the 2010 Census, however, numerous 

counties’ status under the Bureau’s 

definition will change between 2013 

and 2014, with a small number of new 

counties meeting the definition of 

‘‘rural’’ and approximately 82 counties 

no longer meeting that definition. The 

Bureau estimates that approximately 

200–300 otherwise eligible creditors 

during 2013 could lose their eligibility 

for 2014 solely because of changes in 

the status of the counties in which they 

operate (assuming the geographical 

distribution of their mortgage 

originations does not change 

significantly over the relevant period).35

In light of the Bureau’s intent to 

review whether the definitions of 

‘‘rural’’ and ‘‘underserved’’ should be 

adjusted further during the two-year 

transition period for balloon-payment 

mortgages discussed above, the Bureau 

proposed to revise the exemption 

provided by § 1026.35(b)(2)(iii) to the 

general requirement that creditors 

establish an escrow account for first lien 

higher-priced mortgage loans where a 

small creditor operates predominantly 

in rural or underserved areas and meets 

various other criteria. The proposal 

would have revised § 1026.35(b) and its 

commentary to minimize volatility in 

the definitions while they are being reevaluated. The proposal also would 

have amended § 1026.35(b)(2)(iii)(D)(1) 

and its commentary to conform to the 

expansion of the exemption to creditors 

that may meet the § 1026.35(b)(2)(iii)(A) 

criteria for calendar year 2014 based on 

loans made in ‘‘rural’’ or ‘‘underserved’’ 

counties in calendar year 2011, but not 

2012 or 2013. 

The Bureau sought comment on these 

proposed amendments and also 

proposed an effective date for the 

amendments that would apply to 

transactions where applications were 

received on or after January 1, 2014, in 

light of the proposed change to the 

calendar year exemption under 

§ 1026.35(b)(2)(iii). 

Comments 

The Bureau received substantial 

comments from trade associations, 

credit unions, and other industry 

advocates supporting the proposed 

amendments. Many of the comments 

relating to the amendments to 

§ 1026.32(d)(1)(ii)(A) discussed above 

also discussed the amendments to 

§ 1026.35(b)(2)(iii) and offered similar or 

identical comments commending the 

Bureau for facilitating compliance with 

the requirements adopted by the 2013 

Escrow Final Rule, particularly in light 

of changes to ‘‘rural’’ status for certain 

counties based on the last available 

Census data that would have caused 

certain creditors to lose eligibility for 

the exemption. The same housing 

counseling organization that disagreed 

with the balloon exception adopted by 

the 2013 HOEPA Final Rule also 

disagreed with the original exemption 

from the escrows requirement and thus 

also the proposed expansion. As before, 

this commenter did not raise any 

specific issues related to the proposal, 

but rather stated that all higher-priced 

mortgage loans should be escrowed, 

without exception. As discussed in part 

V above, while nearly all comments 

supported the proposal in general, no 

comments expressly addressed the 

January 1, 2014 effective date. 

Final Rule 

The Bureau is adopting revised 

§ 1026.35(b)(2)(iii)(A) as proposed. The 

amended provision provides that, to 

qualify for the exemption, a creditor 

must have extended more than 50 

percent of its total covered transactions 

secured by a first lien on properties 

located in ‘‘rural’’ or ‘‘underserved’’ 

counties during any of the preceding 

three calendar years. The provision thus 

prevents a creditor from losing 

eligibility for the exemption under the 

‘‘rural or underserved’’ element of the 

test unless it has failed to exceed the 50- 

percent threshold three years in a row. 

As discussed above in the section-bysection analysis of § 1026.32(d)(1)(ii)(C), 

the Bureau also is modifying the 

exception from the prohibition on 

balloon payments for high-cost 

mortgages in that section. Section 

1026.32(d)(1)(ii)(C) provides an 

exception to the general prohibition on 

balloon payments for high-cost 

mortgages for balloon-payment qualified 

mortgages made by certain creditors 

operating predominantly in ‘‘rural’’ or 

‘‘underserved’’ areas. Believing that the 

same rationale for allowing balloonpayment qualified mortgages made by 

creditors in rural or underserved areas 

applies to high-cost mortgages, the 

Bureau adopted the 

§ 1026.32(d)(1)(ii)(C) exception in the 

2013 HOEPA Final Rule. As explained 

above, the Bureau believes the same 

underlying rationale for the two-year 

transition period for balloon-payment 

qualified mortgages described above 

applies equally to the 

§ 1026.32(d)(1)(ii)(C) exception from the 

high-cost mortgage balloon prohibition. 

Accordingly, the Bureau believes it is 

appropriate to extend this temporary 

framework to § 1026.32(d)(1)(ii)(C) and 

therefore is amending 

§ 1026.32(d)(1)(ii)(C) to include loans 

meeting the criteria under 

§ 1026.43(e)(6). Thus, for both balloonpayment qualified mortgages and for the 

high-cost mortgage balloon prohibition, 

the Bureau has adopted a two-year 

transition period during which the 

special treatment of balloon-payment 

loans does not depend on the creditor 

operating predominantly in rural or 

underserved areas. 

The Bureau considered taking the 

same approach with regard to the 


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escrow requirement but concluded 

ultimately that a smaller adjustment was 

appropriate. Because higher-priced 

mortgage loans are already subject to an 

escrow requirement, all creditors are 

currently required to maintain escrow 

accounts for such loans. Implementation 

of the amendments to the exemption 

will thus reduce burden for some 

creditors, but does not impose different 

requirements than the status quo except 

as to the length of time that an escrow 

account must be maintained. This is 

fundamentally different than the abilityto-repay and high-cost mortgage 

requirements, which would prohibit 

new balloon-payment loans from being 

accorded qualified mortgage status or 

from being made going forward absent 

implementation of the special 

exemptions. In addition, the Bureau 

may change the definitions of rural or 

underserved areas as the result of its reexamination process but does not 

anticipate lifting the requirement that 

creditors operate predominantly in rural 

or underserved areas to qualify for the 

exemption because Congress 

specifically contemplated that 

limitation on the escrows exemption. 

Accordingly, the Bureau believes it is 

appropriate to leave the definition in 

place, but to prevent volatility in the 

definition from negatively affecting 

creditors while the Bureau re-evaluates 

the underlying definitions. The Bureau 

believes that, as with the two balloonpayment provisions for which the 

Bureau believes two-year transition 

periods are appropriate, this 

amendment will benefit consumers by 

expanding access to credit in certain 

areas that met the definitions of ‘‘rural’’ 

or ‘‘underserved’’ at some time in the 

preceding three calendar years and also 

will facilitate compliance for creditors 

that make these loans. The Bureau also 

believes that the amendment will 

promote additional consistency between 

the regulatory provisions adopted by the 

2013 HOEPA Final Rule, the 2013 ATR 

Final Rule, and the 2013 Escrows Final 

Rule, thereby facilitating compliance for 

affected creditors. 

The Bureau notes that the mechanics 

of § 1026.35(b)(2)(iii)(A) differ slightly 

from the express transition period 

ending on January 10, 2016, under 

§ 1026.43(e)(6). Thus, this amendment 

does not parallel the same transition 

period precisely, as does revised 

§ 1026.32(d)(1)(ii)(C), which simply 

incorporates § 1026.43(e)(6)’s conditions 

by cross-reference. Instead, revised 

§ 1026.35(b)(2)(iii)(A) approximates a 

two-year transition period by extending 

from one to three years the time for 

which a creditor, once eligible for the 

exemption, cannot lose that eligibility 

because of changes in the rural (or 

underserved) status of the counties in 

which the creditor operates. Because the 

2013 Escrows Final Rule took effect on 

June 1, 2013, the escrows provisions 

already have begun operating over seven 

months earlier than the provisions 

adopted by the 2013 HOEPA and ATR 

Final Rules (which take effect on 

January 10, 2014). Thus, whereas the 

two balloon-payment provisions 

specifically last through January 10, 

2016, the escrows-requirement 

exemption will guarantee eligibility (for 

a creditor that is eligible during 2013 

with respect to operating predominantly 

in rural or underserved areas, and meets 

the other applicable criteria) through 

2015. Thus, the revised 

§ 1026.35(b)(2)(iii) exemption will 

approximately, though not exactly, track 

the extension of the balloon exemption 

for qualified mortgages under 

§ 1026.43(e)(6), and the extension of the 

HOEPA balloon exemption under 

revised § 1026.32(d)(1)(ii)(C). 

In addition to the changes discussed 

above, the Bureau also is amending 

§ 1026.35(b)(2)(iii)(D)(1) and its 

commentary to conform to the 

expansion of the exemption to creditors 

that may meet the section 

35(b)(2)(iii)(A) criteria for calendar year 

2014 based on loans made in ‘‘rural’’ or 

‘‘underserved’’ counties in calendar year 

2011, but not 2012 or 2013. Section 

§ 1026.35(b)(2)(iii)(D)(1) currently 

prohibits any creditor from availing 

itself of the exemption if it maintains 

escrow accounts for any extensions of 

consumer credit secured by real 

property or a dwelling that it or its 

affiliate currently service, unless the 

escrow accounts were established for 

first-lien higher-priced mortgage loans 

on or after April 1, 2010, and before 

June 1, 2013, or were established after 

consummation as an accommodation for 

distressed consumers. With respect to 

loans where escrows were established 

on or after April 1, 2010, and before 

June 1, 2013, the Supplementary 

Information to the 2013 Escrows Final 

Rule explained that the Bureau believes 

creditors should not be penalized for 

compliance with the then current 

regulation, which would have required 

any such loans to be escrowed after 

April 1, 2010, and prior to June 1, 

2013—the date the exemption took 

effect. The Bureau understands that 

creditors that did not make more than 

50 percent of their first-lien higherpriced mortgage loans in ‘‘rural’’ or 

‘‘underserved’’ counties in calendar year 

2012 would have been ineligible for the 

exemption for calendar year 2013, and 

thus would have been required under 

§ 1026.35(a) to establish escrow 

accounts for any higher-priced mortgage 

loans those creditors made after June 1, 

2013. However, it is possible in light of 

the amendments the Bureau is adopting 

that some of these same creditors may 

have met this criteria during calendar 

year 2011—and thus, because the 

Bureau is finalizing the proposal and 

allowing creditors to qualify for the 

exemption (assuming they satisfy the 

other conditions set forth in 

§ 1026.35(b)(2)(iii)(B), (C), and (D))— 

such creditors will qualify for the 

exemption in 2014. However, absent 

additional clarification, there would be 

one barrier: For applications received on 

or after June 1, 2013, but before the date 

the proposed amendment takes effect (as 

proposed, January 1, 2014), such a 

creditor that made a first-lien higherpriced mortgage loan would have been 

required to escrow for that loan, and 

thus would be deemed ineligible under 

§ 1026.35(b)(2)(iii)(D). The Bureau does 

not believe that such creditors should 

lose the exemption because they were 

ineligible prior to the proposed 

amendment taking effect and thus made 

loans with escrows from June 1, 2013, 

through December 31, 2013. As the 

Bureau discussed in the Supplementary 

Information to the 2013 Escrows Final 

Rule, the Bureau believes creditors 

should not be penalized for compliance 

with the current regulation. The Bureau 

thus believes it is appropriate to amend 

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

35(b)(2)(iii)(D)(1)–1.iv to exclude escrow 

accounts established after April 1, 2010 

and before January 1, 2014. 

In addition, the Bureau is revising 

comment 35(b)(2)(iii)(D)(1)–1.iv to 

clarify that the date ranges provided in 

§ 1026.35(b)(2)(iii)(D)(1) apply to 

transactions for which creditors 

received applications on or after April 1, 

2010, and before January 1, 2014. As 

discussed above, the Bureau believes 

such creditors should still qualify for 

the exemption provided under 

§ 1026.35(b)(2)(iii) so long as they do 

not establish new escrow accounts for 

transactions for which they received 

applications on or after January 1, 2014, 

other than those described in 

§ 1026.35(b)(2)(iii)(D)(2), and they 

otherwise qualify under 

§ 1026.35(b)(2)(iii). The Bureau believes 

this clarification reflects both the 

manner in which the 2013 Escrows Rule 

originally applied to transactions and 

the applicability of this final rule. 


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36 ‘‘Person’’ is defined in § 1026.2(a)(22) to mean, 

‘‘a natural person or an organization, including a 

corporation, partnership, proprietorship, 

association, cooperative, estate, trust, or 

government unit.’’ 

Section 1026.36 Loan Originator 

Compensation 

36(a) Definitions 

Section 1026.36(a) defines the term 

‘‘loan originator’’ for purposes of 

§ 1026.36 as a person 36 who, for or in 

expectation of direct or indirect 

compensation or other monetary gain, 

engages in a defined set of activities or 

services (unless otherwise excluded). 

Section 1026.36(a) describes these 

activities broadly to include any such 

person who ‘‘takes an application, 

offers, arranges, assists a consumer in 

obtaining or applying to obtain, 

negotiates, or otherwise obtains or 

makes an extension of consumer credit 

for another person; or through 

advertising or other means of 

communication represents to the public 

that such person can or will perform 

any of these activities.’’ Commentary to 

§ 1026.36(a) further describes and 

provides illustrations of these activities, 

including how the practice of 

‘‘referring’’ consumers to creditors or 

loan originators, may affect one’s status 

under the section. 

Following publication of the 2013 

Loan Originator Compensation Final 

Rule, the Bureau received numerous 

inquiries from industry regarding the 

activities that, if done for compensation 

or gain, would cause a person to be 

classified as a ‘‘loan originator’’ under 

§ 1026.36. As discussed below, many of 

these inquiries sought clarification 

regarding specific terms used 

throughout the section, such as ‘‘credit 

terms,’’ or guidance on how the 

provision may apply to certain loan 

originator or creditor employees, agents 

or contractors such as tellers and 

greeters, as well as other interpretive 

questions. In response, the Bureau 

proposed several amendments to 

§ 1026.36(a) and associated commentary 

adopted by the 2013 Loan Originator 

Compensation Final Rule to resolve 

inconsistencies in wording, to conform 

the comments to the intended operation 

of the regulation text, and to address 

issues raised during the regulatory 

implementation process. The Bureau 

proposed these changes pursuant to its 

TILA section 105(a) and Dodd-Frank 

Act section 1022(b)(1) authority. As 

discussed below, the Bureau is adopting 

most of these amendments as proposed 

with some revisions and additional 

clarifying amendments. 

The Bureau also proposed to revise 

comments 36(a)–4.i and 36(a)–4.ii.B to 

clarify those provisions’ application to 

loan originator or creditor agents and 

contractors as well as employees. The 

Bureau is not adopting this aspect of the 

proposal. As discussed below, 

comments 36(a)–4.i and 36(a)–4.ii.B 

illustrate two situations where an 

employee of a creditor or loan originator 

is conducting ‘‘in house’’ activity for his 

or her employer that is not considered 

to be ‘‘referring’’: (1) Handing 

applications from the employer to a 

consumer; and (2) providing loan 

originator or creditor contact 

information for the loan originator or 

creditor entity for which the person 

works, or a person that works for the 

same entity. The Bureau proposed to 

clarify that comments 36(a)–4.i and 

36(a)–4.ii.B may be available to certain 

persons who work for creditors or loan 

originators, but may not technically be 

‘‘employed’’ by the loan originator or 

creditor organization—i.e., contract 

employees, temporary employees, 

interns, or other persons who may be 

working on a voluntary basis or being 

paid by another entity. However, upon 

further consideration, the Bureau 

believes the terms ‘‘agent’’ and 

‘‘contractor’’ could be interpreted more 

broadly than the Bureau intended to 

include independent contractors or 

agents used by loan originators or 

creditors to refer customers to that loan 

originator or creditor. The Bureau did 

not intend these provisions to be 

applied this broadly, and also is 

concerned that such a reading could be 

inconsistent with other applicable laws, 

such as RESPA’s prohibition on referral 

fees for federally related mortgages. 

Accordingly, the Bureau is limiting the 

scope of this comment to employees of 

loan originators or creditors. 

The Bureau notes, however, that this 

does not mean these provisions may 

never be available to certain persons 

who may possibly be considered agents 

or contractors, such as temps or contract 

employees. While these provisions are 

limited to employees of creditors or loan 

originators, § 1026.2(b)(3) states that any 

terms not defined by Regulation Z is 

given the meanings given to them by 

State law or contract. The Bureau 

believes the term ‘‘employee’’—which is 

not defined under Regulation Z—is 

commonly defined under State law as 

well as employment contracts, and may 

extend to such persons in appropriate 

circumstances. 

A. References to Credit Terms 

The Proposal 

The Bureau proposed to amend 

§ 1026.36(a) and its commentary to 

clarify the meaning of ‘‘credit terms,’’ 

which is used in defining some of the 

exclusions to the general definition of 

‘‘loan originator,’’ thereby further 

delineating the general definition. For 

example, as adopted by the 2013 Loan 

Originator Compensation Final Rule, 

§ 1026.36(a)(1)(i)(A) allows persons who 

act as assistants to loan originators to 

perform clerical or administrative tasks 

on a loan originator’s behalf without 

becoming loan originators themselves. 

To be eligible for the exclusion, 

however, the person must not, among 

other things, offer or negotiate ‘‘credit 

terms available from a creditor.’’ 

Similarly, comment 36(a)–4.i. 

explains when providing a consumer 

with a credit application, an activity 

that would otherwise be a referral, does 

not cause a person to be classified as a 

loan originator. This comment provides 

an exception to certain persons who, 

among other things, do not discuss 

‘‘specific credit terms or products 

available from a creditor with the 

consumer.’’ 

In addition, comment 36(a)–4.ii.B 

explains when a loan originator’s or 

creditor’s employee, such as a teller or 

greeter, may engage in providing loan 

originator contact information to 

consumers, an activity that would 

otherwise be a referral, without being 

classified as a loan originator. This 

comment provides that the definition of 

loan originator does not include a 

creditor’s or loan originator’s employee 

who provides loan originator or creditor 

contact information to a consumer, 

provided the employee does not, among 

other things, ‘‘discuss particular credit 

terms available from a creditor.’’ See 

also § 1026.36(a)(1)(i)(B) and comments 

36(a)–1.i.A.2 through–1.i.A.4 (other 

similar references to credit terms). This 

exclusion also assists in defining 

persons who are loan originators in the 

sense that it implies persons who do 

discuss specific or particular credit 

terms, as this activity is further clarified 

in this rule, would be included in the 

definition. 

Following publication of the 2013 

Loan Originator Compensation Final 

Rule, the Bureau received numerous 

inquiries from loan originators and 

creditors seeking guidance on the 

meaning of ‘‘credit terms’’ in these 

various contexts. In light of these 

inquiries, the Bureau was concerned 

that the term ‘‘credit terms’’ could have 

been construed too broadly and in a 

manner that could render any person 

that provides such general information 

a loan originator, which was not the 

Bureau’s intent. Rather, the Bureau 

generally intended the references to 

‘‘credit terms’’ throughout § 1026.36(a) 

to refer to particular credit terms that 


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are or may be made available to the 

consumer selected based on the 

consumer’s financial characteristics. 

Distinct from such particular credit 

terms are general credit terms that a 

loan originator or creditor makes 

available and advertises to the public at 

large, such as where such person merely 

states: ‘‘We offer rates as low as 3% to 

qualified consumers.’’ 

To address these questions, the 

Bureau proposed to clarify usage of the 

term ‘‘credit terms’’ throughout the 

section in several ways. First, the 

Bureau noted that the definition of 

‘‘credit terms,’’ which explains the term 

includes rate, fees, and other costs, had 

been provided only by a parenthetical 

clause in § 1026.36(a)(1)(i)(B) (a single 

exclusion that relates to retailers of 

manufactured homes) rather than in a 

separate, definitional provision. Thus, 

the definition appears to be limited to 

that single provision, even though the 

term is used in multiple places 

throughout § 1026.36(a). For 

clarification purposes, the Bureau 

proposed to move this definition from 

§ 1026.36(a)(1)(i)(B), to new 

§ 1026.36(a)(6), which explicitly makes 

the definition applicable to the entire 

section. The Bureau solicited comment 

on whether additional guidance 

concerning the meaning of particular 

credit terms that are or may be made 

available to the consumer in light of the 

consumer’s financial characteristics is 

necessary, and if so, what clarifications 

would be helpful. 

Second, the Bureau proposed to revise 

§ 1026.36(a)(1)(i)(A) and (B), and 

comments 36(a)–1 and –4 to address 

inconsistencies regarding the meaning 

of ‘‘credit terms,’’ and to clarify that an 

activity involving credit terms for 

purposes of determining when a person 

is a loan originator must relate to 

‘‘particular credit terms that are or may 

be available from a creditor to that 

consumer selected based on the 

consumer’s financial characteristics,’’ 

not credit terms generally. The proposal 

would have clarified that a person who 

discusses with a consumer that, based 

on the consumer’s financial 

characteristics, a creditor should be able 

to offer the consumer an interest rate of 

3%, would be considered a loan 

originator. However, a person who 

merely states general information such 

as ‘‘we offer rates as low as 3% to 

qualified consumers’’ would not have 

been considered a loan originator 

because the person is not offering 

particular credit terms that are or may 

be available to that consumer selected 

based on the consumer’s financial 

characteristics. 

Comments 

The Bureau received comments from 

trade associations, industry, and 

consumer groups that addressed this 

clarification. Most commenters 

generally supported the proposed 

clarification that ‘‘credit terms’’ refers to 

‘‘credit terms that are or may be made 

available from a creditor to that 

consumer selected based on the 

consumer’s financial characteristics,’’ as 

well as the proposed explanation that 

‘‘credit terms’’ includes rates, fees, and 

other costs. Some commenters requested 

additional clarification regarding the 

meaning and application of ‘‘the 

consumer’s financial characteristics.’’ A 

few industry commenters suggested that 

‘‘financial characteristics’’ be limited to 

traditional factors that influence a credit 

decision, such as income and credit 

score. These commenters also asked the 

Bureau to clarify that an assessment of 

a consumer’s financial characteristics 

does not include a person simply having 

general knowledge of the consumer’s 

account or finances, but requires an 

actual assessment of the consumer’s 

financial characteristics that form the 

basis for selection of credit terms. 

Consumer groups generally supported 

the clarification, but suggested that an 

assessment of a consumer’s financial 

characteristics should include steering 

based on other factors such as race, 

ethnicity, or zip code. 

Final Rule 

The Bureau is adopting the 

clarifications to references to ‘‘credit 

terms’’ in § 1026.36(a)(1)(i)(A) and 

comments 36(a)–1 and –4 as proposed, 

and new § 1026.36(a)(6) (which states 

the definition of ‘‘credit terms’’ for 

purposes of the section) as proposed 

with an additional clarification. In 

response to public comments requesting 

additional clarification, the Bureau is 

modifying proposed § 1026.36(a)(6) to 

clarify that credit terms are selected 

based on a consumer’s financial 

characteristics when those terms are 

selected based on factors that may 

influence a credit decision, such as the 

consumer’s debts, income, assets, or 

credit history. The Bureau intends this 

language to capture situations where 

credit terms are offered or discussed as 

available or potentially available to a 

consumer based on that consumer’s 

ability to obtain such credit. This would 

include examining the consumer’s 

credit history (which could include a 

credit score), income, debts, or assets 

and then selecting credit terms that are 

either available or potentially available 

to the consumer based on those factors. 

The Bureau does not intend this 

language to cover situations where, for 

example, an employee of a loan 

originator or creditor may be aware of a 

consumer’s assets, income, or other 

factors but does not select credit terms 

based on those factors. 

The Bureau is not providing 

additional commentary to address 

potential referral concerns based on 

race, gender, ethnicity, or other nonfinancial factors. The Bureau intends 

this provision only to provide 

clarification on when a person may be 

considered a ‘‘loan originator’’ by 

discussing credit terms—i.e., when the 

terms have been selected based on the 

consumer’s financial characteristics. To 

the extent that inappropriate nonfinancial characteristics such as race, 

gender, or ethnicity may factor into the 

selection of credit terms, the Bureau 

believes such situations would be 

addressed by other applicable laws such 

as ECOA and the Fair Housing Act. In 

any event, the Bureau did not intend 

this clarification to define the 

appropriate means of evaluating 

consumers for credit; rather it only 

intended to clarify when a person may 

be considered a loan originator by virtue 

of discussing credit terms with a 

consumer. The Bureau believes these 

changes better align the scope of the 

loan originator definition with the 

intended scope of § 1026.36. 

Finally, as explained below in the 

section that discusses applicability of 

§ 1026.36(a)(1) to employees of 

manufactured home retailers, the 

Bureau is not adopting the proposed 

clarification to § 1026.36(a)(1)(i)(B) 

except for removing the parenthetical 

reference defining credit terms. 

B. Application-Related Administrative 

and Clerical Tasks 

The Proposal 

Comment 36(a)–4 and its subparts 

explain certain activities that, for 

purposes of § 1026.36(a), do not 

constitute ‘‘referring’’ as defined in 

comment 36(a)–1, when done (in the 

absence of other loan originator 

activities defined in § 1026.36(a)(1)) by 

certain managers, administrative or 

clerical staff, or similar employees of a 

loan originator or creditor. One such 

comment, 36(a)–4.i, provides guidance 

regarding when such persons engage in 

application-related administrative and 

clerical tasks. Specifically, this 

comment provides that persons do not 

act as loan originators when they (1) at 

the request of the consumer, provide an 

application form to the consumer; (2) 

accept a completed application form 

from the consumer; or (3) without 

assisting the consumer in completing 


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the application, processing or analyzing 

the information, or discussing specific 

credit terms or products available from 

a creditor with the consumer, deliver 

the application to a loan originator or 

creditor. 

After publication of the final rule, the 

Bureau received inquiries regarding the 

scope of this comment, specifically if 

the Bureau intended this comment to 

allow such persons only to provide 

applications from the entity for which 

they work to consumers without that 

constituting a ‘‘referral,’’ or if the 

exception is broader and would allow 

any such person to influence 

consumers’ decisions and refer them to 

a particular creditor or set of creditors 

without being considered loan 

originators. The Bureau proposed 

revisions to comment 36(a)–4.i to clarify 

when providing a consumer with a 

credit application amounts to acting as 

a loan originator, as opposed to falling 

under the exclusion provided in 

comment 36(a)–4.i for applicationrelated administrative and clerical tasks. 

Specifically, the Bureau proposed to 

revise this comment to clarify that the 

exclusion only extends to a loan 

originator or creditor employee (or agent 

or contractor) that provides a credit 

application form from the entity for 

which the person works to the 

consumer for the consumer to complete. 

Comments 

The Bureau received a number of 

comments from industry and trade 

associations that supported these 

clarifications. Most of these comments 

did not identify any additional need for 

clarification or suggestions. The Bureau 

also received a few comments from the 

manufactured housing industry, which 

are addressed separately in the 

discussion of § 1026.36(a)(1)(i)(B) 

below. 

Final Rule 

For the reasons discussed above, the 

Bureau is adopting comment 36(a)–4.i 

mostly as proposed, with some 

conforming changes for purposes of 

consistency with comment 36(a)–4.ii.B. 

While generally any person, including a 

loan originator employee would be 

acting as a loan originator for purposes 

of § 1026.36(a)(1) if he or she refers 

consumers to a particular creditor by 

providing an application from that 

creditor, the Bureau does not believe 

that a loan originator or creditor 

employee should be considered a loan 

originator for simply providing an 

application from the loan originator or 

creditor entity for which he or she 

works. The Bureau believes that, in such 

a case, provided that the person does 

not assist the consumer in completing 

the application or otherwise influence 

his or her decision, the person is 

performing an administrative task on 

behalf of the entity for which he or she 

works. Thus, in the Bureau’s view, there 

would be little appreciable benefit for 

consumers for the rule to regard such 

persons as loan originators. 

Also, as discussed below with respect 

to employees who provide creditor or 

loan originator contact information 

under comment 36(a)–4.ii.B, the Bureau 

believes ambiguity regarding the 

meaning of ‘‘in response to a consumer’s 

request’’—a factor included in both 

comments 36(a)–4.i and 36(a)–4.ii.B— 

could cause unnecessary compliance 

challenges. Moreover, the Bureau notes 

that classifying such individuals as loan 

originators for providing an application 

without first waiting for an express 

request from the consumer would 

subject them to the requirements 

applicable to loan originators. Again, in 

the Bureau’s view, there would be little 

appreciable benefit for consumers for 

the rule to regard such persons as loan 

originators where the person is simply 

providing a credit application from the 

entity for whom the person works. 

Accordingly, the Bureau is adopting 

comment 36(a)–4.i as proposed, 

including removing the condition that 

the provision of the application must be 

‘‘at the request of the consumer’’ and 

making a conforming change to the 

comment to only apply to employees of 

the loan originator or creditor, not all 

persons. However, the Bureau is making 

some wording changes for purposes of 

consistency with comment 36(a)–4.ii.B. 

The Bureau also is removing a reference 

to ‘‘credit products’’ which also is 

inconsistent with comment 36(a)–4.ii.B. 

The Bureau believes in both instances 

the rule should consider employees to 

be loan originators when such persons 

discuss credit terms that are or may be 

made available by a creditor or loan 

originator to that consumer selected 

based on the consumer’s financial 

characteristics, not when they simply 

discuss particular categories of credit 

products generally, such as mortgages or 

home equity loans. Also as discussed 

above, the Bureau is not adopting 

proposed language that expressly would 

have extended this comment to agents 

or contractors of loan originators or 

creditors. 

C. Responding to Consumer Inquiries 

and Providing General Information 

1. Employees of a Creditor or Loan 

Originator Who Provide Loan Originator 

or Creditor Contact Information 

The Proposal 

Comment 36(a)–4.ii.B provides that 

the definition of loan originator does not 

include persons who, as employees of a 

creditor or loan originator, provide loan 

originator or creditor contact 

information to a consumer in response 

to the consumer’s request, provided that 

the employee does not discuss 

particular credit terms available from a 

creditor and does not direct the 

consumer, based on the employee’s 

assessment of the consumer’s financial 

characteristics, to a particular loan 

originator or creditor seeking to 

originate particular credit transactions 

to consumers with those financial 

characteristics. Prior to issuing the 

proposal, the Bureau received many 

inquiries on this topic from stakeholders 

expressing concern that, absent a 

clarifying amendment, the rule could be 

interpreted to require tellers, greeters, or 

other such employees to be classified as 

loan originators for merely providing 

contact information to a consumer who 

did not clearly or explicitly ask for it. 

Stakeholders further asserted that such 

persons should not be considered loan 

originators when their conduct is 

limited to following a script prompting 

them to ask whether the consumer is 

interested in a mortgage loan and the 

tellers are not able to engage in any 

independent assessment of the 

consumer. Moreover, stakeholders have 

asserted it would be very costly to 

implement the training and certification 

requirements under Regulation Z as 

amended by the 2013 Loan Originator 

Compensation Final Rule for employers 

with large numbers of administrative 

staff who interact with consumers on a 

day-to-day basis in the manner 

described. 

The proposal would have addressed 

these concerns by removing the 

requirement that creditor or loan 

originator contact information must be 

provided ‘‘in response to the consumer’s 

request’’ for the exclusion to apply. In 

addition, and similar to the 

clarifications regarding credit terms 

discussed above, the Bureau also 

proposed to clarify that comment 36(a)– 

4.ii.B applies to loan originator or 

creditor agents and contractors as well 

as employees. 

Comments 

The Bureau received substantial 

comments from trade associations and 


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industry, including credit unions and 

other small creditors, supporting the 

proposal. Consumer advocates also 

generally supported the proposal and 

did not raise specific objections to the 

revised comment. As discussed above, 

some consumer advocates and trade 

associations asked for additional 

clarification on what constitutes an 

‘‘assessment of a consumer’s financial 

characteristics,’’ but most comments did 

not make specific suggestions other than 

to note that they support the proposal 

and welcome the change. The Bureau 

also received a few comments from the 

manufactured housing industry 

requesting additional clarification 

regarding how the proposed comment 

would apply to retailers, who, according 

to these commenters, may not be 

employees, agents, or contractors of a 

loan originator or creditor. Specifically, 

these commenters requested that the 

Bureau expressly include employees, 

agents, or contractors of manufactured 

housing retailers as covered by the 

provision, even if such person does not 

work for a loan originator or creditor, 

but provides loan originator contact 

information to consumers in the same 

manner described in the proposal. 

Final Rule 

The Bureau is adopting comment 

36(a)–4.ii.B as proposed with two 

modifications. First, as discussed above 

with respect to comment 36(a)–4.i, the 

Bureau is not adopting proposed 

language that would have extended the 

scope of the comment to agents or 

contractors of loan originators or 

creditors. Second, the Bureau is 

clarifying that the exclusion is only 

available to employees of a loan 

originator or creditor that provide the 

contact information of the loan 

originator or creditor entity for which he 

or she works, or of a person who works 

for that same entity. As proposed, the 

Bureau is removing the qualifying 

phrase ‘‘in response to the consumer’s 

request.’’ The Bureau believes ambiguity 

regarding the meaning of ‘‘in response 

to a consumer’s request’’ could have 

caused unnecessary compliance 

challenges. In such instances, the 

Bureau does not believe tellers or other 

such staff should be considered loan 

originators for merely providing loan 

originator or creditor contact 

information to the consumer (which 

would consist of such an employee 

directing a consumer to a loan originator 

who works for the same entity, or a 

creditor that is the same entity, as made 

explicit to conform the language in 

comments 4.i and 4.ii.B). The Bureau 

also notes that classifying such 

individuals as loan originators would 

subject them to the requirements 

applicable to loan originators with, in 

the Bureau’s view, little appreciable 

benefit for consumers. However, the 

Bureau is retaining language, with some 

conforming changes, that would cover 

within the definition of ‘‘loan 

originator’’ any such employee of a 

creditor or loan originator organization 

who, in the course of providing loan 

originator or creditor contact 

information to the consumer, directs 

that consumer to a particular loan 

originator or particular creditor based 

on his or her assessment of the 

consumer’s financial characteristics or 

discusses particular credit terms that are 

or may be available from a creditor or 

loan originator to the consumer selected 

based on consumer’s financial 

characteristics. The Bureau believes 

these actions can influence the credit 

terms that the consumer ultimately 

obtains, and continues to believe these 

actions should result in application of 

the requirements imposed by the rule on 

loan originators. The Bureau believes 

this amendment should enable creditors 

and loan originators to implement the 

rule with respect to persons acting 

under the controlled circumstances 

specified by the comment while 

maintaining stronger protections in 

situations where significant steering 

could occur. 

As noted above, the Bureau is making 

one adjustment to the comment to 

clarify that the exclusion only is 

available to an employee of a loan 

originator or creditor who provides the 

contact information of the loan 

originator or creditor entity for which he 

or she works, or of a person who works 

for that same entity. The Bureau 

recognizes that the proposed 

amendments did not expressly limit the 

exclusion in this way. However, the 

Bureau intended that the exclusion be 

subject to this limitation and believes it 

was strongly implied, given that the 

language of the exclusion begins with 

the qualification that the definition of 

loan originator does not include persons 

who,’’ as employees of a creditor or loan 

originator,’’ engage in certain activities. 

The fact that the exclusion only applies 

to persons in their capacity as 

employees of creditors or loan 

originators signals that they are only 

providing loan originator or creditor 

contract information for the entity for 

which they work. The Bureau did not 

contemplate that such persons would 

provide contact information, as 

employees of a creditor or loan 

originator, to loan originators or 

creditors that were not their employers 

and no comments indicating a different 

understanding of this provision were 

received. However, to better clarify 

application of the provision, the Bureau 

is modifying comment 36(a)–4.ii.B to 

state that the exclusion only extends to 

employees providing the contact 

information of ‘‘the entity for which he 

or she works or of a person who works 

for that same entity.’’ The Bureau 

believes this will eliminate any 

ambiguity in the proposed comment 

that may have led such employees to 

believe the exclusion would extend to 

providing contact information for loan 

originators or creditors outside the 

entity for which they work. 

Accordingly, the Bureau is adopting this 

revised comment as proposed with this 

modification. 

Finally, as discussed in greater detail 

below in the section that addresses 

employees of manufactured housing 

retailers, the Bureau also received some 

comments that suggested manufactured 

housing retailer employees should be 

exempt from the loan originator 

definition altogether for ‘‘referring,’’ or 

otherwise should fall under this 

particular exclusion, regardless of 

whether they are employees, agents, or 

contractors of a loan originator or 

creditor. As discussed below in the 

discussion of § 1026.36(a)(1)(i)(B), the 

Bureau does not believe that any 

additional amendments to this comment 

are necessary that relate to 

manufactured housing retailer 

employees. 

2. Describing Other Product-Related 

Service. 

Comment 36(a)–4.ii.C provides that 

the definition of loan originator does not 

include persons who describe other 

product-related services. The Bureau 

proposed to amend this comment to 

provide examples of persons who 

describe other product-related services. 

The proposed new examples would 

have included persons who describe 

optional monthly payment methods via 

telephone or via automatic account 

withdrawals, the availability and 

features of online account access, the 

availability of 24-hour customer 

support, or free mobile applications to 

access account information. In addition, 

the proposed amendment to comment 

36(a)–4.iii.C would have clarified that 

persons who perform the administrative 

task of coordinating the closing process 

are excluded, whereas persons who 

arrange credit transactions are not 

excluded. The Bureau received 

comments that generally supported the 

proposed clarifications, but did not 

receive comments specifically 

addressing this clarification in isolation. 

Accordingly, the Bureau is adopting 


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37See 78 FR at 11300, including footnote 62 

(Supplemental Information to the 2013 Loan 

Originator Compensation Final Rule, discussing 

‘‘offers’’). 

revised comments 36(a)–4.ii.C and 

36(a)–4.iii.C as proposed. 

3. Amounts for Charges for Services 

That Are Not Loan Origination 

Activities 

Comment 36(a)–5.iv.B provides that 

compensation includes any salaries, 

commissions, and any financial or 

similar incentive, regardless of whether 

it is labeled as payment for services that 

are not loan origination activities. The 

Bureau proposed to revise this comment 

to provide that compensation includes 

any salaries, commissions, and any 

financial or similar incentive ‘‘to an 

individual loan originator,’’ regardless 

of whether it is labeled as payment for 

services that are not loan origination 

activities. The proposed wording change 

conforms this provision to the other 

provisions in comment 36(a)–5.iv that 

permit compensation paid to a loan 

originator organization under certain 

circumstances for services it performs 

that are not loan originator activities. 

The Bureau received comments that 

generally supported the proposed 

clarifications, but did not receive 

comments specifically addressing this 

clarification in isolation. Accordingly, 

the Bureau is adopting revised comment 

36(a)–5 as proposed. 

D. Clarification of Exclusion for 

Employees of Retailers of Manufactured 

Homes 

The Proposal 

As discussed above, the Bureau 

proposed to revise both 

§§ 1026.36(a)(1)(i)(A) and 

1026.36(a)(1)(i)(B) to address several 

inconsistencies regarding the meaning 

of ‘‘credit terms’’ and to clarify that any 

such activity must relate to ‘‘particular 

credit terms that are or may be available 

from a creditor to that consumer 

selected based on the consumer’s 

financial characteristics,’’ not credit 

terms generally. The proposed rule 

preamble also provided examples of 

how the proposed revisions to comment 

36(a)–4.i would affect such employees 

of manufactured home retailers. As a 

result of these proposed revisions, 

employees (or agents or contractors) of 

manufactured home retailers who 

provide a credit application form from 

one particular creditor or loan originator 

organization that is not the entity for 

which they work would not have 

qualified for the exclusions in 

§ 1026.36(a)(1)(i)(A) or 

§ 1026.36(a)(1)(i)(B) and comment 

36(a)–4.i. would not apply. In contrast, 

an employee of a manufactured home 

retailer who simply provides a credit 

application form from one particular 

creditor or loan originator organization 

that is his or her employer potentially 

would have been eligible for the 

exclusions in § 1026.36(a)(1)(i)(A) and 

§ 1026.36(a)(1)(B) and comment 36(a)– 

4.i potentially would have applied. An 

agent or contractor of a manufactured 

home retailer who simply provides a 

credit application form from one 

particular creditor or loan originator 

organization it works for as agent or 

contractor potentially would have been 

eligible for the exclusion in 

§ 1026.36(a)(1)(i)(A) and comment 

36(a)–4.i. potentially would have 

applied. The proposed revisions also 

would have clarified that comment 

36(a)–4.i. would apply to someone who 

merely delivers a completed credit 

application form from the consumer to 

a creditor or loan originator if other 

conditions are met, but would have 

removed language that could have been 

misinterpreted to suggest that comment 

36(a)–4.i. would apply to someone who 

accepts an application in the sense of 

taking or helping the consumer 

complete an application could be 

eligible for the exclusion. 

Comments 

The Bureau received comments from 

the manufactured housing industry that 

sought additional clarification on how 

the proposed amendments would apply 

to employees of manufactured housing 

retailers. Specifically, these comments 

relate to the illustrations of the 

proposed amendments the Bureau 

provided in the preamble indicating that 

comment 36(a)–4.i would only apply to 

manufactured housing retailer 

employees who also are employees (or 

agents or contractors) of the creditor or 

loan originator. Commenters expressed 

concern that manufactured housing 

retailer employees are typically not 

employees, agents, or contractors of a 

loan originator or creditor, and thus 

would only be able to take advantage of 

this particular exclusion in the case 

where the retailer itself provides 

financing or acts as the loan originator. 

These commenters suggested that 

retailer employees should be allowed to 

‘‘refer’’ customers to particular loan 

originators or creditors other than the 

retailer itself without being considered 

loan originators, so long as the other 

conditions set forth in comment 36(a)– 

4.i are met. In addition, these 

commenters also suggested that their 

employees should not be covered by the 

loan originator rules at all to the extent 

that they do not receive compensation 

from any creditor for such activity. No 

other commenters focused on 

application of the rules to manufactured 

home retailer employees. 

Final Rule 

As discussed below, the Bureau is 

adopting several clarifying amendments 

and additional commentary to address 

comments from the manufactured 

housing industry that questioned the 

applicability to manufactured home 

retailer employees of commentary that 

describes ‘‘referral’’ as loan originator 

activity and of various exclusions set 

forth in § 1026.36(a)(1)(i)(A), 

§ 1026.36(a)(1)(i)(B), and discussed in 

comment 36(a)–4 and its subparts. 

Background. As an initial interpretive 

matter, the Bureau believes it is helpful 

to outline the statutory provision 

implemented by § 1026.36(a)(1)(i)(B), 

and how it relates to other provisions 

implemented by the 2013 Loan 

Originator Compensation Final Rule. 

TILA section 103(cc)(2)(A) provides a 

three-part test for determining if a 

person is a loan originator, namely that, 

for or in expectation of direct or indirect 

compensation or gain, a person (1) 

Takes a mortgage application, (2) assists 

a consumer in obtaining or applying to 

obtain a mortgage loan, or (3) offers or 

negotiates terms of a mortgage loan. The 

language of TILA section 103(cc) that 

defines a ‘‘mortgage originator’’ does not 

specifically include the term ‘‘refer’’ or 

its variants. However, the Bureau has 

interpreted both ‘‘assists a consumer in 

obtaining or applying to obtain a 

residential mortgage loan’’ under 

section 103(cc)(2)(A)(ii) and ‘‘offers’’ 

under section 103(cc)(2)(A)(iii) to 

include a referral of a consumer to a 

loan originator or creditor.37

This definition, which forms the basis 

for the definition of loan originator 

adopted in § 1026.36(a)(1)(i), applies 

generally to all persons, unless one of a 

limited number of exclusions applies. 

One such exclusion exists for 

manufactured home retailer employees 

in TILA section 103(cc)(2)(C)(ii), and 

provides that the second part of the 

three-part test described above— 

assisting a consumer in obtaining or 

applying to obtain a mortgage loan— 

does not render a retailer employee a 

loan originator provided the employee 

does not engage in either of the other 

two steps (taking an application or 

offering or negotiating terms) and also 

does not advise a consumer on loan 

terms (including rates, fees, and other 

costs). Thus, a retailer employee who 

merely assists without offering, 

negotiating, taking an application, or 

advising, is not a loan originator (while 

one who offers or negotiates, takes an 


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38This aspect of the retailer employee exclusion 

was implemented by § 1026.36(a) as adopted by the 

2013 Loan Originator Compensation Final Rule, and 

explicitly addressed in the preamble to that rule, 

where the Bureau responded to similar comments 

from the manufactured housing industry. One of 

those comments asserted that, under the proposed 

exclusion for employees of a manufactured home 

retailer, employees could be compensated, in effect, 

for referring a consumer to a creditor without 

becoming a loan originator. The Bureau made clear 

that this was not a correct reading of the exclusion, 

and explained its basis for disagreeing. See 78 FR 

at 11305. 39See 78 FR at 11301 through 11303. 

application, or advises on loan terms 

would be a loan originator). 

This statutory provision was 

implemented by § 1026.36(a)(1)(i)(B), 

which is based on, and largely tracks, 

the statutory language. Consistent with 

this statutory structure, 

§ 1026.36(a)(1)(i)(B) provides an 

exclusion for ‘‘An employee of a 

manufactured home retailer who does 

not take a consumer credit application, 

offer or negotiate credit terms available 

from a creditor, or advise a consumer on 

credit terms (including rates, fees, and 

other costs) available from a creditor.’’ 

The effect of this exclusion is that 

retailer employees are loan originators if 

they do anything in the general, core 

definition in § 1026.36(a)(1)(i) other 

than ‘‘assist’’ in a manner that doesn’t 

constitute taking, advising, offering or 

negotiating, or advising on credit terms. 

Because both ‘‘assisting’’ and ‘‘offering’’ 

include the activity of referring, a 

retailer employee who makes a referral 

is ‘‘offering’’ and therefore is a loan 

originator.38

The Bureau believes these provisions 

make clear how employees of 

manufactured housing retailers fit 

within the § 1026.36(a)(1)(i) definition 

of loan originator, including with 

respect to referrals as described in 

comment 36(a)–1.i.A.1. The Bureau also 

provided some additional explanation 

in the Supplementary Information to the 

proposed rule, which sought to clarify 

further the application of comment 

36(a)–4.i to such employees. However, 

the Bureau continues to receive 

inquiries from industry, including 

comments received in connection with 

the June 2013 Proposal, that indicate 

there is still substantial confusion 

regarding the application of these 

provisions and comments to employees 

of manufactured housing retailers. For 

this reason, the Bureau is adopting 

additional commentary to provide 

further guidance and codify 

explanations previously set forth in the 

Supplementary Information to the 2013 

Loan Originator Compensation Final 

Rule and the June 2013 Proposal. 

Proposed amendments to 

§ 1026.36(a)(1)(i)(B). The Bureau is not 

adopting in this final rule proposed 

amendments to § 1026.36(a)(1)(i)(B) 

other than moving the definition of 

‘‘credit terms’’ to § 1026.36(a)(6). As 

discussed above related to ‘‘credit 

terms,’’ the Bureau proposed to modify 

the reference to ‘‘credit terms’’ in 

§§ 1026.36(a)(1)(i)(A) and 

1026.36(a)(1)(i)(B), as well as comments 

36(a)–4.i and 36(a)–4.ii.B, to be limited 

to ‘‘credit terms available from a 

creditor to that consumer selected based 

on the consumer’s financial 

characteristics.’’ As discussed above, the 

Bureau believes this limitation is 

appropriate in the context of 

§ 1026.36(a)(1)(i)(A) and comments 

36(a)–4.i and 36(a)–4.ii.B. Each of these 

provisions addresses situations where 

employees of a loan originator or 

creditor may, absent exception, be 

considered loan originators for 

conducting activity within the entities 

for which they work. For example, 

§ 1026.36(a)(1)(i)(A) relates to persons 

who perform purely administrative or 

clerical tasks on behalf of a person who 

is classified as a loan originator or 

creditor, while comments 36(a)–4.i and 

36(a)–4.ii.B relate to determining 

whether an employee of a loan 

originator or creditor engages in 

‘‘referring’’ by providing an application 

from the entity for which such person 

works, or providing loan originator or 

creditor contact information for a loan 

originator or creditor that is or works for 

the same entity. Each of these situations 

applies to persons who may be assisting 

loan originators within the same entity 

or otherwise technically ‘‘referring’’ 

consumers to loan originators or 

creditors that are or work for the same 

entity. However, upon further 

consideration the Bureau believes the 

limitation is not appropriate in the 

context of § 1026.36(a)(1)(i)(B), which 

states that a manufactured home retailer 

employee would not be considered a 

loan originator if that person does not, 

among other things, ‘‘offer or negotiate 

credit terms’’ or ‘‘advise a consumer on 

credit terms.’’ The limitation is only 

intended to apply in the context of an 

employee of a loan originator or creditor 

assisting a loan originator or making a 

referral to the loan originator or creditor 

entity for which such person works. To 

the extent a retailer of manufactured 

housing is also a loan originator or 

creditor, the exclusions under 

§ 1026.36(a)(1)(i)(A) and comments 

36(a)–4.i and 36(a)–4.ii.B may be 

available for its employees. However, 

the limitation has no applicability 

outside of the loan originator or creditor 

employer/employee context and, 

accordingly, is not being included as the 

Bureau proposed in § 1026.36(a)(1)(i)(B), 

which addresses a different employer/

employee context. 

Accordingly, the Bureau is not 

adopting this proposed change to 

§ 1026.36(a)(1)(i)(B). 

Referrals. The Bureau is amending 

comment 36(a)–1.i.A.1 to explain 

further the underlying statutory and 

regulatory bases for including 

‘‘referrals’’ as loan originator activity. As 

adopted by the 2013 Loan Originator 

Compensation Final Rule, comment 

36(a)–1.i.A.1 explains what actions 

constitute ’’ referring’’ for purposes of 

§ 1026.36(a)(1)(i), while comment 36(a)– 

4 and its subparts provide guidance on 

certain activities that do not constitute 

referring. The Bureau is amending this 

comment to explain that referring is an 

activity included under each of the 

activities of offering, arranging, or 

assisting a consumer in obtaining or 

applying to obtain an extension of 

credit. Accordingly, the Bureau believes 

this amendment makes clear that, while 

a referral may be considered ‘‘assisting,’’ 

it also falls within other statutory and 

regulatory categories of loan originator 

activity not excluded from the loan 

originator definition for manufactured 

housing retailer employees. The Bureau 

believes the discussion above and the 

conforming revision to comment 36(a)– 

1.i.A.1 better clarify what activities, 

when done by an employee of a retailer 

of manufactured homes, will cause such 

an employee to be classified as a loan 

originator for purposes of § 1026.36. The 

Bureau further notes this revision is 

consistent with the 2013 Loan 

Originator Compensation Final Rule, 

which provides an extensive discussion 

of the activities covered by TILA section 

103(cc)(2)(A)(ii).39 As noted above in 

this preamble, the retailer employee 

exclusion allows such an employee to 

engage in ‘‘assisting’’ activities in a 

manner that doesn’t constitute taking, 

advising, offering or negotiating, or 

advising on credit terms. 

New commentary. In addition, the 

Bureau is adding new commentary to 

provide further guidance on what 

activities may be considered ‘‘assisting,’’ 

but not other loan originator activities 

such as offering, arranging, or taking an 

application. In the Bureau’s view, these 

activities, when engaged in by 

employees of manufactured housing 

retailers (in the absence of other 

activities), do not render such 

employees loan originators for purposes 

of § 1026.36. Accordingly, to provide 

greater clarity concerning the retailer 

employee exclusion consistent with 

these conclusions, a new comment 


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40See 78 FR at 11302. 

41See TILA section 103(cc)(4) (definition of 

‘‘assists’’). 

42 78 FR at 11303 

43 78 FR at 11299. See also comment 36(a)– 

1.i.A.3., 78 FR at 11415. 

44See TILA section 103(cc)(4) (definition of 

‘‘assists a consumer in obtaining or applying to 

obtain a residential mortgage loan’’). 

45 78 FR at 11303, 11415. 

46Among other things, the 2013 TILA Servicing 

Final Rule implemented TILA sections 129F and 

129G added by section 1464 of the Dodd-Frank Act. 

The requirements in TILA section 129F concerning 

prompt crediting of payments apply to consumer 

credit transactions secured by a consumer’s 

principal dwelling. The requirements in TILA 

section 129G concerning payoff statements apply to 

creditors or servicers of a home loan. The 2013 

TILA Servicing Final Rule, however, did not 

substantively revise the existing late fee pyramiding 

requirement in § 1026.36(c) but instead 

redesignated the requirement as new paragraph 

36(c)(2) to accommodate the regulatory provisions 

implementing TILA sections 129F and 129G. 

36(a)(1)(i)(B) is added by this final rule. 

The comment states that engaging in 

certain listed activities, as described 

below, does not make such an employee 

a loan originator. 

The Bureau is adding new comment 

36(a)(1)(i)(B)–1.i to explain that a 

retailer employee may generally 

describe the credit application process 

to a consumer and that this activity, 

standing alone, would not cause the 

employee to be considered a loan 

originator.40 However, the retailer 

employee would be considered a loan 

originator if he or she advises on credit 

terms available from a creditor. 

The Bureau is adding new comment 

36(a)(1)(i)(B)–1.ii to explain that a 

retailer employee may prepare 

residential mortgage loan packages 

without being considered a loan 

originator.41 Thus, a retailer employee 

may compile and process application 

materials and supporting 

documentation and, further consistent 

with the Final Rule, provide general 

application instruction to consumers so 

consumers can complete an application, 

but without interacting or 

communicating with the consumer 

regarding specific transaction terms. 

The Bureau notes that this comment 

is consistent with the Supplementary 

Information to the 2013 Loan Originator 

Compensation Final Rule, which states: 

The Bureau agrees that persons generally 

engaged in loan processing or who compile 

and process application materials and 

supporting documentation and do not take an 

application, collect information on behalf of 

the consumer, or communicate or interact 

with consumers regarding specific 

transaction terms or products are not loan 

originators (see the separate discussion above 

on taking an application and collecting 

information on behalf of the consumer).42

In contrast, however, the 

Supplementary Information to the 2013 

Loan Originator Compensation Final 

Rule also noted that ‘‘filling out a 

consumer’s application, inputting the 

information into an online application 

or other automated system, and taking 

information from the consumer over the 

phone to complete the application 

should be considered ‘tak[ing] an 

application’ for the purposes of the 

rule.’’ 43 Because the retailer employee 

exclusion does not apply if the 

employee engages in taking an 

application, filling out a consumer’s 

application, inputting the information 

into an online application or other 

automated system, and taking 

information from the consumer over the 

phone to complete the application 

would make the employee a loan 

originator. 

The Bureau is adding new comment 

36(a)(1)(i)(B)–1.iii to explain that a 

retailer employee may collect 

information on behalf of the consumer 

with regard to a residential mortgage 

loan.44 This activity is not included in 

the activities covered by taking or 

offering or assisting that would make a 

retailer employee a loan originator. 

Comment 36(a)–1.i.3. and the 

Supplementary Information to the 2013 

Loan Originator Compensation Final 

Rule describe the activity of collecting 

information on behalf of the consumer 

as including gathering information or 

supporting documentation from third 

parties on behalf of the consumer to 

provide to the consumer, for the 

consumer then to provide in the 

application or for the consumer to 

submit to the loan originator or 

creditor.45

The Bureau is adding new comment 

36(a)(1)(i)(B)–1.iv to explain that a 

retailer employee may provide or make 

available general information about 

creditors that may offer financing for 

manufactured homes in the consumer’s 

general area, when doing so does not 

otherwise amount to ‘‘referring’’ as 

defined in comment 36(a)–1.i.A.1. 

Comment 36(a)–1.i.A.1 provides in part 

that referring ‘‘includes any oral or 

written action directed to a consumer 

that can affirmatively influence the 

consumer to select a particular loan 

originator or creditor to obtain an 

extension of credit when the consumer 

will pay for such credit.’’ Although this 

statement hardly covers the range of 

activities that may constitute referring, 

it does provide a basis for addressing 

the relatively unique circumstances of 

manufactured home retailer employees, 

who are covered by a limited statutory 

exclusion from the definition of loan 

originator. 

The Bureau believes that most 

consumers purchasing a manufactured 

home will need financing, and that a 

limited set of options may be available. 

As public commenters have noted, only 

a small number of creditors make loans 

secured by manufactured homes, and it 

is beneficial to consumers for that 

information to be made available to 

them by a retailer. To facilitate 

consumer access to credit in this 

situation, new comment 36(a)(1)(i)(B)– 

.1.iv allows a retailer employee to make 

general information about creditors or 

loan originators available, which 

includes making available, in a neutral 

manner, general brochures or 

information about the different creditors 

or loan originators that may offer 

financing to a consumer, but does not 

include recommending a particular 

creditor or loan originator or otherwise 

influencing the consumer’s decision. 

The Bureau believes this comment falls 

within the purview of the quoted 

portion of comment 36(a)–1.i.A.1 above, 

taking into consideration the unique 

circumstances and the limited statutory 

exclusion. 

Finally, the Bureau notes that the 

comment extends to providing general 

information about loan originators (i.e., 

mortgage brokers) as well as creditors. 

Based on public comments, the Bureau 

believes that under current market 

conditions only a small number of 

specialized creditors currently operate 

in this market, and the Bureau is not 

aware of any mortgage brokers or similar 

loan originators that currently operate in 

this space. Nevertheless, the Bureau 

recognizes that circumstances may 

change and brokers or other loan 

originators may decide to offer loans 

secured by manufactured homes, and if 

that were to occur the Bureau believes 

the same logic that applies to creditors 

described above would apply with 

respect to these persons or 

organizations. Accordingly, the 

comment includes loan originators as 

well as creditors. 

36(b) Scope 

The Proposal 

The Bureau proposed to revise the 

scope of provisions in § 1026.36(b) to 

reflect the applicability of the servicing 

provisions in § 1026.36(c) regarding 

payment processing, pyramiding late 

fees, and payoff statements as modified 

by the 2013 TILA Servicing Final 

Rule.46 Current § 1026.36(b) and 

comment 36(b)–1 (relocated from 

§ 1026.36(f) and comment 36–1, 

respectively, by the 2013 Loan 

Originator Compensation Final Rule) 


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provide that § 1026.36(c) applies to 

closed-end consumer credit transactions 

secured by a consumer’s principal 

dwelling. The new payment processing 

provisions in § 1026.36(c)(1) and the 

restrictions on pyramiding late fees in 

§ 1026.36(c)(2) both apply to consumer 

credit transactions secured by a 

consumer’s principal dwelling. The new 

payoff statement provisions in 

§ 1026.36(c)(3), however, apply more 

broadly to consumer credit transactions 

secured by a dwelling. 

The proposal would have revised 

§ 1026.36(b) and comment 36(b)–1 to 

state that § 1026.36(c)(1) and (c)(2) 

apply to consumer credit transactions 

secured by a consumer’s principal 

dwelling. The proposed revisions also 

would have provided that 

§ 1026.36(c)(3) applies to a consumer 

credit transaction secured by a dwelling 

(even if it is not the consumer’s 

principal dwelling). The Bureau sought 

comment on these proposed revisions 

generally. The Bureau also invited 

comment on whether additional 

revisions to § 1026.36(b) and comment 

36(b)–1 should be considered to clarify 

further the applicability of the 

provisions in § 1026.36(c) as modified 

by the 2013 Servicing Final Rules. 

Comments 

The Bureau received one comment 

that generally supported this 

clarification. 

Final Rule 

The Bureau is adopting these 

revisions to § 1026.36(b) and comment 

36(b)–1 as proposed, to conform them to 

modifications made to § 1026.36(c) by 

the 2013 Servicing Final Rules that 

changed the applicability of certain 

provisions in § 1026.36(c). The Bureau 

believes the revisions are necessary to 

reflect the applicability of the 

provisions in § 1026.36(c) as modified 

by the 2013 Servicing Final Rules. 

36(d) Prohibited Payments to Loan 

Originators 

36(d)(1) Payments Based on a Term of 

the Transaction 

36(d)(1)(i) 

The Bureau proposed to revise 

comments 36(d)(1)–1.ii and 36(d)(1)– 

1.iii.D, which interpret 

§ 1026.36(d)(1)(i)–(ii), to improve the 

consistency of the wording across the 

regulatory text and commentary, and 

provide further interpretation of the 

intended meaning of the regulatory text. 

The Bureau did not receive any 

comments pertaining to these particular 

proposed changes. As described below 

in the section-by-section analysis for 

§ 1026.36(d)(1)(iv), the Bureau received 

a small number of comments expressing 

general support for the proposed 

clarifications to § 1026.36(d) and its 

commentary. The Bureau is finalizing 

the revisions to comments 36(d)(1)–1.ii 

and –1.iii.D as proposed. As it stated in 

the proposal, the Bureau believes these 

changes facilitate compliance. 

36(d)(1)(iii) 

The Bureau proposed to revise the 

portions of comment 36(d)(1)–3 that 

interpret § 1026.36(d)(1)(iii) to improve 

the consistency of the wording across 

the regulatory text and commentary, and 

provide further interpretation of the 

intended meaning of the regulatory text. 

The Bureau did not receive any 

comments pertaining to these particular 

proposed changes. As described below 

in the section-by-section analysis for 

§ 1026.36(d)(1)(iv), the Bureau received 

a small number of comments expressing 

general support for the proposed 

clarifications to § 1026.36(d) and its 

commentary. The Bureau is finalizing 

the revisions to the portions of comment 

36(d)(1)–3 that interpret 

§ 1026.36(d)(1)(iii) as proposed. As it 

stated in the proposal, the Bureau 

believes these changes facilitate 

compliance. 

36(d)(1)(iv) 

The Bureau proposed revisions to the 

portions of comment 36(d)(1)–3 that 

interpret § 1026.36(d)(1)(iv). Section 

1026.36(d)(1)(iv) permits, under certain 

circumstances, the payment of 

compensation under a non-deferred 

profits-based compensation plan to an 

individual loan originator even if the 

compensation is directly or indirectly 

based on the terms of multiple 

transactions by multiple individual loan 

originators. Section 

1026.36(d)(1)(iv)(B)(1) permits this 

compensation if it does not exceed 10 

percent of the individual loan 

originator’s total compensation 

corresponding to the time period for 

which the compensation under a nondeferred profits-based compensation 

plan is paid. Comments 36(d)(1)–3.ii 

through –3.v further interpret 

§ 1026.36(d)(1)(iv)(B)(1). Section 

1026.36(d)(1)(iv)(B)(2) permits this 

compensation if the individual loan 

originator is a loan originator for ten or 

fewer consummated transactions during 

the 12-month period preceding the 

compensation determination. Comment 

36(d)(1)–3.vi further interprets 

§ 1026.36(d)(1)(iv)(B)(2). The Bureau 

proposed to amend comment 36(d)(1)– 

3 to improve the consistency of the 

wording across the regulatory text and 

commentary, provide further 

interpretation as to the intended 

meaning of the regulatory text in 

§ 1026.36(d)(1)(iv), and ensure that the 

examples included in the commentary 

accurately reflect the interpretations of 

the regulatory text contained elsewhere 

in the commentary. As the Bureau 

explained in the proposal, nearly all of 

the proposed revisions address the 

commentary sections that interpret the 

meaning of § 1026.36(d)(1)(iv)(B)(1) (i.e., 

setting forth the 10-percent total 

compensation limit) and not 

§ 1026.36(d)(1)(iv)(B)(2). In the 

proposal, the Bureau explained that it 

was proposing more extensive 

clarifications to two comments 

interpreting § 1026.36(d)(1), comment 

36(d)(1)–3.v.A, which clarifies the 

meaning of ‘‘total compensation’’ as 

used in § 1026.36(d)(1)(iv)(B)(1), and 

comment 36(d)(1)–3.v.C, to clarify the 

meaning of ‘‘time period’’ in 

§ 1026.36(d)(1)(iv)(B)(1). The Bureau 

stated in the proposal that these 

proposed revisions were collectively 

intended to clarify that, while the time 

period used to determine both elements 

of the 10-percent limit ratio is the same: 

(1) the non-deferred profits-based 

compensation for the time period is 

whatever such compensation was 

earned during that time period, 

regardless of when it was actually paid; 

and (2) compensation that is actually 

paid during the time period, regardless 

of when it was earned, generally will be 

included in the amount of total 

compensation for that time period, but 

whether the compensation is included 

ultimately depends on the type of 

compensation. 

Of the institutions and individuals 

who submitted comments on the 

proposed changes to the 2013 Loan 

Originator Compensation Final Rule, 

very few specifically discussed the 

proposed clarifications and 

amendments to § 1026.36(d) and its 

commentary. One large depository 

institution first highlighted some of the 

proposed changes to the § 1026.36(d) 

commentary and then stated that it 

generally agreed with the Bureau’s 

proposed amendments and 

clarifications. Some consumer groups 

expressed general disagreement with 

elements of § 1026.36(d) adopted by the 

2013 Loan Originator Compensation 

Final Rule, which they believe the 

proposed revisions would amplify, but 

did not address any specific issues with 

the proposal itself. 

The Bureau is finalizing the changes 

to § 1026.36(d) and the portions of 

comment 36(d)(1)–3 that interpret 

§ 1026.36(d)(1)(iv) as proposed. As it 

stated in the proposal, the Bureau 


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47 78 FR at 11390. 48 78 FR 32547 (May 31, 2013). 

believes these changes would facilitate 

compliance. 

36(i) Prohibition on Financing Credit 

Insurance 

The Bureau proposed to amend 

§ 1026.36(i) to clarify the scope of the 

prohibition on a creditor financing, 

directly or indirectly, any premiums for 

credit insurance in connection with a 

consumer credit transaction secured by 

a dwelling. Dodd-Frank Act section 

1414 added TILA section 129C(d), 

which generally prohibits a creditor 

from financing premiums or fees for 

credit insurance in connection with a 

closed-end consumer credit transaction 

secured by a dwelling, or an extension 

of open-end consumer credit secured by 

the consumer’s principal dwelling. The 

prohibition applies to credit life, credit 

disability, credit unemployment, credit 

property insurance, and other similar 

products, including debt cancellation 

and debt suspension contracts (defined 

collectively as ‘‘credit insurance’’ for 

purposes of this discussion). The same 

provision, however, excludes from the 

prohibition credit insurance premiums 

or fees that are ‘‘calculated and paid in 

full on a monthly basis.’’ As discussed 

below, the Bureau is adopting amended 

§ 1026.36(i) as proposed with some 

modifications. 

A. Background 

1. Section 1026.36(i) as Adopted in the 

2013 Loan Originator Compensation 

Final Rule 

In the 2013 Loan Originator 

Compensation Final Rule, the Bureau 

implemented this prohibition by 

adopting the statutory provision without 

substantive change, in § 1026.36(i). The 

final rule provided an effective date of 

June 1, 2013, for § 1026.36(i) and 

clarified that the provision applies to 

transactions for which a creditor 

received an application on or after that 

date.47

In the preamble to the final rule, the 

Bureau responded to public comments 

on the regulatory text that the Bureau 

had included in its proposal. The public 

comments included requests from 

consumer groups for clarification on the 

applicability of the regulatory 

prohibition to certain factual scenarios 

where credit insurance premiums are 

charged periodically, rather than as a 

lump-sum that is added to the loan 

amount at consummation. In particular, 

they requested clarification on the 

meaning of the exclusion from the 

prohibition for credit insurance 

premiums or fees that are ‘‘calculated 

and paid in full on a monthly basis.’’ 

The Bureau did not receive any public 

comments from the credit insurance 

industry. The Bureau received a limited 

number of comments from creditors 

concerning the general prohibition, but 

these comments did not address 

specifically the applicability of the 

exclusion from the prohibition for 

premiums that are calculated and paid 

in full on a monthly basis. 

In their comments, the consumer 

groups described two practices that they 

believed should be prohibited by the 

regulatory provision. First, they 

described a practice in which some 

creditors charge credit insurance 

premiums on a monthly basis but add 

those premiums to the consumer’s 

outstanding principal. They stated that 

this practice does not meet the 

requirement that, to be excluded from 

the prohibition, premiums must be 

‘‘paid in full on a monthly basis.’’ They 

also stated that this practice constitutes 

‘‘financing’’ of credit insurance 

premiums, which is prohibited by the 

provision. Second, the consumer groups 

described a practice in which credit 

insurance premiums are charged to the 

consumer on a ‘‘levelized’’ basis, 

meaning that the premiums remain the 

same each month, even as the consumer 

pays down the outstanding balance of 

the loan. They stated that this practice 

does not meet the condition of the 

exclusion that premiums must be 

‘‘calculated . . . on a monthly basis,’’ 

and therefore violates the statutory 

prohibition. In the preamble of the final 

rule, the Bureau stated that it agreed 

that these practices do not meet the 

condition of the exclusion and violate 

the prohibition on creditors financing 

credit insurance premiums. 

2. Outreach During Implementation 

Period Following Publication of the 

Final Rule 

After publication of the final rule, 

representatives of credit unions and 

credit insurers expressed concern to the 

Bureau about these statements in the 

preamble of the final rule. Credit union 

representatives questioned whether 

adding monthly premiums to a 

consumer’s loan balance should 

necessarily be considered prohibited 

‘‘financing’’ of the credit insurance 

premiums and indicated that, if it is 

considered financing and therefore is 

prohibited, they would not be able to 

adjust their data processing systems to 

comply before the June 1, 2013 effective 

date. 

Credit insurance company 

representatives stated that level and 

levelized credit insurance premiums are 

in fact ‘‘calculated . . . on a monthly 

basis.’’ (These representatives explained 

that industry uses the term ‘‘levelized’’ 

premiums to refer to a flat monthly 

payment that is derived from a 

decreasing monthly premium payment 

arrangement and use the term ‘‘level’’ 

premium to refer to premiums for which 

there is no decreasing monthly premium 

payment arrangement available, such as 

for level mortgage life insurance.) These 

representatives further asserted that 

levelized premiums are, in fact, 

‘‘calculated . . . on a monthly basis’’ 

because an actuarially derived rate is 

multiplied by a fixed monthly principal 

and interest payment to derive the 

monthly insurance premium. They also 

asserted that level premiums are 

‘‘calculated . . . on a monthly basis’’ 

because an actuarially derived rate is 

multiplied by the consumer’s original 

loan amount to derive the monthly 

insurance premium. Accordingly, they 

urged that level and levelized credit 

insurance premiums should be 

excluded from the prohibition on 

creditors financing credit insurance 

premiums so long as they are also paid 

in full on a monthly basis. Industry 

representatives have further stated that, 

even if the Bureau concludes that level 

or levelized credit insurance premiums 

are not ‘‘calculated’’ on a monthly basis 

within the meaning of the exclusion 

from the prohibition, they are not 

‘‘financed’’ by a creditor and thus are 

not prohibited by the statutory 

provision. 

3. Delay of § 1026.36(i) Effective Date 

In light of these concerns, and the 

Bureau’s belief that, if the effective date 

were not delayed, creditors could face 

uncertainty about whether and under 

what circumstances credit insurance 

premiums may be charged periodically 

in connection with covered consumer 

credit transactions secured by a 

dwelling, the Bureau issued the 2013 

Effective Date Final Rule delaying the 

June 1, 2013 effective date of 

§ 1026.36(i) to January 10, 2014.48 In 

that final rule, the Bureau stated its 

belief that this uncertainty could result 

in a substantial compliance burden to 

industry. However, the Bureau also 

stated that it would revisit the effective 

date of the provision in this proposal. 

B. Amendments to § 1026.36(i) 

The Bureau proposed, as 

contemplated in the 2013 Effective Date 

Final Rule, amendments to § 1026.36(i) 

to clarify the scope of the prohibition on 

a creditor financing, directly or 

indirectly, any premiums for credit 

insurance in connection with a 


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60426 Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Rules and Regulations 

49 Intel Corp. v. Advanced Micro Devices, Inc., 

542 U.S. 241, 256 (2004). 50 15 U.S.C. 1602(f). Accord 12 CFR 1026.2(a)(14). 

consumer credit transaction secured by 

a dwelling. The Bureau proposed these 

amendments because it was persuaded, 

based on communications with 

consumer advocates, creditors, and 

trade associations, that its statement in 

the final rule in response to consumer 

group public comments may have been 

overbroad concerning when a creditor 

violates the prohibition on financing 

credit insurance premiums. 

1. General Clarifications of Prohibition’s 

Scope 

The Proposal 

The Bureau proposed two general 

clarifications to the scope of the 

prohibition. First, the Bureau proposed 

to clarify that, although the heading of 

the statutory prohibition emphasizes the 

prohibition on financing ‘‘singlepremium’’ credit insurance, which 

historically has been accomplished by 

adding a lump-sum premium to the 

consumer’s loan balance at 

consummation, the provision more 

broadly prohibits a creditor from 

‘‘financing’’ credit insurance premiums 

‘‘directly or indirectly’’ in connection 

with a covered consumer credit 

transaction secured by a dwelling. That 

is, it generally prohibits a creditor from 

financing credit insurance premiums at 

any time. Accordingly, the prohibited 

financing of credit insurance premiums 

is not limited to addition of a single, 

lump-sum premium to the loan amount 

by the creditor at consummation. The 

Bureau proposed to clarify the scope of 

the prohibition by striking the term 

‘‘single-premium’’ from the § 1026.36(i) 

heading. 

Second, the Bureau proposed to 

clarify the relationship between the 

exclusion for ‘‘credit insurance for 

which premiums or fees are calculated 

and paid in full on a monthly basis’’ and 

the general prohibition. The Bureau 

emphasized in the proposal that the 

mere fact that, under a particular 

premium calculation and payment 

arrangement, credit insurance premiums 

do not meet the conditions of the 

exclusion that they be ‘‘calculated and 

paid in full on a monthly basis’’ does 

not mean that a creditor is necessarily 

financing them in violation of the 

prohibition. For example, it is possible 

that credit insurance premiums could be 

calculated and paid in full by a 

consumer directly to a credit insurer on 

a quarterly basis with no indicia that the 

creditor is financing the premiums. (The 

Bureau’s proposal to clarify the scope of 

the exclusion in situations in which the 

creditor is engaged in financing of credit 

insurance premiums is discussed 

below.) 

Comments 

Several commenters, including credit 

unions, credit insurance companies, and 

trade associations, expressed general 

appreciation and support for the 

Bureau’s willingness to provide further 

clarifications regarding the prohibition. 

One credit insurance company asserted 

that the statutory provision is clear and 

requires no clarification. A number of 

credit insurance companies and trade 

associations supported the Bureau’s 

foundational clarification that credit 

insurance premiums that do not meet 

the conditions of the exclusion that they 

be ‘‘calculated and paid in full on a 

monthly basis’’ do not necessarily 

indicate that a creditor is financing 

them in violation of the prohibition. 

Several industry commenters, 

including credit unions and a credit 

union trade association, objected to the 

proposed removal of the term ‘‘singlepremium’’ from the heading of 

§ 1026.36(i), believing that the proposed 

change would expand the applicability 

of the prohibition to practices other than 

a creditor’s addition of a single, lumpsum premium to the loan amount at 

consummation. The commenters stated 

that inclusion of the term ‘‘singlepremium’’ in the heading of the 

statutory provision indicated that 

Congress intended the prohibition to 

apply only to that creditor practice. 

Final Rule 

The Bureau agrees that clarifications 

of the statutory and regulatory 

provisions are important to ensure that 

consumers and industry are able to 

determine which creditor practices 

regarding credit insurance are 

prohibited. The Bureau disagrees with 

the assertion that removal of the term 

‘‘single-premium’’ from the heading of 

§ 1026.36(i) affects the applicability of 

the regulatory provision or expands it 

beyond that of the statutory provision. 

The texts of both the statutory and 

regulatory provisions prohibit creditors 

from financing credit insurance 

premiums generally, not just those for 

single-premium credit insurance, in 

connection with certain dwellingsecured loans. Although the heading of 

the statutory provision emphasizes the 

applicability of the prohibition to 

financing of single-premium credit 

insurance, a basic rule of statutory 

interpretation is that the heading cannot 

narrow the plain meaning of the 

statutory text.49

2. Definition of ‘‘Financing’’ for 

Purposes of § 1026.36(i) 

The Proposal 

In the proposal, the Bureau explained 

its belief that practices that constitute 

‘‘financing’’ of credit insurance 

premiums or fees by a creditor are 

generally equivalent to an extension of 

credit to a consumer with respect to 

payment of the credit insurance 

premiums or fees. While neither TILA 

nor the Dodd-Frank Act expressly 

defines the term ‘‘financing,’’ section 

103(f) of TILA provides that the term 

‘‘credit’’ means ‘‘the right granted by a 

creditor to a debtor to defer payment of 

debt or to incur debt and defer its 

payment.’’ 50 Based on this definition of 

‘‘credit,’’ § 1026.4(a) of Regulation Z 

defines a ‘‘finance charge’’ to be a 

charge imposed by a creditor ‘‘as an 

incident to or condition of an extension 

of credit.’’ Thus, the Bureau believes the 

general understanding of the term 

‘‘financing’’ under TILA and Regulation 

Z to be analogous to an extension of 

credit—i.e., a creditor’s granting of a 

right to incur a debt and defer its 

payment. The Bureau stated this belief 

in the proposal, noting that a creditor 

finances credit insurance premiums 

within the meaning of the prohibition 

when it provides a consumer the right 

to defer payment of premiums or fees, 

including when it adds a lump-sum 

premium to the loan balance at 

consummation, as well as when it adds 

a monthly credit insurance premium to 

the consumer’s principal balance. 

Accordingly, the Bureau proposed to 

add redesignated § 1026.36(i)(2)(ii), to 

clarify that a creditor finances credit 

insurance premiums or fees when it 

provides a consumer the right to defer 

payment of a credit insurance premium 

or fee owed by the consumer. However, 

the Bureau invited public comment on 

whether this clarification is appropriate. 

For example, the Bureau stated it did 

not believe that a brief delay in receipt 

of the consumer’s premium or fee, such 

as might happen preceding a death or 

period of employment that the credit 

insurance is intended to cover, should 

cause immediate cancellation of the 

credit insurance. The Bureau also stated 

it did not believe that refraining from 

cancelling or causing cancellation of 

credit insurance in such circumstances 

means that a creditor has provided the 

consumer a right to defer payment of the 

premium or fee, but the Bureau invited 

public comment on consequences of 

defining the term ‘‘finances’’ as 

proposed. In addition, the Bureau noted 

that some creditors have suggested that 


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they may, as a purely mechanical 

matter, add a monthly credit insurance 

premium to the principal balance 

shown on a monthly statement but then 

subtract the premium from the principal 

balance immediately or as soon as the 

premium or fee is paid. Accordingly, the 

Bureau solicited comment on whether a 

creditor should instead be considered to 

have financed credit insurance 

premiums or fees only if it charges a 

‘‘finance charge,’’ as defined in 

§ 1026.4(a) (which implements section 

106 of TILA, 15 U.S.C. 1605), on or in 

connection with the credit insurance 

premium or fee. The Bureau also 

requested comment on other situations 

that may arise that could cause credit 

insurance premiums to be considered 

‘‘financed’’ under the proposal and may 

warrant special treatment, such as 

deficiencies where credit insurance 

premiums are escrowed. 

Comments on the Proposed Clarification 

The Bureau received substantial 

comment from the credit insurance 

industry, trade associations, creditors, 

and consumer groups addressing the 

proposed definition of financing as well 

as the alternative. The Bureau received 

no comments identifying other 

situations such as escrowed premiums 

that could cause credit insurance 

premiums to be considered ‘‘financed’’ 

and may warrant special treatment. 

Most industry commenters, including 

credit insurance companies, credit 

unions, and their trade associations and 

attorneys, generally supported the 

proposed clarification that a creditor 

finances credit insurance premiums or 

fees when it provides a consumer the 

right to defer payment of a credit 

insurance premium or fee owed by the 

consumer. They urged the Bureau to 

clarify that the consumer does not 

‘‘owe’’ the premium or fee until the 

consumer has incurred a ‘‘debt’’ for it, 

within the meaning of § 1026.2(a)(14). 

They stated that the consumer should 

not be considered to have incurred a 

debt for the credit insurance premium 

or fee until the monthly period in which 

the premium is due passes without the 

consumer having made the payment. 

Only then, these commenters stated, 

might creditors advance funds on the 

consumer’s behalf and provide the 

consumer a right to defer its payment, 

such that financing might occur. 

Accordingly, many of these commenters 

urged the Bureau to clarify that a 

creditor finances a credit insurance 

premium only if it provides a consumer 

the right to defer payment of the 

premiums ‘‘beyond the month in which 

they are due.’’ These commenters 

addressed a specific illustration 

provided by consumer groups in 

connection with the 2013 Loan 

Originator Compensation Final Rule, 

which adopted the provisions this 

proposal would have amended. In that 

illustration, consumer groups described 

a creditor that appeared to be adding the 

premium to principal on a monthly 

basis and then providing the consumer 

the right to defer payment long beyond 

the month in which it was due, or even 

indefinitely. Commenters agreed that 

such a practice would be prohibited 

under the clarification they urged, 

though they stated, variously, that they 

had never heard of a creditor actually 

engaging in such a practice, or that such 

practices were very rare. They also 

stated that the clarification they urged 

would show why adding a lump-sum 

credit insurance premium to the loan 

balance at consummation was 

prohibited. They stated that in such 

circumstances, the premium is due at 

consummation, so there is no 

identifiable ‘‘period’’ in which the 

premium is due. One credit insurance 

company, as well as attorneys for 

creditors and credit insurance 

companies, stated that the credit 

insurance premium should be 

considered financed by the creditor only 

if the consumer does not pay the 

premium when it is due and the creditor 

incorporates it into the loan to create an 

additional obligation. The company and 

attorneys stated that a creditor should 

not be considered to have financed a 

past-due credit insurance premium if it 

does not add the premium to the loan 

amount, but instead it or the insurer 

provides a grace period, the insurer’s 

obligation to perform under the credit 

insurance contract is suspended, or the 

contract is cancelled. 

Some credit unions and credit 

insurance companies that urged the 

Bureau to adopt the clarification 

discussed above suggested that it was 

important, in part, to permit the 

continuation of some credit unions’ 

practice of ‘‘posting’’ the premium to 

the consumer’s account, meaning that it 

is added to principal before the credit 

insurance premium is due, so it is 

reflected on the next periodic statement. 

Under the practice, the creditor then 

credits the consumer’s account 

(meaning it is subtracted from principal) 

after the creditor receives the 

consumer’s payment. Comments 

suggested that, for at least some credit 

unions and other small creditors, it is 

necessary to post the charge prior to its 

due date so the consumer’s next 

periodic statement reflects the monthly 

charge. Some of these commenters 

stated that additional interest accrues as 

a result of this addition until the 

consumer’s subsequent payment of 

credit insurance premium is credited to 

the account. Other credit union 

commenters stated that when they add 

the premium to principal before it is 

due, no additional interest accrues as a 

result. One credit insurance company 

explained that this credit union practice 

was necessary because credit unions’ 

accounting and data processing systems 

recognize only principal and interest 

categories. The company stated that, as 

a result, there is no other way for them 

to charge the premium without 

extensive and cost-prohibitive changes 

in these systems. The company also 

stated that, for any creditor making a 

closed-end, fixed-rate mortgage, the 

only way to charge the consumer a 

monthly credit insurance premium that 

declines as the mortgage balance 

declines and also to charge a total 

monthly payment (i.e., a payment 

including premium, interest, and credit 

insurance premium) that remains 

constant from month to month, is to add 

the premium to principal. The same 

commenter stated that the act of adding 

the premium to principal before it is 

due should not be considered financing 

and that if the creditor adds the credit 

insurance premium to principal before 

the premium is due, the creditor should 

be considered to have financed the 

credit insurance premium only if the 

consumer subsequently fails to pay the 

credit insurance premium by the end of 

the month in which it is due. Another 

credit insurance company urged the 

Bureau to clarify that a creditor’s 

addition of the credit insurance 

premium to the principal balance before 

it is due should not be considered 

financing of the credit insurance 

premium even if the consumer 

subsequently fails to make the payment 

when it is due, provided that the 

creditor added it to principal in the 

same monthly period in which the 

consumer was contractually obligated to 

pay the credit insurance premium. 

Credit insurance companies, a credit 

insurance trade group, and several 

credit union commenters supported the 

proposed clarification of what 

constitutes financing but urged the 

Bureau to clarify that a creditor does not 

provide a consumer a right to defer 

payment of the credit insurance 

premium merely because the consumer 

fails to pay the premium when it is due, 

the creditor provides a forbearance, or 

the creditor and consumer enter into a 

post-consummation work-out agreement 

to defer or suspend mortgage payments. 

They stated that in such cases, the 

creditor may provide the consumer a 


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contractual right to defer payment of the 

credit insurance premium but typically 

does not ever add the deferred premium 

payment to the loan balance. 

Consumer groups opposed the 

Bureau’s proposed clarification that a 

creditor finances credit insurance 

premiums or fees when it provides a 

consumer the right to defer payment of 

a credit insurance premium or fee owed 

by the consumer. They reasoned that 

mere deferment of credit insurance 

premium payments is beneficial 

consumers, but, in their view, a 

creditor’s act of charging consumers for 

the deferment is harmful to consumers. 

They expressed concern that the 

proposed clarification based on 

providing a consumer the right to defer 

payment of credit insurance premiums 

could cause creditors to stop deferring 

a consumer’s obligation to pay credit 

insurance premiums without charge. 

They also stated that the proposed 

clarification could be confusing because 

the purpose of debt suspension 

contracts is to permit a consumer to skip 

a monthly mortgage payment. They 

disagreed with the comment of a credit 

insurance company that a creditor’s 

addition of a credit insurance premium 

to principal in the same month that the 

consumer is contractually obligated to 

pay it should not be considered 

financing of the premium, even if doing 

so results in increased interest charge to 

the consumer and regardless of whether 

the consumer pays the credit insurance 

premium when it is due. The consumer 

groups countered that, if additional 

interest is charged as a result of the 

creditor’s addition of the credit 

insurance premium to principal, then 

the creditor is clearly financing the 

credit insurance premium, regardless of 

when the consumer is obligated to make 

the credit insurance premium payment. 

Comments on the Alternative 

Clarification 

Several consumer groups, legal 

services organizations, and fair housing 

organizations supported the alternative 

provision that would have clarified 

what constitutes financing of credit 

insurance premiums or fees, on which 

the Bureau invited public comment. The 

alternative clarification would have 

provided that a creditor finances credit 

insurance premiums only if it charges a 

finance charge on or in connection with 

the credit insurance premium or fee. 

These commenters, however, urged the 

Bureau to broaden the alternative 

proposal further, to clarify that a 

creditor charges a finance charge in 

connection with the premium and thus 

finances credit insurance premiums or 

fees if it charges the consumer any 

dollar amount in a given month that 

exceeds a rate filed with and not 

disapproved by the State insurance 

regulator. 

A number of credit unions also 

supported the alternative clarification. 

Generally, the credit unions that 

supported the alternative approach were 

the same credit unions that reported 

using the practice of adding credit 

insurance premiums to principal before 

they are due but stated that, under their 

own practices, no additional interest 

accrues as a result of the addition. These 

commenters stated that their practice 

should not be considered to be 

financing credit insurance premiums, 

but that a creditor that adds premiums 

to principal and allows additional 

interest to accrue until the consumer’s 

subsequent payment is applied should 

be considered to be financing the credit 

insurance premiums. 

Most other credit insurance and credit 

union commenters opposed the 

alternative proposal, for several reasons. 

Several credit insurance companies, 

creditor trade associations, and a credit 

union opposed the alternative proposal 

because the definition is vague. 

Specifically, they noted that the 

definition of ‘‘finance charge’’ in 

§ 1026.2(a)(14) excludes credit 

insurance premiums and fees under 

certain conditions, and argued that a 

definition of financing credit insurance 

premiums and fees that depends on 

whether a finance charge is imposed 

‘‘on or in connection with’’ credit 

insurance premiums or fees would 

create confusion and lead to unintended 

consequences. For example, they stated 

that a finance charge may arguably be 

paid ‘‘in connection’’ with a premium if 

additional interest accrues because 

payment of the premium—even in full 

on a monthly basis—may result in 

slower amortization of the loan than 

would occur if no premium were paid. 

However, such interest does not 

indicate the premium or fee is being 

advanced by the creditor to or on behalf 

of the consumer. They also stated that 

any additional interest that is accrued as 

a result of the creditor adding a monthly 

credit insurance premium to principal 

and the passage of time until the 

consumer’s subsequent payment is 

applied should not be considered 

financing, because the addition to 

principal for accounting and monthly 

statement purposes does not indicate 

that the creditor is advancing any funds 

to or on behalf of the consumer. One 

such credit union also emphasized that 

the additional interest that accrues 

under its practices is very small, totaling 

on average 84 cents per year. It stated 

that the substantial cost of having to 

change accounting and data processing 

systems would be considerable, such 

that credit unions might simply choose 

not to offer credit insurance products to 

their customers. 

In addition, these commenters stated 

that the alternative proposal appears 

inconsistent with the statutory 

exclusion for credit insurance premiums 

and fees that are calculated and ‘‘paid 

in full on a monthly basis,’’ which 

would allow a finance charge in 

connection with a premium to the 

extent monthly outstanding balance 

credit insurance (where the premium 

satisfies the criteria for ‘‘calculated’’ on 

a monthly basis) is paid in the same 

month the charge is posted. 

Final Rule 

Definition of financing. The Bureau is 

adopting in § 1026.36(i)(2)(ii) the 

proposed definition of ‘‘financing’’ as 

proposed, with one modification. Under 

final § 1026.36(i)(2)(ii), ‘‘financing’’ 

occurs when a creditor treats a credit 

insurance premium as an amount owed 

and provides a consumer the right to 

defer payment of that obligation. The 

Bureau believes this clarification best 

conforms the concept of ‘‘financing’’ in 

§ 1026.36(i) with Regulation Z’s concept 

of an extension of ‘‘credit’’ in 

§ 1026.2(a)(14), which is defined as ‘‘the 

right to defer payment of debt or to 

incur debt and defer its payment’’ 

(emphasis added). The Bureau also is 

adopting an additional clarification that 

granting the consumer this right to defer 

payment only constitutes financing if it 

provides the consumer the right to defer 

payment of the premiums or fees 

‘‘beyond the period in which they are 

due.’’ 

The Bureau believes this additional 

clarification is appropriate in light of 

public comments, and also is consistent 

with the exclusion for credit insurance 

premiums that are calculated and paid 

in full on a monthly basis. As some 

commenters suggested, if the total 

amount owed by the consumer has not 

increased by the amount of the premium 

upon the close of the monthly period 

(after accounting for principal 

payments), then the creditor has not 

advanced funds or treated the premium 

as an addition to the consumer’s ‘‘debt.’’ 

Thus, consistent with Regulation Z’s 

general concept of ‘‘credit’’ in 

§ 1026.4(a)(14), the creditor is not 

treating the premium or fee as a debt 

obligation owed by the consumer and 

granting a right to defer payment of a 

debt, and is not ‘‘financing’’ the 

premium. This also is consistent with 

§ 1026.36(i)(2)(iii), which provides that 

any premium ‘‘calculated’’ on a monthly 

basis would not be considered financed 


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if it were also paid in full on a monthly 

basis—i.e., that the premium was not 

treated as a debt that the consumer was 

given a right to defer payment of beyond 

the month in which it was due. 

Accordingly, a creditor will not be 

considered to have financed a credit 

insurance premium if, upon the close of 

the month, the consumer has failed to 

make the premium or fee payment, but 

the creditor does not incorporate that 

amount into the amount owed by the 

consumer. However, if the creditor 

treats the premium as an addition to the 

consumer’s debt, such as by 

communicating to the consumer that the 

consumer must pay it to satisfy the 

consumer’s obligations under the loan 

or by charging interest on the premium, 

the creditor will be considered to have 

financed the premium in violation of 

the prohibition. 

The Bureau recognizes that there are 

some specific situations where it may be 

beneficial to consumers if creditors 

allow some period of time after the end 

of the monthly period in which a 

premium was due to decide if they 

would like to continue the insurance 

coverage. The Bureau believes the 

important distinction regarding whether 

or not the premium is considered to be 

financed hinges on whether the creditor 

treats the premium as a debt obligation 

due and then defers a right pay. But, as 

some commenters noted, as an 

alternative to the creditor adding an 

unpaid premium to the loan balance to 

create additional debt, a grace period 

could be provided during which the 

insurance remains in force unless the 

consumer chooses not to pay the 

premium (in which case the insurance 

contract is cancelled), the insurer’s 

obligation to perform under the credit 

insurance contract could be suspended 

in the event of non-payment, or the 

insurance contract could be cancelled 

automatically if the premium is not 

paid. In these cases, the creditor may 

allow the consumer additional time to 

pay the premium and keep the 

insurance in force, but does not advance 

the amount of money necessary to meet 

the monthly credit insurance payment 

on the consumer’s behalf and then 

require that the consumer pay the 

creditor—i.e., the creditor does not treat 

the premium as a debt and then provide 

the consumer a right to defer payment 

of the premium or fee. The Bureau 

believes these practices would, in most 

cases, not arise to the level of 

‘‘financing’’ unless the creditor treats 

the premium as a debt and then allows 

deferral of payment beyond the month 

in which it was due. 

The Bureau believes similar logic 

would apply with respect to other 

situations, such as consumers who are 

offered forbearance, modification 

agreements, or are otherwise delinquent 

on their monthly payments. In these 

cases, a creditor that effectively pays the 

monthly premium on the consumer’s 

behalf and then treats that amount as a 

debt owed to the creditor beyond the 

month in which it is due would be 

financing the premium for purposes of 

§ 1026.36(i). For example, assume that a 

consumer has credit insurance and 

typically pays $50.00 per month for that 

product. If the consumer is granted a 

six-month forbearance of monthly 

payments by the creditor (and the credit 

insurance itself is not used to cover 

monthly payments, but simply remains 

as a monthly charge), the creditor 

‘‘finances’’ for purposes of § 1026.36(i) if 

the creditor charges the consumer 

$50.00 each month without collecting 

payment and ultimately adds $300.00 to 

the consumer’s debt. Similarly, if the 

same consumer were six months 

delinquent on his or her loan (meaning 

no payments have been received), the 

creditor would not be permitted to pay 

the credit insurance premiums on behalf 

of the consumer and then treat $300.00 

as an additional amount owed. 

The Bureau appreciates the remaining 

concerns raised by consumer groups, 

but disagrees with some of their 

analyses. Consumer groups suggested 

providing that a creditor finances credit 

insurance premiums or fees any time 

the amount charged to the consumer 

exceeds the premium filed with and not 

disapproved by the State insurance 

regulator. It is the Bureau’s 

understanding that under some State 

insurance regulation practices, not all 

types of credit insurance rates (such as 

those determined by an actuarial 

method) must be filed with the 

regulator. More importantly, even when 

applicable rates are filed with a State 

insurance regulator, the fact that a 

consumer is being charged more than 

the filed rate does not necessarily mean 

the creditor is financing the premium, 

even if the creditor receives 

commissions from the credit insurer. A 

difference between the filed rate and the 

amount charged to the consumer could 

be the result of actions by the credit 

insurer, rather than the creditor. 

The Bureau also disagrees that 

significant confusion about debt 

suspension products will be caused by 

the clarification that a creditor finances 

premiums or fees for credit insurance if 

it provides a consumer the right to defer 

payment of a credit insurance premium 

or fee. Debt suspension contracts permit 

the consumer to defer payments of 

principal and interest. The clarification 

the Bureau is adopting addresses 

granting a consumer a right to defer 

payments of credit insurance premiums 

and fees. 

Application of the provision to singlepremium credit insurance. The Bureau 

is also adding comment 36(i)–1 to 

clarify how the prohibition applies to 

single-premium and monthly-pay 

products. It clarifies that in the case of 

single-premium credit insurance, a 

creditor violates § 1026.36(i) by adding 

the credit insurance premium or fee to 

the amount owed by the consumer at 

closing. The comment states further 

that, in the case of monthly-pay credit 

insurance, a creditor violates 

§ 1026.36(i) if, upon the close of the 

monthly period in which the premium 

or fee is due, the creditor includes the 

premium or fee in the amount owed by 

the consumer—and thus treats it not as 

a monthly charge that could be 

cancelled prior to being due, but as a 

‘‘debt’’ that is owed by the consumer to 

the creditor, which the consumer then 

would have a right to pay at some later 

date. 

Interest charged when the borrower is 

not granted a right to defer payment. 

The Bureau invited public comment on 

whether credit insurance premiums 

should be considered financed by a 

creditor only if the creditor imposes a 

finance charge on or in connection with 

the premium or fee. In doing so, the 

Bureau assumed that in some cases 

creditors were granting a consumer the 

right to defer payment and imposing a 

finance charge for that right, but in other 

cases creditors were not charging 

consumers for providing that right. The 

Bureau did not anticipate that creditors 

were charging interest on the credit 

insurance premium or fee even though 

no funds were being advanced on the 

consumer’s behalf at the time they 

began charging interest, under the 

practice described by some commenters. 

However, the Bureau notes that 

consumer groups and several industry 

commenters have stated that, at least in 

some cases, creditors appear to be 

adding credit insurance premiums to a 

consumer’s principal balance before the 

premium is due from the consumer— 

even though no funds are advanced on 

behalf of the consumer at that time. 

Interest then accrues on the increased 

principal until the consumer’s 

subsequent payment is credited to the 

account. Commenters have pointed out 

that this is typically a very small 

amount of interest; one industry 

commenter noted that, on average, the 

amount of interest accrued due to this 

practice is 87 cents per consumer. 

In such cases, the Bureau believes that 

the accruing interest does not indicate 

that the creditor has financed the 


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51The same concerns do not seem to arise if a 

creditor adds the premium to a line labeled 

‘‘principal’’ on a monthly statement due to 

accounting and data system limitations but does not 

otherwise treat the premium as an addition to the 

consumer’s debt and does not charge interest on the 

addition. 

premium precisely because, as several 

such creditors insist, they do not (and 

could not) advance any funds for the 

premium, and therefore could not add 

to the consumer’s debt, until after the 

consumer’s payment is actually due. 

Nevertheless (and even though the 

amount of interest charged may be very 

little), the Bureau believes that interest 

charged under such practices raises 

potential consumer protection concerns 

and may not be appropriate—although 

the reason it may be inappropriate is not 

because it indicates the creditor is 

financing the premium. Rather, the 

potential concerns arise if the creditor is 

charging the consumer additional 

interest on the premium even though 

the creditor is not financing the 

premium. 

The Bureau notes that the scope of the 

§ 1026.36(i) prohibition is limited to a 

creditor’s practice of financing of 

premiums—which does not include 

treating the premium as an addition to 

the consumer’s principal and charging 

interest on the addition before the 

premium is due.51 Indeed, even under 

the proposed alternative definition of 

financing—which would have relied 

upon the creditor’s imposing a ‘‘finance 

charge’’ in connection with the 

premium—this interest would not have 

fallen under the exclusion. The interest 

at issue would fail to meet the definition 

of a ‘‘finance charge’’ under § 1026.4, 

which is any charge imposed as an 

incident to or a condition of an 

extension of ‘‘credit.’’ As discussed 

above, § 1026.2(a)(14) defines ‘‘credit’’ 

as ‘‘the right to defer payment of a debt 

or to incur debt and defer its 

payment’’—and in the case of this 

particular practice there is neither a 

debt nor a right to defer payment prior 

to the point at which the charge is 

actually due. Thus, under either of the 

proposed definitions of financing, this 

practice would not have been subject to 

the prohibition. 

However, the fact that imposing 

interest on a premium before it is due 

does not constitute ‘‘financing’’ the 

premium does not mean that such 

practices comply with other Federal or 

State requirements. The Bureau intends 

to monitor this practice in the future 

and may address this issue at another 

time, whether by rulemaking or other 

means. However, based on public 

comments received, the Bureau believes 

that credit unions and other small 

creditors should be able to mitigate any 

risk that may arise from this practice by 

not collecting the interest that accrues 

from the consumer. For example, some 

credit unions that face these accounting 

and data processing system limitations 

appear to add the premium to principal 

before the consumer’s payment is due 

but do so without additional interest 

being charged to the consumer. The 

Bureau believes credit unions or other 

creditors facing such system limitations 

may be able to credit any accrued 

interest back to the consumer timely, 

thereby mitigating consumer protection 

concerns. 

3. Calculated and Paid in Full on a 

Monthly Basis 

The Proposal 

The Bureau proposed to clarify in 

§ 1026.36(i)(2)(iii) that credit insurance 

premiums or fees are calculated on a 

monthly basis if they are determined 

mathematically by multiplying a rate by 

the monthly outstanding balance (e.g., 

the loan balance following the 

consumer’s most recent monthly 

payment). As discussed above, 

§ 1026.36(i) excludes from the 

prohibition on a creditor financing 

credit insurance premiums or fees any 

‘‘credit insurance for which premiums 

or fees are calculated and paid in full on 

a monthly basis.’’ Although it had 

considered the concerns raised by 

industry following the issuance of the 

2013 Loan Originator Compensation 

Final Rule, the Bureau stated that it 

continued to believe that the more 

straightforward interpretation of the 

statutory language regarding a premium 

or fee that is ‘‘calculated . . . on a 

monthly basis’’ is a premium or fee that 

declines as the consumer pays down the 

outstanding principal balance. Credit 

insurance with this feature is often 

referred to as a ‘‘monthly outstanding 

balance,’’ or M.O.B. credit insurance 

product. Level or levelized premiums or 

fees that are calculated by multiplying 

a rate by the initial loan amount or by 

a fixed monthly principal and interest 

payment are not calculated ‘‘on a 

monthly basis’’ in any meaningful way 

because the factors in the calculation do 

not change monthly (in contrast to the 

M.O.B. credit insurance product). 

Accordingly, under the proposed 

clarification, credit insurance could not 

have been categorically excluded from 

the scope of the prohibition on the 

ground that it is ‘‘calculated and fully 

paid on a monthly basis’’ if its premium 

or fee does not decline as the consumer 

pays down the outstanding principal 

balance. The Bureau noted that even if 

a particular premium calculation and 

payment arrangement provides for 

credit insurance premiums to be 

calculated on a monthly basis within 

the meaning of the proposed 

clarification, it must also provide for the 

premiums to be paid in full on a 

monthly basis (rather than added to 

principal, for example) to be 

categorically excluded from § 1026.36(i). 

Comments 

Most of the comments discussed 

above addressed the statutory exclusion 

as it relates to the definition of 

financing, but the Bureau also received 

some comments specifically addressing 

the exclusion. One credit insurance 

company, three state trade associations 

of credit unions, one national trade 

association of credit unions, and several 

consumer groups, legal services 

organizations, and fair housing 

organizations supported the Bureau’s 

proposal clarifying what credit 

insurance premiums are calculated on a 

monthly basis. They agreed with the 

Bureau’s statement that the most 

straightforward interpretation of a 

premium that is ‘‘calculated . . . on a 

monthly basis’’ is one that is determined 

mathematically by multiplying a rate by 

the monthly outstanding balance. 

Consumer groups urged the Bureau to 

clarify that the exclusion should apply 

only to a rate filed with and not 

disapproved by a State insurance 

regulator. A credit insurance company 

commenter urged the Bureau to clarify 

that the premium or fee is ‘‘paid in full 

on a monthly basis’’ if the consumer is 

contractually required to pay it in the 

same month in which the creditor 

‘‘posts’’ it to the consumer’s account, 

even if the consumer does not in fact 

pay a premium by the end of the 

monthly period. 

Other credit insurance companies, a 

credit insurance trade association, 

several credit unions, and two state 

trade associations of credit unions 

stated that the Bureau’s clarification was 

too narrow. They argued that any 

‘‘monthly pay’’ credit insurance product 

should be excluded from the 

prohibition, regardless of whether the 

premium declines as the outstanding 

balance of the loan declines. They noted 

that model state legislation includes 

similar phrasing and has not been 

interpreted as being limited to products 

whose premiums decline as the loan 

balance declines. They stated that there 

was no indication that Congress 

intended a narrow meaning when it 

used similar language in the statutory 

prohibition. 

Finally, one creditor trade association 

believed that the Bureau’s proposal 

meant that levelized premiums 


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necessarily amount to prohibited 

creditor financing of credit insurance 

and it opposed the Bureau’s proposal on 

that basis. An actuarial firm noted that 

level premiums are an important option 

in credit insurance products and urged 

the Bureau not to ban them. 

Final Rule 

The Bureau is adopting the provision 

as proposed. The Bureau does not 

believe that similarities between the 

statutory provision and language in 

model state legislation cited by some 

commenters means that Congress 

intended the phrase ‘‘calculated . . . on 

a monthly basis’’ to include a premium 

that stays constant every month, rather 

than the more straightforward meaning 

discussed above. The Bureau disagrees 

with the commenter that urged the 

Bureau to deem a premium to have been 

‘‘paid in full on a monthly basis’’ by a 

consumer simply because it is 

contractually required to be paid 

monthly. Instead, if the creditor does 

not receive the consumer’s payment, 

then the analysis under this final rule’s 

clarification on what constitutes a 

creditor’s financing of credit insurance 

premiums or fees, discussed above, 

applies. Finally, the Bureau again 

emphasizes that a credit insurance 

product with a level or levelized 

premium is not prohibited by this final 

rule. For any credit insurance product 

that does not meet the conditions of the 

exclusion, this final rule’s clarification 

on what constitutes a creditor’s 

financing of credit insurance premiums 

or fees applies. 

4. Description of Creditors as at Times 

Acting as ‘‘Passive Conduits’’ for Credit 

Insurance Premiums and Fees 

The Proposal 

The Bureau noted in the proposal that 

credit insurance companies, in their 

communications with the Bureau 

subsequent to issuance of the 2013 Loan 

Originator Compensation Final Rule, 

described creditors as acting as ‘‘passive 

conduits’’ collecting and transmitting 

monthly premiums from the consumer 

to a credit insurer, rather than 

advancing funds to an insurer and 

collecting them subsequently from the 

consumer. Under such a scenario 

described by the credit insurance 

companies, the Bureau stated its belief 

that a creditor would not likely be 

providing a consumer the right to defer 

payment of a credit insurance premium 

or fee owed by the consumer within the 

meaning of the proposal, as discussed 

above. Similarly, the Bureau stated that, 

under the alternative interpretation that 

a creditor ‘‘finances’’ credit insurance 

only if it charges a ‘‘finance charge’’ on 

or in connection with the credit 

insurance premium or fee, as discussed 

above, a creditor that acts merely as a 

passive conduit for the payment of 

credit insurance premiums and fees to 

a credit insurer would not likely be 

charging such a finance charge. The 

Bureau stated that, on the other hand, a 

creditor that does not act merely as a 

passive conduit, but instead achieves a 

levelized premium by deferring 

payments, or portions of payments, due 

to a credit insurer for a monthly 

outstanding balance credit insurance 

product (or by imposing a finance 

charge incident to such deferment, 

under the alternative interpretation 

discussed above) would likely be 

considered to be financing the credit 

insurance premiums or fees. 

The Bureau invited public comment 

on the extent to which creditors act 

other than as passive conduits in a 

manner that would constitute financing 

of credit insurance premiums or fees. 

Relatedly, the Bureau sought public 

comment on whether debt cancellation 

or suspension contracts, which may be 

provided by the creditor itself or its 

affiliate, and not a separate insurance 

company, may warrant different or 

specialized treatment under the 

provision because a creditor would not, 

by nature, act as a ‘‘passive conduit’’ to 

an insurance provider. The Bureau 

specifically invited public comment on 

what actions by a creditor should or 

should not be considered financing of 

debt cancellation or suspension contract 

fees, when the creditor is a party to the 

debt cancellation or suspension contract 

and payments for principal, interest, 

and the debt cancellation or suspension 

contract are retained by the creditor. 

Comments 

Several commenters objected to the 

Bureau’s inclusion in preamble of the 

credit insurance industry’s description 

of creditors as ‘‘passive conduits’’ that 

merely transmit consumers’ credit 

insurance premiums on to credit 

insurance companies. Two credit 

insurance companies conceded that 

they had described creditors in this way 

but expressed concern that the Bureau’s 

use of the term in the preamble might 

be misinterpreted. They stated that the 

description was intended to refer to one 

example of when a creditor was not 

financing credit insurance premiums, 

but that it might be interpreted to mean 

that when a creditor acts other than as 

a ‘‘passive conduit’’ for credit insurance 

premiums, it is necessarily financing 

them. Further, they stated that the 

Bureau’s discussion in the preamble of 

an example of a creditor acting other 

than as a passive conduit (i.e., when the 

creditor achieves a levelized premium 

by deferring payments, or portions of 

payments, due to a credit insurer) does 

not ever happen in practice. In addition, 

industry commenters stated that debt 

cancellation or suspension contracts 

should not be treated differently under 

the prohibition, but instead are charged 

and collected functionally in the same 

manner as traditional insurance 

products, except that they generally are 

not regulated by state insurance 

commissions or subject to rate-filing 

requirements. 

Consumer groups asserted that 

creditors never act as passive conduits 

because creditors receive substantial 

commissions from credit insurance 

companies for the policies they sell and 

because the creditors are the primary 

beneficiaries of the credit insurance. 

Accordingly, they stated that, whenever 

a consumer is charged more in total 

premiums for a levelized credit 

insurance product than it would be 

charged for a monthly outstanding 

balance product with equivalent 

coverage, the creditor should be deemed 

to have financed the credit insurance 

premium, even if the insurer, rather 

than the creditor, accomplished the 

‘‘levelizing’’ of the premium. 

Final Rule 

With respect to the Bureau’s 

discussion of creditors as ‘‘passive 

conduits’’ of credit insurance premiums 

in the preamble of the proposed rule, 

the Bureau did not propose to 

promulgate, and is not promulgating in 

this final rule, a provision adopting that 

concept. Instead, as the Bureau 

explained in the proposal, the 

description was offered by credit 

insurance companies in their 

discussions with the Bureau, and the 

Bureau referred to it in the proposal as 

a means to elicit public comments and 

information on creditor practices that do 

not fit that description, especially with 

respect to debt cancellation and debt 

suspension products. The Bureau did 

not state a belief that creditors do act as 

passive conduits, or that any action that 

does not fit that description amounts to 

a violation of the provision. In addition, 

based on public comments it received, 

the Bureau does not believe it is 

necessary to adopt a provision that 

treats debt suspension or debt 

cancellation fees differently from credit 

insurance products. 


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52Specifically, section 1022(b)(2)(A) of the DoddFrank Act calls for the Bureau to consider the 

potential benefits and costs of a regulation to 

consumers and covered persons, including the 

potential reduction of access by consumers to 

consumer financial products or services; the impact 

on depository institutions and credit unions with 

$10 billion or less in total assets as described in 

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

on consumers in rural areas. 

53For convenience, the reference to these January 

2013 rules is also meant to encompass the rules 

issued in May 2013 that amended the January rules, 

including the May 2013 Escrows Final Rule. 

54The Bureau has discretion in any rulemaking 

to choose an appropriate scope of analysis with 

respect to potential benefits and costs and an 

appropriate baseline. 

VII. Section 1022(b)(2) of the DoddFrank Act 

A. Overview 

In developing the final rule, the 

Bureau has considered the potential 

benefits, costs, and impacts.52 In 

addition, the Bureau has consulted, or 

offered to consult with, the prudential 

regulators, the Securities and Exchange 

Commission, HUD, the Federal Housing 

Finance Agency, the Federal Trade 

Commission, and the Department of the 

Treasury, including regarding 

consistency with any prudential, 

market, or systemic objectives 

administered by such agencies. 

As noted above, this rule makes 

amendments to some of the final 

mortgage rules issued by the Bureau in 

January of 2013.53 These amendments 

focus primarily on clarifying or revising 

(1) Provisions of Regulation X’s related 

to information requests and error 

notices; (2) loss mitigation procedures 

under Regulation X’s servicing 

provisions; (3) amounts counted as loan 

originator compensation to retailers of 

manufactured homes and their 

employees for purposes of applying 

points and fees thresholds under 

HOEPA and the qualified mortgage rules 

in Regulation Z; (4) determination of 

which creditors operate predominantly 

in ‘‘rural’’ or ‘‘underserved’’ areas for 

various purposes under the mortgage 

regulations; (5) application of the loan 

originator compensation rules to bank 

tellers and similar staff; and (6) the 

prohibition on creditor-financed credit 

insurance. The Bureau also is adjusting 

the effective dates for certain provisions 

adopted by the 2013 Loan Originator 

Compensation Final Rule and making 

technical and wording changes for 

clarification purposes to Regulations B, 

X, and Z. 

The Bureau notes that for some 

analyses, there are limited data available 

with which to quantify the potential 

costs, benefits and impacts of this final 

rule. In particular, the Bureau did not 

receive comments specifically 

addressing the Section 1022 analysis in 

the proposed rule. Still, general 

economic principles as well as the 

information and analysis on which the 

January rules were based provide 

insight into the benefits, costs and 

impacts and where relevant, the 

analysis provides a qualitative 

discussion of the benefits, cost and 

impacts of the final rule. 

B. Potential Benefits and Costs to 

Consumers and Covered Persons 

The Bureau believes that, compared to 

the baseline established by the final 

rules issued in January 2013,54 an 

important benefit of most of the 

provisions of this final rule to both 

consumers and covered persons is an 

increase in clarity and precision of the 

regulations and an accompanying 

reduction in compliance costs. Other 

benefits and costs are considered below. 

As described above, the Bureau is 

amending the commentary to 

§ 1024.35(c) and § 1024.36(b). As 

adopted by the 2013 Mortgage Servicing 

Rules, these provisions and 

accompanying commentary require a 

servicer that has established an 

exclusive address at which it will 

receive communications pursuant to 

§ 1024.35 and § 1024.36 to disclose that 

address whenever it provides a 

borrower any contact information for 

assistance from the servicer. The Bureau 

is amending the commentary so that the 

exclusive address need be provided on 

the written notice that designates the 

specific address; the periodic statement 

or coupon book required pursuant to 12 

CFR 1026.41; any Web site the servicer 

maintains in connection with the 

servicing of the loan; and any notice 

required pursuant to §§ 1024.39 or .41 

that includes contact information for 

assistance. 

These amendments reduce the costs 

to servicers of complying with 

§ 1024.35(c) and § 1024.36(b) of the final 

rule by reducing the number of 

documents and other sources of 

information that must be modified to 

include the designated address. The 

Bureau believes that these amendments 

will cause at most a minimal reduction 

in the benefits to consumers. A 

borrower looking for the address to 

which to send a notice of error or a 

request for information would likely 

consult the servicer’s Web site, the 

borrower’s statement or coupon book, 

any loss mitigation documents, or 

perhaps the written notice designating 

the specific address. Further, servicers 

have an obligation, established by the 

January rule, to maintain policies and 

procedures reasonably designed to 

achieve the objective of informing 

borrowers of the procedures for 

submitting written notices of error and 

written information requests. Thus, a 

servicer should provide the proper 

address to a borrower who contacts the 

servicer for the address to which to send 

a notice of error or a request for 

information. In light of these two 

parallel requirements, the Bureau 

believes borrowers will still have ready 

access to the exclusive address and are 

not likely to send a notice of error or a 

request for information to an improper 

address. Alternatives that would require 

the designated address on even fewer 

documents or communications would 

further reduce the compliance costs to 

servicers but would increase the risk 

that borrowers who wish to send a 

notice of error or a request for 

information would consult a document 

that did not include the exclusive 

address and would misroute their notice 

or request accordingly. 

The Bureau is amending 

§ 1024.35(g)(1)(iii)(B) (untimely notices 

of error) and § 1024.36(f)(1)(v)(B) 

(untimely requests for information), 

which, as adopted in January, provided 

respectively that the notice or request is 

untimely if it is delivered to the servicer 

more than one year after a mortgage loan 

balance was paid in full. Under the 

amended provisions, the one-year 

period designated by these requirements 

will begin when a mortgage loan is 

discharged, such as through foreclosure 

or deed in lieu of foreclosure, even if the 

loan balance was not paid in full. 

These amendments reduce costs to 

servicers by increasing the number of 

situations in which a notice or request 

is untimely and servicers are therefore 

not required to comply with certain 

requirements of § 1024.35 or § 1024.36. 

To the extent servicers no longer 

respond to notices or requests that are 

untimely because of these amendments, 

the lack of a response may impose some 

cost to consumers. The Bureau does not 

have data on the frequency with which 

borrowers with a mortgage that is 

terminated without being paid in full 

also assert an error or request 

information (within the scope of these 

requirements) more than one year after 

such termination, nor does the Bureau 

have information on the subsequent 

outcomes for such borrowers. However, 

the Bureau believes that one year after 

a mortgage loan is discharged generally 

provides sufficient time for borrowers to 

assert errors or request information. 

Consequently, an inability to obtain a 

response to such a notice or request 

during the longer period the rule 

prescribed before these amendments 


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would constitute at most a minimal 

impact on the benefits to consumers. 

The Bureau is amending the 

commentary to § 1024.41(b)(2)(i) and 

adding new § 1024.41(c)(2)(iv) to 

address the situation in which a servicer 

determines that additional information 

from the borrower is needed to complete 

an evaluation of a loss mitigation 

application after the servicer has 

informed the borrower, via the notice 

pursuant to § 1026.41(b)(2)(i)(B), that 

the loss mitigation application is 

complete or the borrower provided the 

particular information identified as 

missing in an original notice. In 

summary, the servicer must request the 

additional information and provide a 

reasonable time for the borrower to 

respond. If the borrower provides the 

additional information, the 30-day 

evaluation period within which to 

evaluate the borrower for all loss 

mitigation options available to the 

borrower begins as of the date the 

borrower provides the remaining 

information. The borrower, on the other 

hand, receives the protections against 

foreclosure during the period provided 

to gather the supplemental information. 

If the borrower provides the additional 

information, the borrower will also 

receive the right to appeal and other 

rights as though the application were 

actually complete when either the 

borrower submitted the original loss 

mitigation application (if the notice 

informed the borrower that the 

application was complete) or the 

borrower provided the particular 

information identified in the original 

notice (if the notice informed the 

borrower that the application was 

incomplete). In situations in which a 

servicer determines that supplemental 

information from the borrower is 

needed after sending the 

§ 1024.41(b)(2)(i)(B) notice, these dates 

will generally be earlier than the date on 

which the borrower provides the 

supplemental information to make the 

application complete. Accordingly, the 

amended final rule provides greater 

consumer protections than the original 

final rule or the proposal. 

The costs to the servicer of these 

amendments are the costs of complying 

that are incremental to the baseline 

costs arising from the 2013 Mortgage 

Servicing Final Rules. The Bureau 

believes that in all cases these costs are 

small given other provisions of the 2013 

Mortgage Servicing Final Rules. As 

discussed above, under that final rule, 

servicers are required to review a loss 

mitigation application to determine 

whether it is complete or incomplete, to 

have policies and procedures reasonably 

designed to achieve the objectives of 

identifying documents and information 

that a borrower is required to submit to 

complete an otherwise incomplete loss 

mitigation application, and to exercise 

reasonable diligence in obtaining 

documents and information necessary to 

complete an incomplete application. 

Thus, the 2013 Mortgage Servicing Final 

Rules already obligated the servicer to 

exercise reasonable diligence to bring to 

completion an application that was 

facially complete but in fact lacked 

information necessary for review. The 

servicer would therefore, even absent 

the new provisions, have the personnel 

and infrastructure needed to contact the 

borrower for additional information and 

evaluate the application since these are 

required to comply with the other 

obligations stated above. Thus, the 

Bureau does not believe that the costs of 

complying with the amendment are 

significant. 

The benefits to consumers of these 

amendments are the benefits of servicers 

following the procedures adopted by 

this final rule that are incremental to the 

baseline benefits defined by the final 

servicing rule. The amendment requires 

servicers to promptly request any 

additional information or documents 

needed to complete a facially complete 

loss mitigation application, and also 

provides borrowers with a reasonable 

amount of time to provide any such 

documents or information. The 

amendment delays the 30-day period 

during which a servicer must evaluate a 

complete application until after the 

borrower has provided such documents 

or information. This additional time 

benefits consumers by encouraging 

thorough review of these applications. 

Further, the rule will make clear that a 

servicer has fulfilled its obligations if it 

follows the new procedure. This 

encourages servicers to acknowledge 

and rectify their errors and therefore 

increases the likelihood that servicers 

will make loss mitigation decisions on 

the basis of complete information. 

As an alternative, if borrowers receive 

protections from the date on which the 

application is actually complete (instead 

of facially complete), it is more likely 

the date would be past the 120th day of 

delinquency or closer to the date of a 

foreclosure sale. Servicers might have 

slightly lower costs under this 

alternative, perhaps from a shorter 

period of providing continuity of 

contact and monitoring the property, 

but borrowers would receive fewer 

protections against foreclosure. Further, 

servicers that wanted to provide fewer 

protections could more easily 

manipulate the date on which an 

application is actually complete than 

the date on which it is facially complete 

given that facial completeness is 

determined by a mandated timeline and 

disclosure and by how quickly the 

consumer provides any missing 

information identified in the disclosure. 

The Bureau is amending the 

§ 1024.41(b)(2)(ii) time period 

disclosure requirement, which requires 

a servicer to provide a date by which a 

borrower should submit any missing 

documents and information necessary to 

make a loss mitigation application 

complete. As explained above, 

§ 1024.41(b)(2)(ii) as originally adopted 

requires the servicer to notify the 

borrower that the borrower should 

submit such missing documents and 

information by the earliest of certain 

dates. This requirement would have 

applied even if the nearest date would 

leave the borrower with very little time 

to assemble the missing information. 

The amendment requires the servicer to 

provide a reasonable date by which the 

borrower should submit the documents 

and information necessary to make the 

loss mitigation application complete. 

Commentary provides additional 

guidance and advises a servicer to select 

the nearest of four key dates that is at 

least seven days in the future. This 

change presents some tradeoff in 

benefits and costs for consumers, but on 

balance the Bureau believes that it will 

be beneficial to consumers. Consumers 

who would have been provided 

impracticable dates for responding in 

the initial notice generally benefit from 

this amendment by being provided with 

useful information. In particular, the 

Bureau believes that some consumers 

who might have failed to complete the 

loss mitigation application altogether 

when faced with an impracticable date 

for submitting materials would be more 

likely to complete the application by a 

reasonable date as determined under the 

amended rule, and thus to secure 

consideration for foreclosure 

alternatives and some of the important 

procedural rights available to them 

under the loss mitigation regulations. 

Servicers will incur one-time costs for 

changes to software to check whether 

the nearest key date is closer than the 

rule permits and provide the later date 

in this case. Servicers may also incur 

costs associated with receiving 

additional complete loss mitigation 

applications. 

The Bureau is adding a new provision 

in § 1024.41(b)(3) addressing how 

borrower protections are determined 

when no foreclosure sale is scheduled 

as of the date a complete loss mitigation 

application is received or when a 

foreclosure sale is rescheduled after 

receipt of a complete application. Under 

the final servicing rule, a servicer could, 


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arguably, initiate the foreclosure process 

on day 121 of delinquency, receive a 

complete loss mitigation application 

from a borrower, schedule a foreclosure 

sale within 90 days, and then provide 

fewer protections than those afforded to 

loss mitigation applications received at 

least 90 days before a scheduled 

foreclosure sale. The new provisions 

provide that if no foreclosure sale has 

been scheduled as of the date that a 

complete loss mitigation application is 

received, the application shall be treated 

as if it were received at least 90 days 

before a scheduled foreclosure sale. In 

addition, the new provisions make clear 

that whether certain foreclosure 

protections and other rights in the rule 

apply depends on the date for which a 

foreclosure sale was scheduled at the 

time of a borrower’s complete 

application. If the scheduled date later 

changes, the foreclosure protections and 

other rights that arose at the time of the 

complete application do not change. 

The Bureau recognizes that the new 

provisions may reduce some of the 

flexibility servicers had under the 2013 

Mortgage Servicing Rule. This is a cost 

to servicers. Further, some servicers in 

possession of an incomplete loss 

mitigation application on day 121 of 

delinquency who would not have 

scheduled a foreclosure sale may now 

do so in order to avoid the risk of a 

longer time to foreclosure. As a result, 

certain borrowers may have less time to 

respond to a loss mitigation offer and no 

right to appeal a denial. On the other 

hand, borrowers with servicers that do 

not accelerate the scheduling of 

foreclosure sales have clearer rights and 

most likely more time to respond to a 

loss mitigation offer and a right to 

appeal a denial. The Bureau cannot 

quantify these different effects, but 

believes that they are most likely small 

given the wide range of other factors 

that determine the time to foreclosure. 

The Bureau is modifying 

§ 1024.41(c)(2) to allow servicers to offer 

certain short-term forbearances to 

borrowers, notwithstanding the 

prohibition on servicers offering a loss 

mitigation option to a borrower based 

on the review of an incomplete loss 

mitigation application. This provision 

imposes no costs on servicers because it 

does not impose any new obligations on 

servicers relative to the final rule. The 

provision benefits servicers by 

providing a relatively low-cost way for 

servicers to provide borrowers with a 

particular loss mitigation option. 

Similarly, the provision imposes no 

costs on borrowers since the borrower 

can reject forbearance based on review 

of an incomplete loss mitigation option, 

provide a complete loss mitigation 

application, and be reviewed for all loss 

mitigation options available to the 

borrower (and other protections) as 

under the final rule. The provision 

benefits borrowers by providing 

borrowers with a particular loss 

mitigation option on the basis of an 

incomplete application and therefore 

without exhausting the option to have 

the servicer review a complete loss 

mitigation application. 

As discussed above, the Bureau is 

conscious of the fact that some servicers 

have significantly exacerbated 

borrowers’ financial difficulties in the 

past by using short-term forbearance 

programs inappropriately instead of 

reviewing the borrowers for long-term 

options. Thus, in developing this 

provision, the Bureau has sought to 

ensure that borrowers would receive 

significant benefits from forbearance 

based on review of an incomplete loss 

mitigation option with minimal 

additional risk or loss of consumer 

protections. However, while a long 

forbearance period creates risks to 

consumers by generating a significant 

debt and increasing the chance the 

borrower might have been better off 

with an option that the servicer would 

have offered after evaluating a complete 

loss mitigation application, the 

comments received also emphasized 

heavily that very short forbearance 

periods do not provide much benefit to 

borrowers in situations in which 

forbearance is being used appropriately 

because they do not allow sufficient 

time for borrowers to remedy the shortterm problems that created the need for 

forbearance and resume making 

payments on their loans. The Bureau 

does not have data with which to 

identify the average or maximum length 

of time of forbearance that would 

balance these factors. Further, the risks 

to consumers from not specifying a 

maximum length of time for forbearance 

are mitigated somewhat by the fact that 

a borrower who receives a forbearance 

agreement without having submitted a 

complete loss mitigation application can 

trigger a review for loss mitigation 

options by submitting a complete 

application more than 37 days before a 

scheduled foreclosure sale. Taking these 

factors into account, the Bureau believes 

that borrowers benefit more from the 

new forbearance provisions than they 

would from alternatives that imposed a 

maximum length of time on forbearance. 

The Bureau is also clarifying the ‘‘first 

notice or filing’’ standard in 

§ 1024.41(f). The 2013 Mortgage 

Servicing Final Rules prohibited 

servicers from making the ‘‘first notice 

or filing’’ under state law during the 

first 120 days of the borrower’s 

delinquency, but interpreted ‘‘first 

notice or filing’’ broadly to include 

notices of default or other notices 

required by applicable law in order to 

pursue acceleration of a mortgage loan 

obligation or the sale of a property 

securing a mortgage loan obligation. The 

Bureau is modifying this interpretation 

and adopting a narrower construction 

that more closely tracks the Federal 

Housing Administration’s ‘‘first legal’’ 

standard. The Bureau also is clarifying 

how the rule works across states with 

different foreclosure laws—such as in 

‘‘judicial’’ states where foreclosure 

requires an action filed in court and in 

‘‘non-judicial’’ states where foreclosure 

requires notice or publication of sale. 

The Bureau believes these 

amendments will benefit servicers by 

clarifying the scope of actions 

prohibited during a borrower’s first 120 

days in accordance with a familiar 

standard. In addition, the amendments 

will not unduly delay foreclosures in 

states that provide statutory or other 

notice and cure processes in advance of 

a foreclosure action or sale by forcing 

servicers to wait 120 days to send such 

a notice. The Bureau believes these 

amendments will benefit borrowers 

because they will allow notices that do 

not initiate foreclosure, but instead are 

intended to provide borrowers with 

information about counseling and other 

loss mitigation resources as a means of 

avoiding foreclosure during the first 120 

days of delinquency, when those notices 

are most likely to benefit borrowers. The 

Bureau recognizes the possibility that 

these amendments may, in certain 

States, allow foreclosure to be initiated 

more quickly than under the Final Rule, 

but the Bureau believes that the 

amendments are beneficial to borrowers 

overall. 

In addition, the Bureau is modifying 

or clarifying other Regulation X loss 

mitigation provisions. The Bureau is 

amending § 1024.41(c)(1)(ii) to state 

explicitly that the notice required by 

§ 1024.41(c)(1)(ii) must state the 

deadline for accepting or rejecting a 

servicer’s offer of a loss mitigation 

option. The Bureau is amending 

§ 1024.41(h)(4) to provide expressly that 

the notice informing a borrower of the 

determination of his or her appeal must 

also state the amount of time the 

borrower has to accept or reject an offer 

of a loss mitigation option after the 

notice is provided to the borrower. The 

Bureau is amending § 1024.41(f)(1), the 

prohibition on referral to foreclosure 

until after the 120th day of delinquency, 

by exempting a foreclosure based on a 

borrower’s violation of a due-on-sale 

clause or in which the servicer is joining 

the foreclosure action of a subordinate 


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lienholder. Finally, the Bureau is 

clarifying the requirement in 

§ 1024.41(d)(1) (re-codified as 

§ 1024.41(d)) that a servicer must 

disclose the reasons for the denial of 

any trial or permanent loan 

modification option available to the 

borrower to make clear that this 

provision requires the servicer to 

disclose only determinations actually 

made by the servicer and does not 

require a servicer to continue evaluating 

additional factors after a decision has 

been established. The Bureau believes 

these modifications will only minimally 

increase costs to servicers and the 

clarifications will likely benefit both 

servicers and consumers, in part 

through reduced implementation costs. 

Two of the sets of modifications to the 

Regulation Z provisions involve loan 

originator compensation. The Bureau is 

clarifying for retailers of manufactured 

homes and their employees what 

compensation can be attributed to a 

transaction at the time the interest rate 

is set and must be included in the 

points and fees thresholds for qualified 

mortgages and high-cost mortgages 

under HOEPA. As discussed above, the 

final rule will exclude from points and 

fees of loan originator compensation 

paid by a retailer of manufactured 

homes to its employees and will clarify 

that the sales price of a manufactured 

home does not include loan originator 

compensation that must be included in 

points and fees. Both of these changes 

will reduce the burden for creditors in 

manufactured home transactions by 

eliminating the need for them in certain 

circumstances to attempt to determine 

what, if any, retailer employee 

compensation and what, if any, part of 

the sales price will count as loan 

originator compensation that must be 

included in points and fees. This 

amendment is also likely to lower 

slightly the amount of money counted 

toward the points and fees thresholds 

on the covered loans. As a result, 

keeping all other provisions of a given 

loan fixed, this will result in a greater 

number of loans to be eligible to be 

qualified mortgages. For such loans, the 

costs of origination may be slightly 

lower as a result of the slightly 

decreased liability for the lender and 

any assignees and for possibly 

decreased compliance costs. Consumers 

may benefit from slightly increased 

access to credit and lower costs on the 

affected loans, however these 

consumers will also not have the added 

consumer protections that accompany 

loans made under the general ability-torepay provisions. The lower amount of 

points and fees may also lead fewer 

loans to be above the points and fees 

triggers for high-cost mortgages under 

HOEPA: This should make these loans 

both more available and offered at a 

lower cost to consumers, though 

consumers will not have the added 

consumer protections that apply to 

high-cost mortgages. A more detailed 

discussion of these effects is contained 

in the discussion of benefits, costs, and 

impacts in part VII of the 2013 ATR 

Final Rule and the 2013 HOEPA Final 

Rule. 

The Bureau also is revising the 

commentary addressing when 

employees of a creditor or loan 

originator in certain administrative or 

clerical roles (e.g., tellers or greeters) 

may become ‘‘loan originators’’ under 

the 2013 Loan Originator Compensation 

Rule, and therefore subject to that Rule’s 

requirements applicable to loan 

originators, such as qualification 

requirements and restrictions on certain 

compensation practices. As noted 

above, classifying such individuals as 

loan originators would subject them to 

the requirements applicable to loan 

originators with, in the Bureau’s view, 

little appreciable benefit for consumers. 

Removing them from this classification 

should lower compliance costs 

including those related to SAFE Act 

training, certification requirements, and 

compensation restrictions. 

The final rule’s provisions regarding 

credit insurance clarify what constitutes 

financing of such premiums by a 

creditor, and is therefore generally 

prohibited under the Dodd-Frank Act 

with regard to credit insurance on 

mortgage loans. The final rule will also 

clarify when credit insurance premiums 

are considered to be calculated and paid 

on a monthly basis for purposes of a 

statutory exclusion from the prohibition 

for certain credit insurance premium 

calculation and payment arrangements. 

As noted earlier, the Bureau believes 

that language in the preamble to the 

2013 Loan Originator Compensation 

Final Rule led to some confusion among 

creditors and credit insurance providers 

regarding whether credit insurance 

products were prohibited under the rule 

based on how their premiums are 

calculated. The Bureau is now clarifying 

that the prohibition only extends to 

creditors financing credit insurance 

premiums, and providing additional 

guidance on what constitutes creditor 

financing and what is excluded from the 

prohibition. Specifically, the Bureau is 

finalizing a modified version of the 

clarification it proposed that provides 

increased clarity regarding the 

application of the rule to certain 

products—particularly to insurance 

with ‘‘level’’ or ‘‘levelized’’ premiums— 

and this should benefit both creditors 

and providers of credit insurance 

products. As discussed above, the 

modification will, among other things, 

permit creditors to continue providing 

credit insurance products, including 

those with ‘‘level’’ or ‘‘levelized’’ 

premiums, so long as the premium is 

not treated as an obligation owed by the 

consumer beyond the month in which it 

is due. The Bureau also solicited 

comment on an alternative clarification, 

and believes on the basis of comments 

that the alternative is less clear and no 

more protective of consumers than the 

provision the Bureau is finalizing. 

The final rule will also make two 

adjustments to provisions that provide 

certain exceptions for creditors 

operating predominantly in ‘‘rural’’ or 

‘‘underserved’’ areas during the next 

two years, while the Bureau reexamines 

the definitions of ‘‘rural’’ and 

‘‘underserved’’ as it recently announced 

in the May 2013 ATR Final Rule. 

Specifically, the final rule will extend 

an exception to the general prohibition 

on balloon features for high-cost 

mortgages under the 2013 HOEPA Final 

Rule that is available to certain loans 

made by small creditors who operate 

predominantly in rural or underserved 

areas temporarily to all small creditors, 

regardless of their geographic 

operations. The final rule will also 

amend an exemption from the 

requirement to maintain escrows for 

higher-priced mortgage loans under the 

2013 Escrow Final Rule that is available 

to small creditors that extended more 

than 50 percent of their total covered 

transactions secured by a first lien in 

‘‘rural’’ or ‘‘underserved’’ counties 

during the preceding calendar year to 

allow small creditors to qualify for the 

exemption if they made more than 50 

percent of their covered transactions in 

‘‘rural’’ or ‘‘underserved’’ counties 

during any of the previous three 

calendar years. 

As noted above, the Bureau believes 

expanding the balloon-payment 

exception for high-cost mortgages to 

allow certain small creditors operating 

in areas that do not qualify as ‘‘rural’’ or 

‘‘underserved’’ to continue to originate 

certain high-cost mortgages with balloon 

payments during the next two years will 

benefit creditors who might be unable to 

convert to offering adjustable rate 

mortgages by the time the final rules 

take effect in January 2014. The final 

rule will also promote consistency 

between HOEPA requirements and the 

May 2013 ATR Final Rule, thereby 

facilitating compliance for creditors. 

The Bureau believes that the final rule 

will also benefit consumers by 

increasing access to credit relative to the 


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60436 Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Rules and Regulations 

55 5 U.S.C. 601 et seq. 56 5 U.S.C. 603(a). For purposes of assessing the 

impacts of the proposed rule on small entities, 

‘‘small entities’’ is defined in the RFA to include 

small businesses, small not-for-profit organizations, 

and small government jurisdictions. 5 U.S.C. 601(6). 

A ‘‘small business’’ is determined by application of 

Small Business Administration regulations and 

reference to the North American Industry 

Classification System (NAICS) classifications and 

size standards. 5 U.S.C. 601(3). A ‘‘small 

organization’’ is any ‘‘not-for-profit enterprise 

which is independently owned and operated and is 

not dominant in its field.’’ 5 U.S.C. 601(4). A ‘‘small 

governmental jurisdiction’’ is the government of a 

city, county, town, township, village, school 

district, or special district with a population of less 

than 50,000. 5 U.S.C. 601(5). 

57 5 U.S.C. 605(b). 

58 5 U.S.C. 605(c). 

59 5 U.S.C. 609. 

60 78 FR 44686 (July 24, 2013). 

2013 HOEPA Final Rule. Although 

balloon loans can in some cases increase 

risks for consumers, the Bureau believes 

that those risks are appropriately 

mitigated in these circumstances 

because the balloon loans must meet the 

requirements for qualified mortgages in 

order to qualify for the exception. This 

includes certain restrictions on the 

amount of up-front points and fees and 

various loan features, as well as a 

requirement that the loans be held on 

portfolio by the small creditor. These 

requirements reduce the risk of 

potentially abusive lending practices 

and provide strong incentives for the 

creditor to underwrite the loan 

appropriately. 

The amendment to the qualifications 

for the exemption from the escrow 

requirements should minimize the 

disruptions from any changes in the 

categorization of certain counties while 

the Bureau is reevaluating the 

underlying definitions. This in turn 

should lower compliance costs for 

certain creditors during the interim 

period. Consumers may benefit from 

greater access to credit and lower costs, 

but in return will not receive the 

benefits of an escrow account. A more 

detailed discussion of these effects is 

contained in the discussion of benefits, 

costs, and impacts in part VII of the 

2013 Escrows Final Rule. 

C. Impact on Depository Institutions and 

Credit Unions With $10 Billion or Less 

in Total Assets, as Described in Section 

1026; the Impact of the Provisions on 

Consumers in Rural Areas; Impact on 

Access to Consumer Financial Products 

and Services 

The final rule is generally not 

expected to have a differential impact 

on depository institutions and credit 

unions with $10 billion or less in total 

assets as described in section 1026. The 

exceptions are those provisions related 

to the definitions of ‘‘rural’’ and 

‘‘underserved’’ which directly impact 

entities with under $2 billion in total 

assets. The final rule may have some 

differential impacts on consumers in 

rural areas. To the extent that 

manufactured housing loans, higherpriced mortgage loans, high-cost loans 

or balloon loans are more prevalent in 

these areas, the relevant provisions may 

have slightly greater impacts. As 

discussed above, costs for creditors in 

these areas should be reduced; 

consumers should benefit from 

increased access to credit and lower 

costs, though they will not have access 

to the heightened protections afforded 

by various provisions. Given the nature 

and limited scope of the changes in the 

final rule, the Bureau does not believe 

that the final rule will reduce 

consumers’ access to consumer financial 

products and services. 

VIII. Regulatory Flexibility Act 

Analysis 

The Regulatory Flexibility Act (RFA) 

generally requires an agency to conduct 

an initial regulatory flexibility analysis 

(IRFA) and a final regulatory flexibility 

analysis (FRFA) of any rule subject to 

notice-and-comment rulemaking 

requirements.55 These analyses must 

‘‘describe the impact of the proposed 

rule on small entities.’’ 56 An IRFA or 

FRFA is not required if the agency 

certifies that the rule will not have a 

significant economic impact on a 

substantial number of small entities,57

or if the agency considers a series of 

closely related rules as one rule for 

purposes of complying with the IRFA or 

FRFA requirements.58 The Bureau also 

is subject to certain additional 

procedures under the RFA involving the 

convening of a panel to consult with 

small business representatives prior to 

proposing a rule for which an IRFA is 

required.59

This rulemaking is part of a series of 

rules that have revised and expanded 

the regulatory requirements for entities 

that originate or service mortgage loans. 

As noted above, in January, 2013, the 

Bureau issued the 2013 ATR Final Rule, 

2013 Escrows Final Rule, 2013 HOEPA 

Final Rule, 2013 Mortgage Servicing 

Final Rules, and the 2013 Loan 

Originator Compensation Final Rule. 

Since January 2013, the Bureau also has 

issued the May 2013 ATR Final Rule, 

May 2013 Escrows Final Rule, and the 

2013 Effective Date Final Rule, along 

with Amendments to the 2013 Mortgage 

Rules under the Real Estate Settlement 

Procedures Act (Regulation X) and 

Truth in Lending Act (Regulation Z).60

The Supplementary Information to each 

of these rules set forth the Bureau’s 

analyses and determinations under the 

RFA with respect to those rules. 

Because these rules qualify as ‘‘a series 

of closely related rules,’’ for purposes of 

the RFA, the Bureau relies on those 

analyses and determines that it has met 

or exceeded the IRFA and FRFA 

requirements. 

In the alternative, the Bureau also 

concludes that the final rule will not 

have a significant impact on a 

substantial number of small entities. As 

noted, this final rule generally clarifies 

the existing rule and to the extent any 

changes are substantive, these changes 

will not have a material impact on small 

entities. The provisions related to 

servicing do not apply to many small 

entities under the small servicer 

exemption (and to the extent that they 

do, small entities will benefit from the 

same increased flexibility under the 

proposed provisions as other servicers), 

while the provisions related to loan 

originator compensation and the ‘‘rural’’ 

and ‘‘underserved’’ definitions lower 

the regulatory burden and possible 

compliance costs for affected entities. 

Therefore, the undersigned certifies that 

the rule will not have a significant 

impact on a substantial number of small 

entities. 

IX. Paperwork Reduction Act 

This final rule amends 12 CFR Part 

1002 (Regulation B) which implements 

the Equal Credit Opportunity Act, 12 

CFR Part 1026 (Regulation Z), which 

implements the Truth in Lending Act 

(TILA), and 12 CFR Part 1024 

(Regulation X), which implements the 

Real Estate Settlement Procedures Act 

(RESPA). Regulations B, Z and X 

currently contain collections of 

information approved by OMB. The 

Bureau’s OMB control number for 

Regulation B is 3170–0013, for 

Regulation Z is 3170–0015 and for 

Regulation X is 3170–0016. However, 

the Bureau has determined that this 

proposed rule would not materially alter 

these collections of information or 

impose any new recordkeeping, 

reporting, or disclosure requirements on 

the public that would constitute 

collections of information requiring 

approval under the Paperwork 

Reduction Act, 44 U.S.C. 3501 et seq. 

List of Subjects 

12 CFR Part 1002 

Aged, Banks, Banking, Civil rights, 

Consumer protection, Credit, Credit 

unions, Discrimination, Fair lending, 

Marital status discrimination, National 

banks, National origin discrimination, 

Penalties, Race discrimination, 

Religious discrimination, Reporting and 


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recordkeeping requirements, Savings 

associations, Sex discrimination. 

12 CFR Part 1024 

Condominiums, Consumer protection, 

Housing, Mortgage servicing, Mortgages, 

Reporting and recordkeeping. 

12 CFR Part 1026 

Advertising, Consumer protection, 

Credit, Credit unions, Mortgages, 

National banks, Reporting and 

recordkeeping requirements, Savings 

associations, Truth in lending. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Bureau amends 12 CFR 

parts 1002, 1024, and 1026 as set forth 

below: 

PART 1002—EQUAL CREDIT 

OPPORTUNITY ACT (REGULATION B) 

■ 1. The authority citation for part 1002 

continues to read as follows: 

Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 

1691b. 

■ 2. Appendix A to part 1002 is 

amended by revising paragraph 2.d to 

read as follows: 

Appendix A to Part 1002—Federal 

Agencies To Be Listed in Adverse 

Action Notices 

* * * * * 

2. * * * 

d. Federal Credit Unions: National Credit 

Union Administration, Office of Consumer 

Protection, 1775 Duke Street, Alexandria, VA 

22314. 

* * * * * 

■ 3. In Supplement I to Part 1002, under 

Section 1002.14, under Paragraph 

14(b)(3) Valuation, as amended January 

31, 2013, at 78 FR 7250, effective 

January 18, 2014, paragraphs 1.i and 3.v 

are revised and paragraph 3.vi is added 

to read as follows: 

Supplement I to Part 1002—Official 

Interpretations 

* * * * * 

Section 1002.14—Rules on Providing 

Appraisals and Valuations 

* * * * * 

14(b)(3) Valuation. 

1. * * * 

i. A report prepared by an appraiser 

(whether or not licensed or certified) 

including the appraiser’s estimate of the 

property’s value or opinion of value. 

* * * * * 

3. * * * 

v. Reports reflecting property inspections 

that do not provide an estimate of the value 

of the property and are not used to develop 

an estimate of the value of the property. 

vi. Appraisal reviews that do not include 

the appraiser’s estimate of the property’s 

value or opinion of value. 

* * * * * 

PART 1024—REAL ESTATE 

SETTLEMENT PROCEDURES ACT 

(REGULATION X) 

■ 4. The authority citation for part 1024 

continues to read as follows: 

Authority: 12 U.S.C. 2603–2605, 2607, 

2609, 2617, 5512, 5532, 5581. 

Subpart A—General 

■ 5. Section 1024.30, as added February 

14, 2013, at 78 FR 10695 is amended by 

revising paragraph (a) to read as follows: 

§ 1024.30 Scope. 

(a) In general. Except as provided in 

paragraphs (b) and (c) of this section, 

this subpart applies to any mortgage 

loan, as that term is defined in 

§ 1024.31. 

* * * * * 

■ 6. Section 1024.35, as added February 

14, 2013, at 78 FR 10695 is amended by 

revising paragraph (g)(1)(iii)(B) to read 

as follows: 

§ 1024.35 Error resolution procedures. 

* * * * * 

(g) * * * 

(1) * * * 

(iii) * * * 

(B) The mortgage loan is discharged. 

* * * * * 

■ 7. Section 1024.36, as added February 

14, 2013, at 78 FR 10695, is amended by 

revising paragraph (f)(1)(v)(B) to read as 

follows: 

§ 1024.36 Requests for information. 

* * * * * 

(f) * * * 

(1) * * * 

(v) * * * 

(B) The mortgage loan is discharged. 

* * * * * 

■ 8. Section 1024.39, as added February 

14, 2013, at 78 FR 10695, is amended by 

revising paragraphs (b)(1) and (3) to read 

as follows: 

§ 1024.39 Early intervention requirements 

for certain borrowers. 

* * * * * 

(b) Written notice. (1) Notice required. 

Except as otherwise provided in this 

section, a servicer shall provide to a 

delinquent borrower a written notice 

with the information set forth in 

paragraph (b)(2) of this section not later 

than the 45th day of the borrower’s 

delinquency. A servicer is not required 

to provide the written notice more than 

once during any 180-day period. 

* * * * * 

(3) Model clauses. Model clauses MS– 

4(A), MS–4(B), and MS–4(C), in 

appendix MS–4 to this part may be used 

to comply with the requirements of this 

paragraph (b). 

* * * * * 

■ 9. Section 1024.41, as added February 

14, 2013, at 78 FR 10695, is amended by 

revising paragraph (b)(2)(ii), adding 

paragraph (b)(3), revising paragraphs 

(c)(1)(ii) and (c)(2)(i), adding paragraphs 

(c)(2)(iii) and (iv), and revising 

paragraphs (d), (f)(1), (h)(4), and (j) to 

read as follows: 

§ 1024.41 Loss mitigation procedures. 

* * * * * 

(b) * * * 

(2) * * * 

(ii) Time period disclosure. The notice 

required pursuant to paragraph 

(b)(2)(i)(B) of this section must include 

a reasonable date by which the borrower 

should submit the documents and 

information necessary to make the loss 

mitigation application complete. 

(3) Determining Protections. To the 

extent a determination of whether 

protections under this section apply to 

a borrower is made on the basis of the 

number of days between when a 

complete loss mitigation application is 

received and when a foreclosure sale 

occurs, such determination shall be 

made as of the date a complete loss 

mitigation application is received. 

(c) * * * 

(1) * * * 

(ii) Provide the borrower with a notice 

in writing stating the servicer’s 

determination of which loss mitigation 

options, if any, it will offer to the 

borrower on behalf of the owner or 

assignee of the mortgage. The servicer 

shall include in this notice the amount 

of time the borrower has to accept or 

reject an offer of a loss mitigation 

program as provided for in paragraph (e) 

of this section, if applicable, and a 

notification, if applicable, that the 

borrower has the right to appeal the 

denial of any loan modification option 

as well as the amount of time the 

borrower has to file such an appeal and 

any requirements for making an appeal, 

as provided for in paragraph (h) of this 

section. 

(2) * * * 

(i) In general. Except as set forth in 

paragraphs (c)(2)(ii) and (iii) of this 

section, a servicer shall not evade the 

requirement to evaluate a complete loss 

mitigation application for all loss 

mitigation options available to the 

borrower by offering a loss mitigation 

option based upon an evaluation of any 

information provided by a borrower in 


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60438 Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Rules and Regulations 

connection with an incomplete loss 

mitigation application. 

* * * * * 

(iii) Payment forbearance. 

Notwithstanding paragraph (c)(2)(i) of 

this section, a servicer may offer a shortterm payment forbearance program to a 

borrower based upon an evaluation of 

an incomplete loss mitigation 

application. A servicer shall not make 

the first notice or filing required by 

applicable law for any judicial or nonjudicial foreclosure process, and shall 

not move for foreclosure judgment or 

order of sale, or conduct a foreclosure 

sale, if a borrower is performing 

pursuant to the terms of a payment 

forbearance program offered pursuant to 

this section. 

(iv) Facially complete application. If a 

borrower submits all the missing 

documents and information as stated in 

the notice required pursuant to 

§ 1026.41(b)(2)(i)(B), or no additional 

information is requested in such notice, 

the application shall be considered 

facially complete. If the servicer later 

discovers additional information or 

corrections to a previously submitted 

document are required to complete the 

application, the servicer must promptly 

request the missing information or 

corrected documents and treat the 

application as complete for the purposes 

of paragraphs (f)(2) and (g) of this 

section until the borrower is given a 

reasonable opportunity to complete the 

application. If the borrower completes 

the application within this period, the 

application shall be considered 

complete as of the date it was facially 

complete, for the purposes of 

paragraphs (d), (e), (f)(2), (g), and (h) of 

this section, and as of the date the 

application was actually complete for 

the purposes of paragraph (c). A servicer 

that complies with this paragraph will 

be deemed to have fulfilled its 

obligation to provide an accurate notice 

under paragraph (b)(2)(i)(B). 

(d) Denial of loan modification 

options. If a borrower’s complete loss 

mitigation application is denied for any 

trial or permanent loan modification 

option available to the borrower 

pursuant to paragraph (c) of this section, 

a servicer shall state in the notice sent 

to the borrower pursuant to paragraph 

(c)(1)(ii) of this section the specific 

reason or reasons for the servicer’s 

determination for each such trial or 

permanent loan modification option 

and, if applicable, that the borrower was 

not evaluated on other criteria. 

* * * * * 

(f) * * * 

(1) Pre-foreclosure review period. A 

servicer shall not make the first notice 

or filing required by applicable law for 

any judicial or non-judicial foreclosure 

process unless: 

(i) A borrower’s mortgage loan 

obligation is more than 120 days 

delinquent; 

(ii) The foreclosure is based on a 

borrower’s violation of a due-on-sale 

clause; or 

(iii) The servicer is joining the 

foreclosure action of a subordinate 

lienholder. 

* * * * * 

(h) * * * 

(4) Appeal determination. Within 30 

days of a borrower making an appeal, 

the servicer shall provide a notice to the 

borrower stating the servicer’s 

determination of whether the servicer 

will offer the borrower a loss mitigation 

option based upon the appeal and, if 

applicable, how long the borrower has 

to accept or reject such an offer or a 

prior offer of a loss mitigation option. A 

servicer may require that a borrower 

accept or reject an offer of a loss 

mitigation option after an appeal no 

earlier than 14 days after the servicer 

provides the notice to a borrower. A 

servicer’s determination under this 

paragraph is not subject to any further 

appeal. 

* * * * * 

(j) Small servicer requirements. A 

small servicer shall be subject to the 

prohibition on foreclosure referral in 

paragraph (f)(1) of this section. A small 

servicer shall not make the first notice 

or filing required by applicable law for 

any judicial or non-judicial foreclosure 

process and shall not move for 

foreclosure judgment or order of sale, or 

conduct a foreclosure sale, if a borrower 

is performing pursuant to the terms of 

an agreement on a loss mitigation 

option. 

■ 10. Appendix MS–3 to Part 1024, as 

added February 14, 2013, at 78 FR 

10695, is amended by revising the entry 

for MS–3(D) in the table of contents at 

the beginning of the appendix, and 

revising the heading of MS–3(D) to read 

as follows: 

Appendix MS–3 to Part 1024 

* * * * * 

MS–3(D)—Model Form for Renewal or 

Replacement of Force-Placed Insurance 

Notice Containing Information Required by 

§ 1024.37(e)(2) 

* * * * * 

■ 11. In Supplement I to Part 1024, as 

added February 14, 2013, at 78 FR 

10695: 

■ a. Under Section 1024.17—Escrow 

Accounts, the heading for 17(k)(5)(ii) is 

revised. 

■ b. Under Section 1024.33—Mortgage 

Servicing Transfers: 

■ i. Under Paragraph 33(a) Servicing 

Disclosure Statement, paragraph 1 is 

revised. 

■ ii. Under Paragraph 33(c)(1) Payments 

not considered late, paragraph 2 is 

revised. 

■ c. Under Section 1024.35—Error 

Resolution Procedures, Paragraph 35(c), 

paragraph 2 is revised. 

■ d. Under Section 1024.36—Request 

for Information, Paragraph 36(b), 

paragraph 2 is revised. 

■ e. Under Section 1024.38—General 

Servicing Policies, Procedures and 

Requirements, Paragraph 

38(b)(5),paragraph 3 is added. 

■ f. The heading for Section 1024.41 is 

revised. 

■ g. Under Section 1024.41—Loss 

Mitigation Procedures: 

■ i. Paragraphs 41(b)(2), 41(b)(3), 

41(c)(2)(iii), and 41(c)(2)(iv) are added. 

■ ii. The heading for paragraphs 41(c) is 

revised. 

■ iii. Under newly designated 41(c), 

paragraph (c)(2)(iii) is added. 

■ iv. The heading Paragraph 41(d)(1) is 

removed. 

■ v. Under paragraph 41(d), paragraph 

3 is redesignated as Paragraph(c)(1), 

paragraph 4, and paragraph 4 is 

redesignated as paragraph 3. 

■ vii. Under paragraph 41(d), paragraph 

4 is added. 

■ viii. Under paragraph 41(f), new 

paragraph 1 is added. 

The revisions and additions read as 

follows: 

Supplement I to Part 1024—Official 

Bureau Interpretations 

* * * * * 

Subpart B—Mortgage Settlement and 

Escrow Accounts 

* * * * * 

Section 1024.17—Escrow Accounts 

* * * * * 

17(k)(5)(ii) Inability to disburse funds. 

* * * * * 

Subpart C—Mortgage Servicing 

* * * * * 

Section 1024.33—Mortgage Servicing 

Transfers 

* * * * * 

33(a) Servicing disclosure statement. 

1. Terminology. Although the servicing 

disclosure statement must be clear and 

conspicuous pursuant to § 1024.32(a), 

§ 1024.33(a) does not set forth any specific 

rules for the format of the statement, and the 

specific language of the servicing disclosure 

statement in appendix MS–1 is not required 

to be used. The model format may be 

supplemented with additional information 

that clarifies or enhances the model language. 

* * * * * 


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33(c) Borrower payments during transfer of 

servicing. 

33(c)(1) Payments not considered late. 

1. * * * 

2. Compliance with § 1024.39. A transferee 

servicer’s compliance with § 1024.39 during 

the 60-day period beginning on the effective 

date of a servicing transfer does not 

constitute treating a payment as late for 

purposes of § 1024.33(c)(1). 

Section 1024.35—Error Resolution 

Procedures 

* * * * * 

35(c) Contact information for borrowers to 

assert errors. 

* * * * * 

2. Notice of an exclusive address. A notice 

establishing an address that a borrower must 

use to assert an error may be included with 

a different disclosure, such as a notice of 

transfer. The notice is subject to the clear and 

conspicuous requirement in § 1024.32(a)(1). 

If a servicer establishes an address that a 

borrower must use to assert an error, a 

servicer must provide that address to the 

borrower in the following contexts: 

i. The written notice designating the 

specific address, required pursuant to 

§ 1024.35(c) and § 1024.36(b). 

ii. Any periodic statement or coupon book 

required pursuant to 12 CFR 1026.41. 

iii. Any Web site the servicer maintains in 

connection with the servicing of the loan. 

iv. Any notice required pursuant to 

§§ 1024.39 or .41 that includes contact 

information for assistance. 

* * * * * 

Section 1024.36—Requests for Information 

* * * * * 

36(b) Contact information for borrowers to 

request information. 

1. * * * 

2. Notice of an exclusive address. A notice 

establishing an address that a borrower must 

use to request information may be included 

with a different disclosure, such as a notice 

of transfer. The notice is subject to the clear 

and conspicuous requirement in 

§ 1024.32(a)(1). If a servicer establishes an 

address that a borrower must use to request 

information, a servicer must provide that 

address to the borrower in the following 

contexts: 

i. The written notice designating the 

specific address, required pursuant to 

§ 1024.35(c) and § 1024.36(b). 

ii. Any periodic statement or coupon book 

required pursuant to 12 CFR 1026.41. 

iii. Any Web site the servicer maintains in 

connection with the servicing of the loan. 

iv. Any notice required pursuant to 

§§ 1024.39 or .41 that includes contact 

information for assistance. 

* * * * * 

Section 1024.38—General Servicing Policies, 

Procedures and Requirements 

38(b) Objectives. 

38(b)(5) Informing Borrowers of the Written 

Error Resolution and Information Request 

Procedures. 

* * * * * 

3. Notices of error incorrectly sent to 

addresses associated with submission of loss 

mitigation applications or the continuity of 

contact. A servicer’s policies and procedures 

must be reasonably designed to ensure that 

if a borrower incorrectly submits an assertion 

of an error to any address given to the 

borrower in connection with submission of a 

loss mitigation application or the continuity 

of contact pursuant to § 1024.40, the servicer 

will inform the borrower of the procedures 

for submitting written notices of error set 

forth in § 1024.35, including the correct 

address. Alternatively, the servicer could 

redirect such notices to the correct address. 

* * * * * 

Section 1024.41—Loss Mitigation Procedures 

41(b) Receipt of loss mitigation 

application. 

41(b)(1) Complete loss mitigation 

application. 

* * * * * 

4. Diligence requirements. Although a 

servicer has flexibility to establish its own 

requirements regarding the documents and 

information necessary for a loss mitigation 

application, the servicer must act with 

reasonable diligence to collect information 

needed to complete the application. Further, 

a servicer must request information necessary 

to make a loss mitigation application 

complete promptly after receiving the loss 

mitigation application. Reasonable diligence 

includes, without limitation, the following 

actions: 

i. A servicer requires additional 

information from the applicant, such as an 

address or a telephone number to verify 

employment; the servicer contacts the 

applicant promptly to obtain such 

information after receiving a loss mitigation 

application; 

ii. Servicing for a mortgage loan is 

transferred to a servicer and the borrower 

makes an incomplete loss mitigation 

application to the transferee servicer after the 

transfer; the transferee servicer reviews 

documents provided by the transferor 

servicer to determine if information required 

to make the loss mitigation application 

complete is contained within documents 

transferred by the transferor servicer to the 

servicer; and 

iii. A servicer offers a borrower a payment 

forbearance program based on an incomplete 

loss mitigation application; the servicer 

notifies the borrower that he or she is being 

offered a payment forbearance program based 

on an evaluation of an incomplete 

application, and that the borrower has the 

option of completing the application to 

receive a full evaluation of all loss mitigation 

options available to the borrower. If a 

servicer provides such a notification, the 

borrower remains in compliance with the 

payment forbearance program, and the 

borrower does not request further assistance, 

the servicer could suspend reasonable 

diligence efforts until near the end of the 

payment forbearance program. Near the end 

of the program, and prior to the end of the 

forbearance period, it may be necessary for 

the servicer to contact the borrower to 

determine if the borrower wishes to complete 

the application and proceed with a full loss 

mitigation evaluation. 

* * * * * 

41(b)(2)Review of loss mitigation 

application submission. 

41(b)(2)(i) Requirements. 

Paragraph 41(b)(2)(i)(B). 

1. Later discovery of additional 

information required to evaluate application. 

Even if a servicer has informed a borrower 

that an application is complete (or notified 

the borrower of specific information 

necessary to complete an incomplete 

application), if the servicer determines, in the 

course of evaluating the loss mitigation 

application submitted by the borrower, that 

additional information or a corrected version 

of a previously submitted document is 

required, the servicer must promptly request 

the additional information or corrected 

document from the borrower pursuant to the 

reasonable diligence obligation in 

§ 1024.41(b)(1). See § 1024.41(c)(2)(iv) 

addressing facially complete applications. 

41(b)(2)(ii) Time period disclosure. 

1. Reasonable date. Section 

1024.41(b)(2)(ii) requires that a notice 

informing a borrower that a loss mitigation 

application is incomplete must include a 

reasonable date by which the borrower 

should submit the documents and 

information necessary to make the loss 

mitigation application complete. In 

determining a reasonable date, a servicer 

should select the deadline that preserves the 

maximum borrower rights under § 1024.41 

based on the milestones listed below, except 

when doing so would be impracticable to 

permit the borrower sufficient time to obtain 

and submit the type of documentation 

needed. Generally, it would be impracticable 

for a borrower to obtain and submit 

documents in less than seven days. In setting 

a date, the following milestones should be 

considered (if the date of a foreclosure sale 

is not known, a servicer may use a reasonable 

estimate of the date for which a foreclosure 

sale may be scheduled): 

i. The date by which any document or 

information submitted by a borrower will be 

considered stale or invalid pursuant to any 

requirements applicable to any loss 

mitigation option available to the borrower; 

ii. The date that is the 120th day of the 

borrower’s delinquency; 

iii. The date that is 90 days before a 

foreclosure sale; 

iv. The date that is 38 days before a 

foreclosure sale. 

41(b)(3) Determining Protections. 

1. Foreclosure sale not scheduled. If no 

foreclosure sale has been scheduled as of the 

date that a complete loss mitigation 

application is received, the application is 

considered to have been received more than 

90 days before any foreclosure sale. 

2. Foreclosure sale re-scheduled. The 

protections under § 1024.41 that have been 

determined to apply to a borrower pursuant 

to § 1024.41(b)(3) remain in effect thereafter, 

even if a foreclosure sale is later scheduled 

or rescheduled. 

41(c) Evaluation of loss mitigation 

applications. 

* * * * * 

41(c)(2) Incomplete loss mitigation 

application evaluation. 

* * * * * 

41(c)(2)(iii) Payment forbearance. 


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1. Short-term payment forbearance 

program. The exemption in 

§ 1024.41(c)(2)(iii) applies to short-term 

payment forbearance programs. A payment 

forbearance program is a loss mitigation 

option for which a servicer allows a borrower 

to forgo making certain payments or portions 

of payments for a period of time. A shortterm payment forbearance program allows 

the forbearance of payments due over periods 

of no more than six months. Such a program 

would be short-term regardless of the amount 

of time a servicer allows the borrower to 

make up the missing payments. 

2. Payment forbearance and incomplete 

applications. Section 1024.41(c)(2)(iii) allows 

a servicer to offer a borrower a short-term 

payment forbearance program based on an 

evaluation of an incomplete loss mitigation 

application. Such an incomplete loss 

mitigation application is still subject to the 

other obligations in § 1024.41, including the 

obligation in § 1024.41(b)(2) to review the 

application to determine if it is complete, the 

obligation in § 1024.41(b)(1) to exercise 

reasonable diligence in obtaining documents 

and information to complete a loss mitigation 

application (see comment 41(b)(1)–4.iii), and 

the obligation to provide the borrower with 

the § 1024.41(b)(2)(i)(B) notice that the 

servicer acknowledges the receipt of the 

application and has determined the 

application is incomplete. 

3. Payment forbearance and complete 

applications. Even if a servicer offers a 

borrower a payment forbearance program 

based on an evaluation of an incomplete loss 

mitigation application, the servicer must still 

comply with all the requirements in 

§ 1024.41 if the borrower completes his or 

her loss mitigation application. 

41(c)(2)(iv) Facially complete application. 

1. Reasonable opportunity. Section 

1024.41(c)(2)(iv) requires a servicer to treat a 

facially complete application as complete for 

the purposes of paragraphs (f)(2) and (g) until 

the borrower has been given a reasonable 

opportunity to complete the application. A 

reasonable opportunity requires the servicer 

to notify the borrower of what additional 

information or corrected documents are 

required, and to afford the borrower 

sufficient time to gather the information and 

documentation necessary to complete the 

application and submit it to the servicer. The 

amount of time that is sufficient for this 

purpose will depend on the facts and 

circumstances. 

2. Borrower fails to complete the 

application. If the borrower fails to complete 

the application within the timeframe 

provided under § 1024.41(c)(2)(iv), the 

application shall be considered incomplete. 

41(d) Denial of loan modification options. 

* * * * * 

4. Reasons listed. A servicer is required to 

disclose the actual reason or reasons for the 

denial. If a servicer’s systems establish a 

hierarchy of eligibility criteria and reach the 

first criterion that causes a denial but do not 

evaluate the borrower based on additional 

criteria, a servicer complies with the rule by 

providing only the reason or reasons with 

respect to which the borrower was actually 

evaluated and rejected as well as notification 

that the borrower was not evaluated on other 

criteria. A servicer is not required to 

determine or disclose whether a borrower 

would have been denied on the basis of 

additional criteria if such criteria were not 

actually considered. 

41(f) Prohibition on foreclosure referral. 

1. Prohibited activities. Section 1024.41(f) 

prohibits a servicer from making the first 

notice or filing required by applicable law for 

any judicial or non-judicial foreclosure 

process under certain circumstances. 

Whether a document is considered the first 

notice or filing is determined on the basis of 

foreclosure procedure under the applicable 

State law. 

i. Where foreclosure procedure requires a 

court action or proceeding, a document is 

considered the first notice or filing if it is the 

earliest document required to be filed with a 

court or other judicial body to commence the 

action or proceeding (e.g., a complaint, 

petition, order to docket, or notice of 

hearing). 

ii. Where foreclosure procedure does not 

require an action or court proceeding, such 

as under a power of sale, a document is 

considered the first notice or filing if it is the 

earliest document required to be recorded or 

published to initiate the foreclosure process. 

iii. Where foreclosure procedure does not 

require any court filing or proceeding, and 

also does not require any document to be 

recorded or published, a document is 

considered the first notice or filing if it is the 

earliest document that establishes, sets, or 

schedules a date for the foreclosure sale. 

iv. A document provided to the borrower 

but not initially required to be filed, 

recorded, or published is not considered the 

first notice or filing on the sole basis that the 

document must later be included as an 

attachment accompanying another document 

that is required to be filed, recorded, or 

published to carry out a foreclosure. 

* * * * * 

PART 1026—TRUTH IN LENDING 

(REGULATION Z) 

■ 12. The authority citation for part 

1026 continues to read as follows: 

Authority: 12 U.S.C. 2601, 2603–2605, 

2607, 2609, 2617, 5511, 5512, 5532, 5581; 15 

U.S.C. 1601 et seq. 

* * * * * 

Subpart C—Closed-End Credit 

■ 13. Section 1026.23 is amended by 

revising paragraph (a)(3)(ii) to read as 

follows: 

§ 1026.23 Right of rescission. 

(a) * * * 

(3) * * * 

(ii) For purposes of this paragraph 

(a)(3), the term ‘‘material disclosures’’ 

means the required disclosures of the 

annual percentage rate, the finance 

charge, the amount financed, the total of 

payments, the payment schedule, and 

the disclosures and limitations referred 

to in §§ 1026.32(c) and (d) and 

1026.43(g). 

* * * * * 

Subpart E—Special Rules for Certain 

Home Mortgage Transactions 

■ 14. Section 1026.31, as amended 

January 31, 2013, at 78 FR 6856 is 

amended by revising paragraphs (g), 

(h)(1)(iii)(A), and (h)(2)(iii)(A) to read as 

follows: 

§ 1026.31 General rules. 

* * * * * 

(g) Accuracy of annual percentage 

rate. For purposes of section 1026.32, 

the annual percentage rate shall be 

considered accurate, and may be used in 

determining whether a transaction is 

covered by section 1026.32, if it is 

accurate according to the requirements 

and within the tolerances under section 

1026.22 for closed-end credit 

transactions or 1026.6(a) for open-end 

credit plans. The finance charge 

tolerances for rescission under section 

1026.23(g) or (h) shall not apply for this 

purpose. 

(h) * * * 

(1) * * * 

(iii) * * * 

(A) Make the loan or credit plan 

satisfy the requirements of 15 U.S.C. 

1631–1651; or 

* * * * * 

(2) * * * 

(iii) * * * 

(A) Make the loan or credit plan 

satisfy the requirements of 15 U.S.C. 

1631–1651; or 

* * * * * 

■ 15. Section 1026.32 is amended by: 

■ a. Revising paragraph (a)(2)(iii), as 

amended January 31, 2013, at 78 FR 

6856; 

■ b. Revising paragraph (b)(1)(ii), as 

amended June 12, 2013, at 78 FR 35430; 

■ c. Revising paragraph (b)(1)(vi), as 

amended January 30, 2013, at 78 FR 

6408; 

■ d. Revising paragraph (b)(2)(ii), as 

amended June 12, 2013, at 78 FR 35430; 

and 

■ e. Revising paragraphs (b)(2)(vi), 

(b)(6)(ii), and (d)(1)(ii)(C), as amended 

January 31, 2013, at 78 FR 6856. 

The revisions read as follows: 

§ 1026.32 Requirements for high-cost 

mortgages. 

(a) * * * 

(2) * * * 

(iii) A transaction originated by a 

Housing Finance Agency, where the 

Housing Finance Agency is the creditor 

for the transaction; or 

* * * * * 

(b) * * * 


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(1) * * * 

(ii) All compensation paid directly or 

indirectly by a consumer or creditor to 

a loan originator, as defined in 

§ 1026.36(a)(1), that can be attributed to 

that transaction at the time the interest 

rate is set unless: 

(A) That compensation is paid by a 

consumer to a mortgage broker, as 

defined in § 1026.36(a)(2), and already 

has been included in points and fees 

under paragraph (b)(1)(i) of this section; 

(B) That compensation is paid by a 

mortgage broker, as defined in 

§ 1026.36(a)(2), to a loan originator that 

is an employee of the mortgage broker; 

(C) That compensation is paid by a 

creditor to a loan originator that is an 

employee of the creditor; or 

(D) That compensation is paid by a 

retailer of manufactured homes to its 

employee. 

* * * * * 

(vi) The total prepayment penalty, as 

defined in paragraph (b)(6)(i) or (ii) of 

this section, as applicable, incurred by 

the consumer if the consumer refinances 

the existing mortgage loan, or terminates 

an existing open-end credit plan in 

connection with obtaining a new 

mortgage loan, with the current holder 

of the existing loan or plan, a servicer 

acting on behalf of the current holder, 

or an affiliate of either. 

(2) * * * 

(ii) All compensation paid directly or 

indirectly by a consumer or creditor to 

a loan originator, as defined in 

§ 1026.36(a)(1), that can be attributed to 

that transaction at the time the interest 

rate is set unless: 

(A) That compensation is paid by a 

consumer to a mortgage broker, as 

defined in § 1026.36(a)(2), and already 

has been included in points and fees 

under paragraph (b)(2)(i) of this section; 

(B) That compensation is paid by a 

mortgage broker, as defined in 

§ 1026.36(a)(2), to a loan originator that 

is an employee of the mortgage broker; 

(C) That compensation is paid by a 

creditor to a loan originator that is an 

employee of the creditor; or 

(D) That compensation is paid by a 

retailer of manufactured homes to its 

employee. 

* * * * * 

(vi) The total prepayment penalty, as 

defined in paragraph (b)(6)(i) or (ii) of 

this section, as applicable, incurred by 

the consumer if the consumer refinances 

an existing closed-end credit transaction 

with an open-end credit plan, or 

terminates an existing open-end credit 

plan in connection with obtaining a new 

open-end credit plan, with the current 

holder of the existing transaction or 

plan, a servicer acting on behalf of the 

current holder, or an affiliate of either; 

* * * * * 

(6) * * * 

(ii) Open-end credit. For an open-end 

credit plan, prepayment penalty means 

a charge imposed by the creditor if the 

consumer terminates the open-end 

credit plan prior to the end of its term, 

other than a waived, bona fide thirdparty charge that the creditor imposes if 

the consumer terminates the open-end 

credit plan sooner than 36 months after 

account opening. 

* * * * * 

(d) * * * 

(1) * * * 

(ii) * * * 

(C) A loan that meets the criteria set 

forth in §§ 1026.43(f)(1)(i) through (vi) 

and 1026.43(f)(2), or the conditions set 

forth in § 1026.43(e)(6). 

* * * * * 

■ 16. Section 1026.35 is amended by 

revising paragraphs (b)(2)(i)(D), 

(b)(2)(iii)(A), and (b)(2)(iii)(D)(1) to read 

as follows: 

§ 1026.35 Requirements for higher-priced 

mortgage loans. 

* * * * * 

(b) * * * 

(2) * * * 

(i) * * * 

(D) A reverse mortgage transaction 

subject to § 1026.33. 

* * * * * 

(iii) * * * 

(A) During any of the three preceding 

calendar years, the creditor extended 

more than 50 percent of its total covered 

transactions, as defined by 

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

on properties that are located in 

counties that are either ‘‘rural’’ or 

‘‘underserved,’’ as set forth in paragraph 

(b)(2)(iv) of this section; 

* * * * * 

(D) * * * 

(1) Escrow accounts established for 

first-lien higher-priced mortgage loans 

on or after April 1, 2010, and before 

January 1, 2014; or 

* * * * * 

■ 17. Section 1026.36, as amended 

February 15, 2013, at 78 FR 11280, is 

amended by revising paragraphs 

(a)(1)(i)(A) and (B), adding paragraphs 

(a)(6), and (b), and revising paragraphs 

(f)(3)(i) introductory text, (f)(3)(ii), (i), 

and (j)(2) to read as follows: 

§ 1026.36 Prohibited acts or practices and 

certain requirements for credit secured by 

a dwelling. 

(a) * * * 

(1) * * * 

(i) * * * 

(A) A person who does not take a 

consumer credit application or offer or 

negotiate credit terms available from a 

creditor to that consumer selected based 

on the consumer’s financial 

characteristics, but who performs purely 

administrative or clerical tasks on behalf 

of a person who does engage in such 

activities. 

(B) An employee of a manufactured 

home retailer who does not take a 

consumer credit application, offer or 

negotiate credit terms, or advise a 

consumer on credit terms. 

* * * * * 

(6) Credit terms. For purposes of this 

section, the term ‘‘credit terms’’ 

includes rates, fees, and other costs. 

Credit terms are selected based on the 

consumer’s financial characteristics 

when those terms are selected based on 

any factors that may influence a credit 

decision, such as debts, income, assets, 

or credit history. 

* * * * * 

(b) Scope. Paragraphs (c)(1) and (2) of 

this section apply to closed-end 

consumer credit transactions secured by 

a consumer’s principal dwelling. 

Paragraph (c)(3) of this section applies 

to a consumer credit transaction secured 

by a dwelling. Paragraphs (d) through (i) 

of this section apply to closed-end 

consumer credit transactions secured by 

a dwelling. This section does not apply 

to a home equity line of credit subject 

to § 1026.40, except that paragraphs (h) 

and (i) of this section apply to such 

credit when secured by the consumer’s 

principal dwelling and paragraph (c)(3) 

applies to such credit when secured by 

a dwelling. Paragraphs (d) through (i) of 

this section do not apply to a loan that 

is secured by a consumer’s interest in a 

timeshare plan described in 11 U.S.C. 

101(53D). 

* * * * * 

(f) * * * 

(3) * * * 

(i) Obtain for any individual whom 

the loan originator organization hired on 

or after January 1, 2014 (or whom the 

loan originator organization hired before 

this date but for whom there were no 

applicable statutory or regulatory 

background standards in effect at the 

time of hire or before January 1, 2014, 

used to screen the individual) and for 

any individual regardless of when hired 

who, based on reliable information 

known to the loan originator 

organization, likely does not meet the 

standards under § 1026.36(f)(3)(ii), 

before the individual acts as a loan 

originator in a consumer credit 

transaction secured by a dwelling: 

* * * * * 


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(ii) Determine on the basis of the 

information obtained pursuant to 

paragraph (f)(3)(i) of this section and 

any other information reasonably 

available to the loan originator 

organization, for any individual whom 

the loan originator organization hired on 

or after January 1, 2014 (or whom the 

loan originator organization hired before 

this date but for whom there were no 

applicable statutory or regulatory 

background standards in effect at the 

time of hire or before January 1, 2014, 

used to screen the individual) and for 

any individual regardless of when hired 

who, based on reliable information 

known to the loan originator 

organization, likely does not meet the 

standards under this paragraph (f)(3)(ii), 

before the individual acts as a loan 

originator in a consumer credit 

transaction secured by a dwelling, that 

the individual loan originator: 

* * * * * 

(i) Prohibition on financing credit 

insurance. (1) A creditor may not 

finance, directly or indirectly, any 

premiums or fees for credit insurance in 

connection with a consumer credit 

transaction secured by a dwelling 

(including a home equity line of credit 

secured by the consumer’s principal 

dwelling). This prohibition does not 

apply to credit insurance for which 

premiums or fees are calculated and 

paid in full on a monthly basis. 

(2) For purposes of this paragraph (i): 

(i) ‘‘Credit insurance’’: 

(A) Means credit life, credit disability, 

credit unemployment, or credit property 

insurance, or any other accident, loss-ofincome, life, or health insurance, or any 

payments directly or indirectly for any 

debt cancellation or suspension 

agreement or contract, but 

(B) Excludes credit unemployment 

insurance for which the unemployment 

insurance premiums are reasonable, the 

creditor receives no direct or indirect 

compensation in connection with the 

unemployment insurance premiums, 

and the unemployment insurance 

premiums are paid pursuant to a 

separate insurance contract and are not 

paid to an affiliate of the creditor; 

(ii) A creditor finances premiums or 

fees for credit insurance if it provides a 

consumer the right to defer payment of 

a credit insurance premium or fee owed 

by the consumer beyond the monthly 

period in which the premium or fee is 

due; and 

(iii) Credit insurance premiums or 

fees are calculated on a monthly basis 

if they are determined mathematically 

by multiplying a rate by the actual 

monthly outstanding balance. 

(j) * * * 

(2) For purposes of this paragraph (j), 

‘‘depository institution’’ has the 

meaning in section 1503(3) of the SAFE 

Act, 12 U.S.C. 5102(3). For purposes of 

this paragraph (j), ‘‘subsidiary’’ has the 

meaning in section 3 of the Federal 

Deposit Insurance Act, 12 U.S.C. 1813. 

* * * * * 

■ 18. Section 1026.43, as added January 

30, 2013, at 78 FR 6408, is amended by 

revising paragraphs (a)(2) and (e)(4)(ii) 

introductory text and (e)(4)(ii)(C) to read 

as follows: 

§ 1026.43 Minimum standards for 

transactions secured by a dwelling. 

(a) * * * 

(2) A mortgage transaction secured by 

a consumer’s interest in a timeshare 

plan, as defined in 11 U.S.C. 101(53(D); 

or 

* * * * * 

(e) * * * 

(4) * * * 

(ii) Eligible loans. A qualified 

mortgage under this paragraph (e)(4) 

must be one of the following at 

consummation: 

* * * * * 

(C) A loan that is eligible to be 

guaranteed by the U.S. Department of 

Veterans Affairs; 

* * * * * 

■ 19. Appendix H to Part 1026, as 

amended February 14, 2013, at 78 FR 

10901, is amended by revising the entry 

for H–30(C) in the table of contents at 

the beginning of the appendix, and 

revising the heading of H–30(C) to read 

as follows: 

Appendix H to Part 1026—Closed-End 

Model Forms and Clauses 

* * * * * 

H–30(C) Sample Form of Periodic Statement 

for a Payment-Option Loan 

* * * * * 

■ 20. In Supplement I to Part 1026: 

■ a. Under Section 1026.25—Record 

Retention 

■ i. Under Paragraph 25(c)(2) Records 

related to requirements for loan 

originator compensation, as amended 

February 15, 2013, at 78 FR 11280, 

paragraph 1 is revised. 

■ ii. Under Paragraph 25(c)(3) Records 

related to minimum standards for 

transactions secured by a dwelling, as 

added January 30, 2013, at 78 FR 6408, 

paragraph 1 is revised. 

■ b. Under Section 1026.32— 

Requirements for High-Cost Mortgages: 

■ i. Under Paragraph 32(b)(1), as 

amended January 30, 2013, at 78 FR 

6408, paragraph 2 is added. 

■ ii. Under Paragraph 32(b)(1)(ii), as 

amended June 12, 2013, at 78 FR 35430, 

paragraph 5 is added. 

■ iii. Paragraph 32(b)(2) and paragraph 

1 are added. 

■ iv. Under Paragraph 32(b)(2)(i), as 

amended January 30, 2013, at 78 FR 

6408, paragraph 1 is revised. 

■ v. Under Paragraph 32(b)(2)(i)(D), as 

amended January 30, 2013, at 78 FR 

6408, paragraph 1 is revised. 

■ vi. Under Paragraph 32(d)(8)(ii), as 

amended January 30, 2013, at 78 FR 

6408, paragraph 1 is revised. 

■ c. Under Section 1026.34—Prohibited 

Acts or Practices in Connection with 

High-Cost Mortgages, under Paragraph 

34(a)(5)(v), as amended January 30, 

2013, at 78 FR 6408, paragraph 1 is 

revised. 

■ d. Under Section 1026.35— 

Requirements for Higher-Priced 

Mortgage Loans 

■ i. Under Paragraph 35(b)(2)(iii), 

paragraph 1 is revised. 

■ ii. Under Paragraph 35(b)(2)(iii)(D(1), 

paragraph 1 is revised. 

■ e. Under Section 1026.36—Prohibited 

Acts or Practices in Connection With 

Credit Secured by a Dwelling 

■ i. Under Paragraph 36(a), as amended 

February 15, 2013, at 78 FR 11280, 

paragraphs 1, 4, and 5 are revised. 

■ ii. Paragraph 36(a)(1)(i)(B) and 

paragraph 1 are added. 

■ iii. Under Paragraph 36(b), as 

amended February 15, 2013, at 78 FR 

11280, paragraph 1 is revised. 

■ iv. Under Paragraph 36(d)(1), as 

amended February 15, 2013, at 78 FR 

11280, paragraphs 1, 3, and 6 are 

revised. 

■ v. Under Paragraph 36(f)(3)(i), as 

amended February 15, 2013, at 78 FR 

11280, paragraphs 1 and 2 are revised. 

■ vi. Under Paragraph 36(f)(3)(ii), as 

amended February 15, 2013, at 78 FR 

11280, paragraphs 1 and 2 are revised. 

■ f. Under Section 1026.41—Periodic 

Statements for Residential Mortgage 

Loans 

■ i. Under Paragraph 41(b), as amended 

February 14, 2013, at 78 FR 10901, 

paragraph 1 is revised. 

■ ii. Under Paragraph 41(d), as 

amended February 14, 2013, at 78 FR 

10901, paragraph 3 is revised. 

■ iii. Under Paragraph 41(d)(4), as 

amended February 14, 2013, at 78 FR 

10901, paragraph 1 is revised. 

■ iv. Under Paragraph 41(e)(3), as 

amended February 14, 2013, at 78 FR 

10901, paragraph 1 is revised. 

■ v. Under Paragraph 41(e)(4)(iii), as 

amended February 14, 2013, at 78 FR 

10901, paragraph 1 is revised. 

■ g. Under Section 1026.43—Minimum 

Standards for Transactions Secured by 

a Dwelling: 

■ i. Under Paragraph 43(b)(8), as added 

January 30, 2013, at 78 FR 6408, 

paragraph 4 is revised. 


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■ ii. Under Paragraph 43(c)(3), as added 

January 30, 2013, at 78 FR 6408, 

paragraph 6 is revised. 

■ iii. Under Paragraph 43(e)(4), as 

added January 30, 2013, at 78 FR 6408, 

paragraph 1 is revised. 

■ iv. Under Paragraph 43(e)(5), as 

amended June 12, 2013, at 78 FR 35430, 

paragraph 8 is revised. 

■ v. Under Paragraph 43(f)(2)(iii), as 

added January 30, 2013, at 78 FR 6408, 

paragraph 1 is revised. 

The revisions read as follows: 

Supplement I to Part 1026—Official 

Interpretations 

* * * * * 

Subpart D—Miscellaneous 

Section 1026.25—Record Retention 

* * * * * 

25(c) Records related to certain 

requirements for mortgage loans. 

25(c)(2) Records related to requirements for 

loan originator compensation. 

1. * * * 

i. Records sufficient to evidence payment 

and receipt of compensation. Records are 

sufficient to evidence payment and receipt of 

compensation if they demonstrate the 

following facts: The nature and amount of the 

compensation; that the compensation was 

paid, and by whom; that the compensation 

was received, and by whom; and when the 

payment and receipt of compensation 

occurred. The compensation agreements 

themselves are to be retained in all 

circumstances consistent with 

§ 1026.25(c)(2)(i). The additional records that 

are sufficient necessarily will vary on a caseby-case basis depending on the facts and 

circumstances, particularly with regard to the 

nature of the compensation. For example, if 

the compensation is in the form of a salary, 

records to be retained might include copies 

of required filings under the Internal 

Revenue Code that demonstrate the amount 

of the salary. If the compensation is in the 

form of a contribution to or a benefit under 

a designated tax-advantaged plan, records to 

be maintained might include copies of 

required filings under the Internal Revenue 

Code or other applicable Federal law relating 

to the plan, copies of the plan and 

amendments thereto in which individual 

loan originators participate and the names of 

any loan originators covered by the plan, or 

determination letters from the Internal 

Revenue Service regarding the plan. If the 

compensation is in the nature of a 

commission or bonus, records to be retained 

might include a settlement agent ‘‘flow of 

funds’’ worksheet or other written record or 

a creditor closing instructions letter directing 

disbursement of fees at consummation. 

Where a loan originator is a mortgage broker, 

a disclosure of compensation or broker 

agreement required by applicable State law 

that recites the broker’s total compensation 

for a transaction is a record of the amount 

actually paid to the loan originator in 

connection with the transaction, unless 

actual compensation deviates from the 

amount in the disclosure or agreement. 

Where compensation has been decreased to 

defray the cost, in whole or part, of an 

unforeseen increase in an actual settlement 

cost over an estimated settlement cost 

disclosed to the consumer pursuant to 

section 5(c) of RESPA (or omitted from that 

disclosure), records to be maintained are 

those documenting the decrease in 

compensation and reasons for it. 

ii. Compensation agreement. For purposes 

of § 1026.25(c)(2), a compensation agreement 

includes any agreement, whether oral, 

written, or based on a course of conduct that 

establishes a compensation arrangement 

between the parties (e.g., a brokerage 

agreement between a creditor and a mortgage 

broker or provisions of employment contracts 

between a creditor and an individual loan 

originator employee addressing payment of 

compensation). Where a compensation 

agreement is oral or based on a course of 

conduct and cannot itself be maintained, the 

records to be maintained are those, if any, 

evidencing the existence or terms of the oral 

or course of conduct compensation 

agreement. Creditors and loan originators are 

free to specify what transactions are governed 

by a particular compensation agreement as 

they see fit. For example, they may provide, 

by the terms of the agreement, that the 

agreement governs compensation payable on 

transactions consummated on or after some 

future effective date (in which case, a prior 

agreement governs transactions 

consummated in the meantime). For 

purposes of applying the record retention 

requirement to transaction-specific 

commissions, the relevant compensation 

agreement for a given transaction is the 

agreement pursuant to which compensation 

for that transaction is determined. 

* * * * * 

25(c)(3) Records related to minimum 

standards for transactions secured by a 

dwelling. 

1. Evidence of compliance with repayment 

ability provisions. A creditor must retain 

evidence of compliance with § 1026.43 for 

three years after the date of consummation of 

a consumer credit transaction covered by that 

section. (See comment 25(c)(3)–2 for 

guidance on the retention of evidence of 

compliance with the requirement to offer a 

consumer a loan without a prepayment 

penalty under § 1026.43(g)(3).) If a creditor 

must verify and document information used 

in underwriting a transaction subject to 

§ 1026.43, the creditor shall retain evidence 

sufficient to demonstrate compliance with 

the documentation requirements of the rule. 

Although a creditor need not retain actual 

paper copies of the documentation used in 

underwriting a transaction subject to 

§ 1026.43, to comply with § 1026.25(c)(3), the 

creditor must be able to reproduce such 

records accurately. For example, if the 

creditor uses a consumer’s Internal Revenue 

Service (IRS) Form W–2 to verify the 

consumer’s income, the creditor must be able 

to reproduce the IRS Form W–2 itself, and 

not merely the income information that was 

contained in the form. 

* * * * * 

Subpart E—Special Rules for Certain 

Home Mortgage Transactions 

* * * * * 

Section 1026.32—Requirements for 

High-Cost Mortgages 

* * * * * 

32(b) Definitions. 

* * * * * 

Paragraph 32(b)(1). 

* * * * * 

2. Charges paid by parties other than the 

consumer. Under § 1026.32(b)(1), points and 

fees may include charges paid by third 

parties in addition to charges paid by the 

consumer. Specifically, charges paid by third 

parties that fall within the definition of 

points and fees set forth in § 1026.32(b)(1)(i) 

through (vi) are included in points and fees. 

In calculating points and fees in connection 

with a transaction, creditors may rely on 

written statements from the consumer or 

third party paying for a charge, including the 

seller, to determine the source and purpose 

of any third-party payment for a charge. 

i. Examples—included in points and fees. 

A creditor’s origination charge paid by a 

consumer’s employer on the consumer’s 

behalf that is included in the finance charge 

as defined in § 1026.4(a) or (b), must be 

included in points and fees under 

§ 1026.32(b)(1)(i), unless other exclusions 

under § 1026.4 or § 1026.32(b)(1)(i)(A) 

through (F) apply. In addition, consistent 

with comment 32(b)(1)(i)–1, a third-party 

payment of an item excluded from the 

finance charge under a provision of § 1026.4, 

while not included in the total points and 

fees under § 1026.32(b)(1)(i), may be 

included under § 1026.32(b)(1)(ii) through 

(vi). For example, a payment by a third party 

of a creditor-imposed fee for an appraisal 

performed by an employee of the creditor is 

included in points and fees under 

§ 1026.32(b)(1)(iii). See comment 32(b)(1)(i)– 

1. 

ii. Examples—not included in points and 

fees. A charge paid by a third party is not 

included in points and fees under 

§ 1026.32(b)(1)(i) if the exclusions to points 

and fees in § 1026.32(b)(1)(i)(A) through (F) 

apply. For example, certain bona fide thirdparty charges not retained by the creditor, 

loan originator, or an affiliate of either are 

excluded from points and fees under 

§ 1026.32(b)(1)(i)(D), regardless of whether 

those charges are paid by a third party or the 

consumer. 

iii. Seller’s points. Seller’s points, as 

described in § 1026.4(c)(5) and commentary, 

are excluded from the finance charge and 

thus are not included in points and fees 

under § 1026.32(b)(1)(i). However, charges 

paid by the seller for items listed in 

§ 1026.32(b)(1)(ii) through (vi) are included 

in points and fees. 

iv. Creditor-paid charges. Charges that are 

paid by the creditor, other than loan 

originator compensation paid by the creditor 

that is required to be included in points and 

fees under § 1026.32(b)(1)(ii), are excluded 

from points and fees. See 


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§§ 1026.32(b)(1)(i)(A), 1026.4(a), and 

comment 4(a)–(2). 

* * * * * 

Paragraph 32(b)(1)(ii). 

* * * * * 

4. Loan originator compensation— 

calculating loan originator compensation in 

connection with other charges or payments 

included in the finance charge or made to 

loan originators. 

* * * * * 

iii. Creditor’s origination fees—loan 

originator not employed by creditor. 

Compensation paid by a creditor to a loan 

originator who is not employed by the 

creditor is included in the calculation of 

points and fees under § 1026.32(b)(1)(ii). 

Such compensation is included in points and 

fees in addition to any origination fees or 

charges paid by the consumer to the creditor 

that are included in points and fees under 

§ 1026.32(b)(1)(i). For example, assume that a 

consumer pays to the creditor a $3,000 

origination fee and that the creditor pays a 

mortgage broker $1,500 in compensation 

attributed to the transaction. Assume further 

that the consumer pays no other charges to 

the creditor that are included in points and 

fees under § 1026.32(b)(1)(i) and that the 

mortgage broker receives no other 

compensation that is included in points and 

fees under § 1026.32(b)(1)(ii). For purposes of 

calculating points and fees, the $3,000 

origination fee is included in points and fees 

under § 1026.32(b)(1)(i) and the $1,500 in 

loan originator compensation is included in 

points and fees under § 1026.32(b)(1)(ii), 

equaling $4,500 in total points and fees, 

provided that no other points and fees are 

paid or compensation received. 

* * * * * 

5. Loan originator compensation— 

calculating loan originator compensation in 

manufactured home transactions. i. If a 

manufactured home retailer qualifies as a 

loan originator under § 1026.36(a)(1), then 

compensation that is paid by a consumer or 

creditor to the retailer for loan origination 

activities and that can be attributed to the 

transaction at the time the interest rate is set 

must be included in points and fees. For 

example, assume a manufactured home 

retailer takes a residential mortgage loan 

application and is entitled to receive at 

consummation a $1,000 commission from the 

creditor for taking the mortgage loan 

application. The $1,000 commission is loan 

originator compensation that must be 

included in points and fees. 

ii. If the creditor has knowledge that the 

sales price of a manufactured home includes 

loan originator compensation, then such 

compensation can be attributed to the 

transaction at the time the interest rate is set 

and therefore is included in points and fees 

under § 1026.32(b)(1)(ii). However, the 

creditor is not required to investigate the 

sales price of a manufactured home to 

determine if the sales price includes loan 

originator compensation. 

iii. As provided in § 1026.32(b)(1)(ii)(D), 

compensation paid by a manufactured home 

retailer to its employees is not included in 

points and fees under § 1026.32(b)(1)(ii). 

* * * * * 

Paragraph 32(b)(2). 

1. See comment 32(b)(1)–2 for guidance 

concerning the inclusion in points and fees 

of charges paid by parties other than the 

consumer. 

* * * * * 

Paragraph 32(b)(2)(i). 

1. Finance charge. The points and fees 

calculation under § 1026.32(b)(2) generally 

does not include items that are included in 

the finance charge but that are not known 

until after account opening, such as 

minimum monthly finance charges or 

charges based on account activity or 

inactivity. Transaction fees also generally are 

not included in the points and fees 

calculation, except as provided in 

§ 1026.32(b)(2)(vi). See comments 32(b)(1)–1 

and 32(b)(1)(i)–1 for additional guidance 

concerning the calculation of points and fees. 

* * * * * 

Paragraph 32(b)(2)(i)(D). 

1. For purposes of § 1026.32(b)(2)(i)(D), the 

term loan originator means a loan originator 

as that term is defined in § 1026.36(a)(1), 

without regard to § 1026.36(a)(2). See 

comments 32(b)(1)(i)(D)–1 through –4 for 

further guidance concerning the exclusion of 

bona fide third-party charges from points and 

fees. 

* * * * * 

Paragraph 32(d)(8)(ii). 

1. Failure to meet repayment terms. A 

creditor may terminate a loan or open-end 

credit agreement and accelerate the balance 

when the consumer fails to meet the 

repayment terms resulting in a default in 

payment under the agreement; a creditor may 

do so, however, only if the consumer actually 

fails to make payments resulting in a default 

in the agreement. For example, a creditor 

may not terminate and accelerate if the 

consumer, in error, sends a payment to the 

wrong location, such as a branch rather than 

the main office of the creditor. If a consumer 

files for or is placed in bankruptcy, the 

creditor may terminate and accelerate under 

§ 1026.32(d)(8)(ii) if the consumer fails to 

meet the repayment terms resulting in a 

default of the agreement. Section 

1026.32(d)(8)(ii) does not override any State 

or other law that requires a creditor to notify 

a consumer of a right to cure, or otherwise 

places a duty on the creditor before it can 

terminate a loan or open-end credit 

agreement and accelerate the balance. 

* * * * * 

Section 1026.34—Prohibited Acts or 

Practices in Connection With High-Cost 

Mortgages 

* * * * * 

34(a)(5) Pre-loan counseling. 

* * * * * 

Paragraph 34(a)(5)(v) Counseling fees. 

1. Financing. Section 1026.34(a)(5)(v) does 

not prohibit a creditor from financing the 

counseling fee as part of the transaction for 

a high-cost mortgage, if the fee is a bona fide 

third-party charge as provided by 

§ 1026.32(b)(1)(i)(D) and (b)(2)(i)(D). 

* * * * * 

Section 1026.35—Requirements for HigherPriced Mortgage Loans 

* * * * * 

35(b) Escrow accounts. 

* * * * * 

35(b)(2) Exemptions. 

* * * * * 

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

1. Requirements for exemption. Under 

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

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

establish an escrow account for taxes and 

insurance for a higher-priced mortgage loan, 

provided the following four conditions are 

satisfied when the higher-priced mortgage 

loan is consummated: 

i. During any of the three preceding 

calendar years, more than 50 percent of the 

creditor’s total first-lien covered transactions, 

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

properties located in counties that are either 

‘‘rural’’ or ‘‘underserved,’’ as set forth in 

§ 1026.35(b)(2)(iv). Pursuant to that section, a 

creditor may rely as a safe harbor on a list 

of counties published by the Bureau to 

determine whether counties in the United 

States are rural or underserved for a 

particular calendar year. Thus, for example, 

if a creditor originated 90 covered 

transactions, as defined by § 1026.43(b)(1), 

secured by a first lien, during 2011, 2012, or 

2013, the creditor meets this condition for an 

exemption in 2014 if at least 46 of those 

transactions in one of those three calendar 

years are secured by first liens on properties 

that are located in such counties. 

* * * * * 

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

1. Exception for certain accounts. Escrow 

accounts established for first-lien higherpriced mortgage loans for which applications 

were received on or after April 1, 2010, and 

before January 1, 2014, are not counted for 

purposes of § 1026.35(b)(2)(iii)(D). For 

applications received on and after January 1, 

2014, creditors, together with their affiliates, 

that establish new escrow accounts, other 

than those described in 

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

the exemption provided under 

§ 1026.35(b)(2)(iii). Creditors, together with 

their affiliates, that continue to maintain 

escrow accounts established for first-lien 

higher-priced mortgage loans for which 

applications were received on or after April 

1, 2010, and before January 1, 2014, still 

qualify for the exemption provided under 

§ 1026.35(b)(2)(iii) so long as they do not 

establish new escrow accounts for 

transactions for which they received 

applications on or after January 1, 2014, other 

than those described in 

§ 1026.35(b)(2)(iii)(D)(2), and they otherwise 

qualify under § 1026.35(b)(2)(iii). 

* * * * * 

Section 1026.36—Prohibited Acts or 

Practices in Connection With Credit Secured 

by a Dwelling 

36(a) Definitions. 

1. Meaning of loan originator. i. General. A. 

Section 1026.36(a) defines the set of activities 

or services any one of which, if done for or 

in the expectation of compensation or gain, 

makes the person doing such activities or 


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performing such services a loan originator, 

unless otherwise excluded. The scope of 

activities covered by the term loan originator 

includes: 

1. Referring a consumer to any person who 

participates in the origination process as a 

loan originator. Referring is an activity 

included under each of the activities of 

offering, arranging, or assisting a consumer in 

obtaining or applying to obtain an extension 

of credit. Referring includes any oral or 

written action directed to a consumer that 

can affirmatively influence the consumer to 

select a particular loan originator or creditor 

to obtain an extension of credit when the 

consumer will pay for such credit. See 

comment 36(a)–4 with respect to certain 

activities that do not constitute referring. 

2. Arranging a credit transaction, including 

initially contacting and orienting the 

consumer to a particular loan originator’s or 

creditor’s origination process or particular 

credit terms that are or may be available to 

that consumer selected based on the 

consumer’s financial characteristics, assisting 

the consumer to apply for credit, taking an 

application, offering particular credit terms 

to the consumer selected based on the 

consumer’s financial characteristics, 

negotiating credit terms, or otherwise 

obtaining or making an extension of credit. 

3. Assisting a consumer in obtaining or 

applying for consumer credit by advising on 

particular credit terms that are or may be 

available to that consumer based on the 

consumer’s financial characteristics, filling 

out an application form, preparing 

application packages (such as a credit 

application or pre-approval application or 

supporting documentation), or collecting 

application and supporting information on 

behalf of the consumer to submit to a loan 

originator or creditor. A person who, acting 

on behalf of a loan originator or creditor, 

collects information or verifies information 

provided by the consumer, such as by asking 

the consumer for documentation to support 

the information the consumer provided or for 

the consumer’s authorization to obtain 

supporting documents from third parties, is 

not collecting information on behalf of the 

consumer. See also comment 36(a)z4.i 

through iv with respect to application-related 

administrative and clerical tasks and 

comment 36(a)–1.v with respect to thirdparty advisors. 

4. Presenting particular credit terms for the 

consumer’s consideration that are selected 

based on the consumer’s financial 

characteristics, or communicating with a 

consumer for the purpose of reaching a 

mutual understanding about prospective 

credit terms. 

* * * * * 

4. * * * 

i. Application-related administrative and 

clerical tasks. The definition of loan 

originator does not include a loan originator’s 

or creditor’s employee who provides a credit 

application form from the entity for which 

the person works to the consumer for the 

consumer to complete or, without assisting 

the consumer in completing the credit 

application, processing or analyzing the 

information, or discussing particular credit 

terms that are or may be available from a 

creditor or loan originator to that consumer 

selected based on the consumer’s financial 

characteristics, delivers the credit application 

from a consumer to a loan originator or 

creditor. A person does not assist the 

consumer in completing the application if 

the person explains to the consumer filling 

out the application the contents of the 

application or where particular consumer 

information is to be provided, or generally 

describes the credit application process to a 

consumer without discussing particular 

credit terms that are or may be available from 

a creditor or loan originator to that consumer 

selected based on the consumer’s financial 

characteristics. 

ii. Responding to consumer inquiries and 

providing general information. The definition 

of loan originator does not include persons 

who: 

A. * * * 

B. As employees of a creditor or loan 

originator, provide loan originator or creditor 

contact information of the loan originator or 

creditor entity for which he or she works, or 

of a person who works for that the same 

entity to a consumer, provided that the 

person does not discuss particular credit 

terms that are or may be available from a 

creditor or loan originator to that consumer 

selected based on the consumer’s financial 

characteristics and does not direct the 

consumer, based on his or her assessment of 

the consumer’s financial characteristics, to a 

particular loan originator or particular 

creditor seeking to originate credit 

transactions to consumers with those 

financial characteristics; 

C. Describe other product-related services 

(for example, persons who describe optional 

monthly payment methods via telephone or 

via automatic account withdrawals, the 

availability and features of online account 

access, the availability of 24-hour customer 

support, or free mobile applications to access 

account information); or 

D. * * * 

iii. Loan processing. The definition of loan 

originator does not include persons who, 

acting on behalf of a loan originator or a 

creditor: 

A. * * * 

B. * * * 

C. Coordinate consummation of the credit 

transaction or other aspects of the credit 

transaction process, including by 

communicating with a consumer about 

process deadlines and documents needed at 

consummation, provided that any 

communication that includes a discussion 

about credit terms available from a creditor 

to that consumer selected based on the 

consumer’s financial characteristics only 

confirms credit terms already agreed to by 

the consumer; 

* * * * * 

iv. Underwriting, credit approval, and 

credit pricing. The definition of loan 

originator does not include persons who: 

A. * * * 

B. Approve particular credit terms or set 

particular credit terms available from a 

creditor to that consumer selected based on 

the consumer’s financial characteristics in 

offer or counter-offer situations, provided 

that only a loan originator communicates to 

or with the consumer regarding these credit 

terms, an offer, or provides or engages in 

negotiation, a counter-offer, or approval 

conditions; or 

* * * * * 

5. Compensation. 

* * * * * 

iv. Amounts for charges for services that 

are not loan origination activities. 

A. * * * 

B. Compensation includes any salaries, 

commissions, and any financial or similar 

incentive to an individual loan originator, 

regardless of whether it is labeled as payment 

for services that are not loan origination 

activities. 

* * * * * 

36(a)(1)(i)(B) Employee of a retailer of 

manufactured homes. 

1. The definition of loan originator does 

not include an employee of a manufactured 

home retailer that ‘‘assists’’ a consumer in 

obtaining or applying for consumer credit as 

defined in comment 36(a)–1.i.A.3, provided 

the employee does not advise the consumer 

on specific credit terms, or otherwise engage 

in loan originator activity as defined in 

§ 1026.36(a)(1). The following examples 

describe activities that, in the absence of 

other activities, do not define a manufactured 

home retailer employee as a loan originator: 

i. Generally describing the credit 

application process to a consumer without 

advising on credit terms available from a 

creditor. 

ii. Preparing residential mortgage loan 

packages, which means compiling and 

processing loan application materials and 

supporting documentation, and providing 

general application instructions to consumers 

so consumers can complete an application, 

without interacting or communicating with 

the consumer regarding transaction terms, 

but not filling out a consumer’s application, 

inputting the information into an online 

application or other automated system, or 

taking information from the consumer over 

the phone to complete the application. 

iii. Collecting information on behalf of the 

consumer with regard to a residential 

mortgage loan. Collecting information ‘‘on 

behalf of the consumer’’ would include 

gathering information or supporting 

documentation from third parties on behalf 

of the consumer to provide to the consumer, 

for the consumer then to provide in the 

application or for the consumer to submit to 

the loan originator or creditor. 

iv. Providing or making available general 

information about creditors or loan 

originators that may offer financing for 

manufactured homes in the consumer’s 

general area, when doing so does not 

otherwise amount to ‘‘referring’’ as defined in 

comment 36(a)–1.i.A.1. This includes making 

available, in a neutral manner, general 

brochures or information about the different 

creditors or loan originators that may offer 

financing to a consumer, but does not 

include recommending a particular creditor 

or loan originator or otherwise influencing 

the consumer’s decision. 

* * * * * 

36(b) Scope. 

1. Scope of coverage. Section 1026.36(c)(1) 

and (c)(2) applies to closed-end consumer 


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credit transactions secured by a consumer’s 

principal dwelling. Section 1026.36(c)(3) 

applies to a consumer credit transaction, 

including home equity lines of credit under 

§ 1026.40, secured by a consumer’s dwelling. 

Paragraphs (h) and (i) of § 1026.36 apply to 

home equity lines of credit under § 1026.40 

secured by a consumer’s principal dwelling. 

Paragraphs (d), (e), (f), (g), (h), and (i) of 

§ 1026.36 apply to closed-end consumer 

credit transactions secured by a dwelling. 

Closed-end consumer credit transactions 

include transactions secured by first or 

subordinate liens, and reverse mortgages that 

are not home equity lines of credit under 

§ 1026.40. See § 1026.36(b) for additional 

restrictions on the scope of § 1026.36, and 

§§ 1026.1(c) and 1026.3(a) and corresponding 

commentary for further discussion of 

extensions of credit subject to Regulation Z. 

* * * * * 

36(d) Prohibited payments to loan 

originators. 

* * * * * 

36(d)(1) Payments based on a term of a 

transaction. 

1. * * * 

ii. Single or multiple transactions. The 

prohibition on payment and receipt of 

compensation under § 1026.36(d)(1)(i) 

encompasses compensation that directly or 

indirectly is based on the terms of a single 

transaction of a single individual loan 

originator, the terms of multiple transactions 

by that single individual loan originator, or 

the terms of multiple transactions by 

multiple individual loan originators. 

Compensation to an individual loan 

originator that is based upon profits 

determined with reference to a mortgagerelated business is considered compensation 

that is based on the terms of multiple 

transactions by multiple individual loan 

originators. For clarification about the 

exceptions permitting compensation based 

upon profits determined with reference to 

mortgage-related business pursuant to either 

a designated tax-advantaged plan or a nondeferred profits-based compensation plan, 

see comment 36(d)(1)–3. For clarification 

about ‘‘mortgage-related business,’’ see 

comments 36(d)(1)–3.v.B and –3.v.E. 

A. Assume that a creditor pays a bonus to 

an individual loan originator out of a bonus 

pool established with reference to the 

creditor’s profits and the profits are 

determined with reference to the creditor’s 

revenue from origination of closed-end 

consumer credit transactions secured by a 

dwelling. In such instance, the bonus is 

considered compensation that is based on the 

terms of multiple transactions by multiple 

individual loan originators. Therefore, the 

bonus is prohibited under § 1026.36(d)(1)(i), 

unless it is otherwise permitted under 

§ 1026.36(d)(1)(iv). 

B. Assume that an individual loan 

originator’s employment contract with a 

creditor guarantees a quarterly bonus in a 

specified amount conditioned upon the 

individual loan originator meeting certain 

performance benchmarks (e.g., volume of 

originations monthly). A bonus paid 

following the satisfaction of those contractual 

conditions is not directly or indirectly based 

on the terms of a transaction by an individual 

loan originator, the terms of multiple 

transactions by that individual loan 

originator, or the terms of multiple 

transactions by multiple individual loan 

originators under § 1026.36(d)(1)(i) as 

clarified by this comment 36(d)(1)–1.ii, 

because the creditor is obligated to pay the 

bonus, in the specified amount, regardless of 

the terms of transactions of the individual 

loan originator or multiple individual loan 

originators and the effect of those terms of 

multiple transactions on the creditor’s 

profits. Because this type of bonus is not 

directly or indirectly based on the terms of 

multiple transactions by multiple individual 

loan originators, as described in 

§ 1026.36(d)(1)(i) (as clarified by this 

comment 36(d)(1)–1.ii), it is not subject to the 

10-percent total compensation limit 

described in § 1026.36(d)(1)(iv)(B)(1). 

iii. * * * 

* * * * * 

D. The fees and charges described above in 

paragraphs B and C can only be a term of a 

transaction if the fees or charges are required 

to be disclosed in the Good Faith Estimate, 

the HUD–1, or the HUD–1A (and 

subsequently in any integrated disclosures 

promulgated by the Bureau under TILA 

section 105(b) (15 U.S.C. 1604(b)) and RESPA 

section 4 (12 U.S.C. 2603) as amended by 

sections 1098 and 1100A of the Dodd-Frank 

Act). 

* * * * * 

3. Interpretation of § 1026.36(d)(1)(iii) and 

(iv). Subject to certain restrictions, 

§ 1026.36(d)(1)(iii) and § 1026.36(d)(1)(iv) 

permit contributions to or benefits under 

designated tax-advantaged plans and 

compensation under a non-deferred profitsbased compensation plan even if the 

contributions, benefits, or compensation, 

respectively, are based on the terms of 

multiple transactions by multiple individual 

loan originators. 

i. Designated tax-advantaged plans. 

Section 1026.36(d)(1)(iii) permits an 

individual loan originator to receive, and a 

person to pay, compensation in the form of 

contributions to a defined contribution plan 

or benefits under a defined benefit plan 

provided the plan is a designated taxadvantaged plan (as defined in 

§ 1026.36(d)(1)(iii)), even if contributions to 

or benefits under such plans are directly or 

indirectly based on the terms of multiple 

transactions by multiple individual loan 

originators. In the case of a designated taxadvantaged plan that is a defined 

contribution plan, § 1026.36(d)(1)(iii) does 

not permit the contribution to be directly or 

indirectly based on the terms of that 

individual loan originator’s transactions. A 

defined contribution plan has the meaning 

set forth in Internal Revenue Code section 

414(i), 26 U.S.C. 414(i). A defined benefit 

plan has the meaning set forth in Internal 

Revenue Code section 414(j), 26 U.S.C. 414(j). 

ii. Non-deferred profits-based 

compensation plans. As used in 

§ 1026.36(d)(1)(iv), a ‘‘non-deferred profitsbased compensation plan’’ is any 

compensation arrangement where an 

individual loan originator may be paid 

variable, additional compensation based in 

whole or in part on the mortgage-related 

business profits of the person paying the 

compensation, any affiliate, or a business 

unit within the organizational structure of 

the person or the affiliate, as applicable (i.e., 

depending on the level within the person’s 

or affiliate’s organization at which the nondeferred profits-based compensation plan is 

established). A non-deferred profits-based 

compensation plan does not include a 

designated tax-advantaged plan or other 

forms of deferred compensation that are not 

designated tax-advantaged plans, such as 

those created pursuant to Internal Revenue 

Code section 409A, 26 U.S.C. 409A. Thus, if 

contributions to or benefits under a 

designated tax-advantaged plan or 

compensation under another form of deferred 

compensation plan are determined with 

reference to the mortgage-related business 

profits of the person making the contribution, 

then the contribution, benefits, or other 

compensation, as applicable, are not 

permitted by § 1026.36(d)(1)(iv) (although, in 

the case of contributions to or benefits under 

a designated tax-advantaged plan, the 

benefits or contributions may be permitted by 

§ 1026.36(d)(1)(iii)). Under a non-deferred 

profits-based compensation plan, the 

individual loan originator may, for example, 

be paid directly in cash, stock, or other nondeferred compensation, and the 

compensation under the non-deferred profitsbased compensation plan may be determined 

by a fixed formula or may be at the discretion 

of the person (e.g., the person may elect not 

to pay compensation under a non-deferred 

profits-based compensation plan in a given 

year), provided the compensation is not 

directly or indirectly based on the terms of 

the individual loan originator’s transactions. 

As used in § 1026.36(d)(1)(iv) and this 

commentary, non-deferred profits-based 

compensation plans include, without 

limitation, bonus pools, profits pools, bonus 

plans, and profit-sharing plans. 

Compensation under a non-deferred profitsbased compensation plan could include, 

without limitation, annual or periodic 

bonuses, or awards of merchandise, services, 

trips, or similar prizes or incentives where 

the bonuses, contributions, or awards are 

determined with reference to the profits of 

the person, business unit, or affiliate, as 

applicable. As used in § 1026.36(d)(1)(iv) and 

this commentary, a business unit is a 

division, department, or segment within the 

overall organizational structure of the person 

or the person’s affiliate that performs discrete 

business functions and that the person or the 

affiliate treats separately for accounting or 

other organizational purposes. For example, 

a creditor that pays its individual loan 

originators bonuses at the end of a calendar 

year based on the creditor’s average net 

return on assets for the calendar year is 

operating a non-deferred profits-based 

compensation plan under § 1026.36(d)(1)(iv). 

A bonus that is paid to an individual loan 

originator from a source other than a nondeferred profits-based compensation plan (or 

a deferred compensation plan where the 

bonus is determined with reference to 

mortgage-related business profits), such as a 

retention bonus budgeted for in advance or 

a performance bonus paid out of a bonus 

pool set aside at the beginning of the 


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company’s annual accounting period as part 

of the company’s operating budget, does not 

violate the prohibition on payment of 

compensation based on the terms of multiple 

transactions by multiple individual loan 

originators under § 1026.36(d)(1)(i), as 

clarified by comment 36(d)(1)–1.ii; therefore, 

§ 1026.36(d)(1)(iv) does not apply to such 

bonuses. 

iii. Compensation that is not directly or 

indirectly based on the terms of multiple 

transactions by multiple individual loan 

originators. The compensation arrangements 

addressed in § 1026.36(d)(1)(iii) and (iv) are 

permitted even if they are directly or 

indirectly based on the terms of multiple 

transactions by multiple individual loan 

originators. See comment 36(d)(1)–1 for 

additional interpretation. If a loan originator 

organization’s revenues are exclusively 

derived from transactions subject to 

§ 1026.36(d) (whether paid by creditors, 

consumers, or both) and that loan originator 

organization pays its individual loan 

originators a bonus under a non-deferred 

profits-based compensation plan, the bonus 

is not directly or indirectly based on the 

terms of multiple transactions by multiple 

individual loan originators if 

§ 1026.36(d)(1)(i) is otherwise complied with. 

iv. Compensation based on terms of an 

individual loan originator’s transactions. 

Under both § 1026.36(d)(1)(iii), with regard to 

contributions made to a defined contribution 

plan that is a designated tax-advantaged plan, 

and § 1026.36(d)(1)(iv)(A), with regard to 

compensation under a non-deferred profitsbased compensation plan, the payment of 

compensation to an individual loan 

originator may not be directly or indirectly 

based on the terms of that individual loan 

originator’s transaction or transactions. 

Consequently, for example, where an 

individual loan originator makes loans that 

vary in their interest rate spread, the 

compensation payment may not take into 

account the average interest rate spread on 

the individual loan originator’s transactions 

during the relevant calendar year. 

v. Compensation under non-deferred 

profits-based compensation plans. Assuming 

that the conditions in § 1026.36(d)(1)(iv)(A) 

are met, § 1026.36(d)(1)(iv)(B)(1) permits 

certain compensation to an individual loan 

originator under a non-deferred profits-based 

compensation plan. Specifically, if the 

compensation is determined with reference 

to the profits of the person from mortgagerelated business, compensation under a nondeferred profits-based compensation plan is 

permitted provided the compensation does 

not, in the aggregate, exceed 10 percent of the 

individual loan originator’s total 

compensation corresponding to the time 

period for which compensation under the 

non-deferred profits-based compensation 

plan is paid. The compensation restrictions 

under § 1026.36(d)(1)(iv)(B)(1) are sometimes 

referred to in this commentary as the ‘‘10- 

percent total compensation limit’’ or the ‘‘10- 

percent limit.’’ 

A. Total compensation. For purposes of 

§ 1026.36(d)(1)(iv)(B)(1), the individual loan 

originator’s total compensation consists of 

the sum total of: (1) All wages and tips 

reportable for Medicare tax purposes in box 

5 on IRS form W–2 (or, if the individual loan 

originator is an independent contractor, 

reportable compensation on IRS form 1099– 

MISC) that are actually paid during the 

relevant time period (regardless of when the 

wages and tips are earned), except for any 

compensation under a non-deferred profitsbased compensation plan that is earned 

during a different time period (see comment 

36(d)(1)–3.v.C); (2) at the election of the 

person paying the compensation, all 

contributions that are actually made during 

the relevant time period by the creditor or 

loan originator organization to the individual 

loan originator’s accounts in designated taxadvantaged plans that are defined 

contribution plans (regardless of when the 

contributions are earned); and (3) at the 

election of the person paying the 

compensation, all compensation under a 

non-deferred profits-based compensation 

plan that is earned during the relevant time 

period, regardless of whether the 

compensation is actually paid during that 

time period (see comment 36(d)(1)–3.v.C). If 

an individual loan originator has some 

compensation that is reportable on the W–2 

and some that is reportable on the 1099– 

MISC, the total compensation is the sum total 

of what is reportable on each of the two 

forms. 

B. Profits of the Person. Under 

§ 1026.36(d)(1)(iv), a plan is a non-deferred 

profits-based compensation plan if 

compensation is paid, based in whole or in 

part, on the profits of the person paying the 

compensation. As used in § 1026.36(d)(1)(iv), 

‘‘profits of the person’’ include, as applicable 

depending on where the non-deferred profitsbased compensation plan is set, the profits of 

the person, the business unit to which the 

individual loan originators are assigned for 

accounting or other organizational purposes, 

or any affiliate of the person. Profits from 

mortgage-related business are profits 

determined with reference to revenue 

generated from transactions subject to 

§ 1026.36(d). Pursuant to § 1026.36(b) and 

comment 36(b)–1, § 1026.36(d) applies to 

closed-end consumer credit transactions 

secured by dwellings. This revenue includes, 

without limitation, and as applicable based 

on the particular sources of revenue of the 

person, business unit, or affiliate, origination 

fees and interest associated with dwellingsecured transactions for which individual 

loan originators working for the person were 

loan originators, income from servicing of 

such transactions, and proceeds of secondary 

market sales of such transactions. If the 

amount of the individual loan originator’s 

compensation under non-deferred profitsbased compensation plans paid for a time 

period does not, in the aggregate, exceed 10 

percent of the individual loan originator’s 

total compensation corresponding to the 

same time period, compensation under nondeferred profits-based compensation plans 

may be paid under § 1026.36(d)(1)(iv)(B)(1) 

regardless of whether or not it was 

determined with reference to the profits of 

the person from mortgage-related business. 

C. Time period for which the compensation 

under the non-deferred profits-based 

compensation plan is paid and to which the 

total compensation corresponds. Under 

§ 1026.36(d)(1)(iv)(B)(1), determination of 

whether payment of compensation under a 

non-deferred profits-based compensation 

plan complies with the 10-percent limit 

requires a calculation of the ratio of the 

compensation under the non-deferred profitsbased compensation plan (i.e., the 

compensation subject to the 10-percent limit) 

and the total compensation corresponding to 

the relevant time period. For compensation 

subject to the 10-percent limit, the relevant 

time period is the time period for which a 

person makes reference to profits in 

determining the compensation (i.e., when the 

compensation was earned). It does not matter 

whether the compensation is actually paid 

during that particular time period. For total 

compensation, the relevant time period is the 

same time period, but only certain types of 

compensation may be included in the total 

compensation amount for that time period 

(see comment 36(d)(1)–3.v.A). For example, 

assume that during calendar year 2014 a 

creditor pays an individual loan originator 

compensation in the following amounts: 

$80,000 in commissions based on the 

individual loan originator’s performance and 

volume of loans generated during the 

calendar year; and $10,000 in an employer 

contribution to a designated tax-advantaged 

defined contribution plan on behalf of the 

individual loan originator. The creditor 

desires to pay the individual loan originator 

a year-end bonus of $10,000 under a nondeferred profits-based compensation plan. 

The commissions are paid and employer 

contributions to the designated taxadvantaged defined contribution plan are 

made during calendar year 2014, but the 

year-end bonus will be paid in January 2015. 

For purposes of the 10-percent limit, the 

year-end bonus is counted toward the 10- 

percent limit for calendar year 2014, even 

though it is not actually paid until 2015. 

Therefore, for calendar year 2014 the 

individual loan originator’s compensation 

that is subject to the 10-percent limit would 

be $10,000 (i.e., the year-end bonus) and the 

total compensation would be $100,000 (i.e., 

the sum of the commissions, the designated 

tax-advantaged plan contribution (assuming 

the creditor elects to include it in total 

compensation for calendar year 2014), and 

the bonus (assuming the creditor elects to 

include it in total compensation for calendar 

year 2014)); the bonus would be permissible 

under § 1026.36(d)(1)(iv) because it does not 

exceed 10 percent of total compensation. The 

determination of total compensation 

corresponding to 2014 also would not take 

into account any compensation subject to the 

10-percent limit that is actually paid in 2014 

but is earned during a different calendar year 

(e.g., an annual bonus determined with 

reference to mortgage-related business profits 

for calendar year 2013 that is paid in January 

2014). If the employer contribution to the 

designated tax-advantaged plan is earned in 

2014 but actually made in 2015, however, it 

may not be included in total compensation 

for 2014. A company, business unit, or 

affiliate, as applicable, may pay 

compensation subject to the 10-percent limit 

during different time periods falling within 

its annual accounting period for keeping 

records and reporting income and expenses, 


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which may be a calendar year or a fiscal year 

depending on the annual accounting period. 

In such instances, however, the 10-percent 

limit applies both as to each time period and 

cumulatively as to the annual accounting 

period. For example, assume that a creditor 

uses a calendar-year accounting period. If the 

creditor pays an individual loan originator a 

bonus at the end of each quarter under a nondeferred profits-based compensation plan, 

the payment of each quarterly bonus is 

subject to the 10-percent limit measured with 

respect to each quarter. The creditor can also 

pay an annual bonus under the non-deferred 

profits-based compensation plan that does 

not exceed the difference of 10 percent of the 

individual loan originator’s total 

compensation corresponding to the calendar 

year and the aggregate amount of the 

quarterly bonuses. 

D. Awards of merchandise, services, trips, 

or similar prizes or incentives. If any 

compensation paid to an individual loan 

originator under § 1026.36(d)(1)(iv) consists 

of an award of merchandise, services, trips, 

or similar prize or incentive, the cash value 

of the award is factored into the calculation 

of the 10-percent total compensation limit. 

For example, during a given calendar year, 

individual loan originator A and individual 

loan originator B are each employed by a 

creditor and paid $40,000 in salary, and 

$45,000 in commissions. The creditor also 

contributes $5,000 to a designated taxadvantaged defined contribution plan for 

each individual loan originator during that 

calendar year, which the creditor elects to 

include in the total compensation amount. 

Neither individual loan originator is paid any 

other form of compensation by the creditor. 

In December of the calendar year, the creditor 

rewards both individual loan originators for 

their performance during the calendar year 

out of a bonus pool established with 

reference to the profits of the mortgage 

origination business unit. Individual loan 

originator A is paid a $10,000 cash bonus, 

meaning that individual loan originator A’s 

total compensation is $100,000 (assuming the 

creditor elects to include the bonus in the 

total compensation amount). Individual loan 

originator B is paid a $7,500 cash bonus and 

awarded a vacation package with a cash 

value of $3,000, meaning that individual loan 

originator B’s total compensation is $100,500 

(assuming the creditor elects to include the 

reward in the total compensation amount). 

Under § 1026.36(d)(1)(iv)(B)(1), individual 

loan originator A’s $10,000 bonus is 

permissible because the bonus would not 

constitute more than 10 percent of individual 

loan originator A’s total compensation for the 

calendar year. The creditor may not pay 

individual loan originator B the $7,500 bonus 

and award the vacation package, however, 

because the total value of the bonus and the 

vacation package would be $10,500, which is 

greater than 10 percent (10.45 percent) of 

individual loan originator B’s total 

compensation for the calendar year. One way 

to comply with § 1026.36(d)(1)(iv)(B)(1) 

would be if the amount of the bonus were 

reduced to $7,000 or less or the vacation 

package were structured such that its cash 

value would be $2,500 or less. 

E. Compensation determined only with 

reference to non-mortgage-related business 

profits. Compensation under a non-deferred 

profits-based compensation plan is not 

subject to the 10-percent total compensation 

limit under § 1026.36(d)(1)(iv)(B)(1) if the 

non-deferred profits-based compensation 

plan is determined with reference only to 

profits from business other than mortgagerelated business, as determined in 

accordance with reasonable accounting 

principles. Reasonable accounting principles 

reflect an accurate allocation of revenues, 

expenses, profits, and losses among the 

person, any affiliate of the person, and any 

business units within the person or affiliates, 

and are consistent with the accounting 

principles applied by the person, the affiliate, 

or the business unit with respect to, as 

applicable, its internal budgeting and 

auditing functions and external reporting 

requirements. Examples of external reporting 

and filing requirements that may be 

applicable to creditors and loan originator 

organizations are Federal income tax filings, 

Federal securities law filings, or quarterly 

reporting of income, expenses, loan 

origination activity, and other information 

required by government-sponsored 

enterprises. As used in 

§ 1026.36(d)(1)(iv)(B)(1), profits means 

positive profits or losses avoided or 

mitigated. 

F. Additional examples. 1. Assume that, 

during a given calendar year, a loan 

originator organization pays an individual 

loan originator employee $40,000 in salary 

and $125,000 in commissions, and makes a 

contribution of $15,000 to the individual 

loan originator’s 401(k) plan. At the end of 

the year, the loan originator organization 

wishes to pay the individual loan originator 

a bonus based on a formula involving a 

number of performance metrics, to be paid 

out of a profit pool established at the level 

of the company but that is determined in part 

with reference to the profits of the company’s 

mortgage origination unit. Assume that the 

loan originator organization derives revenues 

from sources other than transactions covered 

by § 1026.36(d). In this example, the 

performance bonus would be directly or 

indirectly based on the terms of multiple 

individual loan originators’ transactions as 

described in § 1026.36(d)(1)(i), because it is 

being determined with reference to profits 

from mortgage-related business. Assume, 

furthermore, that the loan originator 

organization elects to include the bonus in 

the total compensation amount for the 

calendar year. Thus, the bonus is permissible 

under § 1026.36(d)(1)(iv)(B)(1) if it does not 

exceed 10 percent of the loan originator’s 

total compensation, which in this example 

consists of the individual loan originator’s 

salary and commissions, the contribution to 

the 401(k) plan (if the loan originator 

organization elects to include the 

contribution in the total compensation 

amount), and the performance bonus. 

Therefore, if the loan originator organization 

elects to include the 401(k) contribution in 

total compensation for these purposes, the 

loan originator organization may pay the 

individual loan originator a performance 

bonus of up to $20,000 (i.e., 10 percent of 

$200,000 in total compensation). If the loan 

originator organization does not include the 

401(k) contribution in calculating total 

compensation, or the 401(k) contribution is 

actually made in January of the following 

calendar year (in which case it cannot be 

included in total compensation for the initial 

calendar year), the bonus may be up to 

$18,333.33. If the loan originator organization 

includes neither the 401(k) contribution nor 

the performance bonus in the total 

compensation amount, the bonus may not 

exceed $16,500. 

2. Assume that the compensation during a 

given calendar year of an individual loan 

originator employed by a creditor consists of 

only salary and commissions, and the 

individual loan originator does not 

participate in a designated tax-advantaged 

defined contribution plan. Assume further 

that the creditor uses a calendar-year 

accounting period. At the end of the calendar 

year, the creditor pays the individual loan 

originator two bonuses: A ‘‘performance’’ 

bonus based on the individual loan 

originator’s aggregate loan volume for a 

calendar year that is paid out of a bonus pool 

determined with reference to the profits of 

the mortgage origination business unit, and a 

year-end ‘‘holiday’’ bonus in the same 

amount to all company employees that is 

paid out of a company-wide bonus pool. 

Because the performance bonus is paid out 

of a bonus pool that is determined with 

reference to the profits of the mortgage 

origination business unit, it is compensation 

that is determined with reference to 

mortgage-related business profits, and the 

bonus is therefore subject to the 10-percent 

total compensation limit. If the companywide bonus pool from which the ‘‘holiday’’ 

bonus is paid is derived in part from profits 

of the creditor’s mortgage origination 

business unit, then the combination of the 

‘‘holiday’’ bonus and the performance bonus 

is subject to the 10-percent total 

compensation limit. The ‘‘holiday’’ bonus is 

not subject to the 10-percent total 

compensation limit if the bonus pool is 

determined with reference only to the profits 

of business units other than the mortgage 

origination business unit, as determined in 

accordance with reasonable accounting 

principles. If the ‘‘performance’’ bonus and 

the ‘‘holiday’’ bonus in the aggregate do not 

exceed 10 percent of the individual loan 

originator’s total compensation, the bonuses 

may be paid under § 1026.36(d)(1)(iv)(B)(1) 

without the necessity of determining from 

which bonus pool they were paid or whether 

they were determined with reference to the 

profits of the creditor’s mortgage origination 

business unit. 

G. Reasonable reliance by individual loan 

originator on accounting or statement by 

person paying compensation. An individual 

loan originator is deemed to comply with its 

obligations regarding receipt of compensation 

under § 1026.36(d)(1)(iv)(B)(1) if the 

individual loan originator relies in good faith 

on an accounting or a statement provided by 

the person who determined the individual 

loan originator’s compensation under a nondeferred profits-based compensation plan 

pursuant to § 1026.36(d)(1)(iv)(B)(1) and 

where the statement or accounting is 

provided within a reasonable time period 

following the person’s determination. 


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vi. Individual loan originators who 

originate ten or fewer transactions. Assuming 

that the conditions in § 1026.36(d)(1)(iv)(A) 

are met, § 1026.36(d)(1)(iv)(B)(2) permits 

compensation to an individual loan 

originator under a non-deferred profits-based 

compensation plan even if the payment or 

contribution is directly or indirectly based on 

the terms of multiple individual loan 

originators’ transactions if the individual is a 

loan originator (as defined in 

§ 1026.36(a)(1)(i)) for ten or fewer 

consummated transactions during the 12- 

month period preceding the compensation 

determination. For example, assume a loan 

originator organization employs two 

individual loan originators who originate 

transactions subject to § 1026.36 during a 

given calendar year. Both employees are 

individual loan originators as defined in 

§ 1026.36(a)(1)(ii), but only one of them 

(individual loan originator B) acts as a loan 

originator in the normal course of business, 

while the other (individual loan originator A) 

is called upon to do so only occasionally and 

regularly performs other duties (such as 

serving as a manager). In January of the 

following calendar year, the loan originator 

organization formally determines the 

financial performance of its mortgage 

business for the prior calendar year. Based on 

that determination, the loan originator 

organization on February 1 decides to pay a 

bonus to the individual loan originators out 

of a company bonus pool. Assume that, 

between February 1 of the prior calendar year 

and January 31 of the current calendar year, 

individual loan originator A was the loan 

originator for eight consummated 

transactions, and individual loan originator B 

was the loan originator for 15 consummated 

transactions. The loan originator organization 

may award the bonus to individual loan 

originator A under § 1026.36(d)(1)(iv)(B)(2). 

The loan originator organization may not 

award the bonus to individual loan originator 

B relying on the exception under 

§ 1026.36(d)(1)(iv)(B)(2) because it would not 

apply, although it could award a bonus 

pursuant to the 10-percent total 

compensation limit under 

§ 1026.36(d)(1)(iv)(B)(1) if the requirements 

of that provision are complied with. 

* * * * * 

6. Periodic changes in loan originator 

compensation and terms of transactions. 

Section 1026.36 does not limit a creditor or 

other person from periodically revising the 

compensation it agrees to pay a loan 

originator. However, the revised 

compensation arrangement must not result in 

payments to the loan originator that are based 

on the terms of a credit transaction. A 

creditor or other person might periodically 

review factors such as loan performance, 

transaction volume, as well as current market 

conditions for loan originator compensation, 

and prospectively revise the compensation it 

agrees to pay to a loan originator. For 

example, assume that during the first six 

months of the year, a creditor pays $3,000 to 

a particular loan originator for each loan 

delivered, regardless of the terms of the 

transaction. After considering the volume of 

business produced by that loan originator, 

the creditor could decide that as of July 1, it 

will pay $3,250 for each loan delivered by 

that particular loan originator, regardless of 

the terms of the transaction. No violation 

occurs even if the loans made by the creditor 

after July 1 generally carry a higher interest 

rate than loans made before that date, to 

reflect the higher compensation. 

* * * * * 

36(f) Loan originator qualification 

requirements. 

* * * * * 

Paragraph 36(f)(3). 

* * * * * 

Paragraph 36(f)(3)(i). 

1. Criminal and credit histories. Section 

1026.36(f)(3)(i) requires the loan originator 

organization to obtain, for any of its 

individual loan originator employees who is 

not required to be licensed and is not 

licensed as a loan originator pursuant to the 

SAFE Act, a criminal background check, a 

credit report, and information related to any 

administrative, civil, or criminal 

determinations by any government 

jurisdiction. The requirement applies to 

individual loan originator employees who 

were hired on or after January 1, 2014 (or 

whom the loan originator organization hired 

before this date but for whom there were no 

applicable statutory or regulatory background 

standards in effect at the time of hire or 

before January 1, 2014, used to screen the 

individual). A credit report may be obtained 

directly from a consumer reporting agency or 

through a commercial service. A loan 

originator organization with access to the 

NMLSR can meet the requirement for the 

criminal background check by reviewing any 

criminal background check it receives upon 

compliance with the requirement in 12 CFR 

1007.103(d)(1) and can meet the requirement 

to obtain information related to any 

administrative, civil, or criminal 

determinations by any government 

jurisdiction by obtaining the information 

through the NMLSR. Loan originator 

organizations that do not have access to these 

items through the NMLSR may obtain them 

by other means. For example, a criminal 

background check may be obtained from a 

law enforcement agency or commercial 

service. Information on any past 

administrative, civil, or criminal findings 

(such as from disciplinary or enforcement 

actions) may be obtained from the individual 

loan originator. 

2. Retroactive obtaining of information not 

required. Section 1026.36(f)(3)(i) does not 

require the loan originator organization to 

obtain the covered information for an 

individual whom the loan originator 

organization hired as a loan originator before 

January 1, 2014, and screened under 

applicable statutory or regulatory background 

standards in effect at the time of hire. 

However, if the individual subsequently 

ceases to be employed as a loan originator by 

that loan originator organization, and later 

resumes employment as a loan originator by 

that loan originator organization (or any other 

loan originator organization), the loan 

originator organization is subject to the 

requirements of § 1026.36(f)(3)(i). 

* * * * * 

Paragraph 36(f)(3)(ii). 

1. Scope of review. Section 1026.36(f)(3)(ii) 

requires the loan originator organization to 

review the information that it obtains under 

§ 1026.36(f)(3)(i) and other reasonably 

available information to determine whether 

the individual loan originator meets the 

standards in § 1026.36(f)(3)(ii). Other 

reasonably available information includes 

any information the loan originator 

organization has obtained or would obtain as 

part of a reasonably prudent hiring process, 

including information obtained from 

application forms, candidate interviews, 

other reliable information and evidence 

provided by a candidate, and reference 

checks. The requirement applies to 

individual loan originator employees who 

were hired on or after January 1, 2014 (or 

whom the loan originator organization hired 

before this date but for whom there were no 

applicable statutory or regulatory background 

standards in effect at the time of hire or 

before January 1, 2014, used to screen the 

individual). 

2. Retroactive determinations not required. 

Section 1026.36(f)(3)(ii) does not require the 

loan originator organization to review the 

covered information and make the required 

determinations for an individual whom the 

loan originator organization hired as a loan 

originator on or before January 1, 2014 and 

screened under applicable statutory or 

regulatory background standards in effect at 

the time of hire. However, if the individual 

subsequently ceases to be employed as a loan 

originator by that loan originator 

organization, and later resumes employment 

as a loan originator by that loan originator 

organization (or any other loan originator 

organization), the loan originator 

organization employing the individual is 

subject to the requirements of 

§ 1026.36(f)(3)(ii). 

* * * * * 

36(i) Prohibition on financing credit 

insurance. 

1. Financing credit insurance premiums or 

fees. In the case of single-premium credit 

insurance, a creditor violates § 1026.36(i) by 

adding the credit insurance premium or fee 

to the amount owed by the consumer at 

closing. In the case of monthly-pay credit 

insurance, a creditor violates § 1026.36(i) if, 

upon the close of the monthly period in 

which the premium or fee is due, the creditor 

includes the premium or fee in the amount 

owed by the consumer. 

* * * * * 

Section 1026.41—Periodic Statements for 

Residential Mortgage Loans 

* * * * * 

41(b) Timing of the periodic statement. 

1. Reasonably prompt time. Section 

1026.41(b) requires that the periodic 

statement be delivered or placed in the mail 

no later than a reasonably prompt time after 

the payment due date or the end of any 

courtesy period. Delivering, emailing or 

placing the periodic statement in the mail 

within four days of the close of the courtesy 

period of the previous billing cycle generally 

would be considered reasonably prompt. 

* * * * * 


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60450 Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Rules and Regulations 

41(d) Content and layout of the periodic 

statement. 

* * * * * 

3. Terminology. A servicer may use 

terminology other than that found on the 

sample periodic statements in appendix H– 

30, so long as the new terminology is 

commonly understood. For example, 

servicers may take into consideration 

regional differences in terminology and refer 

to the account for the collection of taxes and 

insurance, referred to in § 1026.41(d) as the 

‘‘escrow account,’’ as an ‘‘impound account.’’ 

* * * * * 

41(d)(4) Transaction Activity. 

1. Meaning. Transaction activity includes 

any transaction that credits or debits the 

amount currently due. This is the same 

amount that is required to be disclosed under 

§ 1026.41(d)(1)(iii). Examples of such 

transactions include, without limitation: 

* * * * * 

41(e)(3) Coupon book exemption. 

1. Fixed rate. For guidance on the meaning 

of ‘‘fixed rate’’ for purposes of 

§ 1026.41(e)(3), see § 1026.18(s)(7)(iii) and its 

commentary. 

* * * * * 

41(e)(4) Small servicers. 

* * * * * 

41(e)(4)(iii) Small servicer determination. 

1. Loans obtained by merger or acquisition. 

Any mortgage loans obtained by a servicer or 

an affiliate as part of a merger or acquisition, 

or as part of the acquisition of all of the assets 

or liabilities of a branch office of a creditor, 

should be considered mortgage loans for 

which the servicer or an affiliate is the 

creditor to which the mortgage loan is 

initially payable. A branch office means 

either an office of a depository institution 

that is approved as a branch by a Federal or 

State supervisory agency or an office of a forprofit mortgage lending institution (other 

than a depository institution) that takes 

applications from the public for mortgage 

loans. 

* * * * * 

Corrections to FR Doc. 2013–16962 

In FR Doc. 2013–16962 appearing on 

page 44685 in the Federal Register on 

Wednesday July 24, 2013, the following 

correction is made: 

Supplement I to Part 1026 [Corrected] 

1. On page 44725, in the second 

column, amendatory instruction 

11.A.i.b is corrected to read ‘‘Under 

Paragraph 41(e)(4)(iii) Small servicer 

determination, paragraph 2 is amended 

and paragraph 3 is added.’’ 

Section 1026.43—Minimum Standards for 

Transactions Secured by a Dwelling 

* * * * * 

43(b) Definitions. 

* * * * * 

43(b)(8) Mortgage-related obligations. 

* * * * * 

4. Mortgage insurance, guarantee, or 

similar charges. Section 1026.43(b)(8) 

includes in the evaluation of mortgagerelated obligations premiums or charges 

protecting the creditor against the consumer’s 

default or other credit loss. This includes all 

premiums or similar charges, whether 

denominated as mortgage insurance, 

guarantee, or otherwise, as determined 

according to applicable State or Federal law. 

For example, monthly ‘‘private mortgage 

insurance’’ payments paid to a nongovernmental entity, annual ‘‘guarantee fee’’ 

payments required by a Federal housing 

program, and a quarterly ‘‘mortgage 

insurance’’ payment paid to a State agency 

administering a housing program are all 

mortgage-related obligations for purposes of 

§ 1026.43(b)(8). Section 1026.43(b)(8) 

includes these charges in the definition of 

mortgage-related obligations if the creditor 

requires the consumer to pay them, even if 

the consumer is not legally obligated to pay 

the charges under the terms of the insurance 

program. For example, if a mortgage 

insurance program obligates the creditor to 

make recurring mortgage insurance 

payments, and the creditor requires the 

consumer to reimburse the creditor for such 

recurring payments, the consumer’s 

payments are mortgage-related obligations for 

purposes of § 1026.43(b)(8). However, if a 

mortgage insurance program obligates the 

creditor to make recurring mortgage 

insurance payments, and the creditor does 

not require the consumer to reimburse the 

creditor for the cost of the mortgage 

insurance payments, the recurring mortgage 

insurance payments are not mortgage-related 

obligations for purposes of § 1026.43(b)(8). 

* * * * * 

43(c) Repayment ability. 

* * * * * 

43(c)(3) Verification using third-party 

records. 

* * * * * 

6. Verification of current debt obligations. 

Section 1026.43(c)(3) does not require 

creditors to obtain additional records to 

verify the existence or amount of obligations 

shown on a consumer’s credit report or listed 

on the consumer’s application, absent 

circumstances described in comment 

43(c)(3)–3. Under § 1026.43(c)(3)(iii), if a 

creditor relies on a consumer’s credit report 

to verify a consumer’s current debt 

obligations and the consumer’s application 

lists a debt obligation not shown on the 

credit report, the creditor may consider the 

existence and amount of the obligation as it 

is stated on the consumer’s application. The 

creditor is not required to further verify the 

existence or amount of the obligation, absent 

circumstances described in comment 

43(c)(3)–3. 

* * * * * 

43(e) Qualified mortgages. 

* * * * * 

43(e)(4) Qualified mortgage defined— 

special rules. 

1. Alternative definition. Subject to the 

sunset provided under § 1026.43(e)(4)(iii), 

§ 1026.43(e)(4) provides an alternative 

definition of qualified mortgage to the 

definition provided in § 1026.43(e)(2). To be 

a qualified mortgage under § 1026.43(e)(4), 

the transaction must satisfy the requirements 

under § 1026.43(e)(2)(i) through (iii), in 

addition to being one of the types of loans 

specified in § 1026.43(e)(4)(ii)(A) through (E). 

* * * * * 

Paragraph 43(e)(5). 

* * * * * 

8. Transfer to another qualifying creditor. 

Under § 1026.43(e)(5)(ii)(B), a qualified 

mortgage under § 1026.43(e)(5) may be sold, 

assigned, or otherwise transferred at any time 

to another creditor that meets the 

requirements of § 1026.43(e)(5)(i)(D). That 

section requires that a creditor, during the 

preceding calendar year, together with all 

affiliates, originated 500 or fewer first-lien 

covered transactions and had total assets less 

than $2 billion (as adjusted for inflation) at 

the end of the preceding calendar year. A 

qualified mortgage under § 1026.43(e)(5) 

transferred to a creditor that meets these 

criteria would retain its qualified mortgage 

status even if it is transferred less than three 

years after consummation. 

* * * * * 

43(f) Balloon-Payment qualified mortgages 

made by certain creditors. 

* * * * * 

Paragraph 43(f)(2)(iii). 

1. Supervisory sales. Section 

1026.43(f)(2)(iii) facilitates sales that are 

deemed necessary by supervisory agencies to 

revive troubled creditors and resolve failed 

creditors. A balloon-payment qualified 

mortgage under § 1026.43(f)(1) retains its 

qualified mortgage status if it is sold, 

assigned, or otherwise transferred to another 

person pursuant to: (1) A capital restoration 

plan or other action under 12 U.S.C. 1831o; 

(2) the actions or instructions of any person 

acting as conservator, receiver, or bankruptcy 

trustee; (3) an order of a State or Federal 

government agency with jurisdiction to 

examine the creditor pursuant to State or 

Federal law; or (4) an agreement between the 

creditor and such an agency. A balloonpayment qualified mortgage under 

§ 1026.43(f)(1) that is sold, assigned, or 

otherwise transferred under these 

circumstances retains its qualified mortgage 

status regardless of how long after 

consummation it is sold and regardless of the 

size or other characteristics of the transferee. 

Section 1026.43(f)(2)(iii) does not apply to 

transfers done to comply with a generally 

applicable regulation with future effect 

designed to implement, interpret, or 

prescribe law or policy in the absence of a 

specific order by or a specific agreement with 

a governmental agency described in 

§ 1026.43(f)(2)(iii) directing the sale of one or 

more qualified mortgages under 

§ 1026.43(f)(1) held by the creditor or one of 

the other circumstances listed in 

§ 1026.43(f)(2)(iii). For example, a balloonpayment qualified mortgage under 

§ 1026.43(f)(1) that is sold pursuant to a 

capital restoration plan under 12 U.S.C. 

1831o would retain its status as a qualified 

mortgage following the sale. However, if the 

creditor simply chose to sell the same 

qualified mortgage as one way to comply 

with general regulatory capital requirements 

in the absence of supervisory action or 

agreement the transaction would lose its 

status as a qualified mortgage following the 


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Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Rules and Regulations 60451 

sale unless it qualifies under another 

definition of qualified mortgage. 

* * * * * 

Dated: September 12, 2013. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

[FR Doc. 2013–22752 Filed 9–19–13; 4:15 pm] 

BILLING CODE 4810–AM–P 


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