This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

41631 

Vol. 79, No. 137 

Thursday, July 17, 2014 

1This interpretive rule refers generally to 

‘‘creditors.’’ Under Regulation Z the term ‘‘creditor’’ 

generally means the one to whom the obligation is 

initially payable. See § 1026.2(a)17. Where a 

mortgage has been sold after consummation, the 

original ‘‘creditor’’ may no longer be in position to 

agree to add an obligor. When evaluating whether 

acknowledging a new obligor triggers the 

requirements of § 1026.20(b) or § 1026. 43, servicers 

and assignees of the original obligation may rely on 

this interpretive rule. 

2See, e.g., sections 1011 and 1021 of the DoddFrank Act, 12 U.S.C. 5491 and 5511 (establishing 

and setting forth the purpose, objectives, and 

functions of the Bureau); section 1061 of the DoddFrank 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). 

3On January 10, 2013, the Bureau issued the 

January 2013 ATR Final Rule. 78 FR 6407 (Jan. 30, 

2013). That same day the Bureau issued the 2013 

Escrows Final Rule, and the 2013 HOEPA Final 

Rule. 78 FR 4725 (Jan. 22, 2013); 78 FR 6855 (Jan. 

31, 2013). On January 17, 2013, the Bureau issued 

the 2013 Mortgage Servicing Final Rules. 78 FR 

10695 (Feb. 14, 2013); 78 FR 10901 (Feb. 14, 2013). 

On January 18, 2013, the Bureau issued the 2013 

ECOA Valuations Final Rule and, jointly with other 

agencies, the 2013 Interagency Appraisals Final 

Rule. 78 FR 7215 (Jan. 31, 2013); 78 FR 10367 (Feb. 

13, 2013). On January 20, 2013, the Bureau issued 

the 2013 Loan Originator Final Rule. 78 FR 11279 

(Feb. 15, 2013). Pursuant to the Dodd-Frank Act, 

which permitted a maximum of one year for 

implementation, most of these rules became 

effective on January 10, 2014. 

4Press Release, Consumer Financial Protection 

Bureau, CFPB Lays Out Implementation Plan for 

New Mortgage Rules (Feb. 13, 2013), available at 

http://www.consumerfinance.gov/newsroom/

consumer-financial-protection-bureau-lays-outimplementation-plan-for-new-mortgage-rules/. 

5As discussed in part II below, most workout 

agreements are not ‘‘refinancings’’ subject to the 

ATR Rule. However, creditors generally require a 

successor to enter into an assumption agreement 

prior to or simultaneous with the execution of the 

modification agreement in part because creditors 

are concerned about their ability to enforce the 

terms of the modified debt absent a written 

agreement, executed by an obligor with authority. 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1026 

[Docket No. CFPB–2014–0016] 

RIN 3170–ZA00 

Application of Regulation Z’s AbilityTo-Repay Rule to Certain Situations 

Involving Successors-in-Interest 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Final rule. 

SUMMARY: The Bureau of Consumer 

Financial Protection (Bureau) is issuing 

this interpretive rule to clarify that the 

Bureau’s Ability-to-Repay Rule 

incorporates the existing definition of 

‘‘assumption’’ under Regulation Z. 

DATES: This clarification is effective July 

17, 2014 and applicable beginning July 

8, 2014. 

FOR FURTHER INFORMATION CONTACT: 

William R. Corbett, Senior Counsel, 

Office of Regulations, Consumer 

Financial Protection Bureau, 1700 G 

Street NW., at (202) 435–7700. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Bureau is issuing this interpretive 

rule to clarify that where a successor-ininterest (successor) who has previously 

acquired title to a dwelling agrees to be 

added as obligor or substituted for the 

existing obligor on a consumer credit 

transaction secured by that dwelling, 

the creditor’s written acknowledgement 

of the successor as obligor is not subject 

to the Bureau’s Ability-to-Repay Rule 

(ATR Rule), § 1026.43, because such a 

transaction does not constitute an 

assumption as defined by Regulation Z 

§ 1026.20(b).1

In the Dodd-Frank Wall Street Reform 

and Consumer Protection Act, Public 

Law 111–203, 124 Stat. 1376 (2010), 

(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, 

in the Bureau, effective July 21, 2011.2

Historically, Regulation Z, which was 

issued by the Board of Governors of the 

Federal Reserve System (Board), 12 CFR 

part 226, had implemented TILA. On 

December 22, 2011, pursuant to the 

Dodd-Frank Act and TILA, as amended 

by the Dodd-Frank Act, the Bureau 

published an interim final rule 

establishing a new Regulation Z (Truth 

in Lending), 12 CFR part 1026, 

implementing TILA (except with respect 

to persons excluded from the Bureau’s 

rulemaking authority by section 1029 of 

the Dodd-Frank Act). The interim final 

rule substantially duplicated the Board’s 

Regulation Z, as it existed at that time, 

making only non-substantive, technical, 

formatting, and stylistic changes. 

Beginning January 10, 2013, the 

Bureau issued several final rules 

implementing amendments to TILA 

under the Dodd-Frank Act (the Title XIV 

Final Rules), including the ATR Rule.3

On February 13, 2013, the Bureau 

announced an initiative to support 

implementation of its new mortgage 

rules,4 under which the Bureau would 

work with the mortgage industry and 

other stakeholders to ensure that the 

new rules could be implemented 

accurately and expeditiously. 

Since the issuance of the Title XIV 

Final Rules, industry and consumer 

advocates have expressed uncertainty 

about the application of the ATR Rule 

in situations where a successor seeks to 

be added as an obligor or substituted for 

the current obligor on an existing 

mortgage. The Bureau has been asked 

whether the creditor is obligated under 

the ATR Rule to determine the 

successor’s ability to repay the mortgage 

before formally adding the successor as 

an obligor. Often, this issue arises upon 

the death of the obligor, with the 

surviving spouse or children asserting 

rights under the mortgage, but it may 

also present itself in other settings, such 

as in separation or divorce, after a 

transfer from living parents to children, 

or a transfer to an inter vivos trust of 

which the consumer is the beneficiary. 

If the ATR Rule applies when a creditor 

adds a successor as an obligor, such 

transactions may be less likely to occur. 

There can be significant consequences 

for a successor that is not able to 

become an obligor on a mortgage. For 

instance, if the successor seeks a 

modification of the existing transaction 

as part of trying to retain the home, the 

creditor may refuse to modify the terms 

of the debt on the grounds that the 

successor is not a party to the existing 

obligation and therefore cannot enter 

into a modification agreement.5


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41632 Federal Register / Vol. 79, No. 137 / Thursday, July 17, 2014 / Rules and Regulations 

6CFPB Bulletin, 2013–12 (Oct. 15, 2013), http:// 

files.consumerfinance.gov/f/201310_cfpb_mortgageservicing_bulletin.pdf. 

7The term successor also may include an inter 

vivos trust, created by a borrower who transfers his 

or her property into the trust in which the obligor 

is or remains a beneficiary. 8See 12 U.S.C.1701j–3(d). 

In general, as discussed in part II 

below, in these situations, where the 

addition or substitution of the successor 

as the obligor is not an ‘‘assumption’’ 

under § 1026.20(b), such addition or 

substitution is not subject to the ATR 

Rule’s requirements. A creditor may rely 

on this interpretation as a safe harbor 

under section 130(f) of TILA. The 

Bureau plans to incorporate this 

interpretation into Regulation Z’s 

Official Interpretations at a later date. 

The Bureau is aware of other 

questions related to a servicer’s 

obligations under the 2013 Mortgage 

Servicing Final Rules with respect to 

successors. Under Regulation X 

§ 1024.38(b)(1)(vi), servicers are 

required to maintain policies and 

procedures reasonably designed to 

ensure the servicer can promptly 

identify and facilitate communication 

with the successor-in-interest of a 

deceased borrower upon notification of 

the death of the borrower. On October 

15, 2013, the Bureau issued a guidance 

bulletin providing examples of servicer 

practices the Bureau would consider to 

be components of the policies and 

procedures mortgage servicers must 

have in place to comply with these 

requirements regarding successors-ininterest.6 The Bureau is monitoring 

these issues to determine whether they 

require further guidance or rulemaking. 

II. Application of ATR to Certain 

Situations Involving Successors-inInterest 

The Bureau has received many 

questions regarding the applicability of 

the ATR Rule where a successor 

acquires a home that is the collateral for 

an existing consumer credit transaction 

and seeks to become an obligor on that 

transaction. A successor is a person who 

receives legal interest in a property, 

typically by a transfer from a family 

member, by operation of law upon 

another’s death, or under a divorce 

decree or separation agreement.7 In all 

of these situations, where the successor 

acquires property that is subject to a 

mortgage, the successor is not 

personally liable for the associated debt, 

but may choose to assume the debt. The 

Garn-St Germain Depository Institutions 

Act of 1982 prohibits the creditor from 

exercising a due-on-sale clause based 

upon certain types of transfers, 

including the common situation of 

transfer upon death of a relative.8 Even 

where a due-on-sale clause may be 

exercised, however, creditors may agree 

to add the successor as a named obligor 

under the loan contract. 

A. Application of the ATR Rule to a 

Change in Obligors 

Under Regulation Z § 1026.43, the 

ATR Rule applies to any ‘‘covered 

transaction’’ defined, with certain 

enumerated exceptions, as ‘‘any 

consumer credit transaction that is 

secured by a dwelling . . . including 

any real property attached to a 

dwelling.’’ Under § 1026.43(c), a 

creditor must make a reasonable and 

good faith determination that the 

consumer has the ability to repay at or 

before consummation of the covered 

transaction. Similarly, Regulation Z 

generally requires creditors to provide 

disclosures required under § 1026.18 or 

§ 1026.19 to consumers before 

consummation of certain closed-end 

loans. In certain circumstances, 

however, creditors and consumers 

agree, after consummation, to changes 

to an existing transaction that are 

treated as a ‘‘new transaction’’ under 

Regulation Z, requiring new disclosures. 

Section 1026.20(a) and (b) provide that 

if a creditor and consumer engage in 

activity that constitutes a ‘‘refinancing’’ 

or an ‘‘assumption,’’ the creditor must 

make new disclosures. Comment 43(a)– 

1 is consistent with this approach in 

excluding from the scope of § 1026.43 

changes to the loan that are not a 

refinancing under § 1026.20(a). 

The terms ‘‘refinancing’’ and 

‘‘assumption’’ are each assigned a 

specific meaning in § 1026.20(a) and (b). 

These terms generally define when a 

change in a closed-end loan’s terms or 

obligors constitutes a new transaction 

under Regulation Z. For example, under 

§ 1026.20(a), a refinancing occurs when 

an existing obligation is ‘‘satisfied and 

replaced by a new obligation 

undertaken by the same consumer.’’ 

Certain changes to the loan’s terms, 

including, generally, workout 

agreements for delinquent borrowers, do 

not meet the definition of a 

‘‘refinancing,’’ under § 1026.20(a). See 

§ 1026.20(a)(4); comment 20(a)(4)–1. As 

comment 43(a)–1 makes explicit, such 

agreements are therefore not covered 

transactions and are not subject to 

§ 1026.43. 

Section 1026.20(a) and (b) address 

different types of events. Section 

1026.20(a) addresses changes to a loan’s 

terms—such as an increase in the 

interest rate in a transaction initially 

disclosed as a fixed-rate transaction. In 

contrast, § 1026.20(b) applies to changes 

in the loan’s obligors. Under 

§ 1026.20(b) an assumption occurs 

when—and only when—the creditor 

‘‘expressly agrees in writing with a 

subsequent consumer to accept that 

consumer as a primary obligor on an 

existing residential mortgage 

transaction.’’ 

The Bureau believes that just as 

comment 43(a)–1 explicitly incorporates 

the definition of ‘‘refinancing’’ in 

§ 1026.20(a)—and the limitations on 

that definition—into the scope of 

§ 1026.43, so, too, the ATR requirement 

in § 1026.43 should be interpreted to 

incorporate the existing Regulation Z 

standard for transactions involving a 

change of obligors set forth in 

§ 1026.20(b). Unless the change satisfies 

the definition of an ‘‘assumption’’ under 

§ 1026.20(b), a change of obligors does 

not trigger the ATR requirements under 

§ 1026.43. 

The Bureau’s interpretation is 

consistent with comment 43(a)-1 and 

consistent with the Bureau’s purposes 

in issuing the Ability-to-Repay Rule. 

This interpretation applies a standard to 

transactions that involve new obligors 

that is consistent with the standard that 

exists in Regulation Z generally. The 

Bureau believes it would be potentially 

incongruous to interpret § 1026.43 as 

never applying to transactions involving 

a new obligor, which by definition are 

excluded from being refinancings under 

§ 1026.20(a). The Bureau also believes 

that interpreting § 1026.43 as either 

never applying to transactions with new 

obligors or as applying to some 

transactions with new obligors based on 

a standard other than the familiar rule 

set forth in § 1026.20(b) would not be 

consistent with the policies underlying 

the ATR Rule, the Bureau’s intent in 

promulgating the rule, or the public’s 

understanding of Regulation Z. 

B. The Addition of a Successor as 

Named Obligor Generally Does not 

Constitute an ‘‘Assumption’’ 

As noted above, § 1026.43 should be 

interpreted to incorporate the existing 

standards under § 1026.20(b) for 

determining whether a transaction is an 

‘‘assumption.’’ An assumption under 

§ 1026.20(b) occurs when the creditor 

agrees in writing to accept a subsequent 

consumer as a primary obligor on an 

existing ‘‘residential mortgage 

transaction.’’ A ‘‘residential mortgage 

transaction’’ is a transaction in which a 

consumer finances the acquisition or 

initial construction of the consumer’s 

principal dwelling. See § 1026.2(a)(24). 

For purposes of determining whether 

the transaction is an ‘‘assumption,’’ the 

creditor must look to whether the new 


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Federal Register / Vol. 79, No. 137 / Thursday, July 17, 2014 / Rules and Regulations 41633 

9Comment 20(b)–2 states that creditors ‘‘must 

look to the assuming consumer in determining 

whether a residential mortgage transaction exists.’’ 

(emphasis added.) 

10As comment 2(a)(24)–5 states, the term 

residential mortgage transaction ‘‘does not include 

a transaction involving a consumer’s principal 

dwelling if the consumer had previously purchased 

and acquired some interest to the dwelling even 

through the consumer had not acquired full legal 

title.’’ 

obligor is seeking to finance the 

acquisition of that subsequent 

consumer’s principal dwelling.9

Whether the existing extension of 

consumer credit was a residential 

mortgage transaction as to the existing 

primary obligor is immaterial. 

A residential mortgage transaction 

does not arise where a successor takes 

on the debt obligation that is secured by 

property the successor previously 

acquired.10 In these situations, 

§ 1026.20(b) does not apply when the 

successor agrees to be added as an 

obligor on an existing mortgage loan. 

Although these transactions are 

commonly referred to as assumptions, 

they are not assumptions under 

§ 1026.20(b) because the transaction is 

not a residential mortgage transaction as 

to the successor. Accordingly, the ATR 

Rule in § 1026.43 does not apply to a 

transaction in which a successor seeks 

to take on the debt secured by property 

that the successor previously acquired. 

In contrast to the successor situation 

described above, if a consumer without 

an existing interest takes on the 

obligation of the existing borrower in 

order to finance the acquisition of the 

consumer’s principal dwelling, the 

transaction is a residential mortgage 

transaction. In such a case, where the 

creditor expressly agrees in writing to 

the new primary obligor, an assumption 

has occurred under § 1026.20(b), and it 

is subject to the ability-to-repay 

requirements in § 1026.43, in addition 

to other requirements of Regulation Z. 

Moreover, where a creditor adds a 

successor as the obligor, whether that 

event is subject to § 1026.43 or not, the 

extension of credit remains a consumer 

credit transaction under Regulation Z. 

The creditor, assignee, or servicer must 

comply with any ongoing obligations 

pertaining to the extension of consumer 

credit, such as the requirement to 

provide monthly statements in 

§ 1026.41 and the requirement to notify 

the obligors of adjustments to the loan’s 

interest rate in § 1026.20(c) and (d). 

III. Regulatory Requirements 

This rule articulates the Bureau’s 

interpretation of Regulation Z, and the 

Truth-in-Lending Act. It is therefore 

exempt from the APA’s notice and 

comment rulemaking requirements 

pursuant to 5 U.S.C. 553(b). 

Because no notice of proposed 

rulemaking is required, the Regulatory 

Flexibility Act does not require an 

initial or final regulatory flexibility 

analysis. 5 U.S.C. 603(a), 604(a). 

The Bureau has determined that this 

rule does not impose any new or revise 

any existing recordkeeping, reporting, or 

disclosure requirements on covered 

entities or members of the public that 

would be collections of information 

requiring OMB approval under the 

Paperwork Reduction Act, 44 U.S.C. 

3501, et seq. 

Dated: July 1, 2014. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

[FR Doc. 2014–16780 Filed 7–16–14; 8:45 am] 

BILLING CODE 4810–AM–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 25 

[Docket No. FAA–2014–0209; Special 

Conditions No. 25–559–SC] 

Special Conditions: Embraer Model 

ERJ–190 Airplane, Enhanced FlightVision System (EFVS) 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final special conditions; request 

for comments. 

SUMMARY: These special conditions are 

issued for the Embraer Model ERJ–190 

airplane. This airplane will have a novel 

or unusual design feature associated 

with an enhanced flight-vision system. 

The applicable airworthiness 

regulations do not contain adequate or 

appropriate safety standards for this 

design feature. These special conditions 

contain the additional safety standards 

that the Administrator considers 

necessary to establish a level of safety 

equivalent to that established by the 

existing airworthiness standards. 

DATES: The effective date of these 

special conditions is July 17, 2014. We 

must receive your comments by 

September 2, 2014. 

ADDRESSES: Send comments identified 

by docket number FAA–2014–0209 

using any of the following methods: 

• Federal eRegulations Portal: Go to 

http://www.regulations.gov/ and follow 

the online instructions for sending your 

comments electronically. 

• Mail: Send comments to Docket 

Operations, M–30, U.S. Department of 

Transportation (DOT), 1200 New Jersey 

Avenue SE., Room W12–140, West 

Building Ground Floor, Washington, DC 

20590–0001. 

• Hand Delivery or Courier: Take 

comments to Docket Operations in 

Room W12–140 of the West Building 

Ground Floor at 1200 New Jersey 

Avenue SE., Washington, DC, between 9 

a.m. and 5 p.m., Monday through 

Friday, except federal holidays. 

• Fax: Fax comments to Docket 

Operations at 202–493–2251. 

Privacy: The FAA will post all 

comments it receives, without change, 

to http://www.regulations.gov/, 

including any personal information the 

commenter provides. Using the search 

function of the docket Web site, anyone 

can find and read the electronic form of 

all comments received into any FAA 

docket, including the name of the 

individual sending the comment (or 

signing the comment for an association, 

business, labor union, etc.). DOT’s 

complete Privacy Act Statement can be 

found in the Federal Register published 

on April 11, 2000 (65 FR 19477–19478), 

as well as at http:// 

DocketsInfo.dot .gov/. 

Docket: Background documents or 

comments received may be read at 

http://www.regulations.gov/ at any time. 

Follow the online instructions for 

accessing the docket or go to the Docket 

Operations in Room W12–140 of the 

West Building Ground Floor at 1200 

New Jersey Avenue SE., Washington, 

DC, between 9 a.m. and 5 p.m., Monday 

through Friday, except federal holidays. 

FOR FURTHER INFORMATION CONTACT: Dale 

Dunford, FAA, Airplane and Flightcrew 

Interface, ANM–111, Transport Airplane 

Directorate, Aircraft Certification 

Service, 1601 Lind Avenue SW., 

Renton, Washington 98057–3356; 

telephone 425–227–2239; facsimile 

425–227–1320. 

SUPPLEMENTARY INFORMATION: The FAA 

has determined that notice of, and 

opportunity for prior public comment 

on, these special conditions are 

impracticable because these procedures 

would significantly delay issuance of 

the design approval and thus delivery of 

the affected aircraft. In addition, the 

substance of these special conditions 

has been subject to the public-comment 

process in several prior instances with 

no substantive comments received. The 

FAA therefore finds that good cause 

exists for making these special 

conditions effective upon publication in 

the Federal Register. 

Comments Invited 

We invite interested people to take 

part in this rulemaking by sending 


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