25730 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 

TABLE 4—DOCUMENTS RELEVANT TO THE ESBWR DESIGN CERTIFICATION RULE, FOR WHICH AN OPPORTUNITY FOR

PUBLIC COMMENT WAS PROVIDED IN THE ESBWR PROPOSED RULE—Continued 

Document No. Document title 

Publicly 

available 

ADAMS 

accession No. 

Non-publicly 

available 

ADAMS 

accession No. 

Final Safety Evaluation Report ..................................... ESBWR Final Safety Evaluation Report, dated March 

9, 2011.

ML103070392 

(package) 

N/A 

List of Subjects in 10 CFR Part 52 

Administrative practice and 

procedure, Antitrust, Backfitting, 

Combined license, Early site permit, 

Emergency planning, Fees, Inspection, 

Limited work authorization, Nuclear 

power plants and reactors, Probabilistic 

risk assessment, Prototype, Reactor 

siting criteria, Redress of site, Reporting 

and recordkeeping requirements, 

Standard design, Standard design 

certification, Incorporation by reference. 

For the reasons set out in the 

preamble and under the authority of the 

Atomic Energy Act of 1954, as amended; 

the Energy Reorganization Act of 1974, 

as amended; and 5 U.S.C. 552 and 553, 

the NRC is proposing to adopt the 

following amendments to 10 CFR Part 

52. 

PART 52—LICENSES, 

CERTIFICATIONS, AND APPROVALS 

FOR NUCLEAR POWER PLANTS 

■ 1. The authority citation for 10 CFR 

part 52 continues to read as follows: 

Authority: Atomic Energy Act secs. 103, 

104, 147, 149, 161, 181, 182, 183, 185, 186, 

189, 223, 234 (42 U.S.C. 2133, 2201, 2167, 

2169, 2232, 2233, 2235, 2236, 2239, 2282); 

Energy Reorganization Act secs. 201, 202, 

206, 211 (42 U.S.C. 5841, 5842, 5846, 5851); 

Government Paperwork Elimination Act sec. 

1704 (44 U.S.C. 3504 note); Energy Policy Act 

of 2005, Pub. L. 109–58, 119 Stat. 594 (2005). 

■ 2. In appendix E to 10 CFR part 52, 

as proposed to be added March 24, 2011 

(76 FR 16549): 

■ A. Revise paragraph III.A. 

■ B. Add new paragraph VIII.B.6.b.(8). 

The revision and addition read as 

follows: 

Appendix E to Part 52—Design 

Certification Rule for the ESBWR 

Design. 

* * * * * 

III. Scope and Contents 

A. Incorporation by reference approval. All 

Tier 1, Tier 2 (including the availability 

controls in Appendix 19ACM), and the 

generic TS in the ESBWR DCD, Revision 10, 

dated April 2014, ‘‘ESBWR Design Control 

Document,’’ are approved for incorporation 

by reference by the Director of the Office of 

the Federal Register under 5 U.S.C. 552(a) 

and 1 CFR part 51. You may obtain copies 

of the generic DCD from Jerald G. Head, 

Senior Vice President, Regulatory Affairs, 

GE-Hitachi Nuclear Energy, 3901 Castle 

Hayne Road, MC A–18, Wilmington, NC 

28401, telephone: 1–910–819–5692. You can 

view the generic DCD online in the NRC 

Library at http://www.nrc.gov/reading-rm/

adams.html. In ADAMS, search under 

ADAMS Accession No. ML14104A929. If you 

do not have access to ADAMS or if you have 

problems accessing documents located in 

ADAMS, contact the NRC’s Public Document 

Room (PDR) reference staff at 1–800–397– 

4209, 1–301–415–3747, or by email at 

PDR.Resource@nrc.gov. The generic DCD can 

also be viewed at the Federal rulemaking 

Web site, http://www.regulations.gov, by 

searching for documents filed under Docket 

ID NRC–2010–0135. A copy of the DCD is 

available for examination and copying at the 

NRC’s PDR located at Room O–1F21, One 

White Flint North, 11555 Rockville Pike, 

Rockville, Maryland 20852. A copy also is 

available for examination at the NRC Library 

located at Two White Flint North, 11545 

Rockville Pike, Rockville, Maryland 20852, 

telephone: 301–415–5610, email: 

Library.Resource@nrc.gov. All approved 

material is available for inspection at the 

National Archives and Records 

Administration (NARA). For information on 

the availability of this material at NARA, call 

1–202–741–6030 or go to http://

www.archives.gov/federal-register/cfr/

ibrlocations.html. 

* * * * * 

VIII. * * * 

B. * * * 

6. * * * 

b. * * * 

(8) Steam dryer pressure load analysis 

methodology. 

* * * * * 

Dated at Rockville, Maryland, this 23rd day 

of April, 2014. 

For the Nuclear Regulatory Commission. 

Mark A. Satorius, 

Executive Director for Operations. 

[FR Doc. 2014–10246 Filed 5–5–14; 8:45 am] 

BILLING CODE 7590–01–P 

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: Proposed rule with request for 

public comment. 

SUMMARY: The Bureau of Consumer 

Financial Protection (Bureau) proposes 

amendments to certain mortgage rules 

issued in 2013. The proposed rule 

would provide an alternative small 

servicer definition for nonprofit entities 

that meet certain requirements, amend 

the existing exemption from the abilityto-repay rule for nonprofit entities that 

meet certain requirements, and provide 

a limited cure mechanism for the points 

and fees limit that applies to qualified 

mortgages. 

DATES: Comments regarding the 

proposed amendments to 12 CFR 

1026.41(e)(4), 1026.43(a)(3), and 

1026.43(e)(3) must be received on or 

before June 5, 2014. For the requests for 

comment regarding correction or cure of 

debt-to-income ratio overages and the 

credit extension limit for the small 

creditor definition, comments must be 

received on or before July 7, 2014. 

ADDRESSES: You may submit comments, 

identified by Docket No. CFPB–2014– 

0009 or RIN 3170–AA43, by any of the 

following methods: 

• Electronic: http://

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail/Hand Delivery/Courier: 

Monica Jackson, Office of the Executive 

Secretary, Consumer Financial 

Protection Bureau, 1700 G Street NW., 

Washington, DC 20552. 

Instructions: All submissions should 

include the agency name and docket 

number or Regulatory Information 

Number (RIN) for this rulemaking. 

Because paper mail in the Washington, 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 25731 

1Specifically, 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, which was finalized 

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 Real Estate 

Settlement Procedures Act (Regulation X) and Truth 

in Lending Act (Regulation Z) Mortgage Servicing 

Final Rules, 78 FR 10901 (Feb. 14, 2013) 

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

(Regulation X) (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). 

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). 

3See 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.). 

4See section 1400(c) of the Dodd-Frank Act, 15 

U.S.C. 1601 note. 

DC area and at the Bureau is subject to 

delay, commenters are encouraged to 

submit comments electronically. In 

general, all comments received will be 

posted without change to http://

www.regulations.gov. In addition, 

comments will be available for public 

inspection and copying at 1700 G Street 

NW., Washington, DC 20552, on official 

business days between the hours of 10 

a.m. and 5 p.m. Eastern Time. You can 

make an appointment to inspect the 

documents by telephoning (202) 435– 

7275. 

All comments, including attachments 

and other supporting materials, will 

become part of the public record and 

subject to public disclosure. Sensitive 

personal information, such as account 

numbers or social security numbers, 

should not be included. Comments 

generally will not be edited to remove 

any identifying or contact information. 

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 Proposed Rule 

In January 2013, the Bureau issued 

several final rules concerning mortgage 

markets in the United States (2013 Title 

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

Protection Act (Dodd-Frank Act), Public 

Law 111–203, 124 Stat. 1376 (2010).1

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, or 

other stakeholders. The Bureau is now 

proposing several additional 

amendments to the 2013 Title XIV Final 

Rules to revise regulatory provisions 

and official interpretations primarily 

relating to the Regulation Z ability-torepay/qualified mortgage requirements 

and servicing rules, as well as seeking 

comment on additional issues. The 

Bureau expects to issue additional 

proposals to address other topics 

relating to the 2013 Title XIV Final 

Rules, such as the definition of ‘‘rural 

and underserved’’ for purposes of 

certain mortgage provisions affecting 

small creditors as discussed further 

below. 

Specifically, the Bureau is proposing 

three amendments to the 2013 Title XIV 

Final Rules: 

• To provide an alternative definition 

of the term ‘‘small servicer,’’ that would 

apply to certain nonprofit entities that 

service for a fee loans on behalf of other 

nonprofit chapters of the same 

organization. Although the Bureau is 

proposing this change in Regulation Z, 

the change will also affect several 

provisions of Regulation X, which crossreference the Regulation Z small 

servicer exemption. 

• To amend the Regulation Z abilityto-repay requirements to provide that 

certain interest-free, 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, postconsummation cure mechanism for 

loans that are originated with the good 

faith expectation of qualified mortgage 

status but that actually exceed the 

points and fees limit for qualified 

mortgages. 

In addition to providing specific 

proposals on these issues, the Bureau is 

seeking comment on two additional 

topics: 

• Whether and how to provide a 

limited, post-consummation cure or 

correction provision for loans that are 

originated with the good faith 

expectation of qualified mortgage status 

but that actually exceed the 43-percent 

debt-to-income ratio limit that applies to 

certain qualified mortgages. 

• Feedback and data from smaller 

creditors regarding implementation of 

certain provisions in the 2013 Title XIV 

Final Rules that are tailored to account 

for small creditor operations and how 

their origination activities have changed 

in light of the new rules. 

II. Background 

A. Title XIV Rulemakings Under the 

Dodd-Frank Act 

In response to an unprecedented cycle 

of expansion and contraction in the 

mortgage market that sparked the most 

severe U.S. recession since the Great 

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

on July 21, 2010. 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 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. 

On January 10, 2013, the Bureau 

issued the 2013 Escrows Final Rule, the 

January 2013 ATR Final Rule, and the 

2013 HOEPA Final Rule. 78 FR 4725 

(Jan. 22, 2013); 78 FR 6407 (Jan. 30, 

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 


sroberts on DSK5SPTVN1PROD with PROPOSALS
25732 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 

5Each of these rules was published in the Federal 

Register shortly after issuance. 

6 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). 

7Press Release, Consumer Financial Protection 

Bureau, Consumer Financial Protection Bureau 

Lays Out Implementation Plan for New Mortgage 

Rules (Feb. 13, 2013), available at http://

www.consumerfinance.gov/newsroom/consumerfinancial-protection-bureau-lays-outimplementation-plan-for-new-mortgage-rules/. 

8 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); DoddFrank 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). 

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).5 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. 

Concurrent with the January 2013 

ATR Final Rule, on January 10, 2013, 

the Bureau issued proposed 

amendments to the rule (i.e., the January 

2013 ATR Proposal), which the Bureau 

finalized on May 29, 2013 (i.e., 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 

2013 Mortgage Servicing Final Rules 

and the May 2013 ATR Final Rule in the 

summer and fall of 2013.6

B. Implementation Plan for New 

Mortgage Rules 

On February 13, 2013, the Bureau 

announced an initiative to support 

implementation of its new mortgage 

rules (the Implementation Plan),7 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. The Implementation 

Plan included: (1) Coordination with 

other agencies, including the 

development of consistent, updated 

examination procedures; (2) publication 

of plain-language guides to the new 

rules; (3) publication of additional 

corrections and clarifications of the new 

rules, as needed; (4) publication of 

readiness guides for the new rules; and 

(5) education of consumers on the new 

rules. 

This proposal 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. As 

discussed below, the Bureau 

contemplates issuing additional updates 

on additional topics. 

III. Legal Authority 

The Bureau is issuing this proposed 

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 DoddFrank Act also transferred to the Bureau 

all of the Department of Housing and 

Urban Development’s (HUD) consumer 

protection functions relating to RESPA. 

Title X of the Dodd-Frank Act, 

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

and certain subtitles and provisions of 

title XIV of the Dodd-Frank Act, are 

Federal consumer financial laws.8

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 DoddFrank Act, to assure that consumers are 

offered and receive residential mortgage 

loans on terms that reasonably reflect 

their ability to repay the loans and that 

are understandable and not unfair, 

deceptive, and abusive. 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’’; 

• 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; necessary 

and appropriate to effectuate the 

purposes of the ability-to-repay and 

residential mortgage loan origination 

requirements; to prevent circumvention 

or evasion thereof; or to facilitate 

compliance with TILA sections 129B 

and 129C. 15 U.S.C. 1639c(b)(3)(B)(i). In 

addition, TILA section 129C(b)(3)(A) 

requires the Bureau to prescribe 

regulations to carry out such purposes. 

15 U.S.C. 1639c(b)(3)(A). 

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 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 25733 

9 ‘‘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). 

10 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). 

11 12 CFR 1024.17(k)(5) (prohibiting purchase of 

force-placed insurance in certain circumstances). 

12 12 CFR 1024.30(b)(1) (exempting small 

servicers from §§ 1024.38 through 41, except as 

otherwise provided under 41(j), as discussed in 

note 13, 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). 

13See 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). 

14Under 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). 

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.9

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. 

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 propose 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 DoddFrank Act, and to prevent evasion of 

those laws. 

The Bureau is proposing to amend 

rules that implement certain DoddFrank Act provisions. In particular, the 

Bureau is proposing to amend 

provisions of Regulation Z (and, by 

reference, Regulation X) adopted by the 

2013 Mortgage Servicing Final Rules 

(including July 2013 amendments 

thereto), the January 2013 ATR Final 

Rule, and the May 2013 ATR Final Rule. 

IV. Proposed Effective Date 

The Bureau proposes that all of the 

changes proposed herein take effect 

thirty days after publication of a final 

rule in the Federal Register. The 

proposed changes would expand 

exemptions and provide relief from 

regulatory requirements; therefore the 

Bureau believes an effective date of 30 

days after publication may be 

appropriate. The Bureau seeks comment 

on whether the proposed effective date 

is appropriate, or whether the Bureau 

should adopt an alternative effective 

date. 

V. Section-by-Section Analysis 

Section 1026.41 Periodic Statements 

for Residential Mortgage Loans 

41(e) Exemptions 

41(e)(4) Small Servicers 

The Bureau is proposing to revise the 

scope of the exemption for small 

servicers that is set forth in § 1026.41 of 

Regulation Z and incorporated by crossreference in certain provisions of 

Regulation X. The proposal would add 

an alternative definition of small 

servicer 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 Bureau’s 2013 Mortgage Servicing 

Final Rules exempt small servicers from 

certain mortgage servicing requirements. 

Specifically, Regulation Z exempts 

small servicers, defined in 

§ 1026.41(e)(4)(ii), from the requirement 

to provide periodic statements for 

residential mortgage loans.10 Regulation 

X incorporates this same definition by 

reference to § 1026.41(e)(4) and thereby 

exempts small servicers from: (1) 

Certain requirements relating to 

obtaining force-placed insurance,11 (2) 

the general servicing policies, 

procedures, and requirements,12 and (3) 

certain requirements and restrictions 

relating to communicating with 

borrowers about, and evaluation of 

applications for, loss mitigation 

options.13

Current § 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 an 

affiliate) is the creditor or assignee; or 

(B) is a Housing Finance Agency, as 

defined in 24 CFR 266.5. ‘‘Affiliate’’ is 

defined in § 1026.32(b)(5) as any 

company that controls, is controlled by, 

or is under common control with 

another company, as set forth in the 

Bank Holding Company Act of 1956, 12 

U.S.C. 1841 et seq. (BHCA).14

Generally, under 

§ 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, 

current § 1026.41(e)(4)(iii) excludes 

from consideration certain types of 

mortgage loans for purposes of 

determining whether a servicer qualifies 

as a small servicer: (A) Mortgage loans 

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; (B) reverse 

mortgage transactions; and (C) mortgage 

loans secured by consumers’ interests in 

timeshare plans. In the 2013 Mortgage 

Servicing Final Rules, the Bureau 

concluded that a separate exemption for 

nonprofits was not necessary because 

the Bureau believed that nonprofits 

would likely fall within the small 

servicer exemption. See 78 FR 10695, 

10720 (Feb. 14, 2013). 

As part of the Bureau’s 

Implementation Plan, the Bureau has 

learned that certain nonprofit entities 

may, for a fee, service loans for another 

nonprofit entity that is the creditor on 


sroberts on DSK5SPTVN1PROD with PROPOSALS
25734 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 

the loan. The Bureau understands that, 

in some cases, these nonprofit entities 

are part of a larger association of 

nonprofits that are separately 

incorporated but operate under mutual 

contractual obligations to serve the same 

charitable mission, and that use a 

common name, trademark, or 

servicemark. These 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 

servicer is neither the creditor for, nor 

an assignee of, those loans). 

The Bureau understands that groups 

of nonprofit entities that are associated 

with one another may consolidate 

servicing activities to achieve 

economies of scale necessary to service 

loans cost-effectively, and that such 

costs 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 have a more difficult time than 

related for-profit servicers qualifying for 

the small servicer exemption. For the 

reasons discussed below, the Bureau 

believes that the ability of such 

nonprofit entities to consolidate 

servicing activities may be beneficial to 

consumers—e.g., to the extent servicing 

cost savings are passed on to consumers 

and/or lead to increased credit 

availability—and may outweigh the 

consumer protections provided by the 

servicing rules to those consumers 

affected by this proposal. 

Accordingly, the Bureau is proposing 

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 

§ 1026.41(e)(4)(ii)(C) provides 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 

§ 1026.41(e)(4)(ii)(C)(1) provides that, 

for purposes of proposed 

§ 1026.41(e)(4)(ii)(C), 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. 

See 26 U.S.C. 501(c)(3); 26 CFR 

1.501(c)(3)–1. Proposed 

§ 1026.41(e)(4)(ii)(C)(2) defines 

‘‘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 is also proposing 

technical changes to § 1026.41(e)(4)(iii), 

which addresses the timing of the small 

servicer determination and also 

excludes certain loans from the 5,000- 

loan limitation. The proposed changes 

would add language to the existing 

timing requirement to limit its 

application to the small servicer 

determination for purposes of 

§ 1026.41(e)(4)(ii)(A) and insert a 

separate timing requirement for 

purposes of determining whether a 

nonprofit servicer is a small servicer 

pursuant to § 1026.41(e)(4)(ii)(C). 

Specifically, that requirement would 

provide 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. 

The Bureau is proposing technical 

changes to comment 41(e)(4)(ii)–2 in 

light of proposed § 1026.41(e)(4)(ii)(C). 

In addition, the Bureau is proposing to 

add a comment to parallel existing 

comment 41(e)(4)(ii)–2 (that addresses 

the requirements to be a small servicer 

under the existing definition in 

§ 1026.41(e)(4)(ii)(A)). Specifically, new 

comment 41(e)(4)(ii)–4 would clarify 

that there are two elements to satisfying 

the nonprofit small creditor definition 

in proposed § 1026.41(e)(4)(ii)(C). First, 

the comment would clarify 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 is made 

separately without consideration of the 

number of loans serviced by another 

associated nonprofit entity. Second, the 

comment would further explain that the 

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). The comment would 

explain that a nonprofit entity is not a 

small servicer under 

§ 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 

provide two examples to demonstrate 

the application of the small servicer 

definition under § 1026.41(e)(4)(ii)(C). 

The Bureau is also proposing to revise 

existing comment 41(e)(4)(iii)–3 to 

specify that it explains the application 

of § 1026.41(e)(4)(iii) to the small 

servicer determination under 

§ 1026.41(e)(4)(ii)(A) specifically. As 

revised, comment 41(e)(4)(iii)–3 would 

explain that mortgage loans that are not 

considered pursuant to 

§ 1026.41(e)(4)(iii) for purposes of the 

small servicer determination under 

§ 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. The proposal would 

also make clarifying changes to the 

example provided in comment 

41(e)(4)(iii)–3 and would move language 

in existing comment 41(e)(4)(iii)–3 

regarding the limited role of voluntarily 

serviced mortgage loans to new 

proposed comment 41(e)(4)(iii)–5. The 

Bureau is also proposing technical 

changes to comment 41(e)(4)(iii)–2 in 

light of proposed § 1026.41(e)(4)(ii)(C). 

In addition, the Bureau is proposing 

a new comment 41(e)(4)(iii)–4 to 

explain the application of 

§ 1026.41(e)(4)(iii) to the nonprofit small 

servicer determination under proposed 

§ 1026.41(e)(4)(ii)(C) specifically. The 

proposed comment would explain that 

mortgage loans that are not considered 

pursuant to § 1026.41(e)(4)(iii) for 

purposes of the small servicer 

determination under 

§ 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. The 

comment would provide an example of 

a nonprofit entity that services 5,400 

mortgage loans. Of these mortgage loans, 

it 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, 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 25735 

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 qualifies for the small servicer 

exemption pursuant to 

§ 1026.41(e)(4)(ii)(C) with regard to all 

5,400 mortgage loans it services. 

The Bureau believes that nonprofit 

entities are an important source of 

credit, particularly for low- and 

moderate-income consumers. The 

Bureau understands that nonprofit 

entities, while they may operate under 

a common name, trademark, or 

servicemark, are not typically structured 

to meet the definition of affiliate under 

the BHCA. However, nonprofit entities 

derive less revenue than other creditors 

or servicers from their lending activities, 

and therefore the Bureau believes 

associated nonprofit entities may seek to 

coordinate activities—including loan 

servicing—as a means of achieving 

economies of scale. 

Under the existing rule, a servicer 

qualifies for the small servicer 

exemption if it services for a fee a loan 

for which another entity is the creditor 

or assignee, so long as both entities are 

affiliates under the BHCA and the 

servicer and its affiliates together 

service 5,000 or fewer mortgage loans. 

Since nonprofit entities are not typically 

structured to meet the definition of 

affiliate under the BHCA, a nonprofit 

entity that services, for a fee, even a 

single loan of an associated nonprofit 

entity likely would not qualify as a 

small servicer under the current rule. 

The Bureau is proposing an alternative 

small servicer definition for nonprofits 

to permit associated nonprofit entities to 

enter into the type of servicing 

arrangements, such as consolidation of 

servicing activities, that are available to 

affiliates under the current rule. 

The limitation in the current rule to 

BHCA affiliates may discourage 

consolidation of servicing among 

associated nonprofits, even though such 

consolidation may benefit consumers by 

increasing access to credit and reducing 

the cost of credit for low- and moderateincome consumers for whom nonprofits 

are an important source of credit. In 

addition, consolidating servicing in one 

entity within the associated nonprofit 

structure may enhance the nonprofit’s 

ability to promptly credit payments, 

administer escrow account obligations, 

or handle error requests or other 

requirements under Regulations X and 

Z, which are applicable regardless of 

small servicer status. In addition, 

though small servicers are exempt from 

the requirements of §§ 1024.38 through 

1024.40, as well as most of the loss 

mitigation provisions under § 1024.41, 

the Bureau believes that delinquent 

borrowers may nonetheless benefit from 

consolidated nonprofit servicers’ 

enhanced ability to devote trained staff 

to their situation. 

The Bureau is concerned that if 

nonprofit servicers are subject to all of 

the servicing rules, low- and moderateincome consumers may face increased 

costs or reduced access to credit. 

Although the Bureau believes the 

servicing rules provide important 

protections for consumers, the Bureau is 

concerned that these protections may 

not outweigh the risk of reduction in 

credit access for low- and moderateincome consumers served by nonprofit 

entities that qualify for the proposed 

§ 1026.41(e)(4)(ii)(C) exemption. 

Furthermore, the Bureau believes these 

nonprofit entities, because of their scale 

and community-focused lending 

programs, already have 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. 

The Bureau has narrowly tailored the 

proposed small servicer definition for 

nonprofits to prevent evasion of the 

servicing rules. For example, the 

proposed definition contains 

restrictions on nonprofits and requires 

that a substantial relationship exist 

among the associated nonprofits to 

qualify for the exemption. As noted 

above, the definition would be limited 

to groups of nonprofits that share a 

common name, trademark, or 

servicemark to further and support a 

common charitable mission or purpose. 

The Bureau believes that requiring such 

commonality reduces the risk that the 

small servicer definition will be used to 

circumvent the servicing rules. 

However, the Bureau seeks comment on 

whether the proposed definition of 

‘‘associated nonprofit entities’’ is 

appropriate. 

The Bureau has further limited the 

scope of the proposed nonprofit small 

servicer definition to entities designated 

with an exemption under 501(c)(3) of 

the Internal Revenue Code. As the 

Bureau noted in the January 2013 ATR 

Proposal, the Bureau believes that 

501(c)(3)-designated entities face 

particular constraints on resources that 

other tax-exempt organizations may not. 

See 78 FR 6621, 6644–45 (Jan. 30, 2013). 

As a result, these entities may have 

fewer resources to comply with 

additional rules. In addition, tax-exempt 

status under section 501(c)(3) requires a 

formal determination by the 

government, in contrast to other types of 

tax-exempt status. Accordingly, limiting 

the proposed nonprofit small servicer 

provision to those entities with IRS tax 

exempt determinations for wholly 

charitable organizations may help to 

ensure that the nonprofit small servicer 

status is not used to evade the servicing 

rules. However, the Bureau solicits 

comment on whether limitation of the 

definition of ‘‘nonprofit entity’’ for 

purposes of § 1026.41(e)(4)(ii)(C) to 

entities with a tax exemption ruling or 

determination letter from the Internal 

Revenue Service under section 501(c)(3) 

of the Internal Revenue Code is 

appropriate. The Bureau also seeks 

comment on whether it is appropriate to 

include additional criteria regarding the 

nonprofit entity’s activities or the loans’ 

features or purposes, such as those in 

the nonprofit exemption from the ability 

to repay requirements in 

§ 1026.43(a)(3)(v)(D) or in other 

statutory or regulatory schemes. 

As noted above, the proposed 

alternative small servicer definition in 

§ 1026.41(e)(4)(ii)(C) would apply to 

nonprofit entities that service 5,000 or 

fewer mortgage loans. The Bureau 

believes that it is necessary, in general, 

to limit the number of loans serviced by 

small servicers to prevent evasion of the 

servicing rules and because the Bureau 

believes that entities servicing more 

than 5,000 mortgage loans are of a 

sufficient size to comply with the full 

set of servicing rules. However, the 

proposed rule would apply that loan 

limitation to associated nonprofit 

entities differently than to affiliates. 

Specifically, the definition of small 

servicer in § 1026.41(e)(4)(ii)(A) counts 

towards the 5,000-loan limitation all 

loans serviced by the servicer together 

with all loans serviced by any affiliates. 

In contrast, the proposed rule for 

nonprofit entities would count towards 

the 5,000-loan limitation only the loans 

serviced by a given nonprofit entity 

(including loans it services on behalf of 

associated nonprofit entities), and 

would not consider loans serviced by 

associated nonprofit entities. As noted 

above, the Bureau is concerned that 

small servicers generally lack the ability 

to cost-effectively comply with the full 

set of servicing rules, a concern that is 

heightened in the context of nonprofit 

small servicers which derive less 

revenue than other creditors or servicers 

from their lending activities. Some 

nonprofits may consolidate servicing 

activities to achieve economies of scale 

across associated nonprofits. However, 

the Bureau is also concerned that other 

nonprofits may be structured differently 

and that for these nonprofit entities 


sroberts on DSK5SPTVN1PROD with PROPOSALS
25736 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 

maintaining servicing at the individual 

nonprofit level may be more 

appropriate. For this reason, the Bureau 

does not believe it is appropriate to 

consider all loans serviced across the 

associated nonprofit enterprise towards 

the 5,000-loan limitation. The Bureau 

seeks comment on whether it is 

appropriate to count only loans serviced 

by a single nonprofit or whether the 

small servicer determination should be 

made based upon all loans serviced 

among a group of associated nonprofits. 

The proposed exemption would also 

apply only to a nonprofit entity that 

services loans for which it or an 

associated nonprofit entity is the 

creditor. In contrast with the exemption 

under § 1026.41(e)(4)(ii)(A), the 

proposed exemption would not apply to 

a nonprofit entity that services loans for 

which it or an associated nonprofit 

entity is the assignee of the loans being 

serviced. The Bureau believes that 

nonprofit entities typically do not 

service loans for which an entity other 

than that nonprofit entity or an 

associated nonprofit is the creditor, nor 

does the Bureau believe that nonprofit 

entities typically take an assignment of 

a loan originated by an entity other than 

an associated nonprofit entity. Further, 

the Bureau is concerned that a rule that 

permits a nonprofit servicer to service 

for a fee loans that were originated by 

someone other than itself or an 

associated nonprofit entity while 

retaining the benefit of the exemption 

could be used to evade the servicing 

rules, particularly since the proposed 

rule would not consider loans serviced 

by associated nonprofit entities as 

counting towards the 5,000-loan limit. 

The Bureau seeks comment on whether 

limiting the exemption to loans for 

which the servicer or an associated 

nonprofit entity is the creditor is 

appropriate. 

Legal Authority 

The Bureau is proposing to exempt 

nonprofit small servicers from the 

periodic statement requirement under 

TILA section 128(f) 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 believes the proposed 

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 believes 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 

believes that such nonprofits may 

consolidate servicing functions in an 

associated nonprofit entity to costeffectively provide this high level of 

customer contact and otherwise comply 

with applicable regulatory 

requirements. As described above, 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 believes the proposed 

nonprofit small servicer definition 

facilitates compliance with TILA by 

allowing nonprofit small servicers to 

consolidate servicing functions, without 

losing status as a small servicer, in order 

to cost-effectively service loans in 

compliance with applicable regulatory 

requirements. 

In addition, consistent with TILA 

section 105(f) and in light of the factors 

in that provision, for a nonprofit entity 

servicing 5,000 or fewer loans, 

including those serviced on behalf of 

associated nonprofits, all of which that 

servicer or an associated nonprofit 

originated, the Bureau believes that 

requiring them 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 believes, as noted above, 

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 

Bureau believes that the proposal 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 believes 

that exempting nonprofit small servicers 

from the requirements of TILA section 

128(f) would be in the interest of 

consumers and in the public interest. 

As noted above, current Regulation X 

cross-references the definition of small 

servicer in § 1026.41(e)(4) for the 

purpose of exempting small servicers 

from several mortgage servicing 

requirements. Accordingly, in proposing 

to amend that definition, the Bureau is 

also proposing to amend 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 

proposing to exempt nonprofit small 

servicers from the requirements of 

Regulation X §§ 1024.38 through 41, 

except as otherwise provided in 

§ 1024.41(j), see § 1024.30(b)(1), as well 

as certain requirements of 

§ 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 

believes that the proposed rule would 

ensure 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 believes that 

the proposed rule 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 §§ 1024.17(k)(5), 39, 

and 41 (except as otherwise provided in 

§ 1024.41(j)), the Bureau is also 

proposing 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. 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 25737 

Section 1026.43 Minimum Standards 

for Transactions Secured by a Dwelling 

43(a) Scope 

43(a)(3) 

The Bureau is proposing to amend the 

nonprofit small creditor exemption from 

the ability-to-repay rule that is set forth 

in § 1026.43(a)(3)(v)(D) of Regulation Z. 

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. The 

proposal would exclude certain 

subordinate-lien transactions from this 

credit extension limit. 

Section 129C(a)(1) of TILA states that 

no creditor may make a residential 

mortgage loan unless the creditor makes 

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, according to its terms, 

and all applicable taxes, insurance 

(including mortgage guarantee 

insurance), and assessments. 15 U.S.C. 

1639c(a)(1). Section 1026.43 of 

Regulation Z implements the ability-torepay provisions of section 129C of 

TILA. 

The January 2013 ATR Final Rule 

implemented statutory exemptions from 

the ability-to-repay provisions for home 

equity lines of credit subject to 12 CFR 

1026.40, and for mortgage transactions 

secured by a consumer’s interest in a 

timeshare plan, as defined in 11 U.S.C. 

101(53D). See 12 CFR 1026.43(a). The 

rule also exempted from the ability-torepay requirements (1) a transaction that 

is a reverse mortgage subject to 12 CFR 

1026.33, (2) temporary or ‘‘bridge’’ loans 

with a term of 12 months or less, and 

(3) a construction phase of 12 months or 

less of a construction-to-permanent 

loan. 

The January 2013 ATR Final Rule did 

not provide additional exemptions 

sought by certain commenters in 

response to an earlier proposal 

published by the Board in 2011. See 76 

FR 27389 (May 11, 2011) (2011 ATR 

Proposal). However, the January 2013 

ATR Proposal sought additional input 

on some of those exemptions, and 

contained a specific proposal to exempt 

certain nonprofit creditors from the 

ability-to-repay requirements. The 

Bureau believed that limiting the 

proposed exemption to creditors 

designated as nonprofits was 

appropriate because of the difference in 

lending practices between nonprofit and 

other creditors. The proposed 

exemption was premised on the belief 

that the additional costs imposed by the 

ability-to-repay requirements might 

prompt some nonprofit creditors to 

cease extending credit, or substantially 

limit their credit activities, thereby 

possibly harming low- to moderateincome consumers. The Bureau further 

stated that for-profit creditors derive 

more revenue from mortgage lending 

activity than nonprofit creditors, and 

therefore presumably are more likely to 

have the resources to comply with the 

ability-to-repay requirements. 

The Bureau was concerned that an 

exemption for all nonprofit creditors 

could allow irresponsible creditors to 

intentionally circumvent the ability-torepay requirements and harm 

consumers. Thus, under the January 

2013 ATR Proposal, the exemption 

would have been available only if the 

creditor and the loan met certain 

criteria. First, the creditor would have 

been required to have a tax exemption 

ruling or determination letter from the 

Internal Revenue Service under section 

501(c)(3) of the Internal Revenue Code 

of 1986 to be eligible for the proposed 

exemption. Second, the creditor could 

not have extended credit secured by a 

dwelling more than 100 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 

have been 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. 

The Bureau believed that, in contrast 

to for-profit creditors and other 

nonprofit creditors, the nonprofit 

creditors identified in 

§ 1026.43(a)(3)(v)(D) appeared to elevate 

long-term community stability over the 

creditor’s economic considerations and 

to have stronger incentives to determine 

whether a consumer has the ability to 

repay a mortgage loan. The Bureau 

solicited comment regarding whether 

the proposed exemption was 

appropriate. The Bureau also 

specifically requested feedback on 

whether the proposed credit extension 

limit of 100 transactions was 

appropriate or should be increased or 

decreased. The Bureau also requested 

comment on the costs that would be 

incurred by nonprofit creditors that 

exceed that limit; the extent to which 

these additional costs would affect the 

ability of nonprofit creditors to extend 

responsible, affordable credit to lowand moderate-income consumers; and 

whether consumers could be harmed by 

the proposed exemption. 

Comments Concerning the 100-Credit 

Extension Limit 

The Bureau received many comments 

regarding the proposed nonprofit 

exemption. See 78 FR 35429, 35466–67 

(June 12, 2013). Most commenters who 

supported the proposed exemption 

urged the Bureau to adopt conditions to 

prevent creditors from using the 

exemption to circumvent the rule. 

While many industry representatives, 

consumer advocates, and nonprofits 

believed that a 100-credit extension 

limit would discourage sham nonprofit 

creditors from exploiting the exemption, 

several of these commenters asked the 

Bureau to raise the limit. The 

commenters were primarily concerned 

that, in response to the proposed limit, 

nonprofit creditors would limit certain 

types of lending. Specifically, a few 

commenters stated that nonprofit 

creditors that offer both home-purchase 

mortgage loans and small-dollar 

mortgage loans, such as for home energy 

improvement, would limit small-dollar 

lending to remain under the 100-credit 

extension limitation. 

The Nonprofit Exemption as Adopted 

The May 2013 ATR Final Rule 

finalized the nonprofit exemption 

substantially as proposed, but raised the 

credit extension limit from 100 to 200 

credit extensions in the calendar year 

preceding receipt of the consumer’s 

application. See 78 FR 35429, 35467–69 

(June 12, 2013). In finalizing the 

exemption, the Bureau noted that most 

commenters believed a credit extension 

limitation was necessary to prevent 

unscrupulous creditors from exploiting 

the exemption. The Bureau concluded 

that the risks of evasion warranted 

adopting the limit. The Bureau was 

concerned, however, that the proposed 

100-credit extension limit would 

effectively restrict nonprofits to 50 

home-purchase transactions per year, 

because nonprofits frequently provide 

simultaneous primary- and subordinatelien financing for such transactions. 

Also, the Bureau was concerned that the 

proposed limit would reduce certain 

types of small-dollar lending by 

nonprofits, including financing home 

energy improvements. 

Accordingly, the Bureau included a 

200-credit extension limit in the final 

rule to address the concerns raised by 

commenters regarding access to credit. 

Some commenters had suggested limits 

as high as 500 credit extensions per 


sroberts on DSK5SPTVN1PROD with PROPOSALS
25738 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 

year; however, the Bureau believed that 

creditors originating more than 200 

dwelling-secured credit extensions per 

year generally have the resources to bear 

the implementation and compliance 

burden associated with the ability-torepay requirements, such that they can 

continue to lend without negative 

impacts on consumers. The final rule 

did not distinguish between first- and 

subordinate-liens for purposes of the 

exemption, as some commenters 

suggested. The Bureau believed that 

such a distinction would be needlessly 

restrictive and it would be more 

efficient to allow nonprofit creditors to 

determine the most efficient allocation 

of funds between primary- and 

subordinate-lien financing. 

Response to the May 2013 ATR Final 

Rule and Further Proposal 

Since the adoption of the May 2013 

ATR Final Rule, the Bureau has heard 

concerns from some nonprofit creditors 

about the treatment of certain 

subordinate-lien programs under the 

nonprofit exemption from the ability-torepay requirements. These creditors are 

concerned that they may be forced to 

curtail these subordinate-lien programs 

or more generally limit their lending 

activities to avoid exceeding the 200- 

credit extension limit. In particular, 

these entities have 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. The 

Bureau understands that, absent an 

amended nonprofit exemption from the 

May 2013 ATR Final Rule, these 

nonprofit creditors may not have the 

resources to comply with the rule and 

therefore are likely to curtail their 

lending to stay within the 200-credit 

extension limit. 

In light of these concerns, the Bureau 

is proposing to exclude certain deferred 

or contingent, interest-free subordinate 

liens from the 200-credit extension limit 

for purposes of the nonprofit exemption 

in § 1026.43(a)(3)(v)(D). Specifically, 

proposed § 1026.43(a)(3)(vii) would 

provide that consumer credit 

transactions that meet the following 

criteria are not considered in 

determining whether a creditor meets 

the requirements of 

§ 1026.43(a)(3)(v)(D)(1): (A) The 

transaction is secured by a subordinate 

lien; (B) 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; (C) 

the credit contract does not require 

payment of interest; (D) the credit 

contract provides that the repayment of 

the amount of credit extended is (1) 

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, (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 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 (F) in 

connection with the transaction, the 

creditor complies with all other 

applicable requirements of Regulation 

Z. 

Proposed comment 43(a)(3)(vii)–1 

would provide that the terms of the 

credit contract must satisfy the 

conditions that the transaction not 

require the payment of interest under 

§ 1026.43(a)(3)(vii)(C) and that 

repayment of the amount of credit 

extended be forgiven or deferred in 

accordance with § 1026.43(a)(3)(vii)(D). 

The comment would further provide 

that the other requirements of 

§ 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 

§ 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 include no charges other 

than recordation, application, and 

housing counseling fees, in accordance 

with § 1026.43(a)(3)(vii)(E). Unless an 

itemization of the amount financed 

sufficiently details this requirement, the 

creditor must establish compliance with 

§ 1026.43(a)(3)(vii)(E) by some other 

written document and retain it in 

accordance with § 1026.25(a). 

Proposed § 1026.43(a)(3)(vii) and the 

accompanying comment largely mirror a 

provision that was finalized as part of 

the Bureau’s December 2013 TILA– 

RESPA Final Rule. See 78 FR 79729 

(Dec. 31, 2013). That provision, which 

was finalized in both Regulation X, at 

§ 1024.5(d), and Regulation Z, at 

§ 1026.3(h)—and which will take effect 

on August 1, 2015, provides a partial 

exemption from the integrated 

disclosure requirements for loans that 

meet the above-described criteria. The 

Bureau finalized this partial exemption 

in the December 2013 TILA–RESPA 

Final Rule to preserve an existing 

exemption from Regulation X issued by 

HUD and to facilitate compliance with 

TILA and RESPA. See 78 FR 79729, 

79758 and 79772 (Dec. 31, 2013). In 

proposing that exemption, the Bureau 

explained that the exemption was 

intended to describe criteria associated 

with certain housing assistance loan 

programs for low- and moderate-income 

persons. See 77 FR 51115, 51138 (Aug. 

23, 2012). The Bureau believes the same 

criteria describe the class of transactions 

that may appropriately be excluded 

from the 200-credit extension limit in 

the ability-to-repay exemption for 

nonprofits. The Bureau also believes 

that defining a single class of 

transactions for purposes of § 1024.5(d), 

§ 1026.3(h), and § 1026.43(a)(3)(vii) may 

facilitate compliance for creditors. 

The Bureau believes the 

§ 1026.43(a)(3)(v)(D) exemption as 

amended by the proposal would be 

limited to creditors with characteristics 

that ensure consumers are offered 

responsible, affordable credit on 

reasonably repayable terms. The Bureau 

also believes that subordinate-lien 

transactions meeting the proposed 

exclusion’s criteria pose low risk to 

consumers, and that excluding these 

transactions from the credit extension 

limit is consistent with TILA’s 

purposes. For example, in transactions 

that would be covered by proposed 

§ 1026.43(a)(3)(vii), consumers often 

benefit from a reduction in their 

repayment obligations on an 

accompanying first-lien mortgage and 

often control the triggering of any 

subordinate-lien repayment requirement 

for at least a twenty-year period. 

Therefore, the subordinate-lien 

transactions may enhance the 

consumer’s ability to repay their 

monthly mortgage obligations. Further, 

the prohibition against charging interest 

and strict limitation on fees reduces the 

likelihood that borrowers will be misled 

about the extent of their financial 

obligations, as the amounts of their 

obligations (if at all repayable) remain 

essentially fixed. The Bureau believes 

that limiting the exclusion to loans with 

these characteristics may also reduce 

the likelihood that the provision would 

be used to evade the ability-to-repay 

requirements. 

The Bureau also believes the 

proposed exclusion would facilitate 

access to credit for low- and moderateVerDate Mar<15>2010 18:56 May 05, 2014 Jkt 232001 PO 00000 Frm 00029 Fmt 4702 Sfmt 4702 E:\FR\FM\06MYP1.SGM 06MYP1

sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 25739 

income consumers. As noted above, the 

proposed exclusion would apply to 

subordinate-lien financing extended 

only for specified purposes, including 

home buyer assistance, property 

rehabilitation, or foreclosure avoidance. 

The Bureau believes that such financing 

plays a critical role in nonprofit lending 

to low- and moderate-income 

consumers, and in particular 

homeownership programs designed for 

such consumers. In purchase-money 

transactions, subordinate-lien financing 

may reduce the amortizing payment on 

first-lien mortgages, improving low- and 

moderate-income consumers’ ability to 

repay, especially in jurisdictions where 

housing costs are high. Similarly, the 

Bureau believes such financing may 

play a critical role in nonprofit 

creditors’ efforts to provide propertyrehabilitation, energy-efficiency, and 

foreclosure-avoidance assistance. 

The Bureau believes that, without the 

proposed exclusion for these 

transactions, nonprofit creditors may 

limit such extensions of credit, or may 

limit their overall credit activity. As a 

result, low- and moderate-income 

consumers who would otherwise 

qualify for a nonprofit creditor’s 

program may be denied credit. As noted 

in the January 2013 ATR Proposal, the 

current exemption for nonprofit 

creditors was premised on the belief 

that the additional costs imposed by the 

ability-to-repay requirements might 

prompt certain nonprofit creditors to 

cease extending credit, or substantially 

limit their credit activities, thereby 

possibly harming low- and moderateincome consumers. See 78 FR 6621, 

6645 (Jan. 30, 2013). Because of their 

limited resources to bear the compliance 

burden of the ability-to-repay rule, the 

Bureau believes at least some nonprofit 

creditors may limit lending activity to 

maintain their exemption. The proposed 

amendment to the § 1026.43(a)(3)(v)(D) 

exemption is intended to minimize this 

effect by allowing nonprofit creditors to 

originate subordinate-lien transactions 

meeting the proposed 

§ 1026.43(a)(3)(vii) criteria without the 

risk of losing that exemption. 

In addition, the Bureau believes that 

excluding these subordinate-lien 

transactions from the transaction-count 

limitation may be appropriate because 

the origination of these loans is not 

necessarily indicative of a creditor’s 

capacity to comply with the ability-torepay requirements. As noted above, the 

Bureau believes that creditors extending 

credit in more than 200 dwellingsecured transactions per year are likely 

to have the resources and capacity to 

comply with the ability-to-repay 

requirements. However, subordinatelien transactions typically involve small 

loan amounts and, as limited by the 

proposed exclusion’s criteria, would 

generate little revenue to support a 

creditor’s capacity to comply. Absent 

the exclusion, those creditors might 

curtail lending—with potential negative 

impacts for consumer’s access to credit. 

Particularly when such a subordinatelien transaction is originated in 

connection with a first-lien transaction, 

counting both transactions towards the 

200-credit extension limit may not 

provide the appropriate indication of a 

creditor’s capacity to comply. 

As noted above, in adopting the 

current nonprofit exemption in 

§ 1026.43(a)(3)(v)(D), the Bureau did not 

distinguish between first- and 

subordinate-lien transactions for 

purposes of the credit extension limit 

out of concerns that doing so would 

affect creditors’ allocations of loans. 

However, the Bureau does not believe 

the proposed exclusion is likely to 

significantly affect such allocations. As 

noted above, the proposed exclusion 

permits nonprofit creditors to allocate 

resources to subordinate-lien 

transactions without risking their 

exemption from the ability-to-repay 

rule. To the extent the proposed 

exclusion encourages origination of 

these subordinate-lien transactions, the 

Bureau believes that the limitations on 

the borrower’s repayment obligations as 

well as on the creditor’s ability to charge 

interest and fees may minimize the risk 

that, as a result of the exclusion, 

creditors would allocate greater 

amounts of their lending to these 

transactions. In fact, to the extent many 

affordable homeownership programs 

use such subordinate-lien transactions 

in tandem with first-lien mortgages, 

excluding these subordinate-lien 

transactions from the credit extension 

limit count may reduce the current 

§ 1026.43(a)(3)(v)(D) exemption’s impact 

on nonprofit creditors’ allocation of 

financing between first- and 

subordinate-lien transactions. 

To address nonprofit creditor 

concerns, the Bureau also considered 

whether it would be appropriate to 

remove the credit extension limitation 

from the § 1026.43(a)(3)(v)(D) nonprofit 

exemption altogether. The Bureau 

believes that nonprofit creditors who 

originate 200 or more dwelling-secured 

transactions in a year generally have the 

resources necessary to comply with 

TILA ability-to-repay requirements. The 

Bureau believes that the exemption 

properly balances relevant 

considerations, including the nature of 

credit extended, safeguards and other 

factors that may protect consumers from 

harm, and the extent to which 

application of the regulatory 

requirements would affect access to 

responsible, affordable credit. 

Accordingly, the Bureau continues to 

believe that the credit extension limit is 

necessary to prevent evasion, but is 

proposing to exclude from the 200- 

credit extension limit a narrow class of 

subordinate-lien transactions to address 

concerns expressed by nonprofit 

creditors and avoid potential negative 

impacts on access to credit, particularly 

for low- and moderate-income 

consumers. 

Legal Authority 

The current § 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 in more detail 

above, the Bureau believes that the 

proposed amendment of the current 

§ 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 believes that the proposed 

amendment of 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 moderateincome consumers. The Bureau believes 

that the mortgage loans originated by 

nonprofit creditors identified in 

§ 1026.43(e)(4)(v)(D) generally account 

for a consumer’s ability to repay. 

Without the proposed amendment to the 

exemption, the Bureau believes 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 

proposed 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 considered the factors 

in TILA section 105(f) and believes that, 

for the reasons discussed above, the 

proposed amendment of the exemption 

is appropriate under that provision. For 

the reasons discussed above, the Bureau 

believes that the proposed amendment 

to § 1026.43(a)(3)(v)(D) would exempt 


sroberts on DSK5SPTVN1PROD with PROPOSALS
25740 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 

15See 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.’’ 

16 12 CFR 1026.43(e)(2). Under the general 

qualified mortgage definition, the loan must meet 

certain restrictions on loan features, points and fees, 

and underwriting. 

17Section 1026.43(e)(4). The temporary GSE/

agency qualified mortgage definition will sunset on 

the earlier of January 10, 2021, or, with respect to 

GSE-eligible loans, when the GSEs exit government 

conservatorship, or, with respect to agency-eligible 

loans, when those agencies’ qualified mortgage 

definitions take effect. 

18Section 1026.43(e)(5) contains a special 

qualified mortgage definition for small creditors 

that hold loans in portfolio, while § 1026.43(f) 

permits small creditors that operate predominantly 

in rural or underserved areas to originate qualified 

mortgages with balloon-payment features, despite 

the general prohibition on qualified mortgages 

containing balloon payments. For a two-year 

transitional period, § 1026.43(e)(6) permits all small 

creditors, regardless of their areas of operation, to 

originate qualified mortgages with balloon-payment 

features. ‘‘Small creditor’’ is defined in 

§ 1026.35(b)(2)(iii)(B) and (C), and generally 

includes creditors that, in the preceding calendar 

year, originated 500 or fewer covered transactions, 

including transactions originated by affiliates, and 

had less than $2 billion in assets. 

19See § 1026.43(e)(2) and (3). For loans of 

$60,000 up to $100,000, § 1026.43(e)(3)(i) allows 

points and fees of no more than $3,000. For loans 

of $20,000 up to $60,000, § 1026.43(e)(3)(i) allows 

points and fees of no more than 5 percent of the 

total loan amount. For loans of $12,500 up to 

$20,000, § 1026.43(e)(3)(i) allows points and fees of 

no more than $1,000. For loan amounts less than 

$12,500, § 1026.43(e)(3)(i) allows points and fees of 

no more than 8 percent of the total loan amount. 

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 believes that the proposed 

amendment to the § 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 believes that the 

proposed amendment to the 

§ 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 believes that, on balance, the 

proposed amendment to the 

§ 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 Dodd-Frank Act provides that 

‘‘qualified mortgages’’ are entitled to a 

presumption that the creditor making 

the loan satisfied the ability-to-repay 

requirements. The qualified mortgage 

provisions are implemented in 

§ 1026.43(e). Current § 1026.43(e)(3)(i) 

provides that a covered transaction is 

not a qualified mortgage if the 

transaction’s total points and fees 

exceed certain limits set forth in 

§ 1026.43(e)(3)(i)(A) through (E). For the 

reasons set forth below, the Bureau is 

proposing to permit a creditor or 

assignee to cure an inadvertent excess 

over the qualified mortgage points and 

fees limits by refunding to the consumer 

the amount of excess, under certain 

conditions. As discussed in part VI.A. 

below, the Bureau is also requesting 

comment on issues related to 

inadvertent debt-to-income ratio 

overages, but at this time is not 

proposing a specific change to the 

regulation. For purposes of these 

discussions, ‘‘cure’’ means a procedure 

to reduce points and fees or debt-toincome ratios after consummation when 

the qualified mortgage limits have been 

inadvertently exceeded, while 

‘‘correction’’ means post-consummation 

revisions to documentation or 

calculations, or both, to reflect 

conditions as they actually existed at 

consummation. 

43(e)(3)(i) 

As discussed below, the Bureau is 

proposing a new § 1026.43(e)(3)(iii) to 

establish a cure procedure where a 

creditor inadvertently exceeds the 

qualified mortgage points and fees 

limits, under certain conditions. As a 

conforming change, the Bureau is also 

proposing to amend § 1026.43(e)(3)(i), to 

add the introductory phrase ‘‘Except as 

provided in paragraph (e)(3)(iii) of this 

section’’ to § 1026.43(e)(3)(i), to specify 

that the cure provision in proposed 

§ 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 

§ 1026.43(e)(3)(i)(A) through (E). 

43(e)(3)(iii) 

Section 1411 of the Dodd-Frank Act 

added new TILA section 129C 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. TILA 

section 129C(b) further provides that the 

ability-to-repay requirements are 

presumed to be met if the loan is a 

qualified mortgage. TILA section 

129C(b)(2) sets certain product-feature 

and underwriting requirements for 

qualified mortgages, including a 3- 

percent limit on points and fees, but 

gives the Bureau authority to revise, add 

to, or subtract from these 

requirements.15 Those requirements are 

implemented by the January 2013 ATR 

Final Rule, as amended by the May 2013 

ATR Final Rule. 

The current ability-to-repay rule 

provides for four categories of qualified 

mortgages: a ‘‘general’’ qualified 

mortgage definition that is available to 

any creditor; 16 a temporary qualified 

mortgage definition for loans eligible for 

sale to or guarantee by a government 

sponsored enterprise (GSE) or eligible 

for guarantee by or insurance under 

certain Federal agency programs; 17 and 

two qualified mortgage definitions 

available to small creditors.18 The 

current rule provides that for all types 

of qualified mortgages, the up-front 

points and fees charged in connection 

with the mortgage must not exceed 3 

percent of the total loan amount, with 

higher thresholds specified for various 

categories of loans below $100,000.19

Pursuant to § 1026.32(b)(1), points and 

fees are the ‘‘fees or charges that are 

known at or before consummation.’’ 

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. For 

example, discount points may be 

mistakenly excluded from, or included 

in, the points and fees calculation as 

bona fide third-party charges, or bona 

fide discount points, under 

§ 1026.32(b)(1)(i)(D) or (E). Mortgage 

insurance premiums under 

§ 1026.32(b)(1)(i)(C) or loan originator 

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

may also mistakenly be excluded from, 

or included in, the points and fees 

calculation. A rigorous postconsummation review by the creditor or 

assignee of loans originated with the 

good faith expectation of qualified 

mortgage status may uncover such 

inadvertent errors. However, the current 

rule does not provide a mechanism for 

curing such inadvertent points and fees 

overages that are discovered after 

consummation. 

Based on information received in the 

course of outreach in connection with 

the Bureau’s Implementation Plan, the 

Bureau understands that some creditors 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 25741 

may not originate, and some secondary 

market participants may not purchase, 

mortgage loans that are near the 

qualified mortgage limits on points and 

fees because of concern that the limits 

may be inadvertently exceeded at the 

time of consummation. Specifically, the 

Bureau understands that some creditors 

seeking to originate qualified mortgages 

may establish buffers, set at a level 

below the points and fees limits in 

§ 1026.43(e)(3)(i), to avoid exceeding 

those limits. Those creditors may 

simply refuse to extend mortgage credit 

to consumers whose loans would 

exceed the buffer threshold, either due 

to the creditors’ concerns about the 

potential liability attending loans 

originated under the general ability-torepay standard or the risk of repurchase 

demands from the secondary market if 

the qualified mortgage points and fees 

limit is later found to have been 

exceeded. Where such buffers are 

established, the Bureau is concerned 

that access to credit for consumers 

seeking loans at the margins of the 

limits might be negatively affected. The 

Bureau is also concerned that creditors 

may increase the cost of credit for 

consumers seeking loans at the margins 

of the limits due to compliance or 

secondary market repurchase risk. 

In light of these concerns, the Bureau 

is proposing to permit a creditor or 

assignee to cure an inadvertent excess 

over the qualified mortgage points and 

fees limit under certain defined 

conditions, including the requirement 

that the loan was originated in good 

faith as a qualified mortgage and that 

the cure be provided in the form of a 

refund to the consumer within 120 days 

after consummation. The Bureau notes 

that, where the loan was originated in 

good faith as a qualified mortgage, 

consumers likely received the benefit of 

qualified mortgage treatment by 

receiving lower overall loan pricing. For 

this reason, the Bureau believes that a 

cure provision, if appropriately limited, 

would reflect the expectations of both 

consumers and creditors at the time of 

consummation, would not result in 

significant consumer harm, and may 

increase access to credit by encouraging 

creditors to extend credit to consumers 

seeking loans at the margins of the 

points and fees limits. In addition, the 

Bureau believes that a limited cure 

provision may promote consistent 

pricing within the qualified mortgage 

range by decreasing the market’s 

perceived need for higher pricing (due 

to compliance or secondary market 

repurchase risk) at the margins of the 

points and fees limits. The Bureau also 

believes this would promote stability in 

the market by limiting the need for 

repurchase demands that may otherwise 

be triggered without the proposed cure 

option. 

The Bureau expects that, over time, 

creditors will develop greater familiarity 

with, and capabilities for, originating 

loans that are not qualified mortgages 

under the general ability-to-repay 

requirements, as well as greater 

confidence in general compliance 

systems. As they do so, creditors may 

relax internal buffers regarding points 

and fees that are predicated on the 

qualified mortgage threshold. However, 

the Bureau believes the impacts on 

access to credit may make a points and 

fees cure provision appropriate at this 

time. In addition, the Bureau believes 

that the cure provision will encourage 

post-consummation quality control 

review of loans, which will improve the 

origination process over time. 

Accordingly, proposed 

§ 1026.43(e)(3)(iii) would provide 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 

§ 1026.43(e)(3)(i), the loan is not 

precluded from being a qualified 

mortgage if certain conditions, 

discussed below, are met. 

43(e)(3)(iii)(A) 

First, new § 1026.43(e)(3)(iii)(A) 

would require that the creditor 

originated the loan in good faith as a 

qualified mortgage and the loan 

otherwise meets the requirements of 

§ 1026.43(e)(2), (e)(4), (e)(5), (e)(6), or (f), 

as applicable. Comment 43(e)(3)(iii)–1 

would provide examples of 

circumstances that may be evidence that 

a loan was or was not originated in good 

faith as a qualified mortgage. First, the 

comment would provide that 

maintaining and following policies and 

procedures designed to ensure that 

points and fees are correctly calculated 

and do not exceed the applicable limit 

under § 1026.43(e)(3)(i) may be evidence 

that the creditor originated the loan in 

good faith as a qualified mortgage. In 

addition, the comment would provide 

that if the pricing on the loan is 

consistent with pricing on qualified 

mortgages originated 

contemporaneously by the same 

creditor, that may be evidence that the 

loan was originated in good faith as a 

qualified mortgage. The comment would 

also provide examples of circumstances 

that may be evidence that the loan was 

not originated in good faith as a 

qualified mortgage. Specifically, the 

comment would provide that, if a 

creditor does not maintain—or has but 

does not follow—policies and 

procedures designed to ensure that 

points and fees are correctly calculated 

and do not exceed the applicable limit 

described in § 1026.43(e)(3)(i), that may 

be evidence that the creditor did not 

originate the loan in good faith as a 

qualified mortgage. If the pricing on the 

loan is not consistent with pricing on 

qualified mortgages originated 

contemporaneously by the same 

creditor, that may also be evidence that 

a loan was not originated in good faith 

as a qualified mortgage. 

The Bureau is proposing to allow for 

a post-consummation cure of points and 

fees overages only where the loan was 

originated in good faith as a qualified 

mortgage to ensure that the cure 

provision is available only to creditors 

who make inadvertent errors in the 

origination process and to prevent 

creditors from exploiting the cure 

provision by intentionally exceeding the 

points and fees limits. However, the 

Bureau seeks comment on whether the 

good faith element of 

§ 1026.43(e)(3)(iii)(A) is necessary in 

light of the other proposed limitations 

on the cure provision. The Bureau also 

seeks comment on the proposed 

examples in comment 43(e)(3)(iii)–1, 

specifically including whether 

additional guidance regarding the term 

‘‘contemporaneously’’ in comments 

43(e)(3)–1.i.B and 43(e)(3)–1.ii.B is 

necessary, and whether additional 

examples would be useful. 

43(e)(3)(iii)(B) 

Second, to cure a points and fees 

overage, proposed § 1026.43(e)(3)(iii)(B) 

would require that 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 § 1026.43(e)(3)(i) at 

consummation. 

The Bureau believes that requiring a 

refund to occur within a short period 

after consummation is consistent with 

the requirement that the loan be 

originated in good faith as a qualified 

mortgage. The Bureau understands that 

many creditors and secondary market 

purchasers conduct audits or quality 

control reviews of loan files in the 

period immediately following 

consummation to ensure, among other 

things, compliance with regulatory 

requirements. During this review phase, 

a creditor that originated a loan in good 

faith as a qualified mortgage (or the 

creditor’s assignee) may discover an 

inadvertent points and fees overage. 

Indeed, providing a reasonable but 

limited time period for cure may 

actually promote strong postconsummation quality control efforts, 


sroberts on DSK5SPTVN1PROD with PROPOSALS
25742 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 

20There may be circumstances where the 

consumer pays discount points to obtain a lower 

interest rate and the post-consummation review 

determines the payments do not qualify as bona 

fide discount points. In such cases, a refund of the 

discount points, without additional changes to the 

loan, may result in a net benefit to the consumer. 

which may, in turn, improve a creditor’s 

origination procedures and compliance, 

thereby reducing the use of the cure 

mechanism over time. Strong postconsummation quality control and 

improved origination procedures may 

also reduce costs over time and decrease 

the incidence of repurchase demands 

after a loan is sold into the secondary 

market. 

The Bureau believes that the proposed 

120-day period would result in 

reasonably prompt refunds to affected 

consumers and provide sufficient time 

to accommodate communication with 

the consumer. A 120-day period should 

also allow sufficient time for creditors 

and secondary market participants to 

conduct post-consummation reviews 

that may uncover inadvertent points 

and fees overages. In contrast, a longer 

period would not result in prompt 

refunds and would provide less 

incentive for rigorous review 

immediately after consummation. In 

outreach to industry stakeholders prior 

to this proposal, the Bureau learned that 

120 days is a time period within which 

post-consummation quality control 

reviews generally are completed. The 

Bureau specifically requests comment 

more broadly, however, on whether 120 

days is an appropriate time period for 

post-consummation cure of a points and 

fees overage, or whether a longer or 

shorter period should be provided; what 

factors would support any 

recommended time period; and, if the 

cure were available for a longer period, 

whether additional conditions should 

be applied beyond those in this 

proposal. 

The Bureau considered whether the 

cure provision should run from the date 

of discovery of the points and fees 

overage or within a limited number of 

days after transfer of the loan, rather 

than the time of consummation, but the 

Bureau believes that such alternative 

provisions would be inappropriate. The 

Bureau is concerned that allowing an 

extended period of time for cure would 

create incentives for bad faith actors to 

intentionally violate the points and fees 

limit and selectively wait for discovery 

to cure the violation only when it would 

be to their advantage to do so. Such 

actions would not be consistent with the 

statutory requirement of making a good 

faith determination of a consumer’s 

ability-to-repay. Similarly, the Bureau is 

concerned that, particularly later in the 

life of the loan, giving the creditor a 

unilateral option to change the status of 

the loan to a qualified mortgage, thereby 

providing the creditor with enhanced 

protection from liability, would 

facilitate evasion of regulatory 

requirements by the creditor. 

The Bureau also considered whether 

it would be appropriate to limit a 

creditor’s or assignee’s ability to cure 

points and fees overages for qualified 

mortgage purposes to the time prior to 

the receipt of written notice of the error 

from or the institution of any action by 

the consumer. The Bureau believes that 

such a requirement may not be 

necessary because the points and fees 

cure must occur within 120 days after 

consummation such that it is unlikely 

that the consumer would provide such 

notice or institute such action during 

that period. Further, the Bureau believes 

that such a requirement might undercut 

the purposes of the cure provision—to 

encourage both lending up to the points 

and fees limits and post-consummation 

quality control review of loans—since 

creditors and assignees could not be 

certain of their ability to review the loan 

post-consummation and provide a 

refund, if appropriate. However, the 

Bureau solicits comment on whether 

cure should be permitted only prior to 

receipt of written notice of the error 

from or the institution of any action by 

the consumer. 

The Bureau recognizes that, where 

points and fees have been financed as 

part of the loan amount and an overage 

is refunded to the consumer after 

consummation, the consumer will 

continue to pay interest on a loan 

amount that includes the overage. As a 

result, the consumer may pay more 

interest over the life of the loan than 

would have been paid absent the 

inadvertent points and fees overage. 

Although the Bureau believes such 

circumstances will be limited, the 

Bureau acknowledges that a postconsummation refund of the amount of 

points and fees overage alone would not 

make the consumer whole in most such 

cases.20 For this reason, the Bureau 

considered whether the cure provision 

should require other means of 

restitution to the consumer, such as 

restructuring the loan to provide a lower 

loan amount commensurate with 

deducting the points and fees overage, 

or requiring any refund to the consumer 

to include the present value of excess 

interest that the consumer would pay 

over the life of the loan. However, the 

Bureau believes there are complications 

to these approaches. For example, the 

Bureau expects that creditors would 

have difficulty systematically 

restructuring loans within a short time 

after consummation, especially where 

the loan has already been, or shortly 

will be, securitized. The Bureau also 

notes potential difficulties in 

determining the period over which 

excess interest should be calculated, 

since few consumers hold their loans for 

the entire loan term. In light of these 

considerations, the Bureau is not 

proposing that the cure provision 

require any means of restitution other 

than a refund of the actual overage 

amount to the consumer. However, the 

Bureau solicits comment on other 

appropriate means of restitution and in 

what circumstances they may be 

appropriate. 

43(e)(3)(iii)(C) 

The third criteria for a cure is set forth 

in proposed § 1026.43(e)(3)(iii)(C), 

which would provide that the creditor 

or assignee must maintain and follow 

policies and procedures for postconsummation review of loans and for 

refunding to consumers amounts that 

exceed the applicable limit under 

§ 1026.43(e)(3)(i). Comment 43(e)(3)(iii)- 

2 would provide that a creditor or 

assignee satisfies § 1026.43(e)(3)(iii) if it 

maintains and follows policies and 

procedures for post-consummation 

quality control loan review and for 

curing (by providing a refund) errors in 

points and fees calculations that occur 

at or before consummation. 

The Bureau believes this requirement 

will provide an incentive for creditors to 

maintain rigorous quality control 

measures on a consistent and 

continuing basis. The Bureau believes 

that conditioning a cure on a 

consistently applied policy promotes 

and incentivizes good faith efforts to 

identify and minimize errors that may 

occur at or before consummation, with 

resulting benefits to consumers, as well 

as creditors and assignees. 

The Bureau requests comment on all 

aspects of the proposal to permit 

creditors to cure inadvertent excesses 

over the points and fees limit, including 

whether a post-consummation cure 

should be permitted, and whether 

different, additional, or fewer 

conditions should be imposed upon its 

availability, such as whether the 

consumer must be current on loan 

payments at the time of the cure. 

Legal Authority 

The Bureau proposes 

§ 1026.43(e)(3)(iii) 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. For the reasons 

discussed above, the Bureau believes 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 25743 

21 In contrast to the 3-percent cap on points and 

fees, which applies to all qualified mortgages, the 

43-percent debt-to-income ratio limit applies only 

to the ‘‘general’’ qualified mortgage category 

(§ 1026.43(e)(2)), and not to the temporary GSE/

agency category (§ 1026.43(e)(4)) or the small 

creditor categories (§ 1026.43(e)(5), (e)(6), and (f)). 

that the proposed provision is 

warranted under TILA section 

129C(b)(3)(B)(i) because the proposal is 

necessary and proper to ensure that 

responsible, affordable mortgage credit 

remains available to consumers in a 

manner consistent with purposes of 

section 129C of TILA, and also 

necessary and appropriate to facilitate 

compliance with section 129C of TILA. 

For example, the Bureau believes the 

proposed limited post-consummation 

cure provision will facilitate compliance 

with TILA section 129C by encouraging 

strict, post-consummation quality 

control loan reviews that will, over 

time, improve the origination process. 

In addition, because proposed 

§ 1026.43(e)(3)(iii) permits creditors to 

cure inadvertent non-compliance with 

the general qualified mortgage points 

and fees limitation up to 120 days after 

consummation, the Bureau also 

proposes § 1026.43(e)(3)(iii) pursuant to 

its 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, among other things, effectuate the 

purposes of TILA. For the reasons 

discussed above, the Bureau believes 

that exempting the class of qualified 

mortgages that involve a postconsummation 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 believes that limited postconsummation 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 3- 

percent limit. 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, which is contrary to 

the purposes of TILA. The Bureau also 

believes a limited post-consummation 

cure provision will facilitate compliance 

with TILA section 129C by encouraging 

strict, 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 believes that 

a limited points and fees cure provision 

is appropriate under that provision. The 

Bureau believes that the exemption, 

with the specific conditions required by 

the proposal, is appropriate for all 

affected consumers; specifically, those 

seeking loans at the margins of the 

points and fees limit whose access to 

credit may be affected adversely without 

the exemption. Similarly, the Bureau 

believes that the exemption is 

appropriate for all affected loans 

covered under the exemption, i.e. those 

made in good faith as qualified 

mortgages, regardless of the amount of 

the loan and whether the loan is secured 

by the principal residence of the 

consumer. Furthermore, the Bureau 

believes that, on balance, the exemption 

would not undermine the goal of 

consumer protection or increase the 

complexity or expense of (or otherwise 

hinder) the credit process, because costs 

may actually decrease, as noted above. 

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 

believes such potential losses are 

outweighed by the potentially increased 

access to responsible, affordable credit, 

an important benefit to consumers. The 

Bureau believes 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. 

VI. Other Requests for Comment 

A. Request for Comment on Cure or 

Correction of Debt-to-Income Overages 

To satisfy the general qualified 

mortgage definition in § 1026.43(e)(2), 

the consumer’s total monthly debt-toincome ratio—verified, documented, 

and calculated in accordance with 

§ 1026.43(e)(2)(vi)(B) and appendix Q— 

cannot exceed 43 percent at the time of 

consummation.21 Similar to an error 

made in calculating points and fees, 

errors made in calculating debt-toincome ratios could jeopardize a loan’s 

qualified mortgage status under 

§ 1026.43(e)(2). Some industry 

stakeholders have suggested that 

creditors seeking to originate 

§ 1026.43(e)(2) qualified mortgages may 

establish buffers that relate to debt-toincome ratios—i.e., buffers set at a level 

below the rule’s 43-percent debt-toincome ratio limit. Some creditors may, 

in turn, refuse to extend mortgage credit 

to consumers whose loans would 

exceed the buffer threshold, either due 

to concerns about potential liability 

associated with loans originated under 

the general ability-to-repay standard or 

the risk of repurchase demands from the 

secondary market, if the debt-to-income 

ratio limit is exceeded. Such practices 

may reduce access to credit to 

consumers at the margins of the debt-toincome ratio limit. 

As explained above, the Bureau is 

proposing § 1026.43(e)(3)(iii) to permit 

cure of inadvertent points and fees 

overages by refunding to the consumer 

the dollar amount that exceeds the 

applicable points and fees limit, under 

certain defined conditions. The Bureau 

is also considering whether a similar 

cure provision may be appropriate in 

the context of debt-to-income overages. 

As discussed above, the proposed points 

and fees cure procedure may benefit 

consumers and the market in various 

ways. A debt-to-income cure provision 

has the potential to benefit consumers 

and the market in a similar manner. 

However, as discussed below, the 

Bureau believes that miscalculations of 

debt-to-income ratios are fundamentally 

different in nature than errors in 

calculating points and fees, and may be 

less suitable to a cure provision similar 

to proposed § 1026.43(e)(3)(iii). 

The Bureau is also considering 

whether it may be appropriate to 

address the more limited scenario where 

debt-to-income overages result from 

errors in calculation or documentation, 

or both, of debt or income. Specifically, 

the Bureau is considering whether, in 

such situations, it would be feasible to 

permit post-consummation corrections 

to the documentation, which would 

result in a corresponding recalculation 

of the debt-to income ratio. While such 

a correction mechanism has the 

potential to benefit consumers and the 

market, there are a number of reasons, 

discussed below, why it may be 

inappropriate and impracticable. 

In light of these difficulties and 

concerns, the Bureau is not proposing a 

specific debt-to-income ratio cure or 

correction provision at this time. 

However, to aid its ongoing 

consideration of these options, the 

Bureau is requesting comment on any 

and all aspects of potential cure and 

correction provisions for debt-to-income 

overages described below. 

Debt-to-Income Cure 

As noted, the Bureau recognizes that 

a debt-to-income cure mechanism has 

the potential to benefit consumers and 

the market. However, the Bureau is 

concerned that such a procedure may be 

inappropriate because a miscalculation 

of debt-to-income ratios cannot be 

remedied in a manner similar to, or as 

equally practicable as, remedying a 


sroberts on DSK5SPTVN1PROD with PROPOSALS
25744 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 

22See comment 43(c)(2)(i)–5; see also Appendix 

Q (noting that a creditor may always ‘‘exclude the 

income or include the debt’’ when unsure if the 

debt or the income should be considered). 

23Pursuant to § 1026.43(e)(4)(ii) and (iii), the 

temporary GSE/agency qualified mortgage 

definition will sunset on the earlier of January 10, 

2021 or, with respect to GSE-eligible loans, when 

the GSEs (or any limited-life regulatory entity 

succeeding the charters of the GSEs) exit 

government conservatorship, or, with respect to 

agency-eligible loans, when those agencies’ 

qualified mortgage definitions take effect. 

miscalculation of points and fees. The 

Bureau believes that debt-to-income 

overages commonly would result from 

creditors incorrectly, but inadvertently, 

including income or failing to consider 

debts in accordance with the rule—i.e., 

understating the numerator or 

overstating the denominator in the 

mathematical equation that derives the 

debt-to-income ratio. In these situations, 

a creditor or secondary market 

purchaser would need to alter the 

consumer’s debts and/or income to 

bring the debt-to-income ratio within 

the 43-percent limit or the ratio would 

exceed qualified mortgage limits. 

It is unclear how creditors could raise 

consumers’ incomes or lower their debts 

systematically to bring the ratio within 

the 43-percent limit. Of course, creditors 

cannot increase a consumer’s income. It 

may be possible in some situations for 

creditors to modify the underlying 

mortgage and lower the consumer’s 

monthly payment on the loan so that the 

‘‘debt’’ is low enough to bring the ratio 

back within the 43-percent limit—or to 

pay down other debts of the consumer 

to achieve the same result. However, the 

Bureau believes this approach would 

require a complex restructuring of the 

loan, which may itself trigger a 

repurchase demand from the secondary 

market, and possibly require a refund of 

excess payments collected from the time 

of consummation. 

For any such cure provision to be 

considered, creditors would need to 

maintain and follow policies and 

procedures of post-consummation 

review of loans to restructure them and 

refund amounts as necessary to bring 

the debt-to-income ratio within the 43- 

percent limit. However, based on the 

Bureau’s current information, the 

Bureau does not believe creditors could 

realistically meet such a requirement, 

and expects that creditors would have 

difficulty systematically restructuring 

loans, or systematically paying down 

debts on the consumer’s behalf, within 

a short time after consummation. 

Moreover, in some cases the consumer’s 

other debts (when properly considered) 

could be too substantial, or the 

corrected income too low, for any viable 

modification of the mortgage to reduce 

the debt-to-income ratio below the 

prescribed limit. 

Debt-to-Income Correction 

The Bureau is also considering 

whether it may be appropriate to 

address the more limited scenario where 

debt-to-income overages result solely 

from errors in documentation of debt or 

income. For example, a creditor may 

have considered but failed to properly 

document certain income in accordance 

with the rule. Such an error may 

feasibly be remedied by submission of 

corrected documentation (and a 

corresponding recalculation of the debtto-income ratio) without the need for a 

monetary cure or loan restructuring. A 

correction also could be effective in 

situations in which the creditor erred in 

calculating the consumer’s debts and as 

a result verified and documented only 

certain income if that income alone 

appeared sufficient to satisfy the 43- 

percent limit. 

Certain sources of income (e.g., salary) 

are generally considered easier to 

document than others (e.g., rental or 

self-employment income), and 

satisfaction of the general qualified 

mortgage definition does not require 

creditors to document and consider 

every potential source of income, so 

long as the debt-to-income ratio based 

on the income considered (and 

calculated in accordance with the rule) 

does not exceed 43 percent. Creditors 

may, for the sake of expediency, only 

consider easy-to-document income 

when that income alone satisfies the 

debt-to-income ratio—a practice 

permitted under the regulation.22 Where 

a creditor or secondary market 

purchaser later discovers that income 

relied upon was overstated or additional 

debts existed that were not considered, 

it may be feasible for a creditor to 

correct a resulting debt-to-income ratio 

overage by collecting documentation 

and considering the additional income 

it knew about at the time of 

consummation but chose not to consider 

for the sake of expediency. 

While these means of correcting debtto-income ratio overages may be 

feasible, the Bureau is concerned that a 

provision tailored toward these 

situations may be inappropriate and 

believes any such provision could result 

in unintended consequences. The 

Bureau is concerned about the risk of 

creating any disincentives for creditors 

to exercise due diligence in carrying out 

their statutory obligations. In addition, 

the Bureau is concerned that allowing 

creditors to supplement required 

documentation after consummation 

could raise factual questions of what 

income and documentation the creditor 

was aware of at the time of 

consummation, and what income and 

documentation were discovered only 

after an intensive investigation 

following discovery of a debt-to-income 

overage. The Bureau is also concerned 

that, in some instances a correction 

provision could allow loans to be 

deemed qualified mortgages based on 

post hoc documentation, 

notwithstanding that the creditor, in 

fact, would not have made the loan had 

it correctly calculated the consumer’s 

debt-to-income ratio. 

Although the Bureau has received 

requests from industry noting that it 

would be useful to permit corrections in 

situations where a creditor did not 

document all known income at the time 

of consummation, it is not clear how 

often this will happen in practice. 

Furthermore, the Bureau believes that 

amending the rule to allow for 

correction in those instances may be 

unnecessary because creditors could 

avoid such debt-to-income ratio 

overages by verifying additional sources 

of income prior to consummation, at 

least in loans where the debt-to-income 

ratio would otherwise be near the 43- 

percent limit. 

As discussed above with respect to 

points and fees, the Bureau expects that, 

over time, creditors will develop greater 

familiarity with, and capabilities for, 

originating loans that are not qualified 

mortgages under the ability-to-repay 

requirements, as well as greater 

confidence in general compliance 

systems. As they do so, the Bureau 

believes creditors may relax internal 

debt-to-income ratio buffers that are 

predicated on the qualified mortgage 

threshold. Although the Bureau is 

considering whether the impacts on 

access to credit during the interim 

period (when such capabilities are being 

developed) may make a debt-to-income 

cure provision appropriate, the 43- 

percent debt-to-income ratio limit 

applies only to one category of qualified 

mortgages, unlike the points and fees 

limit, which applies to all qualified 

mortgages. Small creditors making 

qualified mortgages under 

§ 1026.43(e)(5), (e)(6), and (f) are not 

subject to the 43-percent debt-to-income 

limit. Further, creditors of any size 

currently have the option of originating 

GSE/agency-eligible loans under the 

temporary qualified mortgage definition 

without regard to the 43-percent debt-toincome limit.23 For this reason, the 

Bureau believes that a relatively small 

number of loans are currently affected 

by the debt-to-income limit. 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 25745 

24For purposes of determining whether a loan has 

a safe harbor with TILA’s ability-to-repay 

requirements (or instead is categorized as ‘‘higherpriced’’ with only a rebuttable presumption of 

compliance with those requirements), for first-lien 

covered transactions, the special qualified mortgage 

definitions in § 1026.43(e)(5), (e)(6) and (f) receive 

an APR threshold of the average prime offer rate 

plus 3.5 percentage points, rather than plus 1.5 

percentage points. 

25To meet the ‘‘rural’’ or ‘‘underserved’’ 

requirement, during any of the preceding three 

calendar years, the creditor must have extended 

more than 50 percent of its total covered 

transactions, as defined by § 1026.43(b)(1) and 

secured by a first lien, on properties that are located 

in counties that are either ‘‘rural’’ or ‘‘underserved,’’ 

as defined by § 1026.35(b)(2)(iv). See 

§ 1026.35(b)(2)(iii)(A). 

26For loans made on or before January 10, 2016, 

small creditors may originate high-cost mortgages 

with balloon-payment features even if the creditor 

does not operate predominantly in rural or 

underserved areas, under certain conditions. See 

§§ 1026.32(d)(1)(ii)(C) and 1026.43(e)(6). 

27 ‘‘Covered transaction’’ is defined in 

§ 1026.43(b)(1) to mean a consumer credit 

transaction that is secured by a dwelling, as defined 

in § 1026.2(a)(19), including any real property 

attached to a dwelling, other than a transaction 

exempt from coverage under § 1026.43(a). 

28 76 FR 11597 (Mar. 2, 2011) (2011 Escrows 

Proposal). The proposed exemption also would 

have required that, during the preceding calendar 

year, the creditor extended more than 50 percent of 

its total first-lien higher-priced mortgage loans in 

counties designated as rural or underserved, among 

other requirements. 

For these reasons, the Bureau is not 

proposing a specific cure or correction 

provision related to the 43-percent debtto-income limit for qualified mortgages 

under § 1026.43(e)(2) at this time. 

However, to aid its ongoing 

consideration of such provisions, the 

Bureau requests comment on all aspects 

of the debt-to-income cure or correction 

approaches discussed above and, in 

particular, requests commenters to 

provide specific and practical examples 

of where such approaches may be 

applied and how they may be 

implemented. The Bureau also requests 

comment on what conditions should 

appropriately apply to cure or 

correction of the qualified mortgage 

debt-to-income limits, including the 

time periods (such as the 120-day 

period included in the proposed points 

and fees cure provision) when such 

provisions may be available. The Bureau 

also requests comment on whether or 

how a debt-to-income cure or correction 

provision might be exploited by 

unscrupulous creditors to undermine 

consumer protections and undercut 

incentives for strict compliance efforts 

by creditors or assignees. 

B. Request for Comment on the Credit 

Extension Limit for the Small Creditor 

Definition 

Under the Bureau’s 2013 Title XIV 

Final Rules, there are four types of 

exceptions and special provisions 

available only to small creditors: 

• A qualified mortgage definition for 

certain loans made and held in 

portfolio, which are not subject to a 

bright-line debt-to-income ratio limit 

and are subject to a higher annual 

percentage rate (APR) threshold for 

defining which first-lien qualified 

mortgages receive a safe harbor under 

the ability-to-repay rule 

(§ 1026.43(e)(5)); 24

• Two qualified mortgage definitions 

(i.e., a temporary and an ongoing 

definition) for certain loans made and 

held in portfolio that have balloonpayment features, which are also subject 

to the higher APR threshold for defining 

which first-lien qualified mortgages 

receive a safe harbor under the abilityto-repay rule (§ 1026.43(e)(6) and (f)); 

• An exception from the requirement 

to establish escrow accounts for certain 

higher-priced mortgage loans (HPMLs) 

for small creditors that operate 

predominantly in rural or underserved 

areas (§ 1026.35(b)(2)(iii)); 25 and 

• An exception from the prohibition 

on balloon-payment features for certain 

high-cost mortgages 

(§ 1026.32(d)(1)(ii)(C)).26

These special rules and exceptions 

recognize that small creditors are an 

important source of non-conforming 

mortgage credit. Small creditors’ size 

and relationship lending model often 

provide them with better ability than 

large institutions to assess ability-torepay. At the same time, small creditors 

lack economies of scale necessary to 

offset the cost of certain regulatory 

burdens. To be a small creditor for 

purposes of these exceptions and 

special provisions, the creditor must 

have (1) together with its affiliates, 

originated 500 or fewer covered 

transactions 27 secured by a first lien in 

the preceding calendar year; and (2) had 

total assets of less than $2 billion at the 

end of the preceding calendar year. As 

discussed in more detail below, the 

Bureau is requesting comment on 

certain aspects of the annual first-lien 

origination limit under the small 

creditor test. 

These special rules for small creditors 

are largely based on TILA sections 

129D(c) and 129C(b)(2)(E), respectively. 

TILA section 129D(c) authorizes the 

Bureau to exempt a creditor from the 

higher-priced mortgage loan escrow 

requirement if the creditor operates 

predominantly in rural or underserved 

areas, retains its mortgage loans in 

portfolio, and meets certain asset size 

and annual mortgage loan origination 

thresholds set by the Bureau. TILA 

section 129C(b)(2)(E) permits certain 

balloon-payment mortgages originated 

by small creditors to receive qualified 

mortgage status, even though qualified 

mortgages are otherwise prohibited from 

having balloon-payment features. The 

creditor qualifications under TILA 

section 129C(b)(2)(E) generally mirror 

the criteria for the higher-priced 

mortgage loan escrow exemption, 

including meeting certain asset size and 

annual mortgage loan origination 

thresholds set by the Bureau. 

The Board proposed to implement 

TILA sections 129D(c) and 129C(b)(2)(E) 

before TILA rulemaking authority 

transferred to the Bureau. Although the 

creditor qualification criteria under 

these provisions are similar, the Board 

proposed to implement the provisions 

in slightly different ways. 

To implement TILA section 129D(c), 

the exemption from the higher-priced 

mortgage loan escrow requirements, the 

Board proposed to limit the exemption 

to creditors that (1) during either of the 

preceding two calendar years, together 

with affiliates, originated and retained 

servicing rights to 100 or fewer loans 

secured by a first lien on real property 

or a dwelling; and (2) together with 

affiliates, do not maintain escrow 

accounts for loans secured by real 

property or a dwelling that the creditor 

or its affiliates currently service.28 The 

Board interpreted the escrow provision 

as intending to exempt creditors that do 

not possess economies of scale to 

escrow cost-effectively. In proposing the 

transaction count limit, the Board 

estimated that a minimum servicing 

portfolio size of 500 is necessary to 

escrow cost-effectively, and assumed 

that the average life expectancy of a 

mortgage loan is about five years. Based 

on this reasoning, the Board believed 

that creditors would no longer need the 

benefit of the exemption if they 

originated and serviced more than 100 

first-lien transactions per year. The 

Board proposed a two-year coverage test 

to afford an institution sufficient time 

after first exceeding the threshold to 

acquire an escrowing capacity. The 

Board did not propose an asset-size 

threshold to qualify for the escrow 

exemption, but sought comment on 

whether such a threshold should be 

established and, if so, what it should be. 

For the balloon-payment qualified 

mortgage definition to implement TILA 

section 129C(b)(2)(E), the Board 

proposed an asset-size limit of $2 billion 

and two alternative annual originations 

thresholds. The Board interpreted the 

qualified mortgage provision as being 

designed to ensure access to credit in 

areas where consumers may be able to 

obtain credit only from community 

banks offering balloon-payment 


sroberts on DSK5SPTVN1PROD with PROPOSALS
25746 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 

29The higher-priced mortgage loan escrows 

exemption also requires that the creditor operate 

predominantly in rural or underserved areas. See 

§ 1026.35(b)(2)(iii)(A). For loans made on or before 

January 10, 2016, small creditors may originate 

qualified mortgages, and high-cost mortgages, with 

balloon-payment features even if the creditor does 

not operate predominantly in rural or underserved 

areas, under certain conditions. See 

§§ 1026.32(d)(1)(ii)(C) and 1026.43(e)(6). 

30The preamble to the January 2013 Escrows 

Final Rule noted that the increased threshold was 

likely not very dramatic because the Bureau’s 

analysis of HMDA data suggested that even small 

creditors are likely to sell a significant number of 

their originations in the secondary market and, 

assuming that most mortgage transactions that are 

retained in portfolio are also serviced in-house, the 

Bureau estimated that a creditor originating no 

more than 500 first-lien transactions per year would 

maintain and service a portfolio of about 670 

mortgage obligations over time (assuming an 

average obligation life expectancy of five years). 

Thus, the Bureau believed the higher threshold in 

the January 2013 Escrows Final Rule would help to 

ensure that creditors that are subject to the escrow 

requirement would in fact maintain portfolios of 

sufficient size to maintain the escrow accounts on 

a cost-efficient basis over time, in the event that the 

Board’s 500-loan estimate of a minimum costeffective servicing portfolio size was too low. At the 

same time, however, the Bureau believed that the 

500 annual originations threshold in combination 

with the other requirements would still ensure that 

the balloon-payment qualified mortgage and escrow 

exemptions are available only to small creditors 

that focus primarily on a relationship lending 

model and face significant systems constraints. 

mortgages. Accordingly, the Board 

proposed two alternatives for the total 

annual originations portion of the test: 

Under alternative 1, the creditor, 

together with all affiliates, extended 

covered transactions of some dollar 

amount or less during the preceding 

calendar year, whereas under alternative 

2, the creditor, together with all 

affiliates, extended some number of 

covered transactions or fewer during the 

preceding calendar year. The Board did 

not propose a specific annual 

originations threshold in connection 

with TILA section 129C(b)(2)(E), but the 

Board sought comment on the issue. 

Rulemaking authority for TILA passed 

to the Bureau in July 2011, before the 

Board finalized the above-described 

proposals. The Bureau considered the 

Board’s proposals and responsive public 

comments before finalizing those rules 

in January 2013. The Bureau also 

conducted further analysis to try to 

determine the appropriate thresholds, 

although such effort was significantly 

constrained by data limitations. The 

Bureau ultimately adopted an annual 

originations limit of 500 or fewer firstlien covered transactions in the 

preceding calendar year and an assetsize limit of less than $2 billion, 

adjusted annually for inflation.29 The 

Bureau believed that it would be 

preferable to use the same annual 

originations and asset-size thresholds 

for the qualified mortgage and escrow 

provisions to reflect the consistent 

statutory language, to facilitate 

compliance by not requiring institutions 

to track multiple metrics, and to 

promote consistent application of the 

two exemptions. The Bureau also 

applied these limits to the exception 

from the balloon-payment prohibition 

for high-cost loans, to the qualified 

mortgage definition for small portfolio 

creditors, and to the qualified mortgage 

definition for loans with balloonpayment features. 

The Bureau adopted a threshold of 

500 or fewer annual originations of firstlien transactions to provide flexibility 

and reduce concerns that the threshold 

in the Board’s 2011 Escrows Proposal 

would reduce access to credit by 

excluding creditors that need special 

accommodations in light of their 

capacity constraints.30 The Bureau 

believed that an originations limit is the 

most accurate means of limiting the 

special provisions to the class of small 

creditors with a business model the 

Bureau believes will best facilitate 

access to responsible, affordable credit. 

The Bureau also believed that an asset 

limit is important to preclude a very 

large creditor with relatively modest 

mortgage operations from taking 

advantage of a provision designed for 

much smaller creditors with much 

different characteristics and incentives, 

and that lack the scale to make 

compliance less burdensome. 

Based on estimates from publicly 

available Home Mortgage Disclosure Act 

(HMDA) and call report data, the Bureau 

understood that the small creditor 

provisions as finalized would include 

approximately 95 percent of creditors 

with less than $500 million in assets, 

approximately 74 percent of creditors 

with assets between $500 million and 

$1 billion, and approximately 50 

percent of creditors with assets between 

$1 billion and $2 billion. The Bureau 

believed these percentages were 

consistent with the rationale for 

providing special accommodation for 

small creditors and would be 

appropriate to ensure that consumers 

have access to responsible, affordable 

mortgage credit. 

Consistent with the Bureau’s ongoing 

Implementation Plan, the Bureau is 

seeking comment on the 500 total firstlien originations limit—and the 

requirement that the limit be 

determined for any given calendar year 

based upon results during the 

immediately prior calendar year. 

Specifically, the Bureau solicits 

feedback and data from (1) creditors 

designated as small creditors under the 

Bureau’s 2013 Title XIV Final Rules; 

and (2) creditors with assets that are not 

at or above the $2 billion limitation but 

that do not qualify for small creditor 

treatment under the Bureau’s 2013 Title 

XIV Final Rules because of their total 

annual first-lien mortgage originations. 

For such creditors, the Bureau requests 

data on the number and type of 

mortgage products offered and 

originated to be held in portfolio during 

the years prior to the effective date of 

the 2013 Title XIV Final Rules and 

subsequent to that date. In particular, 

the Bureau is interested in how such 

creditors’ origination mix changed in 

light of the Bureau’s 2013 Title XIV 

Final Rules (including, but not limited 

to, the percentage of loans that are fixedrate, are adjustable-rate, or have a 

balloon-payment feature) and, similarly, 

how such creditors’ origination mix 

changed when only considering loans 

originated for the purposes of keeping 

them in portfolio. The Bureau also 

solicits feedback on such small 

creditors’ implementation efforts with 

respect to the Bureau’s 2013 Title XIV 

Final Rules. The Bureau is interested in 

detailed descriptions of the challenges 

that creditors might face when 

transitioning from originating balloonpayment loans to originating adjustablerate loans. Finally, the Bureau solicits 

comment on whether the 500 total firstlien originations limit is sufficient to 

serve the above-described purposes of 

the provision and, to the extent it may 

be insufficient, the reasons why it is 

insufficient and the range of appropriate 

limits. 

As noted above, certain of the special 

provisions applicable to small creditors 

are limited to small creditors in ‘‘rural’’ 

or ‘‘underserved’’ areas. The Bureau 

finalized a definition of ‘‘rural’’ or 

‘‘underserved’’ in the 2013 Escrows 

Final Rule. 78 FR 4725 (Jan. 22, 2013). 

The Bureau recognizes that concerns 

have been raised by some stakeholders 

that the Bureau’s definition is underinclusive and fails to cover certain 

counties or portions of counties that are 

typically thought of as rural or 

underserved in nature. The Bureau is 

considering whether to propose 

modifications to the definition of 

‘‘rural’’ or ‘‘underserved’’ at a later date 

and is not requesting comment at this 

time on this issue. 

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

Analysis 

A. Overview 

In developing the proposed rule, the 

Bureau has considered potential 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 25747 

31Specifically, section 1022(b)(2)(A) of the DoddFrank Act calls for the Bureau to consider the 

potential benefits and costs of a regulation to 

consumers and covered persons, including the 

potential reduction of access by consumers to 

consumer financial products or services; the impact 

on depository institutions and credit unions with 

$10 billion or less in total assets as described in 

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

on consumers in rural areas. 

32The Bureau has discretion in future 

rulemakings to choose the relevant provisions to 

discuss and to choose the most appropriate baseline 

for that particular rulemaking. 

benefits, costs, and impacts.31 The 

Bureau requests comment on the 

preliminary analysis presented below as 

well as submissions of additional data 

that could inform the Bureau’s analysis 

of the benefits, costs, and impacts. 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. 

There are three main provisions in 

this rulemaking proposal. 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 proposed 

§ 1026.43(a)(3)(v)(D) (‘‘contingent 

subordinate liens’’) from the 200-loan 

limit calculation for purposes of 

qualifying for the nonprofit exemption 

from the ability-to-repay requirements. 

The third provision affords creditors an 

option, in limited circumstances, to cure 

certain mistakes in cases where a 

creditor originated a loan with an 

expectation of qualified mortgage status, 

but the loan actually exceeded the 

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 

proposed provisions against the current 

state of the world. That is, the Bureau’s 

analysis below considers the benefits, 

costs, and impacts of the three proposed 

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.32 The 

baseline considers economic attributes 

of the relevant market and the existing 

regulatory structure. 

The main benefit of each of these 

proposed 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 adversely impact 

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 nonincreased price, and (3) there would not 

be significant new entry into the market 

segments left by the departing 

institutions. If, but for these proposed 

provisions, all three of these scenarios 

would be realized, then the three 

proposed 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 proposed 

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 to either increase the 

cost of credit or curtail access to credit. 

The main cost to consumers of the 

proposed 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-torepay 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 

proposed 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 other financial institutions that 

would have complied with the abilityto-repay and mortgage servicing rules 

with or without the proposed provisions 

may lose profits to the institutions that 

are able to continue operating in a 

market segment by virtue of one of the 

proposed 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 ‘‘hightouch’’ 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 ‘‘DoddFrank Act Section 1022(b)(2) Analysis’’ 

sections of the 2013 Mortgage Servicing 


sroberts on DSK5SPTVN1PROD with PROPOSALS
25748 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 

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. Under current 

§ 1026.41(e)(4)(ii), a small servicer is a 

servicer that either (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; or (B) 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 proposed revision of the 

exemption 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 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 

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, 

proposed § 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 ‘‘hightouch’’ servicing. Another rationale for 

the proposed revision of the exemption 

is that it would create a more level 

playing field for nonprofits. Currently, 

for-profit affiliates can take advantage of 

economies of scale to service their loans 

together, but related nonprofits cannot 

because they typically are not 

‘‘affiliates’’ as defined by the BHCA. 

Overall, the primary benefit to 

consumers of the proposed 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 (published concurrently). 

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, but 

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 as well. 

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: 

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 abilityto-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 in 

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-pay rule. The May 2013 

ATR Final Rule exempted only 

nonprofit creditors that originated 200 

or fewer loans 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. 

Proposed § 1026.43(a)(3)(vii) 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-loan 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 lowand moderate-income consumer market 

without passing through cost increases 

to consumers. 

Overall, the primary benefit to 

consumers of the proposed 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); 

(‘‘Dodd-Frank Act Section 1022(b)(2) 

Analysis’’ part in the January 2013 ATR 

Final Rule); 78 FR 35429, 35492–97 

(June 12, 2013) (similar part 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, but 

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 as 

well, 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, not including up to 

two bona-fide discount points, and with 

higher thresholds for lower loan 

amounts. However, origination 

processes are not perfect and creditors 

might be concerned about any potential 

unintended errors that result in a loan 

that the creditor believed to be a 

qualified mortgage at origination but 

that actually was over the 3-percent 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 25749 

33While a result of the proposed 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 preconsummation review by immediately pointing out 

areas to focus on. 

points and fees threshold upon further, 

post-consummation review. 

The three most likely responses by a 

creditor concerned about such 

inadvertent errors would be either to 

originate loans with points and fees well 

below TILA’s 3-percent limit, to insert 

additional quality control in its 

origination process, or 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 TILA’s 3-percent limit. 

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 socially optimal 

amount of effort expended on quality 

control, especially since most loans will 

be securitized and thus re-examined 

shortly after origination. 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 TILA’s 3-percent 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 

consequence of the limit. 

The primary potential drawback of 

the proposal to allow creditors to cure 

inadvertent points and fees errors is the 

risk of inappropriate exploitation by 

creditors. However, the conditions the 

Bureau has placed on the proposed cure 

mechanism help to ensure that creditors 

will not abuse this mechanism and thus 

that consumers are unlikely to 

experience negative side-effects. 

One such potential gaming 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. The 

elements of proposed § 1026.43(e)(3)(iii) 

requiring that the loan be originated in 

good faith as a qualified mortgage and 

that the overage be cured within 120 

days after consummation should 

discourage this type of gaming. Another 

gaming scenario is a creditor that only 

cures overages on loans that go into 

foreclosure. This possibility is limited 

by the proposed 120-day cure window, 

as well as by the proposed requirement 

that the creditor or assignee, as 

applicable, maintains and follows 

policies and procedures for postconsummation review and refunding 

overages. 

The primary benefit to consumers of 

the proposed 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 the inadvertent 

points and fees overage, the creditor 

may reimburse the consumer for the 

overage. However, this is a benefit only 

for consumers who place greater value 

on being reimbursed than on the 

additional legal protections that a nonqualified mortgage would afford them. 

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 safe harbor (or 

rebuttable presumption) of TILA abilityto-repay compliance. However, the 

Bureau believes that the safeguards 

included in the proposed rule will 

mitigate this potential concern as 

creditors are unlikely to be able to game 

the system 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. 

Finally, the Bureau does not possess 

any data that would enable it to report 

the number of transactions affected. For 

some creditors, the proposed provision 

might save additional verification and 

quality control in the loan origination 

process for every qualified mortgage 

transaction that they originate 33 and/or 

allow them to originate loans with 

points and fees close to the 3-percent 

threshold at lower prices that do not 

reflect the risk of the loan inadvertently 

turning out not to be a qualified 

mortgage. The Bureau seeks comment 

on this issue and, in particular, any 

detailed descriptions regarding the 

processes that might be simplified due 

to the proposed cure provision and 

monetary and time savings involved. 

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 proposed 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 

proposed 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 proposed provision might not 

benefit them as much. The third 

proposed provision may lead smaller 

creditors to extend a greater number of 

qualified mortgages near the 3-percent 

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 originating 

loans with points and fees close to the 

TILA 3-percent limit—might negatively 

affect access to credit 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 


sroberts on DSK5SPTVN1PROD with PROPOSALS
25750 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 

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. 

An IRFA is not required for this 

proposal because the proposal, if 

adopted, would not have a significant 

economic impact on any small entities. 

The Bureau does not expect the 

proposal to impose costs on covered 

persons. All methods of compliance 

under current law will remain available 

to small entities if the proposal is 

adopted. Thus, a small entity that is in 

compliance with current law need not 

take any additional action if the 

proposal is adopted. Accordingly, the 

undersigned certifies that this proposal, 

if adopted, would 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 

Proposed 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. The Bureau welcomes 

comments on this determination or any 

other aspect of this proposal for 

purposes of the PRA. Comments should 

be submitted as outlined in the 

ADDRESSES section above. All comments 

will become a matter of public record. 

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 proposes to 

amend 12 CFR part 1026 as set forth 

below: 

PART 1026—TRUTH IN LENDING 

(REGULATION Z) 

■ 1. The authority citation for part 1026 

continues to read as follows: 

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 

■ 2. Section 1026.41 is amended by 

revising paragraphs (e)(4)(ii) and (iii) to 

read as follows: 

§ 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 is a 

small servicer pursuant to 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 is a 

small servicer pursuant to 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: 

* * * * * 

■ 3. Section 1026.43 is amended by 

revising paragraph (a)(3)(v)(D)(1) and 

the introductory text of paragraph 

(e)(3)(i) and adding new paragraphs 

(a)(3)(vii) and (e)(3)(iii) to read as 

follows: 

§ 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; 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 25751 

(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 

§ 1026.32(b)(1), do not exceed: 

* * * * * 

(iii) 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 paragraph 

(e)(3)(i) of this section, the loan is not 

precluded from being a qualified 

mortgage, provided: 

(A) The creditor originated the loan in 

good faith as a qualified mortgage and 

the loan otherwise meets the 

requirements of paragraphs (e)(2), (e)(4), 

(e)(5), (e)(6), or (f) of this section, as 

applicable; 

(B) 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 paragraph (e)(3)(i) of this 

section at consummation; and 

(C) The creditor or assignee, as 

applicable, maintains and follows 

policies and procedures for postconsummation review of loans and 

refunding to consumers amounts that 

exceed the applicable limit under 

paragraph (e)(3)(i) of this section. 

* * * * * 

■ 4. In Supplement I to part 1026: 

■ a. Under Section 1026.41—Periodic 

Statements for Residential Mortgage 

Loans: 

■ i. Under Paragraph 41(e)(4)(ii) Small 

servicer defined, paragraph 2 is revised 

and paragraph 4 is added. 

■ ii. Under Paragraph 41(e)(4)(iii) Small 

servicer determination, paragraphs 2 

and 3 are revised and paragraphs 4 and 

5 are added. 

■ b. Under Section 1026.43—Minimum 

Standards for Transactions Secured by 

a Dwelling: 

■ i. New subheading Paragraph 

43(a)(3)(vii) and paragraph 1 under that 

subheading are added. 

■ ii. New subheading Paragraph 

43(e)(3)(iii) and paragraphs 1 and 2 

under that subheading are added. 

The revisions 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 

§ 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 

§ 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 

§ 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 § 1026.41(e)(4)(ii)(A) 

because it did not meet both 

requirements under 

§ 1026.41(e)(4)(ii)(A) for determining a 

servicer’s status as a small servicer: 

* * * * * 

4. Nonprofit entity that services 5,000 

or fewer mortgage loans. To qualify as 

a small servicer under 

§ 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 

§ 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 § 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 

§ 1026.41(e)(4)(ii)(C) because it meets 

both requirements for determining a 

nonprofit entity’s status as a small 

servicer under § 1026.41(e)(4)(ii)(C). The 

second example demonstrates 

circumstances in which a nonprofit 

entity would not qualify as a small 

servicer under § 1026.41(e)(4)(ii)(C) 

because it does not meet both 

requirements under 

§ 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 


sroberts on DSK5SPTVN1PROD with PROPOSALS
25752 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 

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 for purposes of 

§ 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 that 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 that 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 that 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 that 

following year. 

3. Mortgage loans not considered in 

determining whether a servicer is a 

small servicer. Mortgage loans that are 

not considered pursuant to 

§ 1026.41(e)(4)(iii) for purposes of the 

small servicer determination under 

§ 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. 

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 qualifies for the 

small servicer exemption pursuant to 

§ 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 

§ 1026.41(e)(4)(iii) for purposes of the 

small servicer determination under 

§ 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 qualifies for the small servicer 

exemption pursuant to 

§ 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 

§ 1026.41. In contrast, although 

voluntarily serviced mortgage loans, as 

defined by § 1026.41(e)(4)(iii)(A), are 

likewise not considered in determining 

small servicer status, they are not 

exempt from the requirements of 

§ 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 § 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 § 1026.43(a)(3)(vii)(C) 

and that repayment of the amount of 

credit extended be forgiven or deferred 

in accordance with 

§ 1026.43(a)(3)(vii)(D). The other 

requirements of § 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 § 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 

§ 1026.43(a)(3)(vii)(E). Unless an 

itemization of the amount financed 

sufficiently details this requirement, the 

creditor must establish compliance with 

§ 1026.43(a)(3)(vii)(E) by some other 

written document and retain it in 

accordance with § 1026.25(a). 

* * * * * 

Paragraph 43(e)(3)(iii) 

1. Originated in good faith as a 

qualified mortgage. i. The following 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Proposed Rules 25753 

may be evidence that a creditor 

originated a loan in good faith as a 

qualified mortgage: 

A. A creditor maintains and follows 

policies and procedures designed to 

ensure that points and fees are correctly 

calculated and do not exceed the 

applicable limit under § 1026.43(e)(3)(i); 

or 

B. The pricing for the loan is 

consistent with pricing on qualified 

mortgages originated 

contemporaneously by the same 

creditor. 

ii. In contrast, the following may be 

evidence that a loan was not originated 

in good faith as a qualified mortgage: 

A. A creditor does not maintain, or 

the creditor has, but does not follow, 

policies and procedures designed to 

ensure that points and fees are correctly 

calculated and do not exceed the 

applicable limit under § 1026.43(e)(3)(i); 

or 

B. The pricing for the loan is not 

consistent with pricing on qualified 

mortgages originated 

contemporaneously by the same 

creditor. 

2. Policies and procedures for postconsummation review and refunding. A 

creditor or assignee satisfies 

§ 1026.43(e)(3)(iii)(C) if it maintains and 

follows policies and procedures for 

post-consummation quality control loan 

review and for curing (by providing a 

refund) errors in points and fees 

calculations that occur at or before 

consummation. 

* * * * * 

Dated: April 30, 2014. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

[FR Doc. 2014–10207 Filed 5–5–14; 8:45 am] 

BILLING CODE 4810–AM–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2014–0292; Directorate 

Identifier 2014–CE–011–AD] 

RIN 2120–AA64 

Airworthiness Directives; GROBWERKE GMBH & CO KG and 

BURKHART GROB LUFT- UND 

RAUMFAHRT GmbH & CO KG Gliders 

AGENCY: Federal Aviation 

Administration (FAA), Department of 

Transportation (DOT). 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: We propose to adopt a new 

airworthiness directive (AD) for GROBWERKE GMBH & CO KG Models G102 

STANDARD ASTIR III, G102 CLUB 

ASTIR III, and G102 CLUB ASTIR IIIb 

gliders and BURKHART GROB LUFTUND RAUMFAHRT GmbH & CO KG 

Models G103 TWIN II, G103A TWIN II 

ACRO, G103C TWIN III ACRO, and G 

103 C Twin III SL gliders. This proposed 

AD results from mandatory continuing 

airworthiness information (MCAI) 

originated by an aviation authority of 

another country to identify and correct 

an unsafe condition on an aviation 

product. The MCAI describes the unsafe 

condition as plastic control cable 

pulleys developing cracks due to aging. 

We are issuing this proposed AD to 

require actions to address the unsafe 

condition on these products. 

DATES: We must receive comments on 

this proposed AD by June 20, 2014. 

ADDRESSES: You may send comments by 

any of the following methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: (202) 493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, M– 

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue SE., 

Washington, DC 20590. 

• Hand Delivery: U.S. Department of 

Transportation, Docket Operations, M– 

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue SE., 

Washington, DC 20590, between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. 

For service information identified in 

this proposed AD, contact FiberglasTechnik Rudolf Lindner GmbH & Co. 

KG, Steige 3, D–88487 Walpertshofen, 

Germany; telephone: +49 (0) 7353/22 

43; fax: +49 (0) 7353/30 96; email: 

info@LTB-Lindner.com; Web site: 

http://www.ltb-lindner.com/ 

home.104.html. You may review this 

referenced service information at the 

FAA, Small Airplane Directorate, 901 

Locust, Kansas City, Missouri 64106. 

For information on the availability of 

this material at the FAA, call (816) 329– 

4148. 

Examining the AD Docket 

You may examine the AD docket on 

the Internet at http:// 

www.regulations.gov by searching for 

and locating Docket No. FAA–2014– 

0292; or in person at the Docket 

Management Facility between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. The AD docket 

contains this proposed AD, the 

regulatory evaluation, any comments 

received, and other information. The 

street address for the Docket Office 

(telephone (800) 647–5527) is in the 

ADDRESSES section. Comments will be 

available in the AD docket shortly after 

receipt. 

FOR FURTHER INFORMATION CONTACT: Jim 

Rutherford, Aerospace Engineer, FAA, 

Small Airplane Directorate, 901 Locust, 

Room 301, Kansas City, Missouri 64106; 

telephone: (816) 329–4165; fax: (816) 

329–4090; email: 

jim.rutherford@faa.gov. 

SUPPLEMENTARY INFORMATION: 

Comments Invited 

We invite you to send any written 

relevant data, views, or arguments about 

this proposed AD. Send your comments 

to an address listed under the 

ADDRESSES section. Include ‘‘Docket No. 

FAA–2014–0292; Directorate Identifier 

2014–CE–011–AD’’ at the beginning of 

your comments. We specifically invite 

comments on the overall regulatory, 

economic, environmental, and energy 

aspects of this proposed AD. We will 

consider all comments received by the 

closing date and may amend this 

proposed AD because of those 

comments. 

We will post all comments we 

receive, without change, to http:// 

regulations.gov, including any personal 

information you provide. We will also 

post a report summarizing each 

substantive verbal contact we receive 

about this proposed AD. 

Discussion 

The European Aviation Safety Agency 

(EASA), which is the Technical Agent 

for the Member States of the European 

Community, has issued AD No.: 2014– 

0067, dated March 18, 2014 (referred to 

after this as ‘‘the MCAI’’), to correct an 

unsafe condition for the specified 

products. The MCAI states: 

Control cable pulleys made from plastic 

(white or brown material) in the rudder 

control unit were reported to develop cracks 

due to aging. In one case, jamming of the 

rudder control unit was reported. 

This condition, if not detected and 

corrected, could cause cable pulleys to break, 

potentially jamming the rudder control unit 

and resulting in loss of control of the 

sailplane. 

To address this potential unsafe condition, 

Fiberglas-Technik issued Technische 

Mitteilung/Service Bulletin TM–G05/SB–G05 

and Anweisung/Instructions A/I–G05 (one 

document) to provide instructions for the 

replacement of plastic cable pulleys with 

pulleys made from aluminium. 

For the reason described above, this AD 

requires identification and replacement of 

plastic cable pulleys in the rudder control 

unit. 


sroberts on DSK5SPTVN1PROD with PROPOSALS