```

[Federal Register Volume 79, Number 212 (Monday, November 3, 2014)]
[Rules and Regulations]
[Pages 65299-65325]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-25503]

[[Page 65299]]

Vol. 79

Monday,

No. 212

November 3, 2014

Part II

 Bureau of Consumer Financial Protection

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12 CFR Part 1026

 Amendments to the 2013 Mortgage Rules Under the Truth in Lending Act 
(Regulation Z); Final Rule

Federal Register / Vol. 79 , No. 212 / Monday, November 3, 2014 / 
Rules and Regulations

[[Page 65300]]

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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

[Docket No. CFPB-2014-0009]
RIN 3170-AA43

Amendments to the 2013 Mortgage Rules Under the Truth in Lending 
Act (Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule; official interpretations.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
amending certain mortgage rules issued in 2013. The final rule provides 
an alternative small servicer definition for nonprofit entities that 
meet certain requirements and amends the existing exemption from the 
ability-to-repay rule for nonprofit entities that meet certain 
requirements. The final rule also provides a cure mechanism for the 
points and fees limit that applies to qualified mortgages.

DATES: Effective dates: The final rule is effective on November 3, 
2014, except amendatory instruction 5, which is effective August 1, 
2015. For additional discussion regarding the effective date of the 
rule, see section VI of the SUPPLEMENTARY INFORMATION below.
    Applicability dates: The amendments to Sec.  1026.43 and commentary 
to Sec.  1026.43 in Supplement I to part 1026, other than amendatory 
instruction 5, apply to transactions consummated on or after November 
3, 2014.

FOR FURTHER INFORMATION CONTACT: Pedro De Oliveira, Counsel; William R. 
Corbett, Nicholas Hluchyj, and Priscilla Walton-Fein, Senior Counsels, 
Office of Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION: 

I. Summary of the 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 Dodd-Frank Wall Street Reform and Consumer Protection 
Act (Dodd-Frank Act), Public Law 111-203, 124 Stat. 1376 (2010).\1\ The 
Bureau clarified and revised those rules through notice and comment 
rulemaking during the summer and fall of 2013. The purpose of those 
updates was to address important questions raised by industry, consumer 
groups, and other stakeholders. On April 30, 2014, the Bureau proposed 
several additional amendments to the regulations adopted by the Bureau 
in the 2013 Title XIV Final Rules to revise regulatory provisions and 
official interpretations primarily relating to the Regulation Z 
ability-to-repay/qualified mortgage requirements and servicing rules, 
and sought comment on additional issues. The proposal was published in 
the Federal Register on May 6, 2014. See 79 FR 25730 (May 6, 2014).
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    \1\ Specifically, on January 10, 2013, the Bureau issued Escrow 
Requirements Under the Truth in Lending Act (Regulation Z), 78 FR 
4725 (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 6855 (Jan. 
31, 2013) (2013 HOEPA Final Rule), and Ability to Repay and 
Qualified Mortgage Standards Under the Truth in Lending Act 
(Regulation Z), 78 FR 6407 (Jan. 30, 2013) (January 2013 ATR Final 
Rule). The Bureau concurrently issued a proposal to amend the 
January 2013 ATR Final Rule, and a final rule related to the 
proposal was issued on May 29, 2013. See 78 FR 6621 (Jan. 30, 2013) 
(January 2013 ATR Proposal) and 78 FR 35429 (June 12, 2013) (May 
2013 ATR Final Rule). On January 17, 2013, the Bureau issued the 
Mortgage Servicing Rules under the Real Estate Settlement Procedures 
Act (Regulation X), 78 FR 10695 (Feb. 14, 2013) and the Mortgage 
Servicing Rules under the Truth in Lending Act (Regulation Z), 78 FR 
10901 (Feb. 14, 2013) (collectively, 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 Valuations Final Rule) and, 
jointly with other agencies, issued Appraisals for Higher-Priced 
Mortgage Loans (Regulation Z), 78 FR 10367 (Feb. 13, 2013) (2013 
Interagency Appraisals Final Rule). On January 20, 2013, the Bureau 
issued the Loan Originator Compensation Requirements under the Truth 
in Lending Act (Regulation Z), 78 FR 11279 (Feb. 15, 2013) (2013 
Loan Originator Final Rule).
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    Specifically, the Bureau proposed three amendments to Regulation Z:
     To provide an alternative definition of the term ``small 
servicer,'' which would apply to certain nonprofit entities that 
service for a fee loans on behalf of other nonprofit chapters of the 
same organization. A ``small servicer'' is exempt from certain 
requirements that apply to servicers under the Bureau's Regulations Z 
(12 CFR part 1026) and X (12 CFR part 1024). The Bureau proposed this 
change in Regulation Z, but the change would also affect several 
provisions of Regulation X, which cross-reference the Regulation Z 
small servicer definition.
     To amend the Regulation Z ability-to-repay requirements to 
provide that certain non-interest bearing, contingent subordinate liens 
originated by nonprofit creditors will not be counted towards the 
credit extension limit that applies to the nonprofit exemption from the 
ability-to-repay requirements.
     To provide a limited, post-consummation cure mechanism for 
loans that exceed the points and fees limit for qualified mortgages, 
but that meet the other requirements for being a qualified mortgage at 
consummation.
    The Bureau is issuing a final rule with respect to these proposals. 
With respect to the proposals related to nonprofit servicers and the 
nonprofit exemption from the ability-to-repay rule, the Bureau is 
finalizing those provisions as proposed, with minor technical revisions 
to the nonprofit servicer provision. The Bureau is generally finalizing 
the points and fees cure provision as proposed but with certain 
modifications to address concerns raised by commenters.
    The proposal sought comment on issues related to a possible cure 
for the debt-to-income ratio limit that applies to certain qualified 
mortgages and to the credit extension limit that applies to small 
creditor exemptions and special provisions in certain of the 
regulations adopted by the Bureau in the 2013 Title XIV Mortgage Rules. 
Those issues are not addressed in this final rule. The Bureau is 
considering comments submitted on those issues and whether to address 
those issues in a future rulemaking.

II. Background

    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 Dodd-Frank Act, which 
was signed into law on July 21, 2010. In the Dodd-Frank Act, Congress 
established the Bureau and generally consolidated the rulemaking 
authority for Federal consumer financial laws, including the Truth in 
Lending Act (TILA) and the Real Estate Settlement Procedures Act 
(RESPA), in the Bureau.\2\ 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.\3\
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    \2\ See, e.g., sections 1011 and 1021 of the Dodd-Frank Act, 12 
U.S.C. 5491 and 5511 (establishing and setting forth the purpose, 
objectives, and functions of the Bureau); section 1061 of the Dodd-
Frank Act, 12 U.S.C. 5581 (consolidating certain rulemaking 
authority for Federal consumer financial laws in the Bureau); 
section 1100A of the Dodd-Frank Act (codified in scattered sections 
of 15 U.S.C.) (similarly consolidating certain rulemaking authority 
in the Bureau). But see Section 1029 of the Dodd-Frank Act, 12 
U.S.C. 5519 (subject to certain exceptions, excluding from the 
Bureau's authority 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).
    \3\ See title XIV of the Dodd-Frank Act, Public Law 111-203, 124 
Stat. 1376 (2010) (codified in scattered sections of 12 U.S.C., 15 
U.S.C., and 42 U.S.C.).

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[[Page 65301]]

    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 date.\4\ 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. Those rules included 
the January 2013 ATR Final Rule and the 2013 Mortgage Servicing Final 
Rules. Pursuant to the Dodd-Frank Act, which permitted a maximum of one 
year for implementation, the January 2013 ATR Final Rule and the 2013 
Mortgage Servicing Final Rules had effective dates of January 10, 2014.
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    \4\ See section 1400(c) of the Dodd-Frank Act, 15 U.S.C. 1601 
note.
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    Concurrent with the January 2013 ATR Final Rule, on January 10, 
2013, the Bureau issued proposed amendments to the rule (the January 
2013 ATR Proposal), which the Bureau adopted on May 29, 2013 (the May 
2013 ATR Final Rule). 78 FR 6621 (Jan. 30, 2013); 78 FR 35429 (June 12, 
2013). The Bureau issued additional corrections and clarifications to 
the provisions adopted by the Bureau in the 2013 Mortgage Servicing 
Final Rules and the May 2013 ATR Final Rule in the summer and fall of 
2013.\5\ This final rule concerns additional revisions to the new 
rules. The purpose of these updates is to address important questions 
raised by industry, consumer groups, or other stakeholders.
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    \5\ 78 FR 44685 (July 24, 2013) (clarifying which mortgages to 
consider in determining small servicer status and the application of 
the small servicer exemption with regard to servicer/affiliate and 
master servicer/subservicer relationships); 78 FR 45842 (July 30, 
2013); 78 FR 60381 (Oct. 1, 2013) (revising exceptions available to 
small creditors operating predominantly in ``rural'' or 
``underserved'' areas); 78 FR 62993 (Oct. 23, 2013) (clarifying 
proper compliance regarding servicing requirements when a consumer 
is in bankruptcy or sends a cease communication request under the 
Fair Debt Collection Practice Act).
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III. Comments

    On May 6, 2014, the Bureau published a proposal in the Federal 
Register to amend certain aspects of the Regulation Z ability-to-repay/
qualified mortgage requirements and servicing rules. See 79 FR 25730 
(May 6, 2014). The comment period closed on June 5, 2014.\6\ In 
response to the proposal, the Bureau received more than 40 comments 
from consumer groups, creditors, industry trade associations, and 
others. As discussed in more detail below, the Bureau has considered 
these comments in adopting this final rule.
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    \6\ The proposal also sought comment on additional issues 
relating to qualified mortgage debt-to-income ratio overages and the 
credit extension limit for the small creditor definition. The 
comment period for those aspects of the proposal closed on July 7, 
2014. As noted above, the Bureau is not addressing those issues 
through this final rule.
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IV. Legal Authority

    The Bureau is issuing this final rule pursuant to its authority 
under 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 (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.'' Section 1061 of the Dodd-Frank Act also 
transferred to the Bureau all of the Department of Housing and Urban 
Development's (HUD's) consumer protection functions relating to RESPA. 
Title X of the Dodd-Frank Act, including section 1061 of the Dodd-Frank 
Act, along with TILA, RESPA, and certain subtitles and provisions of 
title XIV of the Dodd-Frank Act, are Federal consumer financial 
laws.\7\
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    \7\ Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14) 
(defining ``Federal consumer financial law'' to include the 
``enumerated consumer laws,'' the provisions of title X of the Dodd-
Frank Act, and the laws for which authorities are transferred under 
title X subtitles F and H 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), 12 U.S.C. 
5481(12) note (defining ``enumerated consumer laws'' to include 
certain subtitles and provisions of Dodd-Frank Act title XIV); Dodd-
Frank Act section 1061(b)(7), 12 U.S.C. 5581(b)(7) (transferring to 
the Bureau all of HUD's consumer protection functions relating to 
RESPA).
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A. TILA

    Section 105(a) of TILA authorizes the Bureau to prescribe 
regulations to carry out the purposes of TILA. 15 U.S.C. 1604(a). 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 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 added by the Dodd-Frank 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, or abusive. 15 U.S.C. 
1639b(a)(2).
    Section 105(f) of TILA authorizes the Bureau to exempt from all or 
part of TILA a 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. 15 U.S.C. 1604(f)(1). That 
determination must consider:
     The loan amount and whether TILA's provisions ``provide a 
benefit to the consumers who are parties to such transactions'';
     The extent to which TILA requirements ``complicate, 
hinder, or make more expensive the credit process for the class of 
transactions'';
     The borrowers' ``status,'' including their ``related 
financial arrangements,'' their financial sophistication relative to 
the type of transaction, and the importance to the borrowers of the 
credit, related supporting property, and TILA coverage;
     Whether the loan is secured by the consumer's principal 
residence; and
     Whether consumer protection would be undermined by such an 
exemption.

15 U.S.C. 1604(f)(2).
    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; are 
necessary and appropriate to effectuate the purposes of the ability-to-
repay and residential mortgage loan origination requirements; prevent 
circumvention or evasion thereof; or 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 such purposes. 15 U.S.C. 1639c(b)(3)(A).

[[Page 65302]]

B. RESPA

    Section 19(a) of RESPA 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 RESPA's consumer 
protection purposes. 12 U.S.C. 2617(a). In addition, section 6(j)(3) of 
RESPA authorizes the Bureau to establish any requirements necessary to 
carry out section 6 of RESPA, and section 6(k)(1)(E) of RESPA 
authorizes the Bureau to prescribe regulations that are appropriate to 
carry out RESPA's consumer protection purposes. 12 U.S.C. 2605(j)(3) 
and (k)(1)(E). The consumer protection purposes of RESPA include 
responding to borrower requests and complaints in a timely manner, 
maintaining and providing accurate information, helping borrowers avoid 
unwarranted or unnecessary costs and fees, and facilitating review for 
foreclosure avoidance options.

C. The Dodd-Frank Act

    Section 1405(b) of the Dodd-Frank Act provides that, ``in order to 
improve consumer awareness and understanding of transactions involving 
residential mortgage loans through the use of disclosures,'' the Bureau 
may exempt from disclosure requirements, ``in whole or in part . . . 
any class of residential mortgage loans'' if the Bureau determines that 
such exemption ``is in the interest of consumers and in the public 
interest.'' 15 U.S.C. 1601 note.\8\ Notably, the authority granted by 
section 1405(b) applies to ``disclosure requirements'' generally, and 
is not limited to a specific statute or statutes. Accordingly, Dodd-
Frank Act section 1405(b) is a broad source of authority for exemptions 
from the disclosure requirements of TILA and RESPA.
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    \8\ ``Residential mortgage loan'' is generally defined as any 
consumer credit transaction (other than open-end credit plans) that 
is secured by a mortgage (or equivalent security interest) on ``a 
dwelling or on residential real property that includes a dwelling'' 
(except, in certain instances, timeshare plans). 15 U.S.C. 
1602(cc)(5).
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    Moreover, 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). Accordingly, the Bureau is 
exercising its authority under Dodd-Frank Act section 1022(b) to 
prescribe rules that carry out the purposes and objectives of TILA, 
RESPA, title X of the Dodd-Frank Act, and certain enumerated subtitles 
and provisions of title XIV of the Dodd-Frank Act, and to prevent 
evasion of those laws.
    The Bureau is amending rules that implement certain Dodd-Frank Act 
provisions. In particular, the Bureau is amending provisions of 
Regulation Z (and, by reference, Regulation X) adopted by the Bureau in 
the 2013 Mortgage Servicing Final Rules (including July 2013 amendments 
thereto), the January 2013 ATR Final Rule, and the May 2013 ATR Final 
Rule.

V. Section-by-Section Analysis

Section 1026.41 Periodic Statements for Residential Mortgage Loans

41(e) Exemptions
41(e)(4) Small Servicers
The Bureau's Proposal
    The Bureau proposed to revise the scope of the exemption for small 
servicers in Sec.  1026.41(e)(4)(ii) and incorporated by cross-
reference in certain provisions of Regulation X. The proposal would 
have added an alternative definition of small servicer in Sec.  
1026.41(e)(4)(ii)(C), which would apply to certain nonprofit entities 
that service for a fee only loans for which the servicer or an 
associated nonprofit entity is the creditor. The proposal also would 
have made conforming changes to Sec.  1026.41(e)(4)(ii) and (iii) and 
associated commentary.
    Currently, Regulation Z exempts small servicers from certain 
mortgage servicing requirements. Small servicers are defined in 
Regulation Z Sec.  1026.41(e)(4)(ii), and Regulation X also relies on 
this same definition. Regulation Z exempts small servicers from the 
requirement to provide periodic statements for residential mortgage 
loans.\9\ Regulation X exempts small servicers from: (1) Certain 
requirements relating to obtaining force-placed insurance; \10\ (2) the 
provisions relating to general servicing policies, procedures, and 
requirements; \11\ and (3) certain requirements and restrictions 
relating to communicating with borrowers about, and evaluation of loss 
mitigation applications.\12\
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    \9\ 12 CFR 1026.41(e) (requiring delivery each billing cycle of 
a periodic statement, with specific content and form). For loans 
serviced by a small servicer, a creditor or assignee is also exempt 
from the Regulation Z periodic statement requirements. 12 CFR 
1026.41(e)(4)(i).
    \10\ 12 CFR 1024.17(k)(5) (prohibiting purchase of force-placed 
insurance in certain circumstances).
    \11\ 12 CFR 1024.30(b)(1) (exempting small servicers from 
Sec. Sec.  1024.38 through 41, except as otherwise provided under 
Sec.  1024.41(j), as discussed in note 12, infra). Sections 1024.38 
through 40, respectively, impose general servicing policies, 
procedures, and requirements; early intervention requirements for 
delinquent borrowers; and policies and procedures to maintain 
continuity of contact with delinquent borrowers).
    \12\ See 12 CFR 1024.41 (loss mitigation procedures). Though 
exempt from most of the rule, small servicers are subject to the 
prohibition of foreclosure referral before the loan obligation is 
more than 120 days delinquent and may not make the first notice or 
filing for foreclosure if a borrower is performing pursuant to the 
terms of an agreement on a loss mitigation option. 12 CFR 
1024.41(j).
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    Current Sec.  1026.41(e)(4)(ii) defines the term ``small servicer'' 
as a servicer that either: (A) Services, together with any affiliates, 
5,000 or fewer mortgage loans, for all of which the servicer (or its 
affiliate) is the creditor or assignee; or (B) is a Housing Finance 
Agency, as defined in 24 CFR 266.5. ``Affiliate'' is defined in Sec.  
1026.32(b)(5) as any company that controls, is controlled by, or is 
under common control with another company, as set forth in the Bank 
Holding Company Act of 1956, 12 U.S.C. 1841 et seq. (BHCA).\13\ 
Generally, under current Sec.  1026.41(e)(4)(ii)(A), a servicer cannot 
be a small servicer if it services any loan for which the servicer or 
its affiliate is not the creditor or assignee. However, Sec.  
1026.41(e)(4)(iii) provides exceptions, which include mortgage loans 
that are voluntarily serviced by the servicer for a creditor or 
assignee that is not an affiliate of the servicer and for which the 
servicer does not receive any compensation or fees.\14\
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    \13\ Under the BHCA, a company has ``control'' over another 
company if it (i) ``directly or indirectly . . . owns, controls, or 
has power to vote 25 per centum or more of any class of voting 
securities'' of the other company; (ii) ``controls . . . the 
election of a majority of the directors or trustees'' of the other 
company; or (iii) ``directly or indirectly exercises a controlling 
influence over the management or policies'' of the other company 
(based on a determination by the Board). 12 U.S.C. 1841(a)(2).
    \14\ Section 1026.41(e)(4)(ii) also excludes from consideration 
reverse mortgage transactions and mortgage loans secured by 
consumers' interests in timeshare plans for purposes of determining 
whether a servicer qualifies as a small servicer.
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    Prior to issuing the proposal related to this final rule, the 
Bureau learned that certain nonprofit entities may, for a fee, service 
loans for another nonprofit entity that is part of the same larger 
network of nonprofits. These nonprofits are separately incorporated but 
operate under mutual contractual obligations to serve the same 
charitable mission, and use a common name, trademark, or servicemark. 
Such entities likely do not meet the definition of ``affiliate'' under 
the BHCA due to the limits imposed on nonprofits with respect to 
ownership and control. Accordingly, these nonprofits likely do not 
qualify for the small servicer exemption because they service, for a 
fee, loans on behalf of an entity that is not an affiliate as defined 
under the BHCA (and because the

[[Page 65303]]

servicer is neither the creditor for, nor an assignee of, those loans). 
Groups of nonprofit entities that are associated with one another in 
the described manner may consolidate servicing activities to achieve 
economies of scale necessary to service loans cost-effectively, and 
such cost savings may reduce the cost of credit or enable the nonprofit 
to extend a greater number of loans overall. However, because of their 
corporate structures, such groups of nonprofit entities may be unable 
to qualify for the small servicer exemption, unlike their for-profit 
counterparts.
    To address these concerns, the Bureau proposed to revise the scope 
of the small servicer exemption in Regulation Z Sec.  1026.41 that is 
also applicable to certain provisions of Regulation X. The Bureau 
believed that the ability of such nonprofit entities to consolidate 
servicing activities may be beneficial to consumers--to the extent 
servicing cost savings are passed on to consumers or lead to increased 
credit availability--and may outweigh the consumer protections provided 
by the servicing rules to those consumers affected by the proposal. The 
Bureau was concerned that, if nonprofit servicers are subject to all of 
the servicing rules, low- and moderate-income consumers may face 
increased costs or reduced access to credit. Although the servicing 
rules provide important protections for consumers, the Bureau was 
concerned that these protections may not outweigh the risk of reduction 
in credit access for low- and moderate-income consumers served by 
nonprofit entities that would qualify for the proposed Sec.  
1026.41(e)(4)(ii)(C) exemption. Furthermore, the Bureau believed these 
nonprofit entities, because of their scale and community-focused 
lending programs, have other incentives to provide high levels of 
customer contact and information--incentives that warrant exempting 
those servicers from complying with the periodic statement requirements 
under Regulation Z and certain requirements of Regulation X discussed 
above.
    Accordingly, the proposal would have added an alternative 
definition of small servicer that would apply to nonprofit entities 
that service loans on behalf of other nonprofits within a common 
network or group of nonprofit entities. Specifically, proposed Sec.  
1026.41(e)(4)(ii)(C) would have provided that a small servicer is a 
nonprofit entity that services 5,000 or fewer mortgage loans, including 
any mortgage loans serviced on behalf of associated nonprofit entities, 
for all of which the servicer or an associated nonprofit entity is the 
creditor. Proposed Sec.  1026.41(e)(4)(ii)(C)(1) would have defined the 
term ``nonprofit entity,'' for purposes of proposed Sec.  
1026.41(e)(4)(ii)(C), to mean an entity having a tax exemption ruling 
or determination letter from the Internal Revenue Service (IRS) under 
section 501(c)(3) of the Internal Revenue Code of 1986 (IRC). See 26 
U.S.C. 501(c)(3); 26 CFR 501(c)(3)-1. Proposed Sec.  
1026.41(e)(4)(ii)(C)(2) would have defined ``associated nonprofit 
entities'' to mean nonprofit entities that by agreement operate using a 
common name, trademark, or servicemark to further and support a common 
charitable mission or purpose.
    The Bureau also proposed technical changes to Sec.  
1026.41(e)(4)(iii), which would have addressed the timing of the small 
servicer determination and also excludes certain loans from being 
counted toward the 5,000-loan limitation. The proposed changes would 
have added language to the existing timing requirement to limit its 
application to the small servicer determination for purposes of Sec.  
1026.41(e)(4)(ii)(A) and inserted a separate timing requirement for 
purposes of determining whether a nonprofit servicer is a small 
servicer pursuant to Sec.  1026.41(e)(4)(ii)(C). Specifically, that 
requirement would have provided that the servicer is evaluated based on 
the mortgage loans serviced by the servicer as of January 1 and for the 
remainder of the calendar year.
    In addition, the Bureau proposed technical changes to comment 
41(e)(4)(ii)-2 and proposed to add comment 41(e)(4)(ii)-4 to parallel 
existing comment 41(e)(4)(ii)-2 (that would have addressed the 
requirements to be a small servicer under the existing definition in 
Sec.  1026.41(e)(4)(ii)(A)). Specifically, new comment 41(e)(4)(ii)-4 
would have clarified that there would be two elements to satisfying the 
nonprofit small servicer definition in proposed Sec.  
1026.41(e)(4)(ii)(C). First, the comment would have clarified that a 
nonprofit entity must service 5,000 or fewer mortgage loans, including 
any mortgage loans serviced on behalf of associated nonprofit entities. 
For each associated nonprofit entity, the small servicer determination 
would be made separately without consideration of the number of loans 
serviced by another associated nonprofit entity. Second, the comment 
would have explained that the nonprofit entity would have to service 
only mortgage loans for which the servicer (or an associated nonprofit 
entity) is the creditor. To be the creditor, the servicer (or an 
associated nonprofit entity) would have to be the entity to which the 
mortgage loan obligation was initially payable (that is, the originator 
of the mortgage loan). The comment would have explained that a 
nonprofit entity would not be a small servicer under Sec.  
1026.41(e)(4)(ii)(C) if it services any mortgage loans for which the 
servicer or an associated nonprofit entity is not the creditor (that 
is, for which the servicer or an associated nonprofit entity was not 
the originator). The comment would have provided two examples to 
demonstrate the application of the small servicer definition under 
Sec.  1026.41(e)(4)(ii)(C).
    The Bureau also proposed, along with some other clarifying and 
technical changes, to revise existing comment 41(e)(4)(iii)-3 to 
explain that mortgage loans that are not considered pursuant to Sec.  
1026.41(e)(4)(iii) for purposes of the small servicer determination 
under Sec.  1026.41(e)(4)(ii)(A) are also not considered for 
determining whether a servicer (together with any affiliates) services 
5,000 or fewer mortgage loans or for determining whether a servicer is 
servicing only mortgage loans that it (or an affiliate) owns or 
originated. Finally, the Bureau proposed a new comment 41(e)(4)(iii)-4 
to explain that mortgage loans that are not considered pursuant to 
Sec.  1026.41(e)(4)(iii) for purposes of the small servicer 
determination under Sec.  1026.41(e)(4)(ii)(C) also would not be 
considered for determining whether a nonprofit entity services 5,000 or 
fewer mortgage loans, including any mortgage loans serviced on behalf 
of associated nonprofit entities, or for determining whether a 
nonprofit entity is servicing only mortgage loans that it or an 
associated nonprofit entity originated. The comment would have provided 
examples to illustrate the rule.
    For the reasons discussed below, the Bureau is adopting Sec.  
1026.41(e)(4)(ii)(C) and (iii) and the accompanying commentary as 
proposed, with minor technical revisions.
Comments
    The Bureau received comments on the proposed amendment to the small 
servicer definition from a nonprofit servicer, consumer groups, credit 
union trade associations, and a mortgage trade association. Commenters 
generally favored the proposed provision, but they suggested certain 
revisions to the proposed nonprofit small servicer definition and 
expressed concerns about possible evasion.
    In the proposal, the Bureau sought comment on whether the 
definition of a nonprofit entity should contain additional criteria 
regarding the nonprofit's activities or the loan's features or 
purposes. Consumer group

[[Page 65304]]

commenters expressed concern that the proposed definition of nonprofit 
entity might allow evasion. These groups urged the Bureau to add 
language and clarification to avoid abuse by dishonest nonprofits. 
These commenters stated that some entities may cease to comply with 
section 501(c)(3) of the IRC, but could still have a tax exemption 
ruling or determination letter from the IRS until the IRS formally 
revoked its status. The commenters stated that a nonprofit would remain 
eligible for the exemption despite blatant evidence that the entity was 
not a bona fide nonprofit. These commenters urged the Bureau to require 
the nonprofit entity to be a bona fide nonprofit operating in 
compliance with IRC section 501(c)(3).
    Consumer group commenters also expressed concern with proposed 
comment 41(e)(4)(ii)-4, which would provide that each associated 
nonprofit entity may service no more than 5,000 loans under the 
nonprofit small servicer definition. These commenters requested that 
the Bureau publicly state that it would monitor use of the exemption to 
prevent abuse by servicers that service more than 5,000 loans.
    Credit union trade associations generally supported expansion of 
the small servicer exemption. However, they requested the exemption be 
expanded further to exempt credit unions. They noted that Federal and 
State chartered credit unions are typically designated as tax-exempt 
under IRC sections 501(c)(1) and (14), respectively. In support of such 
an expansion, one credit union trade association noted that some credit 
unions that would otherwise qualify for the existing small servicer 
definition under Sec.  1024.41(e)(4)(ii)(A) are disqualified because of 
ownership stakes in credit union service organizations (CUSOs).
Final Rule
    For the reasons set forth below, the Bureau is adopting as proposed 
Sec.  1026.41(e)(4)(ii) and (iii) and associated commentary. The Bureau 
finds that the potential benefits to consumers that may result from 
nonprofit entities consolidating servicing activities outweigh the 
consumer protections provided by the servicing rules to the affected 
consumers. The Bureau believes that the entities that qualify for the 
exemption under the nonprofit small servicer definition have other 
incentives to provide high levels of customer contact and information, 
which lends further support to the exemption.
    The Bureau considered comments requesting the addition of a bona 
fide qualifier to the nonprofit small servicer definition but has not 
adopted this approach in the final rule. A bona fide requirement is 
unnecessary because the nonprofit small servicer definition is more 
limited than the existing small servicer definition and is narrowly 
tailored to prevent evasion. Specifically, the nonprofit small servicer 
definition would require that a nonprofit entity service only loans for 
which it or an associated nonprofit entity is the creditor. This is in 
contrast to the existing small servicer exemption under Sec.  
1026.41(e)(4)(ii)(A), which applies to entities that service loans for 
which it or an affiliate is the creditor or assignee. To satisfy the 
nonprofit small servicer definition, an associated nonprofit entity 
must be the creditor on the loan. In addition, to meet the nonprofit 
small servicer definition, the ``associated nonprofit entities,'' as 
defined in Sec.  1026.41(e)(4)(ii)(C)(2), must by agreement operate 
using a common name, trademark, or servicemark to further and support a 
common charitable mission or purpose. As such, nonprofit entities that 
operate in a manner that is inconsistent with the group's common 
charitable purpose--or a group of associated nonprofits that operates 
without a charitable purpose--would not satisfy the nonprofit small 
servicer definition. Although the final rule does not include a bona 
fide nonprofit qualifier, the Bureau will monitor use of the nonprofit 
small servicer exemptions and consider any changes to the definition, 
as appropriate.
    The Bureau has not expanded the nonprofit small servicer definition 
to cover credit unions designated as tax-exempt under IRC sections 
501(c)(1) and (14), as requested by some credit union and credit union 
trade association commenters.\15\ The Bureau believes that credit 
unions and their affiliates are likely to have greater capacity to 
comply with the full mortgage servicing rules than those nonprofit 
entities that are covered by the nonprofit small servicer definition. 
The commenters did not provide any data to support an expansion of the 
exemption to credit unions.
---------------------------------------------------------------------------

    \15\ The Bureau previously considered, but declined to adopt, a 
broad exemption for credit unions in adopting the original small 
servicer definition in Sec.  1026.41(e)(4)(ii)(A) in the 2013 Final 
Mortgage Servicing Rule. See 78 FR 10901, 10976 (Feb. 14, 2013). 
Subsequently, in clarifying the small servicer definition in the 
July 2013 Mortgage Servicing Final Rule, the Bureau considered 
concerns that affiliate relationships between certain credit unions 
and credit union service organizations (CUSOs) may prevent the 
credit unions and CUSOs from qualifying for the small servicer 
exemption, but declined to adopt such an exemption because the 
comments were beyond the scope of the rulemaking. See 78 FR 44685, 
44694 (July 24, 2013). The Bureau finds that a broad exemption for 
credit unions is outside the scope of this rulemaking as well.
---------------------------------------------------------------------------

Legal Authority
    The Bureau is adopting an exemption from the periodic statement 
requirement under TILA section 128(f) for certain small servicers 
pursuant to its authority under TILA section 105(a) and (f) and Dodd-
Frank Act section 1405(b).
    For the reasons discussed above, the Bureau finds that the 
exemption is necessary and proper under TILA section 105(a) to 
facilitate TILA compliance. The purpose of the periodic statement 
requirement is to ensure that consumers receive ongoing customer 
contact and account information. As discussed above, the Bureau finds 
that nonprofit entities that qualify for the exemption have incentives 
to provide ongoing consumer contact and account information that would 
exist absent a regulatory requirement to do so. The Bureau also finds 
that such nonprofits may consolidate servicing functions in an 
associated nonprofit entity to provide more cost-effectively this high 
level of customer contact and otherwise to comply with applicable 
regulatory requirements. As noted, the Bureau is concerned that the 
current rule may discourage consolidation of servicing functions. As a 
result, the current rule may result in nonprofits being unable to 
provide high-contact servicing or to comply with other applicable 
regulatory requirements due to the costs that would be imposed on each 
individual servicer. Accordingly, the Bureau finds that the nonprofit 
small servicer definition facilitates compliance with TILA by allowing 
nonprofit small servicers to consolidate servicing functions, without 
losing status as a small servicer, to service loans more cost-
effectively in compliance with applicable regulatory requirements.
    In addition, consistent with TILA section 105(f) and in light of 
the factors in that provision, the Bureau finds that requiring 
nonprofit entities servicing 5,000 or fewer loans (including those 
serviced on behalf of associated nonprofits, for all of which that 
servicer or an associated nonprofit is the creditor) to comply with the 
periodic statement requirement in TILA section 128(f) would not provide 
a meaningful benefit to consumers in the form of useful information or 
protection. The Bureau finds that these nonprofit servicers have 
incentives to provide consumers with necessary information, and that 
requiring provision of periodic statements would impose significant 
costs and burden. Specifically, the

[[Page 65305]]

Bureau finds that the nonprofit small servicer definition will not 
complicate, hinder, or make more expensive the credit process--and is 
proper without regard to the amount of the loan, to the status of the 
consumer (including related financial arrangements, financial 
sophistication, and the importance to the consumer of the loan or 
related supporting property), or to whether the loan is secured by the 
principal residence of the consumer. In addition, consistent with Dodd-
Frank Act section 1405(b), for the reasons discussed above, the Bureau 
finds that exempting nonprofit small servicers from the requirements of 
TILA section 128(f) is in the interest of consumers and in the public 
interest.
    As noted above, Regulation X cross-references the definition of 
small servicer in Sec.  1026.41(e)(4) for the purpose of exempting 
small servicers from several mortgage servicing requirements. 
Accordingly, in amending the small servicer definition in Regulation Z, 
the Bureau is also effectively amending the current Regulation X 
exemptions for small servicers. For this purpose, the Bureau is relying 
on the same authorities on which it relied in promulgating the current 
Regulation X small servicer exemptions. Specifically, the Bureau is 
exempting nonprofit small servicers from the requirements of Regulation 
X Sec. Sec.  1024.38 through 41, except as otherwise provided in Sec.  
1024.41(j), see Sec.  1024.30(b)(1), as well as certain requirements of 
Sec.  1024.17(k)(5), pursuant to its authority under section 19(a) of 
RESPA to grant such reasonable exemptions for classes of transactions 
as may be necessary to achieve the consumer protection purposes of 
RESPA. The consumer protection purposes of RESPA include helping 
borrowers avoid unwarranted or unnecessary costs and fees. The Bureau 
finds that the nonprofit small servicer definition would ensure that 
consumers avoid unwarranted and unnecessary costs and fees by 
encouraging nonprofit small servicers to consolidate servicing 
functions.
    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 purposes and objectives of title 
X of the Dodd-Frank Act. Specifically, the Bureau finds that the 
nonprofit small servicer definition is necessary and appropriate to 
carry out the purpose under section 1021(a) of the Dodd-Frank Act of 
ensuring that all consumers have access to markets for consumer 
financial products and services that are fair, transparent, and 
competitive, and the objective under section 1021(b) of the Dodd-Frank 
Act of ensuring that markets for consumer financial products and 
services operate transparently and efficiently to facilitate access and 
innovation.
    With respect to Sec. Sec.  1024.17(k)(5), 39, and 41 (except as 
otherwise provided in Sec.  1024.41(j)), the Bureau is also adopting 
the nonprofit small servicer definition pursuant to its authority in 
section 6(j)(3) of RESPA to set forth requirements necessary to carry 
out section 6 of RESPA and in section 6(k)(1)(E) of RESPA to set forth 
obligations appropriate to carry out the consumer protection purposes 
of RESPA.

Section 1026.43 Minimum Standards for Transactions Secured by a 
Dwelling

43(a) Scope
43(a)(3)
The Bureau's Proposal
    The Bureau proposed to amend the nonprofit small creditor exemption 
from the ability-to-repay rule that is set forth in Sec.  
1026.43(a)(3)(v)(D). To qualify for this exemption, a creditor must 
have extended credit secured by a dwelling no more than 200 times 
during the calendar year preceding receipt of the consumer's 
application and meet certain additional requirements. The proposal 
would have excluded certain subordinate-lien transactions from the 200-
credit extension limit. For the reasons set forth below and in the 
proposal, the Bureau is finalizing this provision as proposed.
    Currently, Sec.  1026.43(a)(3)(v)(D) provides an exemption from the 
ability-to-repay rule if the creditor and the loan meet certain 
criteria. First, the creditor must have a tax exemption ruling or 
determination letter from the IRS under section 501(c)(3) of the IRC. 
Second, the creditor may not have extended credit secured by a dwelling 
more than 200 times in the calendar year preceding receipt of the 
consumer's application. Third, the creditor, in the calendar year 
preceding receipt of the consumer's application, must have extended 
credit only to consumers whose income did not exceed the low- and 
moderate-income household limit established by HUD. Fourth, the 
extension of credit must be to a consumer with income that does not 
exceed HUD's low- and moderate-income household limit. Fifth, the 
creditor must have determined, in accordance with written procedures, 
that the consumer has a reasonable ability to repay the extension of 
credit.
    As noted in the proposal, the Bureau has heard concerns from some 
nonprofit creditors about the treatment of certain subordinate-lien 
programs under the nonprofit exemption from the ability-to-repay 
requirements. These creditors expressed concern that they may be forced 
to curtail their subordinate-lien programs or more generally limit 
their lending activities to avoid exceeding the 200-credit extension 
limit. In particular, these entities indicated concern with the 
treatment of subordinate-lien transactions that charge no interest and 
for which repayment is generally either forgivable or of a contingent 
nature.
    In light of these concerns, the Bureau proposed to amend Sec.  
1026.43(a)(3)(v)(D)(1) to exclude certain subordinate liens from the 
200-credit extension limit determination. Specifically, the Bureau 
proposed to add Sec.  1026.43(a)(3)(vii), which would have provided 
that consumer credit transactions that meet the following criteria 
would not be considered in determining whether a creditor meets the 
credit extension limit in Sec.  1026.43(a)(3)(v)(D)(1): (1) The 
transaction is secured by a subordinate lien; (2) the transaction is 
for the purpose of downpayment, closing costs, or other similar home 
buyer assistance, such as principal or interest subsidies, property 
rehabilitation assistance, energy efficiency assistance, or foreclosure 
avoidance or prevention; (3) the credit contract does not require 
payment of interest; (4) the credit contract provides that the 
repayment of the amount of credit extended is (a) forgiven 
incrementally or in whole, at a date certain, and subject only to 
specified ownership and occupancy conditions, such as a requirement 
that the consumer maintain the property as the consumer's principal 
dwelling for five years, (b) deferred for a minimum of 20 years after 
consummation of the transaction, (c) deferred until sale of the 
property securing the transaction, or (d) deferred until the property 
securing the transaction is no longer the principal dwelling of the 
consumer; (5) the total of costs payable by the consumer in connection 
with the transaction at consummation is less than 1 percent of the 
amount of credit extended and includes no charges other than fees for 
recordation of security instruments, deeds, and similar documents, a 
bona fide and reasonable application fee, and a bona fide and 
reasonable fee for housing counseling services; and (6) in connection 
with the transaction, the creditor complies with all other applicable 
requirements of Regulation Z.

[[Page 65306]]

    Proposed comment 43(a)(3)(vii)-1 would have clarified that the 
terms of the credit contract must satisfy the conditions that the 
transaction not require the payment of interest under Sec.  
1026.43(a)(3)(vii)(C) and that repayment of the amount of credit 
extended be forgiven or deferred in accordance with Sec.  
1026.43(a)(3)(vii)(D). The comment would have further clarified that 
the other requirements of Sec.  1026.43(a)(3)(vii) need not be 
reflected in the credit contract, but the creditor must retain evidence 
of compliance with those provisions, as required by the record 
retention provisions of Sec.  1026.25(a). In particular, the creditor 
must have information reflecting that the total of closing costs 
imposed in connection with the transaction are less than 1 percent of 
the amount of credit extended and includes no charges other than 
recordation, application, and housing counseling fees, in accordance 
with Sec.  1026.43(a)(3)(vii)(E). Unless an itemization of the amount 
financed sufficiently details this requirement, the creditor must 
establish compliance with Sec.  1026.43(a)(3)(vii)(E) by some other 
written document and retain it in accordance with Sec.  1026.25(a).
    Proposed Sec.  1026.43(a)(3)(vii) and the accompanying comment 
would have largely mirrored a provision and accompanying comment that 
was adopted as part of the Bureau's rule integrating the pre-
consummation disclosure requirements of TILA and RESPA (2013 TILA-RESPA 
Final Rule), effective August 1, 2015. See 78 FR 79729 (Dec. 31, 2013). 
That provision, which was adopted in both Regulation X, at Sec.  
1024.5(d) (by cross-reference), and Regulation Z, at Sec.  1026.3(h), 
provides a partial exemption from the disclosure requirements for loans 
that meet criteria that largely mirror those in proposed Sec.  
1026.43(a)(3)(vii). As noted in the proposal, that exemption was 
intended to describe criteria associated with certain housing 
assistance loan programs for low- and moderate-income persons. The 
Bureau believed the same criteria for the partial exemption from the 
2013 TILA-RESPA Final Rule would describe the class of transactions 
that might appropriately be excluded from the 200-credit extension 
limit in the ability-to-repay exemption for nonprofits and that 
defining a single class of transactions for purposes of Sec.  
1024.5(d), Sec.  1026.3(h), and Sec.  1026.43(a)(3)(vii) might 
facilitate compliance for creditors.
Comments
    The Bureau received comments on the proposed revisions to the 
nonprofit creditor exemption from consumer groups, credit union trade 
associations, and one nonprofit creditor. Commenters generally favored 
the proposed provision but raised concerns about the scope and 
interpretation of the provisions.
    The nonprofit creditor commenter generally supported the proposal 
but requested certain revisions and clarifications. First, the 
commenter expressed concern with the requirement in proposed Sec.  
1026.43(a)(3)(vii)(D) that, to be excluded from the 200-credit 
extension limit, the credit contract provide that repayment be forgiven 
or deferred. Specifically, that commenter expressed concern that a 
subordinate lien that defers repayment, but for less than 20 years, 
does not meet the criteria for the exclusion from the credit extension 
limit under proposed Sec.  1026.43(a)(3)(vii)(D)(2). The commenter did 
not indicate whether its exemption status or the status of any other 
nonprofit creditor might be jeopardized if this provision were 
finalized, nor did it provide a specific justification for loosening 
the deferment period. Second, the nonprofit creditor requested that the 
repayment criteria be revised or commentary added to clarify that the 
provisions in the credit contract may provide for repayment where a 
borrower defaults on or refinances an accompanying first-lien mortgage 
without jeopardizing the loan's exemption status. Third, the nonprofit 
creditor commenter expressed concerns that the 200-credit extension 
limit discourages expansion and consolidation among nonprofit 
creditors. The commenter stated that the existing extension limit 
complicates mortgage sale transactions to its banking partners, but did 
not suggest any specific number of credit extensions that would be an 
appropriate limit for the nonprofit creditor exemption.
    Consumer group commenters generally supported adoption of the 
proposal but two consumer group commenters suggested that the Bureau 
should occasionally examine subordinate liens to ensure that any fees 
charged are bona fide. Credit union trade association commenters 
suggested that the Bureau expand the nonprofit exemption to include 
both Federal and State credit unions.
Final Rule
    For the reasons discussed in the proposal, and in light of the 
comments received, the Bureau is adopting the revision to Sec.  
1026.43(a)(3)(v)(D), the addition of Sec.  1026.43(a)(3)(vii), and 
comment 43(a)(3)(vii)-1 as proposed.
    The Bureau considered whether to relax the deferment period 
required by Sec.  1026.43(a)(3)(vii)(D)(2) but has not adopted such a 
change in the final rule. The Bureau believes that relaxing the 
deferment period may create a risk of consumer harm with respect to the 
excluded subordinate liens. As noted in the proposal, the exclusion is 
narrowly tailored to accommodate subordinate-liens that both reduce a 
consumer's monthly mortgage obligations and allow the consumer to 
control whether and when repayment is triggered, for at least 20 years. 
Reducing that period where the consumer controls repayment increases 
risks to consumers. The 20-year deferment requirement also serves to 
discourage use of the exclusion as a means of evasion of the ability-
to-repay rule. Moreover, the nonprofit commenter did not assert that 
the 20-year deferment period required by Sec.  1026.43(a)(3)(vii)(D)(2) 
would presently or foreseeably jeopardize its exemption status (or the 
exemption status of any other nonprofit creditor). Finally, as noted 
above, Sec.  1026.43(a)(3)(vii) largely mirrors a provision that was 
adopted as part of the Bureau's 2013 TILA-RESPA Final Rule. The Bureau 
does not, at this time, believe there is a basis for amending the 
exclusion from that rule and is concerned that maintaining two separate 
exclusion regimes would create undue regulatory burden.
    In addition, the Bureau considered whether the rule or commentary 
should specify that the credit contract may provide for repayment where 
a consumer defaults on or refinances an accompanying first-lien 
mortgage. However, the Bureau does not believe that such a provision is 
necessary. The exclusion criteria do not bar such provisions, nor would 
such provisions be inconsistent with the proposed criteria. The Bureau 
is concerned that revising Sec.  1026.43(a)(3)(vii) or adding 
commentary expressly to permit such standard contract terms could call 
into question the effect of other standard contract terms providing for 
acceleration, such as for nonpayment of property taxes, on a loan's 
status under the exclusion. As a result, addressing these provisions 
might necessitate amending the commentary to cover a much more 
exhaustive list of what is prohibited or permitted.
    The Bureau also considered the request that it increase or remove 
the 200-credit extension limit from the Sec.  1026.43(a)(3)(v)(D) 
nonprofit exemption altogether. The Bureau has determined that it would 
be inappropriate to do so because it believes that nonprofit creditors 
that originate more than 200 dwelling-secured transactions in a year

[[Page 65307]]

(excluding the transactions described in Sec.  1026.43(a)(3)(vii)) 
generally have the resources necessary to comply with the TILA ability-
to-repay requirements. In the absence of information that suggests that 
the rationale behind the extension limit is no longer appropriate, the 
Bureau has not increased the extension limit.
    As noted above, consumer group commenters suggested that 
subordinate liens should be examined occasionally to determine whether 
any charges imposed are bona fide. The Bureau intends to monitor the 
mortgage market to ensure that the nonprofit creditor exemption does 
not become a means for evasion of the ability-to-repay requirements.
    As also noted above, some commenters suggested that the nonprofit 
creditor exemption be expanded to cover State and Federal credit 
unions. The Bureau notes that, in adopting the nonprofit creditor 
exemption in the May 2013 ATR Final Rule, the Bureau considered, but 
declined to adopt, an exemption for entities that are designated 
nonprofit organizations under sections 501(c)(1) and (14) of the IRC. 
See 78 FR 35429, 35468 (June 12, 2013). Commenters did not present any 
information that would suggest that the Bureau should reconsider its 
decision in the May 2013 ATR Final Rule. Thus the Bureau lacks a 
sufficient basis to adopt an expanded exemption as requested by the 
credit union trade associations.
Legal Authority
    The current Sec.  1026.43(a)(3)(v)(D) exemption from the ability-
to-repay requirements was adopted pursuant to the Bureau's authority 
under section 105(a) and (f) of TILA. Pursuant to section 105(a) of 
TILA, the Bureau generally may prescribe regulations that provide for 
such adjustments and exceptions for all or any class of transactions 
that the Bureau judges are necessary or proper to effectuate, among 
other things, the purposes of TILA. For the reasons discussed above, 
the Bureau concludes that the amendment to the Sec.  
1026.43(a)(3)(v)(D) exemption from the TILA ability-to-repay 
requirements is necessary and proper to effectuate the purposes of 
TILA, which include the purposes of TILA section 129C. The Bureau 
concludes that the amendment to the exemption ensures that consumers 
are offered and receive residential mortgage loans on terms that 
reasonably reflect their ability to repay by helping to ensure the 
viability of the mortgage market for low- and moderate-income 
consumers. The Bureau believes that the mortgage loans originated by 
nonprofit creditors identified in Sec.  1026.43(e)(4)(v)(D) generally 
account for a consumer's ability to repay. Without the amendment to the 
exemption, the Bureau concludes that low- and moderate-income consumers 
might be at risk of being denied access to the responsible and 
affordable credit offered by these creditors, which is contrary to the 
purposes of TILA. The amendment to the exemption is consistent with the 
purposes of TILA by ensuring that consumers are able to obtain 
responsible, affordable credit from the nonprofit creditors discussed 
above.
    The Bureau has also considered the factors in TILA section 105(f) 
and concludes that, for the reasons discussed above, the amendment to 
the exemption is appropriate under that provision. For the reasons 
discussed above, the Bureau concludes that the amendment to Sec.  
1026.43(a)(3)(v)(D) would exempt extensions of credit for which 
coverage under the ability-to-repay requirements does not provide a 
meaningful benefit to consumers (in the form of useful information or 
protection) in light of the protection that the Bureau believes the 
credit extended by these creditors already provides to consumers. The 
Bureau concludes that the amendment to the Sec.  1026.43(a)(3)(v)(D) 
exemption is appropriate for all affected consumers, regardless of 
their other financial arrangements and financial sophistication and the 
importance of the loan and supporting property to them. Similarly, the 
Bureau concludes that the amendment to the Sec.  1026.43(a)(3)(v)(D) 
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 concludes that, on balance, the amendment to the Sec.  
1026.43(a)(3)(v)(D) exemption will simplify the credit process without 
undermining the goal of consumer protection, denying important benefits 
to consumers, or increasing the expense of (or otherwise hindering) the 
credit process.
43(e) Qualified Mortgages
43(e)(3) Limits on Points and Fees for Qualified Mortgages
The Bureau's Proposal
    The Bureau proposed to permit a creditor or assignee to cure an 
excess over the qualified mortgage points and fees limit under defined 
conditions. Those conditions included that the creditor originated the 
loan in good faith as a qualified mortgage, that the creditor or 
assignee refunds the overage within 120 days of consummation, and that 
the creditor or assignee maintains and follows policies and procedures 
for post-consummation review of loans and refunding to consumers of 
such points and fees overages. For the reasons discussed below, the 
Bureau is finalizing the proposed cure provision but is making certain 
adjustments to address concerns raised by commenters.
    Section 1411 of the Dodd-Frank Act added TILA section 129C(a) to 
require a creditor making a residential mortgage loan to make a 
reasonable and good faith determination (based on verified and 
documented information) that, at the time the loan is consummated, the 
consumer has a reasonable ability to repay the loan. 15 U.S.C. 
1639c(a). TILA section 129C(b) further: Provides that the ability-to-
repay requirements are presumed to be met if the loan is a qualified 
mortgage; sets certain product-feature and underwriting requirements 
for qualified mortgages (including limits on points and fees); and 
gives the Bureau authority to revise, add to, or subtract from these 
requirements.\16\ Section 1026.43(e)(3), which implements the statutory 
points and fees limits for qualified mortgages, provides that the up-
front points and fees charged in connection with a qualified mortgage 
must not exceed 3 percent of the total loan amount, with higher 
thresholds specified for various categories of loans below $100,000. 
Pursuant to Sec.  1026.32(b)(1), points and fees are the ``fees or 
charges that are known at or before consummation.'' The current rule 
does not provide a mechanism for curing points and fees overages that 
are discovered after consummation.
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    \16\ See TILA section 129C(b)(3)(B)(i). TILA section 
129C(b)(2)(D) requires the Bureau to prescribe rules adjusting the 
3-percent points and fees limit to ``permit lenders that extend 
smaller loans to meet the requirements of the presumption of 
compliance.''
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    As noted in the proposal, the Bureau understands that some 
creditors seeking to originate and some secondary market participants 
seeking to purchase qualified mortgages may establish buffers, set at a 
level below the applicable points and fees limit in Sec.  
1026.43(e)(3)(i), to avoid inadvertently exceeding those limits. 
Creditors may simply refuse to extend mortgage credit to consumers 
whose loans would exceed the buffer threshold (even though such loans, 
if under the applicable Regulation Z points and fees limit, would 
otherwise be qualified mortgages), due to the creditors' concerns about 
the potential liability attending loans originated under the

[[Page 65308]]

general ability-to-repay standard, the ability to sell those loans into 
the secondary market, or the risk of repurchase demands from the 
secondary market if the applicable qualified mortgage points and fees 
limit is later found to have been exceeded. Alternatively, creditors 
may charge more for loans exceeding the buffer threshold (even if those 
loans are under the applicable Regulation Z points and fees limit for 
qualified mortgages). The proposal noted the Bureau's concerns that 
access to credit might be negatively affected where such buffers are 
established.
    Because of these concerns about access to credit, the Bureau 
proposed Sec.  1026.43(e)(3)(iii), which would have provided that, if 
the creditor or assignee determines after consummation that the total 
points and fees payable in connection with a loan exceed the applicable 
limit under Sec.  1026.43(e)(3)(i), the loan is not precluded from 
being a qualified mortgage, provided: (1) The creditor originated the 
loan in good faith as a qualified mortgage and the loan otherwise meets 
the requirements for a qualified mortgage in Sec.  1026.43(e)(2), 
(e)(4), (e)(5), (e)(6), or (f), as applicable; (2) within 120 days 
after consummation, the creditor or assignee refunds to the consumer 
the dollar amount by which the transaction's points and fees exceeded 
the applicable limit under Sec.  1026.43(e)(3)(i); and (3) the creditor 
or assignee, as applicable, maintains and follows policies and 
procedures for post-consummation review of loans and refunding to 
consumers amounts that exceed the applicable limit under Sec.  
1026.43(e)(3)(i).
    In conformance with proposed Sec.  1026.43(e)(3)(iii), the Bureau 
also proposed to amend Sec.  1026.43(e)(3)(i) to add the introductory 
phrase ``[e]xcept as provided in paragraph (e)(3)(iii) of this 
section.'' That conforming change would have specified that the cure 
provision in Sec.  1026.43(e)(3)(iii) is an exception to the general 
rule that a covered transaction is not a qualified mortgage if the 
transaction's total points and fees exceed the applicable limit set 
forth in Sec.  1026.43(e)(3)(i). Proposed comment 43(e)(3)(iii)-1 would 
have provided examples of evidence that a creditor originated a loan in 
good faith as a qualified mortgage and examples of evidence that a loan 
was not originated in good faith as a qualified mortgage. Proposed 
comment 43(e)(3)(iii)-2 would have provided guidance on the policies 
and procedures requirement. In addition to these specific proposals, 
the Bureau requested comment on whether a post-consummation points and 
fees cure should be permitted, and whether different, additional, or 
fewer conditions should be imposed upon its availability.
Comments
    Industry commenters, including trade associations, large and small 
creditors, and secondary market purchasers, unanimously supported 
permitting a cure for points and fees overages. Industry commenters 
noted that the complex nature of the points and fees calculation and 
the potential liability associated with non-qualified mortgages have 
caused some creditors to impose operational buffers on points and fees 
that are well under the limits in the rule. These commenters also noted 
that it is not uncommon for investors and originators to disagree on 
the interpretation of parts of the points and fees calculation, which 
may impede the sale of some loans in the secondary market. One large 
industry trade association cited the definition of ``bona fide discount 
point,'' which depends in part on whether ``the interest rate without 
any discount'' exceeds a certain threshold, as an area of industry 
uncertainty in the points and fees calculation that could lead to 
different interpretations.
    Industry commenters stated that creditors that are uncertain of the 
qualified mortgage status of loans near the applicable points and fees 
limit may overprice the risk of the loan, passing on the costs of legal 
uncertainty to the consumer. Those commenters stated that, as a result, 
consumers receive loans on less favorable terms than they would 
otherwise receive or may be ineligible for credit. These commenters 
stated that the points and fees cure would provide creditors the 
opportunity to achieve precise compliance after consummation, which in 
turn would allow creditors to approve more loans, or provide loans at a 
lower cost to, consumers at the boundaries of the points and fees 
limits under the rule.
    Industry commenters also generally stated that the proposed cure 
provision would incentivize robust post-consummation quality control 
and audit procedures in a way that would benefit both creditors and 
consumers. Creditors would benefit by being afforded the opportunity to 
achieve precise compliance and allow loans to flow smoothly into the 
secondary market, while consumers would benefit by receiving cure 
payments. A nonprofit commenter that promotes asset-building policies 
for low- and middle-income families also supported the proposed points 
and fees cure. This commenter noted that, for smaller loans subject to 
the tiered points and fees limits, any change in total costs agreed to 
at or near consummation may cause the loan to cross from one limit tier 
to another.
    Some consumer group commenters, including two large national 
consumer groups, strongly opposed the proposed cure provision. These 
commenters generally stated that the proposal would do more harm to 
consumers than good and was unnecessary, contrary to Congressional 
intent, and without evidentiary foundation. Consumer group commenters 
that generally opposed the cure provision stated that it could 
incentivize inaccurate pre-consummation points and fees calculations. 
For example, these commenters warned that loan originators and 
processors could face pressure to close loans and to overlook problems 
before closing in the belief that they can be cured post-consummation. 
To these commenters, the cure would encourage the lending industry to 
be less vigilant, less accurate and, for some, less honest, in 
marketing, disclosures, and underwriting practices. Consumer group 
commenters also objected to the proposal's provision allowing a cure by 
refunding nothing more than the overage to the consumer.
    Some consumer group commenters argued that the cure is unnecessary 
because of the regulations' limited impact on access to credit. Two 
large national consumer group commenters stated that the qualified 
mortgage points and fees limits are not actually restricting access to 
credit or increasing the cost of credit. Those commenters cited a lack 
of data to support the Bureau's assertions about the effect of the 
points and fees limits on access to credit. The commenters stated that, 
if it had such data, the Bureau should adjust the qualified mortgage 
standards rather than permit a cure. The commenters argued that the 
mortgage industry restricts or expands access to credit based on 
perceptions of credit risk and profitability and not on the impact of 
consumer protection rules.
    The commenters asserted that, although current concerns are about 
access to credit, creditors will loosen their standards in order to 
increase their market share--just as they did before the recent 
financial crisis. Some consumer group commenters also noted that the 
Dodd-Frank Act was adopted to prevent the type of irresponsible lending 
that led to the financial crisis, and that each exception the Bureau 
adds to the qualified mortgage rule weakens the restraints the Dodd-
Frank Act imposed. These commenters argued that the cure will harm 
consumers by depriving them of otherwise available legal remedies.

[[Page 65309]]

    Consumer group commenters also stated that the secondary market had 
already taken action to address repurchase concerns. The commenters 
noted that, to the extent that credit is tight due to the risk of 
repurchase demands from the secondary market, the government-sponsored 
enterprises (GSEs) have announced a set of revised quality review 
policies and a right to fix documentation problems that will reduce 
creditors' exposure to repurchase demands. Other consumer group 
commenters, including a large national nonprofit, generally supported 
the cure but urged the Bureau to include greater protections for 
consumers in the final rule. Similarly, the consumer groups that 
generally opposed the cure commented that, if the Bureau adopts a 
points and fees cure provision, it should provide greater consumer 
protections. These commenters made several suggestions to increase 
consumer protections in the final rule, including: A sunset date for 
the right to cure; cutting off the right to cure upon notice from the 
consumer of an overage and other similar events; and requiring 
creditors or assignees to provide a cure payment that is more than the 
overage itself. These suggestions are discussed more fully, below.
Final Rule
    For the reasons discussed below, the Bureau is adopting the cure 
provision for points and fees overages in Sec.  1026.43(e)(3)(iii) and 
(iv). The Bureau is finalizing the cure provision substantially as 
proposed but with some modifications based on comments received. The 
final cure provision provides bright-line rules to incentivize 
creditors to ease current points and fees buffers (and, in turn, 
increase access to responsible, affordable mortgage credit) while, at 
the same time, limiting the ability and incentives for creditors to 
engage in careless pre-consummation points and fees calculations or 
otherwise misuse the cure. In addition to certain clarifying changes, 
the final rule makes the following adjustments from the proposal:
     Sunsets the cure after January 10, 2021;
     Eliminates the condition that the creditor originate the 
loan in ``good faith'' as a qualified mortgage (discussed below in the 
section-by-section analysis of Sec.  1026.43(e)(3)(iii)(A));
     Increases the cure period from 120 days to 210 days after 
consummation (discussed below in the section-by-section analysis of 
Sec.  1026.43(e)(3)(iii)(B));
     Cuts off the ability to cure upon one or more of the 
following occurrences: The consumer's institution of a legal action in 
connection with the loan; the creditor, assignee, or servicer's receipt 
of the consumer's written notice that the loan's points and fees 
exceeded the qualified mortgage limit; or the consumer becoming 60 days 
past due on the legal obligation (discussed below in the section-by-
section analysis of Sec.  1026.43(e)(3)(iii)(B)); and
     Requires the creditor or assignee to also pay interest to 
the consumer on the dollar amount by which the points and fees exceed 
the qualified mortgage limit, for the period from consummation until 
the cure payment is made to the consumer (discussed below in the 
section-by-section analysis of Sec.  1026.43(e)(3)(iv)).
    The cure will only be available for transactions consummated on or 
after the effective date of this final rule and on or before the sunset 
date.
    The Bureau concludes that the cure provision will ease current 
market uncertainties and, as a result, may increase consumers' access 
to affordable credit in the near term. As explained in the proposal, 
the calculation of points and fees is complex and can involve the 
exercise of judgment that may lead to inadvertent errors with respect 
to charges imposed at or before consummation. Where a creditor 
originated a loan with the expectation of qualified mortgage status, 
the Bureau believes the consumer likely received the benefit of 
qualified mortgage treatment by receiving lower overall pricing. For 
this reason, the Bureau concludes that a cure provision, if 
appropriately limited, could reflect the expectations of both consumers 
and creditors at consummation and could increase access to credit for 
consumers seeking loans at the margins of the points and fees limits. A 
limited cure provision should also promote consistent pricing within 
the qualified mortgage range by decreasing the market's perceived need 
for higher pricing at the margins of the points and fees limits. The 
cure provision should also promote stability in the market by limiting 
the need for repurchase demands that may otherwise be triggered without 
the cure. In addition, the Bureau notes that the cure provision will 
encourage some creditors to undertake or strengthen rigorous post-
consummation review of loans and consequently result in consumers 
receiving cure payments that would not have been received absent a cure 
provision.
    At the same time, and as stated in the proposal, the Bureau expects 
that, over time, creditors will develop greater confidence in 
compliance systems and also with originating loans that are not 
qualified mortgages under the general ability-to-repay standard. As 
this occurs, creditors should be able to relax internal buffers on 
points and fees that are predicated on the qualified mortgage threshold 
and to provide consistent pricing for qualified mortgages that are at 
the margin of the points and fees limits. Additionally, the risk of 
repurchase demands based on points and fees overages should decrease 
with experience. For these reasons, the cure provision finalized in 
Sec.  1026.43(e)(3) contains a sunset date of January 10, 2021. This 
sunset date is also the general sunset date for the temporary qualified 
mortgage definition for loans eligible for purchase or guarantee by the 
GSEs or certain Federal agencies pursuant to Sec.  1026.43(e)(4). As 
creditors' confidence increases and market conditions stabilize, 
creditors should become less reliant on points and fees buffers. The 
Bureau concludes that this sunset will provide sufficient time for 
creditors to develop confidence in compliance systems for regulatory 
requirements and for economic and market conditions to stabilize.
    As noted above, consumer group commenters argued that the cure 
provision could encourage the lending industry to be negligent or 
reckless. The Bureau notes that the final cure provision has been 
carefully calibrated to incentivize creditors to ease current buffers 
(which should in turn increase access to responsible, affordable 
mortgage credit), while limiting the ability and incentives for 
creditors to abuse the cure. The Bureau acknowledges that a cure 
provision could allow some creditors to conduct inaccurate pre-
consummation points and fees calculations and that the cure provision 
would operate to limit legal remedies for some consumers who might 
later bring ability-to-repay claims. However, the Bureau concludes that 
the safeguards described more fully below, such as limiting the cure 
period to a short and finite period after consummation, cutting off the 
ability to cure upon the occurrence of certain events (including the 
consumer filing a lawsuit in connection with the loan), and requiring 
creditors to pay interest on the points and fees overages, will 
appropriately limit the incentives and opportunity for misuse of the 
cure. Market forces (such as repurchase demands), concerns about 
litigation risk, and the costs of administering a post-consummation 
cure, will also limit the extent to which creditors may be incentivized 
to misuse the cure provision.

[[Page 65310]]

    The Bureau also believes that, in most cases, the cure provision 
will align the loan terms with the expectations of the creditor and the 
consumer: The creditor likely believed the loan was a qualified 
mortgage when it originated the loan and, assuming buffers that affect 
pricing at the margins are removed, the consumer likely received more 
affordable qualified mortgage pricing because of the creditor's belief 
that the loan was a qualified mortgage. If a cure is effectuated, the 
consumer will also receive a monetary cure payment for the points and 
fees overage. For these reasons, the Bureau concludes that allowing a 
points and fees cure as structured in this final rule will benefit 
consumers.
Legal Authority
    The Bureau is adopting the points and fees cure provision in Sec.  
1026.43(e)(3) pursuant to its authority under TILA section 
129C(b)(3)(B)(i) to promulgate regulations that revise, add to, or 
subtract from the criteria that define a qualified mortgage. In 
addition, because revised Sec.  1026.43(e)(3) permits creditors to cure 
non-compliance with the general qualified mortgage points and fees 
limits up to 210 days after consummation, the Bureau also adopts 
revised Sec.  1026.43(e)(3) pursuant to its authority under section 
105(a) and (f) of TILA. Each of these authorities is discussed in turn 
below.
    For the reasons discussed herein, the Bureau concludes that revised 
Sec.  1026.43(e)(3) is warranted under TILA section 129C(b)(3)(B)(i) 
because the limited post-consummation cure provision is necessary and 
proper to ensure that responsible, affordable mortgage credit remains 
available to consumers in a manner consistent with the purposes of 
section 129C of TILA, and also necessary and appropriate to facilitate 
compliance with section 129C of TILA. For example, the Bureau concludes 
that the limited post-consummation cure provision will facilitate 
compliance with TILA section 129C by encouraging rigorous, post-
consummation quality control loan reviews that will, over time, improve 
the origination process.
    Pursuant to section 105(a) of TILA, the Bureau generally may 
prescribe regulations that 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. For the reasons 
discussed below, the Bureau concludes that exempting the class of 
qualified mortgages that involve a post-consummation points and fees 
cure from the statutory requirement that the creditor make a good faith 
determination that the consumer has the ability to repay ``at the time 
the loan is consummated'' is necessary and proper to effectuate the 
purposes of TILA. The Bureau concludes that a limited post-consummation 
cure of points and fees overages will preserve access to credit to the 
extent it encourages creditors to extend credit to consumers seeking 
loans with points and fees up to the applicable limit under the rule. 
Without a points and fees cure provision, the Bureau believes that some 
consumers might be at risk of being denied access to responsible, 
affordable credit to the extent some creditors will not make loans near 
the points and fees limits due to concerns about inadvertently 
exceeding that limit, or will make more expensive loans near the limit. 
This would be contrary to the purposes of TILA, which include ensuring 
that responsible, affordable mortgage credit remains available to 
consumers. See 15 U.S.C. 1639b(a)(1). The Bureau also concludes that a 
limited post-consummation cure provision will facilitate compliance 
with TILA section 129C by encouraging rigorous, post-consummation 
quality control loan reviews that will, over time, improve the 
origination process.
    The Bureau has considered the factors in TILA section 105(f) and 
concludes that a limited points and fees cure provision is appropriate 
under that provision. The Bureau concludes that the exemption, as 
limited by the final rule, is appropriate for all affected consumers, 
specifically, those seeking loans at the margins of the points and fees 
limits whose access to credit may be affected adversely without the 
exemption. Similarly, the Bureau concludes 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 
concludes that, on balance, the exemption will not undermine the goal 
of consumer protection or increase the complexity or expense of (or 
otherwise hinder) the credit process. While the exemption may result in 
consumers in affected transactions losing some of TILA's benefits, 
potentially including some aspects of a foreclosure legal defense, the 
Bureau concludes such potential losses are outweighed by the 
potentially increased access to responsible, affordable credit, an 
important benefit to consumers. The Bureau concludes that is the case 
for all affected consumers, regardless of their other financial 
arrangements, their financial sophistication, and the importance of the 
loan and supporting property to them.
43(e)(3)(iii)
43(e)(3)(iii)(A)
The Bureau's Proposal
    As noted above, proposed Sec.  1026.43(e)(3)(iii)(A) would have 
required, as a condition of curing a points and fees overage, that the 
loan was originated in good faith as a qualified mortgage and the loan 
otherwise meets the requirements of Sec.  1026.43(e)(2), (e)(4), 
(e)(5), (e)(6), or (f) (i.e., the requirements to be a qualified 
mortgage), as applicable. The Bureau also proposed comment 
43(e)(3)(iii)-1, which would have provided examples of evidence that a 
loan was originated in good faith as a qualified mortgage, and examples 
of circumstances that would evidence that a loan was not originated in 
good faith as a qualified mortgage. The Bureau proposed to limit the 
cure provision to loans originated in good faith as a qualified 
mortgage to ensure that the cure provision is available only in cases 
of inadvertent errors in the origination process and to prevent 
creditors from misusing the cure provision by intentionally exceeding 
the points and fees limits. However, the Bureau sought comment on 
whether the good faith element of proposed Sec.  1026.43(e)(3)(iii)(A) 
is necessary in light of the other proposed limitations on the cure 
provision. The Bureau also sought comment on the proposed examples in 
comment 43(e)(3)(iii)-1.
    For the reasons discussed below, the final rule does not contain an 
express requirement that the loan was originated in good faith as a 
qualified mortgage. Rather, as finalized, Sec.  1026.43(e)(3)(iii)(A) 
requires, as a condition of curing a points and fees overage, that the 
loan otherwise meets the criteria for a qualified mortgage in Sec.  
1026.43(e)(2), (e)(4), (e)(5), (e)(6), or (f), as applicable.
Comments
    Industry commenters argued for removal of the ``good faith'' 
requirement for exercising a points and fees cure. These commenters 
argued that a good faith standard is too subjective and likely to 
create grounds for expensive litigation. They also stated it is 
unnecessary because of other limitations on the cure provision, among 
other reasons.
    First, industry commenters stated that the subjective nature of 
good faith would have the unintended consequence of limiting industry's 
use

[[Page 65311]]

of the points and fees cure. They noted that the good faith requirement 
cannot be satisfied by objectively reviewing a loan file post-
consummation. One GSE commenter noted that the good faith requirement 
would require an assignee to maintain copies of the creditor's business 
records, which may present evidentiary issues if introduced in court by 
an assignee in future litigation.
    Second, industry commenters argued that the good faith requirement 
could lead to expensive litigation. For example, one large industry 
trade association argued that, even if a creditor had acted in good 
faith, because good faith may be a jury question, it would be difficult 
to get claims dismissed. The commenter argued that the same is true 
with respect to the two examples of good faith in the proposed 
commentary. Whether a creditor had appropriate policies and procedures, 
or whether a loan was priced as a qualified mortgage, may be a jury 
question, thus prospective litigation costs (and other risks) would 
militate against reducing current buffers.
    Third, industry commenters argued that the good faith requirement 
is unnecessary to discourage bad behavior by a creditor. These 
commenters stated that assignees' contractual remedies provide 
sufficient incentives for good behavior by creditors. They also argued 
that the good faith requirement is unnecessary in light of the cure 
provision's other requirements, including that the loan otherwise 
comply with all applicable qualified mortgage provisions. These 
commenters also noted the availability of other methods of ensuring the 
cure provision is not abused, such as bringing actions for unfair or 
deceptive acts or practices.
    Fourth, industry commenters requested that, if the good faith 
requirement is retained, the commentary should provide more definitive 
statements as to what constitutes good faith. For example, one GSE 
commenter stated that avoiding subjective terms such as ``consistent'' 
or ``contemporaneously'' would be useful. Similarly, one large bank 
trade association argued that stating that a particular factor ``is'' 
evidence of good faith rather than merely saying it ``may be'' evidence 
of good faith would provide greater clarity and certainty that the good 
faith standard was met. A GSE commenter also noted that it is unclear 
what percentage of loans originated by the creditor should be reviewed 
to determine consistency (i.e., whether review of all loans is required 
or whether some lower percentage is sufficient). Two State industry 
trade associations stated that the term ``contemporaneously'' would not 
take into account the different types of loans and loan features that 
affect pricing more than proximity in time.
    The consumer group commenters who generally opposed a points and 
fees cure stated that if the final rule permits a cure it must require 
good faith both in the loan's origination as a qualified mortgage and 
in exercising the cure itself. These commenters stated that, without a 
good faith requirement for the cure, creditors and assignees could 
selectively cure loans only when they feared a challenge to the 
creditor's compliance with the ability-to-repay rule or when the 
creditor wanted to sell a loan on the secondary market. These 
commenters argued that the final rule should make clear that curing 
some loans selectively, or otherwise using the cure provision to cut 
off a consumer's attempt to seek a remedy, indicates the mortgage 
holder is attempting to evade compliance, rather than making a good 
faith attempt to comply, with the qualified mortgage rule.
    Consumer group commenters also noted that allowing creditors to 
exercise the right to cure for loans that were not originated in good 
faith as qualified mortgages would defeat the consumer protection 
purpose of the ability-to-repay rule. Several such commenters suggested 
that the magnitude of the points and fees error is relevant to 
determining whether the loan was originated in good faith as a 
qualified mortgage; the larger the amount of the overage, the less 
likely it is that the loan was originated in good faith as a qualified 
mortgage loan. Consumer group commenters were also concerned that, 
absent a good faith requirement, the cure would become a license for 
careless underwriting.
Final Rule
    Section 1026.43(e)(3)(iii)(A) of the final rule provides that, as a 
condition of exercising the cure, the loan must meet the requirements 
of Sec.  1026.43(e)(2), (e)(4), (e)(5), (e)(6), or (f), as applicable. 
The final rule does not expressly require that the loan was originated 
in good faith as a qualified mortgage. As noted above, the Bureau 
largely expects creditors and assignees to use the cure provision in 
cases of inadvertent errors in the origination process. In addition, 
the Bureau concludes that meeting the other requirements to be a 
qualified mortgage is a sufficient proxy for the loan being originated 
with the expectation of qualified mortgage status, and eliminating the 
good faith requirement provides a bright-line rule that gives certainty 
to creditors and assignees. The final rule contains additional 
mechanisms to prevent creditors from misusing the cure provision, such 
as cutting off the ability to cure before the consumer becomes 
seriously delinquent on payments; upon the institution of an action by 
the consumer related to the loan; or upon notice of the points and fees 
overage from the consumer. The Bureau is not finalizing comment 
43(e)(3)(iii)-1 as proposed, because it is not adopting the good faith 
requirement as part of the cure provision.
    As discussed, the Bureau intends the cure to provide certainty to 
the market until it has gained experience with the qualified mortgage 
rules and points and fees calculations in particular. Good faith--or 
its absence--may be clear in some situations, but in other situations 
it may only be determined based on an analysis of the facts and 
circumstances of the particular case. The Bureau recognizes that such 
case-by-case determinations would not provide the certainty that the 
cure provision is intended to provide. This uncertainty could deter 
creditors and assignees from relying on the cure provision and, 
instead, incentivize creditors to maintain current points and fees 
buffers. To the extent creditors do not rely on the cure provision, its 
intended purpose of increasing access to credit or decreasing the cost 
of credit would not be realized. Moreover, the Bureau expects that 
secondary market forces may impose many of the same restraints as the 
good faith requirement would have imposed.
    Consumer group commenters argued that, without the good faith 
requirement, the cure provision could lead to careless or willful pre-
consummation points and fees overages. However, the Bureau believes 
that if the loan must meet all other qualified mortgage requirements at 
consummation, the final rule should largely prevent creditors from 
engaging in careless calculations and limit use of the cure to loans 
that were originated with the expectation of qualified mortgage status. 
The Bureau further concludes that concerns about litigation risk, 
repurchase demands, and the administrative costs associated with curing 
points and fees overages will discourage creditors from conducting 
inaccurate pre-consummation calculations or intentionally exceeding the 
applicable points and fees limit for qualified mortgages.
    In addition, and as explained more fully below in the section-by-
section analysis of Sec.  1026.43(e)(3)(iii)(B), the Bureau is adopting 
other safeguards to ensure that creditors and assignees have the proper 
incentives not to engage in

[[Page 65312]]

careless or willful pre-consummation overages. These safeguards include 
cutting off the right to cure when the consumer files a lawsuit in 
connection with the loan, when the consumer gives written notice of the 
points and fees overage, or when the consumer becomes 60 days past due 
on the legal obligation. Additionally, the final rule requires that the 
cure payment to consumers include interest in addition to the overage 
amount, to guard against abuse of the cure provision. See the section-
by-section analysis of Sec.  1026.43(e)(iv). Finally, the Bureau notes 
that a repeated pattern of inappropriate underwriting could be viewed 
as a potential violation of other Federal consumer protection laws. The 
Bureau intends to monitor the use of the cure provision for potential 
abuses and will consider changes to the rule to prevent abuses, as 
appropriate.
    The Bureau considered but is not adopting an approach that takes 
into account the magnitude of the points and fees overage because the 
Bureau does not believe the magnitude of an overage alone indicates an 
intent to abuse the cure provision. Moreover, the Bureau believes 
creditors are sufficiently motivated to avoid large points and fees 
overages because they generally seek to avoid HOEPA's 5 percent points 
and fees threshold. See Sec.  1026.32(a)(1)(ii). As noted, this final 
rule contains more targeted safeguards to prevent abuse of the cure 
provision.
    The Bureau also considered comments from consumer groups who urged 
that the rule require the cure to be executed in good faith and who 
expressed concern that the cure provision could allow creditors and 
assignees to selectively cure overages only after problems develop with 
the loan. These comments are addressed in the section-by-section 
analysis of Sec.  1026.43(e)(3)(iii)(C), below.
43(e)(3)(iii)(B)
The Bureau's Proposal
    As noted above, proposed Sec.  1026.43(e)(3)(iii)(B) would have 
required the creditor or assignee, within 120 days after consummation, 
to refund the overage amount (i.e., the dollar amount by which the 
transaction's points and fees at consummation exceeded the applicable 
limit under paragraph Sec.  1026.43(e)(3)(i)) to effect a points and 
fees cure. The proposal solicited comment on whether the rule should 
provide a longer or shorter cure period and, if a longer period, 
whether additional cure limitations should apply beyond those in the 
proposal. For example, the Bureau solicited comment on whether a cure 
should be permitted where a consumer has already instituted an action 
or provided the creditor or assignee with written notice of the error. 
For the reasons discussed below, the Bureau is adopting Sec.  
1026.43(e)(3)(iii)(B) with modifications that extend the cure period to 
210 days after consummation and automatically terminate the cure period 
upon certain events.
Comments
    Although one large creditor and one trade association supported the 
proposed 120-day cure period, most industry commenters argued in favor 
of extending that period. Several trade associations recommended 
increasing the number of days after consummation, including one State 
trade association that favored a period up to one year after 
consummation. Most of those commenters supported a cure period of at 
least 180 days after consummation to allow many creditors to maintain 
existing systems for review.
    To supplement the proposed 120-day cure period, a large creditor, a 
GSE, and two trade associations recommended also permitting cure within 
a certain period (e.g., 60, 120, or 270 days) after the purchase of the 
loan on the secondary market. Those commenters generally argued that 
the proposed cure period is too short to allow assignees opportunities 
for loan compliance review; for example, the GSE commenter, which 
favored a period extending 270 days after loan purchase, stated that 
its average time between consummation and a completed loan review in 
2013 was approximately nine months--and that this timeframe might 
increase due to additional testing related to the January 2013 and May 
2013 ATR Final Rules.
    Industry commenters also supported extending the cure period from 
the time the error is discovered. Two GSEs recommended 120 days after 
discovery, while three trade associations endorsed a cure period of 60 
days after discovery, not to exceed one year from consummation. The 
GSEs noted that TILA section 130(b) and current Sec.  1026.31(h) of 
Regulation Z already have cure periods that extend from the time that 
an error is discovered. One of the GSEs also advocated allowing a loan 
to be cured so long as the creditor or assignee provides notice to the 
consumer within the cure period, with the actual cure payment coming 
within a reasonable time (e.g., 30 days) after that notice. One trade 
association suggested that, to encourage more cure payments to 
consumers, a cure should be permitted even if the overage is discovered 
after the standard cure period, so long as the consumer has not already 
instituted a legal action and the creditor or assignee makes a larger 
cure payment.
    Some commenters also suggested different forms of payment, which 
could have some implications for the timing of the cure payment. A GSE 
commenter advocated for having the cure payment made to the consumer 
through a check or an automated clearing house (ACH) transfer to the 
consumer's checking or savings account. A regional trade association 
commenter urged that consumers and creditors should have an option to 
directly apply the cure payment to the relevant loan obligation.
    Consumer group commenters supported the proposal to limit the cure 
period to a fixed period after consummation. Those commenters favored 
the proposal over a time period based on discovery of the overage, 
citing drawn-out uncertainty and additional litigation that a 
discovery-based period would cause. The consumer group commenters 
stated that a cure period running from discovery of the error, rather 
than from consummation, would allow creditors or assignees to 
intentionally cure only loans in which problems have arisen by claiming 
that the overage had been discovered only then.
    Because the cure affords creditors and assignees qualified mortgage 
protection where there was a defect in the points and fees calculation 
at the time of consummation, consumer group commenters also stated that 
the cure period should automatically terminate upon certain events 
(``cut-off events'') to preserve consumers' potential ability-to-repay 
claims. These commenters noted that TILA's cure provision has similar 
cut-off events.\17\ Consumer group commenters recommended that the cut-
off events should include a consumer defaulting on the loan. The 
commenters viewed a default within the first few months after 
consummation as strong evidence that the loan may have violated 
ability-to-repay underwriting requirements. Consumer group commenters 
also advocated other cut-off events, broadly including various means 
for consumers to assert legal remedies regarding the loan, e.g., filing 
a lawsuit, exercising a right of rescission, and complaining to a 
regulator. Consumer group commenters specifically recommended that cut-
off events include a consumer or regulator notifying a creditor or 
assignee of a points and fees error; the commenters

[[Page 65313]]

noted that, if a consumer or regulator discovers the error before the 
creditor or assignee cures, that is a possible indication that the 
creditor or assignee lacks robust loan review procedures or is 
attempting to exploit the cure provision in bad faith.
---------------------------------------------------------------------------

    \17\ The general TILA section 130(b) cure provision applies to 
TILA violations. Given that TILA does not require all loans to be 
qualified mortgages, TILA section 130(b) is not directly applicable 
to the qualified mortgage points and fees limit.
---------------------------------------------------------------------------

    The Bureau also received some comments from industry groups 
regarding cut-off events. A GSE commenter argued that, for consumers 
struggling to make payments on their loans, cut-off events may deprive 
them of an opportunity to review their loans for points and fees 
overages and potentially receive a cure payment that could assist them 
in making loan payments. A trade association argued that cutting off 
the cure upon the consumer's notice of a points and fees error would 
encourage every consumer to send such notices automatically for every 
loan to strengthen their litigation claims.
Final Rule
    The Bureau is adopting Sec.  1026.43(e)(3)(iii)(B) with 
modifications extending the cure period to 210 days after consummation 
and automatically terminating the cure period upon certain enumerated 
events. As finalized, Sec.  1026.43(e)(3)(iii)(B) provides that the 
cure is only available if the creditor or assignee makes the cure 
payment described in Sec.  1026.43(e)(3)(iv) to the consumer within 210 
days after consummation and prior to the occurrence of any of the 
following events: (1) The consumer's institution of an action in 
connection with the loan; (2) the creditor, assignee, or servicer 
receiving the consumer's written notice that the transaction's total 
points and fees exceed the applicable limit under Sec.  
1026.43(e)(3)(i); or (3) the consumer becoming 60 days past due on the 
legal obligation. The cure payment amount under the final rule is 
discussed below in the section-by-section analysis of Sec.  
1026.43(e)(3)(iv).
    The Bureau concludes that limiting the cure to a short and specific 
period after consummation, and automatically terminating that cure 
period upon certain events, will provide certainty to the market and 
increase access to credit, while also curbing the potential for abuses 
of the cure provision. For example, the limited cure period will 
discourage creditors from intentionally or recklessly originating loans 
with high points and fees and then waiting as long as possible to see 
if certain loans become riskier--with the expectation that, if they do, 
the creditor will use the cure provision selectively to help avoid 
legal liability on those loans. With a limited cure period, such a 
scenario becomes riskier and less attractive to creditors. At the same 
time, the Bureau recognizes that, if the cure period is too limited, 
creditors and assignees will be deterred from relying on the cure 
provision in lieu of maintaining current buffers near the qualified 
mortgage points and fees limits, which would hinder the intended effect 
of increasing access to affordable credit.
    The Bureau concludes that a cure period limited to 210 days after 
consummation will address the concerns of many industry commenters. 
Prior to the proposal, the Bureau's initial outreach to industry 
stakeholders suggested that a 120-day period after consummation would 
be consistent with industry's existing systems for quality control 
review. However, as discussed above, most industry commenters that 
suggested a specific cure time period stated that 180 days after 
consummation would be more consistent with current practices for post-
consummation review. It is not clear whether all such commenters 
considered the administrative time required to process a cure payment 
once a points and fees overage has been identified, or whether those 
commenters were instead focused solely on current timelines for 
completing post-consummation loan audits. One GSE commenter suggested 
that 30 days is a reasonable amount of time for creditors or assignees 
to process and execute a cure payment to the consumer.
    The Bureau is finalizing a cure period of 210 days after 
consummation, which generally provides 180 days for post-consummation 
points and fees reviews and an additional 30 days to process and 
provide cure payments to consumers. The Bureau is not adopting a cure 
period that could extend beyond 210 days after consummation because, as 
explained above, an extended cure period would increase the potential 
for abusing the cure. Moreover, a cure period running from a loan's 
purchase or an overage's discovery would provide less encouragement for 
rigorous and prompt loan review and would likely delay cure payments to 
consumers.
    The Bureau is also adopting new comment 43(e)(3)(iii)-1 to provide 
additional clarification regarding the 210-day cure period. The comment 
provides that the creditor or assignee, as applicable, complies with 
Sec.  1026.43(e)(3)(iii)(B) if it makes the cure payment described in 
Sec.  1026.43(e)(3)(iv) to the consumer within 210 days after 
consummation and prior to the occurrence of any of the cut-off events 
described in Sec.  1026.43(e)(3)(iii)(B)(1) through (3). A creditor or 
assignee, as applicable, does not comply with Sec.  
1026.43(e)(3)(iii)(B) if the cure payment is made to the consumer more 
than 210 days after consummation or after the occurrence of any of the 
events in Sec.  1026.43(e)(3)(iii)(B)(1) through (3). In response to 
public comments suggesting different forms of payment, comment 
43(e)(3)(iii)-1 also provides that the cure payment may be made by any 
means mutually agreeable to the consumer and the creditor or assignee, 
as applicable, or by check. This provision in comment 43(e)(3)(iii)-1 
clarifies that the consumer and creditor or assignee (as applicable) 
may agree to any method of making the cure payment to the consumer. For 
example, as discussed below in the section-by-section analysis of Sec.  
1026.43(e)(3)(iv), the consumer and the creditor or assignee may agree 
to apply the cure payment towards the loan's unpaid principal balance. 
This provision in comment 43(e)(3)(iii)-1 also clarifies that the 
creditor or assignee (as applicable) may make the cure payment to the 
consumer by check without the agreement of the consumer. As such, 
comment 43(e)(3)(iii)-1 further provides that, if the cure payment is 
made by check, the creditor or assignee complies with Sec.  
1026.43(e)(3)(iii)(B) if the check is delivered or placed in the mail 
to the consumer within 210 days after consummation.
    The Bureau further concludes that the cure period should terminate 
automatically upon certain enumerated cut-off events, particularly 
given the expanded cure period provided in the final rule. 
Specifically, those cut-off events are: (1) The consumer's institution 
of any action in connection with the loan; (2) the creditor, assignee, 
or servicer receiving the consumer's written notice that the 
transaction's total points and fees exceed the applicable limit under 
Sec.  1026.43(e)(3)(i); or (3) the consumer becoming 60 days past due 
on the terms of the legal obligation. As discussed below, the Bureau 
concludes that these limitations will help protect consumers, curb 
potential abuse of the cure provision, and incentivize the creditor or 
assignee to detect and make cure payments as early as possible. At the 
same time, the Bureau expects that the enumerated cut-off events will 
not substantially hinder the cure provision's intended effect of 
increasing access to affordable credit. The Bureau anticipates that the 
cut-off events will occur relatively infrequently and should not unduly 
deter creditors and assignees from relying on the cure provision.
    Institution of any action. The Bureau concludes that creditors and 
assignees should not be permitted to cure defects

[[Page 65314]]

in points and fees calculations after the consumer's institution of a 
legal action in connection with the loan. The Bureau is concerned that 
allowing a points and fees cure after the action is instituted would 
permit creditors and assignees to misuse the cure provision. The Bureau 
concludes that cut-off events should not be limited to actions related 
to the ability-to-repay rules. Any litigation by the consumer so early 
in the loan's term is a signal of potential problems and suggests that 
the consumer likely values the right to litigate more than the limited 
cure payment, regardless of whether the claim is based specifically on 
the ability-to-repay rules or sounds in another legal theory. Moreover, 
consumers in litigation are well-positioned to negotiate compensation 
in settlement of the litigation, and so are unlikely to be harmed by 
cutting off the cure.\18\ Accordingly, Sec.  1026.43(e)(3)(iii)(B)(1) 
cuts off the ability to cure upon the consumer's institution of any 
action in connection with the loan.
---------------------------------------------------------------------------

    \18\ While the institution of any action by the consumer in 
connection with the loan will cut off the ability to cure a points 
and fees overage and thus prevents the loan from being a qualified 
mortgage, nothing in this rule precludes the negotiated settlement 
of claims otherwise permitted by law.
---------------------------------------------------------------------------

    The Bureau declines to cut off the ability to cure upon a 
regulator's institution of an action in connection with the loan. While 
such an action so early in the loan's term may also be a signal of 
potential problems with the loan, a regulator instituting an action 
does not indicate whether an individual consumer values a potential 
litigation claim more than the limited cure payment. Legal action by a 
regulator may be connected to a vast number of loans for which the 
regulator is unable to determine whether each consumer would prefer to 
receive a cure payment.
    Written notice of overage. The Bureau also concludes that creditors 
and assignees should not be permitted to cure defects in points and 
fees calculations after a consumer provides notice of a points and fees 
overage to the creditor, assignee, or servicer. The Bureau is concerned 
that cutting off the cure period only when a consumer files legal 
action would encourage disputes to be taken to court prematurely. Such 
an approach would be inefficient and would increase costs for both 
consumers and creditors.
    Unlike the cut-off event related to the institution of legal action 
described above, the notice cut-off event is triggered only where the 
consumer specifically gives notice that points and fees exceed the 
applicable limit, and not by notice of any defect with the loan more 
generally. The Bureau concludes this approach is appropriate to prevent 
consumers from inadvertently cutting off the ability to cure (and 
therefore potentially forfeiting cure payments) and also to provide a 
bright-line rule. The Bureau assumes that most consumers who have 
identified points and fees overages and are concerned about preserving 
their ability-to-repay litigation rights will be represented by counsel 
and will be able to make tactical decisions about forgoing a cure 
payment to strengthen their ability-to-repay claims.\19\ These 
consumers may prefer to delay litigation if, for example, they are 
seeking a loan modification and are unsure if legal action will 
ultimately be necessary or if they believe additional investigation is 
necessary before bringing suit. Accordingly, Sec.  
1026.43(e)(3)(iii)(B)(2) cuts off the ability to cure upon the 
creditor, assignee, or servicer receiving written notice from the 
consumer that the transaction's total points and fees exceed the 
applicable limit under Sec.  1026.43(e)(3)(i). Given that many 
consumers communicate with their servicers regarding their loans, Sec.  
1026.43(e)(3)(iii)(B)(2) specifically provides that notice of an 
overage to the servicer, in addition to the creditor and assignee, cuts 
off the ability to cure. For the reasons discussed above regarding 
cutting off the cure upon initiation of an action, the Bureau also 
concludes that notice of a points and fees overage from a regulator 
(rather than the consumer) should not cut off the cure period.
---------------------------------------------------------------------------

    \19\ As noted above, nothing in this rule precludes the 
negotiated settlement of claims otherwise permitted by law. See 
supra note 18.
---------------------------------------------------------------------------

    A trade association commenter argued that a cut-off event based on 
an overage notice would incentivize all consumers to send such overage 
notices for every loan. The Bureau notes, however, that the notice cut-
off event in the final rule is a concept similar to that in TILA 
section 130(b), and the Bureau is unaware of evidence that TILA section 
130(b) has led to significant problems.
    60 days past due. The Bureau concludes that consumers who are 60 
days behind on their loans should generally be able to preserve 
potential ability-to-repay claims. Consumer group commenters broadly 
recommended that a consumer's default should cut off the cure period, 
but they did not elaborate on the types of default or periods of 
delinquency. The Bureau believes that, if cut-off events are too broad, 
creditors and assignees will be deterred from relying on the cure 
provision in lieu of maintaining current buffers near the qualified 
mortgage points and fees limits. The Bureau concludes that including 
any and all consumer defaults as cut-off events does not strike an 
appropriate balance between promoting affordable credit with the cure 
and protecting litigation rights for consumers most likely to benefit 
from them.
    A widely-used threshold for defining ``serious'' delinquencies is 
90 days.\20\ The Bureau believes that a loan becoming seriously 
delinquent within the first 210 days after consummation raises concerns 
that the loan violates ability-to-repay requirements. See, e.g., 
comment 43(c)(1)-1.ii.B.1 (``the consumer's default on the loan a short 
time after consummation'' may be evidence that a creditor's ability-to-
repay determination was not reasonable or in good faith). For this 
reason, the cure is not permitted for seriously delinquent loans. 
Further, the Bureau is concerned that permitting cure of a points and 
fees overage when a loan is already near the point of serious 
delinquency could incentivize abuse of the cure provision. Therefore, 
Sec.  1026.43(e)(iii)(3)(B)(3) cuts off the ability to cure upon a 
payment becoming 60 days past due.
---------------------------------------------------------------------------

    \20\ See, e.g., Freddie Mac, January 2014 U.S. Economic & 
Housing Market Outlook --Taking the Temperature of the Markets 1 
(Jan. 16, 2014), available at http://www.freddiemac.com/finance/pdf/Jan_2014_public_outlook.pdf; Fannie Mae, Monthly Summary 4 tbl. 9 
(June 2014), available at http://www.fanniemae.com/resources/file/ir/pdf/monthly-summary/063014.pdf.
---------------------------------------------------------------------------

    The Bureau is also adopting new comment 43(e)(3)(iii)-2 to provide 
additional clarification regarding the 60 days past due threshold. The 
comment provides that, for purposes of Sec.  1026.43(e)(3)(iii)(B)(3), 
``past due'' means the failure to make a periodic payment (in one full 
payment or in two or more partial payments) sufficient to cover 
principal, interest, and, if applicable, escrow under the terms of the 
legal obligation. Other amounts, such as any late fees, are not 
considered for this purpose. For purposes of Sec.  
1026.43(e)(3)(iii)(B)(3), a periodic payment is 30 days past due when 
it is not paid on or before the due date of the following scheduled 
periodic payment and is 60 days past due when, after already becoming 
30 days past due, it is not paid on or before the due date of the next 
scheduled periodic payment. For purposes of Sec.  
1026.43(e)(3)(iii)(B)(3), the creditor or assignee may treat a received 
payment as applying to the oldest outstanding periodic payment.
    The commentary provides an example to illustrate the meaning of 60 
days past due for purposes of

[[Page 65315]]

Sec.  1026.43(e)(3)(iii)(B)(3). The example assumes a loan is 
consummated on October 15, 2015, that the consumer's periodic payment 
is due on the 1st of each month, and that the consumer timely made the 
first periodic payment due on December 1, 2015. For purposes of Sec.  
1026.43(e)(3)(iii)(B)(3), the consumer is 30 days past due if the 
consumer fails to make a payment (sufficient to cover the scheduled 
January 1, 2016 periodic payment of principal, interest, and, if 
applicable, escrow) on or before February 1, 2016. For purposes of 
Sec.  1026.43(e)(3)(iii)(B)(3), the consumer is 60 days past due if the 
consumer then also fails to make a payment (sufficient to cover the 
scheduled January 1, 2016 periodic payment of principal, interest, and, 
if applicable, escrow) on or before March 1, 2016. For purposes of 
Sec.  1026.43(e)(3)(iii)(B)(3), the consumer is not 60 days past due if 
the consumer makes a payment (sufficient to cover the scheduled January 
1, 2016 periodic payment of principal, interest, and, if applicable, 
escrow) on or before March 1, 2016. This is consistent with the general 
industry accounting practice of crediting a received payment by 
applying it to the oldest outstanding periodic payment.\21\
---------------------------------------------------------------------------

    \21\ See, e.g., Fannie Mae, Security Instruments, https://www.fanniemae.com/singlefamily/security-instruments (last visited 
October 15, 2014) (security instruments for various states but with 
a uniform covenant that payments shall be applied to each periodic 
payment in the order in which it became due, such as Fannie Mae & 
Freddie Mac, California Single Family Uniform Instrument 4, 
available at https://www.fanniemae.com/content/legal_form/3005w.doc; 
Fannie Mae & Freddie Mac, New York Single Family Uniform Instrument 
5, available at https://www.fanniemae.com/content/legal_form/3033w.doc).
---------------------------------------------------------------------------

43(e)(3)(iii)(C)
The Bureau's Proposal
    Proposed Sec.  1026.43(e)(3)(iii)(C) and proposed comment 
43(e)(3)(iii)-2 would have provided that, as a condition of curing a 
points and fees overage, the creditor or assignee must maintain and 
follow policies and procedures for post-consummation review of loans 
and for refunding to consumers amounts that exceed the applicable limit 
under Sec.  1026.43(e)(3)(i).
    For the reasons set forth below, the Bureau is finalizing Sec.  
1026.43(e)(3)(iii)(C), with certain clarifying changes. The Bureau is 
not finalizing the substance of proposed comment 43(e)(3)(iii)-2 but is 
finalizing new comment 43(e)(3)(iii)-3 to provide additional guidance 
on the post-consummation policies and procedures requirement in Sec.  
1026.43(e)(3)(iii)(C).
Comments
    A State industry trade association and a nonprofit organization 
supported the post-consummation policies and procedures requirement as 
appropriate. However, several industry commenters expressed doubts 
about the requirement.
    Some industry commenters were not certain of the scope of the 
proposed requirement. For example, one national industry association 
asked whether a post-consummation review of all loans was required and 
noted that the cost of such a requirement would be prohibitive. A large 
creditor noted that the proposed cure period of 120 days would not 
provide sufficient time for post-consummation reviews of a significant 
number of loans.
    Other industry commenters, including a large creditor and an 
association of large creditors, argued that the post-consummation 
policies and procedures requirement introduced a subjective element 
into the cure procedure and that the resulting uncertainty would make 
the cure provision less usable by creditors. A GSE commenter stated 
that, in addition to being subjective, the requirement is not 
necessary. This commenter argued that the mere existence of a limited 
cure period would provide a powerful incentive for creditors to 
maintain and follow post-consummation review policies and procedures.
    While consumer group commenters generally did not focus on the 
post-consummation policies and procedures requirement, they addressed 
related issues by insisting that the cure itself must be made in good 
faith. As noted in the section-by-section analysis of Sec.  
1026.43(e)(3)(iii)(A), above, these commenters stated that, without a 
good faith requirement for the cure, creditors and assignees could 
selectively cure loans only when they feared a challenge to the 
creditor's compliance with the ability-to-repay rule or when the 
creditor wanted to sell a loan on the secondary market. These 
commenters argued that the final rule should make clear that curing 
some loans selectively indicates the mortgage holder is attempting to 
exploit the cure in bad faith rather than making a good faith attempt 
to comply with the ability-to-repay rule.
Final Rule
    The Bureau is finalizing Sec.  1026.43(e)(3)(iii)(C) generally as 
proposed, but with changes to provide greater clarity in response to 
issues raised by commenters and for consistency with other provisions 
of this final rule. As finalized, Sec.  1026.43(e)(3)(iii)(C) provides 
that, as a condition of the cure, the creditor or assignee, as 
applicable, must maintain and follow policies and procedures for post-
consummation review of points and fees and for making cure payments to 
consumers in accordance with Sec.  1026.43(e)(3)(iii)(B) and (iv). The 
final commentary has been modified from the proposal to reflect and 
provide guidance on the final rule.
    Final Sec.  1026.43(e)(3)(iii)(C) differs from the proposal in two 
ways. First, the final rule requires policies and procedures ``for 
post-consummation review of points and fees'' instead of ``post-
consummation review of loans.'' The final rule makes clear that, for 
purposes of exercising the cure, the required post-consummation review 
may focus only on points and fees and is not required to be a full loan 
review. Second, final Sec.  1026.43(e)(3)(iii)(C) refers to policies 
and procedures for ``making payments to consumers in accordance with 
[Sec.  1026.43(e)(3)(iii)(B) and (e)(3)(iv)]'' rather than ``refunding 
to consumers amounts that exceed the applicable limit under [Sec.  
1026.43(e)(3)(i)],'' for consistency with the expanded cure payment 
described below in the section-by-section analysis of Sec.  
1026.43(e)(iv).
    To address further some of the concerns on which the comments 
requested clarification, comment 43(e)(3)(iii)-3 provides that the 
policies and procedures described in Sec.  1026.43(e)(3)(iii)(C) need 
not require post-consummation review of all loans originated by the 
creditor or acquired by the assignee, as applicable, nor must such 
policies and procedures require a creditor or assignee to apply Sec.  
1026.43(e)(3)(iii) and (iv) for all loans that are found to exceed the 
applicable points and fees limit. The Bureau did not intend the post-
consummation review requirement, as proposed, to require review of all 
loans, and the Bureau is making these clarifying changes to address 
concerns raised by commenters. As noted by industry commenters, a rule 
that requires review of all loans within a short time after 
consummation could be impracticable. Similarly, the Bureau did not 
intend proposed Sec.  1026.43(e)(3)(iii)(C) to require the creditor or 
assignee to make cure payments for all loans that are found to exceed 
the applicable points and fees limit.
    The Bureau has considered commenters' concerns that the policies 
and procedures requirement is subjective and unnecessary or that the 
rule must require that the cure be exercised in good faith. The final 
rule includes clarifying changes to

[[Page 65316]]

Sec.  1026.43(e)(3)(iii)(C) and the addition of comment 43(e)(3)(iii)-
3. The Bureau, however, does not believe that the requirement for 
policies and procedures is unnecessary or that the rule should 
explicitly require that the cure itself be made in good faith. Rather, 
the Bureau believes that the post-consummation policies and procedures 
requirement will serve a purpose similar to a good faith requirement 
while maintaining more of a ``bright-line'' focus, will help deter 
abusive practices by creditors, and will better allow regulators to 
monitor the use of the cure.
43(e)(3)(iv)
The Bureau's Proposal
    Proposed Sec.  1026.43(e)(3)(iii)(B) would have required the 
creditor or assignee to refund only the overage amount, i.e., the 
dollar amount by which the transaction's points and fees exceeded the 
applicable limit under Sec.  1026.43(e)(3)(i). The proposal solicited 
comment on whether other forms of cure compensation may be appropriate. 
For the reasons discussed below, the Bureau is adopting the cure 
payment provision in proposed Sec.  1026.43(e)(3)(iii)(B) in new Sec.  
1026.43(e)(3)(iv), with modifications to require payment of interest 
from the time of consummation to the time of cure and to clarify that a 
cure payment in an amount greater than required also satisfies the 
cure's requirements.
Comments
    Several creditors and industry trade associations stated that the 
cure provision should not require any cure payment beyond a refund of 
the overage amount. On the other hand, consumer groups generally 
commented that the cure provision should avoid unjustly enriching 
creditors or assignees and address all negative consequences to 
consumers such that consumers are made entirely whole.
    A GSE commenter noted that requiring interest as an additional 
component of the cure payment would be an incentive to the creditor or 
assignee to detect and cure any overage as early as possible. The GSE 
also noted that including interest in the cure payment would come 
closer to making consumers whole.
    Some commenters stated that creditors should be required to 
restructure loans if consumers financed their points and fees. Consumer 
group commenters expressed concern that, where consumers used loan 
proceeds to pay for points and fees overages, absent the overages those 
consumers might have borrowed smaller loan amounts with smaller monthly 
payments. Thus, consumer group commenters recommended that the cure 
provision require the creditor or assignee to apply the cure payment to 
the loan balance and to restructure the loan's payments and 
amortization schedule accordingly. Alternatively, one consumer group 
commenter urged a bright-line rule that would permit a cure only where 
the overage was not paid using loan proceeds and did not otherwise 
affect the terms of the loan contract.
    Consumer group commenters, as well as an association of State 
regulators, were also concerned with overage situations where consumers 
paid discount points that did not reduce their interest rates as 
promised. In such circumstances, consumer group commenters stated that 
consumers should have a choice of cure compensation, including 
restructuring one or more loan contract terms (e.g., interest rate, 
payment amortization schedule), in lieu of the present value of the 
discount point discrepancy.
    In contrast, several creditors and industry trade associations 
noted that a loan restructuring would be unduly complex and disruptive 
to the loan securitization process. A large creditor argued that a loan 
restructuring is unnecessary because the consumer may opt to make a 
prepayment with the cure payment to reduce the loan balance. That 
commenter further noted that the net present value of cash in the hands 
of the borrower may potentially outweigh future loan payments.
    To clarify a potential ambiguity about whether the cure payment 
must be the exact amount of the overage, a GSE commenter recommended 
that the Bureau explicitly state that the cure provision allows the 
creditor or assignee to provide cure payments that are greater than the 
amount required by the rule. Regarding another potential ambiguity, a 
mortgage company commenter sought guidance as to what impacts, if any, 
this cure provision and the RESPA settlement charges cure provision 
have on one another.
Final Rule
    The Bureau is adopting the cure payment provision in proposed Sec.  
1026.43(e)(3)(iii)(B) in new Sec.  1026.43(e)(3)(iv), with 
modifications to require payment of interest on the points and fees 
overage amount from the time of consummation to the time of cure. The 
final rule also clarifies that a cure payment in an amount greater than 
required also satisfies the cure's requirements. Specifically, Sec.  
1026.43(e)(3)(iv) provides that, for purposes of Sec.  
1026.43(e)(3)(iii)(B), the creditor or assignee must make a cure 
payment in an amount that is not less than the sum of the following: 
(1) The dollar amount by which the transaction's total points and fees 
exceeds the applicable limit under Sec.  1026.43(e)(3)(i); and (2) 
interest on the dollar amount described in Sec.  1026.43(e)(3)(iv)(A), 
calculated using the contract interest rate applicable during the 
period from consummation until the cure payment is made to the 
consumer.
    The Bureau concludes that requiring interest on the overage amount 
as part of the cure payment will be an incentive to creditors and 
assignees to detect and cure overages as early as possible and that 
such a requirement will go towards making consumers whole. The interest 
will compensate consumers for their inability to use (e.g., make loan 
payments with) the overage funds until the time of cure. Thus, the 
Bureau is requiring that interest be calculated at the contract rate.
    Loan restructuring. For purposes of this cure provision, the Bureau 
is not requiring loan restructuring. First, it is speculative to assume 
that, but for a points and fees overage, consumers might have borrowed 
a smaller overall loan amount. In many cases it is also possible that, 
without the overage, consumers would have opted to make a smaller down-
payment while borrowing the same loan amount or simply would have paid 
less in upfront costs. Moreover, often only some of the total points 
and fees will be financed while some will be paid without using loan 
proceeds. In such situations it will be unclear whether or not an 
overage should be treated as having inflated the loan amount.
    Second, the Bureau concludes that, even without a loan 
restructuring, the consumer will not be forced to pay more interest 
over the life of the loan. Although the Bureau recognizes that 
restructuring the loan payment amortization schedule would give the 
consumer a lower monthly interest payment, the consumer may opt to make 
a prepayment with the cure payment to reduce the loan balance and 
thereby reduce overall interest payments by paying off the loan faster. 
The Bureau concludes that the overall financial impact on the consumer 
is the same under either approach. Final comment 43(e)(3)(iii)-1 states 
that the cure payment may be delivered to the consumer ``by any means 
mutually agreeable to the consumer and the creditor or assignee,'' 
which means that the consumer and the creditor or assignee may agree to 
apply the cure payment towards the loan's unpaid

[[Page 65317]]

principal balance (with or without reamortization) or the consumer may 
simply opt to make a prepayment once the cure payment is received from 
the creditor or assignee.
    Third, a loan restructuring would be disruptive to the loan 
securitization process, making the cure less practicable and thus 
potentially harming consumers' access to affordable credit.
    Prepayment penalties. For purposes of this cure provision, the 
Bureau also is not requiring that the cure payment include any 
prepayment penalty associated with applying the cure payment towards 
the loan balance. Section 1026.32(b)(1)(v) already includes the 
``maximum prepayment penalty'' as part of the definition of ``points 
and fees.'' \22\ The Bureau concludes that including such amounts in 
the cure payment would be impractical because creditors and assignees 
may not know until after the cure payment is provided to the consumer 
whether the consumer will apply the cure payment towards the unpaid 
principal balance. As a practical matter, the Bureau believes that few 
creditors will impose such prepayment penalties, particularly since 
such penalties would be counted towards the points and fees limit.
---------------------------------------------------------------------------

    \22\ Section 1026.43(g)(2) limits prepayment penalties within a 
loan's first two years to no more than 2 percent of the amount 
prepaid.
---------------------------------------------------------------------------

    Other costs. The final rule does not require a cure payment for 
other costs (beyond the points and fees overage plus interest) because 
the Bureau believes that such a requirement would hinder the cure 
provision's intended effect of increasing access to affordable credit. 
The Bureau believes that attributing other costs (such as mortgage 
insurance premiums) to an overage is speculative and is inconsistent 
with the bright-line nature of qualified mortgages. The Bureau 
recognizes that the final rule will not make consumers entirely whole 
in every circumstance but concludes that requiring and specifying how 
cure payments must be made for other costs would, on balance, encourage 
creditors to retain points and fees buffers and thus reduce access to 
credit.
    For example, the cure provision does not require a cure payment for 
mortgage insurance costs paid by the consumer that arguably were 
increased as a result of a points and fees overage. The Bureau 
understands that mortgage insurance premiums are typically calculated 
as a percentage of the loan amount--and that percentage itself 
typically varies based on loan-to-value (LTV) ratios, such that some 
loan size increases could move a consumer from a lower-cost rate tier 
to a higher one. Assuming that creditors or assignees, at the time of 
cure, are aware of the various tiers of mortgage insurance rates in 
effect at consummation, the Bureau considered whether cure payments for 
points and fees overages should include the present value of the 
portion of previously-paid and future mortgage insurance payments that 
could be attributed to the overages (assuming that consumers would have 
had smaller loan amounts but for the points and fees overages).
    As noted above, for purposes of the points and fees cure provision, 
the final rule does not assume that consumers would have had a smaller 
loan amount but for a points and fees overage. In many if not all cases 
it is uncertain whether, but for the overage, the consumer would have 
opted to make a smaller down-payment while borrowing the same loan 
amount. Moreover, in many cases only some of the total points and fees 
will be financed while some will be paid without using loan proceeds. 
In such situations it will be unclear whether an overage should be 
treated as having increased the loan amount.
    In the final rule, the Bureau is also balancing the additional 
complexity of determining all potential costs that might have been 
caused by a points and fees overage against the expectation that most 
consumers will have already received pricing benefits associated with 
qualified mortgages (as the creditor likely expected the loan to be a 
qualified mortgage). By not requiring cure payments for mortgage 
insurance or other costs that vary based on loan size, the cure 
provision will be less complicated, less risky, and otherwise less 
costly for creditors and assignees to use, which will encourage more 
easing of points and fees buffers by creditors, with attendant 
increases to credit access and lower credit costs for consumers.\23\ 
The final rule also helps avoid disincentives for creditors to ease 
points and fees buffers on loans with mortgage insurance--loans that 
are essential for many consumers with otherwise limited access to 
credit.
---------------------------------------------------------------------------

    \23\ While this Sec.  1026.43 cure provision does not require a 
cure payment beyond the points and fees overage plus interest, 
nothing in this rule should be read to limit the restitution that 
may be required for violations of other sections of Regulation Z or 
other applicable law.
---------------------------------------------------------------------------

    Discount points. The Bureau acknowledges commenter concerns about 
abuses surrounding the payment of ``discount points'' that did not 
reduce the consumer's interest rate as promised, as occurred during the 
period leading up to the financial crisis. Nothing in the final rule 
specifically addresses that practice. The Bureau believes that such a 
practice raises broader legal issues, including fraud and deception, 
which are beyond the scope of this specific cure provision. Further, 
the Bureau believes that payment of ``discount points'' that do not 
reduce the consumer's interest rate as promised would raise compliance 
issues regardless of whether the applicable points and fees limit was 
exceeded. The Bureau will monitor the market for potential abuses, in 
particular those involving the payment of discount points that do not 
actually reduce the consumer's interest rate as promised, and will 
consider adjustments to the rule or other actions, if appropriate.
    Relationship to RESPA tolerance cure. Under Regulation X Sec.  
1024.7(i), if any charges at settlement exceed the charges listed on 
the good faith estimate of settlement costs by more than the amounts 
permitted under Sec.  1024.7(e), the loan originator may cure the 
tolerance violation by reimbursing the amount by which the tolerance 
was exceeded at settlement or within 30 calendar days after settlement. 
Some settlement charges that could give rise to tolerance violations 
under Regulation X may also be points and fees as defined in Sec.  
1026.32(b)(1) of Regulation Z. To clarify the relationship between the 
Regulation X tolerance cure provision and the points and fees cure, 
comment 43(e)(3)(iv)-2 states that the amount paid to the consumer 
pursuant to Sec.  1026.43(e)(3)(iv) may be offset by the amount paid to 
the consumer pursuant to 12 CFR 1024.7(i), to the extent that the 
amount paid to the consumer pursuant to 12 CFR 1024.7(i) is being 
applied to fees or charges included in points and fees pursuant to 
Sec.  1026.32(b)(1). However, a creditor or assignee has not satisfied 
Sec.  1026.43(e)(3)(iii) unless the total amount described in Sec.  
1026.43(e)(3)(iv), including any offset due to a payment made pursuant 
to 12 CFR 1024.7(i), is paid to the consumer within 210 days after 
consummation and prior to the occurrence of any of the events in Sec.  
1026.43(e)(3)(iii)(B)(1) through (3).\24\
---------------------------------------------------------------------------

    \24\ Likewise, for the Regulation X tolerance cure to be 
effective, it must be accomplished in accordance with the applicable 
Regulation X timing requirements.
---------------------------------------------------------------------------

    As previously noted, the 2013 TILA-RESPA Final Rule will take 
effect on August 1, 2015. Among other things, the 2013 TILA-RESPA Final 
Rule implements in new Sec.  1026.19(f)(2)(v) a tolerance cure 
provision similar to

[[Page 65318]]

current Regulation X Sec.  1024.7(i) that will apply, in place of 
Regulation X Sec.  1024.7(i), to transactions covered by the 2013 TILA-
RESPA Final Rule. Accordingly, on August 1, 2015, comment 43(e)(3)(iv)-
2, described above, will be replaced by a new comment 43(e)(3)(iv)-2. 
That comment will provide that the amount paid to the consumer pursuant 
to Sec.  1026.43(e)(3)(iv) may be offset by the amount paid to the 
consumer pursuant to 12 CFR 1024.7(i) or Sec.  1026.19(f)(2)(v), to the 
extent that the amount paid pursuant to 12 CFR 1024.7(i) or Sec.  
1026.19(f)(2)(v) is being applied to fees or charges included in points 
and fees pursuant to Sec.  1026.32(b)(1). However, a creditor or 
assignee has not satisfied Sec.  1026.43(e)(3)(iii) unless the total 
amount described in Sec.  1026.43(e)(3)(iv), including any offset due 
to a payment made pursuant to 12 CFR 1024.7(i) or Sec.  
1026.19(f)(2)(v), is paid to the consumer within 210 days after 
consummation and prior to the occurrence of any of the events in Sec.  
1026.43(e)(3)(iii)(B)(1) through (3).

VI. Effective Dates

    The final rule is effective on November 3, 2014, except amendatory 
instruction 5, which is effective August 1, 2015 (for consistency with 
the 2013 TILA-RESPA Final Rule). The amendments to Sec.  1026.43 and 
commentary to Sec.  1026.43 in Supplement I to part 1026, other than 
amendatory instruction 5, apply to transactions consummated on or after 
November 3, 2014.
    The Bureau proposed an effective date of thirty days after 
publication of a final rule in the Federal Register. The proposed 
changes would have expanded exemptions and provided relief from 
regulatory requirements; therefore the Bureau believed an effective 
date of 30 days after publication might be appropriate. The Bureau 
sought comment on whether the proposed effective date is appropriate, 
or whether the Bureau should adopt an alternative effective date.
    One commenter representing community banks generally supported the 
proposed effective date. One mortgage company commenter requested 
clarification as to whether the rule would apply to new applications or 
loans consummated after the effective date. One trade association 
representing national mortgage lenders, servicers, and service 
providers recommended the proposed points and fees cure take effect 
immediately. Two commenters, an association of community mortgage 
bankers and lenders and a GSE, argued that the proposed points and fees 
cure should be applied to transactions consummated prior to the 
effective date. The GSE commenter argued that an effective date of 30 
days after publication in the Federal Register would create two classes 
of qualified mortgages originated during 2014: Those that had the 
opportunity to cure and those that did not. That commenter argued that 
all loans consummated prior to the effective date of the new rule 
should be eligible for cure up to 120 days after the effective date of 
the rule.
    As noted, the final rule (other than amendatory instruction 5) is 
effective upon publication in the Federal Register. Under section 
553(d) of the Administrative Procedure Act (APA), the required 
publication or service of a substantive rule shall be made not less 
than 30 days before its effective date except for certain instances, 
including when a substantive rule grants or recognizes an exemption or 
relieves a restriction. 5 U.S.C. 553(d). There are three main 
provisions in this final rule, each of which either expands an existing 
exemption or relieves a restriction. The first provision extends the 
small servicer exemption from certain provisions of the 2013 Mortgage 
Servicing Final Rules to nonprofit servicers that service 5,000 or 
fewer loans on behalf of themselves and associated nonprofits, all of 
which were originated by the nonprofit or an associated nonprofit. The 
second provision expands the existing nonprofit exemption from the 
ability-to-repay rule by excluding certain non-interest bearing, 
contingent subordinate liens that meet the requirements of Sec.  
1026.43(a)(3)(v)(D) from the 200-credit extension limit calculation for 
purposes of qualifying for exemption. The third provision affords 
creditors an option, in limited circumstances, to cure mistakes in 
cases where a loan exceeded the applicable points and fees limit for 
qualified mortgages at consummation. As each of the provisions in this 
rule expands an existing exemption or relieves a restriction, the 
Bureau is publishing this final rule less than 30 days before its 
effective date (other than with respect to amendatory instruction 5).
    The Bureau considered comments requesting that loans consummated 
prior to the effective date be eligible for the points and fees cure, 
but believes that those provisions of the final rule should apply only 
to transactions consummated on or after the effective date (other than 
amendatory instruction 5, which does not take effect until August 1, 
2015). As discussed above, the purpose of the cure is to ensure that 
the Bureau's rules do not cause a restriction in access to credit while 
the market adjusts to the ability-to-repay and qualified mortgage 
rules. The Bureau understands that some creditors are refusing to make, 
or are making more expensive, loans with points and fees that are close 
to the limit for qualified mortgages, which raises concerns about 
access to credit. The cure is intended to encourage creditors to remove 
any such buffers. The Bureau believes that loans consummated after the 
rule takes effect could benefit from relaxed points and fees buffers. 
The Bureau does not, however, believe that those provisions of the rule 
should apply to loans consummated prior to the effective date because 
doing so would not further the goal of increasing access to credit.

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

A. Overview

    In developing the final rule, the Bureau has considered potential 
benefits, costs, and impacts.\25\ The Bureau has consulted, or offered 
to consult with, the prudential regulators, the Securities and Exchange 
Commission, the Department of Housing and Urban Development, the 
Federal Housing Finance Agency, the Federal Trade Commission, the U.S. 
Department of Veterans Affairs, the U.S. Department of Agriculture, and 
the Department of the Treasury, including regarding consistency with 
any prudential, market, or systemic objectives administered by such 
agencies.
---------------------------------------------------------------------------

    \25\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank 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.
---------------------------------------------------------------------------

    There are three main provisions in this final rule. The first 
provision extends the small servicer exemption from certain provisions 
of the 2013 Mortgage Servicing Final Rules to nonprofit servicers that 
service 5,000 or fewer loans on behalf of themselves and associated 
nonprofits, all of which were originated by the nonprofit or an 
associated nonprofit. The second provision excludes certain non-
interest bearing, contingent subordinate liens that meet the 
requirements of Sec.  1026.43(a)(3)(v)(D) (``contingent subordinate 
liens'') from the 200-credit extension limit calculation for purposes 
of qualifying for the nonprofit exemption from the ability-to-repay 
requirements. The third provision

[[Page 65319]]

affords creditors an option, in limited circumstances, to cure certain 
mistakes in cases where the loan met all of the requirements to be a 
qualified mortgage except that the loan actually exceeded the 
applicable points and fees limit for qualified mortgages at 
consummation (``points and fees cure'').
    The Bureau has chosen to evaluate the benefits, costs, and impacts 
of these provisions against the current state of the world. That is, 
the Bureau's analysis below considers the benefits, costs, and impacts 
of the three provisions relative to the current regulatory regime, as 
set forth primarily in the January 2013 ATR Final Rule, the May 2013 
ATR Final Rule, and the 2013 Mortgage Servicing Final Rules.\26\ The 
baseline considers economic attributes of the relevant market and the 
existing regulatory structure.
---------------------------------------------------------------------------

    \26\ The Bureau has discretion in future rulemakings to choose 
the relevant provisions to discuss and to choose the most 
appropriate baseline for that particular rulemaking.
---------------------------------------------------------------------------

    The main benefit of each of these provisions to consumers is a 
potential increase in access to credit and a potential decrease in the 
cost of credit. It is possible that, but for these provisions, (1) 
financial institutions would stop or curtail originating or servicing 
in particular market segments or would increase the cost of credit or 
servicing in those market segments in numbers sufficient to have an 
adverse impact on those market segments, (2) the financial institutions 
that would remain in those market segments would not provide a 
sufficient quantum of mortgage loan origination or servicing at the 
non-increased price, and (3) there would not be significant new entry 
into the market segments left by the departing institutions. If, but 
for these provisions, all three of these scenarios would be realized, 
then the three provisions will increase access to credit. The Bureau 
does not possess any data, aside from anecdotal comments, to refute or 
confirm any of these scenarios for any of the exemptions. However, the 
Bureau notes that, at least in some market segments, these three 
scenarios could be realized by just one creditor or servicer stopping 
or curtailing originating or servicing or increasing the cost of 
credit. This would occur, for example, if that creditor or servicer is 
the only one willing to extend credit or provide servicing to this 
market segment (for example, to low- and moderate-income consumers), no 
other creditor or servicer would enter the market even if the incumbent 
exits, and the incumbent faces higher costs that would lead it either 
to increase the cost of credit or to curtail access to credit.
    The main cost to consumers of the small nonprofit servicer and 
small nonprofit originator provisions is that, for some transactions, 
creditors or servicers will not have to provide consumers some of the 
protections provided by the ability-to-repay and mortgage servicing 
rules. The main cost of the points and fees cure provision to consumers 
is that a creditor could reimburse a consumer for a points and fees 
overage after consummation--with the creditor thereby obtaining the 
safe harbor or rebuttable presumption of TILA ability-to-repay 
compliance afforded by a qualified mortgage, and the consumer having 
less ability to challenge the mortgage on ability-to-repay grounds. As 
noted above, the Bureau does not possess data to provide a precise 
estimate of the number of transactions affected. However, the Bureau 
believes that the number will be relatively small.
    The main benefit of each of these provisions to covered persons is 
that the affected covered persons do not have to incur certain expenses 
associated with the ability-to-repay and mortgage servicing rules, or 
will not be forced either to exit the market or to curtail origination 
or servicing activities to maintain certain regulatory exemptions. 
Given the currently available data, it is impossible for the Bureau to 
estimate the number of transactions affected with any useful degree of 
precision; that is also the case for estimating the amount of monetary 
benefits for such covered persons.
    There is no major cost of these proposed provisions to covered 
persons--each of the provisions is an option that a financial 
institution is free to undertake or not to undertake. The only 
potential costs for covered persons is that financial institutions that 
would have complied with the ability-to-repay and mortgage servicing 
rules with or without the provisions may lose profits to the 
institutions that are able to continue operating in a market segment by 
virtue of one of the provisions. However, these losses are likely to be 
small and are difficult to estimate.

B. Potential Benefits and Costs to Consumers and Covered Persons Small 
Servicer Exemption Extension for Servicing Associated Nonprofits' Loans

    The Bureau's 2013 Mortgage Servicing Final Rules were designed to 
address the market failure of consumers not choosing their servicers 
and of servicers not having sufficient incentives to invest in quality 
control and consumer satisfaction. The demand for larger loan 
servicers' services comes from originators, not from consumers. Smaller 
servicers, however, have an additional incentive to provide ``high-
touch'' servicing that focuses on ensuring consumer satisfaction. 78 FR 
10695, 10845-46 (Feb. 14, 2013); 78 FR 10901, 10980-82 (Feb. 14, 2013).
    The Bureau's 2013 Mortgage Servicing Final Rules provide many 
benefits to consumers: For example, detailed periodic statements. These 
benefits tend to present potential costs to servicers: For example, 
changing their software systems to include additional information on 
the periodic statements to consumers. These benefits and costs are 
further described in the ``Dodd-Frank Act Section 1022(b)(2) Analysis'' 
sections of the 2013 Mortgage Servicing Final Rules. 78 FR 10695, 
10842-61 (Feb. 14, 2013); 78 FR 10901, 10978-94 (published 
concurrently).
    Smaller servicers are generally community banks and credit unions 
that have a built-in incentive to manage their reputation with 
consumers carefully because they are servicing loans in communities in 
which they also originate loans. This incentive is reinforced if they 
are servicing only loans that they originate. Prior to this final rule, 
Sec.  1026.41(e)(4)(ii) provided that a small servicer is a servicer 
that either (1) services, together with any affiliates, 5,000 or fewer 
mortgage loans for all of which the servicer (or an affiliate) is the 
creditor or assignee; or (2) is a Housing Finance Agency, as defined in 
24 CFR 266.5. The definition of the term ``affiliate'' is the 
definition provided in the Bank Holding Company Act (BHCA). The 
rationale for the small servicer exemption is provided in the Bureau's 
2013 Mortgage Servicing Final Rules. 78 FR 10695, 10845-46 (Feb. 14, 
2013); 78 FR 10901, 10980-82 (published concurrently).
    The final rule adds new Sec.  1026.41(e)(4)(ii)(C), which allows a 
nonprofit servicer to service loans on behalf of ``associated nonprofit 
entities'' that do not meet the BHCA ``affiliate'' definition and still 
qualify as a ``small servicer,'' as long as certain other conditions 
are met (for example, it has no more than 5,000 loans in its servicing 
portfolio). The Bureau believes these nonprofit servicers typically 
follow the same ``high-touch'' servicing model followed by the small 
servicers described in the Dodd-Frank Act Section 1022(b)(2) Analysis 
in the 2013 Mortgage Servicing Final Rules. While these nonprofit 
servicers are not motivated by the profit incentive that motivates 
community banks and small credit unions, they nonetheless have a 
reputation incentive and a mission

[[Page 65320]]

incentive to provide ``high-touch'' servicing, neither of which is 
diminished when they service associated nonprofits' loans. Because it 
is limited to entities sharing a common name, trademark, or 
servicemark, Sec.  1026.41(e)(4)(ii)(C) further ensures that the 
reputation incentive remains intact. In addition, the 5,000-loan 
servicing portfolio limit ensures that nonprofit servicers are still 
sufficiently small to provide ``high-touch'' servicing. Another 
rationale for the revision of the exemption is that it creates a more 
level playing field for nonprofits. Prior to this final rule, for-
profit affiliates could take advantage of economies of scale to service 
their loans together, but related nonprofits could not because they 
typically are not ``affiliates'' as defined by the BHCA.
    Overall, the primary benefit to consumers of the amendment to the 
small servicer definition is a potential increase in access to credit 
and a potential decrease in the cost of credit. The primary cost to 
consumers is losing some of the protections of the Bureau's 2013 
Mortgage Servicing Final Rules. The primary benefit to covered persons 
is exemption from certain provisions of those rules, and the attendant 
cost savings of not having to comply with those provisions while still 
being able to achieve a certain degree of scale by taking on servicing 
for associated nonprofits. See also 78 FR 10695, 10842-61 (Feb. 14, 
2013); 78 FR 10901, 10978-94 (Feb. 14, 2013). There are no significant 
costs to covered persons.
    Finally, the Bureau does not possess any data that would enable it 
to report the number of transactions affected. Nevertheless, from 
anecdotal evidence and taking into account the size of the nonprofit 
servicers that are the most likely to take advantage of this exemption, 
it is unlikely that there will be a significant number of loans 
affected each year. Several nonprofit servicers might be affected.
Ability-To-Repay Exemption for Contingent Subordinate Liens
    The Bureau's ability-to-repay rule was designed to address the 
market failure of mortgage loan originators not internalizing the 
effects of consumers not being able to repay their loans, with negative 
effects both on the consumers themselves and on the consumers' 
neighbors, whose houses drop in value due to foreclosures nearby.
    The May 2013 ATR Final Rule added a nonprofit exemption from the 
ability-to-repay requirements. The rationale of that exemption is 
preserving low- and moderate-income consumers' access to credit 
available from nonprofit organizations, which might have stopped or 
curtailed originating loans but for this exemption. The main benefit of 
the exemption for consumers is a potential expansion of access to 
credit and a potential decrease in the cost of credit; the main cost 
for consumers is not receiving protections provided by the ability-to-
repay rule. The May 2013 ATR Final Rule exempted only nonprofit 
creditors that originated 200 or fewer dwelling-secured transactions a 
year, based on the Bureau's belief that these institutions do 
internalize the effects of consumers not being able to repay their 
loans and that the loan limitation is necessary to prevent the 
exemption from being exploited by unscrupulous creditors seeking to 
harm consumers.
    Section 1026.43(a)(3)(vii) of this final rule excludes contingent 
subordinate liens from the 200-credit extension limit for purposes of 
the May 2013 ATR Final Rule's nonprofit exemption. Given the numerous 
limitations on contingent subordinate liens, including but not limited 
to the 1-percent cap on upfront costs payable by the consumer, and 
given the 200-credit extension limit for other loans, the Bureau 
believes that the potential for creditors to improperly exploit the 
amended rule is low. The Bureau also believes that this exemption will 
allow a greater number of nonprofit creditors to originate more loans 
than under the current rule, or to remain in the low- and moderate-
income consumer market without passing through cost increases to 
consumers.
    Overall, the primary benefit to consumers of the exclusion is a 
potential increase in access to credit and a potential decrease in the 
cost of credit. The primary cost to consumers is losing some of the 
protections provided by the Bureau's ability-to-repay rule. The primary 
benefit to covered persons is exemption from that same rule. See 78 FR 
6407, 6555-75 (Jan. 30, 2013) (specifically, the ``Dodd-Frank Act 
Section 1022(b)(2) Analysis'' section in the January 2013 ATR Final 
Rule); 78 FR 35429, 35492-97 (June 12, 2013) (similar section in the 
May 2013 ATR Final Rule). There are no significant costs to covered 
persons.
    Finally, the Bureau does not possess any data that would enable it 
to report the number of transactions affected. Nevertheless, from 
anecdotal evidence and taking into account the size of the nonprofit 
creditors that are most likely to take advantage of this exemption, it 
is unlikely that there will be a significant number of loans affected 
each year, and it is possible that virtually no loans will be affected 
in the near future. Several nonprofit creditors might be affected, but 
it is possible that no nonprofit creditors will be affected in the near 
future.
Cure for Points and Fees Over the Qualified Mortgage Threshold
    To originate a qualified mortgage, a creditor must satisfy various 
conditions, including the condition of charging at most 3 percent of 
the total loan amount in points and fees, with higher thresholds for 
loan amounts lower than $100,000, and not including up to two bona-fide 
discount points. However, origination processes are not perfect, and 
creditors might be concerned about potential errors that result in a 
loan exceeding the applicable points and fees limit discovered upon 
further, post-consummation review.
    The three most likely responses by a creditor concerned about such 
errors would be to originate loans with points and fees well below the 
applicable limit, to insert additional quality control in its 
origination process, and to charge a premium for the risk of a loan 
being deemed not to be a qualified mortgage, especially on loans with 
points and fees not well below the applicable limit. Such creditors 
might adopt any one, or any combination of two or more, of these 
responses. The first solution is not what the Bureau, or presumably 
Congress, intended; otherwise the statutory limit would have been set 
lower than 3 percent. The second solution could result in more than the 
economically efficient amount of effort expended on quality control. 
The savings from forgoing additional quality control might be passed 
through to consumers, to the extent that costs saved are marginal (as 
opposed to fixed) and the markets are sufficiently competitive. The 
third solution is, effectively, a less stark version of the first 
solution, with loans close to the applicable points and fees limit 
still being originated, albeit at higher prices simply due to being 
close to the limit. Like the first potential solution, this would be an 
unintended and undesirable consequence of the rule.
    The final rule provides a limited post-consummation cure provision 
that creditors or assignees may exercise when they discover errors in 
points and fees calculations that resulted in loans exceeding the 
applicable points and fees limit. The primary potential drawback of 
allowing creditors and assignees to cure such errors is the risk of 
inappropriate exploitation. However, the conditions the Bureau has 
placed on the cure mechanism--such as limiting the cure period to 210 
days after consummation and cutting off the creditor's and assignee's 
ability to cure

[[Page 65321]]

when the consumer files an action in connection with the loan or 
provides written notice of the overage to the creditor, assignee, or 
servicer, or when the consumer becomes 60 days past due on the legal 
obligation--help to guard against abuse of this mechanism and thus 
ensure that consumers are unlikely to experience negative side-effects.
    One such potential exploitation scenario involves a creditor 
originating risky loans with high points and fees while hoping to avoid 
a massive wave of foreclosures. In this case, the possibility of cure 
could be thought of as an option that the creditor could exercise to 
strengthen its position for foreclosure litigation, but only if the 
creditor foresees the wave of foreclosures and effects a cure of the 
points and fees overage before the consumer becomes 60 days past due on 
the legal obligation, files a lawsuit, or provides written notice of 
the points and fees overage. The elements of Sec.  1026.43(e)(3)(iii) 
requiring that the overage be cured within 210 days after consummation 
and before certain cut-off events should discourage this type of 
exploitation. Another exploitation scenario is a creditor that only 
cures overages on loans that go into foreclosure; however, this 
possibility is limited by the past-due cut-off and the 210-day cure 
window.
    The Bureau proposed a requirement that, to cure a points and fees 
overage, the loan must have been originated in good faith as a 
qualified mortgage. The Bureau is not adopting this requirement in the 
final rule. The Bureau also proposed a 120-day cure period, and it is 
finalizing a 210-day cure period instead. While both of these 
requirements would have provided additional protections against 
inappropriate exploitation by creditors, the Bureau believes that these 
two requirements would be sufficiently burdensome for creditors that 
significantly fewer creditors would utilize the cure provision. The 
Bureau believes the 210-day window, combined with the creditors being 
able to exercise the cure only before the occurrence of certain cut-off 
events, provides sufficient disincentives against inappropriate 
exploitation.
    The primary benefit to consumers of the cure provision is a 
potential increase in access to credit and a potential decrease of the 
cost of credit. Another potential benefit is that, when a creditor 
discovers a points and fees overage, the creditor may reimburse the 
consumer for the overage and interest on the overage from the time of 
consummation until the cure is effectuated. However, this is a benefit 
only for consumers who place greater value on being reimbursed than on 
preserving a potential ability-to-repay claim. The primary cost to 
consumers is that, without the consumer's consent, a creditor could 
reimburse the consumer for a points and fees overage after 
consummation--with the creditor thereby obtaining the qualified 
mortgage presumption of TILA ability-to-repay compliance. However, the 
Bureau believes that the safeguards included in the rule will mitigate 
this potential concern as creditors are unlikely to be able to exploit 
the rule inappropriately and thereby deprive consumers of the 
protections provided by the ability-to-pay rule.
    The primary benefit to covered persons is being able to originate 
qualified mortgages without engaging in inefficient additional quality 
control processes, with the attendant reduction in legal risk. Some 
larger creditors might have sufficiently robust compliance procedures 
that largely prevent inadvertent points and fees overages. These 
creditors might lose some market share to creditors for whom this 
provision will be more useful. The Bureau cannot meaningfully estimate 
the magnitude of this effect.
    The Bureau believes that the benefits of this provision are likely 
to decrease over time, as creditors familiarize themselves with points 
and fees calculations necessary for origination of qualified mortgages 
and institute even better and more efficient quality control processes. 
All creditors could then originate loans with points and fees close to 
or at the applicable limit, without charging either an extra risk 
premium or having to incur significant quality control costs. However, 
some exploitation incentives and costs to consumers may remain. 
Therefore, the Bureau is finalizing the cure provision with a sunset 
date of January 10, 2021.
    Finally, the Bureau does not possess any data that would enable it 
to report the number of transactions affected. For some creditors, the 
provision might save additional verification and quality control in the 
loan origination process for every qualified mortgage transaction that 
they originate \27\ and/or allow them to originate loans with points 
and fees close to or at the applicable points and fees limit at lower 
prices that do not reflect the risk of the loan unexpectedly turning 
out not to be a qualified mortgage.
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    \27\ While a result of the points and fees cure is that 
creditors have less of an incentive to perform rigorous quality 
control before consummation, there is also an alleviating effect. 
Any errors uncovered in the post-consummation review might help 
creditors improve their pre-consummation review by immediately 
pointing out areas on which to focus. In addition, the incentive to 
limit (to an undesirable extent) pre-consummation quality control 
measures is mitigated by the fact that effecting the cure is not 
without costs, both operational and reputational.
---------------------------------------------------------------------------

    Several consumer groups commented that there is no evidence to 
support the assertion that the points and fees cure provision adopted 
by this final rule will provide consumer benefits. As noted above, the 
Bureau does not possess any data to calculate the impact of this 
provision on consumer welfare, the likely costs of credit, or the 
availability of access to credit. No commenters suggested data sources.
    The Bureau is aware that after the comment period closed some data 
became available, as the Federal Reserve System released its July 2014 
installment of the Senior Loan Officer Opinion Survey.\28\ Several 
questions (for example, survey question 18e) were regarding the points 
and fees qualified mortgage limit, and whether it affected certain 
aspects of creditors' practices. Most of the responses indicated that 
the points and fees limits did not have a significant effect. Given 
that this is not a representative survey and that the survey has 
qualitative replies, the Bureau still does not have sufficient data to 
calculate the effect of this provision on consumer welfare, the likely 
costs of credit, or the availability of access to credit. Moreover, as 
mentioned in part VII.C, the Bureau believes that this provision will 
largely benefit smaller creditors (and, potentially, their consumers), 
whereas larger creditors are sampled at a higher rate than smaller 
creditors in the Senior Loan Officer Opinion Survey.
---------------------------------------------------------------------------

    \28\ Bd. of Governors of the Fed. Reserve Sys., July 2014 Senior 
Loan Officer Opinion Survey on Bank Lending Practices, (August 4, 
2014), available at http://www.federalreserve.gov/boarddocs/snloansurvey/201408/fullreport.pdf.
---------------------------------------------------------------------------

C. Impact on Covered Persons With No More Than $10 Billion in Assets

    Covered persons with no more than $10 billion in assets likely will 
be the only covered persons affected by the two exemptions regarding 
associated nonprofits and contingent subordinate liens: The respective 
loan limits of each provision virtually ensure that any creditor or 
servicer with over $10 billion in assets would not qualify for these 
two exemptions. For the third provision, regarding points and fees, 
smaller creditors might benefit more than larger creditors. Larger 
creditors are more likely to have sufficiently robust compliance 
procedures that largely prevent inadvertent points and fees overages. 
Thus, this provision might not benefit them as much. The third 
provision may lead smaller creditors to

[[Page 65322]]

extend a greater number of qualified mortgages near or at the 
applicable points and fees limit, to extend them for a lower price, 
and/or to forgo inefficient pre-consummation quality control. To the 
extent that possibility is realized, smaller creditors would benefit 
from the liability protection afforded by qualified mortgages.

D. Impact on Access to Credit

    The Bureau does not believe that there will be an adverse impact on 
access to credit resulting from any of the three provisions. Moreover, 
it is possible that there will be an expansion of access to credit.

E. Impact on Rural Areas

    The Bureau believes that rural areas might benefit from these three 
provisions more than urban areas, to the extent that there are fewer 
active creditors or servicers operating in rural areas than in urban 
areas. Thus, any creditors or servicers exiting the market or 
curtailing lending or servicing in rural areas--or restricting the 
origination of loans with points and fees close to or at the applicable 
limit for qualified mortgages--might negatively affect access to credit 
in those areas more than similar behavior by creditors or servicers 
operating in more urban areas. A similar argument applies to any 
increases in the cost of credit.

VIII. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (the RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996, requires each 
agency to consider the potential impact of its regulations on small 
entities, including small businesses, small governmental units, and 
small nonprofit organizations. The RFA defines a ``small business'' as 
a business that meets the size standard developed by the Small Business 
Administration pursuant to the Small Business Act.
    The 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, unless the agency certifies that the rule will 
not have a significant economic impact on a substantial number of small 
entities. The Bureau also is subject to certain additional procedures 
under the RFA involving the convening of a panel to consult with small 
business representatives prior to proposing a rule for which an IRFA is 
required.
    The final rule will not have a significant economic impact on any 
small entities. As noted in the Section 1022(b)(2) Analysis, above, the 
Bureau does not expect the rule to impose costs on covered persons, 
including small entities. All methods of compliance under current law 
will remain available to small entities when these provisions become 
effective. Thus, a small entity that is in compliance with current law 
need not take any additional action if the proposal is adopted. 
Further, the Bureau does not possess any data that would enable it to 
report the number of transactions affected, including transactions 
involving small entities.
    Accordingly, the undersigned certifies that this rule will not have 
a significant economic impact on a substantial number of small 
entities.

IX. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et 
seq.), Federal agencies are generally required to seek the Office of 
Management and Budget (OMB) approval for information collection 
requirements prior to implementation. The collections of information 
related to Regulations Z and X have been previously reviewed and 
approved by OMB in accordance with the PRA and assigned OMB Control 
Number 3170-0015 (Regulation Z) and 3170-0016 (Regulation X). Under the 
PRA, the Bureau may not conduct or sponsor, and, notwithstanding any 
other provision of law, a person is not required to respond to an 
information collection unless the information collection displays a 
valid control number assigned by OMB. The Bureau has determined that 
this final rule would not impose any new or revised information 
collection requirements (recordkeeping, reporting, or disclosure 
requirements) on covered entities or members of the public that would 
constitute collections of information requiring OMB approval under the 
PRA.

List of Subjects in 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 
part 1026 as set forth below:

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
1. 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 E--Special Rules for Certain Home Mortgage Transactions

0
2. Section 1026.41 is amended by revising paragraph (e)(4)(ii) and the 
introductory text of paragraph (e)(4)(iii) to read as follows:

Sec.  1026.41  Periodic statements for residential mortgage loans.

* * * * *
    (e) * * *
    (4) * * *
    (ii) Small servicer defined. A small servicer is a servicer that:
    (A) Services, together with any affiliates, 5,000 or fewer mortgage 
loans, for all of which the servicer (or an affiliate) is the creditor 
or assignee;
    (B) Is a Housing Finance Agency, as defined in 24 CFR 266.5; or
    (C) Is a nonprofit entity that services 5,000 or fewer mortgage 
loans, including any mortgage loans serviced on behalf of associated 
nonprofit entities, for all of which the servicer or an associated 
nonprofit entity is the creditor. For purposes of this paragraph 
(e)(4)(ii)(C), the following definitions apply:
    (1) The term ``nonprofit entity'' means an entity having a tax 
exemption ruling or determination letter from the Internal Revenue 
Service under section 501(c)(3) of the Internal Revenue Code of 1986 
(26 U.S.C. 501(c)(3); 26 CFR 1.501(c)(3)-1), and;
    (2) The term ``associated nonprofit entities'' means nonprofit 
entities that by agreement operate using a common name, trademark, or 
servicemark to further and support a common charitable mission or 
purpose.
    (iii) Small servicer determination. In determining whether a 
servicer satisfies paragraph (e)(4)(ii)(A) of this section, the 
servicer is evaluated based on the mortgage loans serviced by the 
servicer and any affiliates as of January 1 and for the remainder of 
the calendar year. In determining whether a servicer satisfies 
paragraph (e)(4)(ii)(C) of this section, the servicer is evaluated 
based on the mortgage loans serviced by the servicer as of January 1 
and for the remainder of the calendar year. A servicer that ceases to 
qualify as a small servicer will have six months from the time it 
ceases to qualify or until the next January 1, whichever is later, to 
comply with any requirements from which the servicer is no longer 
exempt as a small servicer. The following mortgage loans are not 
considered in determining whether a servicer qualifies as a small 
servicer:
* * * * *

[[Page 65323]]

0
3. Section 1026.43 is amended by revising paragraph (a)(3)(v)(D)(1) and 
adding new paragraph (a)(3)(vii) and by revising the introductory text 
of paragraph (e)(3)(i) and adding new paragraphs (e)(3)(iii) and (iv) 
to read as follows:

Sec.  1026.43  Minimum standards for transactions secured by a 
dwelling.

    (a) * * *
    (3) * * *
    (v) * * *
    (D) * * *
    (1) During the calendar year preceding receipt of the consumer's 
application, the creditor extended credit secured by a dwelling no more 
than 200 times, except as provided in paragraph (a)(3)(vii) of this 
section;
* * * * *
    (vii) Consumer credit transactions that meet the following criteria 
are not considered in determining whether a creditor exceeds the credit 
extension limitation in paragraph (a)(3)(v)(D)(1) of this section:
    (A) The transaction is secured by a subordinate lien;
    (B) The transaction is for the purpose of:
    (1) Downpayment, closing costs, or other similar home buyer 
assistance, such as principal or interest subsidies;
    (2) Property rehabilitation assistance;
    (3) Energy efficiency assistance; or
    (4) Foreclosure avoidance or prevention;
    (C) The credit contract does not require payment of interest;
    (D) The credit contract provides that repayment of the amount of 
the credit extended is:
    (1) Forgiven either incrementally or in whole, at a date certain, 
and subject only to specified ownership and occupancy conditions, such 
as a requirement that the consumer maintain the property as the 
consumer's principal dwelling for five years;
    (2) Deferred for a minimum of 20 years after consummation of the 
transaction;
    (3) Deferred until sale of the property securing the transaction; 
or
    (4) Deferred until the property securing the transaction is no 
longer the principal dwelling of the consumer;
    (E) The total of costs payable by the consumer in connection with 
the transaction at consummation is less than 1 percent of the amount of 
credit extended and includes no charges other than:
    (1) Fees for recordation of security instruments, deeds, and 
similar documents;
    (2) A bona fide and reasonable application fee; and
    (3) A bona fide and reasonable fee for housing counseling services; 
and
    (F) The creditor complies with all other applicable requirements of 
this part in connection with the transaction.
* * * * *
    (e) * * *
    (3) * * * (i) Except as provided in paragraph (e)(3)(iii) of this 
section, a covered transaction is not a qualified mortgage unless the 
transaction's total points and fees, as defined in Sec.  1026.32(b)(1), 
do not exceed:
* * * * *
    (iii) For covered transactions consummated on or before January 10, 
2021, if the creditor or assignee determines after consummation that 
the transaction's total points and fees exceed the applicable limit 
under paragraph (e)(3)(i) of this section, the loan is not precluded 
from being a qualified mortgage, provided:
    (A) The loan otherwise meets the requirements of paragraphs (e)(2), 
(e)(4), (e)(5), (e)(6), or (f) of this section, as applicable;
    (B) The creditor or assignee pays to the consumer the amount 
described in paragraph (e)(3)(iv) of this section within 210 days after 
consummation and prior to the occurrence of any of the following 
events:
    (1) The institution of any action by the consumer in connection 
with the loan;
    (2) The receipt by the creditor, assignee, or servicer of written 
notice from the consumer that the transaction's total points and fees 
exceed the applicable limit under paragraph (e)(3)(i) of this section; 
or
    (3) The consumer becoming 60 days past due on the legal obligation; 
and
    (C) The creditor or assignee, as applicable, maintains and follows 
policies and procedures for post-consummation review of points and fees 
and for making payments to consumers in accordance with paragraphs 
(e)(3)(iii)(B) and (e)(3)(iv) of this section.
    (iv) For purposes of paragraph (e)(3)(iii) of this section, the 
creditor or assignee must pay to the consumer an amount that is not 
less than the sum of the following:
    (A) The dollar amount by which the transaction's total points and 
fees exceeds the applicable limit under paragraph (e)(3)(i) of this 
section; and
    (B) Interest on the dollar amount described in paragraph 
(e)(3)(iv)(A) of this section, calculated using the contract interest 
rate applicable during the period from consummation until the payment 
described in this paragraph (e)(3)(iv) is made to the consumer.
* * * * *

0
4. In Supplement I to part 1026:
0
a. Under Section 1026.41--Periodic Statements for Residential Mortgage 
Loans:
0
i. Under 41(e)(4)(ii) Small servicer defined, the introductory text of 
paragraph 2 is revised and paragraph 4 is added.
0
ii. Under 41(e)(4)(iii) Small servicer determination, paragraphs 2 and 
3 are revised and paragraphs 4 and 5 are added.
0
b. Under Section 1026.43--Minimum Standards for Transactions Secured by 
a Dwelling:
0
i. New subheading Paragraph 43(a)(3)(vii) and paragraph 1 under that 
subheading are added.
0
ii. New subheading Paragraph 43(e)(3)(iii) and paragraphs 1, 2, and 3 
under that subheading are added.
0
iii. New subheading Paragraph 43(e)(3)(iv) and paragraphs 1 and 2 under 
that subheading are added.
    The revisions and additions read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Subpart E--Special Rules for Certain Home Mortgage Transactions

* * * * *

Section 1026.41--Periodic Statements for Residential Mortgage Loans

* * * * *

41(e)(4)(ii) Small servicer defined.

* * * * *
    2. Services, together with affiliates, 5,000 or fewer mortgage 
loans. To qualify as a small servicer, under Sec.  
1026.41(e)(4)(ii)(A), a servicer must service, together with any 
affiliates, 5,000 or fewer mortgage loans, for all of which the 
servicer (or an affiliate) is the creditor or assignee. There are 
two elements to satisfying Sec.  1026.41(e)(4)(ii)(A). First, a 
servicer, together with any affiliates, must service 5,000 or fewer 
mortgage loans. Second, a servicer must service only mortgage loans 
for which the servicer (or an affiliate) is the creditor or 
assignee. To be the creditor or assignee of a mortgage loan, the 
servicer (or an affiliate) must either currently own the mortgage 
loan or must have been the entity to which the mortgage loan 
obligation was initially payable (that is, the originator of the 
mortgage loan). A servicer is not a small servicer under Sec.  
1026.41(e)(4)(ii)(A) if it services any mortgage loans for which the 
servicer or an affiliate is not the creditor or assignee (that is, 
for which the servicer or an affiliate is not the owner or was not 
the originator). The following two examples demonstrate 
circumstances in which a servicer would not qualify as a small 
servicer under Sec.  1026.41(e)(4)(ii)(A) because it did not meet 
both requirements under Sec.  1026.41(e)(4)(ii)(A) for determining a 
servicer's status as a small servicer:
* * * * *

[[Page 65324]]

    4. Nonprofit entity that services 5,000 or fewer mortgage loans. 
To qualify as a small servicer under Sec.  1026.41(e)(4)(ii)(C), a 
servicer must be a nonprofit entity that services 5,000 or fewer 
mortgage loans, including any mortgage loans serviced on behalf of 
associated nonprofit entities, for all of which the servicer or an 
associated nonprofit entity is the creditor. There are two elements 
to satisfying Sec.  1026.41(e)(4)(ii)(C). First, a nonprofit entity 
must service 5,000 or fewer mortgage loans, including any mortgage 
loans serviced on behalf of associated nonprofit entities. For each 
associated nonprofit entity, the small servicer determination is 
made separately, without consideration of the number of loans 
serviced by another associated nonprofit entity. Second, a nonprofit 
entity must service only mortgage loans for which the servicer (or 
an associated nonprofit entity) is the creditor. To be the creditor, 
the servicer (or an associated nonprofit entity) must have been the 
entity to which the mortgage loan obligation was initially payable 
(that is, the originator of the mortgage loan). A nonprofit entity 
is not a small servicer under Sec.  1026.41(e)(4)(ii)(C) if it 
services any mortgage loans for which the servicer (or an associated 
nonprofit entity) is not the creditor (that is, for which the 
servicer or an associated nonprofit entity was not the originator). 
The first of the following two examples demonstrates circumstances 
in which a nonprofit entity would qualify as a small servicer under 
Sec.  1026.41(e)(4)(ii)(C) because it meets both requirements for 
determining a nonprofit entity's status as a small servicer under 
Sec.  1026.41(e)(4)(ii)(C). The second example demonstrates 
circumstances in which a nonprofit entity would not qualify as a 
small servicer under Sec.  1026.41(e)(4)(ii)(C) because it does not 
meet both requirements under Sec.  1026.41(e)(4)(ii)(C).
    i. Nonprofit entity A services 3,000 of its own mortgage loans, 
and 1,500 mortgage loans on behalf of associated nonprofit entity B. 
All 4,500 mortgage loans were originated by A or B. Associated 
nonprofit entity C services 2,500 mortgage loans, all of which it 
originated. Because the number of mortgage loans serviced by a 
nonprofit entity is determined by counting the number of mortgage 
loans serviced by the nonprofit entity (including mortgage loans 
serviced on behalf of associated nonprofit entities) but not 
counting any mortgage loans serviced by an associated nonprofit 
entity, A and C are both small servicers.
    ii. A nonprofit entity services 4,500 mortgage loans--3,000 
mortgage loans it originated, 1,000 mortgage loans originated by 
associated nonprofit entities, and 500 mortgage loans neither it nor 
an associated nonprofit entity originated. The nonprofit entity is 
not a small servicer because it services mortgage loans for which 
neither it nor an associated nonprofit entity is the creditor, 
notwithstanding that it services fewer than 5,000 mortgage loans.

41(e)(4)(iii) Small servicer determination.

* * * * *
    2. Timing for small servicer exemption. The following examples 
demonstrate when a servicer either is considered or is no longer 
considered a small servicer under Sec.  1026.41(e)(4)(ii)(A) and 
(C):
    i. Assume a servicer (that as of January 1 of the current year 
qualifies as a small servicer) begins servicing more than 5,000 
mortgage loans on October 1, and services more than 5,000 mortgage 
loans as of January 1 of the following year. The servicer would no 
longer be considered a small servicer on January 1 of the following 
year and would have to comply with any requirements from which it is 
no longer exempt as a small servicer on April 1 of the following 
year.
    ii. Assume a servicer (that as of January 1 of the current year 
qualifies as a small servicer) begins servicing more than 5,000 
mortgage loans on February 1, and services more than 5,000 mortgage 
loans as of January 1 of the following year. The servicer would no 
longer be considered a small servicer on January 1 of the following 
year and would have to comply with any requirements from which it is 
no longer exempt as a small servicer on that same January 1.
    iii. Assume a servicer (that as of January 1 of the current year 
qualifies as a small servicer) begins servicing more than 5,000 
mortgage loans on February 1, but services fewer than 5,000 mortgage 
loans as of January 1 of the following year. The servicer is 
considered a small servicer for the following year.
    3. Mortgage loans not considered in determining whether a 
servicer is a small servicer. Mortgage loans that are not considered 
pursuant to Sec.  1026.41(e)(4)(iii) in applying Sec.  
1026.41(e)(4)(ii)(A) are not considered either for determining 
whether a servicer (together with any affiliates) services 5,000 or 
fewer mortgage loans or whether a servicer is servicing only 
mortgage loans that it (or an affiliate) owns or originated. For 
example, assume a servicer services 5,400 mortgage loans. Of these 
mortgage loans, the servicer owns or originated 4,800 mortgage 
loans, voluntarily services 300 mortgage loans that neither it (nor 
an affiliate) owns or originated and for which the servicer does not 
receive any compensation or fees, and services 300 reverse mortgage 
transactions. The voluntarily serviced mortgage loans and reverse 
mortgage loans are not considered in determining whether the 
servicer qualifies as a small servicer pursuant to Sec.  
1026.41(e)(4)(iii)(A). Thus, because only the 4,800 mortgage loans 
owned or originated by the servicer are considered in determining 
whether the servicer qualifies as a small servicer, the servicer 
satisfies Sec.  1026.41(e)(4)(ii)(A) with regard to all 5,400 
mortgage loans it services.
    4. Mortgage loans not considered in determining whether a 
nonprofit entity is a small servicer. Mortgage loans that are not 
considered pursuant to Sec.  1026.41(e)(4)(iii) in applying Sec.  
1026.41(e)(4)(ii)(C) are not considered either for determining 
whether a nonprofit entity services 5,000 or fewer mortgage loans, 
including any mortgage loans serviced on behalf of associated 
nonprofit entities, or whether a nonprofit entity is servicing only 
mortgage loans that it or an associated nonprofit entity originated. 
For example, assume a servicer that is a nonprofit entity services 
5,400 mortgage loans. Of these mortgage loans, the nonprofit entity 
originated 2,800 mortgage loans and associated nonprofit entities 
originated 2,000 mortgage loans. The nonprofit entity receives 
compensation for servicing the loans originated by associated 
nonprofits. The nonprofit entity also voluntarily services 600 
mortgage loans that were originated by an entity that is not an 
associated nonprofit entity, and receives no compensation or fees 
for servicing these loans. The voluntarily serviced mortgage loans 
are not considered in determining whether the servicer qualifies as 
a small servicer. Thus, because only the 4,800 mortgage loans 
originated by the nonprofit entity or associated nonprofit entities 
are considered in determining whether the servicer qualifies as a 
small servicer, the servicer satisfies Sec.  1026.41(e)(4)(ii)(C) 
with regard to all 5,400 mortgage loans it services.
    5. Limited role of voluntarily serviced mortgage loans. Reverse 
mortgages and mortgage loans secured by consumers' interests in 
timeshare plans, in addition to not being considered in determining 
small servicer qualification, are also exempt from the requirements 
of Sec.  1026.41. In contrast, although voluntarily serviced 
mortgage loans, as defined by Sec.  1026.41(e)(4)(iii)(A), are 
likewise not considered in determining small servicer status, they 
are not exempt from the requirements of Sec.  1026.41. Thus, a 
servicer that does not qualify as a small servicer would not have to 
provide periodic statements for reverse mortgages and timeshare 
plans because they are exempt from the rule, but would have to 
provide periodic statements for mortgage loans it voluntarily 
services.
* * * * *

Section 1026.43--Minimum Standards for Transactions Secured by a 
Dwelling

* * * * *

Paragraph 43(a)(3)(vii).

    1. Requirements of exclusion. Section 1026.43(a)(3)(vii) 
excludes certain transactions from the credit extension limit set 
forth in Sec.  1026.43(a)(3)(v)(D)(1), provided a transaction meets 
several conditions. The terms of the credit contract must satisfy 
the conditions that the transaction not require the payment of 
interest under Sec.  1026.43(a)(3)(vii)(C) and that repayment of the 
amount of credit extended be forgiven or deferred in accordance with 
Sec.  1026.43(a)(3)(vii)(D). The other requirements of Sec.  
1026.43(a)(3)(vii) need not be reflected in the credit contract, but 
the creditor must retain evidence of compliance with those 
provisions, as required by Sec.  1026.25(a). In particular, the 
creditor must have information reflecting that the total of closing 
costs imposed in connection with the transaction is less than 1 
percent of the amount of credit extended and include no charges 
other than recordation, application, and housing counseling fees, in 
accordance with Sec.  1026.43(a)(3)(vii)(E). Unless an itemization 
of the amount financed sufficiently details this requirement, the 
creditor must establish compliance with Sec.  1026.43(a)(3)(vii)(E) 
by some other written document and retain it in accordance with 
Sec.  1026.25(a).
* * * * *

[[Page 65325]]

Paragraph 43(e)(3)(iii).

    1. Payment to the consumer. The creditor or assignee, as 
applicable, complies with Sec.  1026.43(e)(3)(iii)(B) if it pays to 
the consumer the amount described in Sec.  1026.43(e)(3)(iv) within 
210 days after consummation and prior to the occurrence of any of 
the events in Sec.  1026.43(e)(3)(iii)(B)(1) through (3). A creditor 
or assignee, as applicable, does not comply with Sec.  
1026.43(e)(3)(iii)(B) if it pays to the consumer the amount 
described in Sec.  1026.43(e)(3)(iv) more than 210 days after 
consummation or after the occurrence of any of the events in Sec.  
1026.43(e)(3)(iii)(B)(1) through (3). Payment may be made by any 
means mutually agreeable to the consumer and the creditor or 
assignee, as applicable, or by check. If payment is made by check, 
the creditor or assignee complies with Sec.  1026.43(e)(3)(iii)(B) 
if the check is delivered or placed in the mail to the consumer 
within 210 days after consummation.
    2. 60 days past due. Section 1026.43(e)(3)(iii)(B)(3) provides 
that, to comply with Sec.  1026.43(e)(3)(iii)(B), the creditor or 
assignee must pay to the consumer the amount described in Sec.  
1026.43(e)(3)(iv) prior to the consumer becoming 60 days past due on 
the legal obligation. For this purpose, ``past due'' means the 
failure to make a periodic payment (in one full payment or in two or 
more partial payments) sufficient to cover principal, interest, and, 
if applicable, escrow under the terms of the legal obligation. Other 
amounts, such as any late fees, are not considered for this purpose. 
For purposes of Sec.  1026.43(e)(3)(iii)(B)(3), a periodic payment 
is 30 days past due when it is not paid on or before the due date of 
the following scheduled periodic payment and is 60 days past due 
when, after already becoming 30 days past due, it is not paid on or 
before the due date of the next scheduled periodic payment. For 
purposes of Sec.  1026.43(e)(3)(iii)(B)(3), the creditor or assignee 
may treat a received payment as applying to the oldest outstanding 
periodic payment. The following example illustrates the meaning of 
60 days past due for purposes of Sec.  1026.43(e)(3)(iii)(B)(3):
    i. Assume a loan is consummated on October 15, 2015, that the 
consumer's periodic payment is due on the 1st of each month, and 
that the consumer timely made the first periodic payment due on 
December 1, 2015. For purposes of Sec.  1026.43(e)(3)(iii)(B)(3), 
the consumer is 30 days past due if the consumer fails to make a 
payment (sufficient to cover the scheduled January 1, 2016 periodic 
payment of principal, interest, and, if applicable, escrow) on or 
before February 1, 2016. For purposes of Sec.  
1026.43(e)(3)(iii)(B)(3), the consumer is 60 days past due if the 
consumer then also fails to make a payment (sufficient to cover the 
scheduled January 1, 2016 periodic payment of principal, interest, 
and, if applicable, escrow) on or before March 1, 2016. For purposes 
of Sec.  1026.43(e)(3)(iii)(B)(3), the consumer is not 60 days past 
due if the consumer makes a payment (sufficient to cover the 
scheduled January 1, 2016 periodic payment of principal, interest, 
and, if applicable, escrow) on or before March 1, 2016.
    3. Post-consummation policies and procedures. The policies and 
procedures described in Sec.  1026.43(e)(3)(iii)(C) need not require 
that a creditor or assignee, as applicable, conduct a post-
consummation review of all loans originated by the creditor or 
acquired by the assignee, nor must such policies and procedures 
require a creditor or assignee to apply Sec.  1026.43(e)(3)(iii) and 
(iv) for all loans for which the total points and fees are found to 
exceed the applicable limit under Sec.  1026.43(e)(3)(i).

Paragraph 43(e)(3)(iv).

    1. Interest rate. For purposes of Sec.  1026.43(e)(3)(iv)(B), 
interest is calculated using the contract interest rate applicable 
during the period from consummation until the payment described in 
Sec.  1026.43(e)(3)(iv) is made to the consumer. In an adjustable-
rate or step-rate transaction in which more than one interest rate 
applies during the period from consummation until payment is made to 
the consumer, the minimum payment amount is determined by 
calculating interest on the dollar amount described in Sec.  
1026.43(e)(3)(iv)(A) at each such interest rate for the part of the 
overall period during which that rate applies. However, Sec.  
1026.43(e)(3)(iv) provides that, for purposes of Sec.  
1026.43(e)(3)(iii), the creditor or assignee can pay to the consumer 
an amount that exceeds the sum of the amounts described in Sec.  
1026.43(e)(3)(iv)(A) and (B). Therefore, a creditor or assignee may, 
for example, elect to calculate interest using the maximum interest 
rate that may apply during the period from consummation until 
payment is made to the consumer. See comment 43(e)(3)(iii)-1 for 
guidance on making payments to the consumer.
    2. Relationship to RESPA tolerance cure. Under Regulation X (12 
CFR 1024.7(i)), if any charges at settlement exceed the charges 
listed on the good faith estimate of settlement costs by more than 
the amounts permitted under 12 CFR 1024.7(e), the loan originator 
may cure the tolerance violation by reimbursing the amount by which 
the tolerance was exceeded at settlement or within 30 calendar days 
after settlement. The amount paid to the consumer pursuant to Sec.  
1026.43(e)(3)(iv) may be offset by the amount paid to the consumer 
pursuant to 12 CFR 1024.7(i), to the extent that the amount paid to 
the consumer pursuant to 12 CFR 1024.7(i) is being applied to fees 
or charges included in points and fees pursuant to Sec.  
1026.32(b)(1). However, a creditor or assignee has not satisfied 
Sec.  1026.43(e)(3)(iii) unless the total amount described in Sec.  
1026.43(e)(3)(iv), including any offset due to a payment made 
pursuant to 12 CFR 1024.7(i), is paid to the consumer within 210 
days after consummation and prior to the occurrence of any of the 
events in Sec.  1026.43(e)(3)(iii)(B)(1) through (3).
* * * * *

0
5. Effective August 1, 2015, in Supplement I to part 1026, under 
Section 1026.43, subheading Paragraph 43(e)(3)(iv), paragraph 2 is 
revised to read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Subpart E--Special Rules for Certain Home Mortgage Transactions

* * * * *

Section 1026.43--Minimum Standards for Transactions Secured by a 
Dwelling

* * * * *

Paragraph 43(e)(3)(iv).

* * * * *
    2. Relationship to RESPA tolerance cure. Under Regulation X (12 
CFR 1024.7(i)), if any charges at settlement exceed the charges 
listed on the good faith estimate of settlement costs by more than 
the amounts permitted under 12 CFR 1024.7(e), the loan originator 
may cure the tolerance violation by reimbursing the amount by which 
the tolerance was exceeded at settlement or within 30 calendar days 
after settlement. Similarly, under Sec.  1026.19(f)(2)(v), if 
amounts paid by the consumer exceed the amounts specified under 
Sec.  1026.19(e)(3)(i) or (ii), the creditor complies with Sec.  
1026.19(e)(1)(i) if the creditor refunds the excess to the consumer 
no later than 60 days after consummation. The amount paid to the 
consumer pursuant to Sec.  1026.43(e)(3)(iv) may be offset by the 
amount paid to the consumer pursuant to 12 CFR 1024.7(i) or Sec.  
1026.19(f)(2)(v), to the extent that the amount paid to the consumer 
pursuant to 12 CFR 1024.7(i) or Sec.  1026.19(f)(2)(v) is being 
applied to fees or charges included in points and fees pursuant to 
Sec.  1026.32(b)(1). However, a creditor or assignee has not 
satisfied Sec.  1026.43(e)(3)(iii) unless the total amount described 
in Sec.  1026.43(e)(3)(iv), including any offset due to a payment 
made pursuant to 12 CFR 1024.7(i) or Sec.  1026.19(f)(2)(v), is paid 
to the consumer within 210 days after consummation and prior to the 
occurrence of any of the events in Sec.  1026.43(e)(3)(iii)(B)(1) 
through (3).
* * * * *

    Dated: October 17, 2014.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2014-25503 Filed 10-31-14; 8:45 am]
BILLING CODE 4810-AM-P
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