Vol. 78 Thursday, 

No. 248 December 26, 2013 

Part II 

Department of the Treasury 

Office of the Comptroller of the Currency 

Board of Governors of the Federal Reserve 

System 

Bureau of Consumer Financial Protection 

12 CFR Parts 34, 226, and 1026 

Appraisals for Higher-Priced Mortgage Loans; Final Rule 


tkelley on DSK3SPTVN1PROD with RULES2
78520 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Part 34 

[Docket No. OCC–2013–0009] 

RIN 1557–AD70 

BOARD OF GOVERNORS OF THE 

FEDERAL RESERVE SYSTEM 

12 CFR Part 226 

[Docket No. R–1443] 

RIN 7100–AD90 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1026 

[Docket No. CFPB–2013–0020] 

RIN 3170–AA11 

Appraisals for Higher-Priced Mortgage 

Loans 

AGENCY: Board of Governors of the 

Federal Reserve System (Board); Bureau 

of Consumer Financial Protection 

(Bureau); Federal Deposit Insurance 

Corporation (FDIC); Federal Housing 

Finance Agency (FHFA); National 

Credit Union Administration (NCUA); 

and Office of the Comptroller of the 

Currency, Treasury (OCC). 

ACTION: Supplemental final rule; official 

staff commentary. 

SUMMARY: The Board, Bureau, FDIC, 

FHFA, NCUA, and OCC (collectively, 

the Agencies) are amending Regulation 

Z, which implements the Truth in 

Lending Act (TILA), and the official 

interpretation to the regulation. This 

final rule supplements a final rule 

issued by the Agencies on January 18, 

2013, which goes into effect on January 

18, 2014. The January 2013 Final Rule 

implements a provision added to TILA 

by the Dodd-Frank Wall Street Reform 

and Consumer Protection Act (the 

Dodd-Frank Act or Act) requiring 

appraisals for ‘‘higher-risk mortgages.’’ 

For certain mortgages with an annual 

percentage rate that exceeds the average 

prime offer rate by a specified 

percentage, the January 2013 Final Rule 

requires creditors to obtain an appraisal 

or appraisals meeting certain specified 

standards, provide applicants with a 

notification regarding the use of the 

appraisals, and give applicants a copy of 

the written appraisals used. On July 10, 

2013, the Agencies proposed 

amendments to the January 2013 Final 

Rule implementing these requirements. 

Specifically, the Agencies proposed 

exemptions from the rules for 

transactions secured by existing 

manufactured homes and not land; 

certain streamlined refinancings; and 

transactions of $25,000 or less. 

DATES: This final rule is effective on 

January 18, 2014. Alternative provisions 

regarding manufactured home loans in 

amendatory instructions 3b and 5f (12 

CFR 34.203(b)(8) and 12 CFR part 34, 

appendix C, 34.203(b)(8) entry OCC), 12 

CFR 226.43(b)(8) Board, and 12 CFR 

1026.35(c)(2)(viii) CFPB, are effective 

July 18, 2015. 

FOR FURTHER INFORMATION CONTACT: 

OCC: Robert L. Parson, Appraisal Policy 

Specialist, at (202) 649–6423, G. Kevin 

Lawton, Appraiser (Real Estate 

Specialist), at (202) 649–7152, Charlotte 

M. Bahin, Senior Counsel or Mitchell 

Plave, Special Counsel, Legislative & 

Regulatory Activities Division, at (202) 

649–5490, Krista LaBelle, Special 

Counsel, Community and Consumer 

Law Division, at (202) 649–6350, or 400 

Seventh Street SW., Washington, DC 

20219. 

Board: Lorna Neill or Mandie Aubrey, 

Counsels, Division of Consumer and 

Community Affairs, at (202) 452–3667, 

Carmen Holly, Supervisory Financial 

Analyst, Division of Banking 

Supervision and Regulation, at (202) 

973–6122, or Kara Handzlik, Counsel, 

Legal Division, at (202) 452–3852, Board 

of Governors of the Federal Reserve 

System, Washington, DC 20551. 

FDIC: Beverlea S. Gardner, Senior 

Examination Specialist, Risk 

Management Section, at (202) 898–3640, 

Sandra S. Barker, Senior Policy Analyst, 

Division of Consumer Protection, at 

(202) 898–3615, Mark Mellon, Counsel, 

Legal Division, at (202) 898–3884, 

Kimberly Stock, Counsel, Legal 

Division, at (202) 898–3815, or 

Benjamin Gibbs, Senior Regional 

Attorney, at (678) 916–2458, Federal 

Deposit Insurance Corporation, 550 17th 

St, NW., Washington, DC 20429. 

NCUA: John Brolin, Staff Attorney, 

Office of General Counsel, at (703) 518– 

6540, or Vincent Vieten, Program 

Officer, Office of Examination and 

Insurance, at (703) 518–6360, or 1775 

Duke Street, Alexandria, Virginia, 

22314. 

Bureau: Owen Bonheimer, Counsel, 

or William W. Matchneer, Senior 

Counsel, Division of Research, Markets, 

and Regulations, Bureau of Consumer 

Financial Protection, 1700 G Street NW., 

Washington, DC 20552, at (202) 435– 

7000. 

FHFA: Robert Witt, Senior Policy 

Analyst, at 202–649–3128, or MingYuen Meyer-Fong, Assistant General 

Counsel, Office of General Counsel, 

(202) 649–3078, Federal Housing 

Finance Agency, 400 Seventh Street 

SW., Washington, DC 20024. 

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule 

As discussed in detail under part II of 

this SUPPLEMENTARY INFORMATION, 

section 1471 of the Dodd-Frank Act 

created new TILA section 129H, which 

establishes special appraisal 

requirements for ‘‘higher-risk 

mortgages.’’ 15 U.S.C. 1639h. The 

Agencies adopted a final rule on January 

18, 2013 (January 2013 Final Rule; 78 

FR 10368 (Feb. 13, 2013)) to implement 

these requirements (adopting the term 

‘‘higher-priced mortgage loans’’ 

(HPMLs) instead of ‘‘higher-risk 

mortgages’’). The Agencies believe that 

several additional exemptions from the 

new appraisal rules are appropriate. 

Specifically, the Agencies are adopting 

exemptions for certain types of 

refinancings and transactions of $25,000 

or less (indexed for inflation). The 

Agencies are also adopting a temporary 

exemption of 18 months (until July 18, 

2015) for all loans secured in whole or 

in part by a manufactured home. 

Starting on July 18, 2015, transactions 

secured by a new manufactured home 

and land will be exempt from the 

requirement that the appraisal include a 

physical inspection of the interior of the 

property; transactions secured by an 

existing (used) manufactured home and 

land will not be exempt from the rules; 

and transactions secured solely by a 

manufactured home and not land will 

be exempt from the rules if the creditor 

gives the consumer one of three types of 

information about the home’s value, 

discussed in more detail below. 

The Agencies are not adopting the 

proposed definition of ‘‘business day’’ 

that would have differed from the 

definition used in the January 2013 

Final Rule. A revision to the exemption 

for ‘‘qualified mortgages’’ is adopted 

that is similar to the proposed revision, 

as well as a few proposed nonsubstantive technical corrections. 

A. Exemption for Extensions of Credit of 

$25,000 or Less 

The Agencies are adopting without 

change the proposed exemption from 

the HPML appraisal rules for extensions 

of credit of $25,000 or less, indexed 

every year for inflation. 

B. Exemption for Certain Refinancings 

The Agencies also are adopting an 

exemption from the HPML appraisal 

rules for certain types of refinancings 

with characteristics common to 

refinance products often referred to as 


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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78521 

1As discussed further in the section-by-section 

analysis, the Agencies are adopting the definition 

of ‘‘valuation’’ at 12 CFR 1026.42(b)(3): ‘‘ ‘Valuation’ 

means an estimate of the value of the consumer’s 

principal dwelling in written or electronic form, 

other than one produced solely by an automated 

model or system.’’ 

2For motor vehicle dealers as defined in section 

1029 of the Dodd-Frank Act, TILA directs the Board 

to prescribe regulations to carry out the purposes 

of TILA and authorizes the Board to issue 

regulations. 15 U.S.C. 5519; 15 U.S.C. 1604(i). 

3See NCUA: 12 CFR 722.3; FHFA: 12 CFR part 

1222. The FDIC adopted the Bureau’s version of the 

regulations, but did not adopt a cross-reference to 

the Bureau’s regulations in FDIC regulations. See 78 

FR 10368, 10370 (Feb. 13, 2013). 

4Public Law 111–203, 124 Stat. 1376 (DoddFrank Act). 

5See Dodd-Frank Act section 1401; TILA section 

103(cc)(5), 15 U.S.C. 1602(cc)(5) (defining 

Continued 

streamlined refinances. Consistent with 

the proposal, the final rule exempts a 

refinancing where the holder of the 

credit risk of the existing obligation 

remains the same on the refinancing. 

The final rule includes revised 

terminology and additional examples in 

Official Staff Commentary to clarify the 

meaning of this requirement. In 

addition, the periodic payments under 

the refinance loan must not result in 

negative amortization, cover only 

interest on the loan, or result in a 

balloon payment. Finally, the proceeds 

from the refinance loan may only be 

used to pay off the existing obligation 

and to pay closing or settlement charges. 

C. Exemption for Transactions Secured 

in Whole or in Part by a Manufactured 

Home 

All loans secured in whole or in part 

by a manufactured home will be exempt 

from the HPML appraisal rules for 18 

months, until July 18, 2015. For loan 

applications received on or July 18, 

2015, the following changes will apply: 

Transactions secured by a new 

manufactured home and land will be 

exempt from the requirement that the 

appraisal include a physical inspection 

of the interior of the property, but will 

be subject to all other HPML appraisal 

requirements. 

Transactions secured by an existing 

(used) manufactured home and land 

will not be exempt from the rules. 

Transactions secured solely by a 

manufactured home and not land will 

be exempt from the rules if the creditor 

gives the consumer one of three types of 

information about the home’s value: 

• The manufacturer’s invoice of the 

unit cost (for a transaction secured by a 

new manufactured home). 

• An independent cost service unit 

cost. 

• A valuation conducted by an 

individual who has no financial interest 

in the property or credit transaction, 

and has training in valuing 

manufactured homes.1 An example 

would be an appraisal conducted 

according to procedures approved by 

the U.S. Department of Housing and 

Urban Development (HUD) for existing 

(used) home-only transactions. 

D. Effective Date 

The temporary exemption for 

manufactured home loans and the 

exemptions for certain refinancings and 

loans of $25,000 or less will be effective 

on January 18, 2014, the same date on 

which the January 2013 Final Rule will 

become effective. The Agencies find 

under 5 U.S.C. 553(d)(1) that these 

provisions may be made effective less 

than 30 days after publication in the 

Federal Register because these 

provisions ‘‘grant[] or recognize[] an 

exemption or relieve[] a restriction.’’ 5 

U.S.C. 553(d)(1). The modified 

exemptions for loans secured by 

manufactured homes will be effective 

on July 18, 2015. 

II. Background 

In general, TILA seeks to promote the 

informed use of consumer credit by 

requiring disclosures about its costs and 

terms, as well as other information. 

TILA requires additional disclosures for 

loans secured by consumers’ homes and 

permits consumers to rescind certain 

transactions that involve their principal 

dwelling. For most types of creditors, 

TILA directs the Bureau to prescribe 

regulations to carry out the purposes of 

the law and specifically authorizes the 

Bureau to issue regulations that contain 

such classifications, differentiations, or 

other provisions, or that provide for 

such adjustments and exceptions for 

any class of transactions, that in the 

Bureau’s judgment are necessary or 

proper to effectuate the purposes of 

TILA, or prevent circumvention or 

evasion of TILA.2 15 U.S.C. 1604(a). 

For most types of creditors and most 

provisions of TILA, TILA is 

implemented by the Bureau’s 

Regulation Z. See 12 CFR part 1026. 

Official Interpretations provide 

guidance to creditors in applying the 

rules to specific transactions and 

interpret the requirements of the 

regulation. See 12 CFR part 1026, Supp. 

I. However, as explained in the January 

2013 Final Rule, the new appraisal 

section of TILA addressed in the 

January 2013 Final Rule (TILA section 

129H, 15 U.S.C. 1639h) is implemented 

not only for all affected creditors by the 

Bureau’s Regulation Z, but also by OCC 

regulations and the Board’s Regulation 

Z (for creditors overseen by the OCC 

and the Board, respectively). See 12 CFR 

parts 34 and 164 (OCC regulations) and 

part 226 (the Board’s Regulation Z); see 

also § 1026.35(c)(7) and 78 FR 10368, 

10415 (Feb. 13, 2013). The Bureau’s, the 

OCC’s, and the Board’s versions of the 

January 2013 Final Rule and 

corresponding official interpretations 

are substantively identical. The FDIC, 

NCUA, and FHFA adopted the Bureau’s 

version of the regulations under the 

January 2013 Final Rule.3

The Dodd-Frank Act 4 was signed into 

law on July 21, 2010. Section 1471 of 

the Dodd-Frank Act’s Title XIV, Subtitle 

F (Appraisal Activities), added TILA 

section 129H, 15 U.S.C. 1639h, which 

establishes appraisal requirements that 

apply to ‘‘higher-risk mortgages.’’ 

Specifically, new TILA section 129H 

prohibits a creditor from extending 

credit in the form of a ‘‘higher-risk 

mortgage’’ loan to any consumer 

without first: 

• Obtaining a written appraisal 

performed by a certified or licensed 

appraiser who conducts an appraisal 

that includes a physical inspection of 

the interior of the property and is 

performed in compliance with the 

Uniform Standards of Professional 

Appraisal Practice (USPAP) and title XI 

of the Financial Institutions Reform, 

Recovery, and Enforcement Act of 1989 

(FIRREA), and the regulations 

prescribed thereunder. 

• Obtaining an additional appraisal 

from a different certified or licensed 

appraiser if the ‘‘higher-risk mortgage’’ 

finances the purchase or acquisition of 

a property from a seller at a higher price 

than the seller paid, within 180 days of 

the seller’s purchase or acquisition. The 

additional appraisal must include an 

analysis of the difference in sale prices, 

changes in market conditions, and any 

improvements made to the property 

between the date of the previous sale 

and the current sale. 

A creditor that extends a ‘‘higher-risk 

mortgage’’ must also: 

• Provide the applicant, at the time of 

the initial mortgage application, with a 

statement that any appraisal prepared 

for the mortgage is for the sole use of the 

creditor, and that the applicant may 

choose to have a separate appraisal 

conducted at the applicant’s expense. 

• Provide the applicant with one 

copy of each appraisal conducted in 

accordance with TILA section 129H 

without charge, at least three days prior 

to the transaction closing date. 

New TILA section 129H(f) defines a 

‘‘higher-risk mortgage’’ with reference to 

the annual percentage rate (APR) for the 

transaction. A ‘‘higher-risk mortgage’’ is 

a ‘‘residential mortgage loan’’ 5 secured 


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78522 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

‘‘residential mortgage loan’’). New TILA section 

103(cc)(5) defines the term ‘‘residential mortgage 

loan’’ as any consumer credit transaction that is 

secured by a mortgage, deed of trust, or other 

equivalent consensual security interest on a 

dwelling or on residential real property that 

includes a dwelling, other than a consumer credit 

transaction under an open-end credit plan. 15 

U.S.C. 1602(cc)(5). 

6 Information about these meetings is available at 

http://www.federalreserve.gov/newsevents/rrcommpublic/industry_meetings_20120210.pdf. 

7 Information about these meetings is available at 

http://www.federalreserve.gov/newsevents/rrcommpublic/industry-meetings-20131001.pdf. 

8As noted further below, TILA section 

129H(b)(4)(B) grants the Agencies the authority 

jointly to exempt, by rule, a class of loans from the 

requirements of TILA section 129H(a) or section 

129H(b) if the Agencies determine that the 

exemption is in the public interest and promotes 

the safety and soundness of creditors. 15 U.S.C. 

1639h(b)(4)(B). 

9Added to Regulation Z by the Board pursuant 

to the Home Ownership and Equity Protection Act 

of 1994 (HOEPA), the HPML rules address unfair 

or deceptive practices in connection with subprime 

mortgages. See 73 FR 44522, July 30, 2008; 12 CFR 

1026.35. 

10The existing HPML rules apply the 2.5 percent 

over APOR trigger for jumbo loans only with 

respect to a requirement to establish escrow 

accounts. See 12 CFR 1026.35(b)(3)(v). 

11 78 FR 6408 (Jan. 30, 2013). 

by a principal dwelling with an APR 

that exceeds the average prime offer rate 

(APOR) for a comparable transaction as 

of the date the interest rate is set— 

• By 1.5 or more percentage points, 

for a first lien residential mortgage loan 

with an original principal obligation 

amount that does not exceed the amount 

for ‘‘jumbo’’ loans (i.e., the maximum 

limitation on the original principal 

obligation of a mortgage in effect for a 

residence of the applicable size, as of 

the date of the interest rate set, pursuant 

to the sixth sentence of section 305(a)(2) 

of the Federal Home Loan Mortgage 

Corporation Act (12 U.S.C. 1454)); 

• By 2.5 or more percentage points, 

for a first lien residential mortgage 

‘‘jumbo’’ loan (i.e., having an original 

principal obligation amount that 

exceeds the amount for the maximum 

limitation on the original principal 

obligation of a mortgage in effect for a 

residence of the applicable size, as of 

the date of the interest rate set, pursuant 

to the sixth sentence of section 305(a)(2) 

of the Federal Home Loan Mortgage 

Corporation Act (12 U.S.C. 1454)); or 

• By 3.5 or more percentage points, 

for a subordinate lien residential 

mortgage loan. 

The definition of ‘‘higher-risk 

mortgage’’ expressly excludes ‘‘qualified 

mortgages,’’ as defined in TILA section 

129C, and ‘‘reverse mortgage loans that 

are qualified mortgages,’’ as defined in 

TILA section 129C. 15 U.S.C. 1639c. 

III. Summary of the Rulemaking 

Process 

The Agencies issued proposed 

regulations for public comment on 

August 15, 2012, that would have 

implemented the Dodd-Frank Act 

higher-risk mortgage appraisal 

provisions (2012 Proposed Rule). 77 FR 

54722 (Sept. 5, 2012). This rule was 

open for public comment for 60 days 

(until October 15, 2012). After 

consideration of public comments, the 

Agencies issued the January 2013 Final 

Rule on January 18, 2013. The Final 

Rule was published in the Federal 

Register on February 13, 2013, and is 

effective on January 18, 2014. See 78 FR 

10368 (Feb. 13, 2013). 

The preamble to the January 2013 

Final Rule stated that the Agencies 

would consider exemptions for three 

additional types of transactions that 

commenters requested the Agencies 

consider: (1) smaller dollar loans; (2) 

streamlined refinance loans; and (3) 

loans secured by ‘‘existing’’ (used) 

manufactured homes. On July 10, 2013, 

the Agencies issued proposed 

amendments to the January 2013 Final 

Rule the 2013 Supplemental Proposed 

Rule to exempt these transactions from 

the HPML appraisal requirements. (2013 

Supplemental Proposed Rule; 78 FR 

48548 (Aug. 8, 2013)). The 2013 

Supplemental Proposed Rule sought 

comment on whether any of these 

exemptions should be conditioned on 

the creditor meeting an alternative 

standard to estimate the value of the 

property securing the transaction and 

providing that information to the 

consumer. Comment also was sought on 

the appropriate scope of, and possible 

conditions on, the exemption in the 

January 2013 Final Rule for loans 

secured by new manufactured homes. 

The 2013 Supplemental Proposed Rule 

was open for public comment for 60 

days (until Sept. 9, 2013). 

To inform the Agencies in drafting the 

January 2013 Final Rule as well as the 

2012 Proposed Rule, the Agencies 

conducted a series of public outreach 

meetings in January and February of 

2012.6 Agency staff conducted 

additional public outreach in the first 

half of 2013 to inform the Agencies in 

drafting the 2013 Supplemental 

Proposed Rule. In addition to reviewing 

public comments on the 2013 

Supplemental Proposed Rule, Agency 

staff conducted limited public outreach 

in September and October to inform the 

Agencies in drafting this final rule.7

A. January 2013 Final Rule 

1. Loans Covered 

To implement the statutory definition 

of ‘‘higher-risk mortgage,’’ the January 

2013 Final Rule used the term ‘‘higherpriced mortgage loan’’ or HPML, a term 

already in use under the Bureau’s 

Regulation Z with a meaning 

substantially similar to the meaning of 

‘‘higher-risk mortgage’’ in the DoddFrank Act. In response to commenters, 

the Agencies used the term HPML to 

refer generally to the loans that could be 

subject to the January 2013 Final Rule 

because they are closed-end credit and 

meet the statutory rate triggers, but the 

Agencies separately exempted several 

types of HPML transactions from the 

rule.8 The term ‘‘higher-risk mortgage’’ 

generally encompasses a closed-end 

consumer credit transaction secured by 

a principal dwelling with an APR 

exceeding certain statutory thresholds. 

These rate thresholds are substantially 

similar to rate triggers that have been in 

use under Regulation Z for HPMLs.9

Specifically, consistent with TILA 

section 129H, a loan is an HPML under 

the January 2013 Final Rule if the APR 

exceeds the APOR by 1.5 percentage 

points for first lien conventional or 

conforming loans, 2.5 percentage points 

for first lien jumbo loans, and 3.5 

percentage points for subordinate lien 

loans.10

Consistent with TILA, the January 

2013 Final Rule included an exemption 

for ‘‘qualified mortgages,’’ as defined in 

§ 1026.43(e) of the Bureau’s final rule 

implementing the Dodd-Frank Act’s 

ability-to-repay requirements in TILA 

section 129C (2013 ATR Final Rule).11

15 U.S.C. 1639c. For revisions to this 

exemption, see § 1026.35(c)(2)(i) and 

accompanying section-by-section 

analysis below. 

In addition, the January 2013 Final 

Rule excludes from its coverage the 

following classes of loans: 

(1) transactions secured by a new 

manufactured home; 

(2) transactions secured by a mobile 

home, boat, or trailer; 

(3) transactions to finance the initial 

construction of a dwelling; 

(4) loans with maturities of 12 months 

or less, if the purpose of the loan is a 

‘‘bridge’’ loan connected with the 

acquisition of a dwelling intended to 

become the consumer’s principal 

dwelling; and 

(5) reverse mortgage loans. 

2. Requirements That Apply to All 

Appraisals Performed for Non-Exempt 

HPMLs 

Consistent with TILA, the January 

2013 Final Rule allows a creditor to 

originate an HPML that is not exempt 

from the January 2013 Final Rule only 

if the following conditions are met: 


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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78523 

• The creditor obtains a written 

appraisal; 

• The appraisal is performed by a 

certified or licensed appraiser; and 

• The appraiser conducts a physical 

visit of the interior of the property. 

Also consistent with TILA, the 

following requirements also apply with 

respect to HPMLs subject to the January 

2013 Final Rule: 

• At application, the consumer must 

be provided with a statement regarding 

the purpose of the appraisal, that the 

creditor will provide the applicant a 

copy of any written appraisal, and that 

the applicant may choose to have a 

separate appraisal conducted for the 

applicant’s own use at his or her own 

expense; and 

• The consumer must be provided 

with a free copy of any written 

appraisals obtained for the transaction 

at least three business days before 

consummation. 

3. Requirement To Obtain an Additional 

Appraisal in Certain HPML 

Transactions 

In addition, the January 2013 Final 

Rule implements the Act’s requirement 

that the creditor of a ‘‘higher-risk 

mortgage’’ obtain an additional written 

appraisal, at no cost to the borrower, 

when the loan will finance the purchase 

of the consumer’s principal dwelling 

and there has been an increase in the 

purchase price from a prior acquisition 

that took place within 180 days of the 

current purchase. TILA section 

129H(b)(2)(A), 15 U.S.C. 1639h(b)(2)(A). 

In the January 2013 Final Rule, using 

their exemption authority, the Agencies 

set thresholds for the increase that will 

trigger an additional appraisal. An 

additional appraisal will be required for 

an HPML (that is not otherwise exempt) 

if either: 

• The seller is reselling the property 

within 90 days of acquiring it and the 

resale price exceeds the seller’s 

acquisition price by more than 10 

percent; or 

• The seller is reselling the property 

within 91 to 180 days of acquiring it and 

the resale price exceeds the seller’s 

acquisition price by more than 20 

percent. 

The additional written appraisal, from 

a different licensed or certified 

appraiser, generally must include the 

following information: an analysis of the 

difference in sale prices (i.e., the sale 

price paid by the seller and the 

acquisition price of the property as set 

forth in the consumer’s purchase 

agreement), changes in market 

conditions, and any improvements 

made to the property between the date 

of the previous sale and the current sale. 

Finally, in the January 2013 Final 

Rule the Agencies expressed their 

intention to publish a supplemental 

proposal to request comment on 

possible exemptions for streamlined 

refinance programs and smaller dollar 

loans, as well as loans secured by 

certain other property types, such as 

existing manufactured homes. See 78 FR 

10368, 10370 (Feb. 13, 2013). 

Accordingly, the Agencies published 

the 2013 Supplemental Proposed Rule. 

B. 2013 Supplemental Proposed Rule 

Based on comments received on the 

2012 Proposed Rule and additional 

research and outreach, the Agencies 

believed that several additional 

exemptions from the new appraisal 

rules might be appropriate. Specifically, 

in the 2013 Supplemental Proposed 

Rule, the Agencies proposed 

exemptions for transactions secured by 

an existing manufactured home and not 

land, certain types of refinancings, and 

transactions of $25,000 or less (indexed 

for inflation). The Agencies solicited 

comment on these proposed 

exemptions, as well as on the scope and 

possible conditions on the exemption in 

the January 2013 Final Rule for loans 

secured by a new manufactured home 

(with or without land). In addition, the 

Agencies proposed a different definition 

of ‘‘business day’’ than the definition 

used in the Final Rule, as well as a few 

non-substantive technical corrections. 

1. Proposed Exemption for Transactions 

Secured Solely by an Existing 

Manufactured Home and Not Land 

The Agencies proposed to exempt 

transactions secured solely by an 

existing (used) manufactured home and 

not land from the HPML appraisal 

requirements. The Agencies sought 

comment on whether an alternative 

valuation type should be required. 

The Agencies proposed to retain 

coverage of loans secured by existing 

manufactured homes and land. The 

Agencies also proposed to retain the 

exemption for transactions secured by 

new manufactured homes, but sought 

further comment on the scope of this 

exemption and whether certain 

conditions on the exemption might be 

appropriate. 

2. Proposed Exemption for Certain 

Refinancings 

In addition, the Agencies proposed to 

exempt from the HPML appraisal rules 

certain types of refinancings with 

characteristics common to refinance 

programs that offer ‘‘streamlined’’ 

refinances. Specifically, the Agencies 

proposed to exempt an extension of 

credit that is a refinancing where the 

owner or guarantor of the refinance loan 

is the current owner or guarantor of the 

existing obligation. The periodic 

payments under the refinance loan 

could not have resulted in negative 

amortization, covered only interest on 

the loan, or resulted in a balloon 

payment. Further, the proceeds from the 

refinance loan could have been used 

only to pay off the outstanding principal 

balance on the existing obligation and to 

pay closing or settlement charges. 

3. Proposed Exemption for Extensions of 

Credit of $25,000 or Less 

Finally, the Agencies proposed an 

exemption from the HPML appraisal 

rules for extensions of credit of $25,000 

or less, indexed every year for inflation. 

4. Effective Date 

The Agencies’ Proposal 

The Agencies intended that 

exemptions adopted as a result of the 

2013 Supplemental Proposed Rule 

would be effective on January 18, 2014, 

the same date on which the January 

2013 Final Rule will become effective. 

The Agencies requested comment on a 

number of conditions that might be 

appropriate to require creditors to meet 

to qualify for the proposed exemptions. 

The Agencies stated that, if the Agencies 

adopted any conditions on an 

exemption, the Agencies would 

consider establishing a later effective 

date for those conditions to allow 

creditors sufficient time to adjust their 

compliance systems, if necessary. The 

Agencies requested comment on the 

need for a later effective date for any 

condition on a proposed exemption. 

Public Comments 

Most public commenters did not 

directly address whether the 

implementation date for any conditions 

on proposed exemptions should be 

extended beyond January 18, 2014. Four 

State credit union trade associations, a 

national credit union trade association, 

two State banking trade associations, a 

small mortgage lender, and a 

community banking trade association 

supported delaying the implementation 

date for all of the HPML appraisal 

requirements. Two credit union trade 

associations recommended that, if 

conditions were placed on exemptions 

in the final rule, the Agencies should 

delay the implementation date to allow 

creditors sufficient time to adjust their 

systems to comply with the conditions. 

One commenter stated that the 

uncertainty regarding potential 

amendments to the January 2013 Final 

Rule made it difficult to prepare for 

compliance by the January 18, 2014 

implementation date. Some commenters 


tkelley on DSK3SPTVN1PROD with RULES2
78524 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

12 Designated Transfer Date, 75 FR 57252 (Sept. 

20, 2010). 13Sections 1400(c) and 1471 of the Dodd-Frank 

Act, in title XIV. 14Section 1400(c) of the Dodd-Frank Act, in title 

XIV. 

stated that the difficulty of complying 

with the rules by January 2014 was 

compounded by the multiple mortgage 

rules recently issued by the Bureau that 

are also due to become effective in 

January 2014, and one pointed out 

further that several of these rules were 

amended after being finalized in January 

2013. The small mortgage lender noted 

that creating and implementing 

compliance programs is resource 

intensive, and that it is more difficult 

for small businesses to implement such 

programs than for large lenders. These 

commenters suggested that the Agencies 

delay the implementation date by 

varying amounts of time, from six to 18 

months. 

As discussed in the section-by-section 

analysis of § 1026.35(c)(2)(ii), several 

commenters focused on the 

implementation date of HPML appraisal 

rules for loans secured by manufactured 

homes. Manufactured housing industry 

commenters—two lenders and a State 

trade association—believed that the 

Agencies should delay issuing final 

rules on valuations for covered 

manufactured home loans until further 

study on manufactured housing 

valuations. The manufactured housing 

lenders noted that requiring appraisals 

in manufactured housing lending would 

be a significant change for the 

manufactured housing industry, 

requiring time to negotiate contracts 

with appraisal management companies 

and to develop new disclosures that 

contain the appraised value, among 

other changes. The State manufactured 

housing industry trade association 

commenter recommended that the 

Agencies issue a more concrete proposal 

regarding manufactured housing 

valuations and that the effective date be 

at least two years after the publication 

of final rules. 

As also discussed further in the 

section-by-section analysis of 

§ 1026.35(c)(2)(ii), a national association 

of owners of manufactured homes, a 

consumer advocate group, two 

affordable housing organizations and a 

policy and research organization 

believed that appraisal rules applicable 

to transactions secured by manufactured 

homes (both new and existing) and land 

should be effective ‘‘quickly’’ to 

facilitate the development of 

appropriate appraisal methods for these 

transactions by increasing the demand 

for appraisals. They suggested that rules 

eliminating any exemptions in the 

January 2013 Final Rule (i.e., the 

exemptions for loans secured by new 

manufactured homes, with or without 

land) should go into effect six months 

after the general effective date of 

January 2014, if possible, and in any 

event no later than January 2016. These 

commenters also recommended that 

loans secured solely by a manufactured 

home and not land be subject to a 

temporary exemption until no later than 

January 2016. In the intervening time, 

the commenters suggested that the 

Agencies convene a working group of 

stakeholders to develop standards for 

appraising manufactured homes. 

Final Rule 

The Agencies are adopting an 

effective date of January 18, 2014 for 

most provisions of this supplemental 

final rule, to correspond with the 

effective date of January 18, 2014 for the 

January 2013 Final Rule, which is 

prescribed by statute. Specifically, the 

Dodd-Frank Act requires that 

regulations required under Title XIV of 

the Dodd-Frank Act, which include the 

HPML appraisal provisions, ‘‘be 

prescribed in final form before the end 

of the 18-month period beginning on the 

designated transfer date,’’ which was 

July 21, 2011.12 Accordingly, the 

Agencies issued the January 2013 Final 

Rule within 18 months of the designated 

transfer date, on January 18, 2013.13 The 

Dodd-Frank Act also requires that 

regulations required under Title XIV 

‘‘take effect not later than 12 months 

after the date of issuance of the 

regulations in final form.’’ 14 Twelve 

months after the date of issuance of the 

HPML appraisal rules is January 18, 

2014. Thus, the January 2013 Final 

Rule, as amended by this supplemental 

final rule, must go into effect on January 

18, 2014, and will apply to applications 

received by the creditor on or after that 

date. 

The Agencies have authority to 

exempt certain classes of loans from the 

HPML appraisal rules if the exemption 

is determined to be ‘‘in the public 

interest’’ and to ‘‘promote[] the safety 

and soundness of creditors.’’ TILA 

section 129H(b)(4)(B); 15 U.S.C. 

1639h(b)(4)(B). As discussed further in 

the section-by-section analysis of 

§ 1026.35(c)(2)(ii), the Agencies believe 

that a temporary exemption of 18 

months for transactions secured by a 

manufactured home meets these two 

exemption criteria. The temporary 

exemptions for loans secured by a 

manufactured home will go into effect 

on January 18, 2014, the effective date 

of the 2013 January Final Rule. 

Modified exemptions for certain types 

of manufactured home transactions will 

be effective on July 18, 2015, and 

applicable to applications received by 

the creditor on or after that date. 

IV. Legal Authority 

TILA section 129H(b)(4)(A), added by 

the Dodd-Frank Act, authorizes the 

Agencies jointly to prescribe regulations 

implementing section 129H. 15 U.S.C. 

1639h(b)(4)(A). In addition, TILA 

section 129H(b)(4)(B) grants the 

Agencies the authority jointly to 

exempt, by rule, a class of loans from 

the requirements of TILA section 

129H(a) or section 129H(b) if the 

Agencies determine that the exemption 

is in the public interest and promotes 

the safety and soundness of creditors. 15 

U.S.C. 1639h(b)(4)(B). 

V. Section-by-Section Analysis 

For ease of reference, unless 

otherwise noted, the SUPPLEMENTARY

INFORMATION refers to the section 

numbers that will be published in the 

Bureau’s Regulation Z at 12 CFR 

1026.35(c). As explained in the January 

2013 Final Rule, separate versions of the 

regulations and accompanying 

commentary were issued as part of the 

January 2013 Final Rule by the OCC, the 

Board, and the Bureau, respectively. 78 

FR 10367, 10415 (Feb. 13, 2013). No 

substantive difference among the three 

sets of rules was intended. The NCUA 

and FHFA adopted the rules as 

published in the Bureau’s Regulation Z 

at 12 CFR 1026.35(a) and (c), by crossreferencing these rules in 12 CFR 722.3 

and 12 CFR part 1222, respectively. The 

FDIC adopted the rules as published in 

the Bureau’s Regulation Z at 12 CFR 

1026.35(a) and (c), but did not crossreference the Bureau’s Regulation Z. 

Accordingly, in this Federal Register 

notice, the revisions to the January 2013 

Final Rule adopted by the Agencies in 

this supplemental final rule are 

separately published in the HPML 

appraisal regulations of the OCC, the 

Board, and the Bureau. No substantive 

difference among the three sets of 

revised rules is intended. 

Section 1026.2 Definitions and Rules 

of Construction 

2(a) Definitions 

2(a)(6) Business Day 

The Agencies’ Proposal 

The term ‘‘business day’’ is used with 

respect to two requirements in the 

January 2013 Final Rule. First, the 

January 2013 Final Rule requires the 

creditor to provide the consumer with a 

disclosure that ‘‘shall be delivered or 

placed in the mail not later than the 

third business day after the creditor 

receives the consumer’s application for 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78525 

a higher-priced mortgage loan’’ subject 

to § 1026.35(c). § 1026.35(c)(5)(i) and 

(ii). Second, the January 2013 Final Rule 

requires the creditor to provide to the 

consumer a copy of each written 

appraisal obtained under the January 

2013 Final Rule ‘‘[n]o later than three 

business days prior to consummation of 

the loan.’’ § 1026.35(6)(i) and (ii). 

The Agencies proposed to define 

‘‘business day’’ for these requirements 

to mean ‘‘all calendar days except 

Sundays and the legal public holidays 

specified in 5 U.S.C. 6103(a), such as 

New Year’s Day, the Birthday of Martin 

Luther King, Jr., Washington’s Birthday, 

Memorial Day, Independence Day, 

Labor Day, Columbus Day, Veterans 

Day, Thanksgiving Day, and Christmas 

Day.’’ § 1026.2(a)(6). The Agencies 

proposed this definition for consistency 

with disclosure timing requirements 

under both the existing Regulation Z 

mortgage disclosure timing 

requirements and the Bureau’s proposed 

rules for combined mortgage disclosures 

under TILA and the Real Estate 

Settlement Procedures Act (RESPA), 12 

U.S.C. 2601 et seq. (2012 TILA–RESPA 

Proposed Rule). See § 1026.19(a)(1)(ii) 

and (a)(2); see also 77 FR 51116 (Aug. 

23, 2012) (e.g., proposed 

§ 1026.19(e)(1)(iii) (early mortgage 

disclosures) and (f)(1)(ii) (final mortgage 

disclosures). 

Under existing Regulation Z, early 

disclosures must be delivered or placed 

in the mail not later than the seventh 

business day before consummation of 

the transaction; if the disclosures need 

to be corrected, the consumer must 

receive corrected disclosures no later 

than three business days before 

consummation (the consumer is deemed 

to have received the corrected 

disclosures three business days after 

they are mailed or delivered). See 

§ 1026.19(a)(2)(i)–(ii). For these 

purposes, ‘‘business day’’ is defined as 

quoted previously. One reason that the 

Agencies proposed to align the 

definition of ‘‘business day’’ under the 

January 2013 Final Rule with the 

definition of ‘‘business day’’ for these 

disclosures was to avoid the creditor 

having to provide the copy of the 

appraisal under the HPML rules and 

corrected Regulation Z disclosures at 

different times (because different 

definitions of ‘‘business day’’ would 

apply). 

The proposed definition of ‘‘business 

day’’ also was intended to align with the 

definition of ‘‘business day’’ for the 

timing requirements of mortgage 

disclosures under the 2012 TILA– 

RESPA Proposal. See proposed 

§ 1026.2(a)(6). The 2012 TILA–RESPA 

Proposal would have required the 

creditor to deliver the early mortgage 

disclosures ‘‘not later than the third 

business day after the creditor receives 

the consumer’s application.’’ Proposed 

§ 1026.19(e)(1)(iii). The 2012 TILA– 

RESPA Proposal would have required 

the final mortgage disclosures to have 

been provided ‘‘not later than three 

business days before consummation.’’ 

Proposed § 1026.19(f)(1)(ii). For these 

purposes, ‘‘business day’’ would have 

been defined as the Agencies proposed 

to define ‘‘business day’’ in the 2013 

Supplemental Proposed Rule. 

The Agencies stated in the 2013 

Supplemental Proposed Rule that, if the 

Bureau adopted this aspect of the 2012 

TILA–RESPA Proposal, then adopting 

the proposed definition of ‘‘business 

day’’ for the final HPML appraisals rule 

would ensure that the HPML appraisal 

notice and the early mortgage 

disclosures have to be provided at the 

same time (no later than three ‘‘business 

days’’ after the creditor receives the 

consumer’s application). The Agencies 

further stated that this would also 

ensure that the copy of the HPML 

appraisal and the final mortgage 

disclosures would have to be provided 

at the same time (no later than three 

‘‘business days’’ before consummation). 

The proposal to align these timing 

requirements was intended to facilitate 

compliance and reduce consumer 

confusion by reducing the number of 

disclosures that consumers might 

receive at different times. 

Public Comments 

The Agencies received fourteen 

comments on the proposed revision to 

the definition of ‘‘business day,’’ with 

most commenters supporting the 

revised definition. A community 

banking trade association, an 

individual, two State banking trade 

associations, a mortgage banking trade 

association, four State credit union trade 

associations, one national credit union 

trade association, and a financial 

holding company believed that revising 

the definition for consistency with other 

disclosure timing requirements— 

particularly those of the combined 

mortgage disclosures under the 2012 

TILA–RESPA Proposed Rule—would 

reduce regulatory burden and facilitate 

compliance. The State banking trade 

associations and the financial holding 

company believed that making these 

disclosure requirements consistent with 

the timing for other mortgage 

disclosures could also result in better 

awareness and understanding of 

disclosures by consumers and reduce 

consumer confusion. One of the State 

banking trade associations also believed 

that the proposed definition provided 

more certainty for creditors than the 

definition of business day in the January 

2013 Final Rule, which refers to days on 

which a creditor’s offices are open to the 

public for carrying on substantially all 

of its business functions. See 

§ 1026.2(a)(6). 

A State credit union trade association, 

a national credit union trade 

association, and a community bank 

commenter, however, opposed the 

proposed revised definition of business 

day, instead favoring the definition in 

the January 2013 Final Rule. The 

national credit union trade association 

and community bank commenter stated 

that many credit unions and community 

banks are not open for most or any of 

their business functions on Saturdays. 

They argued that including Saturday as 

a business day would increase their 

regulatory burden. 

Final Rule 

As noted, the term ‘‘business day’’ is 

used with respect to two requirements 

in the January 2013 Final Rule. See 

§§ 1026.35(c)(5)(ii) and (c)(6)(ii). The 

amendments to the January 2013 Final 

Rule adopted in this rule add a third use 

of the term ‘‘business day.’’ As 

discussed more fully in the section-bysection analysis of § 1026.35(c)(2)(ii)(C), 

transactions secured solely by a 

manufactured home and not land that 

are consummated on or after July 18, 

2015, will be exempt from the HPML 

appraisal rules if the creditor obtains 

and gives to the consumer a copy of one 

of three types of valuation information 

‘‘no later than three business days prior 

to consummation of the transaction.’’ 

§ 1026.35(c)(2)(ii)(C). 

For two reasons, the Agencies are not 

adopting the proposed definition of 

‘‘business day’’ and instead are retaining 

the definition of ‘‘business day’’ 

adopted in the January 2013 Final Rule: 

‘‘a day on which the creditor’s offices 

are open to the public for carrying on 

substantially all of its business 

functions.’’ § 1026.2(a)(6). First, the 

Agencies’ goal is to provide consistency 

with the timing requirements of other 

mortgage disclosures. Most public 

commenters who supported the 

Agencies’ proposed amendment to the 

definition of ‘‘business day’’ used in the 

January 2013 Final Rule did so on the 

basis of favoring consistency with the 

timing requirements of other mortgage 

disclosures, particularly the combined 

TILA–RESPA early and final mortgage 

disclosures. 

The proposed definition, however, 

would result in inconsistency because 

the Bureau did not adopt the definition 

of ‘‘business day’’ that includes 

Saturdays and excludes enumerated 


tkelley on DSK3SPTVN1PROD with RULES2
78526 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

15See Bureau’s 2013 TILA–RESPA Final Rule 

(issued Nov. 20, 2013) at p. 147 et seq., available 

at http://files.consumerfinance.gov/f/ 

201311_cfpb_final-rule-preamble_integratedmortgage-disclosures.pdf. 

16At least one commenter requested that the 

Agencies clarify that FIRREA requirements would 

not apply to loans exempt from the HPML appraisal 

rules. The opposite is true. 

17See OCC: 12 CFR parts 34, Subpart C, and 164; 

Board: 12 CFR part 208, subpart E, and part 225, 

subpart G; FDIC: 12 CFR part 323; NCUA: 12 CFR 

part 722. See also 75 FR 77450 (Dec. 10, 2010). 

Federal holidays for the early mortgage 

disclosures and final mortgage 

disclosures proposed in the 2012 TILA– 

RESPA Proposed Rule. Instead, the 

definition of ‘‘business day’’ referring to 

days on which the creditor’s offices are 

open to the public will be used for the 

timing requirement for those 

disclosures.15 For the reasons discussed 

in the 2013 Supplemental Proposed 

Rule, the Agencies believe that the 

timing requirement for creditors to give 

consumers the disclosure required after 

application should be aligned with the 

TILA–RESPA early disclosures and that 

the timing requirement for creditors to 

give consumers copies of appraisals and 

other valuation information should 

generally be aligned with the timing 

requirement for the TILA–RESPA 

mortgage disclosures. 

Second, the Agencies heard from 

commenters that many credit unions 

and community banks are not open for 

most or any of their business functions 

on Saturdays. As adopted, the final rule 

will address these concerns. 

Section 1026.35 Requirements for 

Higher-Priced Mortgage Loans 

35(c) Appraisals for Higher-Priced 

Mortgage Loans 

35(c)(1) Definitions 

The Agencies are adopting three new 

definitions for purposes of the HPML 

appraisal rules in § 1026.35(c)—‘‘credit 

risk,’’ ‘‘manufacturer’s invoice,’’ and 

‘‘new manufactured home’’—and renumbering definitions adopted in the 

January 2013 Final Rule accordingly. 

35(c)(1)(ii) 

Section 1026.35(c)(1)(ii) defines 

‘‘credit risk’’ for purposes of 

§ 1026.35(c) to mean the financial risk 

that a loan will default. The Agencies 

are adopting a definition of ‘‘credit risk’’ 

to provide greater clarity regarding 

certain aspects of the exemption for 

certain refinance transactions, discussed 

in more detail in the section-by-section 

analysis of § 1026.35(c)(2)(vii). Under 

§ 1026.35(c)(2)(vii), a covered HPML 

refinance is eligible for an exemption if 

one of several criteria are met, including 

that either (1) the credit risk of the 

refinance loan is retained by the person 

that held the credit risk on the existing 

obligation or (2) the refinance loan is 

owned, insured or guaranteed by the 

same Federal government agency that 

owned, insured or guaranteed the 

existing obligation. See 

§ 1026.35(c)(2)(vii)(A) and comment 

35(c)(2)(vii)(A)–1. 

35(c)(1)(iv) 

Section 1026.35(c)(1)(iv) defines 

‘‘manufacturer’s invoice’’ to mean a 

document issued by a manufacturer and 

provided with a manufactured home to 

a retail dealer that separately details the 

wholesale (base) prices at the factory for 

specific models or series of 

manufactured homes and itemized 

options (large appliances, built-in items 

and equipment), plus actual itemized 

charges for freight from the factory to 

the dealer’s lot or the home site 

(including any rental of wheels and 

axles) and for any sales taxes to be paid 

by the dealer. The invoice may recite 

such prices and charges on an itemized 

basis or by stating an aggregate price or 

charge, as appropriate, for each 

category. 

This definition is adopted from the 

definition of ‘‘manufacturer’s invoice’’ 

in HUD regulations regarding Title I 

loans insured by the Federal Housing 

Administration (FHA) that are secured 

by a new manufactured home and not 

land, at 24 CFR 201.2. The Agencies 

believe that defining the term 

‘‘manufacturer’s invoice’’ to mirror the 

definition in HUD regulations is 

appropriate for consistency; the January 

2013 Final Rule defines the term 

‘‘manufactured home’’ by referencing 

HUD regulations. See 

§ 1026.35(c)(1)(iii). The only aspect of 

the HUD definition of ‘‘manufacturer’s 

invoice’’ not adopted in the final rule is 

a provision requiring manufacturer’s 

certification. The Agencies do not have 

data regarding how often manufacturer’s 

invoices outside of the Title I program 

include the manufacturer’s certification 

prescribed in HUD regulations at 24 

CFR 201.2 that apply to the Title I 

program. Thus, the Agencies are 

concerned that requiring this 

certification at this time might create 

unanticipated compliance challenges. 

The final rule defines ‘‘manufacturer’s 

invoice’’ to ensure that creditors 

understand § 1026.35(c)(2)(viii)(B)(1), 

which goes into effect on July 18, 2015. 

Under § 1026.35(c)(2)(viii)(B)(1), a 

covered HPML secured by a new 

manufactured home and not land is 

exempt from the HPML appraisal 

requirements of § 1026.35(c) if the 

creditor provides the consumer with a 

copy of a manufacturer’s invoice for the 

manufactured home securing the 

transaction. Further details regarding 

this provision and other valuationrelated documents that a creditor could 

give the consumer to qualify for the 

exemption are discussed in the 

corresponding section-by-section 

analysis. 

35(c)(1)(vi) 

Section 35(c)(1)(vi) defines ‘‘new 

manufactured home’’ to mean a 

manufactured home that has not been 

previously occupied. The Agencies 

believe that adopting a definition of 

‘‘new manufactured home’’ will help 

prevent confusion among creditors of 

manufactured home transactions. The 

final rule differentiates between loans 

secured by new and existing (used) 

manufactured homes in the application 

of certain requirements, so a clear 

definition is intended to facilitate 

compliance. See § 1026.35(c)(2)(viii). 

35(c)(2) Exemptions 

The Agencies are adopting new 

Official Staff Commentary to 

§ 1026.35(c)(2). Specifically, comment 

35(c)(2)-1 clarifies that § 1026.35(c)(2) 

provides exemptions solely from the 

HPML appraisal requirements in 

Regulation Z (§ 1026.35(c)(3) through 

(6)). The comment states that 

institutions subject to the requirements 

of title XI of FIRREA and its 

implementing regulations that make a 

loan qualifying for an exemption under 

section 1026.35(c)(2) must still comply 

with the appraisal and evaluation 

requirements under FIRREA and its 

implementing regulations. 

The Agencies are adopting this 

comment to ensure that creditors subject 

to FIRREA are aware that, for any HPML 

they originate that qualifies for an 

exemption from the HPML appraisal 

requirements in § 1026.35(c), they 

would still be required to obtain an 

appraisal or evaluation in conformity 

with FIRREA title XI requirements.16

These requirements are implemented in 

Federal banking agency regulations and 

further explained in the Interagency 

Appraisal and Evaluation Guidance.17

Comment 35(c)(2)–1 also underscores 

that the HPML appraisal requirements 

were not intended to override existing 

Federal appraisal rules applicable to 

institutions regulated by Federal 

financial institutions regulatory 

agencies. 

35(c)(2)(i) 

The Agencies’ Proposal 

Qualified mortgages ‘‘as defined in 

[TILA] section 129C’’ are exempt from 


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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78527 

18These include loans that are eligible, based 

solely on criteria related to the consumer’s ability 

to pay, to be purchased or guaranteed by Fannie 

Mae or Freddie Mac and loans eligible to be insured 

or guaranteed by HUD, VA, USDA, or RHS. To be 

qualified mortgages, these loans also must meet the 

following general criteria for a qualified mortgage: 

(1) provide for regular periodic payments 

(§ 1026.43(e)(2)(i)); (2) have a term of no more than 

30 years (§ 1026.43(e)(2)(ii)); and (3) not exceed 

thresholds for total points and fees set out in 

§ 1026.43(e)(3) (§ 1026.43(e)(2)(iii)). See 

§ 1026.43(e)(4)(i)(A). The qualified mortgage status 

of loans eligible for purchase by Fannie Mae or 

Freddie Mac expires starting on January 11, 2021. 

The qualified mortgage status of loans eligible to be 

insured or guaranteed by HUD, VA, USDA, or RHS 

expires on the effective date of a rule issued by each 

of these respective agencies defining ‘‘qualified 

mortgage’’ for their own programs. On Sept. 30, 

2013, HUD published proposed rules defining 

‘‘qualified mortgage’’ based on its authority under 

TILA section 129C(b)(3)(B)(ii)(I). 15 U.S.C. 

1639c(b)(3)(B)(ii)(I); 78 FR 59890 (Sept. 30, 2013). 

19 In the 2013 ATR Final Rule, ‘‘covered 

transaction’’ is defined 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)]’’ 

(emphasis added). ‘‘Qualified mortgage’’ is defined 

Continued 

the special appraisal rules for ‘‘higherrisk mortgages.’’ 15 U.S.C. 1639c; TILA 

section 129H(f)(1), 15 U.S.C. 1639h(f)(1). 

The Agencies implemented this 

exemption in the January 2013 Final 

Rule by cross-referencing § 1026.43(e), 

the definition of ‘‘qualified mortgage’’ 

issued by the Bureau in its 2013 ATR 

Final Rule. See § 1026.35(c)(2)(i). The 

Bureau’s rules define ‘‘qualified 

mortgage’’ pursuant to the authority 

granted to the Bureau to implement the 

Dodd-Frank Act ability-to-repay 

requirements. See, e.g., TILA section 

129C(a)(1), (b)(3)(A), and (b)(3)(B)(i), 15 

U.S.C. 1639c(a)(1), (b)(3)(A), and 

(b)(3)(B)(i). 

To align the regulation with the 

statute, the Agencies proposed to revise 

the appraisal rules’ exemption for 

qualified mortgages to include all 

qualified mortgages ‘‘as defined 

pursuant to TILA section 129C.’’ 15 

U.S.C. 1639c. In addition to authority 

granted to the Bureau, TILA section 

129C grants authority to HUD, the U.S. 

Department of Veterans Affairs (VA), the 

U.S. Department of Agriculture (USDA), 

and the Rural Housing Service (RHS), 

which is a part of USDA, to define the 

types of loans ‘‘insure[d], guarantee[d], 

or administer[ed]’’ by those agencies, 

respectively, that are qualified 

mortgages. TILA section 

129H(b)(3)(B)(ii), 15 U.S.C. 

1639h(b)(3)(B)(ii). The Agencies 

recognized that HUD, VA, USDA, and 

RHS may issue rules defining qualified 

mortgages pursuant to their TILA 

section 129C authority. Therefore, the 

Agencies proposed to expand the 

definition of qualified mortgages that 

are exempt from the HPML appraisal 

rules to cover qualified mortgages as 

defined by HUD, VA, USDA, and RHS. 

15 U.S.C. 1639c. 

Public Comments 

Commenters on the revision to the 

qualified mortgage exemption were: a 

State credit union trade association, a 

national appraiser trade association, a 

State banking trade association, a 

mortgage banking trade association, a 

manufactured housing lender, a national 

association of owners of manufactured 

homes, a consumer advocate group, two 

affordable housing organizations, and a 

policy and research organization. All of 

these commenters supported the 

proposed revision. The State banking 

trade association and State credit union 

trade association emphasized that the 

definition of qualified mortgage in the 

final rule should include all types of 

qualified mortgages, including balloon 

payment qualified mortgages. The 

mortgage banking trade association 

favored expanding the definition of 

‘‘qualified mortgage’’ to include 

qualified mortgages as defined by HUD, 

VA, USDA, and RHS based on a belief 

that qualified mortgages as defined by 

these agencies will be subject to 

stringent product requirements and 

other consumer safeguards. The 

manufactured housing lender also 

favored such an expansion based on a 

belief that these agencies’ loan programs 

provide credit options for underserved 

consumers in lower income groups. 

The Final Rule 

In § 1026.35(c)(2)(i), the Agencies are 

adopting an exemption similar to the 

proposed exemption for qualified 

mortgages. In the final rule, the 

exemption for qualified mortgages 

applies to either: 

• A loan that is a ‘‘covered 

transaction’’ under the Bureau’s abilityto-repay rules—namely, a loan subject 

to the ability-to-repay rules of the 

Bureau in § 1026.43 (see § 1026.43(b)(1) 

(defining ‘‘covered transaction’’))—and 

that is also a qualified mortgage under 

the Bureau’s ability-to-repay 

requirements in § 1026.43 or, for loans 

insured, guaranteed, or administered 

under programs of HUD, VA, USDA, or 

RHS, a qualified mortgage under the 

applicable rules of those agencies (but 

only once such rules are in effect; 

otherwise, the Bureau’s definition of a 

qualified mortgage applies to those 

loans); or 

• A loan that is not a ‘‘covered 

transaction’’ under the Bureau’s abilityto-repay rules, but meets the qualified 

mortgage criteria established in the rules 

of the Bureau or, for loans insured, 

guaranteed, or administered under 

programs of HUD, VA, USDA, or RHS, 

meets the qualified mortgage criteria 

under the applicable rules of those 

agencies (but only once such rules are 

in effect; otherwise, the Bureau’s criteria 

for a qualified mortgage applies to those 

loans). 

The expanded exemption adopted by 

the Agencies includes qualified 

mortgages defined by the Bureau in any 

of its regulations, such as loans 

described in § 1026.43(e) as well as 

§ 1026.43(f). Thus, qualified mortgages 

exempt from the HPML appraisal rules 

include loans subject to the Bureau’s 

ability-to-repay rules that: 

• Meet the general criteria for a 

qualified mortgage under 

§ 1026.43(e)(2). 

• Meet the special criteria for a 

qualified mortgage under 

§ 1026.43(e)(4).18

• Meet the criteria for small creditor 

portfolio loans in § 1026.43(e)(5). 

• Meet the criteria for temporary 

balloon-payment qualified mortgages in 

§ 1026.43(e)(6). 

• Meet the criteria for balloonpayment qualified mortgages under 

§ 1026.43(f). 

The Agencies believe that the 

statutory provision exempting 

‘‘qualified mortgage[s], as defined in 

section 129C’’ evidences Congress’s 

intent to exempt all loans with the 

characteristics of a qualified mortgage 

from the HPML appraisal rules. TILA 

section 129H(f)(1); 15 U.S.C. 1639h(f)(1). 

As discussed above, TILA section 129C 

encompasses qualified mortgages 

defined by the Bureau pursuant to its 

authority to do so, as well as qualified 

mortgages defined by HUD, VA, USDA 

and RHS for loans in their respective 

programs. See TILA section 129C(a)(1), 

(b)(3)(A), and (b)(3)(B)(i), 15 U.S.C. 

1639c(a)(1), (b)(3)(A), and (b)(3)(B)(i) 

(authority of the Bureau) and TILA 

section 129C(b)(3)(B)(ii), 15 U.S.C. 

1639c(b)(3)(B)(ii) (authority of HUD, 

VA, USDA, and RHS). 

Additionally, the amended qualified 

mortgage exemption language is 

intended to ensure that loans that meet 

the qualified mortgage criteria of the 

Bureau, HUD, VA, USDA, or RHS, as 

applicable, but are exempt from the 

Bureau’s ability-to-repay rules in 

§ 1026.43, are afforded an exemption 

from the HPML appraisal rules as well. 

In the Bureau’s ability-to-repay rules, 

‘‘qualified mortgage’’ is a designation 

only for ‘‘covered transactions,’’ which 

are loans subject to the ability-to-repay 

requirements of TILA section 129C(a), 

implemented in § 1026.43(c).19 15 


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as ‘‘a covered transaction’’ that meets certain 

criteria. § 1026.43(e)(2). 

20See § 1026.43(a)(3)(iv). 

21See § 1026.43(a)(3)(v)(A)–(D). 

22See § 1026.43(a)(3)(vi). 

U.S.C. 1639c. The Bureau excluded 

certain transactions from the scope of 

the rules, including loans originated as 

part of certain programs, such as a 

program administered by a Housing 

Finance Agency, or loans originated by 

certain entities, such as a Community 

Development Financial Institution 

(CDFI). See § 1026.43(a)(3). Under the 

Bureau’s ability-to-repay rules, these 

loans are not considered to be ‘‘covered 

transactions’’ and are therefore not 

eligible to be qualified mortgages under 

the Bureau’s ability-to-repay rules. This 

is the case even if the loans meet the 

criteria for a qualified mortgage in the 

Bureau’s rules. 

Under the proposed exemption—for 

‘‘qualified mortgages as defined 

pursuant to 15 U.S.C. 1639c’’—loans 

exempted from the Bureau’s ability-torepay requirements would not be 

eligible for the qualified mortgage 

exemption from the HPML appraisal 

rules because, technically, they are not 

‘‘defined’’ as qualified mortgages under 

Bureau rules. Such excluded loans 

would include: 

• Loans made as part of a program 

administered by a State housing finance 

agency (HFA); 20

• Loans made by a creditor 

designated as a CDFI, a creditor 

designated as a Downpayment 

Assistance through Secondary 

Financing Provider, a creditor 

designated as a Community Housing 

Development Organization, and a 

creditor that is a 501(c)(3) organization 

and meets certain other criteria; 21 and 

• Loans made pursuant to a program 

authorized by sections 101 and 109 of 

the Emergency Economic Stabilization 

Act of 2008.22

As discussed above, the Agencies 

believe that, by exempting qualified 

mortgages in the statute, Congress 

intended to exempt from the 

requirements those loans that have the 

characteristics of a qualified mortgage. 

The Agencies believe that if the HPML 

appraisal rules exempted only 

‘‘qualified mortgages as defined 

pursuant to 15 U.S.C. 1639c,’’ the rules 

would apply to transactions that 

Congress did not intend to subject to the 

appraisal requirements. By contrast, the 

final rule, which exempts ‘‘a loan that 

satisfies the criteria of a qualified 

mortgage,’’ ensures that all transactions 

intended to be exempt from the HPML 

appraisal requirements are excluded 

from coverage. 

In addition, this exemption ensures 

that transactions with the terms and 

features of a qualified mortgage are not 

treated differently when made by or 

through programs of entities that fall 

outside the scope of the Bureau’s 

ability-to-repay rules in § 1026.43 than 

when made by other creditors. Thus, the 

final rule avoids the anomalous result 

that an HPML made through the 

program of an HFA, for example, would 

be subject to the HPML appraisal rules, 

whereas an HPML with the exact same 

terms and features made by a private 

creditor would not. 

Accordingly, comment 35(c)(2)(i)–1 

explains that, under § 1026.35(c)(2)(i), a 

loan is exempt from the appraisal 

requirements of § 1026.35(c) if either: 

• The loan is—(1) subject to the 

Bureau’s ability-to-repay requirements 

in § 1026.43 as a ‘‘covered transaction’’ 

(defined in § 1026.43(b)(1)) and (2) a 

qualified mortgage pursuant to the 

Bureau’s rules or, for loans insured, 

guaranteed, or administered by HUD, 

VA, USDA, or RHS, a qualified mortgage 

pursuant to the applicable rules 

prescribed by those agencies (but only 

once such rules are in effect; otherwise, 

the Bureau’s definition of a qualified 

mortgage applies to those loans); or 

• The loan is—(1) not subject to the 

Bureau’s ability-to-repay requirements 

in § 1026.43 as a ‘‘covered transaction,’’ 

but (2) meets the criteria for a qualified 

mortgage in the Bureau’s rules or, for 

loans insured, guaranteed, or 

administered by HUD, VA, USDA, or 

RHS, meets the criteria for a qualified 

mortgage in the applicable rules 

prescribed by those agencies (but only 

once such rules are in effect; otherwise, 

the Bureau’s criteria for a qualified 

mortgage applies to those loans). 

Comment 35(c)(2)(i)–1 further 

explains that loans enumerated in 

§ 1026.43(a) are not ‘‘covered 

transactions’’ under the Bureau’s abilityto-repay requirements in § 1026.43, and 

thus cannot be qualified mortgages 

(entitled to a rebuttable presumption or 

safe harbor of compliance with the 

ability-to-repay requirements of 

§ 1026.43, see, e.g., § 1026.43(e)(1)). 

These include an extension of credit 

made pursuant to a program 

administered by an HFA, as defined 

under 24 CFR 266.5, or pursuant to a 

program authorized by sections 101 and 

109 of the Emergency Economic 

Stabilization Act of 2008. See 

§ 1026.43(a)(3)(iv) and (vi). They also 

include extensions of credit made by a 

creditor identified in § 1026.43(a)(3)(v). 

The comment clarifies that, nonetheless, 

these loans are not subject to the 

appraisal requirements of § 1026.35(c) if 

they meet the Bureau’s qualified 

mortgage criteria in § 1026.43(e)(2), (4), 

(5), or (6) or § 1026.43(f) (including 

limits on when loans must be 

consummated) or, for loans that are 

insured, guaranteed, or administered by 

HUD, VA, USDA, or RHS, in applicable 

rules prescribed by those agencies (but 

only once such rules are in effect; 

otherwise, the Bureau’s criteria for a 

qualified mortgage apply to those loans). 

The comment includes the following 

example: Assume that HUD has 

prescribed rules to define loans insured 

under its programs that are qualified 

mortgages and those rules are in effect. 

Assume further that a creditor 

designated as a Community 

Development Financial Institution, as 

defined under 12 CFR 1805.104(h), 

originates a loan insured by the Federal 

Housing Administration, which is a part 

of HUD. The loan is not a ‘‘covered 

transaction’’ and thus is not a qualified 

mortgage. See § 1026.43(a)(3)(v)(A) and 

(b)(1). Nonetheless, the transaction is 

eligible for an exemption from the 

appraisal requirements of § 1026.35(c) if 

it meets the qualified mortgage criteria 

in HUD’s rules. 

Finally, the comment clarifies that 

nothing in § 1026.35(c)(2)(i) alters the 

definition of a qualified mortgage under 

regulations of the Bureau, HUD, VA, 

USDA, or RHS. 

35(c)(2)(ii) 

The Agencies’ Proposal 

In the 2013 Supplemental Proposed 

Rule, the Agencies proposed an 

exemption from the HPML appraisal 

rules for extensions of credit of $25,000 

or less. This threshold amount was 

based on the Agencies’ consideration of 

an appropriate threshold in light of 

comments to the 2012 Proposed Rule, as 

well as data reported under the Home 

Mortgage Disclosure Act (HMDA), 15 

U.S.C. 2801 et seq. The Agencies also 

proposed to adjust the threshold for 

inflation every year, based on the 

percentage increase of the Consumer 

Price Index for Urban Wage Earners and 

Clerical Workers (CPI–W). Proposed 

comments 35(c)(2)(ii)-1, -2, and -3 

provided additional guidance on the 

proposed exemption. 

The Agencies expressed the belief that 

the expense to the consumer of an 

appraisal with an interior inspection 

could be significant and unduly 

burdensome to consumers of HPMLs of 

$25,000 or less that are not qualified 

mortgages. Thus, an appraisal 

requirement could hamper consumers’ 

use of smaller home equity loans. The 

Agencies also stated their concern that 

a requirement for an appraisal with an 

interior inspection may pose a 


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burdensome cost for consumers who 

seek to purchase lower-dollar homes 

using HPMLs that are not qualified 

mortgages; these tend to be low- to 

moderate-income (LMI) consumers who 

are less able to afford extra costs than 

higher-income consumers. 

The Agencies stated the view that the 

exemption can facilitate creditors’ 

ability to meet consumers’ smaller 

dollar credit needs, and that this could 

in turn promote the soundness of an 

institution’s operations by supporting 

profitability and an institution’s ability 

to spread risk over a variety of products. 

The Agencies noted that public 

comments on the 2012 Proposed Rule 

suggested that the reduction in costs 

and burdens associated with this 

exemption might benefit smaller 

institutions in particular. 

To inform the proposal, the Agencies 

also relied on data on mortgage lending 

in 2009, 2010, and 2011 reported under 

HMDA. The Agencies noted that, for 

example, an appraisal including an 

interior inspection for a subordinate lien 

home improvement loan might be 

burdensome on a consumer, without 

sufficient offsetting consumer protection 

or safety and soundness benefits. 

Therefore, the Agencies examined the 

mean and median loan sizes for 

subordinate lien home improvement 

loans in 2009, 2010, and 2011. Based in 

part on this HMDA data, the Agencies 

believed $25,000 was an appropriate 

threshold. See 78 Fed. Reg. 48547, 

48564 (August 8, 2013). 

At the same time, in light of the views 

expressed by consumer advocates, the 

Bureau had concerns that, as a result of 

borrowing so-called ‘‘smaller’’ dollar 

home purchase or home equity loans, 

some consumers may be at risk of high 

loan-to-value (LTV) ratios, including 

LTVs that lead to going ‘‘underwater’’— 

owing more than their home is worth. 

The Bureau believed that receiving a 

written valuation might be helpful in 

informing a consumer’s decision about 

whether to obtain the loan by making 

the consumer better aware of how the 

value of the home compares to the 

amount that the consumer might 

borrow. As a result, the Agencies 

requested comment in the 2013 

Supplemental Proposed Rule regarding 

whether certain conditions should be 

placed on the proposed smaller dollar 

loan exemption. 

Public Comments 

Public Comments on the 2012 Proposed 

Rule 

In the 2012 Proposed Rule, the 

Agencies requested comment on 

exemptions from the final rule that 

would be appropriate. In response, 

several commenters recommended an 

exemption for smaller dollar loans. 

These commenters generally believed 

that appraisals with interior inspections 

for these loans would significantly raise 

total costs as a proportion of the loan 

and thus potentially be detrimental to 

consumers. The commenters were 

concerned that requiring an appraisal 

for smaller dollar HPMLs would result 

in excessive costs to consumers without 

sufficient offsetting benefits. Some 

asserted that applying the HPML 

appraisal rules to smaller dollar loans 

might disproportionately burden 

smaller institutions and potentially 

reduce access to credit for their 

consumers. 

Comments to the 2012 Proposed Rule 

varied widely regarding the appropriate 

threshold for a smaller dollar loan 

exemption. Suggested thresholds ranged 

from $10,000 or less up to $125,000 for 

certain transactions. The Agencies did 

not finalize a smaller dollar loan 

exemption in the January 2013 Final 

Rule, instead choosing to propose a 

smaller dollar loan exemption in the 

subsequent 2013 Supplemental 

Proposed Rule. 

The Agencies did not receive 

comments on the 2012 Proposed Rule 

from consumers or consumer advocates. 

However, in informal outreach 

conducted by the Agencies after the 

January 2013 Final Rule was issued, a 

consumer advocacy group expressed the 

view that LMI consumers obtaining or 

refinancing loans secured by lowervalue homes may have a particular need 

for the protections of the HPML 

appraisal rules. They also expressed the 

view that requiring quality appraisals 

for smaller dollar loans, and requiring 

that they be provided to the consumer, 

can help prevent the kinds of appraisal 

fraud that can lead to consumers 

borrowing more money than is 

supported by the equity in their home 

or taking out loans that are otherwise 

not appropriate for them. 

Public Comments on the 2013 

Supplemental Proposed Rule 

In the 2013 Supplemental Proposed 

Rule, the Agencies sought comment on 

a proposed exemption for loans of 

$25,000 or less, and whether a threshold 

higher or lower than $25,000 was 

appropriate. The Agencies encouraged 

commenters to include data to support 

their views. 

Twenty-nine commenters addressed 

the threshold for the smaller dollar loan 

exemption: nine State credit union trade 

associations, three credit unions, one 

national credit union trade association, 

two community banks, one community 

banking trade association, one financial 

holding company, two State banking 

trade associations, one mortgage 

banking trade association, one consumer 

advocate group, three affordable 

housing organizations, one policy and 

research organization, one national 

association of owners of manufactured 

homes, one State manufactured housing 

association, one small mortgage lender, 

and one individual. 

No commenters on this proposed 

exemption opposed including an 

exemption from the HPML appraisal 

requirements for smaller dollar loans. 

Eight commenters believed that the 

Agencies should either retain or reduce 

the $25,000 threshold. A national 

association of owners of manufactured 

homes, two affordable housing 

organizations, a consumer advocate 

group, and a policy and research 

organization generally recommended 

that, if the Agencies adopted the 

exemption, the exemption threshold 

should be no more than $25,000. They 

believed that a large percentage of the 

transactions affected were likely to be 

manufactured home transactions, 

although they urged the Agencies to 

apply the exemption equally to 

manufactured homes and site-built 

homes. A State banking trade 

association also supported an 

exemption for extensions of credit of 

$25,000 or less, citing increased costs 

and burdens associated with obtaining 

appraisals with interior inspections. An 

individual commenter urged the 

Agencies to reduce the threshold to 

$10,000, believing a $25,000 threshold 

could lead to significant monetary risk 

for consumers, particularly LMI 

consumers. 

All of the other commenters urged the 

Agencies to raise the threshold for the 

exemption. Eight State credit union 

trade associations, three credit unions, 

one national credit union trade 

association, one State manufactured 

housing association, and one small 

mortgage lender suggested that the 

threshold be raised to $50,000. 

Generally, these commenters supported 

the increase because they believed that 

the cost of an appraisal for transactions 

of lower amounts did not correspond to 

a meaningful benefit. They also 

supported regulatory relief to creditors. 

A credit union stated that a threshold 

under $50,000 may result in less 

lending to LMI consumers because 

lenders would not be willing to make 

the loans. A State credit union 

association stated that lenders may not 

make loans if the threshold is below 

$50,000 because the cost of originating 

and processing loans under that amount 

already exceeds origination fees, 


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78530 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

23Regulations applicable to national credit 

unions generally require a credit union to obtain an 

‘‘evaluation’’ rather than an appraisal for 

transactions with a value of $250,000 or less. See 

12 CFR 722.3(a)(1) and (d). 

24See § 1026.43(e)(3). 

25See § 1026.32(a)(1)(i)(B), effective January 10, 

2014. See also 78 FR 6856 (Jan. 31, 2013) (2013 

HOEPA Final Rule). 

26See § 1026.3(b) (exempting from Regulation Z 

loans over the applicable threshold dollar amount, 

adjusted annually); § 1026.32(a)(1)(ii) (setting the 

points and fees trigger for high-cost mortgages, 

adjusted annually). 

without a requirement for an appraisal 

with an interior inspection. Another 

credit union noted that it obtains 

evaluations, rather than appraisals, for 

transactions below $50,000.23

Several commenters suggested other 

thresholds. A State credit union trade 

association commenter suggested that 

the threshold should be raised to 

$100,000 or, at a minimum, to $75,000. 

The commenter stated that requiring 

costly appraisals on smaller dollar 

HPMLs disproportionately hurts LMI 

consumers and consumers in rural 

areas, where appraisals can be costly 

and the wait time for appraisals, 

according to a member survey, is 

generally one-and-a-half to three 

months, but can be up to six months. A 

community banking trade association 

believed that, for loans below $100,000, 

the cost of an appraisal is high relative 

to the cost of the loan, but the credit risk 

to the bank is low. One community bank 

suggested a threshold of $35,000, noting 

that the average size of loans secured by 

a manufactured home (and not land) 

that are made by the bank is under 

$35,000. Another community bank 

believed that $40,000 was an 

appropriate threshold and expressed 

concerns about the cost of appraisals, 

especially in rural areas. 

A few commenters suggested 

thresholds that are the same as those in 

other mortgage rules, asserting that this 

alignment would reduce regulatory 

burden. A mortgage banking trade 

association stated that the threshold 

should be $100,000 because the 

Bureau’s ability-to-repay rule permits 

creditors to apply higher points and fees 

for loans below $100,000.24 Two of the 

commenters suggesting a $50,000 

threshold asserted that doing so would 

make the exemption consistent with a 

threshold in the Bureau’s Regulation Z 

rules under the Home Ownership and 

Equity Protection Act of 1994 (HOEPA) 

for different interest rate triggers.25

The suggestions of some commenters 

focused on excluding subordinate lien 

transactions from the rule. A State credit 

union association believed $50,000 was 

an appropriate threshold because it 

would exclude from coverage of the 

HPML appraisal rules many subordinate 

lien transactions. This commenter 

believed that appraisals for subordinate 

lien loans taken concurrently with first 

lien loans were unnecessary because 

often an appraisal will have been 

performed for the first lien transaction. 

The commenter also believed that most 

home improvement loans are more than 

$25,000, so the proposed threshold 

could hinder the use of smaller home 

equity loans. The commenter asserted 

that the expense of the appraisal with an 

interior inspection could considerably 

raise the total costs of financing the 

home improvement loan. 

In addition, a State banking 

association and a financial holding 

company recommended exempting 

home equity loans from the rule. The 

financial holding company noted that, 

in the calculation to determine HPML 

status, the spread between APR and 

APOR is smaller for first lien loans than 

for subordinate lien loans (1.5 

percentage points above APOR and 3.5 

percentage points above APOR, 

respectively), and objected to an 

appraisal requirement for first lien home 

equity loans in particular. This 

commenter recommended that the 

Agencies raise the APR–APOR spread to 

3.5 percentage points for all home 

equity loans. The State banking 

association argued that first lien home 

equity loans present very little credit 

risk. 

The Agencies also sought comment on 

whether the threshold for the smaller 

dollar loan exemption should be 

adjusted periodically for inflation and 

whether the adjustments should be 

annually or some other period. A small 

mortgage lender and a State banking 

trade association expressed support for 

the annual adjustment. The small 

mortgage lender noted that this 

approach was consistent with other 

provisions in Regulation Z.26

Conditioning an exemption. In 

addition, the Agencies requested 

comment on whether conditions should 

be imposed on the smaller dollar loan 

exemption. The Agencies specifically 

asked whether the smaller dollar loan 

exemption should be conditioned on the 

creditor providing the consumer with an 

alternative estimate of the collateral 

value. A national association of owners 

of manufactured homes, two affordable 

housing associations, a consumer 

advocate group, and a policy and 

research organization believed that, if 

the Agencies adopted the exemption, 

consumers should be given at least the 

manufacturer’s invoice for new 

manufactured home transactions, even 

if they fall under the threshold. These 

commenters believed that providing the 

invoice would be low cost, and yet 

would provide an important check on 

overvaluation. Another affordable 

housing organization believed that 

creditors in manufactured home 

transactions of $25,000 or less should be 

required to obtain replacement cost 

estimates performed by a trained, 

independent appraiser from a 

nationally-published cost service. See 

also section-by-section analysis of 

§ 1026.35(c)(2)(viii). 

A community bank commenter 

asserted that consumers should receive 

a copy of the valuation used by the 

creditor as a condition to the exemption. 

A small mortgage lender suggested that 

a government-provided tax assessment 

would be an appropriate valuation to 

provide to consumers. This commenter 

argued that because municipalities 

already use tax assessments to 

determine property value for tax and 

insurance purposes, the assessments 

have been proven to be sufficiently 

reliable. The commenter contended that 

requiring more costly valuation methods 

as a condition of the exemption might 

prompt creditors to determine that the 

exemption is unduly burdensome and 

stop making these smaller dollar loans. 

An affordable housing organization 

suggested that, as a condition to the 

exemption (as well as other 

exemptions), creditors should be 

required to provide any valuation used 

to determine the security for the loan 

and suggested that creditors should be 

given flexibility to choose the 

appropriate valuation for the 

transaction. At the same time, the 

commenter recommended that a 

creditor should be required to obtain 

replacement cost estimates from a 

trained, independent appraiser and to 

provide these estimates to a consumer. 

The Agencies did not receive 

comments on a number of additional 

comment requests, including requests 

for information about the risks that 

smaller dollar loans could lead to high 

LTV loans; specific data on the costs 

and burdens associated with the 

exemption, especially for smaller 

institutions; and data on the extent to 

which creditors anticipate originating 

HPMLs of $25,000 or less that are not 

qualified mortgages. 

The Final Rule 

The Agencies are adopting the 

exemption for HPMLs for extensions of 

credit of $25,000 or less as proposed 

and renumbering it § 1026.35(c)(2)(ii). 

The Agencies are also adopting the 

proposal to adjust the threshold 

annually, based on the percentage 

increase of the CPI–W. Official Staff 


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27See Federal Financial Institutions Examination 

Council (FFIEC), HMDA, http://www.ffiec.gov/

Hmda/default.htm. 

Commentary for § 1026.35(c)(2)(ii) is 

also adopted as proposed. 

Comment 35(c)(2)(ii)–1 explains that, 

for purposes of § 1026.35(c)(2)(ii), the 

threshold amount in effect during a 

particular one-year period is the amount 

stated in this comment for that period. 

Specifically, comment 35(c)(2)(ii)–1.i. 

provides that from January 18, 2014, 

through December 31, 2014, the 

threshold amount is $25,000. Comment 

35(c)(2)(ii)–1 further provides that the 

threshold amount is adjusted effective 

January 1 of every year by the 

percentage increase in the CPI–W that 

was in effect on the preceding June 1. 

The comment also states that, every 

year, the comment will be amended to 

provide the threshold amount for the 

upcoming one-year period after the 

annual percentage change in the CPI–W 

that was in effect on June 1 becomes 

available. In addition, the comment 

states that any increase in the threshold 

amount will be rounded to the nearest 

$100 increment. The comment provides 

the following example: if the percentage 

increase in the CPI–W would result in 

a $950 increase in the threshold 

amount, the threshold amount will be 

increased by $1,000. However, if the 

percentage increase in the CPI–W would 

result in a $949 increase in the 

threshold amount, the threshold amount 

will be increased by $900. 

Comment 35(c)(2)(ii)–2 clarifies that a 

transaction is exempt under 

§ 1026.35(c)(2)(ii) if the creditor makes 

an extension of credit at consummation 

that is equal to or below the threshold 

amount in effect at the time of 

consummation. 

Finally, comment 35(c)(2)(ii)–3 

explains that a transaction does not 

meet the condition for an exemption 

under § 1026.35(c)(2)(ii) merely because 

it is used to satisfy and replace an 

existing exempt loan, unless the amount 

of the new extension of credit is equal 

to or less than the applicable threshold 

amount. The comment provides the 

following example: assume a closed-end 

loan that qualified for a 

§ 1026.35(c)(2)(ii) exemption at 

consummation in year one is refinanced 

in year ten and that the new loan 

amount is greater than the threshold 

amount in effect in year ten. The 

comment states that, in these 

circumstances, the creditor must 

comply with all of the applicable 

requirements of § 1026.35(c) with 

respect to the year ten transaction if the 

original loan is satisfied and replaced by 

the new loan, unless another exemption 

from the requirements of § 1026.35(c) 

applies. See § 1026.35(c)(2) and 

§ 1026.35(c)(4)(vii). 

For the reasons discussed in the 2013 

Supplemental Proposed Rule as 

described in ‘‘The Agencies’ Proposal,’’ 

the Agencies believe that the exemption 

finalized in § 1026.35(c)(2)(ii) is in the 

public interest and promotes the safety 

and soundness of creditors. As 

discussed in the 2013 Supplemental 

Proposed Rule, the Agencies believe 

that the burden and expense of 

imposing the HPML appraisal 

requirements on HPMLs of $25,000 or 

less that are not qualified mortgages 

outweigh potential consumer protection 

benefits in many cases. As discussed 

above, no commenters objected to an 

exemption, and many commenters 

generally agreed with the Agencies’ 

assessment of the costs versus the 

benefits of appraisals for these loans. 

Commenters also noted that the cost of 

the appraisals would be even higher in 

rural areas, due to the scarcity of 

appraisers and the potential for added 

time to locate and engage an appraiser. 

As noted, the Agencies received a 

number of comments on the 2013 

Supplemental Proposed Rule suggesting 

that the Agencies should raise the 

amount of the threshold. These 

commenters cited the cost of the 

appraisals and at least one commenter 

provided some information about the 

percentage of HPMLs made by the 

lender that are smaller dollar, but 

overall very little data was offered to 

support the various threshold 

suggestions. For example, despite the 

Agencies’ requests for data, no 

commenters provided data indicating 

that a significant number of the smaller 

dollar loans they originate would not be 

qualified mortgages and thus would be 

subject to the HPML appraisal 

requirements absent an exemption. 

To inform the threshold 

determination, the Agencies again 

examined HMDA data. According to 

2012 HMDA data, increasing the 

proposed threshold could substantially 

increase the proportion of HPMLs that 

would be exempted from the rule. For 

example, a $25,000 exemption would 

exempt 55 percent of conventional 

subordinate lien home improvement 

HPMLs from coverage and 37 percent of 

conventional subordinate lien home 

purchase HPMLs. In comparison, a 

$50,000 exemption would exempt 87 

percent of conventional subordinate lien 

home improvement HPMLs and 70 

percent of percent of conventional 

subordinate lien home purchase 

HPMLs.27 The Agencies believe that 

increasing the threshold from $25,000 

to, for example, $50,000, would exempt 

too large a proportion of HPMLs, such 

that the exemption would violate the 

intent of the statute to subject both first 

and subordinate lien loans to the 

appraisal requirements. The Agencies 

believe that a threshold of $25,000 

appropriately exempts from the rule 

those smaller dollar loans that would 

benefit from the exemption, such as 

smaller dollar home improvement loans. 

Moreover, the Agencies believe 

creditors are generally better able to 

absorb losses that might be associated 

with a loan of $25,000 or less than loans 

of higher amounts. 

As discussed under ‘‘Public 

Comments,’’ some commenters 

suggested exempting loans based on lien 

status or whether the loan is a home 

equity loan. For example, a State credit 

union association advocated for a 

threshold that would exclude most 

subordinate lien loan from the rules. A 

State banking association and a 

financial holding company 

recommended exempting home equity 

loans from the rule, particularly first 

lien home equity loans. The financial 

holding company noted that, in the 

calculation to determine HPML status, 

the spread between APR and APOR is 

smaller for first lien loans than for 

subordinate lien loans (1.5 percent 

above APOR and 3.5 percent above 

APOR, respectively). This commenter 

recommended that the Agencies raise 

the APR–APOR spread triggering HPML 

status to 3.5 percentage points for all 

home equity loans, whether first lien or 

subordinate lien. 

The Agencies believe that an 

exemption based on a monetary 

threshold rather than an exemption 

based on a loan’s lien status or loan 

purpose (home equity versus home 

purchase, for example) is necessary to 

protect consumers and more consistent 

with the statute. The statute clearly 

indicates that HPMLs secured by a 

consumer’s principal dwelling should 

be covered, whether home purchase or 

home equity, and whether first lien or 

subordinate lien. See TILA section 

129H(f), 15 U.S.C. 1639h(f). In addition, 

the differing APR–APOR spreads for 

first lien and subordinate lien loans 

were set by statute. See id. Both first 

lien and subordinate lien home equity 

loans reduce equity in a consumer’s 

home and can put consumers at 

financial risk; the Agencies believe that 

limiting this risk to consumers for both 

types of loans is appropriate. The 

Agencies also believe that consistency 

of the rule across these loan types will 

facilitate compliance. 

Regarding comments that the 

threshold should match those in other 


tkelley on DSK3SPTVN1PROD with RULES2
78532 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

28See § 1026.32(a)(1)(i)(B) as amended by 78 FR 

6962 (Jan. 31, 2013). 

29Under existing GSE streamlined refinance 

programs, Freddie Mac and Fannie Mae purchase 

and guarantee streamlined refinance loans for 

consumers under HARP (whose existing loans have 

LTVs over 80 percent) as well as for consumers 

whose existing loans have LTVs at or below 80 

percent. 

30See Fannie Mae Single Family Selling Guide, 

chapter B5–5, section B5–5.2 (Refi Plus® and DU 

Refi Plus® loans); Freddie Mac Single Family 

Seller/Servicer Guide, chapters A24, B24, and C24 

(Relief Refinance® Loans); HUD Handbook 4155.1, 

chapters 3.C and 6.C (Streamline Refinances) and 

mortgage rulemakings, the Agencies 

decline to do so because the other 

mortgage rules are not comparable to the 

appraisal requirements. The $50,000 

threshold in the 2013 HOEPA Final 

Rule referred to by two commenters 

relates to which APR–APOR spread 

applies in determining whether a loan is 

‘‘high-cost.’’ 28 Specifically, the $50,000 

threshold is relevant only if the loan is 

secured by a first lien on a dwelling that 

is personal property. This threshold was 

intended to capture a very specific type 

of loan for an exemption from an 

entirely different set of rules. The 

Agencies therefore question the basis for 

applying the same threshold in 

establishing an exemption from the 

HPML appraisal rules. 

For similar reasons, the Agencies 

believe that setting the threshold at 

$100,000 to align with the $100,000 tier 

for permitting higher points and fees for 

qualified mortgages, as one commenter 

suggested, is not appropriate. See 

§ 1026.43(e)(3). The smaller dollar loan 

thresholds in that rule were crafted in 

the context of ensuring a consumer’s 

ability to repay a mortgage, not for 

purposes of determining whether an 

appraisal should be performed for a 

particular transaction. Moreover, the 

$100,000 threshold is only the highest 

loan amount of five tiers of loan 

amounts for which higher points and 

fees are permitted at varying levels. 

For the reasons discussed above, 

therefore, the Agencies are maintaining 

the proposed $25,000 threshold in the 

final rule. The Agencies also are 

adopting the proposal to adjust the 

threshold for inflation every year, based 

on the percentage increase of CPI–W. As 

noted, commenters supported an annual 

adjustment for inflation. Also, as 

discussed in the 2013 Supplemental 

Proposed Rule, inflation adjustments for 

other thresholds in Regulation Z are also 

annual, so the adjustment will provide 

for consistency across mortgage rules. 

Conditions on the exemption. The 

Agencies are finalizing the smaller 

dollar loan exemption with no 

conditions. Some commenters suggested 

providing alternative valuations to 

consumers as a condition to the smaller 

dollar loan exemption, including 

providing the consumer with an 

estimate of the value of the collateral 

property that the creditor relied on in 

making the credit decision. However, 

the Agencies believe that for HPMLs of 

$25,000 or less that are not qualified 

mortgages, the added burden or cost of 

a condition could deter lenders from 

making these loans, which could harm 

consumers. In addition, the Agencies 

believe that an unconditional exemption 

for transactions of $25,000 or less will 

be simpler and easier for creditors to 

apply, thus facilitating compliance and 

enhancing the utility of the exemption. 

One reason that the Agencies are not 

raising the exemption above $25,000 is 

the Agencies’ concern that conditioning 

the exemption might then be necessary 

to ensure that the exemption both 

promotes the safety and soundness of 

creditors and is in the public interest. In 

the Agencies’ view, arguments that 

neither an appraisal nor an alternative 

valuation need be obtained or provided 

to the consumer become increasingly 

less persuasive for transactions over 

$25,000, as larger amounts tie up greater 

amounts of home equity and losses 

become less easily absorbed by 

creditors. The Agencies deem it best not 

to add complexity by conditioning the 

exemption and believe that no 

conditions are needed at the level of 

$25,000 or less. 

35(c)(2)(iv) 

The Agencies are adopting a new 

comment to clarify the exemption in 

§ 1026.35(c)(2)(iv) for ‘‘a transaction to 

finance the initial construction of a 

dwelling.’’ Specifically, new comment 

35(c)(2)(iv)-2 clarifies that the 

exemption for construction loans in 

§ 1026.35(c)(2)(iv) applies to temporary 

financing of the construction of a 

dwelling that will be replaced by 

permanent financing once construction 

is complete. The exemption does not 

apply, for example, to loans to finance 

the purchase of manufactured homes 

that have not been or are in the process 

of being built, when the financing 

obtained by the consumer at that time 

is permanent. The comment crossreferences § 1026.35(c)(2)(viii), which 

sets out the HPML appraisal rules 

applicable to transactions secured by 

manufactured homes. 

The Agencies are adding this 

comment in response to public 

comments on the 2013 Supplemental 

Proposed Rule suggesting that 

manufactured home loans where the 

unit has not been constructed are 

similar to temporary construction loans 

exempt under § 1026.35(c)(2)(iv) and 

should be exempt on the same basis. 

The Agencies understand that 

manufactured home loans in this 

situation generally are permanent 

financing, and therefore the same 

rationale for exempting temporary 

construction loans, expressed in the 

January 2013 Final Rule, would not 

apply to those loans. 

35(c)(2)(vii) 

The Agencies’ Proposal 

The Agencies proposed to exempt 

from the HPML appraisal rules certain 

types of refinancings with 

characteristics common to refinance 

programs offering ‘‘streamlined’’ 

refinances. Specifically, the Agencies 

proposed to exempt an extension of 

credit that is a refinancing where the 

‘‘owner or guarantor’’ of the refinance 

loan was the ‘‘owner or guarantor’’ of 

the existing obligation. In addition, the 

regular periodic payments under the 

refinance loan could not have resulted 

in negative amortization, covered only 

interest on the loan, or resulted in a 

balloon payment. Finally, the proceeds 

from the refinance loan would have to 

have been used solely to pay off the 

outstanding principal balance on the 

existing obligation and to pay closing or 

settlement charges. 

As discussed in the 2013 

Supplemental Proposed Rule, the 

Agencies believe that this exemption 

would be in the public interest and 

promote the safety and soundness of 

creditors. 

Background 

In an environment of historically low 

interest rates, the Federal government 

has supported streamlined refinance 

programs as a way to promote the 

ongoing recovery of the consumer 

mortgage market. Notably, the Home 

Affordable Refinance Program (HARP) 

was introduced by the U.S. Treasury 

Department in 2009 to provide refinance 

relief options to consumers following 

the steep decline in housing prices as a 

result of the financial crisis. The HARP 

program was expanded in 2011 and is 

currently set to expire in at the end of 

2015. 

Federal government agencies—HUD, 

VA, and USDA—as well as governmentsponsored enterprises (GSEs), Fannie 

Mae and Freddie Mac, have developed 

streamlined refinance programs to 

address consumer, creditor and investor 

risks.29 These programs enable many 

consumers to refinance the balance of 

those mortgages through an abbreviated 

application and underwriting process.30


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78533 

Title I Appendix 11–3 (manufactured home 

streamline refinances); USDA Rural Development 

Admin. Notice 4615 (Rural Refinance Pilot); and 

VA Lenders Handbook, chapter 6 (Interest Rate 

Reduction Refinance Loans, or IRRRLs). 

Creditworthiness evaluations generally are not 

required for Refi Plus, Relief Refinance, HUD 

Streamline Refinance, or IRRRL loans unless 

borrower monthly payments would increase by 20 

percent or more. See HUD Handbook 4155.1, 

chapter 6.C.2.d; Fannie Mae Single Family Selling 

Guide, chapter B5–5, section B5–5.2 (Refi Plus and 

DU Refi Plus loans); Freddie Mac Single Family 

Seller/Servicer Guide, chapters A24, B24, and C24; 

VA Lenders Handbook, chapter 6.1.c. 

31For example, HARP supports refinancing 

through the GSEs for borrowers whose LTV exceeds 

80 percent and whose existing loans were 

consummated on or before May 31, 2009. See 

http://www.makinghomeaffordable.gov/programs/

lower-rates/Pages/harp.aspx. 

32See, e.g., Freddie Mac 2011 Annual Report at 

Table 52, reporting that the majority of Freddie Mac 

funding for Relief Refinances in 2011 was for 

borrowers with LTVs at or below 80 percent. This 

report is available at http://www.freddiemac.com/

investors/er/pdf/10k_030912.pdf. 

33Over two million streamlined refinance 

transactions occurred under FHA and GSE 

programs in 2012 (including both HPML and nonHPML refinances). According to public data 

recently reported by FHFA, 1,803,980 streamlined 

refinance loans occurred under Fannie Mae or 

Freddie Mac streamlined refinance programs. See 

FHFA Refinance Report for February 2013, 

available at http://www.fhfa.gov/webfiles/25164/

Feb13RefiReportFinal.pdf. The Agencies estimate, 

based upon data received from FHA during 

outreach to prepare this proposal, that the FHA 

insured 378,000 loans under its ‘‘Streamline’’ 

program in 2012. 

34For GSE streamlined refinance transactions 

purchased in 2012 at LTVs of above 80 percent, 

AVM estimates were obtained for approximately 81 

percent and appraisals (either interior inspection or 

exterior-only) were obtained for approximately 19 

percent. For GSE streamlined refinance transactions 

purchased in 2012 at LTVs of 80 percent or below, 

AVM estimates were obtained for approximately 87 

and appraisals (either interior inspection or 

exterior-only) were obtained for approximately 13 

percent. 

35See, e.g., HUD Handbook 4155.1, chapter 6.C.1. 

36According to data from FHA, in calendar year 

2012, only 1.1 percent of FHA streamline refinances 

required an appraisal. 

37 In general, FIRREA regulations governing 

appraisal requirements permit the use of an 

‘‘evaluation’’ (or in the case of NCUA, a ‘‘written 

estimate of market value’’) rather than an appraisal 

in same-creditor refinances that involve no new 

monies except to pay reasonable closing costs and, 

in the case of the NCUA, no obvious and material 

change in market conditions or physical adequacy 

of the collateral. See OCC: 12 CFR 34.43 and 164.3; 

Board: 12 CFR 225.63; FDIC: 12 CFR 323.3; NCUA: 

12 CFR 722.3. See also OCC, Board, FDIC, NCUA, 

Interagency Appraisal and Evaluation Guidelines, 

App. A–5, 75 FR 77450, 77466–67 (Dec. 10, 2010). 

Under these programs, consumers with 

little or no equity in their homes,31 as 

well as consumers with significant 

equity in their homes,32 can restructure 

their mortgage debt, often at lower 

interest rates or payment amounts than 

under their existing loans.33

Valuation requirements of 

‘‘streamlined’’ refinance programs. The 

streamlined underwriting for certain 

refinancings often does not include an 

appraisal that conforms with USPAP or 

a physical inspection of the property. 

One reason for this is that, in currently 

available streamlined refinance 

programs, the value of the property 

securing the existing and refinance 

obligations does not determine borrower 

eligibility for the refinance. 

Generally, the principal concern 

under streamlined refinance programs is 

not whether the creditor or investor 

could in the near term recoup the 

mortgage amount by foreclosing upon 

and selling the securing property. The 

immediate goals for these loans are to 

secure payment relief for the borrower 

and thereby avoid default and 

foreclosure; to allow the borrower to 

take advantage of lower interest rates; or 

to restructure their mortgage obligation 

to build equity more quickly—all of 

which reduce risk for creditors and 

investors and benefit consumers. 

The credit risk holder of the existing 

obligation might obtain a valuation 

other than an appraisal for the refinance 

to estimate LTV for determining the 

appropriate securitization pool for the 

loan. LTV as determined by this 

valuation can also affect the terms 

offered to the consumer. Sometimes an 

appraisal is required when the property 

is not standardized, or the credit risk 

holder of the existing obligation and the 

refinance loan does not have what it 

deems to be sufficient information about 

the property. 

Fannie Mae and Freddie Mac. Fannie 

Mae and Freddie Mac each have 

streamlined refinance programs: Fannie 

Mae DU (‘‘Desktop Underwriter’’) Refi 

PlusTM and Refi PlusTM and Freddie 

Mac Relief Refinance®-Same Servicer/

Open Access. Under these programs, 

Fannie Mae must hold both the old and 

new loan, as must Freddie Mac under 

its program. An appraisal is not required 

when the GSEs are confident in an 

estimate of value (usually based on their 

respective proprietary automated 

valuation models (AVMs)), which is 

then provided to lenders originating 

loans under these programs.34

HUD/FHA. The HUD ‘‘Streamline’’ 

Refinance program administered by the 

FHA permits but generally does not 

require a creditor to obtain an 

appraisal.35 The Agencies understand 

that almost all FHA streamlined 

refinances are done without requiring 

an appraisal.36 The FHA program does 

not require an alternative valuation type 

for transactions that do not have 

appraisals. 

VA and USDA. VA and USDA 

programs do not require appraisals. The 

VA and USDA streamlined refinance 

programs also do not require an 

alternative valuation type for 

transactions for which an appraisal is 

not required. 

Private ‘‘streamlined’’ refinance 

programs. The Agencies also understand 

that some private creditors offer 

streamlined refinance programs for their 

borrowers that meet certain eligibility 

requirements. In the 2013 Supplemental 

Proposed Rule, the Agencies sought 

comment and relevant data on how 

often private creditors obtain alternative 

valuation estimates in these transactions 

(i.e., streamlined refinances outside of 

the government agency and GSE 

programs discussed previously) when 

no appraisal is conducted.37 The 

Agencies did not receive comment on 

this issue. 

Public Comments 

Public Comments on the 2012 Proposed 

Rule 

A number of commenters on the 2012 

Proposed Rule recommended that the 

Agencies exempt streamlined 

refinancings. Some of these commenters 

expressed a view that the Dodd-Frank 

Act’s ‘‘higher-risk mortgage’’ appraisal 

rules were not appropriate for 

refinancings designed to move a 

borrower into a more stable mortgage 

product with affordable payments. 

Commenters pointed out, among other 

things, that these types of refinancings 

can be important credit risk 

management tools in the primary and 

secondary markets, and can reduce 

foreclosures, stabilize communities, and 

stimulate the economy. GSE 

commenters indicated that in many 

cases loans originated under Federal 

government streamlined refinance 

programs do not require appraisals and 

asserted that doing so would interfere 

with these programs. 

Consumer advocates did not comment 

on the 2012 Proposed Rule, but in 

subsequent informal outreach with the 

Agencies for the 2013 Supplemental 

Proposed Rule, they expressed concerns 

about not requiring appraisals in HPML 

streamlined refinance programs. They 

expressed the view that a quality 

appraisal that also is required to be 

made available to the consumer can be 

a tool to prevent fraud in refinance 

transactions. They also pointed out 

instances in which an appraisal on a 

refinance transaction revealed appraisal 

fraud on the original purchase 

transaction. In the 2013 Supplemental 

Proposed Rule, the Agencies invited 

further comment on these and any 

related concerns, and appropriate means 

of addressing these concerns as part of 

this rulemaking. The Agencies did not 


tkelley on DSK3SPTVN1PROD with RULES2
78534 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

38See § 1026.43(e)(6) and (f). 39 § 1026.43(e)(2). 40See § 1026.32(a), implementing TILA section 

103(aa), 15 U.S.C. 1602(aa), as amended by section 

1431 of the Dodd-Frank Act (revising the points and 

fees triggers for determining whether a loan is a 

‘‘high-cost mortgage.’’ See also § 1026.43(e)(3), 

implementing TILA section 129C(b)(2)(A)(vii), 15 

U.S.C. 1639c(b)(2)(A)(vii) (limiting points and fees 

that may be charged on a ‘‘qualified mortgage’’). 

receive additional comments on this 

issue as part of the 2013 Supplemental 

Proposed Rule, the relevant public 

comments on which are summarized 

below. 

Public Comments on the 2013 

Supplemental Proposed Rule 

Commenters were generally 

supportive of exempting streamlined 

refinances from the HPML appraisal 

requirements. These included 

comments from a credit union, a State 

credit union trade association, a 

national mortgage banking trade 

association, and a national real estate 

trade association. The commenters 

stated that the exemption would 

encourage and enable many consumers 

to refinance the balance of their 

mortgages through an abbreviated 

underwriting process that will save 

them time and money and help them 

restructure their debt and lower their 

interest rate or mortgage payment. The 

State credit union association 

commenter stated that an appraisal is 

not necessary for these types of 

transactions as the value of the home is 

not the factor driving the restructuring 

transaction. The national real estate 

trade association asserted that the cost 

of the appraisal would increase the costs 

to the consumer, especially in rural 

areas where there are fewer appraisers, 

with no offsetting benefit to the 

consumer. 

Three national appraiser 

organizations opposed the proposed 

exemption for streamlined refinances 

and urged the Agencies not to adopt it 

in the final rule. Two of these 

commenters asserted that a key 

component of a consumers’ decision to 

refinance their loan is the market value 

of their home. A third national appraiser 

organization believed that the proposed 

exemption was unnecessary and 

inconsistent with what this commenter 

viewed as the Dodd-Frank Act’s 

emphasis on risk management, 

particularly for HPMLs. 

The Agencies solicited comment on 

the circumstances in which an 

originator’s assumption of ‘‘put back’’ 

risk on a refinance loan raises safety and 

soundness concerns, even where the 

owner or guarantor on the refinance 

loan remains the same. Two national 

appraiser organizations and a State HFA 

offered comments related to this 

question. The appraisal organizations 

commented that where a loan involves 

new risk to either government agencies 

or the taxpayers, an appraisal should be 

required. Generally, where new risk 

results from a transaction, an appraisal 

with an interior inspection should be 

required. These commenters added that, 

if the risk is already known or exists 

(i.e., is not new risk), an exterior 

inspection appraisal might be sufficient. 

The State HFA commented that the 

scope of the same ‘‘owner or guarantor’’ 

requirement should be expanded to 

include Federally-insured or 

-guaranteed streamlined refinancing 

transactions. The group suggested that 

the proposed language focused on the 

secondary market for mortgage loans 

rather than the Federal entities bearing 

the risk at the loan level. The Agencies 

understand that this State HFA has 

programs in which a Federally-insured 

or -guaranteed loan (such as by FHA or 

VA) might be refinanced and placed in 

a mortgage revenue bond guaranteed by 

the HFA. The State HFA expressed 

concerns that under this arrangement, 

the loan might not meet the same 

‘‘owner or guarantor’’ criteria of the 

proposed refinance exemption because 

the HFA would be a new guarantor at 

the secondary market level. However, 

the State HFA pointed out that the 

refinance loan continues to be insured 

by FHA or guaranteed by VA at the loan 

level. 

A State credit union organization 

believed that exempting refinances in 

which the ‘‘owner or guarantor’’ of the 

refinanced loan also is the ‘‘owner or 

guarantor’’ of the existing loan would 

reduce time and transaction costs. A 

State banking trade association 

commented in the context of balloon 

mortgages that streamlined refinances 

with the same ‘‘owner and guarantor’’ 

typically have lower costs than a 

refinance with another creditor. The 

national trade association that 

represents creditors believed that the 

language of the proposal requiring that 

the ‘‘owner or guarantor’’ be the same 

would exclude loans that are originated 

by the servicer or subservicer on the 

original obligation, and requested 

clarification to allow those entities to 

originate streamlined refinances and 

still be eligible for the exemption. 

As noted under ‘‘Background,’’ the 

Agencies also sought information on the 

valuation practices of private creditors 

for refinanced loans where the private 

owner or guarantor remains the same 

and the loans are not sold to a GSE or 

insured or guaranteed by a Federal 

government agency. Two national 

organizations representing appraisers 

commented that when refinanced loans 

are not sold to the GSEs or insured or 

guaranteed by a government agency, 

creditors are likely to order appraisals 

with interior inspections because of the 

increased risk to the creditor. 

Five commenters—three State credit 

union associations and two State 

banking trade associations—supported 

the proposed exemption for streamlined 

refinances but requested that the 

Agencies remove the proposed 

prohibition on balloon payments. These 

commenters believed that balloon 

mortgages can be an affordable option 

and serve an important role in helping 

consumers retain their homes. For 

similar reasons, one of the State credit 

union associations also supported 

eliminating the proposed prohibition on 

interest-only payments. A State banking 

trade association urged the Agencies to 

consider including Balloon Payment 

Qualified Mortgages 38 in the proposed 

expanded definition for qualified 

mortgages, arguing that these types of 

mortgages undergo rigorous 

underwriting procedures similar to 

those required under the general 

qualified mortgage provisions.39

In addition to the restrictions on 

exempt refinancings that the Agencies 

proposed, one State bank commenter 

recommended that the proceeds from 

the refinance be used to pay both 

principal and accrued interest since the 

majority of refinance loans today 

include the accrued interest of the 

refinanced loan into the new loan 

amount. This commenter stated that 

including accrued interest would not 

adversely affect the consumer and could 

be beneficial if the consumer does not 

have the cash to pay the amount. 

An affordable housing organization 

commenter stated that any streamlined 

refinance resulting in higher payments, 

higher interest rates or longer loan terms 

for the consumer should not be exempt. 

This commenter also believed that 

previously refinanced loans should not 

be exempt to prevent an accumulation 

of high fees from eroding the 

consumer’s equity. 

A State credit union association 

commenter opposed limiting the 

amount of points and fees that may be 

financed on an exempt refinance 

transaction. This commenter pointed 

out that a points and fees test applies to 

‘‘high-cost’’ mortgages in Regulation Z40

and asserted that it is not necessary to 

include point and fee caps as part of 

HPML appraisal rules. This commenter 

also argued that to do so would create 

more regulatory confusion for 

consumers and financial institutions. 

Two commenters—a national 

mortgage banking association and an 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78535 

41See Fannie Mae Selling Guide, B5–5.2–02, DU 

Refi Plus and Refi Plus Underwriting 

Considerations (9/24/2013). 

42See OCC: 12 CFR 34.45(b)(2) and 12 CFR 

164.5(b)(2); Board: 12 CFR 225.65(b)(2); FDIC: 12 

CFR 323.5(b)(2); NCUA: 12 CFR 722.5(b)(2). 

43See 12 U.S.C 3350(7) (defining ‘‘financial 

institution’’ for purposes of FIRREA and 

implementing regulations). 

44 ‘‘The term ‘residential mortgage loan’ means 

any consumer credit transaction that is secured by 

a mortgage, deed of trust, or other equivalent 

consensual security interest on a dwelling or on 

residential real property that includes a dwelling, 

other than a consumer credit transaction under an 

open end credit plan . . ..’’ TILA section 103(cc)(5), 

15 U.S.C. 1602(cc)(5). 

affordable housing organization— 

suggested that one of the criteria for an 

exempt refinance transaction should be 

a consumer benefit. The national 

mortgage banking association 

commenter recommended that the 

Agencies adopt the benefits test used by 

the GSEs for HARP loans, which 

requires that the new loans put 

borrowers in a better position by 

reducing their payments or moving 

them from a risky loan structure.41

Similarly, the affordable housing 

organization commenter stated that only 

streamlined refinance transactions 

clearly lowering the consumer’s risk 

should be exempt. On the other hand, 

a State credit union association 

commenter opposed introducing 

additional limits on the exemption, 

such as requiring that the borrower have 

made timely payments for a specified 

period or that the consumer ‘‘benefit’’ 

from the transaction in some way 

defined in the regulations. 

The Agencies also requested 

comments on whether the exemption for 

refinance loans should be conditioned 

on the creditor obtaining an alternative 

valuation and providing a copy to the 

consumer three business days prior to 

closing. The Agencies further asked 

whether obtaining and providing an 

alternative valuation would better 

position the consumer to consider 

alternatives, and whether consumers 

seeking to refinance their existing first 

lien loan typically need or want to 

consider alternatives to refinancing. 

Lastly, the Agencies generally requested 

comment and data on whether a 

condition on the exemption is 

necessary. 

Four commenters—a State credit 

union association, a national 

community bank trade association, a 

national mortgage banking association, 

and a financial holding company— 

affirmatively opposed requiring 

creditors to obtain an alternative 

valuation to qualify their refinance 

loans for the refinance exemption from 

the HPML appraisal rules. Commenters 

stated that doing so would hinder the 

refinancing process and increase the 

time and expense of these transactions 

unnecessarily. These commenters did 

not believe that a significant benefit 

exists in giving an alternative valuation 

when consumers are not increasing the 

amount of their debt or changing the 

collateral. 

Comments from a State bank and a 

State credit union association suggested 

that if an alternative valuation were 

required, creditors should be able to rely 

on an existing appraisal to the extent 

permitted by existing Federal appraisal 

regulations and the interagency 

appraisal guidelines,42 which allow for 

using an existing appraisal prepared for 

another financial institution. A credit 

union commenter and a State credit 

union association commenter suggested 

that if an alternative is required, a 

‘‘drive-by’’ appraisal or comparable 

market analysis to ensure that the home 

still stands and is in reasonable 

condition is prudent when modifying or 

restructuring debt to reduce foreclosures 

and further delinquencies. 

Three national appraiser 

organizations and an affordable housing 

organization recommended that, at 

minimum, an alternative valuation to an 

appraisal with an interior inspection 

should be required so that consumers 

are better informed. The appraiser group 

commenters recommended that 

creditors obtain replacement cost 

estimates or other less costly services 

provided by appraisers, such as desktop 

appraisals. One appraiser group 

generally asserted that the consumer 

should be made aware of what type of 

valuation service was performed and by 

whom. 

No commenters provided data 

relevant to whether requiring an 

alternative valuation as a condition of 

the proposed refinance exemption 

would be necessary or beneficial. 

In the 2013 Supplemental Proposed 

Rule, the Agencies recognized that 

estimates of value may not always be 

required by Federal law or investors. 

For example, some creditors are not 

subject to the appraisal and evaluation 

requirements that apply to Federally 

regulated financial institutions 43 under 

FIRREA and, therefore would not be 

required to obtain a FIRREA-compliant 

valuation on a ‘‘no cash out’’ refinance. 

Thus, the Agencies requested comment 

on the extent to which either appraisals 

or other valuation tools such as AVMs 

or broker price opinions (BPOs) are used 

in connection with streamlined 

refinances—by non-depositories not 

covered by FIRREA in particular. Only 

one commenter, a national appraiser 

organization, responded to this 

question, stating that BPOs are not used 

in refinance transactions and, in fact, 

are illegal in many states. Moreover, this 

commenter pointed out that GSEs and 

other government agencies prohibit 

using BPOs in refinancing, and use their 

own AVMs to waive appraisal 

requirements when appropriate. 

The Final Rule 

The Agencies are adopting the 

exemption for certain refinancings 

proposed in the 2013 Supplemental 

Proposed Rule with modifications to 

some of the criteria for an exempt 

refinance transaction, described in the 

section-by-section analysis below. 

Consistent with the 2013 Supplemental 

Proposed Rule, the Agencies decline to 

adopt an exemption for all refinance 

loans, as a few commenters on the 2012 

Proposed Rule suggested. The appraisal 

rules in TILA Section 129H apply to 

‘‘residential mortgage loans’’ that are 

higher-priced and secured by the 

consumer’s principal dwelling. TILA 

section 129H(f), 15 U.S.C. 1639h(f). The 

term ‘‘residential mortgage loan’’ 

includes refinance loans.44 Accordingly, 

the Agencies believe that an exemption 

for all HPML refinances would be 

overbroad. For example, in refinance 

transactions involving additional cash 

out to the consumer, consumer equity in 

the home can decrease significantly, 

increasing risks, so the Agencies do not 

believe an exemption from this rule 

would be appropriate. 

As stated in the 2013 Supplemental 

Proposed Rule, the Agencies believe 

that a narrower exemption for certain 

types of HPML refinance loans, 

generally consistent with the program 

criteria for streamlined refinances under 

GSE and Federal government agency 

programs, is in the public interest and 

will promote the safety and soundness 

of creditors. The Agencies recognize 

that, by reducing the risk of foreclosures 

and helping borrowers better afford 

their mortgages, streamlined refinancing 

programs can contribute to stabilizing 

communities and the economy, both 

now and in the future. Streamlined 

HPML refinance transactions can help 

borrowers who are at risk of default in 

the near future, as well as those who 

might not default in the near term but 

could benefit by refinancing into a 

lower rate mortgage for considerable 

cost savings over time. The Agencies 

also recognize that streamlined 

refinancing programs assist credit risk 

holders to manage their risks. 

Originating HPML refinances that are 

beneficial to consumers can be 

important to creditors to ensure the 


tkelley on DSK3SPTVN1PROD with RULES2
78536 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

45 ‘‘Creditor’’ is defined under Regulation Z to 

mean, in pertinent part, ‘‘[a] person who regularly 

extended consumer credit that is subject to a 

finance charge * * *, and to whom the obligation 

is initially payable, either on the face of the note 

or by contract * * *.’’ § 1026.2(a)(17). 

46See OCC: 12 CFR parts 34, Subpart C, and 164; 

Board: 12 CFR part 208, subpart E, and part 225, 

subpart G; FDIC: 12 CFR part 323; NCUA: 12 CFR 

part 722. See also 75 FR 77450 (Dec. 10, 2010). 

47See 78 FR 57920 (Sept. 20, 2013). 

48Certain disincentives for refinancing a loan out 

of a private-label refinance may exist, including 

contractual restrictions on refinancing the loan. 

continuing performance of loans on 

their books and to strengthen customer 

relations. For investors in these loans, 

the streamlined refinances can reduce 

financial risks associated with potential 

defaults and foreclosures. 

As a general matter, the purpose of 

the exemption for certain refinance 

transactions is to facilitate transactions 

that can be beneficial to borrowers even 

though they are HPMLs. When the 

consumer is not obtaining additional 

funds to increase the amount of the debt 

(other than the costs related to the 

refinancing), and the entity that will 

hold the credit risk of the refinance loan 

is already the credit risk holder on the 

existing loan, the benefit from obtaining 

a new appraisal may be insufficient to 

warrant the additional cost. The 

Agencies believe that an exemption 

from the HPML appraisal rules for 

certain HPML refinances can ensure that 

the time and cost generated by new 

appraisal requirements are not 

introduced into certain HPML 

transactions—namely, those that are not 

qualified mortgages but are part of 

programs designed to help consumers 

avoid defaults and improve their 

financial positions, as well as help 

creditors and investors avoid losses and 

mitigate credit risk. 

Definition of ‘‘Refinancing’’ 

Consistent with the proposal, 

§ 1026.35(c)(2)(vii) in the final rule 

defines a ‘‘refinancing’’ to mean 

‘‘refinancing’’ in § 1026.20(a). Also 

consistent with the proposal, the 

definition of ‘‘refinancing’’ under 

§ 1026.35(c)(2)(vii) does not require that 

the creditor remain the same for both 

the refinancing and the existing 

obligation.45 As noted in the 2013 

Supplemental Proposed Rule, this is a 

departure from the definition of 

‘‘refinancing’’ under § 1026.20(a); 

commentary to that provision clarifies 

that a ‘‘refinancing’’ under § 1026.20(a) 

includes ‘‘only refinancings undertaken 

by the original creditor or a holder or 

servicer of the original obligation.’’ See 

comment 20(a)-5. By contrast, the 

exemption in § 1026.35(c)(2)(vii) allows 

a different creditor to extend the 

refinance loan, as long as the credit risk 

holder remains the same on both the 

existing loan and the refinance. 

As stated in new comment 35(c)(2)–1, 

discussed previously, the Agencies 

emphasize that any creditor subject to 

regulation by a Federal financial 

regulatory agency remains subject to 

FIRREA regulations regarding appraisals 

and evaluations and the accompanying 

Interagency Appraisal and Evaluation 

Guidelines.46 As such, these institutions 

will have to obtain an appraisal or 

‘‘evaluation’’ under FIRREA rules for 

any refinance loan, regardless of 

whether it qualifies for an exemption 

from the HPML appraisal rules. 

Finally, in § 1026.35(c)(2)(vii), the 

Agencies are clarifying that the 

refinance loans eligible for the 

exemption are limited to loans ‘‘secured 

by a first lien,’’ which is consistent with 

the Agencies’ intention in the 2013 

Supplemental Proposed Rule. 

35(c)(2)(vii)(A) 

The exemption from the HPML 

appraisal rules requires that the 

refinance transaction satisfy several 

criteria. These are described in the 

section-by-section analysis of 

§ 1026.35(c)(2)(vii)(A), (B), and (C). 

One criterion that a refinance loan 

must meet is that either: (1) The credit 

risk of the refinance loan is retained by 

the person that held the credit risk of 

the existing obligation and the credit 

risk is not subject, at consummation, to 

a commitment to be transferred to 

another person; or (2) the refinance loan 

is insured or guaranteed by the same 

Federal government agency that insured 

or guaranteed the existing obligation. 

35(c)(2)(vii)(A)(1)—same credit risk 

holder. Substantively consistent with 

the 2013 Supplemental Proposed Rule, 

§ 1026.35(c)(2)(vii)(A)(1) allows the 

exemption for certain refinancings to 

apply if the credit risk holder is the 

current credit risk holder of the existing 

obligation (assuming the criteria in 

§ 1026.35(c)(2)(vii)(B) and (C) are also 

met). The Agencies are adopting this 

requirement as a condition of obtaining 

the refinance loan exemption from the 

HPML appraisal rules because the 

Agencies believe that this restriction is 

important to ensuring that the 

exemption promotes the safety and 

soundness of financial institutions. An 

exemption for streamlined refinances 

from the HPML appraisal rules can help 

creditors more readily refinance loans to 

mitigate risk by placing consumer in 

loans with better terms. Decreased 

default risk for all parties is also in the 

public interest. 

For clarity, as discussed previously, 

the final regulation defines ‘‘credit risk’’ 

to mean the financial risk that a loan 

will default. See § 1026.35(c)(1)(ii) and 

corresponding section-by-section 

analysis. The final rule also differs from 

the proposal in that it does not use the 

terms ‘‘guarantor’’ or ‘‘owner,’’ but 

instead refers to the holder of the credit 

risk. 

Based on public comments, the 

Agencies are concerned that the terms 

‘‘guarantor’’ and ‘‘owner’’ may have 

multiple meanings in the mortgage 

markets and be confusing. For example, 

the Agencies are concerned that the 

agreements associated with loans 

securitized in a private-label mortgagebacked security (MBS) may include 

parties identified as ‘‘guarantor’’ and 

‘‘owner,’’ but such parties do not bear 

the ‘‘credit risk’’ as defined in this final 

rule. See § 1026.35(c)(1)(ii). 

In GSE securitizations, a GSE bears all 

of the credit risk because it either 

‘‘owns’’ a loan and holds the loan in 

portfolio, or ‘‘guarantees’’ the loan by 

placing the loan in an MBS and 

guaranteeing payments of principal and 

any interest to investors. Some of these 

loans might have private mortgage 

insurance, but the GSE is the 

beneficiary. 

By contrast, in private-label 

securitizations, the credit risk is spread 

among multiple parties; for example, the 

originating credit might retain some 

residual risk (and will be required to for 

‘‘Qualified Residential Mortgages’’ 47), 

the other MBS investors bear certain 

risks depending on the ‘‘tranche’’ or risk 

tier of the investor, and private mortgage 

insurers or bond insurers also may 

guarantee some losses. Typically, when 

a loan in an MBS is refinanced, the loan 

will not remain in the same MBS.48 The 

Agencies believe that where entities 

take on material new credit risk with a 

refinance, safety and soundness and the 

public interest are not served by 

exempting that refinance from the 

HPML appraisal rules. 

At the same time, the Agencies 

recognize that the private-label 

securitization market could involve 

MBS structures that include an entity 

that provides a guarantee similar to that 

guarantee provided by Fannie Mae and 

Freddie Mac today. Therefore, the 

criterion in § 1026.35(c)(2)(vii)(A)(1) is 

intended to address not only GSE 

securitizations, but also any equivalent 

private-label structures that meet the 

requirements of the exemption. The 

Agencies believe that private creditor 

refinance transactions may have similar 

benefits to consumers, creditors, and 

credit markets as those under GSE and 


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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78537 

49Legislative history of the Dodd-Frank Act also 

suggests that Congress believed that certain 

underwriting requirements were not necessary in 

refinances where the holder of the credit risk 

remains the same: ‘‘However, certain refinance 

loans, such as VA-guaranteed mortgages refinanced 

under the VA Interest Rate Reduction Loan Program 

or the FHA streamlined refinance program, which 

are rate-term refinance loans and are not cash-out 

refinances, may be made without fully reunderwriting the borrower . . . . It is the conferees’ 

intent that the [Board] and the [Bureau] use their 

rulemaking authority . . . to extend the same 

Continued 

government agency programs. In 

particular, the Agencies believe that the 

central feature of public streamlined 

refinance programs—the credit risk 

holder on the existing obligation 

remains the credit risk holder on the 

refinance loan—must be in place in any 

private streamlined refinances that 

would be entitled to an exemption from 

the HPML appraisal requirements. 

Accordingly, the Agencies are not 

adopting proposed comment 

35(c)(2)(vii)(A)–1, which was intended 

to help clarify the meaning of the terms 

‘‘owner’’ and ‘‘guarantor.’’ Instead, the 

Agencies are adopting a revised version 

of this comment, re-numbered comment 

35(c)(2)(vii)(A)(1)–1, that focuses on 

what it means to hold the credit risk on 

a loan for purposes of the exemption. 

Specifically, comment 

35(c)(2)(vii)(A)(1)–1 states that the 

requirement that the holder of the credit 

risk on the existing obligation and the 

refinance loan be the same applies to 

situations in which an entity bears the 

financial responsibility for the default of 

a loan by either holding the loan in its 

portfolio or guaranteeing payments of 

principal and any interest to investors 

in a mortgage-backed security in which 

the loan is pooled. See 

§ 1026.35(c)(1)(ii) (defining ‘‘credit 

risk’’). The comment states that, for 

example, a credit risk holder could be 

a bank that bears the credit risk on the 

existing obligation by holding the loan 

in the bank’s portfolio. Another example 

of a credit risk holder would be a 

government-sponsored enterprise that 

bears the risk of default on a loan by 

guaranteeing the payment of principal 

and any interest on a loan to investors 

in a mortgage-backed security. Finally, 

the comment clarifies that the holder of 

credit risk under 

§ 1026.35(c)(2)(vii)(A)(1) does not mean 

individual investors in an MBS or 

providers of private mortgage insurance. 

Consistent with the proposal (see 

proposed comment 35(c)(2)(vii)(A)–1), 

the Agencies do not intend that 

individual investors in an MBS be 

considered credit risk holders under 

this exemption criterion. The risks held 

by investors in these arrangements are 

too disparate for these investors to be 

considered credit risk holders under the 

final rule. 

The Agencies also do not intend 

private mortgage insurers—either at the 

loan level or MBS level (as bond 

insurers, for example)—to be credit risk 

holders under the final rule because the 

types of losses they guarantee may vary 

for each loan by contract, as may their 

valuation standards for collateral 

underlying loans they insure. These 

factors are subject to private contractual 

arrangements that are not publicly 

available. Even if the refinance loan 

were insured by the same private 

mortgage insurance provider that 

insured the existing obligation, the 

types of losses guaranteed by this 

provider on the refinance loan might be 

different from those guaranteed on the 

existing loan and a new party to the 

refinance transaction could be taking on 

significant new credit risk. 

In new comment 35(c)(2)(vii)(A)(1)–2, 

the final rule provides two illustrations 

of refinance situations in which the 

credit risk holder would be considered 

the same for both the existing obligation 

and the refinance loan. These examples 

are not intended to be exhaustive. In the 

first illustration, the existing obligation 

is held in the portfolio of a bank, thus 

the bank holds the credit risk. The bank 

arranges to refinance the loan and also 

will hold the refinance loan in its 

portfolio. If the refinance transaction 

otherwise meets the requirements for an 

exemption under § 1026.35(c)(2)(vii), 

the transaction will qualify for the 

exemption because the credit risk 

holder is the same for the existing 

obligation and the refinance loan. In this 

case, the exemption would apply 

regardless of whether the bank arranged 

to refinance the loan directly or 

indirectly, such as through the servicer 

or subservicer on the existing obligation. 

See comment 35(c)(2)(vii)(A)(1)–2.i. 

In the second illustration, the existing 

obligation is held in the portfolio of a 

GSE, thus the GSE holds the credit risk. 

The GSE approves a refinance of the 

existing obligation by the servicer of the 

loan and immediately purchases the 

refinance loan. The GSE pools the 

refinance loan in a mortgage-backed 

security guaranteed by the GSE; thus, 

the GSE continues to hold the credit risk 

on the refinance loan. If the refinance 

transaction otherwise meets the 

requirements for an exemption under 

§ 1026.35(c)(2)(vii), the transaction will 

qualify for the exemption because the 

credit risk holder is the same for the 

existing obligation and the refinance 

loan. In this case, the exemption would 

apply regardless of whether the existing 

obligation were refinanced by the 

servicer or subservicer on the existing 

obligation (acting as a ‘‘creditor’’ under 

§ 1026.2(a)(17)) or by a different 

creditor. See comment 

35(c)(2)(vii)(A)(1)–2.ii. 

As noted, one commenter requested 

clarification about whether a servicer or 

subservicer could originate a refinance 

that would be eligible for the 

exemption. This commenter expressed 

concerns that the requirement that the 

‘‘owner or guarantor’’ remain the same 

would prohibit this for exempt 

refinances. Comment 35(c)(2)(vii)(A)(1)– 

2.ii is intended to clarify that servicers 

or subservicers may originate refinances 

that are exempt if the credit risk holder 

on the original obligation remains the 

credit risk holder on the refinance loan. 

In new comment 35(c)(2)(vii)(A)(1)–3, 

the final rule notes that a creditor may 

at times make a mortgage loan that will 

be transferred or sold to a purchaser 

pursuant to an agreement that has been 

entered into at or before the time the 

transaction is consummated. Such an 

agreement is sometimes known as a 

‘‘forward commitment.’’ The comment 

clarifies that a refinance loan with a 

forward commitment does not satisfy 

the requirement of 

§ 1026.35(c)(2)(vii)(A)(1) if the loan will 

be acquired by another person pursuant 

to a forward commitment, such that the 

credit risk on the refinance loan will 

transfer to a person who did not hold 

the credit risk on the existing obligation. 

This comment is intended to ensure that 

creditors cannot evade the HPML 

appraisal requirement by refinancing a 

loan on which they hold the credit risk 

but then bear the credit risk on the 

refinance loan for only a short interim 

period before transferring the loan to a 

new longer-term credit risk holder. 

Overall, the Agencies believe that the 

benefits of an appraisal with an interior 

inspection are less clear where the 

credit risk holder remains the same for 

both transactions. The credit risk holder 

of the existing obligation is more likely 

to be familiar with the property securing 

the transaction or relevant market 

conditions than a new credit risk 

holder. This knowledge could have 

resulted from the credit risk holder 

having evaluated property valuation 

documents when taking on the original 

credit risk, as well as ongoing portfolio 

monitoring. By contrast, when the credit 

risk holder of the refinance loan is not 

also the credit risk holder of the existing 

loan, the refinance loan involves new 

risk to the new credit risk holder of the 

refinance loan; here, safety and 

soundness would be better served by an 

appraisal in conformity with USPAP 

and in compliance with FIRREA that 

includes an interior inspection.49


tkelley on DSK3SPTVN1PROD with RULES2
78538 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

benefit for conventional streamlined refinance 

programs where the party making the refinance loan 

already owns the credit risk. This will enable 

current homeowners to take advantage of current 

loan interest rates to refinance their mortgages.’’ 

Statement of Sen. Dodd, 156 Cong. Rec. S5928 (July 

15, 2010). 

50See § 1026.43(e)(4)(iii)(A); see also TILA 

section 129C(b)(3)(ii), 15 U.S.C. 1639c(b)(3)(ii). 

51See 78 FR 59890 (Sept. 30, 2013). 

52To be ‘‘qualified mortgages,’’ loans eligible to 

be insured or guaranteed by HUD, VA, USDA or 

RHS must not result in negative amortization or 

provide for interest-only or balloon payments; have 

a loan term exceeding 30 years; or points and fees 

above to three percent of the loan amount (with a 

higher cap for loans under $100,000). 

§ 1026.43(e)(4)(i)(A) (cross-referencing 

§ 1026.43(e)(2)(i) through (iii). 

53See § 1026.43(e)(4)(i)(A) (cross-referencing 

§ 1026.43(e)(2)(i) through (iii), which require that 

the loan not result in negative amortization or 

provide for interest-only or balloon payments; limit 

the loan term at 30 years; and cap points and fees 

to three percent of the loan amount (with a higher 

cap for loans under $100,000). 54Creditors making qualified mortgages that are 

‘‘higher-priced’’ are entitled to a rebuttal 

presumption of compliance with the general abilityto-repay rules, while creditors making qualified 

mortgages that are not ‘‘higher-priced’’ are entitled 

to a safe harbor of compliance. A ‘‘higher-priced 

covered transaction’’ under the Bureau’s 2013 ATR 

Rule is a transaction covered by the general abilityto-repay rules ‘‘with an annual percentage rate that 

exceeds the average prime offer rate for a 

comparable transaction as of the date the interest 

rate is set by 1.5 or more percentage points for a 

first lien covered transaction, other than a qualified 

mortgage under paragraph (e)(5), (e)(6), or (f) of 

§ 1026.43; by 3.5 or more percentage points for a 

first lien covered transaction that is a qualified 

mortgage under paragraph (e)(5), (e)(6), or (f) of 

§ 1026.43; or by 3.5 or more percentage points for 

a subordinate lien covered transaction. 

§ 1026.43(b)(4). 

55They also can be ‘‘qualified mortgages’’ if, for 

instance, they meet all of the criteria under the 

general definition of ‘‘qualified mortgage.’’ See 

§ 1026.43(e)(2). 

As stated in the 2013 Supplemental 

Proposed Rule, the Agencies generally 

believe that requiring that the credit risk 

holder remain the same makes it 

unnecessary to require that the 

‘‘creditor’’ (as defined under 

§ 1026.2(a)(17)) also be the same for 

both the existing obligation and the 

refinance loan. Under Regulation Z’s 

definition of ‘‘creditor,’’ the creditor 

will not necessarily be the credit risk 

holder for both the existing and the 

refinance loans. By allowing the creditor 

to be different (as long as the underlying 

credit risk holder on the loan remains 

the same), the final rule provides 

consumers with greater ability to obtain 

a more beneficial loan without having to 

obtain an appraisal. 

35(c)(2)(vii)(A)(2)—government 

agency programs. Section 

1026.35(c)(2)(vii)(A)(2) provides that a 

refinance loan meeting the other criteria 

for the exemption 

(§ 1026.35(c)(2)(vii)(B) and (C)) could 

also qualify for the exemption if the 

Federal government agency that insured 

or guaranteed the existing obligation 

also insures or guarantees the refinance 

loan. 

Typically these government agency 

loans would be qualified mortgages 

under the Bureau’s 2013 ATR Final 

Rule; 50 they also potentially could be 

qualified mortgages under the qualified 

mortgage regulations of each of these 

agencies, once issued.51 As qualified 

mortgages, they would be exempt from 

the HPML appraisal rules under the 

exemption for qualified mortgages in 

§ 1026.35(c)(2)(i). 

The Agencies are adopting a separate 

provision for Federal government 

agency loans for several reasons. First, 

§ 1026.35(c)(2)(vii)(A)(2) is intended to 

ensure that the HPML appraisal rules 

will not disrupt government refinance 

programs, which the Agencies do not 

believe was Congress’s intent. This 

provision is meant to clarify the 2013 

Supplemental Proposed Rule, which 

was intended to exempt refinances 

consistent with existing Federal 

government agency streamlined 

refinance programs. 

Second, as noted, Federal government 

agency loans have valuation 

requirements that the affected Federal 

agency has deemed sufficiently 

protective of its interests. The Agencies 

do not believe that Congress intended 

that the HPML appraisal rules should 

override the established requirements 

and standards of Federal government 

agencies for their mortgage programs. 

Moreover, the requirements of Federal 

mortgage programs, including the 

valuation requirements, are transparent 

and established by publicly accountable 

entities. In this regard, refinances 

retaining FHA insurance, for instance, 

are distinguishable from loans with the 

same loan-level private mortgage 

insurer, whose valuation and other 

standards are determined by private 

contracts. See also comment 

35(c)(2)(vii)(A)(1)–1 and accompanying 

section-by-section analysis. 

Third, the terms ‘‘insured’’ and 

‘‘guaranteed’’ are commonly used to 

describe the loan-level protections 

afforded by HUD, VA, and USDA 

(including RHS) against losses due to 

default; however, the Agencies are 

concerned that these terms might not be 

readily understood to be a part of the 

same credit risk holder provision under 

§ 1026.35(c)(2)(vii)(A)(1). As noted, one 

commenter indicated, for example, that 

confusion might exist about whether a 

loan with FHA insurance or a VA 

guaranty that was refinanced into a loan 

also insured or guaranteed by FHA or 

VA could qualify for the exemption if 

the secondary market participants 

differed on the two loans. The Agencies 

therefore wish to be clear that these 

loans would still qualify for the 

exemption because the loan-level credit 

risk holder remains the same. 

Finally, these loans might not always 

be ‘‘qualified mortgages’’ under the 

Bureau’s ATR rules because they might 

not meet all of the criteria required for 

that status.52 The Agencies do not 

believe that layering the HPML 

appraisal requirements onto Federal 

government agency loans provides 

sufficient benefits to warrant the 

drawbacks of burdening consumers and 

creditors in these transactions. A 

Federal government agency has already 

determined what the appropriate 

valuation requirements should be and, 

as previously discussed, these mortgage 

programs are intended to provide 

needed relief to borrowers and to 

mitigate credit risk for creditors. The 

Agencies thus believe that the safety 

and soundness of creditors and the 

public interest is served by allowing 

these transactions to go forward under 

valuation rules established by the 

Federal agency insuring or guaranteeing 

the loan. 

Relationship to the 2013 ATR Final 

Rule. The Agencies recognize that in the 

near term, most Federal government 

program and GSE streamlined refinance 

loans will be exempt from the HPML 

appraisal rules as ‘‘qualified mortgages’’ 

under § 1026.35(c)(2)(i). Under the 

Bureau’s 2013 ATR Final Rule, loans 

eligible to be purchased, guaranteed, or 

insured by Fannie Mae, Freddie Mac, 

HUD, VA, USDA, or RHS (based solely 

on criteria related to the consumer’s 

ability to repay) are subject to the 

general ability-to-repay rules (found in 

§ 1026.43(c)). See § 1026.43(e)(4)(ii). 

However, if they meet certain criteria,53

they are considered ‘‘qualified 

mortgages’’ entitled to either a 

rebuttable or conclusive presumption of 

compliance with the general ability-torepay rules, depending on the loan’s 

interest rate.54 See § 1026.43(e)(1), 

(e)(4).55 As qualified mortgages, they are 

exempt from the HPML appraisal rules. 

See § 1026.35(c)(2)(i). 

First, the 2013 ATR Final Rule limits 

the qualified mortgage status of loans 

purchased or guaranteed by Fannie Mae 

and Freddie Mac under the special rules 

of § 1026.43(e)(4). These loans will not 

be eligible to be qualified mortgages if 

consummated after January 10, 2021, 

unless they meet the criteria of another 

type of qualified mortgage. See 

§ 1026.43(c)(4)(iii)(B). Second, again, 

GSE-eligible loans and loans eligible to 

be insured or guaranteed under a HUD, 


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56For loans eligible to be insured or guaranteed 

under a HUD, VA, USDA, or RHA program, the 

qualified mortgage status conferred under 

§ 1026.43(e)(4)(i) will be replaced for each type of 

loan when those agencies respectively issue rules 

defining a qualified mortgage based on each 

agency’s own programs. See § 1026.43(e)(4)(iii)(A); 

see also TILA section 129C(b)(3)(ii), 15 U.S.C. 

1639c(b)(3)(ii). See also, e.g., 78 FR 59890 (Sept. 30, 

2013). 

57See § 1026.43(e)(4)(i)(A) (cross-referencing 

§ 1026.43(e)(2)(i) through (iii). 

58Section 1026.18(s)(5)(i) defines ‘‘balloon 

payment’’ as ‘‘a payment that is more than two 

times a regular periodic payment.’’ 

59Comment 43(c)(5)(i)–4 states as follows: ‘‘In 

determining whether monthly, fully amortizing 

payments are substantially equal, creditors should 

disregard minor variations due to paymentschedule irregularities and odd periods, such as a 

long or short first or last payment period. That is, 

monthly payments of principal and interest that 

repay the loan amount over the loan term need not 

be equal, but the monthly payments should be 

substantially the same without significant variation 

in the monthly combined payments of both 

principal and interest. For example, where no two 

monthly payments vary from each other by more 

than 1 percent (excluding odd periods, such as a 

long or short first or last payment period), such 

monthly payments would be considered 

substantially equal for purposes of this section. In 

general, creditors should determine whether the 

monthly, fully amortizing payments are 

substantially equal based on guidance provided in 

§ 1026.17(c)(3) (discussing minor variations), and 

§ 1026.17(c)(4)(i) through (iii) (discussing paymentschedule irregularities and measuring odd periods 

due to a long or short first period) and associated 

commentary.’’ 

60The Agencies acknowledge that these increased 

risks may be lower where the interest-only period 

is relatively short (such as one or two years), 

because the payments in the early years of a 

mortgage are heavily weighted toward interest; thus 

the consumer would be paying down little principal 

even in making fully amortizing payments. 

61See, e.g., Fannie Mae, ‘‘Home Affordable 

Refinance (DU Refi Plus and Refi Plus) FAQs’’ (June 

7, 2013) at 11 (describing options for meeting the 

requirement that the refinance provide a borrower 

benefit); Freddie Mac, ‘‘Freddie Mac Relief 

Refinance MortgagesSM—Open Access Eligibility 

Requirements’’ (January 2013) at 1 (describing 

options for meeting the requirement that the 

refinance provide a borrower benefit). 

62See Dodd-Frank Act section 1411(a)(2), TILA 

section 129C(a)(5)(E) and (F), 15 U.S.C. 

1639c(a)(5)(E) and (F). TILA section 129C(a)(5) 

authorizes HUD, VA, USDA, and RHS to exempt 

‘‘refinancings under a streamlined refinancing’’ 

from the Act’s income verification requirement of 

the ability-to-repay rules. 15 U.S.C. 1639c(a)(5). See 

also TILA section 129c(a)(4), 15 U.S.C. 1639c(a)(4). 

VA, USDA, or RHA program 56 are 

‘‘qualified mortgages’’ only if they meet 

certain criteria—they must not result in 

negative amortization or provide for 

interest-only or balloon payments; have 

a loan term exceeding 30 years; or 

points and fees above to three percent 

of the loan amount (with a higher cap 

for loans under $100,000).57

The Agencies believe that the 

refinance exemption under the HPML 

appraisal rule should nonetheless cover 

Federal government agency and GSE 

streamlined refinance loans. The 

exemption is appropriate here in part 

because the GSEs and Federal 

government agencies have valuation 

requirements to protect their interests 

that are transparent and publicly 

available. In this regard, an important 

distinction between the qualified 

mortgage provisions addressing GSE 

and Federal government agency loans 

and the HPML refinance exemption 

criteria in § 1026.35(c)(2)(vii)(A)(1) and 

(2) is that qualified mortgage status may 

be conferred on loans ‘‘eligible’’ to be 

purchased by a GSE or insured or 

guaranteed by a Federal government 

agency; by contrast, the HPML refinance 

exemption from the HPML appraisal 

rules requires that these loans actually 

are purchased by Fannie Mae or Freddie 

Mac or continue to be insured or 

guaranteed by a Federal government 

agency. In this way, compliance with 

valuation requirements established by 

these entities is assured as part of the 

justification for the exemption. 

35(c)(2)(vii)(B) 

Prohibition on certain risky features. 

Consistent with the 2013 Supplemental 

Proposed Rule, § 1026.35(c)(2)(vii)(B) 

requires that a refinancing eligible for 

the refinance exemption from the HPML 

appraisal rules not allow for negative 

amortization (‘‘cause the principal 

balance to increase’’), interest-only 

payments (‘‘allow the consumer to defer 

repayment of principal’’), or a balloon 

payment, as defined in 

§ 1026.18(s)(5)(i).58

The Agencies also are adopting 

without change proposed comment 

35(c)(2)(vii)(B)–1 which states that, 

under § 1026.35(c)(2)(vii)(B), a 

refinancing must provide for regular 

periodic payments that do not: result in 

an increase of the principal balance 

(negative amortization), allow the 

consumer to defer repayment of 

principal (see comment 43(e)(2)(i)–2), or 

result in a balloon payment. The 

comment thus clarifies that the terms of 

the legal obligation must require the 

consumer to make payments of 

principal and interest on a monthly or 

other periodic basis that will repay the 

loan amount over the loan term. The 

comment further states that, except for 

payments resulting from any interest 

rate changes after consummation in an 

adjustable-rate or step-rate mortgage, the 

periodic payments must be substantially 

equal. The comment cross-references 

comment 43(c)(5)(i)–4 of the Bureau’s 

2013 ATR Final Rule for an explanation 

of the term ‘‘substantially equal.’’ 59 The 

comment also clarifies that a singlepayment transaction is not a refinancing 

meeting the requirements of 

§ 1026.35(c)(2)(vii) because it does not 

require ‘‘regular periodic payments.’’ 

Where these features are present in an 

HPML that is not a qualified mortgage, 

the Agencies believe that the 

information provided by a real property 

appraisal in conformity with USPAP 

that includes an interior property 

inspection is important for the safety 

and soundness of creditors and the 

protection of consumers. Additional 

equity may be needed to support a loan 

with negative amortization, for example, 

and the risk of default might be higher 

for loans with interest-only and balloon 

payment features. 

The Agencies recognize that 

consumers who need immediate relief 

from payments that they cannot afford 

might benefit in the near term by 

refinancing into a loan that allows 

interest-only payments for a period of 

time. However, the Agencies believe 

that a reliable valuation of the collateral 

is important when the consumer will 

not be building any equity for a period 

of time. In that situation, the consumer 

and credit risk holder may be more 

vulnerable should the property decline 

in value than they would be if the 

consumer were paying some principal 

as well.60

The Agencies also recognize that, in 

most cases, balloon payment mortgages 

are originated with the expectation that 

a consumer will be able to refinance the 

loan when the balloon payment comes 

due. These loans are made for a number 

of reasons, such as to control interest 

rate risk for the creditor or as a wealth 

management tool, usually for higherasset consumers. Regardless of why a 

balloon mortgage is made, however, 

there is always risk that a consumer will 

not be able to make the balloon payment 

or refinance, with potentially significant 

consequences for the consumer and the 

credit risk holder if something 

unexpected happens and the consumer 

cannot do so. 

The Agencies note that the GSE and 

government streamlined refinance 

programs described above do not allow 

these features, in part because helping a 

consumer pay off debt more quickly is 

one of the goals of these programs.61 In 

addition, the prohibition on risky 

features for this exemption is consistent 

with provisions in the Dodd-Frank Act 

reflecting congressional concerns about 

these loan terms. For example, in DoddFrank Act provisions regarding 

exemptions from certain ability-to-repay 

requirements for refinancings under 

HUD, VA, USDA, and RHS programs, 

Congress similarly required that the 

refinance loan be fully amortizing and 

prohibited balloon payments.62 The 


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63See also OCC, Board, FDIC, NCUA, 

‘‘Interagency Guidance on Nontraditional Mortgage 

Product Risks,’’ 71 FR 58609 (Oct. 4, 2006). 

64See, e.g., Fannie Mae Single Family Selling 

Guide, chapter B5–5, Section B5–5.2; Freddie Mac 

Single Family Seller/Servicer Guide, chapters A24, 

B24 and C24. 

65Under the 2013 ATR Final Rule, a refinance 

loan or ‘‘standard mortgage’’ is one for which, 

among other criteria, the proceeds from the loan are 

used solely for the following purposes: (1) To pay 

off the outstanding principal balance on the nonstandard mortgage; and (2) to pay closing or 

settlement charges required to be disclosed under 

RESPA. See § 1026.43(d)(1)(ii)(E). 

final rule also is consistent with a 

provision in the Bureau’s 2013 ATR 

Final Rule that exempts the refinancing 

of a ‘‘non-standard mortgage’’ into a 

‘‘standard mortgage’’ from the 

requirement that the creditor make a 

good faith determination of the 

consumer’s ability to repay the loan. See 

§ 1026.43(d). To be eligible for this 

exemption from the ability-to-repay 

rules, the refinance loan must, among 

other criteria, not allow for negative 

amortization, interest-only payments, or 

a balloon payment. See 

§ 1026.43(d)(1)(ii). The Agencies believe 

that these statutory provisions and 

program restrictions reflect a judgment 

on the part of Congress, government 

agencies, and the GSEs that refinances 

with negative amortization, interestonly payment features, or balloon 

payments may increase risks to 

consumers and creditors. 

The Agencies are concerned that 

negative amortization, interest-only 

payments, and balloon payments are 

loan features that may increase a loan’s 

risk to consumers as well as to primary 

and secondary mortgage markets.63

Thus, in the Agencies’ view, permitting 

these non-qualified mortgage HPML 

refinances to proceed without a real 

property appraisal in conformity with 

USPAP and FIRREA that includes an 

interior inspection would not be 

consistent with the Agencies’ exemption 

authority, which permits exemptions 

only if they promote the safety and 

soundness of creditors and are in the 

public interest. 

As noted, several commenters 

requested that the prohibition on 

balloon payments for exempt refinances 

be eliminated in the final rule. One 

commenter also requested that the 

prohibition on interest-only payments 

be eliminated. For the reasons stated, 

however, the Agencies continue to 

believe that the prohibitions on balloon 

payments and interest-only payments 

are appropriate. In addition, the 

Agencies note that some of the public 

comments in support of eliminating the 

balloon payment prohibition suggested 

uncertainty about whether ‘‘balloon 

payment qualified mortgages’’ under the 

Bureau’s ability-to-repay rules would be 

exempt. See § 1026.43(e)(6) and (f). As 

set out in the section-by-section analysis 

of the exemption for qualified mortgages 

under § 1026.35(c)(2)(i), both temporary 

balloon payment mortgages under 

§ 1026.43(e)(6) and balloon payment 

qualified mortgages under § 1026.43(f) 

are exempt from the HPML appraisal 

rules under the exemption for qualified 

mortgages. The Agencies believe that 

this clarification helps address the 

concerns of commenters on this issue. 

35(c)(2)(vii)(C) 

No cash out. Proposed 

§ 1026.35(c)(2)(vii)(C) would have 

required that the proceeds from a 

refinancing eligible for an exemption 

from the HPML appraisal rules be used 

for only two purposes: (1) to pay off the 

outstanding principal balance on the 

existing first lien mortgage obligation; 

and (2) to pay closing or settlement 

charges required to be disclosed under 

RESPA. Based on comments, 

particularly a comment recommending 

that the Agencies clarify that proceeds 

could be used to pay accrued interest, 

the Agencies are revising this provision 

of the proposal. 

Specifically, the Agencies are revising 

§ 1026.35(c)(2)(vii)(C) to require that the 

proceeds from the refinance loan be 

used ‘‘only to satisfy the existing 

obligation and to pay amounts 

attributed solely to the costs of the 

refinancing.’’ The Agencies have 

determined that compliance and 

understanding are best facilitated by 

generally modeling the ‘‘no cash out’’ 

aspect of the exemption on other 

provisions in Regulation Z regarding 

refinancings in the rescission context. 

Thus, revised § 1026.35(c)(2)(vii)(C) 

incorporates concepts and guidance 

from § 1026.23(f)(2), which sets out the 

portion of a refinance that is 

rescindable—namely, the portion that 

exceeds ‘‘the unpaid principal balance, 

any earned unpaid finance charge on 

the existing debt, and amounts 

attributed solely to the costs of the 

refinancing or consolidation.’’ The 

Official Staff Commentary associated 

with § 1026.23(f)(2) clarifies, in 

pertinent part, that ‘‘a new advance does 

not include amounts attributed solely to 

the costs of the refinancing. These 

amounts would include section 

1026.4(c)(7) charges (such as attorney’s 

fees and title examination and insurance 

fees, if bona fide and reasonable in 

amount), as well as insurance premiums 

and other charges that are not finance 

charges. (Finance charges on the new 

transaction—points, for example— 

would not be considered in determining 

whether there is a new advance of 

money in a refinancing since finance 

charges are not part of the amount 

financed.)’’ Comment 23(f)(2)–4. 

Revised comment 35(c)(2)(vii)(C)–1 

provides that the ‘‘existing obligation’’ 

includes the consumer’s existing first 

lien principal balance, any earned 

unpaid finance charges such as accrued 

interest, and any other lawful charges 

related to the existing loan. Accrued 

interest is any interest that has 

accumulated since the consumer’s last 

payment of principal and interest, but 

that the borrower has not yet paid and 

has not been capitalized into the 

principal balance. Accrued interest 

exists when a consumer makes a 

payment on the existing obligation on 

October 1st, for example, but then 

refinances into a new loan on October 

20th. In this case, interest would have 

accumulated between the payment 

made on October 1st and the date of the 

refinance. However, the consumer 

would not have paid that accrued 

interest and the creditor normally 

would not have capitalized that interest 

into the principal balance. 

Revised comment 35(c)(2)(vii)(C)–1 

further provides that guidance on the 

meaning of refinancing costs is available 

in comment 23(f)–4. Finally, consistent 

with proposed comment 

35(c)(2)(vii)(C)–1, the revised comment 

clarifies that, if the proceeds of a 

refinancing are used for other purposes, 

such as to pay off other liens or to 

provide additional cash to the consumer 

for discretionary spending, the 

transaction does not qualify for the 

exemption for a refinancing under 

§ 1026.35(c)(2)(vii) from the appraisal 

requirements in § 1026.35(c). 

The Agencies view the limitation on 

the use of the refinance loan’s proceeds 

as necessary to ensure that the principal 

balance of the loan does not increase, or 

increases only minimally. This in turn 

helps ensure that the consumer is not 

losing significant additional equity and 

that the holder of the credit risk is not 

taking on significant new risk, in which 

case an appraisal with an interior 

inspection to assess the change in risk 

could be beneficial to both parties. 

The Agencies also note that limiting 

the use of proceeds to allow for no extra 

cash out for the consumer other than 

closing costs is consistent with 

prevailing streamlined refinance 

programs.64 It is also consistent with the 

exemption from the Bureau’s ability-torepay rules for refinances of ‘‘nonstandard mortgages’’ into ‘‘standard 

mortgages.’’ 65 See § 1026.43(d)(1)(ii)(E). 

The Agencies believe that consistency 

across mortgage rules can help facilitate 


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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78541 

66See also 2013 ATR Final Rule 

§ 1026.43(d)(2)(iv) and (v). The exemption from the 

ability-to-repay rules for refinances of ‘‘nonstandard mortgages’’ into ‘‘standard mortgages’’ 

under the 2013 ATR Final Rule requires that, 

among other conditions: (1) the consumer made no 

more than one payment more than 30 days late on 

the non-standard mortgage in 12-month period 

before applying for the standard mortgage; and (2) 

the consumer made no payments more than 30 days 

late in the six-month period before applying for the 

standard mortgage. See § 1026.43(d)(2)(iv) and (v). 

67See OCC: 12 CFR parts 34, Subpart C, and 164; 

Board: 12 CFR part 208, subpart E, and part 225, 

subpart G; FDIC: 12 CFR part 323; NCUA: 12 CFR 

part 722. See also 75 FR 77450 (Dec. 10, 2010). 68FDIC: 12 CFR part 323; FRB: 12 CFR part 208, 

subpart E and 12 CFR part 255, subpart G; NCUA: 

12 CFR part 722; and OCC: 12 CFR part 34, subpart 

C, and 12 CFR part 164. 

69A regulated institution is an institution 

regulated by a Federal financial institution 

Continued 

compliance and ease compliance 

burden. 

Other conditions. Consistent with the 

proposal, the Agencies are not adopting 

additional conditions on the types of 

refinancings eligible for the exemption 

from the HPML appraisal rules. In this 

way, the Agencies seek to maintain 

flexibility for creditors and investors to 

adapt and change their borrower 

eligibility requirements and other 

requirements for streamlined HPML 

refinances to address changing market 

environments and factors that may be 

unique to their programs. 

Regarding comments supporting a 

requirement that the refinance result in 

a ‘‘benefit’’ to the consumer, such as a 

lower payment, a lower rate, or shorter 

term, the Agencies continue to believe 

that it is unclear how the existence of 

a borrower benefit in the new 

transaction relates to what type of 

valuation should be required. The 

Agencies are also not adopting a 

limitation on the points and fees that 

may be refinanced. Congress addressed 

loan cost parameters for the appraisal 

rules by defining HPMLs as loans with 

interest rates above APOR by a certain 

percentage. The Agencies are concerned 

that introducing a points and fees cap 

into the rule could create confusion and 

compliance difficulties, given the 

statutory points and fees caps 

implemented in other overlapping 

regulations, such as regulations 

regarding qualified mortgages and highcost mortgages, noted earlier. 

Other protections in the final rule 

ensure that the borrower, creditor and 

investor would be taking on no new 

material credit risk, which the Agencies 

believe should be the primary 

determinant of whether an appraisal 

with an interior inspection should be 

required. The Agencies also believe that 

borrower benefits can be difficult to 

define because they can be highly 

transaction-specific. For example, a 

higher rate might result in a benefit to 

a consumer where the higher rate results 

from extending the loan term to lower 

the consumer’s payments. Here, the 

benefit to the consumer is an improved 

ability to stay in the home by making 

the payments more affordable. Finally, 

the Agencies are concerned that a 

‘‘benefits’’ test could add complexity 

and burden to the exemption that might 

undermine its intended benefits. 

The Agencies are also not adopting 

borrower eligibility requirements, such 

as that the borrower must have been ontime with payments on the existing 

mortgage for a certain period of time, as 

at least one commenter suggested. As 

discussed in the 2013 Supplemental 

Proposed Rule, GSE and Federal 

government agency streamlined 

refinance programs require that 

borrower eligibility criteria be met, such 

as that the consumer have been current 

on the existing obligation for a certain 

period of time.66 Commenters did not, 

however, explain how borrower 

eligibility requirements relate to 

whether an appraisal should be 

required. Again, the Agencies believe 

that the criteria for the refinance 

exemption in the final rule comprise 

those that relate to whether a more or 

less rigorous valuation requirement 

should apply; the Agencies believe that 

the main consideration is whether new 

credit risk will be taken on by the 

consumer, creditor, and investor. The 

criteria adopted in the final rule are 

designed to minimize additional risk on 

the refinance by curbing material 

increases in principal and ensuring that 

the ultimate credit risk holder remains 

the same. In addition, the Agencies 

believe that streamlined refinance 

programs can provide maximum benefit 

to consumers, creditors, and investors 

when creditors and investors retain 

some flexibility to adapt borrower 

eligibility and other requirements to 

address changing market environments 

and factors that may be unique to their 

programs. 

Finally, one commenter also urged the 

Agencies not to apply the exemption to 

loans that had already been refinanced, 

to avoid the consumer accruing 

excessive origination costs with 

successive refinances. The Agencies 

share concerns about harm to 

consumers through serial refinancings. 

On balance, however, the Agencies 

believe that consumers who have 

already refinanced their loans should 

have the same opportunities to take 

advantage of lower rates as other 

consumers. The Agencies believe that 

the limit on cash out helps mitigate 

abuses with serial refinancings by 

ensuring that consumers cannot 

continually refinance to pay off other 

debts without a full assessment of the 

collateral value. 

Conditional exemption. In the 2013 

Supplemental Proposed Rule, the 

Agencies sought comment on whether 

the exemption for refinance loans 

should be conditioned on the creditor 

obtaining an alternative valuation (i.e., a 

valuation other than a real property 

appraisal in conformity with USPAP 

and FIRREA that includes an interior 

inspection) and providing a copy to the 

consumer three days before 

consummation. In requesting comment 

on this issue, the Agencies noted that a 

refinanced mortgage loan is a significant 

financial commitment that involves 

material transaction costs. 

Because refinances do involve 

potential risks and costs, the Agencies 

requested commenters’ views on 

whether the consumer would better 

positioned to consider alternatives to 

refinancing if they were given an 

alternative valuation. The Agencies also 

sought data that might be relevant to 

whether this additional condition 

would be necessary. 

For reasons discussed below, the 

Agencies are not adopting a condition 

on the refinance exemption that the 

creditor obtain and give the consumer 

an alternative valuation. As noted, 

several commenters affirmatively 

opposed requiring creditors to obtain an 

alternative valuation. Commenters 

stated that doing so would hinder the 

process and increase the time and 

expense of these transactions 

unnecessarily. These commenters did 

not believe that a significant benefit 

exists in giving an alternative valuation 

when consumers are not increasing the 

amount of their debt or substituting the 

collateral. 

Other commenters, while not 

affirmatively supporting or opposing an 

alternative valuation condition, 

suggested that if an alternative valuation 

is required, creditors should be able to 

rely on an existing appraisal to the 

extent permitted by existing Federal 

appraisal regulations and the 

interagency appraisal guidelines,67

which allow for using an existing 

appraisal. Two commenters asked 

whether a creditor that is considering an 

extension of credit secured by a junior 

mortgage could use the appraisal 

obtained by the creditor who extended 

credit to the same borrower secured by 

a first mortgage. FIRREA real estate 

appraisal regulations required to be 

issued by the Federal financial 

institution regulatory agencies 68 allow a 

regulated institution 69 to accept an 


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78542 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

regulatory agency, such as the FDIC, FRB, NCUA, 

or the OCC. 

70The Interagency Appraisal and Evaluation 

Guidelines note that the Agencies’ appraisal 

regulations do not contain a specific definition of 

the term ‘‘financial services institution.’’ The term 

is intended to describe entities that provide services 

in connection with real estate lending transactions 

on an ongoing basis, including loan brokers. 

71See OCC: 12 CFR 34. 45(b)(2) and 12 CFR 

164.5(b)(2); Board: 12 CFR 225.65(b)(2); FDIC: 12 

CFR 323.5(b)(2); NCUA: 12 CFR 722.5(b)(2). 

72See OCC: 12 CFR 34.43 and 164.3; Board: 12 

CFR 225.63; FDIC: 12 CFR 323.3; NCUA: 12 CFR 

722.3. See also OCC, Board, FDIC, NCUA, 

Interagency Appraisal and Evaluation Guidelines, 

75 FR 77450, 77458–61 and App. A, 77465–68 (Dec. 

10, 2010). In addition, as noted (see infra note 42), 

data on GSE streamlined refinances indicates that 

either an AVM or an appraisal (interior visit or 

exterior-only) was obtained for all streamlined 

refinances purchased by the GSEs in 2012. 

73 15 U.S.C. 1691 et seq. 

74See 12 CFR 1002.14(a)(1), effective January 18, 

2014; 78 FR 7216 (Jan. 31, 2013) (2013 ECOA 

Valuations Final Rule). 

75 ‘‘Valuation’’ is separately defined in Regulation 

Z, § 1026.42(b)(3). That definition does not include 

AVMs, however, which was deemed appropriate for 

purposes of the appraisal independence rules under 

§ 1026.42. Here, however, the Agencies believe that 

an estimate of value provided to the consumer 

could appropriately include an AVM. 

76See also Statement of Sen. Dodd, 156 Cong. 

Rec. S5928 (July 15, 2010). 

appraisal that was prepared by an 

appraiser engaged directly by another 

financial services institution,70 if certain 

conditions are met. These include that 

a regulated institution may accept an 

appraisal that was prepared by an 

appraiser engaged directly by another 

financial services institution, if: (1) The 

appraiser has no direct or indirect 

interest, financial or otherwise, in the 

property or the transaction; and (2) the 

regulated institution determines that the 

appraisal conforms to the requirements 

of this subpart and is otherwise 

acceptable.71

Still others suggested that, if an 

alternative is required, a ‘‘drive-by’’ 

appraisal or comparable market analysis 

to ensure that the home still stands and 

is in reasonable condition would be 

advisable. The Agencies believe that 

conditioning the exemption is not 

warranted, so they are not adopting this 

suggestion. 

Several commenters supported 

conditioning the exemption and 

recommended that an alternative 

valuation to an appraisal with an 

interior inspection should be required 

so that consumers are better informed 

about their home value. 

The Agencies believe that the 

condition discussed in the 2013 

Supplemental Proposed Rule would not 

provide sufficient benefit to warrant the 

burden or cost it would introduce into 

the exemption. The vast majority of 

refinance transactions involve some 

type of valuation that, as of January 

2014, creditors will have to provide to 

consumers. For example, for any 

refinance eligible for a Federal 

government program or to be sold to a 

GSE, the creditor would have to comply 

with any valuation requirements 

imposed under those programs. For 

loans not made under those programs 

but purchased or made by a Federally 

regulated financial institution, either an 

‘‘evaluation’’ or an appraisal generally 

would be required.72

The Bureau’s rules in Regulation B 

implementing Dodd-Frank Act 

amendments to the Equal Credit 

Opportunity Act 73 (ECOA) require all 

creditors to provide to credit applicants 

free copies of appraisals and other 

written valuations developed in 

connection with an application for a 

loan to be secured by a first lien on a 

dwelling.74 The copies must be 

provided to the applicant promptly 

upon completion or three business days 

before consummation. See id. 

Regulation B defines ‘‘valuation’’ 

broadly to mean ‘‘any estimate of the 

value of a dwelling developed in 

connection with an application for 

credit.’’ 75 § 1002.14(b)(3). 

As stated in the 2013 Supplemental 

Proposed Rule, the Agencies recognize 

that obtaining estimates of value and 

providing copies of written valuations 

to consumers might not always be 

required by Federal law or investors. 

For example, certain non-depositories 

and depositories are not subject to the 

appraisal and evaluation requirements 

that apply to Federally regulated 

financial institutions under FIRREA title 

XI. However, the Agencies did not 

receive data or information suggesting 

that a significant number of refinances 

would be subject to no valuation 

requirements. The Agencies believe that 

the volume of refinances that might be 

exempt from the HPML appraisal rules 

and subject to no other valuation 

requirements of either the government 

or investors will be very small and that 

the benefits of conditioning the 

exemption for these refinances will not 

outweigh complexity and burden to 

affected creditors and their consumers 

seeking streamlined refinances. 

Again, the criteria for an exempt 

refinance adopted in the final rule are 

designed to limit the new risk that 

would result in a refinance, including 

risk resulting from significant additional 

equity being taken out of the home. 

Where no material credit risk is taken 

on in a refinance transactions, including 

risk resulting from a material reduction 

in home equity, the Agencies believe 

that valuation requirements are 

appropriately left to be determined by 

the parties involved in the transaction 

and any other applicable laws and 

regulations. 

In sum, the Agencies believe that the 

exemption is appropriately narrow in 

scope to capture the types of 

refinancings that Congress has generally 

expressed an intent to facilitate. See, 

e.g., TILA sections 129C(a)(5) and (6), 15 

U.S.C. 1639c(a)(5) and (6).76 The 

Agencies believe that this exemption 

promotes the safety and soundness of 

creditors and is in the public interest. 

35(c)(2)(viii) 

In section 35(c)(2)(viii), effective 

January 18, 2014, the Agencies are 

adopting a temporary exemption for all 

transactions secured in whole or in part 

by a manufactured home, until July 18, 

2015. This temporary exemption of 18 

months is intended to give creditors 

sufficient time to make any changes 

needed to comply with the HPML rules 

that will apply to manufactured home 

loans as a result of the final rules that 

will apply to applications received on or 

after July 18, 2015. The Agencies 

understand that creditors may need to 

make adjustments to their compliance 

systems for some of the new rules. 

These changes may involve new 

technical configurations and training, as 

well as modified or new contracts with 

any third-party service providers that 

the creditor may enlist to perform 

valuation services and related functions. 

Thus, the Agencies believe that this 

temporary exemption promotes the 

safety and soundness of creditors and is 

in the public interest. 

Rules Effective July 18, 2015 

For applications received on or after 

July 18, 2015, new rules will apply to 

loans secured by manufactured homes, 

as follows: 

(1) The temporary exemption for 

loans secured by existing manufactured 

homes and land will expire; those loans 

will be subject to the HPML appraisal 

rules in § 1026.35(c)(3) through (6). 

(2) A modified exemption for loans 

secured by a new manufactured home 

and land will take effect; those loans 

will be subject to all of the HPML 

appraisal requirements except the 

requirement that the appraisal include a 

physical visit of the interior of the 

property. See § 1026.35(c)(2)(viii)(A) 

and accompanying section-by-section 

analysis. 

(3) An exemption for loans secured by 

either a new or existing manufactured 

home and not land will be subject to a 

condition that the creditor obtain and 

provide to the consumer one of three 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78543 

77See, e.g., HUD: 24 CFR 203.5(e); HUD 

Handbook 4150.2, Valuations for Analysis for Home 

Mortgage Insurance for Single Family One- to FourUnit Dwellings, chapter 8.4 and App. D; USDA: 7 

CFR 3550.62(a) and 3550.73; USDA Direct Single 

Family Housing Loans and Grants Field Office 

Handbook (USDA Handbook), chapters 5.16 and, 

9.18; VA: VA Lenders Handbook, VA Pamphlet 26– 

7 (VA Handbook), chapters 7.11, 11.3, and 11.4; 

Fannie Mae: Fannie Mae Single Family 2013 Selling 

Guide B5–2.2–04, Manufactured Housing Appraisal 

Requirements (04/01/2009); Freddie Mac: Freddie 

Mac Single Family Seller/Servicer Guide, H33: 

Manufactured Homes/H33.6: Appraisal 

requirements (02/10/12). 

78See 78 FR 10368, 10379–80 (Feb. 13, 2013). 

types of value-related information. See 

§ 1026.35(c)(2)(viii)(B) and 

accompanying section-by-section 

analysis. 

These new rules are discussed below. 

Loans Secured by an Existing 

Manufactured Home and Land 

Under the version of 

§ 1026.35(c)(2)(viii) that goes into effect 

on July 18, 2015, loans secured by an 

existing manufactured home and land 

together will be subject to the HMPL 

appraisal requirements in 

§ 1026.35(c)(3) through (6), consistent 

with the January 2013 Final Rule and 

the 2013 Supplemental Proposed Rule. 

The Agencies’ Proposal 

In the 2013 Supplemental Proposed 

Rule, the Agencies did not propose to 

exempt from the HPML appraisal rules 

transactions that are secured by both an 

existing manufactured home and land. 

The Agencies did not believe that an 

exemption for these transactions would 

be in the public interest and promote 

the safety and soundness of creditors. 

The Agencies noted that Federal 

government and GSE manufactured 

home loan programs generally require 

conformity with USPAP real property 

appraisal standards for transactions 

secured by both a manufactured home 

and land.77 The Agencies expressed the 

view that the Federal government 

agency and GSE requirements may 

reflect that conducting an appraisal in 

conformity with USPAP standards are 

feasible for existing manufactured 

homes together with land. 

The Agencies noted that this view 

was affirmed by participants in informal 

outreach with experience in the area of 

manufactured home loan appraisals, 

who indicated that USPAP-compliant 

real property appraisals with an interior 

inspection are feasible and performed 

with regularity in these types of 

transactions. The Agencies also noted, 

however, that some commenters on the 

2012 Proposed Rule recommended that 

the Agencies exempt these types of 

‘‘land/home’’ transactions.78

Public Comments 

In the 2013 Supplemental Proposed 

Rule, the Agencies sought comment on 

whether an exemption from the HPML 

appraisal requirements for transactions 

secured by an existing manufactured 

home and land would be in the public 

interest and promote the safety and 

soundness of creditors. The Agencies 

also sought comment on, among other 

issues, whether an exemption for these 

loans should be conditioned on the 

creditor providing the consumer with 

some other type of valuation 

information. 

The Agencies received 14 comment 

letters on this issue from two national 

appraisal trade associations, a consumer 

advocate group, three affordable 

housing organizations, a policy and 

research organization, a national 

association for owners of manufactured 

homes, a credit union, a community 

bank, a national trade association for 

community banks, a State manufactured 

housing trade association, and two 

manufactured housing nonbank lenders. 

In addition, a national manufactured 

housing industry trade association 

referred to and endorsed the comments 

of two manufactured housing lenders. 

The credit union, community bank, 

consumer advocate group, affordable 

housing organizations, national 

association of owners of manufactured 

homes, and appraisal trade associations 

all supported the proposal to retain the 

coverage of HPMLs secured by an 

existing manufactured home and land, 

consistent with the January 2013 Final 

Rule. 

The community bank stated that 

existing manufactured homes typically 

depreciate more than comparable sitebuilt homes and should receive an 

interior and exterior inspection. This 

commenter asserted that an interior 

inspection is important for obtaining a 

proper valuation and that providing an 

exemption from the interior inspection 

requirement would not be appropriate. 

This commenter added that consumers 

and creditors deserve a safe and 

accurate transaction. 

The appraisal trade associations 

acknowledged that appraisal 

assignments for transactions secured by 

existing manufactured homes and land 

can involve greater complexity than 

assignments for site-built homes. These 

commenters indicated, however, that in 

recent years they have undertaken over 

150 training sessions to train over 5,500 

appraisal industry professionals on 

performing appraisals for transactions 

secured by a manufactured home and 

land. 

The consumer advocate group, two 

affordable housing organizations, a 

policy and research organization, and 

national association of owners of 

manufactured homes indicated that any 

issues with appraiser availability were 

due to a lack of valuation standards in 

this segment of the housing market. 

They maintained that requiring 

appraisals for these transactions would 

ensure demand, thus fostering greater 

appraiser capacity. 

On the other hand, the community 

bank trade association, State 

manufactured housing trade association, 

and two manufactured housing nonbank 

lenders opposed the proposal to cover 

loans secured by an existing 

manufactured home and land and 

recommended exemption these 

transactions from the HPML appraisal 

rules. 

The community bank trade 

association stated that appraisals 

increase costs to manufactured home 

borrowers who often have low incomes. 

In the view of this commenter, credit 

risk on portfolio lending and 

underwriting standards for secondary 

market transactions provide sufficient 

incentives for creditors to select 

appropriate alternative valuation 

methods, which include a variety of 

methods other than an appraisal in 

conformity with USPAP and FIRREA 

based upon a physical inspection of the 

interior of the property as required by 

the HPML appraisal rules. In addition, 

according to this commenter, some 

community banks report that appraisers 

can be readily engaged for manufactured 

housing transactions in general; for 

others, however, appraisers are 

reportedly difficult to find or appraisals 

are more costly or take longer than inhouse non-appraisal valuations. The 

State manufactured housing trade 

association also referred to difficulties 

with obtaining appraisals for these 

loans. This commenter expressed the 

view that creditors should be subject 

only to an appraisal requirement when 

participating in a government or GSE 

program that imposes such a 

requirement. 

One of the nonbank lenders stated 

that these transactions should be 

exempt due to a lack of sufficient 

appraisers and a lack of sufficient data 

on comparable sales (‘‘comparables’’) of 

manufactured homes, particularly in 

rural areas. This commenter also raised 

concerns about costs, noting that 

appraisals with interior inspections 

could, in this lender’s experience, raise 

loan cost by 68 to 81 basis points. In 

addition, the lender noted that in the 6 

percent of its 2012 manufactured home 

transactions secured by land and home 


tkelley on DSK3SPTVN1PROD with RULES2
78544 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

79See 12 CFR 1002.14. 

80The requirement for a second appraisal in 

‘‘flipped’’ transactions is not anticipated to be 

triggered in most existing manufactured home 

transactions, if any. See § 1026.35(c)(4). The 

Agencies are not aware, based on research, public 

comments, and outreach, that manufactured home 

properties are improved and re-sold quickly by 

investors. 

81 In commenting on the 2012 Proposed Rule, the 

national real estate trade associated similarly 

expressed the view that exempting transactions 

secured by both a manufactured home and land 

may not be appropriate. See 78 FR 48548, 48554, 

n. 16 (Aug. 8, 2013). 

that were subject to a similar HUD 

appraisal requirement, the collateral did 

not appraise at or above the sales price 

in 30 percent of transactions. In the 

view of this lender, these outcomes 

were due in significant part to an 

inappropriate emphasis in the HUD 

program on the use of manufactured 

homes as comparables. The other 

nonbank lender stated that an appraisal 

for transactions secured by an existing 

manufactured home and land would be 

unreliable and a misuse of consumer 

funds. This commenter also noted that 

it already complies with appraisal 

disclosure requirements in Regulation 

B.79 Finally, as noted above, a national 

trade association for manufactured 

housing endorsed the comments of 

these manufactured home lenders. 

The Final Rule 

Consistent with the 2013 

Supplemental Proposed Rule, the final 

rule that goes into effect July 18, 2015, 

does not exempt loans secured by an 

existing manufactured home and land 

from the HPML appraisal requirements 

in § 1026.35(c)(3) through (6).80

Covering transactions secured by an 

existing home and land is consistent 

with the requirements of the GSEs and 

Federal government agencies for these 

types of loans. 

In addition, the Agencies received 

information from manufactured home 

lender representatives who indicated 

that obtaining appraisals in conformity 

with USPAP that include interior 

inspections for loans secured by an 

existing manufactured home and land is 

not uncommon among manufactured 

home creditors. Some lender 

commenters on the 2013 Supplemental 

Proposed Rule supported applying the 

HPML appraisal rules to these 

transactions as consistent with prudent 

lending practices. 

Moreover, the Agencies obtained 

comments on the 2013 Supplemental 

Proposed Rule from consumer 

advocates, affordable housing 

organizations, and other stakeholders, 

but had not had the benefit of comments 

from these stakeholders on the 2012 

Proposed Rule. As discussed above, 

consumer and affordable housing 

advocates strongly supported applying 

the HPML appraisal requirements to 

transactions secured by an existing 

manufactured home and land. They 

argued, among other things, that 

consumers would thereby obtain 

information about the value of their 

homes that would account more 

thoroughly for the value added to a 

home by the land on which the existing 

home is or will be placed. Similar 

comments were submitted by a national 

real estate trade organization, a policy 

and research organization, and a 

national association of owners of 

manufactured homes.81

Appraiser organizations that 

submitted written comments and 

appraisers consulted by the Agencies in 

informal outreach also strongly 

recommended that the HPML appraisal 

rules be adopted for transactions 

secured by existing manufactured 

homes and land. They indicated that the 

appraisal methods for appraising 

existing manufactured homes and land 

are the same as for site-built homes and 

land. Their comments suggested that 

appraisals with interior inspections for 

these homes are common and that 

prudent lending practice and consumer 

protection are best served by obtaining 

appraisals for transactions secured by an 

existing manufactured home and land 

together, including a physical 

inspection of the interior of the home. 

As noted, one manufactured home 

lender commenter expressed concerns 

about applying the HPML appraisal 

rules to loans secured by existing 

manufactured homes and land when the 

home has been moved from its previous 

site to a dealer’s lot. Transactions 

secured by an existing home that has 

been moved to a dealer’s lot and land 

can still be appraised in conformity 

with USPAP, which does not require 

that the home first be sited before an 

appraiser performs the appraisal. The 

Agencies understand that the home 

could be inspected on the dealer’s lot, 

for example, or once the home is resited. The Agencies also note that 

several commenters asserted that 

existing manufactured homes are rarely 

moved. For these reasons, the Agencies 

believe that an appraisal with an 

interior inspection that values the home 

and land together is still warranted for 

these properties. 

Based on these comments and related 

outreach, the Agencies do not believe 

that exempting loans secured by a 

manufactured home and land from the 

HPML appraisal requirements would be 

in the public interest or promote the 

safety and soundness of creditors. The 

Agencies believe that covering these 

loans will help ensure that consumers 

are aware of information related to the 

value of their manufactured home 

before consummating an HPML (that is 

not a qualified mortgage). The Agencies 

also believe that covering these loans 

will facilitate the development of greater 

consistency between the rules and 

practices applicable to transactions 

secured by site-built homes and 

manufactured homes. The Agencies 

believe that this consistency of rules 

and practices will contribute to 

integrating manufactured home lending 

more fully into the broader mortgage 

market over time, which could have 

long-term benefits for consumers and 

lenders. 

The Agencies believe that most 

lenders of manufactured home loans 

obtain appraisals in conformity with 

USPAP and FIRREA for loans secured 

by existing manufactured homes and 

land. However, the Agencies understand 

that not all manufactured home lenders 

may do so, or do so consistently, and are 

mindful that smaller lenders in 

particular may need more time to 

comply. Therefore, the final rule gives 

the industry 18 months before 

compliance with the HPML appraisal 

requirements is mandatory for these 

transactions. 

35(c)(2)(viii)(A) 

Loans Secured by a New Manufactured 

Home and Land 

Section 1026.35(c)(2)(viii)(A), 

effective July 18, 2015, provides a 

partial exemption from the HPML 

appraisal requirements of 

§ 1026.35(c)(3) through (c)(6) for 

transactions secured by both a new 

manufactured home and land. 

Specifically, loans for which the 

creditor receives the application on or 

after July 18, 2015, will be exempt from 

the requirement that the appraisal 

include a physical visit of the interior of 

the manufactured home, found in 

§ 1026.35(c)(3)(i). All other HPML 

appraisal requirements in 

§ 1026.35(c)(3) through (c)(6) will apply. 

The Agencies’ Proposal 

In the January 2013 Final Rule, the 

Agencies adopted an exemption from 

the HPML appraisal requirements for 

loans secured by a ‘‘new manufactured 

home.’’ See 78 FR 10368, 10379–10380, 

10433, 10438, 10444 (Feb. 13, 2013). In 

the 2013 Supplemental Proposed Rule, 

the Agencies stated that, after issuing 

the January 2013 Final Rule, the 

Agencies obtained additional 

information on valuation methods for 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78545 

82See, e.g., Texas Appraiser Licensing and 

Certification Board, ‘‘Assemblage As Applied to 

Manufactured Housing,’’ available at http://

www.talcb.state.tx.us/pdf/USPAP/

AssemblageAsAppliedToMfdHousing.pdf. 

83See, e.g., HUD: 24 CFR 203.5(e); HUD 

Handbook 4150.2, Valuations for Analysis for Home 

Mortgage Insurance for Single Family One- to FourUnit Dwellings, chapter 8.4 and App. D; USDA: 7 

CFR 3550.62(a) and 3550.73; USDA Direct Single 

Family Housing Loans and Grants Field Office 

Handbook (USDA Handbook), chapters 5.16 and, 

9.18; VA: VA Lenders Handbook, VA Pamphlet 26– 

7 (VA Handbook), chapters 7.11, 11.3, and 11.4; 

Fannie Mae: Fannie Mae Single Family 2013 Selling 

Guide B5–2.2–04, Manufactured Housing Appraisal 

Requirements (04/01/2009); Freddie Mac: Freddie 

Mac Single Family Seller/Servicer Guide, H33: 

Manufactured Homes/H33.6: Appraisal 

requirements (02/10/12). 

84Title II appraisal standards are available in 

HUD Handbook 4150.2. For supplemental standards 

for manufactured housing, see HUD Handbook 

4150.2, chapters 8–1 through 8–4. The valuation 

protocol in Appendix D of HUD Handbook 4150.2 

calls for a certification that the appraisal is USPAP 

compliant (p. D–9). 

85For a summary of more recent informal 

outreach conducted by the Agencies, see http://

www.federalreserve.gov/newsevents/rrcommpublic/industry-meetings-20131001.pdf. 

86For FHA-insured loans secured by real 

property—a manufactured home and lot together— 

HUD requires creditors to use a FHA Title II Roster 

appraiser that can certify to prior experience 

appraising manufactured homes as real property. 

See HUD, Title I Letter 481 (Aug. 14, 2009) (‘‘HUD 

TI–481’’), Appendices 8–9, C, and 10–5, issued 

pursuant to authority granted to HUD under section 

2(b)(10) of the National Housing Act, 12 U.S.C. 

1703(b)(10). 

87See Robin LeBaron, Fair Mortgage 

Collaborative, Real Homes, Real Value: Challenges, 

Issues and Recommendations Concerning Real 

Property Appraisals of Manufactured Homes (Dec. 

2012) at 19–28. This report is available at http://

cfed.org/assets/pdfs/Appraising_Manufacture_

Housing.pdf. 

88See HUD Handbook 4150.2, chapter 8.4 

(providing the following instructions on appraisals 

for manufactured homes insured under the FHA 

Title II program: ‘‘If there are no manufactured 

housing sales within a reasonable distance from the 

subject property, use conventionally built homes. 

Make the appropriate and justifiable adjustments 

for size, site, construction materials, quality, etc. As 

a point of reference, sales data for manufactured 

homes can usually be found in local transaction 

records.’’). 

89See Appraisal Institute, ‘‘Appraising 

Manufactured Housing—Seminar Handbook,’’ Doc. 

PS009SH–F (2008) at Part 8, 8–110, available at 

http://www.appraisalinstitute.org/education/

seminar_descrb/Default.aspx?sem_nbr=OL– 

671&key_type=OOS. 

90Some consumer and affordable housing 

advocates and appraisers in outreach have 

expressed the view that separately valuing the 

component parts of a manufactured home plus land 

transaction can result in material inaccuracies. 

manufactured homes. Based on this 

information, the Agencies requested 

comment and information concerning 

whether to require USPAP-compliant 

appraisals with interior property 

inspections conducted by a statelicensed or -certified appraiser for 

HPMLs secured by both a new 

manufactured home and land. The 

Agencies also sought comment on 

whether some other valuation method 

should be required as a condition of the 

exemption for these transactions from 

the general HPML appraisal 

requirements in § 1026.35(c)(3) through 

(c)(6). 

In particular, the Agencies noted that 

appraisers and State appraiser boards 

consulted in outreach efforts confirmed 

that real property appraisals in 

conformity with USPAP are possible 

and conducted with at least some 

regularity in transactions secured by a 

new manufactured home and land. The 

Agencies expressed their understanding 

that these appraisals value the site and 

the home together based upon 

comparable transactions that have been 

exposed to the open market (as would 

be done with a site-built home or any 

other existing home).82 The Agencies 

further noted that these appraisals could 

document additional value based on 

factors such as the home’s location, and 

in some cases could identify visible 

discrepancies between the 

manufacturer’s specifications and the 

actual home once it is sited. 

In the 2013 Supplemental Proposed 

Rule, the Agencies also observed that 

USPAP-compliant real property 

appraisals are regularly conducted for 

all transactions under Federal 

government agency and GSE 

manufactured home loan programs.83

FHA Title II program standards, for 

example, which apply to transactions 

secured by a manufactured home and 

land titled together as real property, 

require an appraisal in conformity with 

USPAP.84

The Agencies noted further that in 

informal outreach, a representative of 

manufactured home appraisers and a 

manufactured home CDFI representative 

stated that they conduct appraisals for 

loans secured by a new manufactured 

home and land before the home is sited 

based on plans and specifications for 

the new home.85 An interior property 

inspection occurs once the home is sited 

(although the CDFI representative 

indicated that it did not always use a 

state-certified or -licensed appraiser for 

the final inspection). These outreach 

participants suggested that, in their 

experience, qualified certified- or 

-licensed appraisers and appropriate 

comparables are not unduly difficult to 

find to perform these appraisals, even in 

rural areas.86

The Agencies noted that 

manufactured home lenders 

commenting on the 2012 Proposed Rule 

and during informal outreach raised 

concerns that comparables of other 

manufactured homes can be particularly 

difficult to find. The Agencies expressed 

their understanding that a lack of 

appropriate comparables can be a 

barrier to obtaining a manufactured 

home appraisal, especially in certain 

loan programs that require appraisals of 

manufactured homes to use a certain 

number of manufactured home 

comparables and have other restrictions 

on the comparables that may be used.87

The Agencies noted, however, that 

USPAP does not require that 

manufactured home comparables be 

used. USPAP allows the appraiser to use 

site-built or other types of home 

construction as comparables with 

adjustments where necessary.88 The 

Agencies also stated that a current 

version of an Appraisal Institute 

seminar on manufactured housing 

appraisals confirmed that when 

necessary, USPAP appraisals can use 

non-manufactured homes as 

comparables, making adjustments where 

needed.89

At the same time, the Agencies sought 

information about the potential impact 

on the industry and consumers of 

requiring real property appraisals in 

conformity with USPAP that include 

interior inspections in transactions 

secured by a new manufactured home 

and land (where these types of 

appraisals are not already required). In 

this regard, the Agencies noted that 

several manufactured home lenders 

commented on the 2012 Proposed Rule 

and shared in informal outreach that 

they typically do not conduct an 

appraisal with an interior inspection of 

a new manufactured home, but use 

other methods, such as relying on the 

manufacturer’s invoice as a baseline for 

the value of the new home and 

conducting a separate appraisal of the 

land in conformity with USPAP.90 Thus, 

the Agencies observed that requiring a 

USPAP-compliant appraisal with an 

interior inspection could require 

systems changes for some manufactured 

home lenders. In addition, the Agencies 

also noted the possibility that, if the 

appraisals required under the 2013 

January Final Rule were more expensive 

than existing methods, imposing the 

HPML appraisal requirements would 

lead to additional costs that could be 

passed on in whole or in part to 

consumers. 

Accordingly, the Agencies requested 

data on the extent to which an appraisal 

in conformity with USPAP with an 

interior property inspection would be of 

comparable cost to, or more or less 

expensive than, a separate USPAPcompliant appraisal of a lot added 


tkelley on DSK3SPTVN1PROD with RULES2
78546 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

91See TILA section 129H(b)(4)(B), 15 U.S.C. 

1639h(b)(4)(B). 

92See Appraisal Standards Bd., Appraisal Fdn., 

Standards Rule 1–2(e) and Advisory Opinion 17, 

‘‘Appraisals of Real Property with Proposed 

Improvements,’’ at U–17, U–18, and A–37, available 

at http://www.uspap.org. 

93As noted under ‘‘Public Comments,’’ however, 

a representative of a manufactured home loan 

together with an invoice price for the 

home unit. The Agencies also requested 

comment on the potential burdens on 

creditors and consumers and any 

potential reduction in access to credit 

that might result from imposing 

requirements for an appraisal in 

conformity with USPAP that includes 

an interior property inspection on all 

manufactured home creditors of HPMLs 

secured by both a new manufactured 

home and land. In this regard, the 

Agencies asked commenters to bear in 

mind that any of these transactions that 

are qualified mortgages are exempt from 

the HPML appraisal requirements under 

the separate exemption for qualified 

mortgages. See § 1026.35(c)(2)(i). 

Finally, the Agencies requested 

comment on whether and the extent to 

which consumers in these transactions 

typically receive information about the 

value of their land and home and, if so, 

what information is received. 

Public Comments 

Eighteen commenters responded to 

the Agencies’ questions about the 

exemption for transactions secured by 

both a new manufactured home and 

land. These commenters comprised four 

national appraiser trade associations, a 

State credit union trade association, a 

credit union, a national manufactured 

housing industry trade association, a 

national association for owners of 

manufactured homes, two manufactured 

housing lenders, a consumer advocate 

group, three affordable housing 

organizations, a policy and research 

organization, a State manufactured 

housing industry trade association, a 

real estate trade association, and a 

mortgage banking trade association. 

Commenters had varying opinions on 

whether the exemption for transactions 

secured by both a new manufactured 

home and land was appropriate. Four 

national appraiser trade associations, a 

credit union, a national association for 

owners of manufactured homes, a 

consumer advocate group, three 

affordable housing organizations, a 

policy and research organization, and a 

real estate trade association opposed the 

exemption. Two of the national 

appraiser trade associations asserted 

that the exemption for transactions 

secured by new manufactured homes 

and land did not meet the statutory 

exemption criteria of being in the public 

interest and promoting the safety and 

soundness of creditors.91 These 

commenters also believed that the 

January 2013 Final Rule and the 2013 

Supplemental Proposed Rule lacked 

public policy consistency because loans 

secured by a manufactured home and 

land would be treated differently based 

on whether the home is existing or new, 

even though both are real estate-secured 

transactions. A real estate trade 

association and two national appraiser 

trade associations noted that the 

exemption was inconsistent with the 

manufactured housing appraisal 

requirements of HUD, VA, and GSE 

manufactured housing loan programs. 

A credit union commenter expressed 

the view that an appraisal with an 

interior inspection in conformity with 

USPAP and FIRREA is the only method 

of valuation that properly accounts for 

all valuation factors, including the 

property’s location and discrepancies 

between the manufacturer’s 

specifications and the home itself. 

Similarly, two national appraiser trade 

associations argued that this type of 

appraisal was necessary because the 

price of a manufactured home may not 

necessarily reflect its value, due to 

factors such as the quality of installation 

and construction of the home. Two 

national appraiser trade associations, a 

manufactured housing lender, and a real 

estate trade association stated that an 

appraisal in conformity with USPAP of 

a lot combined with an invoice price for 

the home unit (as opposed to valuing 

the home and land as a single item of 

real property) was an incorrect form of 

valuation that would not provide a 

credible indication of the value of the 

home and land combined. 

Several commenters emphasized that 

performing appraisals in conformity 

with USPAP and FIRREA for these 

transactions is feasible. An affordable 

housing commenter argued that, for new 

manufactured homes that are not yet 

sited, appraisers can follow standards in 

USPAP for appraising site-built homes 

that are not yet constructed. Under these 

existing USPAP standards, an appraisal 

is based on a site inspection and the 

plans and specifications of the home.92

When the construction is complete, an 

appraiser or qualified inspector can 

confirm whether the finished home 

meets the same specifications. 

According to national appraiser trade 

associations, appraisals in conformity 

with USPAP are regularly performed for 

transactions secured by a new 

manufactured home and land. These 

commenters stated that professional 

appraisers for manufactured homes are 

widely available, that appropriate 

comparables can be readily found, and 

that USPAP protocols (including 

interior inspections) are appropriate for 

valuing manufactured housing and land. 

Two affordable housing organizations, a 

consumer advocate group, a policy and 

research organization, and a national 

association of owners of manufactured 

homes believed that the same appraisal 

requirements should apply to 

transactions secured by a new 

manufactured home as apply to 

transactions secured by site-built 

homes. They believed, however, that 

appraisers should have more flexibility 

in manufactured home transactions to 

use site-built homes as comparables 

than some Federal government agency 

and GSE programs currently allow. 

Two affordable housing organizations, 

a consumer advocate group, a policy 

and research organization, and a 

national association for owners of 

manufactured homes believed that 

transactions secured by a new 

manufactured home should be subject to 

the rule if the homeowner owns the 

land on which the home is sited, even 

if the home is not subject to a security 

interest. Another affordable housing 

organization recommended that new 

manufactured homes should be subject 

to the rule, whether affixed to owned 

land or on land with a long term lease. 

In contrast, six commenters—a 

national mortgage banking association, a 

State credit union association, two 

manufactured housing lenders, a 

national manufactured housing trade 

association, and a State manufactured 

housing trade association—supported 

the exemption for transactions secured 

by both a new manufactured home and 

land. Some of these commenters 

asserted that an exemption was 

necessary because a physical interior 

inspection was infeasible. In this regard, 

the manufactured housing lender stated 

that a new manufactured home typically 

will not be delivered and installed until 

after a loan closes. The commenter 

noted that, as with construction loans, 

which are provided an exemption from 

the HPML appraisal rules 

(§ 1026.35(c)(2)(iv)), on-site interior 

inspections of new manufactured homes 

that will secure loans are not feasible 

because they are still being 

manufactured, delivered, or installed 

when appraisals would need to be 

ordered. Similarly, a State manufactured 

housing industry trade association 

stated that a manufactured home’s 

production does not begin before the 

determination is made to provide credit 

to a consumer, so a physical inspection 

prior to closing would be impossible.93


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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78547 

lender consulted in informal outreach by the 

Agencies indicated that the lender does not close 

loans secured by a new manufactured home and 

land until the home is sited. 

94See 24 CFR part 3280. 

95FHA reported providing insurance under its 

Title I program for 655 manufactured home loans 

in Fiscal Year (FY) 2012, 986 in FY 2011, and 1,776 

in FY 2010. See HUD, FHA Annual Management 

Report, Fiscal Year 2012 (Nov. 15, 2013) at 17. FHA 

also reported providing insurance under its Title II 

program for 20,479 manufactured home loans in FY 

2012, 21,378 in FY 2011, and 30,751 in FY 2010. 

See id. According to 2012 HMDA data, 19,614 FHAinsured manufactured home loans (under both 

Titles I and II) were reported out of a total of 

123,628 reported manufactured home loans; thus, 

FHA-insured loans represented 15.9 percent of 

HMDA-reported manufactured home loans. See 

www.ffiec.gov/hmda. 

A national manufactured housing 

industry trade association also 

questioned the value of an interior 

inspection of new manufactured homes, 

stating that each manufactured home is 

built to the specifications of the retailer 

and is manufactured in a controlled 

manufacturing process in accordance 

with HUD standards, which ensures the 

application of consistent, quality 

standards.94 According to this 

commenter, the manufacturer certifies 

to the retailer the authenticity and 

accuracy of the wholesale cost of the 

home at the point of manufacture. 

Some commenters noted that even 

though appraisals in conformity with 

USPAP are required by some Federal 

government agencies and GSE 

manufactured housing loan programs, 

they are not performed frequently. One 

manufactured housing lender stated that 

traditional appraisals typically are 

performed only for certain FHA loans 

that represent a small fraction of overall 

land/home manufactured housing 

loans.95 A State manufactured housing 

industry trade association offered 

similar comments. The State 

manufactured housing industry trade 

association commenter also asserted 

that GSE-like appraisal requirements 

were not appropriate for these 

transactions, because most new 

manufactured home loans are held in 

portfolio and creditors will set valuation 

standards appropriate for their own 

loans. 

Commenters also challenged the 

accuracy of appraisals performed in 

conformity with USPAP and FIRREA for 

transactions secured by both a new 

manufactured home and land. A 

manufactured housing lender stated 

that, even for FHA-insured land/home 

loans, traditional appraisals are prone to 

yielding appraised values that are lower 

than the sales price of the home. A 

national manufactured housing industry 

trade association stated that traditional 

appraisals produce appraised values 

lower than the sales price for more than 

20 percent of transactions that are 

secured by manufactured homes and 

land. One manufactured housing lender 

stated that for its loans for which 

appraisals are ordered, appraisals 

resulted in appraised values lower than 

the sales price around 30 percent of the 

time. Similarly, the State manufactured 

housing industry trade association 

stated that, based on information from 

its members, the rate of appraisals with 

appraised values lower than the sales 

price is approximately 30 percent. 

Commenters also cited problems with 

obtaining comparables as contributing 

to the difficulty with obtaining accurate 

appraisals. Manufactured housing 

lenders, a national manufactured 

housing industry trade association, and 

a State manufactured housing industry 

trade association stated that 

manufactured home comparables, 

especially in rural areas, tend to be 

unavailable or inadequate. One lender 

noted that, in practice, HUD will permit 

site-built comparables for the Title II 

FHA loan insurance program in the 

absence of appropriate manufacturer 

home comparables, but only on a 

limited basis. A manufactured housing 

lender also asserted that relying upon 

site-built homes as comparables can 

lead to inflated values. 

A national manufactured housing 

industry trade association and a State 

manufactured housing industry trade 

association asserted that no reliable 

database of previous sales which 

appraisers can use to develop an 

accurate, reliable value for 

manufactured homes exists. The State 

manufactured housing industry trade 

association believed that actual sales 

data must serve as the foundation for 

any valuation system. The commenter 

believed that creating such a database 

would involve both time and expense, 

and that such a database should not be 

created by private industry or based 

upon the voluntary submission of sales 

price data. This commenter expressed 

the view that such a database should be 

created by State governments. 

Several commenters believed that 

issues with appraisers are the cause of 

manufactured housing appraisals 

resulting in values lower than the sales 

price. A manufactured housing lender 

believed that significant appraiser bias 

exists against manufactured housing, 

which results in lower value estimates. 

Another manufactured housing lender 

stated that most state-licensed or 

-certified appraisers have no training or 

experience in appraising manufactured 

homes. 

Commenters also cited concerns about 

the cost of requiring appraisals for these 

transactions. A national manufactured 

housing industry trade association and 

two manufactured housing lenders 

raised related concerns that appraisal 

costs would make these transactions 

less affordable for consumers and that 

an appraisal is expensive relative to the 

cost of a manufacture home. The 

national manufactured housing industry 

trade association expressed the view 

that these costs could result in reduced 

manufactured housing lending. 

The Agencies specifically requested 

comment on the potential burdens on 

creditors and consumers and any 

potential reduction in access to credit 

that might result from imposing 

requirement for an appraisal in 

conformity with USPAP and FIRREA 

with an interior property inspection on 

all creditors of loans secured by both a 

new manufactured home and land. Two 

national appraiser trade associations 

believed that concerns about appraisal 

costs could be mitigated because 

professional appraisers can provide a 

range of services other than an interior 

inspection but still in conformity with 

USPAP. These commenters argued that 

the cost of a professional appraisal is 

relatively small compared to the value 

provided to borrowers and to loan 

underwriting safety and soundness. A 

consumer advocate group, two 

affordable housing organizations, a 

national association of owners of 

manufactured homes, and a policy and 

research organization believed that the 

costs of an appraisal with an interior 

inspection would be no higher than the 

costs of appraisals for site-built homes 

subject to the rule. 

No commenters offered data on the 

cost of the method of using the 

manufacturer’s invoice for the home and 

conducting a separate appraisal of the 

land. However, a national manufactured 

housing industry trade association 

asserted that this method costs 

consumers less than the type of 

appraisal that the HPML appraisal rules 

require. Informal outreach by the 

Agencies with a manufactured housing 

lender after the 2013 Supplemental 

Proposed Rule suggested that the 

interior inspection was the element of 

the HPML appraisal requirements that 

added the most cost. Another 

manufactured housing lender believed 

that the land-only appraisal would still 

be expensive for consumers. A national 

association of owners of manufactured 

homes, a consumer advocate group, a 

policy and research organization, and 

two affordable housing organizations 

stated that they did not have cost 

information in order to respond to the 

question posed by the Agencies. 


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96See ECOA section 701(e), 15 U.S.C. 1691(e). 

These provisions were amended by section 1474 of 

the Dodd-Frank Act, implemented by the Bureau’s 

2013 ECOA Valuations Rule, 12 CFR § 1002.14, and 

effective January 18, 2014. 

97The Agencies did not receive comments from 

these types of organizations on the 2012 Proposed 

Rule, which the Agencies believe may be due to the 

large volume of mortgage rules that were issued for 

public comment at that time. A large real estate 

trade association expressed similar views in 

commenting on both the 2012 Proposed Rule and 

2013 Supplemental Proposed Rule. 

98For a summary of more recent informal 

outreach conducted by the Agencies, see http://

www.federalreserve.gov/newsevents/rrcommpublic/industry-meetings-20131001.pdf. 

99See 24 CFR parts 3282 and 3286. 

In addition, the Agencies requested 

comment on whether consumers 

currently receive information about the 

value of their land and manufactured 

home. A consumer advocate group, two 

affordable housing organizations, a 

policy and research organization, and a 

national association of owners of 

manufactured homes asserted that 

consumers do not currently receive 

valuation information. Two 

manufactured housing lenders stated 

that, when appraisals are performed, 

lenders are required to provide the 

ECOA notice informing consumers that 

a copy of the appraisal may be obtained 

from the lender upon request.96 One of 

the manufactured housing lenders 

indicated that it routinely issues a copy 

of the appraisal to its customers. The 

other lender stated that, after receiving 

the ECOA notice, very few consumers 

request the appraisal information. 

Finally, the Agencies requested 

comment on alternative methods that 

may be appropriate for valuing new 

manufactured homes and land, which 

the Agencies could require as a 

condition of an exemption from the 

general HPML appraisal rules in 

§ 1026.35(c)(3) through (c)(6). A real 

estate trade association, two national 

appraiser trade associations, a consumer 

advocate group, a policy and research 

organization, two affordable housing 

organizations, and a national association 

of owners of manufactured homes 

believed that a discussion of 

conditioning the exemption was 

unnecessary because they believed that 

there should be no exemption for these 

transactions. 

All other commenters on this issue— 

a national mortgage banking association, 

a State credit union association, two 

nonbank manufactured home lenders, a 

State manufactured housing industry 

trade association, and a national 

manufactured housing industry trade 

association—opposed adding conditions 

to the exemption. The manufactured 

housing lenders stated that they were 

unaware of a reliable, uniform valuation 

method by which to provide 

information to a consumer in new or 

existing manufactured housing 

transactions. The mortgage banking 

trade association believed that 

providing an alternative valuation 

would confuse consumers, and a State 

credit union trade association believed 

that a condition would increase the cost 

for consumers to obtain credit. 

The Final Rule 

The Agencies are adopting a modified 

exemption for transactions secured by a 

new manufactured home and land. 

Under the final rule, creditors for these 

transactions will be subject to all of the 

HPML appraisal requirements except for 

the requirement that the appraisal 

include a physical visit of the interior of 

the manufactured home. See 

§ 1026.35(c)(3)(i). As discussed below, 

the Agencies believe that this exemption 

from the requirement for a physical visit 

of the interior of the property is in the 

public interest and promotes the safety 

and soundness of creditors. Comment 

35(c)(2)(viii)(A)–1 clarifies that a 

creditor of a loan secured by a new 

manufactured home and land could 

comply with § 1026.35(c)(3)(i) by 

obtaining an appraisal conducted by a 

state-certified or -licensed appraiser 

based on plans and specifications for 

the new manufactured home and an 

inspection of the land on which the 

property will be sited, as well as any 

other information necessary for the 

appraiser to complete the appraisal 

assignment in conformity with USPAP 

and FIRREA. Compliance with the 

HPML appraisal rules for these 

transactions is not mandatory until July 

18, 2015. 

As discussed in the 2013 

Supplemental Proposed Rule, the 

Agencies conducted additional research 

and outreach after issuing the January 

2013 Final Rule to determine how to 

treat loans secured by existing 

manufactured homes under the HPML 

appraisal rules. In this process, the 

Agencies obtained information about 

manufactured home lending valuation 

practices that prompted the Agencies to 

review the exemption in the January 

2013 Final Rule for transactions secured 

by a new manufactured home, whether 

or not the transaction is secured by 

land. 

Through research, written comments, 

and informal outreach, the Agencies 

obtained the views of a wider range of 

stakeholders, including consumer 

advocates, affordable housing 

organizations, a policy and research 

organization, and a national association 

of owners of manufactured homes 

(summarized earlier ‘‘Public 

Comments’’).97 In addition, the 

Agencies consulted with additional 

manufactured home lenders, one of 

which indicated that the lender obtains 

appraisals in conformity with USPAP 

for these transactions.98 Based on this 

information, the Agencies understand 

that a pivotal factor in valuing 

manufactured homes is whether the 

transaction is secured by land. 

Accordingly, the Agencies are adopting 

a final rule that applies different rules 

to loans secured by a new manufactured 

home and land (§ 1026.35(c)(2)(viii)(A)) 

and loans secured by a new 

manufactured home without land 

(§ 1026.35(c)(2)(viii)(B)). 

The Agencies understand that 

manufactured home lenders regularly 

value a new manufactured home and 

land by relying on the manufacturer’s 

(wholesale) invoice for the home unit 

(marked up by a certain percentage to 

account for siting costs, dealer profit, 

and related expenses associated with 

the transactions) and having a separate 

appraisal performed on the land. The 

two values are then added together to 

obtain a maximum loan amount, which 

may not be the amount of credit 

ultimately extended. The Agencies 

understand that transactions secured by 

a new manufactured home and land can 

be consummated before the new home 

is sited or, in some cases, even built. 

For these reasons, the Agencies 

recognize that applying the HPML 

appraisal rules to transactions secured 

by a new manufactured home and land 

will represent a change in practices for 

many manufactured home lenders. In 

part to mitigate unnecessary burden, the 

Agencies are exempting these 

transactions from the requirements that 

the appraisal include a physical 

inspection of the interior of the new 

manufactured home. In addition, the 

Agencies understand that an interior 

inspection of the property is a central 

obstacle to complying with the HPML 

appraisal rules in transactions secured 

by a new manufactured home and land, 

since production of the home might not 

be completed or started before the loan 

is consummated. Further, the Agencies 

believe that an interior inspection on a 

new manufactured home may not be 

warranted because the home would not 

have been subject to wear and tear and 

production and installation inspections 

new manufactured homes occur as part 

of a separate regulatory framework 

administered by HUD.99

Under the final rule, as of July 18, 

2015, a creditor could, for example, 

obtain an appraisal based on the 


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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78549 

100See, e.g., Texas Appraiser Licensing and 

Certification Board, ‘‘Assemblage As Applied to 

Manufactured Housing,’’ available at http://

www.talcb.state.tx.us/pdf/USPAP/

AssemblageAsAppliedToMfdHousing.pdf. 

101A national provider of a manufactured home 

cost guide indicated in comments that its guide 

includes a land-lease community adjustment 

guideline that can be used if a manufactured home 

is located in a land-lease community. 

appraiser’s review of plans and 

specifications of the new home and an 

inspection of the site. See comment 

35(c)(2)(viii)(A)–1. Neither USPAP nor 

FIRREA requires an interior inspection, 

but the Agencies believe that all other 

aspects of the HPML appraisal rules 

could and should be complied with. 

USPAP and FIRREA also do not require 

an appraiser to use particular types of 

comparables in valuing manufactured 

homes, so appraisers will have 

flexibility in selecting either 

manufactured home comparables or 

site-built comparables as the appraiser 

deems appropriate or as the creditor, 

secondary market participant, or 

relevant government agency requires. 

The Agencies are also aware that public 

comments and outreach included 

varying views on the availability of 

appropriate comparables and appraisers 

with the relevant competency to 

conduct USPAP land/home appraisals 

for transactions secured by a new 

manufactured home and land, with 

some generally asserting that 

appropriate comparables and competent 

appraisers are readily available, while 

other expressed concerns that at least in 

some markets they are not. However, the 

Agencies believe that giving creditors 18 

months before compliance becomes 

mandatory can provide time for 

creditors and other stakeholders to 

determine how to address concerns in 

these areas. 

The Agencies believe that applying 

the HPML appraisal rules to 

transactions secured by new 

manufactured homes and land is 

important for several reasons. First, as 

with transactions secured by an existing 

manufactured home and land, covering 

transactions secured by a new home and 

land is consistent with the requirements 

of the GSEs and Federal government 

agencies for these types of loans. Again, 

Congress designated HPML transactions 

that are not qualified mortgages to be 

‘‘higher-risk’’ than other transactions; 

therefore, the Agencies believe it 

prudent and in keeping with 

congressional concern to be consistent 

with other Federal standards for these 

loans. 

Second, appraiser representatives and 

regulators have made it clear in public 

comments on this rulemaking and 

independent publications that separate 

assessments of the unit value and land 

added together do not constitute an 

acceptable appraisal.100 For loans 

deemed ‘‘higher-risk’’ by Congress, the 

Agencies have reservations about a 

valuation practice that diverges from 

practices deemed appropriate and most 

likely to result in a valid outcome. 

Third, all commenters on the 2013 

Supplemental Proposed Rule that did 

not represent the manufactured home 

lending industry, as well as a few 

manufactured home lenders, opposed a 

full exemption for loans secured by a 

new manufactured home and land. 

These comments strongly suggest that 

the exemption would not be in the 

public interest, as required by the 

statute. Commenters opposing a full 

exemption generally held the view that 

appraisals in conformity with USPAP 

and FIRREA for these homes are feasible 

and that prudent lending practice and 

consumer protection are best served by 

obtaining appraisals for transactions 

secured by a new manufactured home 

and land together. They believed that 

appraisals with interior inspections 

would allow consumers to obtain better 

information about the value of their 

homes than methods that combine an 

appraised value of a site and a markedup invoice price of a manufactured 

home. As noted under ‘‘Public 

Comments,’’ some manufactured home 

lenders indicated that they already 

conduct appraisals in conformity with 

USPAP for transactions secured by a 

new manufactured home and land. 

The Agencies decline, however, to 

adopt suggestions from some of these 

commenters that the general appraisal 

requirements should cover a broader 

range of transactions. Regarding the 

suggestion that the general appraisal 

requirements should cover transactions 

secured by a manufactured home and a 

leasehold interest, the Agencies are 

aware that State laws may vary 

regarding rights attendant to leasehold 

interests and that different lease terms 

might have different values; both are 

factors that would be beyond the scope 

of the final rule to provide guidance. 

GSE and Federal agency manufactured 

housing programs require the securing 

property to be real estate; whether a 

manufactured home and lease-hold 

meets that standard varies by State law 

and the Agencies believe that 

uniformity across states for the HPML 

appraisal rules would best facilitate 

compliance. At the same time, the 

Agencies recognize that lease terms and 

stability of tenancy can affect value, and 

believe that these factors would be 

appropriate to take into account as part 

of valuations for appraising transactions 

secured by a home and not land. The 

final rule permits but does not require 

consideration of these factors.101 See 

§ 1026.35(c)(2)(viii)(B)(3) and 

accompanying section-by-section 

analysis. 

The Agencies are also not following 

the suggestion that the appraisal 

requirement be applied to transactions 

secured by a home whenever the 

borrower owns the land, even if the 

transaction is not secured by the land. 

The Agencies are concerned that 

accounting for differing ownership 

structures of the land would complicate 

the rule and could be difficult for 

creditors and appraisers to assess. The 

Agencies also have questions about 

whether appraisals of the land and 

home together, even if the land is not 

securing the transaction, will 

consistently lead to the desired result— 

market value of the collateral securing 

the loan. Some lenders indicated that 

when a loan goes into foreclosure, the 

property may be repossessed and taken 

back into dealer inventory; thus, it 

would seem important for a lender to 

know the value of the structure by itself. 

Again, the Agencies recognize that the 

location of the home can have a 

significant impact on its value, and 

believe that the location-related factors 

would be appropriate to take into 

account as part of valuations for 

transactions secured by a home and not 

land. The final rule permits but does not 

require consideration of these factors. 

See § 1026.35(c)(2)(viii)(B)(3) and 

accompanying section-by-section 

analysis. 

Fourth, most commenters, including 

leading manufactured housing lending 

industry representatives, expressed 

support for developing and even 

requiring appropriate valuations for 

manufactured home transactions. In 

light of additional stakeholder views 

received since issuance of the January 

2013 Final Rule and additional research, 

the Agencies believe that applying the 

HPML appraisal rules to transactions 

secured by new manufactured homes 

and land, as well as transactions 

secured by existing manufactured 

homes and land, creates needed 

incentives for the continued training of 

state-certified and -licensed appraisers 

in valuing manufactured homes and the 

development of appraisal methods 

tailored to value collateral in 

manufactured home lending 

transactions, including appropriate use 

of comparables. This will in turn 

support improved accuracy and 


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78550 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

102The Agencies also are not aware of site-built 

or similar comparables for home-only collateral. 

103 In addition, proposed comment 35(c)(2)(ii)(B)– 

1 would have clarified that an HPML secured by a 

manufactured home and not land would not be 

subject to the appraisal requirements of 

§ 1026.35(c), regardless of whether the home is 

titled as realty by operation of state law. 104See 77 FR 54722, 54732–33 (Sept. 5, 2012). 

reliability of appraisals for these 

transactions. 

Regarding concerns expressed by 

commenters about a lack of comparable 

sales data, the Agencies understand that 

in many cases comparable sales data is 

reported to and available in Multiple 

Listing Services (MLS) regarding sales of 

manufactured homes and land classified 

as real property. The Agencies recognize 

that a more robust tracking of 

manufactured home sales information 

would be beneficial and may take time, 

and encourages efforts in this regard. 

The delayed effective date is intended to 

allow more time to move forward in this 

process. 

Finally, the Agencies believe that 

treating manufactured home loans 

secured by both the home and land in 

the same way as loans secured by sitebuilt homes and land will foster the 

development of greater consistency 

between the rules and practices 

applicable to transactions secured by 

site-built homes and manufactured 

homes. The Agencies believe that this 

consistency of rules and practices will 

contribute to integrating manufactured 

home lending more fully into the 

broader mortgage market over time, 

which could have long-term benefits for 

consumers and lenders. 

For these reasons, on balance, the 

Agencies have concluded that an 

exemption from the HPML appraisal 

requirement for a physical visit of the 

interior of the home as part of the 

appraisal will promote the safety and 

soundness of creditors and be in the 

public interest. 

35(c)(2)(ii)(B) 

Loans Secured by a Manufactured Home 

and Not Land 

The Agencies’ Proposal 

As noted, in the January 2013 Final 

Rule, the Agencies adopted an 

exemption from the HPML appraisal 

requirements for loans secured by a 

‘‘new manufactured home.’’ See 78 FR 

10368, 10379–10380, 10433, 10438, 

10444 (Feb. 13, 2013). The January 2013 

Final Rule did not address loans 

secured by ‘‘existing’’ (used) 

manufactured homes, which therefore 

would be subject to the appraisal 

requirements unless the Agencies 

adopted an exemption. 

As discussed in the 2013 

Supplemental Proposed Rule, additional 

research and outreach on valuation 

practices for loans secured by an 

existing manufactured home and not 

land indicated that current valuation 

practices for these transactions generally 

do not involve using a state-certified or 

-licensed appraiser to perform a real 

property appraisal in conformity with 

USPAP and FIRREA with an interior 

property inspection, as required under 

TILA section 129H and the January 2013 

Final Rule. In addition, lender 

commenters on the 2012 Proposed Rule 

had raised concerns about the 

availability of data on comparable sales 

that may be used by appraisers for loans 

secured by an existing manufactured 

home and not land. They indicated that 

data from used manufactured home 

sales not involving land (usually titled 

as personal property) are not currently 

recorded in MLS of most states, so an 

appraiser’s ability to obtain information 

on comparable manufactured homes 

without land is more limited than in 

real estate transactions. A provider of 

manufactured home valuation services 

confirmed in outreach with the 

Agencies in 2013 that manufactured 

home sales information is generally not 

available through standard real estate 

data sources.102 The Agencies also 

understood that, in many states, 

appraisers are not currently required to 

be licensed or certified in order to 

perform personal property appraisals. 

Accordingly, the 2013 Supplemental 

Proposed Rule would have exempted 

transactions secured by existing 

manufactured homes and not land in 

proposed § 1026.35(c)(2)(ii)(B).103 The 

Agencies noted that an exemption 

would promote the public interest in 

affordable housing by ensuring 

transactions were not subject to a 

requirement not suited to this particular 

collateral type at this time, and would 

promote safety and soundness by 

allowing creditors to rely on currently 

prevalent valuation methods to ensure 

profitability and diversity to mitigate 

risk. The Agencies requested comment 

on this proposed exemption. 

In addition, however, the Agencies’ 

2013 Supplemental Proposed Rule 

sought comment on any risks that could 

be created by an unconditional 

exemption for transactions secured by a 

manufactured home, whether new or 

existing, and not land. After the January 

2013 Final Rule was issued, consumer 

advocates and other stakeholders 

expressed concerns that some 

transactions in the lending channel for 

manufactured home-only (chattel) 

transactions (both of new and existing 

manufactured homes) can result in 

consumers owing more than the 

manufactured home is worth. For this 

type of loan, stakeholders such as 

consumer and affordable housing 

advocates asserted that networks of 

manufacturers, broker/dealers, and 

lenders are common, and that these 

parties can coordinate sales prices and 

loan terms to increase manufacturer, 

dealer, and lender profits, even where 

this leads to loan amounts that exceed 

the collateral value. 

Consumer advocates and others raised 

concerns that, where the original loan 

amount exceeds the collateral value and 

the consumer is unaware of this fact, the 

consumer is often unprepared for 

difficulties that can arise when seeking 

to refinance or sell the home at a later 

date. They also noted that chattel 

manufactured home loan transactions 

tend to have much higher rates than 

conventional mortgage loans. Some 

stakeholders suggested that giving the 

consumer third-party information about 

the unit value could be helpful in 

educating the consumer, particularly as 

to the risk that the loan amount might 

exceed the collateral value, and might 

prompt the consumer to ask important 

questions about the transaction. 

Accordingly, the 2013 Supplemental 

Proposed Rule posed a number of 

questions seeking comment on 

conditioning the exemptions for 

manufactured home-only transactions 

on providing the consumer with an 

estimate of the value of the 

manufactured home no later than three 

business days before consummation. 

The 2013 Supplemental Proposed Rule 

discussed several types of estimates. 

First, based on input from lenders and 

manufactured home valuation 

providers, the Agencies understood that 

in new home-only transactions, many 

creditors determine the maximum 

amount that they will lend by using the 

manufacturer’s invoice, or wholesale 

unit price, marked up by a certain 

percentage to reflect, for example, dealer 

profit and siting costs. As discussed in 

the 2012 Proposed Rule, informal 

outreach participants indicated that this 

practice—similar to that sometimes 

used for automobiles—is longstanding 

in new manufactured home 

transactions.104 Lenders asserted that 

these methods save costs for consumers 

and creditors and has been found to be 

reasonably effective and accurate for 

purposes of ensuring a safe and sound 

loan. 

Second, outreach to manufactured 

home lenders indicated that in 

transactions secured by an existing 

manufactured home and not land, 

lenders typically obtain replacement 


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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78551 

105One option identified in the 2013 

Supplemental Proposed Rule (78 FR 48548, 48554 

n. 12 (Aug. 8, 2013) was the National Automobile 

Dealers Association (NADA) Manufactured Housing 

Cost Guide. See NADAguides.com Value Report, 

available at www.nadaguides.com/ManufacturedHomes/images/forms/MHOnlineSample.pdf. 

106See HUD TI–481, Appendices 8–9, C, and 10– 

5. 

107See generally, 24 CFR parts 3280, 3282, and 

3286. 

108This commenter may have been referring to 

requirements such as those in HUD manufactured 

housing regulations that require a manufacturer to 

certify to the manufactured home dealer or 

distributer that the home conforms to all applicable 

Federal construction and safety standards. See 24 

CFR 3282.205. 

cost estimates derived from nationally 

published cost services, taking into 

account factors such as the age of the 

unit (to derive depreciated values) and 

regional location of the home.105

Third, the Agencies understood that 

additional methods exist for conducting 

personal property appraisals of 

manufactured homes. For example, 

HUD has adopted property valuation 

standards for HUD-insured loans 

secured by an existing manufactured 

home and not land. These standards call 

for use of a certified independent fee 

appraiser to conduct a valuation of the 

home using data on comparable 

manufactured homes in similar 

condition and in the same geographic 

area.106

Public Comments 

The Agencies received 28 comment 

letters on transactions secured by 

manufactured homes and not land from 

four national appraisal trade 

associations, a provider of a 

manufactured housing cost guide, a 

consumer advocate group, three 

affordable housing organizations, a 

national association of owners of 

manufactured homes, a policy and 

research organization, a credit union, 

seven State or regional credit union 

associations, a national credit union 

association, a community bank, a 

national trade association for 

community banks, a State banking trade 

association, a national mortgage banking 

trade association, a national trade 

association for manufactured housing, a 

State manufactured housing trade 

association, and two manufactured 

housing nonbank lenders. 

Many of the comments received 

pertained to transactions secured by 

either an existing or new manufactured 

home, but the comment summary below 

is generally divided into two parts, one 

regarding comments on loans secured 

by a new manufactured home (but not 

land) and one regarding comments on 

loans secured by an existing 

manufactured home (but not land). 

First, however, some generally 

applicable comments are reviewed 

below. 

General Comments 

A consumer advocate group, two 

affordable housing organizations, a 

national association of owners of 

manufactured homes, and a policy and 

research organization indicated that the 

Agencies should adopt a rule that would 

ensure that consumers have information 

about their home value before entering 

into an HPML secured by an existing 

manufactured loan without land. 

Providers of valuations and their trade 

associations also generally supported 

providing copies of valuation 

information to consumers in these 

transactions. Two appraiser trade 

associations stated that consumers have 

a ‘‘fundamental right’’ to understand the 

market value of the property 

collateralizing covered loans. A 

provider of a manufactured home cost 

guide stated that consumers 

unequivocally would benefit from 

knowing the cost estimate value of their 

home. 

Industry support for providing this 

information to consumers was more 

limited. A State credit union association 

stated that in an HPML secured by an 

existing manufactured home and not 

land, the consumer should receive a 

copy of a valuation, which this 

commenter believed would be a 

valuable tool for the consumer. A State 

manufactured housing trade association 

stated that, if a reliable repository of 

data on comparable sales were 

developed, it would support providing 

the consumer a copy of a valuation 

based upon such data. 

More broadly, manufactured home 

lending industry commenters 

questioned the need for valuation 

regulations on new manufactured home 

transactions on several grounds. A State 

manufactured housing trade association 

noted that most manufactured housing 

lenders are portfolio lenders who have 

incentives to adopt appropriate 

underwriting standards and not to overfinance the loan. This commenter 

asserted that the widespread practice of 

using actual cost information from the 

manufacturer’s invoice to determine 

maximum loan amount prevents overfinancing. Finally, the commenter stated 

that over-financing has not been 

substantiated as a problem in 

manufactured home lending. Thus, the 

commenter suggested that the Agencies 

take more time to study the issue of 

manufactured home valuations before 

proposing a final rule in this area. 

Similarly, a national community 

banking trade association stated that a 

portfolio lender’s assumption of credit 

risk is an incentive to choose 

appropriate valuation methods. Further, 

two State credit union associations 

stated that existing valuation methods 

suffice for ensuring reasonably safe and 

sound loans. Another State credit union 

association noted that creditors have 

alternatives to the USPAP interiorinspection appraisal, such as an exterior 

inspection or drive-by, or an analysis of 

sales of comparable homes. 

One manufactured home lender 

suggested that consumers purchasing 

manufactured homes do not need 

appraisals because manufactured homes 

are sold like automobiles, in that they 

are sold from a retailer’s display center. 

Therefore, the commenter suggests that 

instead of providing consumers with 

appraisals, consumers should be 

encouraged to engage independently in 

comparative shopping when selecting a 

home as well as when shopping for a 

loan. Another manufactured home 

lender stated that consumers do not 

need information beyond the sales 

contract, which breaks down certain 

costs. This commenter stated that 

information about the value of the home 

is not relevant to these consumers 

because they do not buy manufactured 

homes for investment. A manufactured 

home lender also stated that it does not 

offer loans based on the collateral value 

but instead on the consumer’s ability to 

repay. 

A national manufactured housing 

trade association stated that inspections 

by HUD-certified inspectors conducted 

on all new manufactured homes provide 

lenders and consumers a strong 

guarantee of the quality of a 

manufactured home.107 Moreover, this 

commenter asserted that the HUD 

inspection process, coupled with the 

verification that lenders receive from 

manufactured home retailers and 

builders on all new manufactured 

homes,108 dispenses with the need for 

an appraisal and interior inspection. 

Two national appraiser associations 

generally asserted that the importance of 

valuation information to the consumer 

and lenders far outweighs the costs and 

burdens of providing this information. 

However, one manufactured home 

lender suggested that the cost of 

performing third-party appraisals would 

be unnecessary for the consumer, 

especially given this commenter’s 

concerns about their reliability in homeonly transactions. In addition, the 

commenter suggested that these costs 

would be a particular hardship on 

consumers who purchase manufactured 

home because they tend to have lower 


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109This commenter noted, however, that the 

private sector was not in a position to develop such 

a repository due to cost and anti-trust concerns. 

Further, if such a repository were developed, this 

commenter expected challenges in finding data on 

comparable sales in rural areas would remain. 

incomes and lower credit scores than 

consumers of site-built homes; thus, 

they are purchasing a manufactured 

home because it is the most affordable 

and viable option available to them to 

own their own home. Finally, the 

commenter suggested the burden on 

manufactured home creditors of 

valuation requirements is likely to result 

in a reduction in lending. Similarly, a 

national manufactured housing trade 

association commenter suggested that 

existing valuation methods are adequate 

and cost consumers substantially less 

than traditional property appraisals. 

A manufactured home lender 

expressed concerns in particular about 

requiring creditors to provide a thirdparty cost service unit value to the 

consumer for either new or existing 

manufactured homes. According to this 

commenter, the technology and 

personnel required to program and 

develop a system to compare the home’s 

year, manufacturer, and model name 

with the appropriate year, manufacturer, 

and model name from a specific price 

guide would be considerable. Further, 

this commenter asserted, this type of 

requirement would add to all lenders’ 

overhead costs, which would increase 

the cost of credit (i.e., be passed on to 

the consumer). This lender predicted 

that such a task would deter other 

established creditors, including banks 

and credit unions, from offering 

financing secured by a manufactured 

home. 

Location. A question with equal 

applicability to transactions secured by 

either a new or existing manufactured 

home was a request for comment on the 

impact the location of a new 

manufactured home can have on its 

value and whether cost services are 

available that account adequately for 

differences in location. Commenters 

who responded generally agreed that the 

location of a manufactured home can 

have a significant impact on its value. 

Two national appraiser association 

commenters suggested that the location 

of a manufactured home can have a 

significant influence on its value and 

that they know of no cost services that 

adequately account for price differences 

in locations. 

A consumer advocacy group, two 

affordable housing organizations, a 

national manufactured homeowner 

association, and a policy and research 

organization suggested that 

manufactured homes are very rarely 

moved because moving a manufactured 

home is expensive and likely to damage 

the unit. As a result, a location-based 

value is more relevant to resale value. 

These commenters further suggested 

that attributes of the home’s location 

that affect the home’s value are tangible 

and visible, but that there are other 

attributes of a manufactured home’s 

location that affect the home’s value that 

are not typically captured in existing 

valuation models. Examples of such 

characteristics provided were lease 

terms or State laws that: (1) Stabilize 

rent; (2) ensure that the home may 

remain where it is sited; (3) ensure that 

the homeowner is able to sell the home 

to a new owner without having to move 

it; and (4) protect the lender’s interest in 

the home if the homeowner defaults on 

the loan. 

One manufactured home lender 

suggested that similar factors, such as 

proximity to retail shopping, the quality 

of the neighborhood public and private 

schools, the condition and upkeep of 

neighboring properties, and other 

factors that affect the value of site-built 

homes will also affect the value of 

manufactured homes. However, the 

commenter suggested that due to 

historical biases against manufactured 

homes in urban areas and most 

neighborhoods—expressed through 

zoning restrictions, prohibitions, and 

restrictive covenants—most 

manufactured homes are located in rural 

communities. A manufactured home 

lender also indicated that, in fact, it is 

not uncommon for manufactured homes 

may be moved from a sited location 

back to a dealer’s lot, particularly when 

they have been foreclosed upon and are 

in rural areas. 

Further study. Several commenters 

suggested that more time may be needed 

to develop reliable alternatives to a 

USPAP- and FIRREA-compliant 

appraisal based upon a physical 

inspection of the interior of the home. 

Two manufactured housing lenders, 

while generally opposed to conditioning 

the exemption, suggested the Agencies 

that postpone any decision on these 

issues for several months of further 

evaluation. A State manufactured 

housing trade association indicated that 

it would only support a condition if a 

mandatory repository of data on 

comparable sales were developed and 

sufficient time passed for this repository 

to populate.109 This commenter also 

expressed concerns that very few, if any, 

loans secured by manufactured homes 

would be exempt from the HPML 

appraisal rules as qualified mortgages. 

See § 1026.35(c)(2)(i). This commenter 

suggested that the large number of loans 

potentially covered by conditions on 

any exemption for manufactured home 

transactions that would involve 

alternative valuations warranted further 

study of these options by the Agencies. 

Similarly, a consumer advocate group, 

two affordable housing groups, a 

national association of owners of 

manufactured homes, and a policy and 

research organization, while generally 

supporting conditions, suggested that 

the Agencies convene a working group 

of stakeholders to review and develop 

valuation standards. These commenters 

observed that this approach would help 

to integrate the manufactured housing 

sector into the larger housing market. In 

their view, valuation rules would create 

demand, which would improve capacity 

for providing valuations and also 

generate more financing options for 

manufactured home consumers. 

Comments on Loans Secured by a New 

Manufactured Home (but not Land) 

The Agencies solicited comment on 

whether it would be appropriate and 

beneficial to consumers to condition the 

exemption from the HPML appraisal 

requirements on the creditor providing 

the consumer with various types of 

third-party information about the 

manufactured home’s cost, which thirdparty estimates should be used for these 

estimates, and when creditors should be 

required to provide the information. The 

Agencies received several comments on 

these questions. Representatives of 

appraisal providers, a credit union, a 

community bank, a consumer advocacy 

group, three affordable housing groups, 

a national association of owners of 

manufactured homes, and one policy 

and research organization generally 

suggested that consumers would benefit. 

On the other hand, a manufactured 

home lender, two manufactured housing 

trade associations, a State credit union 

association, a mortgage company, a 

national community bank trade 

association, and a national mortgage 

banking trade association generally 

suggested that consumers would not 

benefit and a condition should not be 

adopted. 

Manufacturer’s invoice. Regarding the 

utility of providing the consumer with 

a copy of the manufacturer’s invoice, a 

consumer advocacy group, two 

affordable housing groups, a national 

manufactured homeowner association, 

and a policy and research organization 

stated that in the near term consumers 

would benefit from receiving the 

manufacturer’s invoice because this is 

what manufactured home lenders rely 

on in transactions involving new 

manufactured homes. They asserted that 

a consumer who is given the invoice is 

better able to evaluate the accuracy of 


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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78553 

110See HUD TI–481, Appendices 8–9, C, and 10– 

5. The Agencies understand that the NAS is an 

appraisal method involving both the comparable 

sales and the cost approach. 

the description of the home’s features. 

Given concerns about truth and 

accuracy in invoices in capturing all 

dealer payments, though, these 

commenters suggested that these 

transactions ultimately should be 

subject to the HPML appraisal rules on 

the same basis as site-built homes. In 

their view, higher valuation standards 

would improve appraiser capacity and, 

they argued, decrease incentives to steer 

consumers to loans with weaker 

standards. 

Regarding the credibility of 

manufacturer’s invoices, the Agencies 

received conflicting information. One 

affordable housing organization 

differentiated between a dealer’s invoice 

and a manufacturer’s invoice, indicating 

that incentives and rebates might be 

omitted from the dealer’s invoice but 

not from the manufacturer’s invoice so 

the manufacturer’s invoice would be 

more reliable for the consumer. A 

consumer advocacy group, two 

affordable housing organizations, a 

national association of owners of 

manufactured homes, and a policy and 

research organization, however, 

commented that the manufacturer’s 

invoice may not have accurate 

information about the actual cost paid 

by the dealer because it might not reflect 

incentives, rebates, and in-kind services 

agreed upon by the dealer and 

manufacturer. However, as noted, they 

believed that the representation of home 

features on the invoice would be useful 

to consumers. 

A national manufactured housing 

trade association stated that the 

manufacturer certifies to the retailer the 

authenticity and accuracy of the 

wholesale cost of the manufactured 

home at the point of manufacture. A 

manufactured housing lender further 

suggested that the manufacturer’s 

invoice is the only realistic option upon 

which to base a home’s value because it 

takes into account the upgrades and 

other features pertinent to the home. 

This commenter suggested that the 

invoice amount also offers a 

‘‘conservative’’ figure in terms of 

valuation and loan-to-value 

considerations. However, the 

commenter noted that a consumer’s 

total sales price will include certain 

other third-party charges related to the 

move and set-up of the manufactured 

home, dealer mark-ups and occasionally 

local government fees required to be 

paid by the dealer. 

Third-party cost service estimates. 

Regarding the utility of providing a 

third-party unit estimate from an 

independent cost service, a credit union 

commenter stated that a third-party unit 

estimate would give consumers a 

valuable guideline to prevent predatory 

practices. Similarly, a community bank 

commenter stated that this information 

could help alleviate the potential for 

dealer price markups over 

manufacturer’s suggested retail price. A 

national provider of a manufactured 

home cost service stated in its comment 

letter that its cost guide information 

could ‘‘absolutely’’ be useful to 

consumers, but cautioned that providing 

consumers with multiple different 

indications of value could make the 

process more confusing to consumers. 

The provider further stated that its cost 

guide can be used to provide a 

‘‘guideline’’ that is a ‘‘reasonable 

approximation’’ for a new manufactured 

home value using the ‘‘new or like new’’ 

condition for the current-year model. 

The cost guide provider indicated that 

its value estimates consider the home’s 

manufacturer, model, size, year, and 

region. In its cost guide, adjustments are 

also possible for State location, the 

general condition of the home, as well 

as for value added by additional 

features. 

An affordable housing organization 

stated that creditors should be required 

to obtain cost estimates from an 

independent appraiser based upon 

nationally-published cost information. 

This commenter stated that consumers 

will be better informed with more 

information. 

On the other hand, several industry 

and industry trade association 

commenters suggested that providing 

copies of third-party estimates would be 

of no benefit to consumers or would 

cause consumer confusion. One 

manufactured home lender asserted that 

cost guides consider pieces of property 

in the abstract and fail to account for the 

cost of permits, site preparation, and 

delivering the home to the purchaser’s 

site. Moreover, this commenter 

suggested cost guides are typically used 

by lenders only to determine a value for 

pre-owned manufactured homes. A 

State manufactured housing association 

also noted that the third-party cost 

guides are not used in practice for new 

manufactured home transactions, a view 

confirmed by a manufactured home 

lender during informal outreach. 

Independent valuations. Regarding 

third-party valuations for new homeonly transactions generally, a number of 

industry, consumer group, and other 

commenters stated that in their view 

there does not exist today a reliable 

national third party database for 

comparable sales for new manufactured 

homes. However, two national appraiser 

association commenters stated that they 

strongly support requiring an 

independent third-party valuation by a 

credentialed third party appraiser with 

education, training, and experience, or a 

valuation through the National 

Appraisal System (NAS), which would 

be consistent with the requirements of 

government programs.110

Information for the consumer. The 

Agencies also solicited comment on 

whether the consumer in an HPML 

transaction to be secured by a new 

manufactured home and not land 

typically receives unit cost information, 

and what cost information from a 

reliable independent third-party source 

might be reasonably available to 

creditors and useful to a consumer. 

Several commenters responded to this 

and a related question; all generally 

suggested that, other than the retail 

purchase and sale agreement between 

the manufactured home purchaser and 

the retailer, no third-party information 

is currently provided to consumers 

about the value of their new 

manufactured home. One manufactured 

home lender noted that the retail 

purchase agreement will list the retail 

price of the manufactured home and 

itemize and include in the total cost all 

other costs and charges associated with 

the transactions and installation of the 

home and extras. Another manufactured 

home lender added that it is not the 

industry custom to disclose the 

wholesale amount to a consumer. 

Rather, the commenter suggested, the 

Agencies should not require disclosures 

of cost information for consumers and 

deviate from widely accepted practice 

in other areas of retail sales, including 

automobiles or site-built homes. 

Most of the commenters who 

responded on the information 

availability issue suggested that there 

was currently no readily-accessible, 

publicly-available information that 

consumers could use to determine 

whether their loan amount exceeds the 

collateral value in a new manufactured 

home chattel transaction. Two national 

appraiser associations asserted that, 

under the statute, consumers have a 

fundamental right to know the value of 

the home that collateralizes debt they 

incur. However, a provider of a 

manufactured home cost guide 

suggested that consumers could access 

manufactured home value information 

on its Web site representing the 

depreciated replacement cost of a home. 

Regarding the best timing for a 

creditor to provide a unit value estimate 

to a consumer, two national appraiser 

associations suggested that the 


tkelley on DSK3SPTVN1PROD with RULES2
78554 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

111This commenter’s observations were also 

endorsed by another manufactured home lender 

and a national manufactured housing trade 

association. 

112This commenter suggested that a national 

mandatory-reporting database would need to be 

sponsored by the government, as cost and possible 

anti-trust issues make it unlikely the private sector 

would create such a database. 

113This nonbank lender also stated that industry 

lenders do not typically obtain a ‘‘valuation’’ in 

manufactured home transactions. 

114According to the association, the association 

develops its guide by collecting data from industry 

manufacturers to create a guideline based on actual 

original costs, current regional market activity 

(which are used to make regional adjustments), and 

depreciation factors. The association stated that the 

depreciation cost approach used by its guide is a 

component of the cost approach used by certified 

or licensed appraisers, and is approved for use with 

Fannie Mae Form 1004C, Freddie Mac Form 70B, 

and the VA. 

information should be delivered to the 

prospective borrower as early in the 

loan underwriting process as possible. A 

consumer advocacy group, two 

affordable housing organizations, a 

national association of owners of 

manufactured homes, and a policy and 

research organization suggested that a 

copy of the manufacturer’s invoice 

should be provided to consumers after 

the execution of the buyer’s order but 

prior to the consummation of the 

transaction. Finally, one community 

bank suggested that third-party cost 

guide information should be provided to 

the consumer at least three days prior to 

consummation because the data is 

readily available through the database. 

Comments on Loans Secured by an 

Existing Manufactured Home (but not 

Land) 

Commenters generally supported an 

exemption from the HPML appraisal 

rules under § 1026.35(c)(3) through (6) 

for transactions secured by an existing 

manufactured home and not land. 

However, a number of commenters 

favored conditioning the exemption on 

the creditor obtaining and providing 

valuation information to the consumer. 

Several commenters also stated that any 

exemption should be temporary. The 

most common reasons cited by 

commenters for supporting the 

exemption were a lack of qualified and 

available appraisers; a lack of data on 

comparable sales; and concerns over the 

cost of appraisals. 

Regarding the availability of 

appraisers, a State manufactured 

housing trade association cited a 

scarcity of state-certified and -licensed 

appraisers to support chattel lending in 

general, which this commenter stated is 

particularly pronounced in rural areas 

where the homes are predominantly 

located. This commenter also believed 

valuation professionals lacked sufficient 

experience with USPAP personal 

property appraisal standards to comply 

with them in existing manufactured 

home-only transactions. Similarly, a 

manufactured home lender stated that 

most state-certified or -licensed 

appraisers are not trained or 

experienced in manufactured home 

appraisals and that in many rural areas, 

no qualified appraisers are available.111

In addition, a national community 

bank trade association indicated that, 

while some community banks can 

readily engage appraisers for 

manufactured home transactions, other 

banks do find it difficult to identify 

appraisers. A consumer advocate group, 

two affordable housing organizations, a 

national association of owners of 

manufactured homes, and a policy and 

research organization stated, however, 

that any appraiser capacity issues are 

driven by a lack of valuation standards 

for the manufactured housing segment. 

As a result, allowing the rule to take 

effect after a temporary period would 

lead to demand for appraisers, creating 

an incentive for appraisers to obtain the 

requisite skills. 

A number of commenters expressed 

concern that the limited availability of 

data on comparable sales for 

transactions secured by an existing 

manufactured home and not land posed 

a significant barrier to obtaining reliable 

third-party appraisals for these 

transactions. A manufactured home 

lender stated that sales of existing 

manufactured homes on leased land are 

not reported to MLS and that data on 

comparable sales outside of California is 

generally lacking. The commenter 

noted, though, that one private company 

does aggregate comparable sales data 

from different sources around the 

country, which is usually used for 

transactions in land-lease communities. 

The national manufactured housing 

trade association added that statecertified or -licensed appraisers do not 

capture data on sales of existing 

manufactured homes, whether from 

retail dealers or communities. In 

addition, this commenter suggested that 

data may be distorted by foreclosures in 

rural areas leading to relocation of 

homes to dealer inventory. The State 

manufactured housing trade association 

commenter stated that the lack of a 

reliable nationwide database of 

comparable sales should be remedied 

and indicated that the one statewide 

database (in California) only receives 

data on a voluntary basis.112

Further, several industry commenters 

cited concerns over the cost of 

appraisals. A national community bank 

trade association and a State credit 

union association generally believed 

that that a USPAP-complaint appraisal 

with an interior inspection would be 

costly for low-income borrowers 

purchasing existing manufactured 

homes. Another State credit union 

association and a national credit union 

association supported the exemption 

because manufactured home values are 

generally lower than the values of other 

types of home. A state-level bank trade 

association also stated that appraisals 

would be costly for these transactions. 

Third-party cost service estimates. A 

number of commenters also believed 

that existing market incentives and 

valuation methods were sufficient for 

this type of transaction. For example, 

national and State manufactured 

housing trade associations noted that 

lenders frequently use the value 

indicated by a national manufactured 

home cost guide to determine the 

maximum amount of credit they would 

extend for transactions secured by 

existing homes and not land. One 

manufactured home lender stated that it 

uses the guide to calculate a 

‘‘theoretical’’ value, which is imperfect 

given the lack of reliable information 

about the condition of the home. 

Another nonbank lender stated that 

while it uses this guide to determine 

approximate wholesale value on tradeins and as a general guide to the 

potential sale price for repossessions, it 

does not use the guide in transactions to 

finance the purchase or refinance of an 

existing manufactured home and not 

land.113 A consumer advocate group, 

two affordable housing organizations, a 

national association of owners of 

manufactured homes, and a policy and 

research organization further confirmed 

the widespread use of third-party cost 

service depreciation schedules in this 

segment of the market. 

Regarding the accuracy of third-party 

cost service estimates for existing 

manufactured homes, a national 

provider of a manufactured home cost 

guide stated that its values are derived 

by applying depreciation factors to the 

cost estimate of the home, and are 

designed to represent ‘‘retail worth’’ 

assuming average condition and certain 

components. Adjustments can be made 

for actual condition, inventoried 

components, and local site value (for 

homes located in land-lease 

communities).114 The commenter stated 

that the local site value adjustment is 

representative of a national average of 

the contributing value for land-lease 

communities with certain attributes. 

After accounting for this adjustment, the 

value can be up to 33 percent higher or 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78555 

115FHA reported providing insurance under its 

Title I program for 655 manufactured home loans 

in Fiscal Year (FY) 2012, 986 in FY 2011, and 1,776 

in FY 2010. See HUD, FHA Annual Management 

Report, Fiscal Year 2012 (Nov. 15, 2013) at 17. FHA 

also reported providing insurance under its Title II 

program for 20,479 manufactured home loans in FY 

2012, 21,378 in FY 2011, and 30,751 in FY 2010. 

See id. According to 2012 HMDA data, 19,614 FHAinsured manufactured home loans were reported 

out of a total of 123,628 reported manufactured 

home loans, for a FHA-insured share of 15.9 

percent. See www.ffiec.gov/hmda. 

116These commenters did not identify, however, 

what other types of comparables, apart from 

manufactured homes that are not sited on land 

owned by the consumers, could be used as 

comparables in these transactions. 

117This commenter suggested the individual 

would not necessarily have to be a state-certified or 

-licensed real estate appraiser. Nonetheless, a 

national manufactured home cost service provider 

also noted that the number of individuals certified 

to use the FHA Title I personal property appraisal 

system is down, from over 1,000 in previous 

decades to less than 100 today. HUD also allows 

creditors to rely on real estate appraisers from its 

Title II roster to complete these appraisals. See HUD 

TI–481, Appendices 8–9, C, and 10–5. 

11 percent lower than the value of the 

structure only (on average, the location 

adjustment adds 13 percent). While 

acknowledging that only appraisers are 

qualified to analyze a property’s sited 

location, this commenter claimed that 

its location adjustment was more cost 

effective than an appraisal based upon 

a physical inspection, without 

sacrificing accuracy. When it compared 

its location-adjusted values with 

estimates from a sample of over 1,000 

personal property appraisals of 

manufactured homes over a wide range 

of ages, it found that the median 

difference between its estimates and the 

appraised value was less than five 

percent. 

Views of other commenters on the 

accuracy of third-party cost guide 

estimate were more mixed. A 

manufactured home lender stated that 

cost guides are used as a guideline by 

lenders rather than as an estimate of 

resale value. Another manufactured 

home lender stated that the cost guide 

does not include transaction costs, 

including setup fees, which can lead to 

unreliable estimates for consumers. 

A consumer advocate group, two 

affordable housing organizations, a 

national association of owners of 

manufactured homes, and a policy and 

research organization believed that 

estimates based upon these cost guides 

fail to value correctly important factors 

related to the location of the home, such 

as the security of land tenure, risk of 

rent increases, and community 

attributes, among others. These 

commenters also noted that the cost 

guide assumes the property value has 

depreciated and that available 

adjustments based upon the property 

condition are not required; as a result, 

maintenance, repairs, and upgrades 

could be left out of the value and the 

property could be under-valued. 

Further, these commenters expressed 

concern that widespread use of a 

depreciated value could drive rather 

than reflect manufactured home values. 

However, another affordable housing 

organization believed that, despite 

concerns expressed by some about the 

utility of a third-party estimate based 

upon a nationally-published cost 

service, consumers will be better 

informed with this information. 

A State manufactured housing trade 

association expressed concerns that 

depreciated values available through a 

cost service can be understated. While 

this commenter noted that adjustments 

can be made, the commenter asserted 

that questions remain as to who should 

make the adjustments and whether they 

will be made in a uniform, valid, and 

reliable manner. 

One manufactured home lender 

believed that the use of physical 

inspections to provide a basis for 

making adjustments to depreciated unit 

cost estimates was not widespread. This 

commenter also pointed out that some 

transactions are consummated before 

the existing manufactured home is 

placed on the new site making it 

infeasible for the lender to arrange for 

pre-closing inspections of the home at 

its new site in these situations. 

Independent valuations. Some 

commenters also indicated that 

valuation methods based upon sales 

comparison approaches are sometimes 

used in transactions secured by an 

existing manufactured home and not 

land. A consumer advocate group, two 

affordable housing organizations, a 

national association of owners of 

manufactured homes, and a policy and 

research organization stated that 

comparable sales typically are selected 

based upon characteristics such as type 

of sale, size, style, and location of the 

home. 

A State manufactured housing trade 

association noted that a private 

company can provide comparable sales 

reports for some transactions. A 

manufactured home lender indicated 

that this service also included a 

physical inspection, and is used for 

transactions secured by homes in landlease communities in particular when a 

cost guide estimate does not match the 

sales price. 

A national manufactured housing 

trade association stated that, for FHA 

Title I program loans, a physical 

inspection is conducted to adjust for site 

additions and the physical condition of 

the home. A State manufactured 

housing association asserted that the 

NAS is rarely used because only a small 

number of originations are currently 

done under the Title I FHA program for 

which NAS appraisals are specifically 

approved.115 This commenter and a 

manufactured home lender stated 

suggested that the small number of FHA 

Title I program loans is due in part to 

eligibility requirements, including 

appraisal requirements. 

The consumer advocate group, two 

affordable housing organizations, a 

national association of owners of 

manufactured homes, and a policy and 

research group stated that the FHA Title 

I appraisal system is overly focused on 

one characteristic of the home (that it is 

a manufactured home) and excludes use 

of other types of comparables that may 

be more suitable. A manufactured home 

lender noted that HUD-approved 

valuation methods based upon 

comparable sales tend to yield values 

below the sales price, which this 

commenter attributed to an overemphasis on use of manufactured 

homes as comparables.116 Another 

manufactured home lender claimed that 

this occurrence in HUD-approved 

appraisals is evidence that they 

undervalue manufactured homes. A 

manufactured home lender expressed 

concerns about the cost of NAS 

appraisals under the FHA Title I 

program. This lender stated that, if a 

condition is imposed, lenders should 

have more than one option for the type 

of valuation that would satisfy the 

condition. 

A national association for community 

banking also referred to all of the above 

types of valuations as options for 

valuating these transactions, in addition 

to an evaluation by a bank employee. 

This commenter stated that some bank 

employees conduct interior or exterior 

inspections. 

An affordable housing organization 

believed that creditors should be 

required to obtain a replacement cost 

estimate from a trained, independent 

appraiser using a nationally-published 

cost service. Two national appraiser 

trade associations stated that, in light of 

the importance of the location to the 

value of the home, the Agencies should 

require an independent third-party 

valuation by a credentialed appraiser 

with education, training, and 

experience,117 or a valuation that 

complies with the appraisal system 

specified under the FHA Title I program 

for insuring loans secured by existing 

manufactured homes and not land. A 

community bank stated that interior and 

exterior inspections should be 

conducted, due to higher depreciation 


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78556 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

118Having this information three days before 

consummation also will allow borrowers the 

opportunity to discuss it with a HUD-certified 

housing counselor whose participation in the 

transaction prior to consummation is mandated for 

loans under the Bureau’s 2013 HOEPA Final Rule, 

to be codified at 12 CFR 1026.34(a)(5). The role of 

the HUD-certified housing counselor specifically 

includes helping borrowers ‘‘avoid inflated 

appraisals.’’ See HUD Housing Counseling Program 

Handbook 7610.1 (May 2010), Ch. 1–2. 

119U.S. House of Reps., Comm. on Fin. Servs., 

Report on H.R. 1728, Mortgage Reform and AntiPredatory Lending Act, No. 111–94 (May 4, 2009) 

(House Report), at p. 56 (noting that when faulty 

valuation methods lead to overvaluation, 

individuals ‘‘may later encounter difficulty in 

refinancing or selling a home because the true value 

of the property used as collateral is less than the 

original mortgage.’’). 

120 12 CFR 1026.2(19). 

121The Bureau’s Section 1022 analysis estimates 

that around 20,000 but potentially more of these 

transactions occur annually. Potential for a higher 

number of affected loans results from variables that 

determine whether a loan is a qualified mortgage 

that require access to information that is not 

available for these loans, such as the debt-to-income 

ratio. 

of manufactured homes compared to 

site-built homes. 

The Final Rule 

Under § 1026.35(c)(2)(viii)(B), which 

goes into effect on July 18, 2015, the 

Agencies are adopting a conditional 

exemption for transactions secured by 

existing manufactured homes and not 

land. The Agencies believe that 

exempting transactions secured by 

existing manufactured homes and not 

land is in the public interest and 

promotes the safety and soundness of 

creditors, provided that such exemption 

is conditioned on the consumer 

receiving certain information as 

provided in detail below. The Agencies 

also are adopting a condition on the 

exemption for transactions secured by 

new manufactured homes and not land 

adopted in the January 2013 Final Rule. 

Under the condition, for applications 

received by the creditor on or after July 

18, 2015, an HPML that is not a 

qualified mortgage and is secured by 

either a new or existing manufactured 

home without land will be exempt from 

the general HPML appraisal rules in 

§ 1026.35(c)(3) through (c)(6) if the 

creditor provides the consumer with a 

copy of any one of three specified types 

of information no later than three days 

prior to consummation of the 

transaction. The three types of 

information that can satisfy the 

condition are: (1) The manufacturer’s 

invoice for the manufactured home, 

where the date of manufacture is within 

18 months of the creditor’s receipt of the 

consumer’s application; (2) a cost 

estimate of the value of the 

manufactured home from an 

independent cost service; or (3) a 

valuation, as defined in § 1026.42(b)(3), 

of the manufactured home by a person 

who has no direct or indirect interest, 

financial or otherwise, in the property 

or transaction for which the valuation is 

performed and has training in valuing 

manufactured homes. 

The Agencies also are adopting and 

re-numbering proposed comment 

35(c)(2)(ii)(B)–1, which clarifies that the 

exemption does not depend on whether 

the home is titled as realty by operation 

of State law. The heading for the 

comment is revised to remove the word 

‘‘solely,’’ to reflect that this provision 

applies to transactions that are secured 

by a manufactured home and other 

collateral that is not land, such as a 

leasehold interest. The comment is renumbered as comment 35(c)(2)(viii)(B)– 

1. See also section-by-section analysis of 

§ 1026.35(c)(2)(viii)(A) (further 

discussing transactions secured by a 

manufactured home and a leasehold 

interest). 

The Agencies are not adopting 

proposed comment 35(c)(2)(ii)(A)–1, 

which would have provided that an 

HPML secured by a new manufactured 

home is not subject to the appraisal 

requirements of § 1026.35(c), regardless 

of whether the transactions is also 

secured by the land on which it is sited. 

The unconditional exemption for 

transactions secured by a new 

manufactured home, with or without 

land, will go into effect on January 18, 

2014, but will end starting with 

applications received by the creditor on 

or after July 18, 2015. At that time, the 

exempt status of transactions secured by 

new manufactured homes will depend 

on whether the transaction also is 

secured by land. Other comments 

adopted in the final rule relate to the 

information that a creditor can provide 

to satisfy the condition and are 

discussed in the section-by-section 

analysis below. 

Discussion 

The Agencies believe that the 

exemption in § 1026.35(c)(2)(viii)(B) for 

loans secured by manufactured homes 

and not land promotes the safety and 

soundness of creditors in part because 

the exemption makes it possible for 

creditors to continue making these 

loans, which may be an important part 

of a given creditor’s operations; the 

Agencies understand that for chattel 

transactions, compliance with all of the 

general HPML appraisal requirements of 

§ 1026.35(c)(3) through (6) may be 

infeasible. The condition on the 

exemption in § 1026.35(c)(2)(viii)(B) is 

necessary to ensure that the exemption 

is also in the public interest, because the 

condition will ensure that consumers 

receive information pertaining to the 

value of their manufactured home. The 

Agencies further believe that by 

allowing creditors a menu of options for 

compliance, the condition will provide 

appropriate flexibility to the creditor to 

select which materials it deems most 

cost-effective. The Agencies also believe 

that having this information before 

consummation of the loan can be useful 

to the consumer, and is consistent with 

the timing of the general HPML 

appraisal requirement that the creditor 

must give the consumer a copy of the 

appraisal three days before 

consummation.118 See § 1026.35(c)(6)(ii). 

TILA Section 129H ensures that, 

before consummation of a ‘‘higher-risk 

mortgage,’’ creditors obtain a valuation 

of the home and provide a copy to the 

consumer. 15 U.S.C. 1639h. The statute 

focuses on transactions with a higher 

risk profile (i.e., those with higher 

interest rates and which are not 

qualified mortgages). For these riskier 

transactions, the statute sets standards 

that are intended to reduce the risk of 

inflated valuations of the ‘‘dwelling,’’ 

and grants consumers a right to know 

the appraised value of the ‘‘dwelling’’ 

before entering into these 

transactions.119 A manufactured home 

is a ‘‘dwelling’’ under regulations 

implementing TILA.120 Indeed, 

transactions secured by manufactured 

homes and not land comprise a 

substantial proportion of the overall 

annual housing transactions that are 

HPMLs and not qualified mortgages.121

The Agencies therefore believe that 

Congress intended for TILA Section 

129H to provide protection against 

inflated valuations and transparency to 

borrowers in this housing segment. 

Nonetheless, based upon outreach 

and comments on the 2012 Proposed 

Rule and further outreach and 

comments on the 2013 Supplemental 

Proposed Rule, the Agencies believe 

that the precise form of valuation 

specified in the statute—an appraisal by 

a state-certified or -licensed appraiser in 

conformity with USPAP and FIRREA, 

based upon a physical inspection of the 

interior of the home—is infeasible for 

this housing segment at this time. A 

steady supply of state-certified or 

-licensed appraisers to service 

thousands of these transactions 

annually starting on January 18, 2014, 

does not yet exist. 

Even if more state-certified or 

-licensed appraisers were able to 

perform appraisals for transactions 

secured by a manufactured home and 

not land in the future, the Agencies 

recognize that sources of data on 


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122Whereas appraisals of a land/home transaction 

are not always limited to the use of manufactured 

housing transactions as comparables, in 

transactions secured only by the home, the universe 

of comparables is generally limited to manufactured 

homes. 

123See Enterprise Duty to Serve Underserved 

Markets, Proposed Rule, 75 FR 32099, 32014 (June 

7, 2010) (FHFA finding that ‘‘[i]nterest rates charged 

for chattel loans are typically higher than those for 

real estate-secured loans’’ and that ‘‘[d]elinquencies 

and defaults on chattel loans typically exceed rates 

on mortgage loans.’’). 

124See, e.g., Consumers Union Southwest 

Regional Office, ‘‘Manufactured Housing 

Appreciation: Stereotypes and Data’’ (Aug. 2003), p. 

4 (asserting that depreciation is but one factor 

leading to ‘‘underwater’’ homes and that ‘‘many 

industry practices [ ] lead to very high loan-tovalue ratios. Fees, points and overpriced, unneeded 

add-ons (such as vacations, cash rebates and singlepremium credit life) raise the loan balance without 

adding value to the home. This can contribute to 

a deficiency balance by removing equity and 

placing the loan underwater.’’). See also id. at 14 

(‘‘One contributing factor to an initial drop [in the 

value of a manufactured home] can be inflated 

retailer mark-ups embedded in the price of a 

home.’’). 

125See, e.g., Bureau’s 2013 HOEPA Final Rule, 78 

FR 6856, 6876 (Jan. 31, 2013) (noting that Congress 

set a higher APR threshold for HOEPA coverage of 

loans secured by manufactured homes titled as 

personal property—8.5 percentage points—and that 

under this test, industry commenters estimated that 

between 32 and 48 percent of recent originations 

would be covered). 

126See, e.g., Howard Baker and Robin LeBaron, 

Fair Mortgage Collaborative, Toward a Sustainable 

and Responsible Expansion of Affordable Mortgages 

for Manufactured Homes (March 2013) at 9 (‘‘In 

2009, the median household income of households 

in manufactured homes was under $30,000—well 

below the national average of $49,777. More than 

one-fifth (22 percent) of manufactured housing 

residents have incomes at or below the Federal 

poverty level.’’). This report is available at http:// 

cfed.org/assets/pdfs/IM_HOME_Loan_Data_

Collection_Project_Report.pdf. 

127 75 CFR 77450, 77456 n.12 (Dec. 10, 2010) 

(noting that scope is for Federally-related 

transactions, which are real-estate related under 12 

U.S.C. 3339 and 12 U.S.C. 3350(4)). 

128Bureau: 12 CFR 1026.42; Board 12 CFR 226.42. 

129Bureau: 12 CFR 1026.42(b)(1) and (2); Board 

12 CFR 226.42(b)(1) and (2). 

130See id.; see also 12 U.S.C. 2602(3) and 24 CFR 

1024.2. 

131 12 CFR 1024.2. 

132See 12 CFR 1002.14. 

comparable sales for transactions 

secured by a manufactured home and 

not land may not be as robust as sources 

of data on sales of transactions secured 

by a home and land.122 As a result, the 

Agencies believe that, absent an 

exemption, creditors could be unable to 

comply with the HPML appraisal 

requirements in a substantial number of 

transactions secured by a manufactured 

home and not land. Thus, the Agencies 

have concluded that an exemption from 

a requirement to perform appraisals in 

conformity with USPAP and FIRREA for 

these transactions would promote the 

safety and soundness of creditors and be 

in the public interest by allowing the 

transactions to occur without requiring 

use of a valuation method that is 

infeasible in a large number of cases. 

At the same time, the risk of inflated 

valuations in these transactions can 

contribute to increased default risk,123

which runs counter to both the safety 

and soundness of creditors and the 

public interest. The Agencies are 

concerned, based on research, outreach, 

and comments received, that these 

transactions can be prone to inflated 

valuations and associated risks of 

under-collateralization, leading to loans 

where the consumer has little, no, or 

even negative equity in the home.124

The Agencies believe that an 

unconditional exemption for these 

transactions at a minimum would not 

adequately account for the risks of 

under-collateralization. 

The effect of an inflated valuation on 

consumers and their risk of default can 

be even more pronounced in these 

transactions. Chattel lending generally 

carries higher interest rates, which 

could result in a significant number of 

HOEPA loans.125 Further, several 

industry commenters indicated that 

manufactured home loans would be less 

likely to be qualified mortgages than 

other types of mortgages because their 

points and fees would typically exceed 

thresholds set by the Bureau’s 2013 ATR 

Final Rule. See § 1026.43(e)(3). At the 

same time, consumers borrowing these 

loans are disproportionately in the LMI 

segment.126 Higher loan amounts 

resulting from inflated valuations, 

combined with the comparatively high 

interest rates on these loans, can 

generate payments that pose significant 

burdens on LMI consumers and can put 

them at greater risk of default. 

Outreach and comments from the 

2012 Proposed Rule and 2013 

Supplemental Proposed Rule have not 

shown that existing industry practices 

or standards necessarily would be 

sufficient to control the risk of inflated 

valuations in these transactions, or 

ensure that consumers are informed of 

the home value in these transactions. To 

compound the concern, most of these 

transactions are not subject to valuation 

standards imposed by Federal law or 

regulation or Federal agency or GSE 

programs. The FHA Title I 

Manufactured Housing Loan Insurance 

Program is the only program at the 

Federal level that covers these 

transactions; no other Federal agency or 

GSE has programs for loans secured by 

a manufactured home and not land. The 

FHA Title I program includes valuation 

requirements and loan amount caps to 

mitigate against the risk of inflated 

valuations, but currently most 

transactions secured by a manufactured 

home and not land are not insured by 

that program. Some of these transactions 

are originated by Federally regulated 

financial institutions subject to 

FIRREA’s appraisal and evaluation 

requirements, but the FIRREA 

regulations and related Interagency 

Appraisal and Evaluation Guidelines 

apply only to real estate transactions.127

Under current State laws, the collateral 

in transactions secured by a 

manufactured home and not land is not 

typically classified as real property. 

In addition, all creditors are subject to 

Regulation Z’s interim final valuation 

independence rule (Valuation 

Independence Rule) for consumer credit 

secured by chattel, but the valuation 

service providers are not, due to a 

limitation in the current rule.128 The 

Valuation Independence Rule applies to 

creditors and ‘‘settlement service’’ 

providers of covered transactions.129

Under the rule, ‘‘settlement service’’ is 

defined under RESPA and 

implementing regulations (Regulation 

X).130 Under RESPA and Regulation X, 

a ‘‘settlement service’’ is limited to 

services for ‘‘Federally related mortgage 

loans,’’ which include only loans 

secured by real property.131 Thus, 

valuation service providers for 

transactions secured by personal 

property, such as many transactions 

secured by a manufactured home and 

not land, are not covered under 

Regulation Z’s Valuation Independence 

Rule. 

Further, commenters indicated that 

consumers in transactions secured by 

manufactured homes and not land do 

not currently receive information about 

the value of their homes. Participants in 

informal outreach and research 

conducted by the Agencies similarly 

indicated that consumers for these loans 

are not familiar with independent 

information about home values and may 

be subject to high-pressure sales tactics 

that tend to limit consumer’s 

consideration of their choices and 

pursuit of independent information. 

Finally, while consumers might 

receive valuations in some of these 

transactions under the Bureau’s 2013 

ECOA Valuations Final Rule,132

creditors might not always obtain a 

valuation subject to disclosure to the 

consumer under that rule. For example, 

in new manufactured home transactions 

without land, outreach and comments 

indicated that creditors often rely 

primarily upon the manufacturer’s 

invoice when determining the 

maximum loan amount. The 

manufacturer’s invoice is not subject to 


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133See 12 CFR 1002.14, comment 14(b)(3)–3.iv. 

134See 24 CFR 201.10(b)(1). 

135 ‘‘Consummation’’ would have the same 

meaning as in § 1026.35(c)(6)(ii), requiring that a 

copy of any appraisal obtained under 

§ 1026.35(c)(6)(i) be given to the consumer no later 

than three business days prior to consummation of 

the covered HPML—namely, as defined elsewhere 

in Regulation Z at 12 CFR 1026.2(a)(13) and 

accompanying Official Staff Commentary. Under 

those provisions, ‘‘consummation’’ means ‘‘the time 

that a consumer becomes contractually obligated on 

a credit transaction,’’ which is determined by state 

law. § 1026.2(a)(13) and comment 2(a)(13)–1. 

136 24 CFR 201.21(b)(2)(i) (defining a ‘‘new 

manufactured home’’ for which a manufacturer’s 

invoice may be used as ‘‘one that is purchased by 

the borrower within 18 months after the date of 

manufacture and has not been previously 

occupied.’’ See also HUD TI–481, Appendix 2. 

137See 24 CFR 201.10((b)(1). 138See, e.g., Consumers Union Southwest 

Regional Office, ‘‘Manufactured Housing 

Appreciation: Stereotypes and Data’’ (Apr. 2003) at 

14, available at http://consumersunion.org/pdf/mh/ 

Appreciation.pdf (‘‘One contributing factor to an 

initial drop can be inflated retailer mark-ups 

embedded in the price of a home. Consumers who 

pay too much for any home will find it harder to 

sell it later for a higher price. Retailer markups can 

be a quarter of the base price of the home. 

Consumers should question what value they get 

from this middleman, and take steps to minimize 

costs that don’t add value to the home. Buying 

direct from the last owner in a used transaction may 

reduce this overhead, as can buying direct from 

manufacturers when possible.’’). 

139Fannie Mae Single-Family Selling Guide, B5– 

2.2–04 (4/1/09); Freddie Mac Single-Family Seller/ 

Servicer Guide, H33.6 (2/10/12). See also 24 CFR 

201.10(b)(1) (HUD regulations requiring that the 

loan amount be determined with reference to the 

invoice). 140See, e.g., § 1026.35(c)(2)(i); see also 78 FR 

59890, 59901 (Sept. 30, 2013) (HUD proposing that 

manufactured home loans insured under Title I 

would be qualified mortgages under HUD 

regulations, even if their points and fees exceed the 

cap under the Bureau’s qualified mortgage 

definition, § 1026.43(c)(3)). 

disclosure under the 2013 ECOA 

Valuations Final Rule.133 In addition, 

the maximum loan amount is not 

necessarily a valuation subject to 

disclosure under ECOA, and could well 

exceed caps defined under HUD 

regulations that serve to prevent overfinancing, under-collateralization, and 

underwater loans.134 Accordingly, even 

if that amount were disclosed to 

consumers under the 2013 ECOA 

Valuations Rule, it would not 

necessarily impart meaningful, 

independent information to the 

consumer about the value of the home. 

The Agencies therefore are adopting a 

condition on the exemption to ensure 

that valuation information from an 

independent source is obtained and is 

transparent to the consumer. The 

condition requires the creditor to obtain 

and provide to the consumer, no later 

than three days before consummation, 

certain information related to the value 

of the manufactured home securing the 

covered HPML.135

The Agencies have identified three 

types of materials, any one of which can 

be provided, as further discussed below. 

Providing a copy of a manufacturer’s 

invoice used by a creditor for a 

transaction secured by a new 

manufactured home. Under 

§ 1026.35(c)(2)(ii)(B)(1), a creditor on a 

loan secured by a new manufactured 

home and not land may be exempt from 

the HPML appraisal rules if the creditor 

gives the consumer a copy of the 

manufacturer’s invoice, which is 

defined consistent with HUD 

manufactured home program 

regulations. See § 1026.35(c)(1)(iv) and 

accompanying section-by-section 

analysis. 

Outreach and comments consistently 

indicated that in these transactions, 

creditors use the invoice as the primary 

source for calculating a maximum loan 

amount. For that reason, several 

commenters generally supported 

providing a copy of the invoice to 

consumers as a means of informing 

them of pertinent valuation information. 

A national manufactured housing trade 

association also asserted that it is 

standard practice for manufacturers to 

certify the authenticity and accuracy of 

the wholesale cost of the home at the 

point of manufacture. 

The Agencies are adopting a 

limitation on the option to provide the 

manufacturer’s invoice: the invoice may 

be provided to satisfy the condition only 

if the date of manufacture of the home 

was within 18 months of the creditor’s 

receipt of the consumer’s application for 

credit. This limitation is generally 

consistent with FHA Title I regulations, 

which incorporate the practice of using 

manufacturers’ invoices as a reference 

point for determining safe and sound 

loan amounts for insuring transactions 

secured by new manufactured homes. 

Specifically, FHA Title I rules limit the 

use of this practice to homes 

manufactured within 18 months of 

purchase by the consumer.136 The 

Agencies believe that this limitation 

will help prevent the use of invoices 

that are too dated to reflect reliably the 

current value of the manufactured 

home. 

Creditors commonly obtain and rely 

on the manufacturer’s invoice and 

consumer advocates, affordable housing 

organizations, and others, however, 

have asserted that consumers should 

have access to information that creditors 

use. If creditors have the invoice, 

providing a consumer with a copy 

imposes little burden. 

The Agencies note that some 

commenters were concerned that the 

manufacturer’s invoice contains 

sensitive wholesale pricing information 

and that the wholesale invoice from the 

manufacturer will not match the retail 

price paid by the consumer. The 

Agencies recognize that the retail price 

will include a markup for various costs. 

Commenters and industry participants 

in outreach indicated that in 

transactions secured by new 

manufactured homes, the maximum 

loan amount typically is determined by 

applying a percentage markup to the 

manufacturer’s invoice. Outreach 

indicated that this markup can vary 

among creditors, in some cases 

significantly. The Agencies are not 

aware of any regulatory standards 

governing the extent of this markup 

other than limitations in the FHA Title 

I program, which only covers a small 

subset of these loans currently. The 

FHA Title I limitations do not permit a 

markup on the manufacturer’s invoice 

of more than 130 percent when 

calculating the maximum insurable loan 

amount, and HUD has other detailed 

standards for determining what other 

charges can be factored into the 

maximum loan amount.137 Most 

manufactured housing transactions are 

not subject to these restrictions, leaving 

the markup to be determined by the 

creditor’s tolerance for risk, and thus 

subject to risk of inflated valuation. 

The Agencies believe that providing 

the manufacturer’s invoice to consumers 

will give them an opportunity to have 

a better understanding of the factors 

contributing to the loan amount and its 

relationship to the value of the home.138

In transactions secured by a home and 

land under GSE and Federal agency 

programs, the appraiser is required to 

receive a copy of this invoice and must 

disclose in the appraisal report how it 

was considered.139

Under the final rule, creditors also 

may choose to communicate the nature 

or extent of this markup to consumers 

when providing the manufacturer’s 

invoice. In this case, the manufacturer’s 

invoice will provide an opportunity for 

questions from consumers to assess 

whether the markup leads the collateral 

to be over-valued. As noted above, 

HUD-certified counselors, required for 

HOEPA transactions and available for 

others, also can assist consumers in 

answering any questions. The Agencies 

have sought to accommodate remaining 

concerns over providing the 

manufacturer’s invoice by providing 

other compliance options that could be 

used in new manufactured home 

transactions (including that the loan 

might qualify for another exemption 

under § 1026.35(c)(2)).140

Providing a cost estimate from an 

independent cost service provider. 


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141See generally, 24 CFR parts 3280, 3282, and 

3286. 

142See 12 CFR 226.42(b)(3) for the definition of 

‘‘valuation’’ in the Board’s substantially similar 

version of the valuation independence rule. 

Section 1026.35(c)(2)(ii)(B)(2) gives the 

creditor the option of providing a cost 

estimate from an independent thirdparty cost service provider. Comment 

35(c)(2)(ii)(B)(2)–1 clarifies that a cost 

service provider from which the creditor 

obtains a manufactured home unit cost 

estimate under § 1026.35(c)(2)(ii)(B)(2) 

is independent if that party is not 

affiliated with the creditor in the 

transaction, such as by common 

corporate ownership, and receives no 

direct or indirect financial benefits 

based on whether the transaction is 

consummated. 

As noted above, the Agencies 

recognize that creditors may choose not 

to provide a copy of the manufacturer’s 

invoice for new manufactured home 

transactions. In addition, appraisers or 

valuation providers may be unavailable 

for some transactions. Thus, including 

this additional option is important to 

ensure that the consumer can receive a 

unit cost estimate of the value of the 

home from an independent source. 

Commenters and outreach indicated 

that this type of estimate is the 

predominant method used for 

transactions secured by an existing 

manufactured home and not land. Based 

upon comments from a national cost 

service provider confirming that its cost 

guide reports values for the current 

model year, the Agencies also believe 

this type of cost service also could be 

used for many new manufactured home 

transactions. The Agencies learned from 

one cost service that an adjustment for 

‘‘new or like new’’ is available through 

its cost guide, and that this guide is 

updated multiple times per year. 

The information provided by an 

independent cost service provider can 

provide a useful outside check against 

inflated valuations. At the same time, 

the check will not prohibit transactions 

above the value reflected in the cost 

service. Rather, the check will make 

sure that if transactions occur above 

those values, creditors and consumers 

have the opportunity to know that fact 

and evaluate the transaction 

accordingly. 

Interior inspections and adjustments. 

The Agencies are not requiring physical 

inspections of the interior or condition 

or location adjustments to the cost 

service values. In this way, the 

condition ensures that the creditor can 

readily identify the information to be 

provided to the consumer (based upon 

the make and model and year of the 

manufactured home unit) from an 

independent source, without being 

asked to interject subjective or 

discretionary considerations. 

Interior inspections by an appraiser 

for new manufactured homes may often 

be of limited value, given the associated 

expense. For transactions secured by 

new manufactured homes, as indicated 

by industry commenters, HUD and State 

inspectors conduct inspections to 

ensure the proper construction and 

installation of the home.141 Some 

commenters asserted that an interior 

inspection could confirm the existence 

of extras or options that were promised. 

The Agencies believe, however, that 

consumers themselves can confirm that 

they received extras or options ordered. 

Regarding adjustments, the Agencies 

understand that cost services may offer 

adjustments of standard estimates to 

reflect that the unit is in ‘‘new or like 

new’’ condition. 

For existing manufactured homes, 

information about the condition of the 

interior can be an important factor 

affecting the valuation. Due to concerns 

with burden, complexity, and reliability 

of such adjustments, though, the 

Agencies are not mandating that 

adjustments be made. At the same time, 

the rule does not prohibit creditors from 

making this adjustment to the unit-cost 

estimate of an existing manufactured 

home. 

Accordingly, comment 

35(c)(2)(viii)(B)(2)–2 clarifies that the 

requirement that the cost estimate be 

from an independent cost service 

provider does not prohibit a creditor 

from providing a cost estimate that 

reflects adjustments to factors such as 

special features, condition or location. 

The comment explains, however, that 

the requirement that the estimate be 

obtained from an independent cost 

service provider means that any 

adjustments to the estimate must be 

based on adjustment factors available as 

part of the independent cost service 

used, with associated values that are 

determined by the independent cost 

service. 

For both new and existing 

manufactured homes, the location can 

enhance or, in some cases, reduce the 

value of the home. A consumer advocate 

group, affordable housing organizations, 

and others emphasized that cost service 

data does not adequately account for the 

contribution of location to the value of 

the home. The manufactured home can 

be resold as a trade-in or repossessed, 

however, in which case its value-inplace is not what is relevant to the 

consumer. Further, as noted above, 

location adjustments can introduce 

greater subjectivity into the information 

provided. Therefore, the rule does not 

mandate that a location adjustment be 

made. Providing the unit value will 

enable consumers to compare the cost 

estimate from the published cost service 

to the line item charge in the sales 

contract for the base unit. 

Finally, some commenters expressed 

concerns over accuracy or 

undervaluation in the unit cost 

estimates published by third-party cost 

services. These commenters did not 

provide data to support their views, 

however. In addition, while some 

comments noted that the unit cost 

estimate is not the same as an estimate 

of the retail market value, the Agencies 

recognize that this type of estimate 

nonetheless is widely used by creditors 

currently as a guideline for the value of 

an existing manufactured home. In some 

cases, it therefore may represent the best 

available, most cost-effective estimate of 

the value of the home. Further, the 

Agencies are structuring the exemption 

condition so that the creditor has the 

discretion to choose which of the 

specified types of valuation materials it 

finds most suitable for informing the 

consumer of the estimated value of the 

home. Thus, if a creditor believes an 

independent cost service generally 

undervalues manufactured homes, the 

creditor can provide other forms of 

valuation information as described 

below, as well as its own accompanying 

explanatory information. 

Providing a valuation by a trained 

manufactured home valuation provider. 

Section 1026.35(c)(2)(ii)(B)(3) allows a 

creditor to provide an appraisal 

conducted by a person who has no 

direct or indirect interest, financial or 

otherwise, in the property for which the 

valuation is performed and has training 

or experience in valuing manufactured 

homes. ‘‘Valuation’’ is defined as in 

§ 1026.42(b)(3) of the Bureau’s 

Valuation Independence Rule, which 

defines ‘‘valuation’’ to mean ‘‘an 

estimate of the value of the consumer’s 

principal dwelling in written or 

electronic form, other than one 

produced solely by an automated model 

or system.’’ 142

Comment 35(c)(2)(ii)(B)(3)–1 provides 

that the manufactured home valuation 

provider would have a direct or indirect 

interest in the property if, for example, 

the person had any ownership or 

reasonably foreseeable ownership 

interest in the manufactured home. To 

illustrate, the comment states that a 

person who seeks a loan to purchase the 

manufactured home to be valued has a 

reasonably foreseeable ownership 

interest in the property. 


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78560 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

143Bureau: 12 CFR 1026.42; Board: 12 CFR 

226.42. 

144Bureau: § 1026.42(b)(1) and (2); Board 

§ 226.42(b)(1) and (2). 

145See HUD TI–481, Appendix 2–1, D (General 

Program Requirements—Eligible Homes). 

146When the home is classified as real property, 

the appraisal must be completed by a real estate 

appraiser on the FHA Title II roster who can certify 

prior experience appraising manufactured homes as 

real property. The Agencies believe it is useful to 

incorporate the general standard, in case states 

adopt model laws treating manufactured homes as 

real property even when they are not affixed to land 

and the land does not provide security for a loan. 

See HUD TI–481, Appendices 8–9, C, and 10–5. 

147See HUD TI–481, Appendices 8–9, C, and 

10–5. 

Comment 35(c)(2)(ii)(B)(3)–2 clarifies 

that the valuation provider would have 

a direct or indirect interest in the 

transaction if, for example, the 

manufactured home valuation provider 

or an affiliate of that person also served 

as a loan officer of the creditor or 

otherwise arranges the credit 

transaction, or is the retail dealer of the 

manufactured home. The comment 

further states that a person also has a 

prohibited interest in the transaction if 

the person is compensated or otherwise 

receives financial or other benefits 

based on whether the transaction is 

consummated. 

Comments 35(c)(2)(ii)(B)(3)–1 and –2 

are generally based on comments 

42(d)(1)(i)–1 and –2 of Regulation Z’s 

Valuation Independence Rule.143 As 

discussed previously, the Valuation 

Independence Rule applies to all 

creditors of transactions secured by a 

consumer’s principal dwelling, but 

applies to ‘‘settlement service’’ 

providers only for transactions secured 

by real property.144 However, the 

Agencies believe it prudent to apply the 

principles of Regulation Z’s Valuation 

Independence Rule to valuations that 

may be used in lieu of complying with 

the general HPML appraisal 

requirements for transactions secured by 

manufactured homes and not land, 

which might not be titled as real 

property. 

Comment 35(c)(2)(viii)(B)(3)–3 

clarifies that ‘‘training’’ referenced in 

§ 1026.35(c)(2)(viii)(B)(3) includes, for 

example, successfully completing a 

course in valuing manufactured homes 

offered by a State or national appraiser 

association or receiving job training 

from an employer in the business of 

valuing manufactured homes. 

Comment 35(c)(2)(viii)(B)(3)–4 

provides an example of a manufactured 

home valuation that would satisfy the 

requirements of the condition in 

§ 1026.35(c)(2)(viii)(B)(3). Specifically, 

the comment states that a valuation in 

compliance with 

§ 1026.35(c)(2)(viii)(B)(3) would 

include, for example, an appraisal of the 

manufactured home in accordance with 

the appraisal requirements for a 

manufactured home classified as 

personal property under the Title I 

Manufactured Home Loan Insurance 

Program of HUD (administered by FHA), 

pursuant to section 2(b)(10) of the 

National Housing Act, 12 U.S.C. 

1703(b)(10). 

The Agencies included this comment 

in recognition that one of the more welldeveloped standards for the valuation of 

manufactured homes and not land is 

found in the FHA Title I program.145

When an existing manufactured home is 

classified as personal property, FHA 

Title I requires creditors to, among other 

things: (1) Use an appraiser certified to 

use the NAS or, if the lender is unable 

to locate an NAS-certified appraiser, an 

appraiser from the FHA Title II 

mortgage program who certifies having 

experience appraising manufactured 

homes; 146 (2) obtain an appraisal 

performed on the home site where 

possible and that reflects the retail value 

of comparable manufactured homes in 

similar condition and in the same 

geographic area; and (3) review the 

appraisal to verify, among other things, 

that the correct cost service unit value 

was used and proper condition 

adjustment was made.147

As noted in the 2013 Supplemental 

Proposed Rule, the Agencies are aware 

that fewer than 100 individuals are 

currently certified to use this system, 

although many more have been certified 

in the past and may have incentives to 

obtain the certification in the future. 

This factor provides further support for 

the Agencies’ decision to allow creditors 

multiple options to comply with the 

condition. 

Consumer and affordable housing 

advocate commenters supported the 

long-term goal of applying an appraisal 

standard to transactions secured by a 

manufactured home and not land. At 

the same time, manufacturer housing 

industry commenters generally 

supported a long-term effort to further 

refine and develop valuation methods 

for manufactured homes. The Agencies 

believe that adopting a condition that 

furthers these goals is in the public 

interest. To allow flexibility for these 

and other valuation methods to evolve, 

the Agencies seek to avoid prescriptive, 

detailed requirements on the valuation 

method. Rather, the Agencies seek 

generally to define who is eligible to 

perform the valuation, and leave the 

method to that person’s judgment and 

expertise as appropriate for the scope of 

work required. As noted above, two 

national appraisal trade associations 

noted that state-certified or -licensed 

appraisers are not the only persons who 

could value manufactured homes. For 

example, some commenters identified 

an existing product prepared by a 

company who hires individuals trained 

in the valuation of manufactured homes. 

The company generates a report that 

estimates the value of a given 

manufactured home using local data on 

comparable sales. 

Accordingly, under this alternative, 

the creditor must provide the consumer 

with a valuation prepared by one or 

more individuals who do not have a 

direct or indirect financial interest in 

the property or the transaction, and who 

have training in the valuation of 

manufactured homes. The Agencies are 

adopting comments to provide further 

guidance on how creditors can satisfy 

these criteria. Finally, it may follow 

from the exercise of independent 

judgment and application of this 

training that the individual will conduct 

a physical inspection of the interior, or 

assess the condition or value of the 

location of the home. But as noted, at 

this time, the Agencies are not 

specifying these steps as necessary 

elements of a valuation that satisfies the 

condition. 

Several industry commenters 

indicated that HUD appraisal 

requirements in transactions secured by 

manufactured homes have led to higher 

frequency of appraisals where the value 

of the home is below the purchase price. 

At least one commenter indicated this 

occurred in Title I transactions secured 

by existing manufactured homes. Some 

commenters and outreach participants 

attributed high numbers of appraised 

values that are lower than the purchase 

price to an over-emphasis on the use of 

manufactured homes as comparables in 

FHA and other manufactured home 

credit programs. They suggested, for 

example, that manufactured homes 

comparables in the geographic area 

might be much older than the home 

being appraised. The Agencies are 

concerned, however, that other factors 

can contribute to higher rates of 

appraised values lower than the 

purchase price, such as inflated 

purchase prices and corresponding loan 

amounts. 

The Agencies believe that, on balance, 

appraising manufactured homes in 

transactions that are not also secured by 

land can be an effective way to account 

for the many factors that contribute to 

the value of the home, including home 

condition, location, re-sale conditions, 

and lease terms, among others. 


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148See, e.g., § 1026.36(e)(1) (prohibiting steering 

consumers to earn greater compensation). The 

Agencies will monitor application of the rule in this 

regard. 

149Transactions secured by a manufactured home 

would not typically be eligible for the exemption 

for initial construction loans, 12 CFR 

1026.35(c)(2)(iv), because that exemption is 

designed for temporary initial financing that is 

replaced with permanent financing when the 

construction phase is complete. See comment 

35(c)(2)(iv)–1. 

Other Issues 

Delay in issuing rules on 

manufactured home loans. As discussed 

under ‘‘Public Comments,’’ commenters 

on behalf of consumers and industry 

generally expressed support in principle 

for ensuring that consumers receive 

valuation information in exempt 

transactions. Industry commenters 

raised a number of concerns over the 

utility to consumers of information 

generated through current valuation 

practices, however. Several consumer 

and affordable housing groups 

expressed a similar concern over the 

quality of current valuation methods 

(citing, for example, concerns over the 

reliability of a cost estimate of the unit 

from a third-party source). They 

nonetheless stated that creditors should 

still be required to provide a copy of the 

collateral valuation information that is 

used by the creditor (i.e., manufacturer’s 

invoice in new manufactured home 

transactions). These commenters also 

suggested that the Agencies engage in 

further study of manufactured housing 

valuation issues before adopting further 

conditions. 

The Agencies note, however, that 

manufactured housing valuation 

practices and issues have been the 

subject of significant requests for 

comment and outreach in two separate 

proposals, and have generated detailed 

comment from representatives of 

industry, consumer advocates, and 

appraisers alike. The Agencies believe 

that the current public record 

sufficiently supports adopting 

conditions in this final rule. While the 

Agencies are allowing additional 18 

months for conditions to be 

implemented, deferring their adoption 

pending further study would not 

promote safety and soundness and be in 

the public interest. Thousands of 

consumers would be without the 

protections during any further study. It 

also is unclear that further study, 

beyond the two years of study already 

undertaken, would generate material 

improvements to the approach taken 

here. 

Steering. Some consumer group and 

affordable housing commenters also 

expressed concern that consumers 

might be steered into higher-rate chattel 

transactions with fewer consumer 

protections if the final rule provided an 

unconditional exemption for 

transactions secured by a manufactured 

home and not land. For example, 

consumers could be steered away from 

an HPML transaction secured by both 

the home and land to avoid the HPML 

appraisal requirements (see 

§ 1026.35(c)(2)(viii), effective July 18, 

2015). Creditors might also structure 

what otherwise would be a packaged 

land/home transactions into two 

transactions—one secured solely by the 

home and one by land. The Agencies 

believe that some of these concerns are 

mitigated by other laws and regulations. 

Such practices might be subject to 

scrutiny under consumer protection 

laws at the State and Federal level. For 

example, regulations may apply that 

generally prohibit a loan originator from 

steering a consumer to a transaction 

based on the fact that the originator will 

receive greater compensation (which 

could result from an over-valuation of 

the home, leading to a higher loan 

amount).148 The Agencies believe that 

some of the concerns about steering may 

be mitigated by conditioning the 

exemption for manufactured home-only 

transactions on the creditor having to 

provide alternative valuation 

information to the consumer. 

Effective date. The Agencies recognize 

creditors will need time to make 

necessary adjustments to their 

compliance systems to be able to 

comply with the condition. For 

example, creditors will need to adjust 

their systems to identify transactions 

that would need to rely on the 

exemption (e.g., HPMLs that are not 

eligible for exemptions for loans that 

satisfy the criteria of a qualified 

mortgage, transactions in an amount of 

$25,000 or less, or other exemption 

types (see § 1026.35(c)(2)),149 to 

determine which types of valuation 

materials to obtain for these 

transactions, and to develop a 

mechanism for providing these to the 

consumer no later than three days prior 

to consummation. Creditors also will 

need to ensure that they have access to 

the valuation materials they choose to 

use. To ensure adequate time to 

implement these and any other 

necessary steps, and that these 

transactions remain available to 

consumers in the interim period, the 

Agencies are delaying implementation 

of the condition for 18 months after the 

effective date of the HPML Appraisals 

Rules, until July 18, 2015. 

Sunset. Finally, the Agencies are not 

adopting an expiration date for the 

conditional exemption for transactions 

secured by a manufactured home and 

not land. Some commenters suggested 

that a ‘‘sunset’’ date would provide an 

incentive for the appraiser and 

manufactured home lending industries 

to improve capacity and methods for 

conducting appraisals that would 

comply with USPAP and FIRREA. 

However, it is unclear that a sunset date 

would promote this outcome. At the 

same time, a sunset date would create 

risk for this important source of 

affordable housing if capacity and 

methods are not developed by that date. 

The Agencies believe that a better way 

to promote improved capacity and 

methods is to allow the condition to be 

satisfied through the use of existing 

methods. This is therefore another 

reason why the Agencies are allowing 

the third option for satisfying the 

condition—appraisals performed by 

independent and trained individuals. 

35(c)(6) Copy of Appraisals 

35(c)(6)(ii) Timing 

In the January 2013 Final Rule, 

§ 1026.35(c)(6)(ii) requires that a 

creditor provide a copy of any appraisal 

obtained in compliance with the HPML 

appraisal rules to the consumer ‘‘no 

later than three business days prior to 

consummation of the loan.’’ Comment 

35(c)(6)(ii)–2 provides that, for 

appraisals prepared by the creditor’s 

internal appraisal staff, the date that a 

consumer receives a copy of an 

appraisal as required under 

§ 1026.35(c)(6) is the date on which the 

appraisal is completed. In the 2013 

Supplemental Proposed Rule, the 

Agencies proposed to delete this 

comment as unnecessary, because the 

relevant timing requirement is based on 

when the creditor provides the 

appraisal, not when the consumer 

receives it. See § 1026.35(c)(6)(i). 

Public Comments 

A State credit union association 

commenter requested that the Agencies 

allow flexibility in providing a copy of 

the appraisal three days before closing 

because it is difficult to obtain an 

appraisal in time to do so, requiring 

closing to be rescheduled, which can be 

difficult. The commenter requested that 

consumers be permitted to waive the 

requirement if it is in their best interest 

to do so. 

The Final Rule 

The Agencies are adopting the 

proposal to delete comment 35(c)(6)(ii)– 

2 without change, and re-numbering 

comment 35(c)(6)(ii)–3 as 35(c)(6)(ii)–2. 

The Agencies are not adding a waiver 

option to the timing requirement for 

providing a copy of the appraisal to the 


tkelley on DSK3SPTVN1PROD with RULES2
78562 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

150ECOA section 701(e)(2), 15 U.S.C. 1691(e)(2), 

implemented in the 2013 ECOA Valuations Final 

Rule, Regulation B § 1002.14(a)(1), effective January 

18, 2014. 

151ECOA section 701(e)(2), 15 U.S.C. 1691(e)(2), 

implemented in 12 CFR 1002.14(a)(1), effective 

January 18, 2014. 

152The analysis and views in this Part VI reflect 

those of the Bureau only, and not necessarily those 

of all of the Agencies. 

153Specifically, Section 1022(b)(2)(A) 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 Act; and the 

impact on consumers in rural areas. 

154Only transactions that are actually insured, 

guaranteed, or administered under programs of 

HUD, VA, USDA, or RHS could be eligible for the 

exemption under § 1026.35(c)(2)(i) by being defined 

as or meeting the criteria of a qualified mortgage 

under rules of those agencies; the authority of those 

agencies to determine the features of a qualified 

mortgage does not extend to loans that they do not 

insure, guarantee, or administer. See TILA section 

129c(b)(3)(B)(ii), 15 U.S.C. 1639c(b)(3)(B)(ii). 

155The Bureau has discretion in future 

rulemakings to choose the most appropriate 

baseline for that particular rulemaking. 

156Used manufactured housing transactions that 

are secured by land remain covered by the January 

2013 Final Rule, starting with applications received 

on or after July 18, 2015. All loans secured in whole 

or in part by manufactured home are exempt if the 

application is received before July 18, 2015. 

consumer. Re-numbered comment 

35(c)(6)(ii)–2 clarifies that the ECOA 

provision allowing a consumer to waive 

the requirement that the appraisal copy 

be provided three business days before 

consummation, does not apply to 

HPMLs subject to § 1026.35(c).150 The 

comment further clarifies that a 

consumer of an HPML subject to 

§ 1026.35(c) may not waive the timing 

requirement to receive a copy of the 

appraisal under § 1026.35(c)(6)(i). 

The Agencies believe that allowing 

the consumer to waive the timing 

requirement for providing a copy of the 

appraisal would be inconsistent with 

the statute. ECOA expressly provides 

that the consumer may waive the three 

day timing requirement for the creditor 

to provide a copy of the appraisal to the 

consumer under ECOA.151 By contrast, 

Congress did not amend TILA to 

include a parallel waiver provision 

regarding the same requirement in the 

context of appraisals for HPMLs. See 

TILA section 129H(c), 15 U.S.C. 

1639h(c). The Agencies interpret TILA’s 

lack of a waiver provision to indicate 

that Congress did not intend to allow 

consumers of loans covered by the 

HPML appraisal rules to waive the 

timing requirement. 

VI. Bureau’s Dodd-Frank Act Section 

1022(b)(2) Analysis 152

In developing this supplemental rule, 

the Bureau has considered potential 

benefits, costs, and impacts to 

consumers and covered persons.153 In 

addition, the Bureau has consulted, or 

offered to consult with HUD and the 

Federal Trade Commission, including 

regarding consistency with any 

prudential, market, or systemic 

objectives administered by those 

agencies. The Bureau also held 

discussions with or solicited feedback 

from the USDA, RHS, and VA regarding 

the potential impacts of this 

supplemental rule on their loan 

programs. 

In this supplemental final rule, the 

Agencies are exempting the following 

three additional classes of higher-priced 

mortgage loans (HPMLs) from the 

January 2013 Final Rule: (1) HPMLs 

whose proceeds are used exclusively to 

satisfy (i.e., refinance) an existing first 

lien loan and to pay for closing costs, 

provided that the credit risk holder is 

the same on both loans (or that the same 

government agency insures or 

guarantees both loans) and the new loan 

does not have negative amortization, 

interest-only, or balloon features; (2) 

HPMLs that have a principal amount of 

$25,000 or less (indexed to inflation); 

and (3) certain HPMLs secured by 

manufactured homes. 

As revised in this final rule, the 

manufactured home exemption covers 

all HPMLs secured by manufactured 

homes for which an application is 

received before July 18, 2015. 

Thereafter, (1) for transactions secured 

by a new manufactured home and land, 

creditors will only be exempt only from 

the requirement that the appraiser 

conduct a physical visit of the interior; 

and (2) for transactions secured by a 

manufactured home and not land, the 

exemption applies only if certain 

alternative valuation information is 

provided to the consumer no later than 

three days before consummation. 

The Agencies are also broadening the 

exemption for qualified mortgages 

adopted in the January 2013 Final Rule 

beyond the Bureau’s qualified mortgage 

definition in 12 CFR 1026.43(e) to 

include any transaction that meets the 

criteria of a qualified mortgage 

established by agencies with authority 

to do so under TILA section 129c—the 

Bureau, HUD, VA, USDA, and RHS. See 

15 U.S.C. 1693c. As revised, this 

exemption will include transactions that 

are qualified mortgages as defined under 

any final rule that the Bureau, HUD, VA, 

USDA, or RHS has adopted or will 

adopt under authority at TILA section 

129c. See 15 U.S.C. 1693c. In addition, 

transactions that meet criteria for a 

qualified mortgage established under 

rules prescribed by the Bureau, HUD, 

VA, USDA, or RHS are eligible for the 

exemption even if they are not ‘‘covered 

transactions’’ under the Bureau’s abilityto-repay rules (and thus not technically 

defined as ‘‘qualified mortgages’’ under 

each of the respective rules).154 For 

further discussion, see the section-bysection analysis of § 1026.35(c)(2)(i). 

A. Potential Benefits and Costs to 

Consumers and Covered Persons 

This analysis considers the benefits, 

costs, and impacts of the key provisions 

of the supplemental rule relative to the 

baseline provided by existing law, 

including the January 2013 Final Rule 

and the Bureau’s previously issued ATR 

Rules.155 The Bureau considered 

comments received on issues related to 

this analysis. These comments are 

addressed below and in the section-bysection analyses. 

1. Economic Overview 

This rulemaking consists of the 

adoption of an expanded qualified 

mortgage exemption and five separate 

provisions regarding HPMLs that do not 

qualify for the qualified mortgage status 

(non-QM). The January 2013 Final Rule 

demarcated which of those non-QM 

loans are subject to requirement for an 

appraisal in conformity with USPAP 

and FIRREA with an interior property 

visit (the full appraisal) and related 

notice and additional appraisal 

requirements for loans used to purchase 

certain flipped properties. The overall 

impact of these five provisions is 

limited to specific segments of the 

mortgage market, with arguably the 

largest impact on transactions secured 

by a used manufactured home and not 

land (provision (3) below). The five 

provisions for non-QM HPMLs are: 

1. Certain refinances, commonly 

referred to as ‘‘streamlined,’’ are now 

exempt from the January 2013 Final 

Rule; 

2. Smaller dollar loans (up to $25,000, 

indexed to inflation) are now exempt 

from the January 2013 Final Rule; 

3. Used manufactured housing 

transactions that are not secured by land 

(chattel) are now exempt from the 

January 2013 Final Rule and, for 

applications received on or after July 18, 

2015, subject to a condition that the 

creditor must give the consumer 

alternative valuation information; 156

4. New manufactured housing 

transactions that are not secured by land 

(chattel) remain exempt from the 

January 2013 Final Rule; however, for 

applications received on or after July 18, 

2015, this exemption will be subject to 


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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78563 

157See, for example, E. Glen Weyl and Michael 

Fabinger, ‘‘Pass-Through as an Economic Tool: 

Principles of Incidence under Imperfect 

Competition,’’ Journal of Political Economy, Vol. 

121, No. 3 (Feb. 24, 2013). 

158For example, consumers generally cannot 

access the manufacturer’s invoice for a 

manufactured house. 

159 78 FR 10368, 10420 (Feb. 13, 2013). 

160 78 FR 48548, 48568 n.91 (Aug. 13, 2013). 

161 78 FR 10368, 10419 (Feb. 13, 2013). 

162See generally 12 CFR 1026.43(e)–(f) 

(provisions identifying types of mortgages that are 

qualified mortgages under Bureau rules). 

163The estimates in this analysis are based upon 

data and statistical analyses performed by the 

Bureau. To estimate counts and properties of 

mortgages for entities that do not report under the 

Home Mortgage Disclosure Act (HMDA), the Bureau 

has matched HMDA data to Call Report data and 

National Mortgage Licensing System (NMLS) and 

has statistically projected estimated loan counts for 

those depository institutions that do not report 

these data either under HMDA or on the NCUA call 

report. The Bureau has projected originations of 

HPMLs in a similar fashion for depositories that do 

not report HMDA. These projections use Poisson 

regressions that estimate loan volumes as a function 

of an institution’s total assets, employment, 

mortgage holdings, and geographic presence. 

Neither HMDA nor the Call Report data have loan 

level estimates of debt-to-income (DTI) ratios that, 

Continued 

a condition that the creditor must give 

the consumer alternative valuation 

information; and 

5. New manufactured housing 

transactions secured by land (new land/ 

home) remain exempt until July 18, 

2015; for applications received on or 

after July 18, 2015, these transactions 

will be exempted only from the physical 

interior visit part of the January 2013 

Final Rule. 

In adopting each of these provisions, 

the Agencies considered mandating that 

consumers receive information about 

the value of their house at the time of 

the loan. The Bureau discusses the 

general benefits and costs of this type of 

mandatory information provision, and 

then applies this discussion to each of 

the provisions. 

Consumers benefit from knowing the 

value of the home on which they are 

planning to take out a loan. Consumers 

are able to make decisions that will 

better fit their situation if they have a 

more precise estimate of what their 

home is worth. For example, a 

consumer might decide, given a home’s 

value, that he or she should not take out 

the loan or should consider purchasing 

a different home whose value in relation 

to the loan amount is lower; that they 

should sell instead of refinancing; that 

they should postpone a particular home 

improvement and not overinvest in a 

home that might be worth less than they 

thought. Affording consumers a better 

opportunity to get this decision right is 

particularly valuable in home loans 

because these transaction sizes are 

significant relative to income; the large 

size of the transaction relative to income 

may be especially significant in non-QM 

HPMLs, which are more costly and may 

pose greater repayment risk than other 

mortgage loans. 

No valuation method will give the 

consumer perfect information about the 

home’s value. Thus, a consumer might 

receive a valuation that overestimates 

the value and leads to a purchase that 

should not have been made; similarly, a 

valuation that underestimates the value 

might lead to no purchase when one 

should have been made. However, the 

Bureau believes that imparting unbiased 

valuation information to the consumer 

is better than the consumer receiving no 

information, and that consumer benefits 

increase with more precise information, 

whether it’s moving from no 

information to a manufacturer’s invoice, 

an AVM or similar estimate, a full 

appraisal, or some other type of 

valuation prepared by an independent 

trained person. 

The cost of providing any additional 

information on the home value is 

directly imposed on the creditor—the 

creditor has to perform what is 

necessary to obtain the home valuation 

information and provide it to the 

consumer. However, since this is mostly 

a marginal cost and most of the 

mortgage markets are relatively 

competitive, this cost is likely to be 

almost fully passed through to the 

consumer.157 The fixed costs, which are 

unlikely to be passed through to the 

consumer in a relatively competitive 

market, include developing training 

materials and providing training. 

However, the Bureau believes that the 

marginal training and training 

development costs for the provisions of 

this supplemental final rule are nonsignificant. Creditors will have already 

developed and provided training in 

preparation for complying with the 

various requirements of the January 

2013 Final Rule, which goes into effect 

on January 18, 2014; this supplemental 

final rule is considerably less complex, 

establishing exemptions from those 

requirements. 

In the world of informed consumers 

exhibiting fully rational economic 

behavior, mandatory information 

provisions might be unnecessary— 

consumers would have decided for 

themselves whether they need this 

information enough to pay for it. 

However, the Bureau believes that this 

is not the best assumption, especially 

for a market with many product 

characteristics, intertemporal 

investment decisions, and projections 

into the distant future. Moreover, even 

under that assumption, creditors might 

have some specialized knowledge 

making them able to obtain better 

information than the consumer could 

access on their own.158

A range of possibilities for a home 

value information requirement exists in 

the non-QM HPML mortgage market. 

This range has, at one end of the 

spectrum, no information provision 

requirement, and a full appraisal on the 

other. Generally, the more precise the 

information is, the more expensive the 

method is. In particular, the Bureau 

believes that a full appraisal costs $350 

on average as discussed in the Section 

1022 analysis in the January 2013 Final 

Rule.159 Not providing any information 

is, of course, free to the creditor. An 

intermediate solution like an automated 

valuation estimate (an AVM estimate) 

would result in a cost of under $20, as 

estimated in the 2013 Supplemental 

Proposed Rule; 160 however, an AVM 

estimate is arguably less precise than a 

USPAP appraisal, especially in rural 

areas. Providing a consumer with a copy 

of a manufacturer’s invoice (one of the 

few conditions that a creditor might 

satisfy for a non-QM HPML to be 

exempted from a full appraisal on 

chattel manufactured housing) is 

estimated to cost less than $5. Moreover, 

the Bureau’s January 2013 ECOA 

Valuations Rule already requires the 

creditor to give the consumer a copy of 

valuations performed for the 

transaction; the Bureau estimates that 

full appraisals that are performed 95% 

of the time for purchases, 90% for 

refinances, and 5% for other loans 

generally in the mortgage market based 

upon outreach.161

2. Data Used 

For all the estimates, both above and 

below, the data sources used are 

described in the 2013 Supplemental 

Proposed Rule (described in the next 

paragraph below). Several commenters 

stated that for the completeness of 

analysis, the Bureau should also 

examine the impact of the points and 

fees criterion for a qualified mortgage 

under the Bureau’s 2013 ATR Final Rule 

on the number of HPMLs that are nonQMs.162 The Bureau does not possess 

any data and is not aware of any 

existing data to address this point 

directly. However, the effect of points 

and fees is described further below. The 

Bureau did not receive comments 

raising additional issues regarding the 

data and the methodology by which 

projections were originated. 

The Bureau has relied on a variety of 

data sources to analyze the potential 

benefits, costs and impacts of the 

rule.163 However, in some instances, the 


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78564 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

in some cases, determine whether a loan is a 

qualified mortgage. To estimate these figures, the 

Bureau has matched the HMDA data to data on the 

historic-loan-performance (HLP) dataset provided 

by the FHFA. 

This allows estimation of coefficients in a probit 

model to predict DTI using loan amount, income, 

and other variables. This model is then used to 

estimate DTI for loans in HMDA. 

164Every national bank, State member bank, and 

insured nonmember bank is required by its primary 

Federal regulator to file consolidated Reports of 

Condition and Income, also known as Call Report 

data, for each quarter as of the close of business on 

the last day of each calendar quarter (the report 

date). The specific reporting requirements depend 

upon the size of the bank and whether it has any 

foreign offices. For more information, see http://

www2.fdic.gov/call_tfr_rpts/. 

165The NMLS is a national registry of nondepository financial institutions including mortgage 

loan originators. Portions of the registration 

information are public. The Mortgage Call Report 

data are reported at the institution level and include 

information on the number and dollar amount of 

loans originated, and the number and dollar amount 

of loans brokered. The Bureau noted in its summer 

2012 mortgage proposals that it sought to obtain 

additional data to supplement its consideration of 

the rulemakings, including additional data from the 

NMLS and the NMLS Mortgage Call Report, loan 

file extracts from various lenders, and data from the 

pilot phases of the National Mortgage Database. 

Each of these data sources was not necessarily 

relevant to each of the rulemakings. The Bureau 

used the additional data from NMLS and NMLS 

Mortgage Call Report data to better corroborate its 

estimate the contours of the non-depository 

segment of the mortgage market. The Bureau has 

received loan file extracts from three lenders, but 

at this point, the data from one lender is not usable 

and the data from the other two is not sufficiently 

standardized nor representative to inform 

consideration of the Final Rule or this supplemental 

proposal. Additionally, the Bureau has thus far not 

yet received data from the National Mortgage 

Database pilot phases. 

166As discussed above, the Bureau does not 

believe that a significant number of smaller dollar 

HPMLs would exceed the points and fees threshold 

in the 2013 ATR Final Rule. The Bureau requested 

data on this issue in the supplemental proposal. 

None of the commenters on the smaller dollar 

exemption provided this data. If a significant 

number of smaller dollar HPMLs did exceed that 

threshold, then the number of loans eligible for the 

exemption would increase. 

167See 78 FR 10368, 10419 (Feb. 13, 2013). 

168See Section 1022(b) analysis, 78 FR at 10418– 

21. 169 78 FR at 10419. 

requisite data are not available or are 

quite limited. Data with which to 

quantify the benefits of the rule are 

particularly limited. As a result, 

portions of this analysis rely in part on 

general economic principles to provide 

a qualitative discussion of the benefits, 

costs, and impacts of the rule. 

The primary source of data used in 

this analysis is data collected under 

HMDA. The empirical analysis 

generally uses 2011 data, including from 

the 4th quarter 2011 bank and thrift Call 

Reports 164 and 4th quarter 2011 credit 

union call reports from the NCUA. Deidentified data from the National 

Mortgage Licensing System (NMLS) 

Mortgage Call Reports (MCR) 165 for the 

4th quarter of 2011 also were used to 

identify financial institutions and their 

characteristics. 

In addition, in analyzing alternatives 

for the exemption for certain refinances, 

the Bureau did consider data provided 

by FHFA and FHA regarding valuation 

practices under their streamlined 

refinance programs (and in particular 

regarding the frequency with which 

appraisals or automated valuations are 

conducted). 

3. Smaller Dollar Loans 

Estimate of the Number of Covered 

Loans 

The Bureau estimates the number of 

transactions potentially eligible for the 

smaller dollar exemption as follows: 

HMDA data for 2011 indicates there 

were approximately 25,000 HPMLs at or 

below $25,000 that were not insured or 

guaranteed by government agencies or 

purchased by the GSEs (so, not qualified 

mortgages on that basis). Of these, the 

Bureau estimates that 4,800 were 

HPMLs with DTI ratios above 43 percent 

(so they would not meet the more 

general definition of a qualified 

mortgage at 12 CFR 1026.43(e)(2)). 

Accordingly, the Bureau estimates that 

approximately 4,800 covered loans are 

originated annually in an amount up to 

$25,000.166 Of these estimated 4,800 

covered loans, the Bureau estimates that 

the types most affected by this 

exemption, in that they would be 

unlikely to include appraisals if the 

exemption applies, would be home 

improvement loans, subordinate lien 

transactions not for home improvement 

purposes, and transactions secured by 

manufactured homes. Absent an 

exemption, the HPML appraisal rules 

could lead to significant changes in 

valuation methods used for these types 

of loans. For example, current practice 

includes appraisals for only an 

estimated five percent of subordinate 

lien transactions as explained in the 

January 2013 Final Rule.167

Covered Persons 

Creditors originating smaller dollar 

HPMLs that are non-QMs would 

experience some reduced burden as a 

result of the exemption for HPMLs of 

$25,000 or less. As a result of the 

exemption, these loans will not be 

subject to the estimated per-loan costs 

described in the January 2013 Final 

Rule.168 For these transactions, creditors 

do not need to spend time or resources 

on complying with the requirements in 

the HPML appraisal rules: Checking for 

applicability of the second appraisal 

requirement on a flipped property (in a 

purchase transaction) and paying for 

that appraisal when the requirement 

applies, obtaining and reviewing the 

appraisals conducted for conformity to 

this rule, providing a copy of the 

required disclosure, and providing 

copies of these appraisals to applicants. 

Creditors therefore may find it relatively 

easier to originate HPMLs that are 

eligible for this exemption. As noted 

above, the overall impact of this 

exemption on creditors is likely 

minimal for most creditors given that in 

2011 only 4,800 loans were potentially 

eligible for the exemption. 

Consumers 

For consumers who seek to borrow 

smaller dollar loans, such as home 

improvement loans and other 

subordinate lien transactions, and who 

are not able to obtain a qualified 

mortgage, the exemption for smaller 

dollar HPMLs (at or less than $25,000) 

would provide some benefits. Industry 

practice prior to implementation of the 

January 2013 Final Rule suggests that 

appraisals are not otherwise frequently 

done for home improvement and 

subordinate lien transactions.169 Thus, 

by not requiring an appraisal, the cost 

of which typically would be passed on 

to consumers, the exemption could 

facilitate access to smaller dollar HPMLs 

that are not otherwise exempt from the 

HPML appraisal rules. Otherwise, 

requiring an appraisal for these loans 

could create incentives that may not 

benefit consumers. These incentives can 

be more significant for smaller dollar 

loans, given that the cost of the 

appraisal relative to the amount of the 

loan is higher for smaller dollar loans. 

For example, some consumers could try 

to avoid the cost of an appraisal by 

either not entering into a smaller dollar 

HPML (unless it is otherwise exempt 

from the rules, such as a QM) or 

pursuing an alternative source of credit 

that is not subject to the rules, such as 

an open-end home equity line of credit 

or using other forms of credit that are 

not dwelling-secured such as a credit 

card. Finally, as a result of the 

exemption, consumers are likely to save 

around $350 per loan; if the appraisal 

requirement applied to these loans, the 

Bureau would have expected creditors 

to pass the cost of the appraisal on to 

consumers. 

Regarding costs to consumers, under 

the exemption, consumers entering into 

smaller dollar HPMLs (that are not 

otherwise exempt) would lose the 

benefits of the Final Rule. As discussed 

in the Bureau’s analysis under Section 

1022 in the January 2013 Final Rule, in 

general, consumers who are borrowing 

HPMLs could benefit from an appraisal. 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78565 

170See 2011 American Housing Survey, ‘‘Value, 

Purchase Price, and Source of Down Payment— 

Owner Occupied Units (NATIONAL),’’ C–13–OO, 

available at http://factfinder2.census.gov/faces/

tableservices/jsf/pages/

productview.xhtml?pid=AHS_2011_

C13OO&prodType=table. In addition, in seven 

metropolitan statistical areas, as of the end 2012 the 

median home value was less than $100,000. See 

National Association of Realtors® Median Sales 

Price of Existing Single-Family Homes for 

Metropolitan Statistical Areas Q4 2012, available at 

http://www.realtor.org/sites/default/files/reports/

2013/embargoes/hai-metro-2-11-asdlp/metro-homeprices-q4-2012-single-family-2013-02-11.pdf. 

171Core Logic Press Release and Negative Equity 

Report Q4 2012 (Mar. 19, 2013), available at http:// 

www.corelogic.com. 

172See Steven Laufer, ‘‘Equity Extraction and 

Mortgage Default,’’ Financial and Economics 

Discussion Series Federal Reserve Board Division of 

Research & Statistics and Monetary Affairs (2013– 

30), available at http://www.federalreserve.gov/

pubs/feds/2013/201330/201330pap.pdf. The study 

concludes, at 2, that ‘‘through cash-out refinances, 

second mortgages and home equity lines of credit, 

. . . homeowners [in the sample studied] had 

extracted much of the equity created by the rising 

value of their homes. As a result, their loan-to-value 

(LTV) ratios were on average more than 50 

percentage points higher than they would have 

been without this additional borrowing and the 

majority had mortgage balances that exceeded the 

value of their homes.’’). See also Michael LaCourLittle, California State University-Fullerton, Eric 

Rosenblatt and Vincent Yao, Fannie Mae, ‘‘A Close 

Look at Recent Southern California Foreclosures,’’ 

(May 23, 2009) at 17 (finding that, based upon a 

sample of homes, the existence of a subordinate lien 

is correlated more strongly with default than 

whether the home was purchased in 2005–06 

period), available at http://www.areuea.org/

conferences/papers/download.phtml?id=2133. 

174The Census report refers to these homes as 

‘‘manufactured/mobile homes’’, but the Census 

definitions note that all of these homes are ‘‘HUD 

Code homes’’, which is the fundamental 

characteristic of what are currently referred to as 

manufactured homes. 

175See Cost & Size Comparisons: New 

Manufactured Homes, available at http://

www.census.gov/construction/mhs/pdf/

sitebuiltvsmh.pdf. 

176According to data provided by HUD for the 

fiscal year 2011, approximately 5,900 existing 

manufactured homes were purchased together with 

land under the FHA Title II program. 177As with new homes, this estimate would 

increase to the extent that any other manufactured 

home purchase HPMLs would not be qualified 

mortgages solely because they exceed caps on 

points and fees in the Bureau’s 2013 ATR Rules. 178For further analysis of these assumptions, see 

the Bureau’s RFA analysis at part VII. 

For smaller dollar HPMLs that are not 

purchase transactions, the general 

benefits elsewhere may be relatively less 

valuable to the consumer in some cases, 

given the lower size of the loan and also 

the likelihood that the consumer already 

would have had an appraisal in the 

original purchase transaction. 

Nonetheless, having an appraisal 

could provide a particularly significant 

benefit to those consumers who are 

informed by the appraisal that they have 

significantly less equity in their home 

than they realize. A smaller dollar 

mortgage could push these consumers 

even further toward or into negative 

equity, without the consumer realizing 

it. This effect is even more pronounced 

for consumers whose homes have lower 

value. All else equal, a $25,000 loan will 

pose greater risk to a consumer whose 

home is worth $20,000, than to a 

consumer whose house is worth 

$200,000. According to a periodic 

government survey, as of 2011 more 

than 2.75 million homes were worth 

less than $20,000, including a greater 

proportion of homes whose owners 

were below the poverty level or 

elderly.170 In addition, according to a 

recent study, as of the end of 2012, 10.4 

million properties with a residential 

mortgage were in ‘‘negative equity’’ and 

an additional 11.3 million had less than 

20 percent equity.171 In addition, some 

recent studies suggest that subordinate 

liens can increase the risk of default, as 

they reduce the amount of equity in the 

home.172 Moreover, based upon HMDA 

data, more than half of subordinate liens 

originated in 2011 were at or below 

$25,000. Therefore, smaller dollar loans 

of $25,000 or less could still pose 

significant risks to consumers who own 

these lower-value homes or other homes 

that are highly leveraged, consuming 

most or all of any remaining equity. 

4. Transactions Secured by Used 

Manufactured Homes and Not Land 

Estimate of the Number of Covered 

Loans 

To assess the impact of the rule’s 

provisions concerning manufactured 

housing, it is necessary to estimate the 

volume of transactions potentially 

affected, by collateral type. The 

Bureau’s analysis of 2011 HMDA data, 

matched with the historic loan 

performance (HLP) data from the FHFA, 

indicates that roughly eight percent of 

all manufactured home purchases were 

covered loans: HPMLs that were nonQMs because the DTI ratio exceeded 43 

percent and the loan was not insured, 

guaranteed, or purchased by a federal 

government agency or GSE.173 Because 

HMDA data does not differentiate 

between transactions with each of the 

relevant collateral types, including new 

versus used, the Bureau is applying this 

ratio to each of the transaction types to 

derive the estimated number of covered 

loans below. Manufactured home loans 

of $25,000 or less also would be exempt 

under the smaller dollar exemption 

discussed above. However, the estimates 

of affected manufactured home 

transactions discussed in this Section 

1022 analysis do not exclude smaller 

dollar loans and therefore may be 

slightly overstated. 

Census data also reports an estimated 

369,000 move-ins to owner-occupied 

manufactured homes in 2011.174 Census 

data reports shipment of approximately 

51,000 new manufactured homes in 

2011, with approximately 17 percent 

titled as real estate.175 Therefore, the 

Bureau estimates that approximately 

318,000 existing manufactured homes 

were purchased in 2011. The Bureau 

conservatively assumes that all of these 

purchases were financed. Further, based 

upon a review of nearly two decades of 

Census data on shipments of new 

manufactured homes, the Bureau 

estimates that approximately one third 

of the existing manufactured homes are 

titled as real property. Therefore, the 

Bureau, for the purposes of this 1022 

analysis, conservatively estimates that 

approximately 105,000 purchases of 

existing manufactured homes also 

involved the acquisition of land which 

provided security for the purchase 

loan,176 while approximately 213,000 

purchases were secured only by the 

existing manufactured home (chattel 

loans). Applying the same eight percent 

factor for other purchases discussed 

above, of these, approximately 17,000 

were chattel HPMLs that were non-QMs, 

and approximately 8,400 were land- and 

home-secured HPMLs that were nonQMs.177

The Bureau’s analysis of 2011 HMDA 

data, matched with the HLP data from 

the FHFA, indicates that, 

approximately, for every four covered 

purchase manufactured housing loans, 

there is one manufactured housing 

refinance or home improvement loan 

(that is, out of every five manufactured 

housing loans, four are purchases). The 

Bureau believes that both refinance and 

home improvement loans in 

manufactured housing are exempt due 

to other exemptions in this rule. 

Therefore, the Bureau believes that there 

are approximately 13,600 covered used 

chattel manufactured housing loans.178

Several commenters noted that the 

proportion of non-QM loans will be 

higher in manufactured housing than 

what was estimated by the Bureau, 

particularly due to points and fees 

exceeding the qualified mortgage limit. 

These commenters did not provide 

supporting data or address non-QM 

proportions by collateral type. 

Nonetheless, if the proportion of nonQM loans secured by existing 

manufactured homes and not land is 

indeed higher, then the estimates of 

costs and benefits of this final rule 

might increase somewhat (while 

remaining constant on a per-loan basis). 

Moreover, while the commenters 

identified the points and fees cap for 

qualified mortgages in the Bureau’s ATR 


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179See Section 1022(b) analysis, 78 FR at 10418– 

21. 

180The Agencies received a comment that 

implementing a process to ensure compliance with 

the new provisions regarding chattel manufactured 

homes will take at least 1,600 hours of labor time. 

The Bureau disagrees. As discussed above, the 

requirements can be satisfied not only by obtaining 

an independent valuation, but also by copying a 

manufacturer’s invoice for new chattel, or following 

a guide, like the one provided by NADA, for new 

or used chattel. Following the guide involves 

looking up the model, make, and the year that the 

home was built in, akin to Yellow Pages or, more 

appropriately, Kelley’s Bluebook. The Bureau 

believes that most loan officers should be able to 

perform that task in, at most, minutes given either 

a hardcopy of the guide or an electronic version. If 

a creditor chooses to invest additional labor to tailor 

its output to consumers to go beyond the limited 

conditions in this rule, that is not a cost of this rule. 

181See also 78 CFR 48548, 48573, n.123 (Aug. 13, 

2013) (‘‘The Bureau has received information in 

outreach indicating that annual subscriptions to the 

NADA Guide may cost between $100 and $200 for 

an unlimited number of value reports . . . The 

average cost per-loan would therefore depending on 

the covered person’s total level of lending 

activity.’’). 

Rules as the main reason for these loans 

not to qualify for qualified mortgage 

status, the Bureau believes that creditors 

will adjust many transactions, for 

example by shifting points and fees into 

the interest rate, so that these 

transactions are QMs. 

Moreover, HUD recently issued a 

proposed rulemaking to effectively 

exempt Title I manufactured housing 

from the qualified mortgage points and 

fees requirement. If this provision of 

HUD’s proposal is finalized 

substantially as proposed, the Bureau 

believes that some creditors will start 

originating more Title I mortgage loans 

that will also have the qualified 

mortgage status. Furthermore, the 

Bureau conservatively assumes that 

every manufactured home move-in 

reported in the Census (or in the 

American Housing Survey) had a 

mortgage loan associated with the movein. Finally, given the analysis of HMDA 

data, the Bureau believes that the two 

creditors specialized in manufactured 

home lending that commented on the 

supplemental proposal are outliers on 

several dimensions relevant to the 

proportion of covered loans, and thus 

are not necessarily representative of the 

whole manufactured home market and 

that their claims regarding non-QM loan 

volume might overestimate the 

proportion of manufactured housing 

loans that are non-QMs for the overall 

market. 

Covered Persons 

Creditors originating covered 

transactions secured by existing 

manufactured homes but not land will 

experience some reduced burden as a 

result of the exemption. In particular, 

these loans are not subject to the 

estimated per-loan costs for an appraisal 

in conformity with USPAP described in 

the January 2013 Final Rule.179 For 

these transactions, creditors also would 

not need to spend time or resources on 

complying with the requirements in the 

HPML appraisal rules: checking for 

applicability of the second appraisal 

requirement on a flipped property (in a 

purchase transaction) and paying for 

that appraisal when the requirement 

applies, obtaining and reviewing the 

appraisals conducted for conformity to 

this rule, and providing disclosures and 

appraisal report copies to applicants. 

Appraisals in conformity with USPAP 

may currently be conducted for 

transactions secured by existing 

manufactured homes but not land much 

less frequently than in connection with 

HPMLs overall. For example, the Bureau 

believes that USPAP is a set of 

standards typically followed by 

appraisers who are state-certified or 

licensed, and that state laws generally 

do not require certifications or licenses 

to appraise personal property. 

Therefore, even though USPAP includes 

standards for the appraisal of personal 

property, it is unclear that these 

standards are applied when individuals 

who are not state-licensed or statecertified value manufactured homes. 

Indeed, the Bureau believes that 

currently, in some transactions, lenders 

may simply prepare their own estimates 

of the value of the home without 

engaging a licensed or certified 

appraiser. Thus, most, of the covered 

transactions might have been impossible 

to make. The impact of the hypothetical 

case in which creditors are not able to 

comply with a provision of this rule that 

has not yet taken effect is impossible to 

estimate with any reasonable degree of 

confidence. As a result, for purposes of 

analyzing the benefits of the exemption, 

the Bureau cannot evaluate the burden 

reduced as a result of the exemption. 

The Bureau believes that whatever 

method of satisfying conditions for the 

exemption the creditors choose, the cost 

is likely to be relatively low, and all the 

manufactured housing creditors would 

incur it, likely resulting in the majority 

of this cost passed on to the consumers. 

The Bureau believes that many creditors 

will opt to use an independent cost 

service to qualify for the exemption. The 

prevalent option currently on the 

market is the NADAguides. This guide 

contains an estimate of a manufactured 

home’s cost of replacement value based 

on the exact make, model, and the year 

that the manufactured home was built. 

Since many creditors use this guide or 

a competitor’s guide already in these 

transactions, and that estimate is a 

valuation under the ECOA Valuations 

Rule and would have had to be 

provided to the consumer in either case, 

this additional requirement is not an 

extra cost on either the creditors or the 

consumers.180

Consumers 

The exemption likely results in 

creditors being able to consummate 

these transactions while staying in 

compliance, and thus the benefit of the 

exemption to consumers is primarily 

that they will continue to have access to 

these loans. 

Consumers will now receive one of 

the available options including, and 

most likely (since it is likely the most 

cost-effective option for used homes), a 

third-party cost estimate. As noted 

above, most creditors use an existing 

cost service to produce an estimate that 

already would be provided to the 

consumer under the ECOA Valuations 

Rule. This will provide consumers with 

some information about the value of 

their manufactured home, and will 

allow them to decide whether they 

should indeed purchase this home. If 

the consumers deem the value too low, 

they might decide to look at other 

models of manufactured homes, choose 

a non-manufactured home instead, or 

decide to exit the housing market, most 

likely by renting. The Bureau believes 

that creditors will pass through most of 

their costs onto consumers. The Bureau 

is unaware of any estimates of the cost 

of a third-party cost evaluation for a 

used chattel manufactured home, but 

believes that it is significantly less than 

$350 required for a full appraisal for a 

non-manufactured home. For example, 

the cost of using the third-party cost 

service may be more akin to the cost of 

using an automated valuation model, 

which, as discussed in this Section 1022 

analysis, may be approximately $20.181

5. Transactions Secured by New 

Manufactured Homes and Not Land 

Estimate of the Number of Covered 

Loans 

As noted above, approximately 51,000 

new manufactured homes were shipped 

according to recent annual Census data. 

For this analysis, the Bureau 

conservatively assumes that all of these 

homes were used as principal dwellings 

for consumers and that all of these 

purchases were financed. In addition, 

the Bureau believes that the proportion 

of homes titled as real estate is a 

reasonable estimate of the number of 


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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78567 

182Only a few states provide for treating 

manufactured homes sited on leased land as real 

property. 183See the discussion in the beginning of this 

section on data used and comments received. If the 

Bureau’s estimate is off, for example by a factor as 

great as three, the estimate would increase from 

4,100 to slightly more than 12,000 loans per year 

(indicating that close to a quarter of the transactions 

would be non-QM HPMLs after the rule is 

implemented and that a significant proportion of 

the manufactured home transactions are not 

reported to HMDA despite these transactions 

covered by HMDA). 

184 78 FR 7216, 7244 (Jan. 31, 2013). 

185Some commenters claimed that requiring 

appraisals for manufactured housing, in particular 

in land/home transactions, is problematic, in part 

because they asserted that the appraised value 

comes in lower than the sale price in a high 

proportion of FHA manufactured home program 

transactions. Some comments suggested that the 

appraisals were not valid in part because they relied 

upon too many manufactured homes as 

comparables or the opposite—they relied too 

heavily on site-built homes as comparables with 

adjustments which are too subjective. The 

commenters’ views, however, were presented only 

in theoretical form and did not include data to 

support the contents. In the context of an individual 

transaction, if the lender views the appraisal to be 

inaccurate and can demonstrate that fact, appraisal 

review and dispute processes exist, and lenders can 

get a second appraisal or opinion as well. On the 

other hand, if a portfolio lender accepts an 

appraisal that indicates insufficient collateral value 

and does not proceed with the transactions, the fact 

that the creditor voluntarily decided not to originate 

the loan based on the appraisal is a benefit to the 

creditor, and likely to the consumer as well. In 

addition, FHA appraisal requirements indicate that 

this agency considers these appraisals sufficiently 

valid to use, and thus not everyone views these 

appraisals as problematic. 

new manufactured home purchase 

transactions that are secured in part by 

land.182 The Bureau therefore, for this 

1022 analysis, conservatively estimates 

that based upon 2011 data 

approximately 42,400 new 

manufactured home sales were financed 

by chattel loans (which can include 

homes located on leased land such as in 

trailer parks and other land-lease 

communities) and 8,600 transactions 

were secured by new manufactured 

homes and land. Applying a factor of 

approximately eight percent, the Bureau 

estimates that, of these, almost 3,400 

were chattel HPMLs that were non-QMs, 

and almost 700 were land and homesecured HPMLs that were non-QMs.183

Covered Persons 

The Bureau believes that the vast 

majority of creditors receive a copy of 

the manufacturer’s invoice as a matter of 

standard business practice, and thus 

they could simply provide consumers a 

copy. Consistent with the January 2013 

ECOA Valuations Rule,184 the Bureau 

estimates that this will cost creditors 

around $5 per loan, including training 

costs. A few commenters have suggested 

that releasing invoices would upset 

industry’s pricing model. The Bureau 

does not possess any data and is not 

aware of any studies to help it evaluate 

this claim. Moreover, in some 

industries, such as the car market, a 

high volume of transactions occur and 

firms profit even though some 

consumers are able to discover the 

invoice value of the product. Moreover, 

the rule allows the creditor to choose to 

avoid disclosing the invoice and thereby 

avoid any issues a creditor believes 

disclosure of the invoice could entail; in 

lieu of the invoice, the rule allows 

covered persons to provide a valuation 

from an independent person or based on 

an independent cost service, as 

described above. 

Consumers 

Consumers will benefit from this rule 

by receiving at least some kind of 

valuation information. The Bureau 

believes that while consumers getting a 

mortgage loan on a non-manufactured 

home would generally receive a 

valuation based on the ECOA 

Valuations Rule, this is not the case for 

new manufactured homes since the 

manufacturer’s invoice is exempt from 

the ECOA requirements. Thus, this 

provision arguably has a particularly 

large effect per transaction affected: 

consumers go from not knowing 

anything about the value of their home 

to at least having some information. 

This is particularly valuable considering 

that these are likely to be LMI 

consumers who would be particularly 

vulnerable and adversely affected by 

entering into a transaction that might 

leave them underwater from the very 

first day, as discussed in more detail in 

the section-by-section analysis. The 

Agencies further discuss this provision 

in the section-by-section analysis. 

6. Transactions Secured by New 

Manufactured Homes and Land 

The Bureau believes that there were 

approximately 700 new land/home 

HPML non-QM transactions. One 

commenter noted that few if any of the 

transactions outside of those programs 

include appraisals currently. While the 

Bureau does not have data on this point, 

even if few transactions outside of these 

programs did have appraisals currently, 

the number of new appraisals that 

would result from the modified 

exemption still is quite low. 

Covered Persons 

This rule will result in approximately 

a $350 dollar cost increase (the average 

price of a full appraisal) per transaction, 

which is likely to be passed through to 

the consumer. While the rule exempts 

these appraisals from the requirement of 

the interior inspections, various 

commenters suggested that full 

appraisals (including interior 

inspections) of manufactured houses 

cost more than $350. Thus, it is possible 

that the actual cost per appraisal is 

slightly higher or slightly lower.185

Consumers 

Consumers will receive the benefits of 

the appraisal discussed elsewhere, and 

will not be vulnerable to weaker 

valuation practices when their 

transactions are occurring outside of 

GSE or federal agency programs. 

However, consumers will pay any cost 

of the required appraisal to the extent 

that creditors pass it through. The 

Bureau believes that many of the 

consumers using non-QM HPMLs to 

purchase a new manufactured home and 

land currently do not receive any 

valuation before buying it, magnifying 

the potential benefit for consumers. 

Finally, the Agencies do not believe 

that a requirement of a full appraisal 

(i.e., with a physical inspection of the 

interior) on new manufactured housing 

secured by land is appropriate given the 

fact that many of these houses are not 

physically on land when the loan is 

consummated and other inspections 

occur under HUD and other safety 

standards. Aside from that, these 

transactions are not systematically 

different from construction of site-built 

homes, and thus should be treated the 

same to the extent possible. 

Again, the Bureau believes that there 

were approximately 700 new land/home 

HPML non-QM transactions. This will 

result in approximately a $350 dollar 

cost increase (the average price of a full 

appraisal) that is likely to be passed 

through to the consumer. This cost 

might be lower because the rule 

exempts these appraisals from the 

requirement of the interior exemptions; 

however, some commenters suggested 

that full manufactured home appraisals 

(which would typically include an 

interior inspection) might sometimes 

cost more than appraisals of site-built 

homes. Thus, it is possible that the 

actual cost per appraisal is slightly 

higher or slightly lower. 

7. Streamlined Refinances 

Estimate of the Number of Covered 

Loans 

The Bureau anticipates that the 

refinance provision overwhelmingly 

affects private streamline refinances 

until 2021 because qualified mortgages 

are separately exempt from this rule 

and, under the Bureau’s 2013 ATR Final 

Rule, GSE and federal government 

agency refinances are generally deemed 


tkelley on DSK3SPTVN1PROD with RULES2
78568 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

186See 12 CFR 1026.43(e)(4). 

187See Section 1022(b) analysis, 78 FR at 10418– 

21. 

qualified mortgages until 2021.186 In 

addition, as discussed in the section-bysection analysis above, only refinances 

in which the holder of the credit risk on 

the existing obligation and the 

refinancing remain the same would be 

eligible, and the loan cannot have 

interest-only, negative amortization, or 

balloon features. 

The Bureau estimates that at most 

12,000 private no cash-out refinance 

transactions were originated in 2011. 

The Bureau believes that some of these 

were refinances of existing loans where 

the credit risk holder changed and thus 

would not be eligible for the exemption, 

and that a small number of these 

refinances had interest-only, negative 

amortization, or balloon features and 

also would not be eligible for the 

exemption. The Bureau believes that for 

about 90% of refinance transactions, the 

creditor would have provided an 

appraisal to the consumer; starting in 

January 2014, the ECOA Valuations 

Rule will require creditors to do so. 

Thus, this exemption is likely to affect 

under 1,000 loans a year (10% of 

12,000). 

Covered Persons 

Any creditors originating covered 

refinances that meet the criteria of the 

exemption can choose to make use of 

the exemption, which reduces burden. 

In particular, these loans will not be 

subject to the estimated per-loan costs 

described in the January 2013 Final 

Rule.187 For these transactions, the 

creditor is not required to spend time 

providing a notice, obtaining an 

appraisal, reviewing the appraisals 

conducted for conformity to this rule, 

and providing copies of those appraisals 

to applicants. 

Consumers 

Regarding benefits, consumers whose 

HPML streamlined refinance are newly 

exempt will save an average of $350 per 

loan. In addition, streamlined refinance 

transactions may close more quickly 

without an appraisal, reducing the time 

in which a consumer may be in a worse 

loan, which can result in further cost 

savings to the consumer. For example, 

if the consumer can close a refinance 

transaction two weeks earlier because a 

full appraisal is not performed, and the 

refinance loan has a lower interest rate, 

that will provide the consumer with an 

additional two weeks of payments at the 

reduced interest rate of the refinance 

loan. 

As discussed above and in the 

Bureau’s analysis under Section 1022 in 

the January 2013 Final Rule, in general, 

consumers who are borrowing HPMLs 

that are covered loans benefit from 

having an appraisal. The cost to 

consumers of the proposed exemption 

therefore is the loss of these potential 

benefits for the number of covered loans 

that would be newly-exempted by the 

proposed exemption and which would 

not have otherwise included an 

appraisal. As noted above, the Bureau 

estimates this would be very few 

transactions. 

8. Significant Alternatives 

The Agencies discussed various 

conditions on exemptions for smaller 

dollar loans and streamline refinances. 

Placing conditions on these 

exemptions—for example, requiring that 

an automated valuation be obtained and 

provided to the consumer—would 

provide many of the same benefits to 

consumer as a full appraisal. However, 

the Bureau believes that the benefits of 

an appraisal would likely be lower for 

these two particular types of 

transactions than for other types of 

transactions that will not be exempt 

from the January 2013 Final Rule. 

The cost of these conditions would be 

directly levied on the creditors; 

however, the Bureau believes that it 

would be almost fully passed on to 

consumers. The Bureau did not view the 

cost of these alternatives to be 

significant. The Agencies determined, 

however, not to adopt this alternative. A 

significant factor was that streamline 

refinances and smaller dollar loans were 

viewed as classes of transactions that 

were significantly lower risk and 

therefore not necessitating alternative 

valuation conditions in this rule. 

The Agencies also discussed a 

provision mandating the creditors to 

provide chattel manufactured home 

valuations with adjustments for 

condition (used chattel) and location 

(used or new chattel). The Agencies 

decided that this provision would 

introduce additional implementation 

burden and subjectivity with respect to 

the compliance processes, and that 

practices with regard to these 

adjustments had not sufficiently 

evolved to codify a uniform set of 

standards in regulations. From the 

perspective of potential benefits of this 

provision, creditors can still provide 

whatever adjustments are specified in 

the cost service guide. 

The Agencies discussed raising the 

loan amount requirement for the smaller 

dollar exemption to $50,000. However, 

the Agencies decided that the range of 

$25,000 to $50,000 captures too great a 

proportion of the remaining non-QM 

subordinate lien HPMLs. The Bureau 

also noted that such an increase would 

wholly exempt many manufactured 

home purchases that deserve the 

protection provided by the new 

provisions in this rule. The Agencies 

also believe that at these higher loan 

amounts the cost of the appraisal 

provides less of an incentive to switch 

to another kind of financing, for 

example an open-credit loan. 

B. Potential Specific Impacts of the 

Supplemental Final Rule 

1. Potential Reduction in Access of 

Consumers to Consumer Financial 

Products or Services 

The rule includes only exemptions 

and provisions that have limited impact 

on a small amount of loans. Thus, the 

Bureau does not believe that any 

reduction in access to credit will result. 

If anything, the Bureau believes that the 

exemption for used chattel 

manufactured housing will make many 

loans possible to originate while 

complying with the January 2013 Final 

Rule, thus improving access to credit. 

Manufactured housing industry 

commenters suggested that access to 

credit in chattel loans, including new 

chattel loans, would be reduced if 

valuation information must be provided 

to the consumer. These comments may 

be read as potentially suggesting that: 

(1) Consumers, if informed of the 

estimated value of the home by 

currently available means, might elect 

not to proceed with the transaction, or 

(2) creditors, if required to provide such 

information to the consumers, also 

might not proceed with the transaction, 

particularly where the loan amount 

exceeds the estimated value of the 

home. 

If these comments are based upon the 

assumption that valuation information 

provided will be inaccurate or 

misleading, commenters did not provide 

data in support of this point with 

respect to any of the three valuation 

information options specified in the 

condition to the exemption for chattel 

manufactured home loans. In this 

regard, the Bureau notes that a leading 

independent cost service provided data 

in its comments indicating the accuracy 

of its method compared to personal 

property appraisals. Otherwise, the 

Bureau does not consider access to 

credit to be reduced where consumers 

voluntarily choose not to continue with 

a transaction after receiving valuation 

information; in this case, the 

information has benefited the consumer 

by enabling the consumer to make better 

informed credit choices. Similarly, 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78569 

188Census data from 2011 indicates that 

approximately 45 percent of owner-occupied 

manufactured homes are located outside of 

metropolitan statistical areas, compared with 21 

percent of owner-occupied single-family homes. 

See U.S. Census Bureau, 2011 American Housing 

Survey, General Housing Data—Owner-Occupied 

Units (National), available at http://

factfinder2.census.gov/faces/tableservices/jsf/

pages/productview.xhtml?pid=AHS_2011_

C01OO&prodType=table. See also Housing 

Assistance Council Rural Housing Research Note, 

‘‘Improving HMDA: A Need to Better Understand 

Rural Mortgage Markets,’’ (Oct. 2010), available at 

http://www.ruralhome.org/storage/documents/

notehmdasm.pdf. Industry comments on the 2012 

Interagency Appraisals Proposed Rule noted that 

manufactured homes sited on land owned by the 

buyer are predominantly located in rural areas; one 

commenter estimated that 60 percent of 

manufactured homes are located in rural areas. 

189 ‘‘A financial institution’s assets are 

determined by averaging assets reported on its four 

quarterly financial statements for the preceding 

year.’’ See footnote 8 of the U.S. Small Business 

Administration’s Table of Size Standards. 

access to credit is not necessarily 

compromised if the creditor chooses not 

to continue with the transaction, 

particularly if the loan amount exceeds 

the estimated value of the home. In 

purchase transactions, the Bureau 

believes that consumers typically have 

the option of purchasing other 

manufactured and non-manufactured 

homes that would not have the 

consumer starting off in their mortgage 

by effectively being underwater. 

2. Impact of the Rule on Depository 

Institutions and Credit Unions With $10 

Billion or Less in Total Assets 

Small depository banks and credit 

unions may originate loans of $25,000 

or less more often, relative to their 

overall origination business, than other 

depository institutions (DIs) and credit 

unions. Therefore, relative to their 

overall origination business, these small 

depository banks and credit unions may 

experience relatively more benefits from 

the exemption for smaller dollar loans. 

These benefits would not be high in 

absolute dollar terms, however, because 

the number of covered transactions 

across all creditors that would be 

exempted by the smaller dollar loan 

exemption is still relatively low—less 

than 5,000, as discussed above. 

Otherwise, the Bureau does not 

believe that the impact of the 

supplemental rule would be 

substantially different for the DIs and 

credit unions with total assets below 

$10 billion than for larger DIs and credit 

unions. The Bureau has not identified 

data indicating that small depository 

institutions or small credit unions 

disproportionately engage in lending 

secured by manufactured homes. 

Finally, the Bureau has not identified 

data indicating that these institutions 

engage in covered streamlined 

refinances that would be exempted by 

the exemption for certain refinances at 

a greater rate than would other financial 

institutions. 

3. Impact of the Rule on Consumers in 

Rural Areas 

The Bureau understands that a 

significantly greater proportion of 

homes in rural areas are existing 

manufactured homes than in non-rural 

areas.188 Therefore, any impacts of the 

exemption for transactions secured by 

these homes (but not land) would 

proportionally accrue more often to 

rural consumers. With respect to 

streamlined refinances, the Bureau does 

not believe that streamlined refinances 

are more or less common in rural areas. 

Accordingly, the Bureau currently 

believes that the exemption for 

streamlined refinances would generate a 

similar benefit for consumers in rural 

areas as for consumers in non-rural 

areas. Finally, setting aside the 

increased incidence of manufactured 

housing loans in rural areas, the Bureau 

does not believe that the difference in 

the number of smaller dollar loans 

originated for consumers in rural areas 

and non-rural areas is significant. 

VII. Regulatory Flexibility Act 

OCC 

Pursuant to section 605(b) of the 

Regulatory Flexibility Act, 5 U.S.C. 

605(b) (RFA), the regulatory flexibility 

analysis otherwise required under 

section 603 of the RFA is not required 

if the agency certifies that the final rule 

will not have a significant economic 

impact on a substantial number of small 

entities (defined for purposes of the 

RFA to include banks, savings 

institutions and other depository credit 

intermediaries with assets less than or 

equal to $500 million 189 and trust 

companies with total assets of $35.5 

million or less) and publishes its 

certification and a short, explanatory 

statement in the Federal Register along 

with its final rule. 

As described previously in this 

preamble, section 1471 of the DoddFrank Act establishes a new TILA 

section 129H, which sets forth appraisal 

requirements applicable to HPMLs. The 

statute expressly excludes from these 

appraisal requirements coverage of 

‘‘qualified mortgages as defined by 

section 129C.’’ In addition, the Agencies 

may jointly exempt a class of loans from 

the requirements of the statute if the 

Agencies determine that the exemption 

is in the public interest and promotes 

the safety and soundness of creditors. 

The Agencies issued the January 2013 

Final Rule on January 18, 2013, which 

will be effective on January 18, 2014. 

Pursuant to the general exemption 

authority in the statute, the January 

2013 Final Rule excluded the following 

consumer credit transactions from the 

definition of HPML: Transactions 

secured by new manufactured homes; 

transactions secured by a mobile homes, 

boats, or trailers; transactions to finance 

the initial construction of a dwelling; 

temporary or ‘‘bridge’’ loans with a term 

of twelve months or less, such as a loan 

to purchase a new dwelling where the 

consumer plans to sell a current 

dwelling within twelve months; and 

reverse mortgage loans. The Agencies 

are issuing this supplemental final rule 

to include additional exemptions from 

the higher risk mortgage loan appraisal 

requirements of section 129H of TILA: 

Certain ‘‘streamlined’’ refinancings and 

extensions of credit of $25,000 or less, 

indexed every year for inflation. In 

addition, this supplemental final rule 

amends and adds exemptions for 

transactions secured by manufactured 

homes. 

The OCC currently supervises 1,797 

banks (1,179 commercial banks, 61 trust 

companies, 509 federal savings 

associations, and 48 branches or 

agencies of foreign banks). We estimate 

that less than 1,309 of the banks 

supervised by the OCC are currently 

originating one- to four-family 

residential mortgage loans that could be 

HPMLs. Approximately 1,291 of OCCsupervised banks are small entities 

based on the Small Business 

Administration’s (SBA’s) definition of 

small entities for RFA purposes. Of 

these, the OCC estimates that 867 banks 

originate mortgages and therefore may 

be impacted by this final rule. 

The OCC classifies the economic 

impact of total costs on a bank as 

significant if the total costs in a single 

year are greater than 5 percent of total 

salaries and benefits, or greater than 2.5 

percent of total non-interest expense. 

The OCC estimates that the average cost 

per small bank will be zero. The 

supplemental final rule does not impose 

new requirements on banks or include 

new mandates. The OCC assumes any 

costs (e.g., alternative valuations) or 

requirements that may be associated 

with the exemptions in the 

supplemental final rule will be less than 

the cost of compliance for a comparable 

loan under the final rule. 

Therefore, the OCC believes the 

supplemental final rule will not have a 

significant economic impact on a 

substantial number of small entities. 

The OCC certifies that the supplemental 

final rule will not have a significant 


tkelley on DSK3SPTVN1PROD with RULES2
78570 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

190The Board notes that for purposes of its 

analysis, the Board considered all creditors to 

which the supplemental final rule applies. The 

Board’s Regulation Z at 12 CFR 226.43 applies to 

a subset of these creditors. See 12 CFR 226.43(g). 

191U.S. SBA, Table of Small Business Size 

Standards Matched to North American Industry 

Classification System Codes, available at http://

www.sba.gov/sites/default/files/files/size_table_

07222013.pdf. 

192See the Bureau’s regulatory flexibility analysis 

in the 2013 Final Rule (78 FR 10368, 10424 (Feb. 

13, 2013)). 

economic impact on a substantial 

number of small entities. 

OCC Unfunded Mandates Reform Act of 

1995 Determination 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (2 U.S.C. 

1532), requires the OCC to prepare a 

budgetary impact statement before 

promulgating a rule that includes a 

Federal mandate that may result in the 

expenditure by state, local, and tribal 

governments, in the aggregate, or by the 

private sector, of $100 million or more 

in any one year (adjusted annually for 

inflation). The OCC has determined that 

this supplemental final rule will not 

result in expenditures by state, local, 

and tribal governments, or the private 

sector, of $100 million or more in any 

one year. Accordingly, the OCC has not 

prepared a budgetary impact statement. 

Board 

The RFA (5 U.S.C. 601 et seq.) 

requires an agency either to provide a 

final regulatory flexibility analysis 

(FRFA) with a final rule or certify that 

the final rule will not have a significant 

economic impact on a substantial 

number of small entities. This 

supplemental final rule applies to 

certain banks, other depository 

institutions, and non-bank entities that 

extend HPMLs to consumers.190 The 

SBA establishes size standards that 

define which entities are small 

businesses for purposes of the RFA.191

The size standard to be considered a 

small business is: $500 million or less 

in assets for banks and other depository 

institutions; and $35.5 million or less in 

annual revenues for the majority of 

nonbank entities that are likely to be 

subject to the regulations. Based on its 

analysis, and for the reasons stated 

below, the Board believes that the 

supplemental final rule will not have a 

significant economic impact on a 

substantial number of small entities. 

Nevertheless, the Board is publishing a 

FRFA. 

A. Reasons for the Final Rule 

This supplemental final rule relates to 

the January 2013 Final Rule issued by 

the Agencies on January 18, 2013, 

which goes into effect on January 18, 

2014. See 78 FR 10368 (Feb. 13, 2013). 

The January 2013 Final Rule 

implements a provision added to TILA 

by the Dodd-Frank Act requiring 

appraisals for ‘‘higher-risk mortgages.’’ 

For certain mortgages with an annual 

percentage rate that exceeds the average 

prime offer rate by a specified 

percentage, the January 2013 Final Rule 

requires creditors to obtain an appraisal 

or appraisals meeting certain specified 

standards, provide applicants with a 

notification regarding the use of the 

appraisals, and give applicants a copy of 

the written appraisals used. The 

definition of higher-risk mortgage in 

new TILA section 129H expressly 

excludes qualified mortgages, as defined 

in TILA section 129C, as well as reverse 

mortgage loans that are qualified 

mortgages as defined in TILA section 

129C. 

The Agencies are now finalizing two 

additional exemptions to the 2013 Final 

Rule appraisal requirements and 

adopting certain provisions for 

manufactured homes. As described in 

the SUPPLEMENTARY INFORMATION, the 

supplemental final rule exempts 

‘‘streamlined’’ refinancings and 

transactions of $25,000 or less. The 

supplemental final rule also exempts 

loans secured by manufactured homes 

from the January 2013 Final Rule’s 

appraisal requirements for 18 months, 

until July 18, 2015. Subsequent to that 

date: 

Æ A loan secured by a new 

manufactured home and land must 

comply with the January 2013 Final 

Rule’s appraisal requirements except for 

the requirement to conduct a physical 

visit to the interior of the property; 

Æ A loan secured by an existing 

(used) manufactured home and land 

will be subject to all of the January 2013 

Final Rule’s appraisal requirements; and 

Æ A loan secured by manufactured 

homes (new or used) and not land will 

be exempt from the January 2013 Final 

Rule’s appraisal requirements if the 

consumer is provided with a specified 

alternative cost estimate or valuation. 

B. Statement of Objectives and Legal 

Basis 

The Board believes that the additional 

exemptions and amendments 

established by the supplemental final 

rule are appropriate to carry out the 

purposes of the statute, as discussed 

above in the SUPPLEMENTARY

INFORMATION. The legal basis for the 

proposed rule is TILA section 

129H(b)(4). 15 U.S.C. 1639h(b)(4). TILA 

section 129H(b)(4)(A), added by the 

Dodd-Frank Act, authorizes the 

Agencies jointly to prescribe regulations 

implementing section 129H. 15 U.S.C. 

1639h(b)(4)(A). In addition, TILA 

section 129H(b)(4)(B) grants the 

Agencies the authority jointly to 

exempt, by rule, a class of loans from 

the requirements of TILA section 

129H(a) or section 129H(b) if the 

Agencies determine that the exemption 

is in the public interest and promotes 

the safety and soundness of creditors. 15 

U.S.C. 1639h(b)(4)(B). 

C. Description of Small Entities to 

Which the Regulation Applies 

The January 2013 Final Rule applies 

to creditors that make HPMLs subject to 

12 CFR 1026.35(c). In the Board’s 

regulatory flexibility analysis for the 

January 2013 Final Rule, the Board 

relied primarily on data provided by the 

Bureau to estimate the number of small 

entities that would be subject to the 

requirements of the rule.192 According 

to the data provided by the Bureau in 

connection with promulgation of the 

supplemental final rule, approximately 

5,913 commercial banks and savings 

institutions, 3,784 credit unions, and 

2,672 non-depository institutions are 

considered small entities and extend 

mortgages, and therefore are potentially 

subject to the January 2013 Final Rule 

and the supplemental final rule. 

Data currently available to the Board 

are not sufficient to estimate how many 

small entities that extend mortgages will 

be subject to 12 CFR 226.43, given the 

range of exemptions provided in the 

January 2013 Final Rule and the 

supplemental final rule, including the 

exemption for loans that satisfy the 

criteria of a qualified mortgage. Further, 

the number of these small entities that 

will make HPMLs subject to the 

supplemental final rule’s exemptions is 

unknown. 

D. Projected Reporting, Recordkeeping 

and Other Compliance Requirements 

The supplemental final rule does not 

impose any significant new 

recordkeeping, reporting, or compliance 

requirements on small entities. The 

supplemental final rule reduces the 

number of transactions that are subject 

to the requirements of the January 2013 

Final Rule. As noted above, the January 

2013 Final Rule generally applies to 

creditors that make HPMLs subject to 12 

CFR 1026.35(c), which are generally 

mortgages with an APR that exceeds the 

APOR by a specified percentage, subject 

to certain exemptions. The 

supplemental final rule exempts two 

additional classes of HPMLs from the 

January 2013 Final Rule: Certain 

streamlined refinance HPMLs whose 

proceeds are used exclusively to satisfy 


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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78571 

193See 5 U.S.C. 601 et seq. 

194The FDIC based its analysis on the HMDA 

data, as it provided a proxy for the characteristics 

of HPMLs. While the FDIC recognizes that fewer 

higher-price loans were generated in 2011, a more 

historical review is not possible because the average 

offer price (a key data element for this review) was 

not added until the fourth quarter of 2009. The 

FDIC also recognizes that the HMDA data provides 

information relative to mortgage lending in 

metropolitan statistical areas, but not in rural areas. 

195HPML transactions over $250,000 were 

excluded from this analysis as 12 CFR Part 323 of 

the FDIC Rules and Regulations requires an 

appraisal for real estate loans over $250,000 unless 

another exemption applies. 

an existing first lien loan and to pay for 

closing costs, and new HPMLs that have 

a principal amount of $25,000 or less 

(indexed to inflation). In addition, the 

supplemental final rule exempts until 

July 2015 HPMLs secured by 

manufactured homes. Accordingly, the 

supplemental final rule decreases the 

burden on creditors by reducing the 

number of loan transactions that are 

subject to the January 2013 Final Rule. 

For applications submitted on or after 

July 18, 2015, burden increases slightly 

for transactions secured by new 

manufactured homes and land because 

such transactions will be required to 

comply with the January 2013 Final 

Rule’s appraisal requirements except for 

the requirement to conduct a physical 

visit to the interior of the property. In 

addition, burden also increases with 

respect to transactions secured by a new 

manufactured home and not land. These 

transactions will be exempt from the 

January 2013 Final Rule’s appraisal 

requirements only if the borrower is 

provided with a specified alternative 

cost estimate or valuation to the 

borrower. 

F. Identification of Duplicative, 

Overlapping, or Conflicting Federal 

Regulations 

The Board has not identified any 

Federal statutes or regulations that 

duplicate, overlap, or conflict with the 

proposed revisions. 

G. Discussion of Significant Alternatives 

The Board is not aware of any 

significant alternatives that would 

further minimize the economic impact 

of the supplemental final rule on small 

entities. With respect to transactions 

secured by ‘‘streamlined’’ refinances or 

smaller-dollar HPMLs, the supplemental 

final rule exempts these transactions 

from the January 2013 Final Rule and 

therefore reduces economic burden for 

small entities. With respect to loans 

secured by new manufactured homes 

and land, the Board recognizes that the 

supplemental final rule imposes new 

burden by requiring such transactions to 

comply with the January 2013 Final 

Rule’s appraisal requirements except for 

the requirement to conduct a physical 

visit to the interior of the property. With 

respect to loans secured by new 

manufactured homes and not land, the 

Board also recognizes that the 

supplemental final rule imposes new 

burden by requiring that such 

transactions are exempt from the 

January 2013 Final Rule only if the 

borrower is provided with a specified 

alternative cost estimate or valuation. 

Although maintaining the January 2013 

Final Rule exemption for new 

manufactured homes would lower the 

economic impact on small entities, the 

Board does not believe doing so is 

appropriate in carrying out the purposes 

of the statute. 

FDIC 

The RFA generally requires that, in 

connection with a rulemaking, an 

agency prepare and make available for 

public comment a regulatory flexibility 

analysis that describes the impact of the 

rule on small entities.193 A regulatory 

flexibility analysis is not required, 

however, if the agency certifies that the 

rule will not have a significant 

economic impact on a substantial 

number of small entities (defined in 

regulations promulgated by the SBA to 

include banking organizations with total 

assets of $500 million or less) and 

publishes its certification and a short, 

explanatory statement in the Federal 

Register together with the rule. 

As of June 30, 2013, there were about 

3,673 small FDIC-supervised 

institutions, which include 3,363 state 

nonmember banks and 310 statechartered savings banks. The FDIC 

analyzed the 2011 HMDA 194 dataset to 

determine how many loans by all FDICsupervised institutions might qualify as 

HPMLs under section 129H of the TILA 

as added by section 1471 of the DoddFrank Act. This analysis reflects that 

only 70 FDIC-supervised institutions 

originated at least 100 HPMLs, with 

only four institutions originating more 

than 500 HPMLs. Further, the FDICsupervised institutions that met the 

definition of a small entity originated on 

average less than 11 HPMLs of 

$250,000 195 or less each in 2011. 

The supplemental final rule relates to 

the January 2013 Final Rule issued by 

the Agencies on January 18, 2013, 

which goes into effect on January 18, 

2014. The January 2013 Final Rule 

requires that creditors satisfy the 

following requirements for each HPML 

they originate that is not exempt from 

the rule: 

• The creditor must obtain a written 

appraisal; the appraisal must be 

performed by a certified or licensed 

appraiser; and the appraiser must 

conduct a physical property visit of the 

interior of the property. 

• At application, the consumer must 

be provided with a statement regarding 

the purpose of the appraisal, that the 

creditor will provide the applicant a 

copy of any written appraisal, and that 

the applicant may choose to have a 

separate appraisal conducted for the 

applicant’s own use at his or her own 

expense. 

• The consumer must be provided 

with a free copy of any written 

appraisals obtained for the transaction 

at least three business days before 

consummation. 

• The creditor of an HPML must 

obtain an additional written appraisal, 

at no cost to the borrower, when the 

loan will finance the purchase of a 

consumer’s principal dwelling and there 

has been an increase in the purchase 

price from a prior acquisition that took 

place within 180 days of the current 

purchase. 

The supplemental final rule amends 

one existing exemption and establishes 

additional exemptions to the appraisal 

requirements in the January 2013 Final 

Rule. The supplemental final rule 

exempts: 

• ‘‘Streamlined’’ refinancings. A 

‘‘streamlined’’ refinancing results if the 

holder of the successor credit risk also 

held the risk of the original credit 

obligation. The supplemental final rule 

does not exempt refinancing 

transactions involving cash out, 

negative amortization, interest only 

payments or balloon payments. 

• ‘‘Smaller Dollar’’ Residential Loans. 

A ‘‘smaller dollar’’ residential loan is an 

extension of credit of $25,000 or less, 

with the amount indexed annually for 

inflation, secured by the borrower’s 

principal dwelling. 

• Manufactured Home Loans. Loans 

secured by manufactured homes are 

exempt from the appraisal requirements 

for 18 months, until July 18, 2015. 

Subsequent to that date: 

Æ A loan secured by a new 

manufactured home and land must 

comply with the appraisal requirements 

except for the requirement to conduct a 

physical visit to the interior of the 

property; 

Æ A loan secured by an existing 

(used) manufactured home and land 

will be subject to all appraisal 

requirements; and 

Æ A loan secured by a manufactured 

home (new or used) and not land will 

be exempt from the appraisal 

requirements if the buyer is provided 

with a specified alternative cost 

estimate or valuation. 


tkelley on DSK3SPTVN1PROD with RULES2
78572 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

196See 5 U.S.C. 601 et seq. 

197NCUA Interpretative Ruling and Policy 

Statement (IRPS) 87–2, 52 FR 35231 (Sept. 18, 

1987); as amended by IRPS 03–2, 68 FR 31951 (May 

29, 2003); and IRPS 13–1, 78 FR 4032, 4037 (Jan. 

18, 2013). 

198The NCUA based its analysis on the HMDA 

data, as it provided a proxy for the characteristics 

of HPMLs. While the NCUA recognizes that fewer 

higher-price loans were generated in 2011, a more 

historical review is not possible because the average 

offer price (a key data element for this review) was 

not added until the fourth quarter of 2009. The 

NCUA also recognizes that the HMDA data provides 

information relative to mortgage lending in 

metropolitan statistical areas, but not in rural areas. 

The supplemental final rule amends 

the exemption for a loan secured by a 

new manufactured home in the January 

2013 Final Rule by requiring an 

appraisal without a physical visit to the 

interior of the property for loans secured 

by a new manufactured home and land 

after July 18, 2015. This amendment 

will increase burden as such loans will 

no longer be exempt from all of the 

appraisal requirements. While data is 

not available to estimate the number of 

such transactions, the previously cited 

HMDA data reflects that FDICsupervised institutions that met the 

definition of a small entity each engaged 

in a relatively small number of HPML 

transactions in 2011. In addition, the 

supplemental final rule exempts 

additional transactions, including 

certain ‘‘streamlined’’ refinancings, 

‘‘smaller dollar’’ residential loans, and 

some manufactured home loans, from 

the appraisal requirements of the 

January 2013 Final Rule, resulting in 

reduced regulatory burden to FDICsupervised institutions that would have 

otherwise been required to obtain an 

appraisal and comply with the 

requirements for such HPML 

transactions. 

It is the opinion of the FDIC that the 

supplemental final rule will not have a 

significant economic impact on a 

substantial number of small entities that 

it regulates in light of the following 

facts: (1) The supplemental final rule 

reduces regulatory burden on small 

institutions by exempting certain 

transactions from the appraisal 

requirements of the January 2013 Final 

Rule; and (2) the FDIC previously 

certified that the January 2013 Final 

Rule would not have a significant 

economic impact on a substantial 

number of small entities. Accordingly, 

the FDIC certifies that the supplemental 

final rule would not have a significant 

economic impact on a substantial 

number of small entities. Therefore, a 

regulatory flexibility analysis is not 

required. 

NCUA 

The RFA generally requires that, in 

connection with a final rule, an agency 

prepare and make available for public 

comment a FRFA that describes the 

impact of the final rule on small 

entities.196 A regulatory flexibility 

analysis is not required, however, if the 

agency certifies that the rule will not 

have a significant economic impact on 

a substantial number of small entities 

and publishes its certification and a 

short, explanatory statement in the 

Federal Register together with the rule. 

NCUA defines small entities as small 

federally insured credit unions (FICU) 

having less than 50 million dollars in 

assets.197

In 2012, there were approximately 

4,600 small FICUs. The NCUA analyzed 

the 2012 HMDA 198 dataset to determine 

how many loans by all FICUs might 

qualify as HPMLs under section 129H of 

the TILA as added by section 1471 of 

the Dodd-Frank Act. This analysis 

reflects that 918 FICUs originated 

HPMLs, with only 24 institutions 

originating more than 100 HPMLs. 

Further, the FICUs that met the 

definition of a small entity originated on 

average less than 2 HPMLs in 2012. 

The supplemental final rule relates to 

the January 2013 Final Rule issued by 

the Agencies on January 18, 2013, 

which goes into effect on January 18, 

2014. The January 2013 Final Rule 

requires that creditors satisfy the 

following requirements for each HPML 

they originate that is not exempt from 

the rule: 

• The creditor must obtain a written 

appraisal; the appraisal must be 

performed by a certified or licensed 

appraiser; and the appraiser must 

conduct a physical property visit of the 

interior of the property. 

• At application, the consumer must 

be provided with a statement regarding 

the purpose of the appraisal, that the 

creditor will provide the applicant a 

copy of any written appraisal, and that 

the applicant may choose to have a 

separate appraisal conducted for the 

applicant’s own use at his or her own 

expense. 

• The consumer must be provided 

with a free copy of any written 

appraisals obtained for the transaction 

at least three business days before 

consummation. 

• The creditor of an HPML must 

obtain an additional written appraisal, 

at no cost to the borrower, when the 

loan will finance the purchase of a 

consumer’s principal dwelling and there 

has been an increase in the purchase 

price from a prior acquisition that took 

place within 180 days of the current 

purchase. 

The supplemental final rule amends 

one existing exemption and establishes 

additional exemptions to the appraisal 

requirements in the January 2013 Final 

Rule. The supplemental final rule 

exempts: 

• ‘‘Streamlined’’ refinancings. A 

‘‘streamlined’’ refinancing if the holder 

of the successor credit risk also held the 

risk of the original credit obligation. The 

supplemental final rule does not exempt 

refinancing transactions involving cash 

out, negative amortization, interest only 

payments or balloon payments. 

• Extensions of credit of $25,000 or 

less. Extension of credit of $25,000 or 

less, with the amount indexed annually 

for inflation, secured by the borrower’s 

principal dwelling. 

• Manufactured Home Loans. Loans 

secured by a manufactured home are 

exempt from the appraisal requirements 

for 18 months, until July 18, 2015. 

Subsequent to that date: 

Æ A loan secured by a new 

manufactured home and land must 

comply with the appraisal requirements 

except for the requirement to conduct a 

physical visit to the interior of the 

property; 

Æ A loan secured by an existing 

(used) manufactured home and land 

will be subject to all appraisal 

requirements; and 

Æ A loan secured by a manufactured 

home (new or used) and not land will 

be exempt from the appraisal 

requirements if the consumer is 

provided with a specified alternative 

cost estimate or valuation. 

The supplemental final rule amends 

the exemption for loans secured by a 

new manufactured home in the January 

2013 Final Rule by requiring an 

appraisal without a physical visit to the 

interior of the property for loans secured 

by a new manufactured home and land 

after July 18, 2015. This amendment 

will increase burden as such loans will 

no longer be exempt from all of the 

appraisal requirements. While data is 

not available to estimate the number of 

such transactions, the previously cited 

HMDA data reflects that FICUs that met 

the definition of a small entity each 

engaged in a relatively small number of 

HPML transactions in 2011. In addition, 

the supplemental final rule exempts 

additional transactions, including 

certain ‘‘streamlined’’ refinancings, 

‘‘smaller dollar’’ residential loans, and 

some manufactured home loans, from 

the appraisal requirements of the 

January 2013 Final Rule, resulting in 

reduced regulatory burden to FICUs that 

would have otherwise been required to 

obtain an appraisal and comply with the 

requirements for such HPML 

transactions. 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78573 

199Public Law 104–121, 110 Stat. 857 (1996). 

200 5 U.S.C. 551. 

201 5 U.S.C. 601 et. seq. 

202 Id. at 603(a). For purposes of assessing the 

impacts of the proposed rule on small entities, 

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

small businesses, small not-for-profit organizations, 

and small government jurisdictions. Id. at 601(6). A 

‘‘small business’’ is determined by application of 

SBA regulations and reference to the North 

American Industry Classification System (NAICS) 

classifications and size standards. Id. at 601(3). A 

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

enterprise which is independently owned and 

operated and is not dominant in its field.’’ Id. at 

601(4). A ‘‘small governmental jurisdiction’’ is the 

government of a city, county, town, township, 

village, school district, or special district with a 

population of less than 50,000. Id. at 601(5). 

203 Id. at 605(b). 

204 Id. at 609. 

205 5 U.S.C. 601(3). The current SBA size 

standards are located on the SBA’s Web site at 

http://www.sba.gov/content/table-small-businesssize-standards. 

206The Bureau assumes that creditors who 

originate chattel manufactured home loans are 

included in the sources described above, but to the 

extent commenters believe this is not the case, the 

Bureau seeks data from commenters on this point. 

It is the opinion of the NCUA that the 

supplemental final rule will not have a 

significant economic impact on a 

substantial number of small entities that 

it regulates in light of the following 

facts: (1) The supplemental final rule 

reduces regulatory burden on small 

institutions by exempting certain 

transactions from the appraisal 

requirements of the January 2013 Final 

Rule; and (2) the NCUA previously 

certified that the January 2013 Final 

Rule would not have a significant 

economic impact on a substantial 

number of small entities. Accordingly, 

the NCUA certifies that the 

supplemental final rule will not have a 

significant economic impact on a 

substantial number of small entities. 

Therefore, a regulatory flexibility 

analysis is not required. 

Executive Order 13132 

Executive Order 13132 encourages 

independent regulatory agencies to 

consider the impact of their actions on 

state and local interests. NCUA, an 

independent regulatory agency as 

defined in 44 U.S.C. 3502(5), voluntarily 

complies with the executive order to 

adhere to fundamental federalism 

principles. This supplemental final rule 

applies to FICUs and will not have a 

substantial direct effect on the states, on 

the relationship between the national 

government and the states, or on the 

distribution of power and 

responsibilities among the various 

levels of government. NCUA has 

determined that this supplemental final 

rule does not constitute a policy that has 

federalism implications for purposes of 

the Executive Order. 

The Treasury and General Government 

Appropriations Act, 1999—Assessment 

of Federal Regulations and Policies on 

Families 

NCUA has determined this final rule 

will not affect family well-being within 

the meaning of section 654 of the 

Treasury and General Government 

Appropriations Act, 1999, Public Law 

105–277, 112 Stat. 2681 (1998). 

Small Business Regulatory Enforcement 

Fairness Act 

The Small Business Regulatory 

Enforcement Fairness Act of 1996 199

(SBREFA) provides generally for 

congressional review of agency rules. A 

reporting requirement is triggered in 

instances where NCUA issues a final 

rule as defined by Section 551 of the 

Administrative Procedure Act.200 NCUA 

does not believe this final rule is a 

‘‘major rule’’ within the meaning of the 

relevant sections of SBREFA. NCUA has 

submitted the rule to the Office of 

Management and Budget (OMB) for its 

determination. 

Bureau 

The RFA generally requires an agency 

to conduct an initial regulatory 

flexibility analysis (IRFA) and a FRFA 

of any rule subject to notice-andcomment rulemaking requirements.201

These analyses must ‘‘describe the 

impact of the proposed rule on small 

entities.’’ 202 An IRFA or FRFA is not 

required if the agency certifies that the 

rule will not have a significant 

economic impact on a substantial 

number of small entities.203 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.204

An IRFA was not required for the 

proposal, and a FRFA is not required for 

the supplemental final rule, because it 

will not have a significant economic 

impact on a substantial number of small 

entities. 

The analysis below evaluates the 

potential economic impact of the 

supplemental final rule on small entities 

as defined by the RFA. The analysis 

generally examines the regulatory 

impact of the provisions of the 

supplemental final rule against the 

baseline of the January 2013 Final Rule 

the Agencies issued on January 18, 

2013. 

No comments received were relevant 

specifically to smaller entities. The 

Agencies discuss more general 

comments in the section-by-section 

analyses and the Bureau discusses some 

of the more specific comments relating 

to benefits and costs of these provisions 

in its Section 1022(b) analysis. 

A. Number and Classes of Affected 

Entities 

The supplemental final rule applies to 

all creditors that extend closed-end 

credit secured by a consumer’s principal 

dwelling. All small entities that extend 

these loans are potentially subject to at 

least some aspects of the supplemental 

final rule. This supplemental final rule 

may impact small businesses, small 

nonprofit organizations, and small 

government jurisdictions. A ‘‘small 

business’’ is determined by application 

of SBA regulations and reference to the 

North American Industry Classification 

System (NAICS) classifications and size 

standards.205 Under such standards, 

depository institutions with $500 

million or less in assets are considered 

small; other financial businesses are 

considered small if such entities have 

average annual receipts (i.e., annual 

revenues) that do not exceed $35.5 

million. Thus, commercial banks, 

savings institutions, and credit unions 

with $500 million or less in assets are 

small businesses, while other creditors 

extending credit secured by real 

property or a dwelling are small 

businesses if average annual receipts do 

not exceed $35.5 million. 

The Bureau can identify through data 

under the HMDA, Reports of Condition 

and Income (Call Reports), and data 

from the National Mortgage Licensing 

System (NMLS) the approximate 

numbers of small depository institutions 

that would be subject to the final rule. 

Origination data is available for entities 

that report in HMDA, NMLS or the 

credit union call reports; for other 

entities, the Bureau has estimated their 

origination activities using statistical 

projection methods. 

The following table provides the 

Bureau’s estimate of the number and 

types of entities to which the 

supplemental final rule would apply: 206


tkelley on DSK3SPTVN1PROD with RULES2
78574 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

207The Bureau believes that other provisions 

would have a de minimis impact on small entities. 

208Used manufactured housing transactions that 

are secured by land remain covered by the January 

2013 Final Rule. However, all loans are exempt if 

the application is received before July 18, 2015. 

TABLE 1—COUNTS OF CREDITORS BY TYPE

[Estimated number of affected entities and small entities by NAICS code and engagement in closed-end mortgage transactions] 

Category NAICS Small entity threshold 

Entities engaged in 

closed-end mortgage transactions b

Small entities engaged in closedend mortgage 

transactions 

Commercial banks & savings institutions.522110, 

522120.

$500,000,000 assets ..................................................... a 7230 a 5913 

Credit unions c ................... 522130 ......... $500,000,000 assets ..................................................... a 4178 a 3784 

Real Estate credit d e .......... 522310, 

522292.

$35,500,000 revenues .................................................. 2787 a 2672 

Total ............................ ...................... ....................................................................................... 14,195 12,369 

Source: 2011 HMDA, Dec. 31, 2011 Bank and Thrift Call Reports, Dec. 31, 2011 NCUA Call Reports, Dec. 31, 2011 NMLSR Mortgage Call 

Reports. aFor HMDA reporters, loan counts from HMDA 2011. For institutions that are not HMDA reporters, loan counts projected based on Call Report 

data fields and counts for HMDA reporters. bEntities are characterized as originating loans if they make one or more loans. 

c Does not include cooperatives operating in Puerto Rico. The Bureau has limited data about these institutions or their mortgage activity. d NMLSR Mortgage Call Report for 2011. All MCR reporters that originate at least one loan or that have positive loan amounts are considered 

to be engaged in real estate credit (instead of purely mortgage brokers). For institutions with missing revenue values, the probability that the institution was a small entity is estimated based on the count and amount of originations and the count and amount of brokered loans. a Data do not distinguish nonprofit from for-profit organizations, but Real Estate Credit presumptively includes nonprofit organizations. 

B. Impact of Exemptions 

The provisions of the supplemental 

final rule all provide or modify 

exemptions from the HPML appraisal 

requirements. Measured against the 

baseline of the burdens imposed by the 

January 2013 Final Rule the Agencies 

issued on January 18, 2013, the Bureau 

believes that these provisions impose 

either no or insignificant additional 

burdens on small entities. The Bureau 

believes that most of these provisions 

would reduce the burdens associated 

with implementation costs, additional 

valuation costs, and compliance costs 

stemming from the HPML appraisal 

requirements. The Bureau also notes 

that creditors voluntarily choose 

whether to avail themselves of the 

exemptions. 

As discussed in the Bureau’s Section 

1022(b) analysis, the five provisions 207

for non-QM HPMLs are in this rule are: 

1. Certain refinances, commonly 

referred to as ‘‘streamlined’’ are now 

exempt from the January 2013 Final 

Rule; 

2. Smaller dollar loans (under 

$25,000) are now exempt from the 

January 2013 Final Rule; 

3. Used manufactured housing 

transactions that are not secured by land 

(chattel) are now exempt from the 

January 2013 Final Rule and, for 

applications received on or after July 18, 

2015, subject to some conditions to 

provide an alternative valuation; 208

4. New manufactured housing 

transactions that are not secured by land 

(chattel) remain exempt from the 

January 2013 Final Rule; however, for 

applications received on or after July 18, 

2015, these transactions are now subject 

to conditions; and 

5. New manufactured housing 

transactions secured by land (new land/ 

home) for which an application is 

received on or after July 18, 2015, now 

are subject to the January 2013 Final 

Rule; however, these transactions 

remain exempted from the physical 

interior visit part of the requirement. 

1. Exemption for ‘‘Streamlined’’ 

Refinancing Programs 

The supplemental final rule provides 

an exemption for any transaction that is 

a refinancing satisfying certain 

conditions. 

This provision removes the burden to 

small entities extending any HPMLs 

covered by the final rule under 

‘‘streamlined’’ refinance programs of 

providing a consumer notice and 

obtaining, reviewing, and disclosing to 

consumers USPAP- and FIRREAcompliant appraisals. 

The regulatory burden reduction 

might be lower since a creditor would 

have to determine whether the 

refinancing loan is of the type that 

meets the exemption requirements. 

However, the Bureau believes that little 

if any additional time would be needed 

to make these determinations, as they 

depend upon basic information relating 

to the transaction that is typically 

already known to the creditor. Small 

entities will be able to choose whether 

to avail themselves of this exemption. 

2. Exemption for Smaller Dollar Loans 

The supplemental final rule exempts 

from the final rule loans equal to or less 

than $25,000, adjusted annually for 

inflation. This provision removes 

burden imposed by the final rule on 

small entities extending any HPMLs 

covered by the final rule up to $25,000. 

In any event, small entities will be able 

to choose whether to avail themselves of 

this exemption. 

3. Exemption Subject to Alternative 

Valuation for Used Manufactured 

Housing Transactions Not Secured by 

Land (Used Chattel) 

The supplemental final rule exempts 

from the HPML appraisal requirements 

a transaction secured by an existing 

manufactured home and not land. This 

provision removes certain burdens 

imposed by the January 2013 Final Rule 

on small entities extending HPMLs 

covered by the January 2013 Final Rule 

when they are secured solely by existing 

manufactured homes. The burdens 

removed would be those of providing a 

consumer notice, determining the 

applicability of the second appraisal 

requirement in purchase transactions, 

and obtaining, reviewing, and disclosing 

to consumers USPAP- and FIRREAcompliant appraisals. To be eligible for 

this burden-reducing exemption, the 

creditor is required to obtain an estimate 

of the value of the home, with the types 

of estimates allowed described in detail 

in the section-by-section analysis. For 

example, creditors can use an 

independent cost service to qualify for 

the exemption. 

Taking the January 2013 Final Rule as 

the baseline, as discussed in the sectionby-section and the Bureau’s Section 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78575 

209All mortgage lenders can participate in the 

manufactured housing market segment (which 

includes chattel transactions and transactions 

secured by a manufactured home and land; the 

handful of manufactured housing specialty lenders 

engaged in chattel lending are still not significant 

in number by themselves. Further, even if the 

chattel exemption conditions were significant to 

their revenue, that is not a substantial number for 

RFA purposes. 

1022(b) analyses, this exemption might 

provide significant burden relief since, 

the Bureau believes that USPAP is a set 

of standards typically followed by 

appraisers who are state-certified or 

licensed, and that state laws generally 

do not require certifications or licenses 

to appraise personal property. Thus, 

many of these transactions might not 

have been made, but for this exemption. 

Finally, taking advantage of this 

exemption is voluntary for creditors, 

thus it imposes no additional burden. 

4. Narrowed Exemption for Transactions 

Secured by New Chattel Manufactured 

Homes 

As discussed in the Bureau’s Section 

1022(b) analysis and in the section-bysection analysis, the final rule requires 

the creditor to provide the consumer 

with one of several types of an 

alternative valuation of the new 

manufactured home in transactions that 

are secured by a new manufactured 

home but not land. This condition does 

not significantly increase the burden of 

the rule relative to the January 2013 

Final Rule. The Bureau believes that the 

cost of obtaining an estimate of the 

value of the new manufactured home 

using a third-party cost source, for 

example, would be significantly less 

than the cost of obtaining a USPAPcomplaint appraisal. 

As noted in the Bureau’s Section 

1022(b) analysis, the Bureau believes 

that there might be as many as 3,400 

such transactions. As shown in the table 

above, the Bureau believes that there 

were 12,369 small creditors in 2011. 

Thus, over 85 percent of small creditors 

face at most one such transaction per 

year. As noted in the 2013 January Final 

Rule, the Bureau believes that a USPAP 

appraisal costs on average $350. Even if 

we suppose that an alternative valuation 

would cost as must as a USPAP 

appraisal, that results in a burden of 

$350 for that creditor, an insignificant 

burden. Note that the Bureau believes 

that the cost imposed per transaction is 

considerably lower, arguably under $5 

for some third-party cost sources. 

Moreover, HMDA data implies that over 

85 percent of small creditors will not be 

subject to any transactions like that. 

Even if the Bureau misestimated the 

number of affected transactions by a 

factor of 10, the costs imposed on 85 

percent of small creditors are still like 

to be well under $100 per creditor.209

5. Narrowed Exemption for Transactions 

Secured by New Manufactured Homes 

and Land 

The Agencies finalized a provision 

that requires an appraisal for 

transactions secured by new 

manufactured homes and land, while 

exempting these appraisals from interior 

inspection. As noted in the Bureau’s 

Section 1022(b) analysis, the Bureau 

believes that approximately 700 

transactions are going to be affected. 

Thus, over 90 percent of small creditors 

are not going to be affected by this 

provision. Even if the Bureau 

misestimated the number of transactions 

affected by a factor of 10, over 85 

percent of small creditors would be 

subject to at most one such transaction 

per year, resulting in a burden of around 

$350 per creditor, a negligible fraction 

of a creditor’s revenue. This impact 

could be even lower, given that, as 

noted in the section-by-section analysis, 

these transactions already are subject to 

a full appraisal requirement when 

carried out under GSE or federal agency 

programs. 

C. Conclusion 

Each element of this supplemental 

final rule would reduce economic 

burden for small entities or impose a 

minor burden on a small amount of 

creditors (well less than $500 per 

creditor for 85 percent of small creditors 

even if the Bureau misestimated the 

number of covered manufactured home 

transactions by a factor of 10). The 

exemption for HPMLs secured by 

existing manufactured homes and not 

land would lessen any economic impact 

resulting from the HPML appraisal 

requirements. The exemption for 

‘‘streamlined’’ refinance HPMLs also 

would lessen any economic impact on 

small entities extending credit pursuant 

to those programs, particularly those 

relating to the refinancing of existing 

loans held on portfolio. The exemption 

for smaller-dollar HPMLs similarly 

would lessen burden on small entities 

extending credit in the form of HPMLs 

up to the threshold amount. The 

narrowed exemptions for transactions 

secured by new manufactured homes, 

both land and chattel, would barely 

affect over 85 percent of creditors (at 

most one such transaction per year). 

These impacts that would have been 

generated by the January 2013 Final 

Rule are reduced to the extent the 

transactions are not already exempt 

from the January 2013 Final Rule as 

qualified mortgages. While all of these 

exemptions may entail additional 

recordkeeping costs, the Bureau believes 

that these costs are minimal and 

outweighed by the cost reductions 

resulting from the proposal. Small 

entities for which such cost reductions 

are outweighed by additional record 

keeping costs may choose not to utilize 

the proposed exemptions. 

Certification 

Accordingly, the undersigned certifies 

that the supplemental final rule will not 

have a significant economic impact on 

a substantial number of small entities. 

FHFA 

The supplemental final rule applies 

only to institutions in the primary 

mortgage market that originate mortgage 

loans. FHFA’s regulated entities— 

Fannie Mae, Freddie Mac, and the 

Federal Home Loan Banks—operate in 

the secondary mortgage markets. In 

addition, these entities do not come 

within the meaning of small entities as 

defined in the RFA. See 5 U.S.C. 

601(6)). 

VIII. Paperwork Reduction Act 

OCC, Board, FDIC, NCUA, and Bureau 

Certain provisions of the January 2013 

Final Rule contain ‘‘collection of 

information’’ requirements within the 

meaning of the Paperwork Reduction 

Act (PRA) of 1995 (44 U.S.C. 3501 et 

seq.). See 78 FR 10368, 10429 (Feb. 13, 

2013). Under the PRA, and 

notwithstanding any other provision of 

law, the Agencies may not conduct or 

sponsor, and a person is not required to 

respond to, an information collection 

unless the information collection 

displays a valid OMB control number. 

The information collection requirements 

contained in this final rule to amend the 

January 2013 Final Rule have been 

submitted to OMB for review and 

approval by the Bureau, FDIC, NCUA, 

and OCC under section 3506 of the PRA 

and section 1320.11 of the OMB’s 

implementing regulations (5 CFR part 

1320). The Bureau, FDIC, NCUA, and 

OCC submitted these information 

collection requirements to OMB at the 

proposed rule stage, as well. OMB filed 

comments instructing the agencies to 

examine public comment in response to 

the NPRM and describe in the 

supporting statement of its collection 

any public comments received regarding 

the collection, as well as why it did or 

did not incorporate the commenter’s 

recommendation. No comments were 

received concerning the proposed 

information collection requirements. 

The Board reviewed these final rules 


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210The burdens on the affected public generally 

are divided in accordance with the Agencies’ 

respective administrative enforcement authority 

under TILA section 108, 15 U.S.C. 1607. 

211The Bureau and the Federal Trade 

Commission (FTC) generally both have enforcement 

authority over non-depository institutions for 

Regulation Z. Accordingly, for purposes of this PRA 

analysis, the Bureau has allocated to itself half of 

the Bureau’s estimated burden for non-depository 

mortgage institutions. The FTC is responsible for 

estimating and reporting to OMB its share of burden 

under this final rule. 

212As explained in the section-by-section 

analysis, these requirements are also published in 

regulations of the OCC (12 CFR 34.203(c)(1), (c)(2), 

(d), (e) and (f)) and the Board (12 CFR 226.43(c)(1), 

(c)(2), (d), (e), and (f)). For ease of reference, this 

PRA analysis refers to the section numbers of the 

requirements as published in the Bureau’s 

Regulation Z at 12 CFR 1026.35(c). 

under the authority delegated to the 

Board by OMB. 

Title of Information Collection: HPML 

Appraisals. 

Frequency of Response: Event 

generated. 

Affected Public: Businesses or other 

for-profit and not-for-profit 

organizations.210

Bureau: Insured depository 

institutions with more than $10 billion 

in assets, their depository institution 

affiliates, and certain non-depository 

mortgage institutions.211

FDIC: Insured state non-member 

banks, insured state branches of foreign 

banks, state savings associations, and 

certain subsidiaries of these entities. 

OCC: National banks, Federal savings 

associations, Federal branches or 

agencies of foreign banks, or any 

operating subsidiary thereof. 

Board: State member banks, 

uninsured state branches and agencies 

of foreign banks. 

NCUA: Federally-insured credit 

unions. 

Abstract: 

The collection of information 

requirements in the January 2013 Final 

Rule are found in paragraphs (c)(3)(i), 

(c)(3)(ii), (c)(4), (c)(5), and (c)(6) of 12 

CFR 1026.35.212 This information is 

required to protect consumers and 

promote the safety and soundness of 

creditors making HPMLs subject to 12 

CFR 1026.35(c). This information is 

used by creditors to evaluate real estate 

collateral securing HPMLs subject to 12 

CFR 1026.35(c) and by consumers 

entering these transactions. The 

collections of information are 

mandatory for creditors making HPMLs 

subject to 12 CFR 1026.35(c). 

The January 2013 Final Rule requires 

that, within three business days of 

application, a creditor provide a 

disclosure that informs consumers of 

the purpose of the appraisal, that the 

creditor will provide the consumer a 

copy of any appraisal, and that the 

consumer may choose to have a separate 

appraisal conducted at the expense of 

the consumer (Initial Appraisal 

Disclosure). See 12 CFR 1026.35(c)(5). If 

a loan is a HPML subject to 12 CFR 

1026.35(c), then the creditor is required 

to obtain a written appraisal prepared 

by a certified or licensed appraiser who 

conducts a physical visit of the interior 

of the property that will secure the 

transaction (Written Appraisal), and 

provide a copy of the Written Appraisal 

to the consumer. See 12 CFR 

1026.35(c)(3)(i) and (c)(6). To qualify for 

the safe harbor provided under the 

January 2013 Final Rule, a creditor is 

required to review the Written 

Appraisal as specified in the text of the 

rule and Appendix N. See 12 CFR 

1026.35(c)(3)(ii). 

A creditor is required to obtain an 

additional appraisal (Additional Written 

Appraisal) for a HPML that is subject to 

12 CFR 1026.35(c) if (1) the seller 

acquired the property securing the loan 

90 or fewer days prior to the date of the 

consumer’s agreement to acquire the 

property and the resale price exceeds 

the seller’s acquisition price by more 

than 10 percent; or (2) the seller 

acquired the property securing the loan 

91 to 180 days prior to the date of the 

consumer’s agreement to acquire the 

property and the resale price exceeds 

the seller’s acquisition price by more 

than 20 percent. See 12 CFR 

1026.35(c)(4). The Additional Written 

Appraisal must meet the requirements 

described above and also analyze: (1) 

The difference between the price at 

which the seller acquired the property 

and the price the consumer agreed to 

pay; (2) changes in market conditions 

between the date the seller acquired the 

property and the date the consumer 

agreed to acquire the property; and (3) 

any improvements made to the property 

between the date the seller acquired the 

property and the date on which the 

consumer agreed to acquire the 

property. See 12 CFR 1026.35(c)(4)(iv). 

A creditor is also required to provide a 

copy of the Additional Written 

Appraisal to the consumer. 12 CFR 

1026.35(c)(6). 

The requirements provided in the 

January 2013 Final Rule were described 

in the PRA section of that rule. See 78 

FR 10368, 10429 (February 13, 2013). As 

described in the Bureau’s section 1022 

analysis in the January 2013 Final Rule 

and in Table 3 to that rule, the estimated 

burdens allocated to the Bureau 

reflected an institution count based 

upon data that had been updated from 

the proposed rule stage and reduced to 

reflect those exemptions in the January 

2013 Final Rule for which the Bureau 

had identified data. As discussed in the 

January 2013 Final Rule, the other 

Agencies did not adjust the calculations 

to account for the exempted transactions 

provided in the January 2013 Final 

Rule. Accordingly, the estimated burden 

calculations in Table 3 in the January 

2013 Final Rule were overstated. 

Calculation of Estimated Burden 

January 2013 Final Rule 

As explained in the January 2013 

Final Rule, for the Initial Appraisal 

Disclosure, the creditor is required to 

provide a short, written disclosure 

within three business days of 

application. Because this disclosure is 

supplied by the federal government for 

purposes of disclosure to the public, 

this is not classified as an information 

collection pursuant to 5 CFR 1320(c)(2), 

and the Agencies have assigned it no 

burden for purposes of this PRA 

analysis. 

The estimated burden for the Written 

Appraisal requirements includes the 

creditor’s burden of reviewing the 

Written Appraisal in order to satisfy the 

safe harbor criteria set forth in the rule 

and providing a copy of the Written 

Appraisal to the consumer. 

Additionally, as discussed above, an 

Additional Written Appraisal 

containing additional analyses is 

required in certain circumstances. The 

Additional Written Appraisal must meet 

the standards of the Written Appraisal. 

The Additional Written Appraisal is 

also required to be prepared by a 

certified or licensed appraiser different 

from the appraiser performing the 

Written Appraisal, and a copy of the 

Additional Written Appraisal must be 

provided to the consumer. The creditor 

must separately review the Additional 

Written Appraisal in order to qualify for 

the safe harbor provided in the January 

2013 Final Rule. 

The Agencies continue to estimate 

that respondents will take, on average, 

15 minutes for each HPML that is 

subject to 12 CFR 1026.35(c) to review 

the Written Appraisal and to provide a 

copy of the Written Appraisal. The 

Agencies further continue to estimate 

that respondents will take, on average, 

15 minutes for each HPML that is 

subject to 12 CFR 1026.35(c) to 

investigate and verify the need for an 

Additional Written Appraisal and, 

where necessary, an additional 15 

minutes to review the Additional 

Written Appraisal and to provide a copy 

of the Additional Written Appraisal. For 

the small fraction of loans requiring an 

Additional Written Appraisal, the 

burden is similar to that of the Written 

Appraisal. 


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213See 78 FR 10368, 10419 (Feb. 13, 2013). As 

discussed in the Section 1022(b)(2) analysis in this 

rule, the Bureau believes that there were at most 

private 12,000 no cash-out refinance transactions in 

2011, and that some number of these were 

refinances of existing loans where the credit risk 

holder changed and thus would not be eligible for 

the exemption, and that a small number of these 

refinances had interest-only, negative amortization, 

or balloon features and also would not be eligible 

for the exemption. Moreover, the Bureau believes 

that about 90 percent of refinance transactions 

would have an appraisal provided to consumers 

because the creditor chose to have an appraisal and 

provided a copy due to the ECOA Valuations Rule. 

Thus, this exemption is likely to affect under 1,000 

loans a year. The Agencies do not possess reliable, 

representative data on how many refinances will 

qualify for this exemption. However, to the extent 

refinances previously would not have been eligible 

for exemptions to this rule, the Agencies believe 

that going forward most such refinances will be 

restructured as qualified mortgages or otherwise to 

satisfy the criteria of this exemption for certain 

refinances. The Agencies used the same assumption 

for the supplemental proposal and did not receive 

any comments indicating otherwise. Accordingly, 

the Table below reflects this assumption. If this 

assumption did not hold and these refinances were 

not restructured, the Agencies believe that based on 

the 2011 data the final rules will cause at most a 

minor number of new appraisals—for 

approximately 1,200 loans. 

214As stated in the Bureau’s Section 1022 

analysis in the January 2013 Final Rule 1022, there 

were 12,000 refinances affected by the January 2013 

Final Rule, and out of those the Bureau estimated 

that 10 percent did not have a full appraisal 

performed in the absence of the January 2013 Final 

Rule, resulting in 10 percent*12,000=1,200 of 

refinances that would be estimated to obtain an 

appraisal as a result of the January 2013 Final Rule 

(and which would not be obtained as a result of this 

supplemental final rule). 

215 In particular, the Bureau believes that a 

substantial proportion of the existing manufactured 

homes that are sold would be sold for less than 

$25,000. According to the Census Bureau 2011 

American Housing Survey Table C–13–OO, the 

average value of existing manufactured homes is 

$30,000. See http://factfinder2.census.gov/faces/

tableservices/jsf/pages/

productview.xhtml?pid=AHS_2011_

C13OO&prodType=table. The estimate includes not 

only the value of the home, but also appears to 

include the value of the lot where the lot is also 

owned. According to the AHS Survey, the term 

‘‘value’’ is defined as ‘‘the respondent’s estimate of 

how much the property (house and lot) would sell 

for if it were for sale. Any nonresidential portions 

of the property, any rental units, and land cost of 

mobile homes, are excluded from the value. For 

vacant units, value represents the sales price asked 

for the property at the time of the interview, and 

may differ from the price at which the property is 

sold. In the publications, medians for value are 

rounded to the nearest dollar.’’ See http://

www.census.gov/housing/ahs/files/

Appendix%20A.pdf. 

216The Bureau assumes that manufactured 

housing loans secured solely by a manufactured 

home and not land are reflected in the data 

provided by the institutions to the datasets that are 

used by the Bureau (Call Reports for Banks and 

Thrifts, Call Reports for Credit Unions, and NMLS’s 

Mortgage Call Reports), and thus are reflected in the 

Bureau’s loan projections utilized for the table 

below. 

The Agencies conservatively included all nonQM HPML MH loans reported in HMDA and 

projected based on the Call Reports data in its 

paperwork burden calculations for the January 2013 

Final Rule. The Agencies did not possess sufficient 

information at the time to estimate the proportion 

of non-QM HPML MH affected by the January 2013 

Final Rule. No new data is used in this rule, and 

the Agencies still do not possess sufficient 

information to estimate the proportion of non-QM 

HPML MH affected by this Supplemental final rule. 

Thus, the Agencies continue to conservatively 

assume that all non-QM HPML MH loans reported 

in HMDA and projected based on the Call Reports 

data are subject to the full appraisal requirement, 

resulting in no change in the Table of paperwork 

burden below. 

Note that, while the Agencies assume that all 

non-QM HPML MH loans are affected, and thus the 

paperwork burden reported might be an 

overestimate, the Agencies are possibly 

underestimating the burden to the extent that there 

exists systematic underreporting or non-reporting of 

MH loans to HMDA by creditors who are subject 

to reporting. In its Section 1022(b) and RFA 

analyses, the Bureau stress-tested this possibility 

and very conservatively, in terms of calculating the 

magnitude of loans affected by provisions of this 

Supplemental final rule, assumed that this 

underreporting is occurring on a massive scale. For 

the purposes of the PRA analysis, the Agencies 

assume that there is no underreporting. Also, note 

that if the Bureau underestimated the proportion of 

non-QM loans among MH lending, the paperwork 

burden is also underestimated. See the Bureau’s 

Section 1022(b) analysis above for a discussion of 

data used and comments received. 

Final Rule 

The Agencies use the estimated 

burden from the PRA section of the 

January 2013 Final Rule as the baseline 

for analyzing the impact the three 

exemptions in the final rule. The 

estimated number of appraisals per 

respondent for the FDIC, Board, OCC, 

and NCUA respondents has been 

updated to account for the exemption 

for qualified mortgages adopted in the 

January 2013 Final Rule, which had not 

been accounted for in the table 

published at that time, as discussed in 

the PRA section of the Final Rule. See 

78 FR 10368, 10430–31 (February 13, 

2013). In addition, the impact of the 

final rule has been considered as 

follows: 

First, the Agencies find that, 

currently, only a very small minority of 

refinances involve cash out beyond the 

levels permitted for the exemption for 

certain refinance loans. See 

§ 1026.35(c)(2)(vii). Going forward, the 

Agencies believe that virtually all 

refinance loans will be either qualified 

mortgages or qualify for this exemption. 

The Agencies therefore assume that the 

exemption for certain refinances in this 

supplemental final rule affects all of the 

refinance loans analyzed under Section 

1022(b)(2) of the January 2013 Final 

Rule.213 In that analysis, the Bureau 

estimated that a total of 3,800 new 

Written Appraisals would occur as a 

result of the January 2013 Final Rule 

(including home purchase, home equity, 

and refinance loans). In the 

Supplemental Proposal, the Bureau 

estimated that refinances would account 

for approximately 1,200 of these 3,800 

new Written Appraisals that would 

occur as a result of the January 2013 

Final Rule.214 Thus, the exemption for 

certain refinances in this supplemental 

final rule would eliminate 

approximately 32 percent of the new 

Written Appraisals that were estimated 

to occur as a result of the January 2013 

Final Rule. 

Second, based on the HMDA 2011 

data, the Agencies find that 12 percent 

of all HPMLs are under $25,000. The 

Agencies believe that this implies that 

there will be, proportionately, 12 

percent fewer appraisals based on the 

exemption for smaller dollar loans. 

Third, the Agencies find that many of 

the transactions secured by 

manufactured homes involve either 

refinances (all of which are 

conservatively assumed to be covered 

by the exemption for certain refinances), 

or smaller dollar loans (which cover 

many types of manufactured housing 

transactions).215 While covered HPMLs 

above smaller dollar levels that are 

secured by existing manufactured 

homes and not land may be newlyexempted, these transactions will need 

alternative valuations under the final 

rule. In addition, such loans secured by 

new manufactured homes and not land 

also will need alternative valuations. 

Further, such loans secured by new 

manufactured homes and land will need 

an appraisal. In the January 2013 Final 

Rule, the Agencies did not reduce the 

paperwork burden estimates to account 

for the exemption for new manufactured 

homes adopted at that time. The 

Agencies therefore conservatively make 

no adjustment to the data in the first 

panel of Table 3 in the January 2013 

Final Rule as a result of that 

exemption.216

The numbers above affect only the 

first panel in Table 3 of the PRA section 

of the January 2013 Final Rule. 

Refinances are not subject to the 

requirement to obtain an Additional 

Written Appraisal under the January 

2013 Final Rule, and it is assumed that 

none of the smaller dollar loans or the 

loans secured by manufactured homes 

and not land were used to purchase 

homes being resold within 180 days 

with the requisite price increases to 

trigger that requirement (and thus the 

exemptions for those loans will not 

reduce any burden associated with that 

requirement). Accordingly, only the first 

panel in Table 3 from the January 2013 

Final Rule is being updated and the 

estimates in the second and third panels 

remain the same. The updated table is 

reproduced below. The one-time costs 

are not affected. 

The following table summarizes the 

resulting burden estimates. 


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217Some of the intermediate numbers are 

rounded, resulting in ‘‘Estimated Total Annual 

Burden Hours’’ not precisely matching up with 

columns a, b, and c. 

218The ‘‘Estimated Number of Appraisals Per 

Respondent’’ reflects the estimated number of 

Written Appraisals and Additional Written 

Appraisals that will be performed solely to comply 

with the January 2013 Final Rule. It does not 

include the number of appraisals that will continue 

to be performed under current industry practice, 

without regard to the Final Rule’s requirements. 

219The information collection requirements (ICs) 

contained in the Bureau’s Regulation Z are 

generally approved by OMB under OMB No. 3170– 

0015. The Bureau divided certain proposals to 

amend the Bureau’s Regulation Z into separate 

Information Collection Requests in OMB’s system 

(accessible at www.reginfo.gov) to ease the public’s 

ability to view and understand the individual 

proposals. The ICs in the January 2013 Final Rule 

(and this final rule) will be incorporated with the 

Bureau’s existing collection associated with Truth 

in Lending Act (Regulation Z) 12 CFR 1026 (OMB 

No. 3170–0026). In the future, the Bureau plans to 

reintegrate the ICs in this final rule back into OMB 

No. 3170–0015; therefore, OMB No. 3170–0015 

should continue to be used when referencing the 

ICs contained in this final rule. 

220The burden estimates allocated to the Bureau 

are updated using the data described in the 

Bureau’s section 1022 analysis in the January 2013 

Final Rule and in the Bureau’s section 1022 

analysis above, including significant burden 

reductions after accounting for qualified mortgages 

that are exempt from the January 2013 Final Rule, 

and burden reductions after accounting for loans in 

rural areas that are exempt from the Additional 

Written Appraisal requirement in the Final Rule. 

221There are 153 depository institutions (and 

their depository affiliates) that are subject to the 

Bureau’s administrative enforcement authority. In 

addition, there are 146 privately-insured credit 

unions that are subject to the Bureau’s 

administrative enforcement authority. For purposes 

of this PRA analysis, the Bureau’s respondents 

under Regulation Z are: 135 depository institutions 

that originate either open or closed-end mortgages; 

77 privately-insured credit unions that originate 

either open or closed-end mortgages; and an 

estimated 2,787 non-depository institutions that are 

subject to the Bureau’s administrative enforcement 

authority. Unless otherwise specified, all references 

to burden hours and costs for the Bureau 

respondents for the collection under Regulation Z 

are based on a calculation that includes half of the 

burden for the estimated 2,787 non-depository 

institutions and 77 privately-insured credit unions. 

222The Bureau calculates its burden by including 

both HMDA reporting creditors and the HMDA nonEstimated PRA Burden 

TABLE 2—SUMMARY OF PRA BURDEN HOURS FOR INFORMATION COLLECTIONS IN HPML APPRAISALS FINAL RULE ONCE

EXEMPTIONS IN THE SUPPLEMENTAL PROPOSAL ARE ADOPTED 217

Estimated 

number of 

respondents 

Estimated number of appraisals 

per 

respondent 218

Estimated burden hours per 

appraisal 

Estimated total 

annual burden 

hours 

[a] [b] [c] [d] = (a*b*c) 

Review and Provide a Copy of Written Appraisal 

Bureau 219,220,221,222.

Depository Inst. > $10 B in total assets+ 

Depository Inst. Affiliates ................................................................. 132 3.73 0.25 123 

Non-Depository Inst. and Credit Unions .......................................... 2,853 0.23 0.25 223 82 

FDIC ................................................................................................. 2,571 0.14 0.25 93 

Board 224 .......................................................................................... 418 0.18 0.25 19 

OCC ................................................................................................. 1,399 0.16 0.25 55 

NCUA ............................................................................................... 2,437 0.07 0.25 44 

Total .......................................................................................... 9,810 ............................ ............................ 416 

Investigate and Verify Requirement for Additional Written Appraisal 

Bureau 

Depository Inst. > $10 B in total assets+ 

Depository Inst. Affiliates ................................................................. 132 20.05 0.25 662 

Non-Depository Inst. and Credit Unions .......................................... 2,853 1.22 0.25 435 

FDIC ................................................................................................. 2,571 0.78 0.25 502 

Board ............................................................................................... 418 0.97 0.25 102 

OCC ................................................................................................. 1,399 0.85 0.25 299 

NCUA ............................................................................................... 2,437 0.38 0.25 232 

Total .......................................................................................... 9,810 ............................ ............................ 2,232 

Review and Provide a Copy of Additional Written Appraisal 

Bureau 

Depository Inst. > $10 B in total assets+ 

Depository Inst. Affiliates ................................................................. 132 0.64 0.25 21 

Non-Depository Inst. and Credit Unions .......................................... 2,853 0.04 0.25 14 

FDIC ................................................................................................. 2,571 0.02 0.25 15 

Board ............................................................................................... 418 0.03 0.25 3 

OCC ................................................................................................. 1,399 0.02 0.25 8 

NCUA ............................................................................................... 2,437 0.01 0.25 5 

Total .......................................................................................... 9,810 ............................ ............................ 66 

Notes: 

(1) Respondents include all institutions estimated to originate HPMLs that are subject to 12 CFR 1026.35(c). 

(2) There may be an additional ongoing burden of roughly 75 hours for privately-insured credit unions estimated to originate HPMLs that are 

subject to 12 CFR 1026.35(c). As discussed in the second footnote in this PRA section, the Bureau will assume half of the burden for non-depository institutions and the privately-insured credit unions. 


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reporting creditors, based on the 2011 data, and 

allocating burden as discussed in the second 

footnote in this PRA section. The other Agencies 

only report the burden for HMDA reporting 

creditors, based on the 2011 counts. 

223The Bureau assumes half of the burden for the 

non-depository mortgage institutions and the credit 

unions supervised by the Bureau. The FTC assumes 

the burden for the other half. 

224The ICs in the January 2013 Final Rule will 

be incorporated with the Board’s Reporting, 

Recordkeeping, and Disclosure Requirements 

associated with Regulation Z (Truth in Lending), 12 

CFR part 226 (OMB No. 7100–0199). The burden 

estimates provided in this final rule pertain only to 

the ICs associated with the Final Rule. 

225As discussed in the PRA section of the January 

2013 Final Rule, estimated one-time burden 

continues to be calculated assuming a fixed burden 

per institution to review the regulations and fixed 

burden per estimated loan officer in training costs. 

As a result of the different size and mortgage 

activities across institutions, the average perinstitution one-time burdens vary across the 

Agencies. See 78 FR 10368, 10432 (Feb. 13, 2013). 

Finally, as explained in the PRA 

section of the January 2013 Final Rule, 

respondents must also review the 

instructions and legal guidance 

associated with the Final Rule and train 

loan officers regarding the requirements 

of the Final Rule. The Agencies 

continue to estimate that these one-time 

costs are as follows: Bureau: 36,383 

hours; FDIC: 10,284 hours; Board 3,344 

hours; OCC: 19,586 hours; NCUA: 7,311 

hours.225

The Agencies have a continuing 

interest in the public opinion of our 

collections of information. At any time, 

comments regarding the burden 

estimate, or any other aspect of this 

collection of information, including 

suggestions for reducing the burden, 

may be sent to the OMB desk officer for 

the Agencies by mail to U.S. Office of 

Management and Budget, Office of 

Information and Regulatory Affairs, 

Washington, DC 20503, or by the 

internet to oira_submission@

omb.eop.gov, with copies to the 

Agencies at the addresses listed in the 

ADDRESSES section of this 

SUPPLEMENTARY INFORMATION. 

FHFA 

The January 2013 Final Rule and this 

final rule do not contain any collections 

of information applicable to the FHFA, 

requiring review by OMB under the 

PRA. Therefore, FHFA has not 

submitted any materials to OMB for 

review. 

IX. Section 302 of the Riegle 

Community Development and 

Regulatory Improvement Act 

Section 1400 of the Dodd Frank Act 

requires that the rule issued to 

implement Section 1471 take effect not 

later than 12 months after the date of 

issuance of the Final Rule. The January 

2013 Final Rule was issued on January 

18, 2013 and will become effective on 

January 18, 2014. This supplemental 

final rule is issued on December 10, 

2013 and will be effective on January 

18, 2014, except that modifications to 

the exemptions for loans secured by 

manufactured homes will be effective 

on July 18, 2015. 

Section 302 of the Riegle Community 

Development and Regulatory 

Improvement Act of 1994 (‘‘RCDRIA’’) 

requires that, subject to certain 

exceptions, regulations issued by the 

federal banking agencies that impose 

additional reporting, disclosure, or other 

requirements on insured depository 

institutions, take effect on the first day 

of a calendar quarter which begins on or 

after the date on which the regulations 

are published in final form. This 

effective date requirement does not 

apply if the issuing agency finds for 

good cause that the regulation should 

become effective before such time. 12 

U.S.C. 4802. 

With respect to the provisions that are 

effective on January 18, 2014, the OCC, 

Board, and FDIC find that section 302 of 

the RCDRIA does not apply because 

these provisions do not impose 

additional reporting, disclosure, or other 

requirements on insured depository 

institutions. 

With respect to the provisions that are 

effective July 18, 2015, the OCC, Board, 

and FDIC recognize that section 302 of 

the RCDRIA applies because these 

modifications to the exemption for loans 

secured by manufactured housing 

impose some additional disclosure 

requirements. The July 18, 2015 

effective date will provide depository 

institutions engaged in manufactured 

housing lending the opportunity to 

develop appropriate policies and 

implement systems to ensure 

compliance with the new requirements. 

Although this date is not the first day of 

a calendar quarter which begins on or 

after the date on which the regulations 

are published in final form, the OCC, 

Board, and FDIC note that insured 

depository institutions wishing to 

comply at the beginning of a calendar 

quarter prior to the effective date retain 

the flexibility to do so. 

List of Subjects 

12 CFR Part 34 

Appraisal, Appraiser, Banks, Banking, 

Consumer protection, Credit, Mortgages, 

National banks, Reporting and 

recordkeeping requirements, Savings 

associations, Truth in lending. 

12 CFR Part 226 

Advertising, Appraisal, Appraiser, 

Consumer protection, Credit, Federal 

Reserve System, Mortgages, Reporting 

and recordkeeping requirements, Truth 

in lending. 

12 CFR Part 1026 

Advertising, Appraisal, Appraiser, 

Banking, Banks, Consumer protection, 

Credit, Credit unions, Mortgages, 

National banks, Reporting and 

recordkeeping requirements, Savings 

associations, Truth in lending. 

Department of the Treasury 

Office of the Comptroller of the 

Currency 

Authority and Issuance 

For the reasons set forth in the 

preamble, the OCC amends 12 CFR part 

34 as amended on February 13, 2013 at 

78 FR 10368, effective on January 18, 

2014, as follows: 

PART 34—REAL ESTATE LENDING 

AND APPRAISALS 

■ 1. The authority citation for part 34 

continues to read as follows: 

Authority: 12 U.S.C. 1 et seq., 25b, 29, 93a, 

371, 1463, 1464, 1465, 1701j–3, 1828(o), 3331 

et seq., 5101 et seq., 5412(b)(2)(B) and 15 

U.S.C. 1639h. 

Subpart G—Appraisals for HigherPriced Mortgage Loans 

■ 2. Section 34.202 is amended by 

redesignating paragraphs (a) through (c) 

as paragraphs (b) through (d), 

respectively, and adding a new 

paragraph (a) to read as follows: 

§ 34.202 Definitions applicable to higherpriced mortgage loans. 

(a) Consummation has the same 

meaning as in 12 CFR 1026.2(a)(13). 

* * * * * 

■ 3a. Section 34.203 is amended by: 

■ a. Redesignating paragraphs (a)(2), (3), 

and (4) as paragraphs (a)(3), (5), and (7), 

respectively, and republishing them; 

■ b. Adding new paragraphs (a)(2) and 

(4) and paragraph (a)(6); 

■ c. Revising paragraphs (b) 

introductory text and (b)(1) and (2); and 

■ d. Adding paragraphs (b)(7) and (8). 

The additions and revisions read as 

follows: 

§ 34.203 Appraisals for higher priced 

mortgage loans. 

(a) Definitions. For purposes of this 

section: 

* * * * * 

(2) Credit risk means the financial risk 

that a consumer will default on a loan. 


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(3) Manufactured home has the same 

meaning as in 24 CFR 3280.2. 

(4) Manufacturer’s invoice means a 

document issued by a manufacturer and 

provided with a manufactured home to 

a retail dealer that separately details the 

wholesale (base) prices at the factory for 

specific models or series of 

manufactured homes and itemized 

options (large appliances, built-in items 

and equipment), plus actual itemized 

charges for freight from the factory to 

the dealer’s lot or the homesite 

(including any rental of wheels and 

axles) and for any sales taxes to be paid 

by the dealer. The invoice may recite 

such prices and charges on an itemized 

basis or by stating an aggregate price or 

charge, as appropriate, for each 

category. 

(5) National Registry means the 

database of information about State 

certified and licensed appraisers 

maintained by the Appraisal 

Subcommittee of the Federal Financial 

Institutions Examination Council. 

(6) New manufactured home means a 

manufactured home that has not been 

previously occupied. 

(7) State agency means a ‘‘State 

appraiser certifying and licensing 

agency’’ recognized in accordance with 

section 1118(b) of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (12 U.S.C. 

3347(b)) and any implementing 

regulations. 

(b) Exemptions. Unless otherwise 

specified, the requirements in paragraph 

(c) through (f) of this section do not 

apply to the following types of 

transactions: 

(1) A loan that satisfies the criteria of 

a qualified mortgage as defined 

pursuant to 15 U.S.C. 1639c. 

(2) An extension of credit for which 

the amount of credit extended is equal 

to or less than the applicable threshold 

amount, which is adjusted every year to 

reflect increases in the Consumer Price 

Index for Urban Wage Earners and 

Clerical Workers, as applicable, and 

published in the OCC official 

interpretations to this paragraph (b)(2). 

* * * * * 

(7) An extension of credit that is a 

refinancing secured by a first lien, with 

refinancing defined as in 12 CFR 

1026.20(a) (except that the creditor need 

not be the original creditor or a holder 

or servicer of the original obligation), 

provided that the refinancing meets the 

following criteria: 

(i) Either— 

(A) The credit risk of the refinancing 

is retained by the person that held the 

credit risk of the existing obligation and 

there is no commitment, at 

consummation, to transfer the credit 

risk to another person; or 

(B) The refinancing is insured or 

guaranteed by the same Federal 

government agency that insured or 

guaranteed the existing obligation; 

(ii) The regular periodic payments 

under the refinance loan do not— 

(A) Cause the principal balance to 

increase; 

(B) Allow the consumer to defer 

repayment of principal; or 

(C) Result in a balloon payment, as 

defined in 12 CFR 1026.18(s)(5)(i); and 

(iii) The proceeds from the 

refinancing are used solely to satisfy the 

existing obligation and to pay amounts 

attributed solely to the costs of the 

refinancing; and 

(8) A transaction secured in whole or 

in part by a manufactured home. 

■ 3b. Effective July 18, 2015, in 

§ 34.203, newly added paragraph (b)(8) 

is revised to read as follows: 

§ 34.203 Appraisals for higher priced 

mortgage loans. 

* * * * * 

(b) * * * 

(8) A transaction secured by: 

(i) A new manufactured home and 

land, but the exemption shall only 

apply to the requirement in paragraph 

(c)(1) of this section that the appraiser 

conduct a physical visit of the interior 

of the new manufactured home; or 

(ii) A manufactured home and not 

land, for which the creditor obtains one 

of the following and provides a copy to 

the consumer no later than three 

business days prior to consummation of 

the transaction— 

(A) For a new manufactured home, 

the manufacturer’s invoice for the 

manufactured home securing the 

transaction, provided that the date of 

manufacture is no earlier than 18 

months prior to the creditor’s receipt of 

the consumer’s application for credit; 

(B) A cost estimate of the value of the 

manufactured home securing the 

transaction obtained from an 

independent cost service provider; or 

(C) A valuation, as defined in 12 CFR 

1026.42(b)(3), of the manufactured 

home performed by a person who has 

no direct or indirect interest, financial 

or otherwise, in the property or 

transaction for which the valuation is 

performed and has training in valuing 

manufactured homes. 

* * * * * 

■ 4. In Appendix A to Subpart G, 

republish the introductory text and 

revise paragraph 7 to read as follows: 

Appendix A to Subpart G—HigherPriced Mortgage Loan Appraisal Safe 

Harbor Review 

To qualify for the safe harbor provided in 

§ 34.203(c)(2), a creditor must confirm that 

the written appraisal: 

* * * * * 

7. Indicates that a physical property visit 

of the interior of the property was performed, 

as applicable. 

* * * * * 

Appendix C to Subpart G—OCC 

Interpretations 

■ 5. In Appendix C to Subpart G: 

■ a. Under the § 34.203(b) entry, add 

paragraph 1 and add an entry for 

§ 34.203(b)(1); 

■ c. Revise the § 34.203(b)(2) entry; 

■ d. Add paragraph 2 to the 

§ 34.203(b)(4) entry; 

■ e. Add an entry for § 34.203(b)(7); 

■ f. Effective July 18, 2015, add an entry 

for § 34.203(b)(8); and 

■ g. In the § 34.203(f)(2) entry, remove 

paragraph 2, redesignate paragraph 3 as 

paragraph 2, and revise it. 

The additions and revisions read as 

follows: 

Section 34.203—Appraisals for HigherPriced Mortgage Loans 

* * * * * 

34.203(b) Exemptions 

1. Compliance with title XI of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA). Section 

34.203(b) provides exemptions solely from 

the requirements of § 34.203(c) through (f). 

Institutions subject to the requirements of 

FIRREA and its implementing regulations 

that make a loan qualifying for an exemption 

under § 34.203(b) must still comply with 

appraisal and evaluation requirements under 

FIRREA and its implementing regulations. 

34.203(b)(1) Exemptions 

Paragraph 34.203(b)(1) 

1. Qualified mortgage criteria. Under 

§ 34.203(b)(1), a loan is exempt from the 

appraisal requirements of § 34.203 if either: 

i. The loan is—(1) subject to the ability-torepay requirements of the Consumer 

Financial Protection Bureau (Bureau) in 12 

CFR 1026.43 as a ‘‘covered transaction’’ 

(defined in 12 CFR 1026.43(b)(1)) and (2) a 

qualified mortgage pursuant to the Bureau’s 

rules or, for loans insured, guaranteed, or 

administered by the U.S. Department of 

Housing and Urban Development (HUD), 

U.S. Department of Veterans Affairs (VA), 

U.S. Department of Agriculture (USDA), or 

Rural Housing Service (RHS), a qualified 

mortgage pursuant to applicable rules 

prescribed by those agencies (but only once 

such rules are in effect; otherwise, the 

Bureau’s definition of a qualified mortgage 

applies to those loans); or 

ii. The loan is—(1) not subject to the 

Bureau’s ability-to-repay requirements in 12 

CFR 1026.43 as a ‘‘covered transaction’’ 

(defined in 12 CFR 1026.43(b)(1)), but (2) 


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meets the criteria for a qualified mortgage in 

the Bureau’s rules or, for loans insured, 

guaranteed, or administered by HUD, VA, 

USDA, or RHS, meets the criteria for a 

qualified mortgage in the applicable rules 

prescribed by those agencies (but only once 

such rules are in effect; otherwise, the 

Bureau’s criteria for a qualified mortgage 

applies to those loans). To explain further, 

loans enumerated in 12 CFR 1026.43(a) are 

not ‘‘covered transactions’’ under the 

Bureau’s ability-to-repay requirements in 12 

CFR 1026.43, and thus cannot be qualified 

mortgages (entitled to a rebuttable 

presumption or safe harbor of compliance 

with the ability-to-repay requirements of 12 

CFR 1026.43, see, e.g., 12 CFR 1026.43(e)(1)). 

These include an extension of credit made 

pursuant to a program administered by a 

Housing Finance Agency, as defined under 

24 CFR 266.5, or pursuant to a program 

authorized by sections 101 and 109 of the 

Emergency Economic Stabilization Act of 

2008. See 12 CFR 1026.43(a)(3)(iv) and (vi). 

They also include extensions of credit made 

by a creditor identified in 12 CFR 

1026.43(a)(3)(v). However, these loans are 

eligible for the exemption in § 34.203(b)(1) if 

they meet the Bureau’s qualified mortgage 

criteria in 12 CFR 1026.43(e)(2), (4), (5), or (6) 

or 12 CFR 1026.43(f) (including limits on 

when loans must be consummated) or, for 

loans that are insured, guaranteed, or 

administered by HUD, VA, USDA, or RHS, in 

applicable rules prescribed by those agencies 

(but only once such rules are in effect; 

otherwise, the Bureau’s criteria for a 

qualified mortgage applies to those loans). 

For example, assume that HUD has 

prescribed rules to define loans insured 

under its programs that are qualified 

mortgages and those rules are in effect. 

Assume further that a creditor designated as 

a Community Development Financial 

Institution, as defined under 12 CFR 

1805.104(h), originates a loan insured by the 

Federal Housing Administration, which is a 

part of HUD. The loan is not a ‘‘covered 

transaction’’ and thus is not a qualified 

mortgage. See 12 CFR 1026.43(a)(3)(v)(A) and 

(b)(1). Nonetheless, the transaction is eligible 

for an exemption from the appraisal 

requirements of § 34.203(b)(1) if it meets the 

qualified mortgage criteria in HUD’s rules. 

Nothing in § 34.203(b)(1) alters the definition 

of a qualified mortgage under regulations of 

the Bureau, HUD, VA, USDA, or RHS. 

Paragraph 34.203(b)(2) 

1. Threshold amount. For purposes of 

§ 34.203(b)(2), the threshold amount in effect 

during a particular one-year period is the 

amount stated below for that period. The 

threshold amount is adjusted effective 

January 1 of every year by the percentage 

increase in the Consumer Price Index for 

Urban Wage Earners and Clerical Workers 

(CPI–W) that was in effect on the preceding 

June 1. Every year, this comment will be 

amended to provide the threshold amount for 

the upcoming one-year period after the 

annual percentage change in the CPI–W that 

was in effect on June 1 becomes available. 

Any increase in the threshold amount will be 

rounded to the nearest $100 increment. For 

example, if the percentage increase in the 

CPI–W would result in a $950 increase in the 

threshold amount, the threshold amount will 

be increased by $1,000. However, if the 

percentage increase in the CPI–W would 

result in a $949 increase in the threshold 

amount, the threshold amount will be 

increased by $900. 

i. From January 18, 2014, through 

December 31, 2014, the threshold amount is 

$25,000. 

2. Qualifying for exemption—in general. A 

transaction is exempt under § 34.203(b)(2) if 

the creditor makes an extension of credit at 

consummation that is equal to or below the 

threshold amount in effect at the time of 

consummation. 

3. Qualifying for exemption—subsequent 

changes. A transaction does not meet the 

condition for an exemption under 

§ 34.203(b)(2) merely because it is used to 

satisfy and replace an existing exempt loan, 

unless the amount of the new extension of 

credit is equal to or less than the applicable 

threshold amount. For example, assume a 

closed-end loan that qualified for a 

§ 34.203(b)(2) exemption at consummation in 

year one is refinanced in year ten and that 

the new loan amount is greater than the 

threshold amount in effect in year ten. In 

these circumstances, the creditor must 

comply with all of the applicable 

requirements of § 34.203 with respect to the 

year ten transaction if the original loan is 

satisfied and replaced by the new loan, 

unless another exemption from the 

requirements of § 34.203 applies. See 

§ 34.203(b) and § 34.203(d)(7). 

* * * * * 

Paragraph 34.203(b)(4) 

* * * * * 

2. Financing initial construction. The 

exemption for construction loans in 

§ 34.203(b)(4) applies to temporary financing 

of the construction of a dwelling that will be 

replaced by permanent financing once 

construction is complete. The exemption 

does not apply, for example, to loans to 

finance the purchase of manufactured homes 

that have not been or are in the process of 

being built when the financing obtained by 

the consumer at that time is permanent. See 

§ 34.203(b)(8). 

* * * * * 

Paragraph 34.203(b)(7) 

Paragraph 34.203(b)(7)(i)(A) 

1. Same credit risk holder. The 

requirement that the holder of the credit risk 

on the existing obligation and the refinancing 

be the same applies to situations in which an 

entity bears the financial responsibility for 

the default of a loan by either holding the 

loan in its portfolio or guaranteeing payments 

of principal and any interest to investors in 

a mortgage-backed security in which the loan 

is pooled. See § 34.203(a)(2) (defining ‘‘credit 

risk’’). For example, a credit risk holder 

could be a bank that bears the credit risk on 

the existing obligation by holding the loan in 

the bank’s portfolio. Another example of a 

credit risk holder would be a governmentsponsored enterprise that bears the risk of 

default on a loan by guaranteeing the 

payment of principal and any interest on a 

loan to investors in a mortgage-backed 

security. The holder of credit risk under 

§ 34.203(b)(7)(i)(A) does not mean individual 

investors in a mortgage-backed security or 

providers of private mortgage insurance. 

2. Same credit risk holder—illustrations. 

Illustrations of the credit risk holder of the 

existing obligation continuing to be the credit 

risk holder of the refinancing include, but are 

not limited to, the following: 

i. The existing obligation is held in the 

portfolio of a bank, thus the bank holds the 

credit risk. The bank arranges to refinance 

the loan and also will hold the refinancing 

in its portfolio. If the refinancing otherwise 

meets the requirements for an exemption 

under § 34.203(b)(7), the transaction will 

qualify for the exemption because the credit 

risk holder is the same for the existing 

obligation and the refinance transaction. In 

this case, the exemption would apply 

regardless of whether the bank arranged to 

refinance the loan directly or indirectly, such 

as through the servicer or subservicer on the 

existing obligation. 

ii. The existing obligation is held in the 

portfolio of a government-sponsored 

enterprise (GSE), thus the GSE holds the 

credit risk. The existing obligation is then 

refinanced by the servicer of the loan and 

immediately transferred to the GSE. The GSE 

pools the refinancing in a mortgage-backed 

security guaranteed by the GSE, thus the GSE 

holds the credit risk on the refinance loan. 

If the refinance transaction otherwise meets 

the requirements for an exemption under 

§ 34.203(b)(7), the transaction will qualify for 

the exemption because the credit risk holder 

is the same for the existing obligation and the 

refinance transaction. In this case, the 

exemption would apply regardless of 

whether the existing obligation was 

refinanced by the servicer or subservicer on 

the existing obligation (acting as a ‘‘creditor’’ 

under 12 CFR 1026.2(a)(17)) or by a different 

creditor. 

3. Forward commitments. A creditor may 

make a mortgage loan that will be sold or 

otherwise transferred pursuant to an 

agreement that has been entered into at or 

before the time the transaction is 

consummated. Such an agreement is 

sometimes known as a ‘‘forward 

commitment.’’ A refinance loan does not 

satisfy the requirement of § 34.203(b)(7)(i)(A) 

if the loan will be acquired pursuant to a 

forward commitment, such that the credit 

risk on the refinance loan will transfer to a 

person who did not hold the credit risk on 

the existing obligation. 

Paragraph 34.203(b)(7)(ii) 

1. Regular periodic payments. Under 

§ 34.203(b)(7)(ii), the regular periodic 

payments on the refinance loan must not: 

Result in an increase of the principal balance 

(negative amortization); allow the consumer 

to defer repayment of principal (see 12 CFR 

1026.43, and the Official Staff Interpretations 

to the Bureau’s Regulation Z, comment 

43(e)(2)(i)–2); or result in a balloon payment. 

Thus, the terms of the legal obligation must 

require the consumer to make payments of 

principal and interest on a monthly or other 

periodic basis that will repay the loan 

amount over the loan term. Except for 

payments resulting from any interest rate 

changes after consummation in an adjustablerate or step-rate mortgage, the periodic 


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payments must be substantially equal. For an 

explanation of the term ‘‘substantially 

equal,’’ see 12 CFR 1026.43, the Official Staff 

Interpretations to the Bureau’s Regulation Z, 

comment 43(c)(5)(i)–4. In addition, a singlepayment transaction is not a refinancing 

meeting the requirements of § 34.203(b)(7) 

because it does not require ‘‘regular periodic 

payments.’’ 

Paragraph 34.203(b)(7)(iii) 

1. Permissible use of proceeds. The 

exemption for a refinancing under 

§ 34.203(b)(7) is available only if the 

proceeds from the refinancing are used 

exclusively for the existing obligation and 

amounts attributed solely to the costs of the 

refinancing. The existing obligation includes 

the unpaid principal balance of the existing 

first lien loan, any earned unpaid finance 

charges, and any other lawful charges related 

to the existing loan. For guidance on the 

meaning of refinancing costs, see 12 CFR 

1026.23, the Official Staff Interpretations to 

the Bureau’s Regulations Z, comment 23(f)– 

4. If the proceeds of a refinancing are used 

for other purposes, such as to pay off other 

liens or to provide additional cash to the 

consumer for discretionary spending, the 

transaction does not qualify for the 

exemption for a refinancing under 

§ 34.203(b)(7) from the appraisal 

requirements in § 34.203. 

For applications received on or after July 18, 

2015 

Paragraph 34.203(b)(8) 

Paragraph 34.203(b)(8)(i) 

1. Secured by new manufactured home and 

land—physical visit of the interior. A 

transaction secured by a new manufactured 

home and land is subject to the requirements 

of § 34.203(c) through (f) except for the 

requirement in § 34.203(c)(1) that the 

appraiser conduct a physical inspection of 

the interior of the property. Thus, for 

example, a creditor of a loan secured by a 

new manufactured home and land could 

comply with § 34.203(c)(1) by obtaining an 

appraisal conducted by a state-certified or 

-licensed appraiser based on plans and 

specifications for the new manufactured 

home and an inspection of the land on which 

the property will be sited, as well as any 

other information necessary for the appraiser 

to complete the appraisal assignment in 

conformity with the Uniform Standards of 

Professional Appraisal Practice and the 

requirements of FIRREA and any 

implementing regulations. 

Paragraph 34.203(b)(8)(ii) 

1. Secured by a manufactured home and 

not land. Section 34.203(b)(8)(ii) applies to a 

higher-priced mortgage loan secured by a 

manufactured home and not land, regardless 

of whether the home is titled as realty by 

operation of state law. 

Paragraph 34.203(b)(8)(ii)(B) 

1. Independent. A cost service provider 

from which the creditor obtains a 

manufactured home unit cost estimate under 

§ 34.203(b)(8)(ii)(B) is ‘‘independent’’ if that 

person is not affiliated with the creditor in 

the transaction, such as by common 

corporate ownership, and receives no direct 

or indirect financial benefits based on 

whether the transaction is consummated. 

2. Adjustments. The requirement that the 

cost estimate be from an independent cost 

service provider does not prohibit a creditor 

from providing a cost estimate that reflects 

adjustments to account for factors such as 

special features, condition or location. 

However, the requirement that the estimate 

be obtained from an independent cost service 

provider means that any adjustments to the 

estimate must be based on adjustment factors 

available as part of the independent cost 

service used, with associated values that are 

determined by the independent cost service. 

Paragraph 34.203(b)(8)(ii)(C) 

1. Interest in the property. A person has a 

direct or indirect in the property if, for 

example, the person has any ownership or 

reasonably foreseeable ownership interest in 

the manufactured home. To illustrate, a 

person who seeks a loan to purchase the 

manufactured home to be valued has a 

reasonably foreseeable ownership interest in 

the property. 

2. Interest in the transaction. A person has 

a direct or indirect interest in the transaction 

if, for example, the person or an affiliate of 

that person also serves as a loan officer of the 

creditor or otherwise arranges the credit 

transaction, or is the retail dealer of the 

manufactured home. A person also has a 

prohibited interest in the transaction if the 

person is compensated or otherwise receives 

financial or other benefits based on whether 

the transaction is consummated. 

3. Training in valuing manufactured 

homes. Training in valuing manufactured 

homes includes, for example, successfully 

completing a course in valuing manufactured 

homes offered by a state or national appraiser 

association or receiving job training from an 

employer in the business of valuing 

manufactured homes. 

4. Manufactured home valuation— 

example. A valuation in compliance with 

§ 34.203(b)(8)(ii)(C) would include, for 

example, an appraisal of the manufactured 

home in accordance with the appraisal 

requirements for a manufactured home 

classified as personal property under the 

Title I Manufactured Home Loan Insurance 

Program of the U.S. Department of Housing 

and Urban Development, pursuant to section 

2(b)(10) of the National Housing Act, 12 

U.S.C. 1703(b)(10). 

* * * * * 

Paragraph 34.203(f)(2) * * * 

2. No waiver. Regulation B, 12 CFR 

1002.14(a)(1), allowing the consumer to 

waive the requirement that the appraisal 

copy be provided three business days before 

consummation, does not apply to higherpriced mortgage loans subject to § 34.203. A 

consumer of a higher-priced mortgage loan 

subject to § 34.203 may not waive the timing 

requirement to receive a copy of the appraisal 

under § 34.203(f)(2). 

* * * * * 

Board of Governors of the Federal 

Reserve System 

Authority and Issuance 

For the reasons stated above, the 

Board of Governors of the Federal 

Reserve System further amends 

Regulation Z, 12 CFR part 226, as 

amended at 78 FR 10368 (Feb. 13, 2013), 

as follows: 

PART 226—TRUTH IN LENDING ACT 

(REGULATION Z) 

■ 6. The authority citation for part 226 

continues to read as follows: 

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

1637(c)(5), 1639(l), and 1639h; Pub. L. 111– 

24 section 2, 123 Stat. 1734; Pub. L. 111–203, 

124 Stat. 1376. 

■ 7a. Section 226.43 is amended by: 

■ a. Revising paragraphs (a)(2) through 

(6); 

■ b. Adding paragraphs (a)(7) through 

(10); 

■ c. Revising paragraphs (b) 

introductory text, (b)(1) and (2) and 

(b)(5); 

■ d. Adding paragraphs (b)(7) and (8). 

The revisions and additions read as 

follows: 

§ 226.43 Appraisals for higher-priced 

mortgage loans. 

(a) * * * 

(2) Consummation has the same 

meaning as in 12 CFR 1026.2(a)(13). 

(3) Creditor has the same meaning as 

in 12 CFR 1026.2(a)(17). 

(4) Credit risk means the financial risk 

that a consumer will default on a loan. 

(5) Higher-priced mortgage loan has 

the same meaning as in 12 CFR 

1026.35(a)(1). 

(6) Manufactured home has the same 

meaning as in 24 CFR 3280.2. 

(7) Manufacturer’s invoice means a 

document issued by a manufacturer and 

provided with a manufactured home to 

a retail dealer that separately details the 

wholesale (base) prices at the factory for 

specific models or series of 

manufactured homes and itemized 

options (large appliances, built-in items 

and equipment), plus actual itemized 

charges for freight from the factory to 

the dealer’s lot or the homesite 

(including any rental of wheels and 

axles) and for any sales taxes to be paid 

by the dealer. The invoice may recite 

such prices and charges on an itemized 

basis or by stating an aggregate price or 

charge, as appropriate, for each 

category. 

(8) National Registry means the 

database of information about State 

certified and licensed appraisers 

maintained by the Appraisal 

Subcommittee of the Federal Financial 

Institutions Examination Council. 


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Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78583 

(9) New manufactured home means a 

manufactured home that has not been 

previously occupied. 

(10) State agency means a ‘‘State 

appraiser certifying and licensing 

agency’’ recognized in accordance with 

section 1118(b) of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (12 U.S.C. 

3347(b)) and any implementing 

regulations. 

(b) Exemptions. Unless otherwise 

specified, the requirements in 

paragraphs (c) through (f) of this section 

do not apply to the following types of 

transactions: 

(1) A loan that satisfies the criteria of 

a qualified mortgage as defined 

pursuant to 15 U.S.C. 1639c; 

(2) An extension of credit for which 

the amount of credit extended is equal 

to or less than the applicable threshold 

amount, which is adjusted every year to 

reflect increases in the Consumer Price 

Index for Urban Wage Earners and 

Clerical Workers, as applicable, and 

published in the official staff 

commentary to this paragraph (b)(2); 

* * * * * 

(5) A loan with a maturity of 12 

months or less, if the purpose of the 

loan is a ‘‘bridge’’ loan connected with 

the acquisition of a dwelling intended to 

become the consumer’s principal 

dwelling. 

* * * * * 

(7) An extension of credit that is a 

refinancing secured by a first lien, with 

refinancing defined as in 12 CFR 

1026.20(a) (except that the creditor need 

not be the original creditor or a holder 

or servicer of the original obligation), 

provided that the refinancing meets the 

following criteria: 

(i) Either— 

(A) The credit risk of the refinancing 

is retained by the person that held the 

credit risk of the existing obligation and 

there is no commitment, at 

consummation, to transfer the credit 

risk to another person; or 

(B) The refinancing is insured or 

guaranteed by the same Federal 

government agency that insured or 

guaranteed the existing obligation; 

(ii) The regular periodic payments 

under the refinance loan do not— 

(A) Cause the principal balance to 

increase; 

(B) Allow the consumer to defer 

repayment of principal; or 

(C) Result in a balloon payment, as 

defined in 12 CFR 1026.18(s)(5)(i); and 

(iii) The proceeds from the 

refinancing are used only to satisfy the 

existing obligation and to pay amounts 

attributed solely to the costs of the 

refinancing; and 

(8) A transaction secured in whole or 

in part by a manufactured home. 

* * * * * 

■ 7b. Effective July 18, 2015, 

§ 226.43(b)(8) is revised to read as 

follows: 

§ 226.43 Appraisals for higher-priced 

mortgage loans 

* * * * * 

(b) * * * 

(8) A transaction secured by: 

(i) A new manufactured home and 

land, but the exemption shall only 

apply to the requirement in paragraph 

(c)(1) of this section that the appraiser 

conduct a physical visit of the interior 

of the new manufactured home; or 

(ii) A manufactured home and not 

land, for which the creditor obtains one 

of the following and provides a copy to 

the consumer no later than three 

business days prior to consummation of 

the transaction— 

(A) For a new manufactured home, 

the manufacturer’s invoice for the 

manufactured home securing the 

transaction, provided that the date of 

manufacture is no earlier than 18 

months prior to the creditor’s receipt of 

the consumer’s application for credit; 

(B) A cost estimate of the value of the 

manufactured home securing the 

transaction obtained from an 

independent cost service provider; or 

(C) A valuation, as defined in 12 CFR 

1026.42(b)(3), of the manufactured 

home performed by a person who has 

no direct or indirect interest, financial 

or otherwise, in the property or 

transaction for which the valuation is 

performed and has training in valuing 

manufactured homes. 

* * * * * 

■ 8. In Appendix N to part 226, the 

introductory text is republished and 

paragraph 7 is revised to read as 

follows: 

Appendix N to Part 226—Higher-Priced 

Mortgage Loan Appraisal Safe Harbor 

Review 

To qualify for the safe harbor provided in 

§ 226.43(c)(2), a creditor must confirm that 

the written appraisal: 

* * * * * 

7. Indicates that a physical property visit 

of the interior of the property was performed, 

as applicable. 

* * * * * 

■ 9. In Supplement I to part 226, under 

Section 226.43—Appraisals for HigherPriced Mortgage Loans: 

■ a. Under the entry for 43(b), paragraph 

1 is added; 

■ b. A 43(b)(1) entry is added. 

■ c. The 43(b)(2) entry is revised. 

■ d. Under the 43(b)(4) entry, paragraph 

2 is added. 

■ e. A 43(b)(7) entry is added. 

■ f. Effective July 18, 2015, a 43(b)(8) 

entry is added. 

■ g. Under entry 43(f)(2), paragraph 2 is 

removed and paragraph 3 is 

redesignated as paragraph 2 and revised. 

The additions and revisions read as 

follows: 

Supplement I to Part 226—Official 

Interpretations 

* * * * * 

Section 226.43—Appraisals for HigherPriced Mortgage Loans 

* * * * * 

43(b) Exemptions 

1. Compliance with title XI of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA). Section 

226.43(b) provides exemptions solely from 

the requirements of § 226.43(c) through (f). 

Institutions subject to the requirements of 

FIRREA and its implementing regulations 

that make a loan qualifying for an exemption 

under § 226.43(b) must still comply with 

appraisal and evaluation requirements under 

FIRREA and its implementing regulations. 

Paragraph 43(b)(1) 

1. Qualified mortgage criteria. Under 

§ 226.43(b)(1), a loan is exempt from the 

appraisal requirements of § 226.43 if either: 

i. The loan is—(1) subject to the ability-torepay requirements of the Bureau of 

Consumer Financial Protection (Bureau) in 

12 CFR 1026.43 as a ‘‘covered transaction’’ 

(defined in 12 CFR 1026.43(b)(1)) and (2) a 

qualified mortgage pursuant to the Bureau’s 

rules or, for loans insured, guaranteed, or 

administered by the U.S. Department of 

Housing and Urban Development (HUD), 

U.S. Department of Veterans Affairs (VA), 

U.S. Department of Agriculture (USDA), or 

Rural Housing Service (RHS), a qualified 

mortgage pursuant to applicable rules 

prescribed by those agencies (but only once 

such rules are in effect; otherwise, the 

Bureau’s definition of a qualified mortgage 

applies to those loans); or 

ii. The loan is—(1) not subject to the 

Bureau’s ability-to-repay requirements in 12 

CFR 1026.43 as a ‘‘covered transaction’’ 

(defined in 12 CFR 1026.43(b)(1)), but (2) 

meets the criteria for a qualified mortgage in 

the Bureau’s rules or, for loans insured, 

guaranteed, or administered by HUD, VA, 

USDA, or RHS, meets the criteria for a 

qualified mortgage in the applicable rules 

prescribed by those agencies (but only once 

such rules are in effect; otherwise, the 

Bureau’s criteria for a qualified mortgage 

applies to those loans). To explain further, 

loans enumerated in 12 CFR 1026.43(a) are 

not ‘‘covered transactions’’ under the 

Bureau’s ability-to-repay requirements in 12 

CFR 1026.43, and thus cannot be qualified 

mortgages (entitled to a rebuttable 

presumption or safe harbor of compliance 

with the ability-to-repay requirements of 12 

CFR 1026.43, see, e.g., 12 CFR 1026.43(e)(1)). 

These include an extension of credit made 

pursuant to a program administered by a 

Housing Finance Agency, as defined under 

24 CFR 266.5, or pursuant to a program 


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78584 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

authorized by sections 101 and 109 of the 

Emergency Economic Stabilization Act of 

2008. See 12 CFR 1026.43(a)(3)(iv) and (vi). 

They also include extensions of credit made 

by a creditor identified in 12 CFR 

1026.43(a)(3)(v). However, these loans are 

eligible for the exemption in § 226.43(b)(1) if 

they meet the Bureau’s qualified mortgage 

criteria in § 1026.43(e)(2), (4), (5), or (6) or 

§ 1026.43(f) (including limits on when loans 

must be consummated) or, for loans that are 

insured, guaranteed, or administered by 

HUD, VA, USDA, or RHS, in applicable rules 

prescribed by those agencies (but only once 

such rules are in effect; otherwise, the 

Bureau’s criteria for a qualified mortgage 

applies to those loans). For example, assume 

that HUD has prescribed rules to define loans 

insured under its programs that are qualified 

mortgages and those rules are in effect. 

Assume further that a creditor designated as 

a Community Development Financial 

Institution, as defined under 12 CFR 

1805.104(h), originates a loan insured by the 

Federal Housing Administration, which is a 

part of HUD. The loan is not a ‘‘covered 

transaction’’ and thus is not a qualified 

mortgage. See 12 CFR 1026.43(a)(3)(v)(A) and 

(b)(1). Nonetheless, the transaction is eligible 

for an exemption from the appraisal 

requirements of § 226.43 if it meets the 

qualified mortgage criteria in HUD’s rules. 

Nothing in § 226.43(b)(1) alters the definition 

of a qualified mortgage under regulations of 

the Bureau, HUD, VA, USDA, or RHS. 

Paragraph 43(b)(2) 

1. Threshold amount. For purposes of 

§ 226.43(b)(2), the threshold amount in effect 

during a particular one-year period is the 

amount stated below for that period. The 

threshold amount is adjusted effective 

January 1 of every year by the percentage 

increase in the Consumer Price Index for 

Urban Wage Earners and Clerical Workers 

(CPI–W) that was in effect on the preceding 

June 1. Every year, this comment will be 

amended to provide the threshold amount for 

the upcoming one-year period after the 

annual percentage change in the CPI–W that 

was in effect on June 1 becomes available. 

Any increase in the threshold amount will be 

rounded to the nearest $100 increment. For 

example, if the percentage increase in the 

CPI–W would result in a $950 increase in the 

threshold amount, the threshold amount will 

be increased by $1,000. However, if the 

percentage increase in the CPI–W would 

result in a $949 increase in the threshold 

amount, the threshold amount will be 

increased by $900. 

i. From January 18, 2014, through 

December 31, 2014, the threshold amount is 

$25,000. 

2. Qualifying for exemption—in general. A 

transaction is exempt under § 226.43(b)(2) if 

the creditor makes an extension of credit at 

consummation that is equal to or below the 

threshold amount in effect at the time of 

consummation. 

3. Qualifying for exemption—subsequent 

changes. A transaction does not meet the 

condition for an exemption under 

§ 226.43(b)(2) merely because it is used to 

satisfy and replace an existing exempt loan, 

unless the amount of the new extension of 

credit is equal to or less than the applicable 

threshold amount. For example, assume a 

closed-end loan that qualified for a 

§ 226.43(b)(2) exemption at consummation in 

year one is refinanced in year ten and that 

the new loan amount is greater than the 

threshold amount in effect in year ten. In 

these circumstances, the creditor must 

comply with all of the applicable 

requirements of § 226.43 with respect to the 

year ten transaction if the original loan is 

satisfied and replaced by the new loan, 

unless another exemption from the 

requirements of § 226.43 applies. See 

§ 226.43(b) and (d)(7). 

* * * * * 

Paragraph 43(b)(4) 

* * * * * 

2. Financing initial construction. The 

exemption for construction loans in 

§ 226.43(b)(4) applies to temporary financing 

of the construction of a dwelling that will be 

replaced by permanent financing once 

construction is complete. The exemption 

does not apply, for example, to loans to 

finance the purchase of manufactured homes 

that have not been or are in the process of 

being built when the financing obtained by 

the consumer at that time is permanent. See 

§ 226.43(b)(8). 

Paragraph 43(b)(7)(i)(A) 

1. Same credit risk holder. The 

requirement that the holder of the credit risk 

on the existing obligation and the refinancing 

be the same applies to situations in which an 

entity bears the financial responsibility for 

the default of a loan by either holding the 

loan in its portfolio or guaranteeing payments 

of principal and any interest to investors in 

a mortgage-backed security in which the loan 

is pooled. See § 226.43(a)(4) (defining ‘‘credit 

risk’’). For example, a credit risk holder 

could be a bank that bears the credit risk on 

the existing obligation by holding the loan in 

the bank’s portfolio. Another example of a 

credit risk holder would be a governmentsponsored enterprise that bears the risk of 

default on a loan by guaranteeing the 

payment of principal and any interest on a 

loan to investors in a mortgage-backed 

security. The holder of credit risk under 

§ 226.43(b)(7)(i)(A) does not mean individual 

investors in a mortgage-backed security or 

providers of private mortgage insurance. 

2. Same credit risk holder—illustrations. 

Illustrations of the credit risk holder of the 

existing obligation continuing to be the credit 

risk holder of the refinancing include, but are 

not limited to, the following: 

i. The existing obligation is held in the 

portfolio of a bank, thus the bank holds the 

credit risk. The bank arranges to refinance 

the loan and also will hold the refinancing 

in its portfolio. If the refinancing otherwise 

meets the requirements for an exemption 

under § 226.43(b)(7), the transaction will 

qualify for the exemption because the credit 

risk holder is the same for the existing 

obligation and the refinance transaction. In 

this case, the exemption would apply 

regardless of whether the bank arranged to 

refinance the loan directly or indirectly, such 

as through the servicer or subservicer on the 

existing obligation. 

ii. The existing obligation is held in the 

portfolio of a government-sponsored 

enterprise (GSE), thus the GSE holds the 

credit risk. The existing obligation is then 

refinanced by the servicer of the loan and 

immediately transferred to the GSE. The GSE 

pools the refinancing in a mortgage-backed 

security guaranteed by the GSE, thus the GSE 

holds the credit risk on the refinance loan. 

If the refinance transaction otherwise meets 

the requirements for an exemption under 

§ 226.43(b)(7), the transaction will qualify for 

the exemption because the credit risk holder 

is the same for the existing obligation and the 

refinance transaction. In this case, the 

exemption would apply regardless of 

whether the existing obligation was 

refinanced by the servicer or subservicer on 

the existing obligation (acting as a ‘‘creditor’’ 

under § 1026.2(a)(17)) or by a different 

creditor. 

3. Forward commitments. A creditor may 

make a mortgage loan that will be sold or 

otherwise transferred pursuant to an 

agreement that has been entered into at or 

before the time the transaction is 

consummated. Such an agreement is 

sometimes known as a ‘‘forward 

commitment.’’ A refinance loan does not 

satisfy the requirement of § 226.43(b)(7)(i)(A) 

if the loan will be acquired pursuant to a 

forward commitment, such that the credit 

risk on the refinance loan will transfer to a 

person who did not hold the credit risk on 

the existing obligation. 

Paragraph 43(b)(7) 

Paragraph 43(b)(7)(ii) 

1. Regular periodic payments. Under 

§ 226.43(b)(7)(ii), the regular periodic 

payments on the refinance loan must not: 

result in an increase of the principal balance 

(negative amortization); allow the consumer 

to defer repayment of principal (see 12 CFR 

1026.43 and the Official Staff Interpretations 

to the Bureau’s Regulation Z, comment 

43(e)(2)(i)–2); or result in a balloon payment. 

Thus, the terms of the legal obligation must 

require the consumer to make payments of 

principal and interest on a monthly or other 

periodic basis that will repay the loan 

amount over the loan term. Except for 

payments resulting from any interest rate 

changes after consummation in an adjustablerate or step-rate mortgage, the periodic 

payments must be substantially equal. For an 

explanation of the term ‘‘substantially 

equal,’’ see 12 CFR 1026.43 and the Official 

Staff Interpretations to the Bureau’s 

Regulation Z, comment 43(c)(5)(i)–4. In 

addition, a single-payment transaction is not 

a refinancing meeting the requirements of 

§ 226.43(b)(7) because it does not require 

‘‘regular periodic payments.’’ 

Paragraph 43(b)(7)(iii) 

1. Permissible use of proceeds. The 

exemption for a refinancing under 

§ 226.43(b)(7) is available only if the 

proceeds from the refinancing are used 

exclusively for the existing obligation and 

amounts attributed solely to the costs of the 

refinancing. The existing obligation includes 

the unpaid principal balance of the existing 

first lien loan, any earned unpaid finance 

charges, and any other lawful charges related 

to the existing loan. For guidance on the 

meaning of refinancing costs, see 12 CFR 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 78585 

1026.23, the Official Staff Interpretations to 

the Bureau’s Regulations Z, comment 23(f)– 

4. If the proceeds of a refinancing are used 

for other purposes, such as to pay off other 

liens or to provide additional cash to the 

consumer for discretionary spending, the 

transaction does not qualify for the 

exemption for a refinancing under 

§ 226.43(b)(7) from the appraisal 

requirements in § 226.43. 

For applications received on or after July 18, 

2015 

Paragraph 43(b)(8) 

Paragraph 43(b)(8)(i) 

1. Secured by new manufactured home and 

land—physical visit of the interior. A 

transaction secured by a new manufactured 

home and land is subject to the requirements 

of § 226.43(c) through (f) except for the 

requirement in § 226.43(c)(1) that the 

appraiser conduct a physical inspection of 

the interior of the property. Thus, for 

example, a creditor of a loan secured by a 

new manufactured home and land could 

comply with § 226.43(c)(1) by obtaining an 

appraisal conducted by a state-certified or 

-licensed appraiser based on plans and 

specifications for the new manufactured 

home and an inspection of the land on which 

the property will be sited, as well as any 

other information necessary for the appraiser 

to complete the appraisal assignment in 

conformity with the Uniform Standards of 

Professional Appraisal Practice and the 

requirements of FIRREA and any 

implementing regulations. 

Paragraph 43(b)(8)(ii) 

1. Secured by a manufactured home and 

not land. Section 226.43(b)(8)(ii) applies to a 

higher-priced mortgage loan secured by a 

manufactured home and not land, regardless 

of whether the home is titled as realty by 

operation of State law. 

Paragraph 43(b)(8)(ii)(B) 

1. Independent. A cost service provider 

from which the creditor obtains a 

manufactured home unit cost estimate under 

§ 226.43(b)(8)(ii)(B) is ‘‘independent’’ if that 

person is not affiliated with the creditor in 

the transaction, such as by common 

corporate ownership, and receives no direct 

or indirect financial benefits based on 

whether the transaction is consummated. 

2. Adjustments. The requirement that the 

cost estimate be from an independent cost 

service provider does not prohibit a creditor 

from providing a cost estimate that reflects 

adjustments to account for factors such as 

special features, condition or location. 

However, the requirement that the estimate 

be obtained from an independent cost service 

provider means that any adjustments to the 

estimate must be based on adjustment factors 

available as part of the independent cost 

service used, with associated values that are 

determined by the independent cost service. 

Paragraph 43(b)(8)(ii)(C) 

1. Interest in the property. A person has a 

direct or indirect in the property if, for 

example, the person has any ownership or 

reasonably foreseeable ownership interest in 

the manufactured home. To illustrate, a 

person who seeks a loan to purchase the 

manufactured home to be valued has a 

reasonably foreseeable ownership interest in 

the property. 

2. Interest in the transaction. A person has 

a direct or indirect interest in the transaction 

if, for example, the person or an affiliate of 

that person also serves as a loan officer of the 

creditor or otherwise arranges the credit 

transaction, or is the retail dealer of the 

manufactured home. A person also has a 

prohibited interest in the transaction if the 

person is compensated or otherwise receives 

financial or other benefits based on whether 

the transaction is consummated. 

3. Training in valuing manufactured 

homes. Training in valuing manufactured 

homes includes, for example, successfully 

completing a course in valuing manufactured 

homes offered by a State or national 

appraiser association or receiving job training 

from an employer in the business of valuing 

manufactured homes. 

4. Manufactured home valuation— 

example. A valuation in compliance with 

§ 226.43(b)(8)(ii)(C) would include, for 

example, an appraisal of the manufactured 

home in accordance with the appraisal 

requirements for a manufactured home 

classified as personal property under the 

Title I Manufactured Home Loan Insurance 

Program of the U.S. Department of Housing 

and Urban Development, pursuant to section 

2(b)(10) of the National Housing Act, 12 

U.S.C. 1703(b)(10). 

* * * * * 

43(f)(2) Timing 

* * * * * 

2. No waiver. Regulation B, 12 CFR 

1002.14(a)(1), allowing the consumer to 

waive the requirement that the appraisal 

copy be provided three business days before 

consummation, does not apply to higherpriced mortgage loans subject to § 226.43. A 

consumer of a higher-priced mortgage loan 

subject to § 226.43 may not waive the timing 

requirement to receive a copy of the appraisal 

under § 226.43(f)(2). 

* * * * * 

Bureau of Consumer Financial 

Protection 

Authority and Issuance 

For the reasons stated above, the 

Bureau further amends Regulation Z, 12 

CFR part 1026, as amended February 13, 

2013 (78 FR 10368), as follows: 

PART 1026—TRUTH IN LENDING ACT 

(REGULATION Z) 

■ 10. 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 

■ 11a. Section 1026.35 is amended by; 

■ a. Revising the paragraph (c) subject 

heading and paragraphs (c)(1)(ii) 

through (iv); 

■ b. Adding paragraphs (c)(1)(v) through 

(vii); 

■ c. Revising paragraphs (c)(2) 

introductory text, (c)(2)(i) and (ii), and 

(v); and 

■ d. Adding paragraphs (c)(2)(vii) and 

(viii). 

The revisions and additions read as 

follows: 

§ 1026.35 Requirements for higher-priced 

mortgage loans. 

* * * * * 

(c) Appraisals—(1) * * * 

(ii) Credit risk means the financial risk 

that a consumer will default on a loan. 

(iii) Manufactured home has the same 

meaning as in 24 CFR 3280.2. 

(iv) Manufacturer’s invoice means a 

document issued by a manufacturer and 

provided with a manufactured home to 

a retail dealer that separately details the 

wholesale (base) prices at the factory for 

specific models or series of 

manufactured homes and itemized 

options (large appliances, built-in items 

and equipment), plus actual itemized 

charges for freight from the factory to 

the dealer’s lot or the homesite 

(including any rental of wheels and 

axles) and for any sales taxes to be paid 

by the dealer. The invoice may recite 

such prices and charges on an itemized 

basis or by stating an aggregate price or 

charge, as appropriate, for each 

category. 

(v) National Registry means the 

database of information about State 

certified and licensed appraisers 

maintained by the Appraisal 

Subcommittee of the Federal Financial 

Institutions Examination Council. 

(vi) New manufactured home means a 

manufactured home that has not been 

previously occupied. 

(vii) State agency means a ‘‘State 

appraiser certifying and licensing 

agency’’ recognized in accordance with 

section 1118(b) of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (12 U.S.C. 

3347(b)) and any implementing 

regulations. 

(2) Exemptions. Unless otherwise 

specified, the requirements in paragraph 

(c)(3) through (6) of this section do not 

apply to the following types of 

transactions: 

(i) A loan that satisfies the criteria of 

a qualified mortgage as defined 

pursuant to 15 U.S.C. 1639c; 

(ii) An extension of credit for which 

the amount of credit extended is equal 

to or less than the applicable threshold 

amount, which is adjusted every year to 

reflect increases in the Consumer Price 


tkelley on DSK3SPTVN1PROD with RULES2
78586 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

Index for Urban Wage Earners and 

Clerical Workers, as applicable, and 

published in the official staff 

commentary to this paragraph (c)(2)(ii); 

* * * * * 

(v) A loan with a maturity of 12 

months or less, if the purpose of the 

loan is a ‘‘bridge’’ loan connected with 

the acquisition of a dwelling intended to 

become the consumer’s principal 

dwelling. 

* * * * * 

(vii) An extension of credit that is a 

refinancing secured by a first lien, with 

refinancing defined as in § 1026.20(a) 

(except that the creditor need not be the 

original creditor or a holder or servicer 

of the original obligation), provided that 

the refinancing meets the following 

criteria: 

(A) Either— 

(1) The credit risk of the refinancing 

is retained by the person that held the 

credit risk of the existing obligation and 

there is no commitment, at 

consummation, to transfer the credit 

risk to another person; or 

(2) The refinancing is insured or 

guaranteed by the same Federal 

government agency that insured or 

guaranteed the existing obligation; 

(B) The regular periodic payments 

under the refinance loan do not— 

(1) Cause the principal balance to 

increase; 

(2) Allow the consumer to defer 

repayment of principal; or 

(3) Result in a balloon payment, as 

defined in § 1026.18(s)(5)(i); and 

(C) The proceeds from the refinancing 

are used solely to satisfy the existing 

obligation and amounts attributed solely 

to the costs of the refinancing; and 

(viii) A transaction secured in whole 

or in part by a manufactured home. 

■ 11b. Effective July 18, 2015, 

§ 1026.35(c)(2)(viii) is revised to read as 

follows: 

§ 1026.35 Requirements for higher-priced 

mortgage loans. 

* * * * * 

(c) * * * 

(2) * * * 

(viii) A transaction secured by: 

(A) A new manufactured home and 

land, but the exemption shall only 

apply to the requirement in paragraph 

(c)(3)(i) of this section that the appraiser 

conduct a physical visit of the interior 

of the new manufactured home; or 

(B) A manufactured home and not 

land, for which the creditor obtains one 

of the following and provides a copy to 

the consumer no later than three 

business days prior to consummation of 

the transaction— 

(1) For a new manufactured home, the 

manufacturer’s invoice for the 

manufactured home securing the 

transaction, provided that the date of 

manufacture is no earlier than 18 

months prior to the creditor’s receipt of 

the consumer’s application for credit; 

(2) A cost estimate of the value of the 

manufactured home securing the 

transaction obtained from an 

independent cost service provider; or 

(3) A valuation, as defined in 

§ 1026.42(b)(3), of the manufactured 

home performed by a person who has 

no direct or indirect interest, financial 

or otherwise, in the property or 

transaction for which the valuation is 

performed and has training in valuing 

manufactured homes. 

* * * * * 

■ 12. In Appendix N to part 1026, the 

introductory text is republished and 

paragraph 7 is revised to read as 

follows: 

Appendix N To Part 1026—HigherPriced Mortgage Loan Appraisal Safe 

Harbor Review 

To qualify for the safe harbor provided in 

§ 1026.35(c)(3)(ii), a creditor must confirm 

that the written appraisal: 

* * * * * 

7. Indicates that a physical property visit 

of the interior of the property was performed, 

as applicable. 

* * * * * 

■ 13. In Supplement I to part 1026, 

under Section 1026.35—Requirements 

for Higher Priced Mortgages Loans: 

■ a. The 35(c)(2) entry is amended by 

adding paragraph 1. 

■ b. A 35(c)(2)(i) entry is added. 

■ c. The 35(c)(2)(ii) entry is revised. 

■ d. The 35(c)(2)(iv) entry is amended 

by adding paragraph 2. 

■ e. A 35(c)(2)(vii)(A)(1) entry is added. 

■ f. Entries for 35(c)(2)(vii)(B) and (C) 

are added. 

■ g. Effective July 18, 2015, entries for 

35(c)(2)(viii)(A) and (B) are added. 

■ h. Effective July 18, 2015, a 

35(c)(2)(viii)(B)(2) entry is added. 

■ i. Effective July 18, 2015, a 

35(c)(2)(viii)(C)(3) entry is added. 

■ j. Under the 35(c)(6)(ii) entry, 

paragraph 2 is removed and paragraph 

3 is redesignated as paragraph 2. 

The revisions and additions read as 

follows: 

Supplement I to Part 1026—Official 

Interpretations 

* * * * * 

Subpart E—Special Rules for Certain Home 

Mortgage Transactions 

Section 1026.35—Requirements for HigherPriced Mortgage Loans 

* * * * * 

Paragraph 35(c)(2) Exemptions 

1. Compliance with title XI of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA). Section 

1026.35(c)(2) provides exemptions solely 

from the requirements of section 

1026.35(c)(3) through (6). Institutions subject 

to the requirements of FIRREA and its 

implementing regulations that make a loan 

qualifying for an exemption under section 

1026.35(c)(2) must still comply with 

appraisal and evaluation requirements under 

FIRREA and its implementing regulations. 

Paragraph 35(c)(2)(i) 

1. Qualified mortgage criteria. Under 

§ 1026.35(c)(2)(i), a loan is exempt from the 

appraisal requirements of § 1026.35(c) if 

either: 

i. The loan is—(1) subject to the Bureau’s 

ability-to-repay requirements in § 1026.43 as 

a ‘‘covered transaction’’ (defined in 

§ 1026.43(b)(1)) and (2) a qualified mortgage 

pursuant to the Bureau’s rules or, for loans 

insured, guaranteed, or administered by the 

U.S. Department of Housing and Urban 

Development (HUD), U.S. Department of 

Veterans Affairs (VA), U.S. Department of 

Agriculture (USDA), or Rural Housing 

Service (RHS), a qualified mortgage pursuant 

to applicable rules prescribed by those 

agencies (but only once such rules are in 

effect; otherwise, the Bureau’s definition of a 

qualified mortgage applies to those loans); or 

ii. The loan is—(1) not subject to the 

Bureau’s ability-to-repay requirements in 

§ 1026.43 as a ‘‘covered transaction’’ (defined 

in § 1026.43(b)(1)), but (2) meets the criteria 

for a qualified mortgage in the Bureau’s rules 

or, for loans insured, guaranteed, or 

administered by HUD, VA, USDA, or RHS, 

meets the criteria for a qualified mortgage in 

the applicable rules prescribed by those 

agencies (but only once such rules are in 

effect; otherwise, the Bureau’s criteria for a 

qualified mortgage applies to those loans). To 

explain further, loans enumerated in 

§ 1026.43(a) are not ‘‘covered transactions’’ 

under the Bureau’s ability-to-repay 

requirements in § 1026.43, and thus cannot 

be qualified mortgages (entitled to a 

rebuttable presumption or safe harbor of 

compliance with the ability-to-repay 

requirements of § 1026.43, see, e.g., 

§ 1026.43(e)(1)). These include an extension 

of credit made pursuant to a program 

administered by a Housing Finance Agency, 

as defined under 24 CFR 266.5, or pursuant 

to a program authorized by sections 101 and 

109 of the Emergency Economic Stabilization 

Act of 2008. See § 1026.43(a)(3)(iv) and (vi). 

They also include extensions of credit made 

by a creditor identified in § 1026.43(a)(3)(v). 

However, these loans are eligible for the 

exemption in § 1026.35(c)(2)(i) if they meet 

the Bureau’s qualified mortgage criteria in 

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

(including limits on when loans must be 

consummated) or, for loans that are insured, 

guaranteed, or administered by HUD, VA, 

USDA, or RHS, in applicable rules prescribed 

by those agencies (but only once such rules 

are in effect; otherwise, the Bureau’s criteria 

for a qualified mortgage applies to those 

loans). For example, assume that HUD has 

prescribed rules to define loans insured 


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under its programs that are qualified 

mortgages and those rules are in effect. 

Assume further that a creditor designated as 

a Community Development Financial 

Institution, as defined under 12 CFR 

1805.104(h), originates a loan insured by the 

Federal Housing Administration, which is a 

part of HUD. The loan is not a ‘‘covered 

transaction’’ and thus is not a qualified 

mortgage. See § 1026.43(a)(3)(v)(A) and (b)(1). 

Nonetheless, the transaction is eligible for an 

exemption from the appraisal requirements 

of § 1026.35(c) if it meets the qualified 

mortgage criteria in HUD’s rules. Nothing in 

§ 1026.35(c)(2)(i) alters the definition of a 

qualified mortgage under regulations of the 

Bureau, HUD, VA, USDA, or RHS. 

* * * * * 

Paragraph 35(c)(2)(ii) 

1. Threshold amount. For purposes of 

§ 1026.35(c)(2)(ii), the threshold amount in 

effect during a particular one-year period is 

the amount stated below for that period. The 

threshold amount is adjusted effective 

January 1 of every year by the percentage 

increase in the Consumer Price Index for 

Urban Wage Earners and Clerical Workers 

(CPI–W) that was in effect on the preceding 

June 1. Every year, this comment will be 

amended to provide the threshold amount for 

the upcoming one-year period after the 

annual percentage change in the CPI–W that 

was in effect on June 1 becomes available. 

Any increase in the threshold amount will be 

rounded to the nearest $100 increment. For 

example, if the percentage increase in the 

CPI–W would result in a $950 increase in the 

threshold amount, the threshold amount will 

be increased by $1,000. However, if the 

percentage increase in the CPI–W would 

result in a $949 increase in the threshold 

amount, the threshold amount will be 

increased by $900. 

i. From January 18, 2014, through 

December 31, 2014, the threshold amount is 

$25,000. 

2. Qualifying for exemption—in general. A 

transaction is exempt under 

§ 1026.35(c)(2)(ii) if the creditor makes an 

extension of credit at consummation that is 

equal to or below the threshold amount in 

effect at the time of consummation. 

3. Qualifying for exemption—subsequent 

changes. A transaction does not meet the 

condition for an exemption under 

§ 1026.35(c)(2)(ii) merely because it is used to 

satisfy and replace an existing exempt loan, 

unless the amount of the new extension of 

credit is equal to or less than the applicable 

threshold amount. For example, assume a 

closed-end loan that qualified for a 

§ 1026.35(c)(2)(ii) exemption at 

consummation in year one is refinanced in 

year ten and that the new loan amount is 

greater than the threshold amount in effect in 

year ten. In these circumstances, the creditor 

must comply with all of the applicable 

requirements of § 1026.35(c) with respect to 

the year ten transaction if the original loan 

is satisfied and replaced by the new loan, 

unless another exemption from the 

requirements of § 1026.35(c) applies. See 

§ 1026.35(c)(2) and § 1026.35(c)(4)(vii). 

* * * * * 

Paragraph 35(c)(2)(iv) 

* * * * * 

2. Financing initial construction. The 

exemption for construction loans in 

§ 1026.35(c)(2)(iv) applies to temporary 

financing of the construction of a dwelling 

that will be replaced by permanent financing 

once construction is complete. The 

exemption does not apply, for example, to 

loans to finance the purchase of 

manufactured homes that have not been or 

are in the process of being built when the 

financing obtained by the consumer at that 

time is permanent. See § 1026.35(c)(2)(viii). 

Paragraph 35(c)(2)(vii)(A)(1) 

1. Same credit risk holder. The 

requirement that the holder of the credit risk 

on the existing obligation and the refinancing 

be the same applies to situations in which an 

entity bears the financial responsibility for 

the default of a loan by either holding the 

loan in its portfolio or guaranteeing payments 

of principal and any interest to investors in 

a mortgage-backed security in which the loan 

is pooled. See § 1026.35(c)(1)(ii) (defining 

‘‘credit risk’’). For example, a credit risk 

holder could be a bank that bears the credit 

risk on the existing obligation by holding the 

loan in the bank’s portfolio. Another example 

of a credit risk holder would be a 

government-sponsored enterprise that bears 

the risk of default on a loan by guaranteeing 

the payment of principal and any interest on 

a loan to investors in a mortgage-backed 

security. The holder of credit risk under 

§ 1026.35(c)(2)(vii)(A)(1) does not mean 

individual investors in a mortgage-backed 

security or providers of private mortgage 

insurance. 

2. Same credit risk holder—illustrations. 

Illustrations of the credit risk holder of the 

existing obligation continuing to be the credit 

risk holder of the refinancing include, but are 

not limited to, the following: 

i. The existing obligation is held in the 

portfolio of a bank, thus the bank holds the 

credit risk. The bank arranges to refinance 

the loan and also will hold the refinancing 

in its portfolio. If the refinancing otherwise 

meets the requirements for an exemption 

under § 1026.35(c)(2)(vii), the transaction 

will qualify for the exemption because the 

credit risk holder is the same for the existing 

obligation and the refinance transaction. In 

this case, the exemption would apply 

regardless of whether the bank arranged to 

refinance the loan directly or indirectly, such 

as through the servicer or subservicer on the 

existing obligation. 

ii. The existing obligation is held in the 

portfolio of a government-sponsored 

enterprise (GSE), thus the GSE holds the 

credit risk. The existing obligation is then 

refinanced by the servicer of the loan and 

immediately transferred to the GSE. The GSE 

pools the refinancing in a mortgage-backed 

security guaranteed by the GSE, thus the GSE 

holds the credit risk on the refinance loan. 

If the refinance transaction otherwise meets 

the requirements for an exemption under 

§ 1026.35(c)(2)(vii), the transaction will 

qualify for the exemption because the credit 

risk holder is the same for the existing 

obligation and the refinance transaction. In 

this case, the exemption would apply 

regardless of whether the existing obligation 

was refinanced by the servicer or subservicer 

on the existing obligation (acting as a 

‘‘creditor’’ under § 1026.2(a)(17)) or by a 

different creditor. 

3. Forward commitments. A creditor may 

make a mortgage loan that will be sold or 

otherwise transferred pursuant to an 

agreement that has been entered into at or 

before the time the transaction is 

consummated. Such an agreement is 

sometimes known as a ‘‘forward 

commitment.’’ A refinance loan does not 

satisfy the requirement of 

§ 1026.35(c)(2)(vii)(A)(1) if the loan will be 

acquired pursuant to a forward commitment, 

such that the credit risk on the refinance loan 

will transfer to a person who did not hold the 

credit risk on the existing obligation. 

Paragraph 35(c)(2)(vii)(B) 

1. Regular periodic payments. Under 

§ 1026.35(c)(2)(vii)(B), the regular periodic 

payments on the refinance loan must not: 

result in an increase of the principal balance 

(negative amortization); allow the consumer 

to defer repayment of principal (see comment 

43(e)(2)(i)–2); or result in a balloon payment. 

Thus, the terms of the legal obligation must 

require the consumer to make payments of 

principal and interest on a monthly or other 

periodic basis that will repay the loan 

amount over the loan term. Except for 

payments resulting from any interest rate 

changes after consummation in an adjustablerate or step-rate mortgage, the periodic 

payments must be substantially equal. For an 

explanation of the term ‘‘substantially 

equal,’’ see comment 43(c)(5)(i)–4. In 

addition, a single-payment transaction is not 

a refinancing meeting the requirements of 

§ 1026.35(c)(2)(vii) because it does not 

require ‘‘regular periodic payments.’’ 

Paragraph 35(c)(2)(vii)(C) 

1. Permissible use of proceeds. The 

exemption for a refinancing under 

§ 1026.35(c)(2)(vii) is available only if the 

proceeds from the refinancing are used 

exclusively for the existing obligation and 

amounts attributed solely to the costs of the 

refinancing. The existing obligation includes 

the unpaid principal balance of the existing 

first lien loan, any earned unpaid finance 

charges, and any other lawful charges related 

to the existing loan. For guidance on the 

meaning of refinancing costs, see comment 

23(f)–4. If the proceeds of a refinancing are 

used for other purposes, such as to pay off 

other liens or to provide additional cash to 

the consumer for discretionary spending, the 

transaction does not qualify for the 

exemption for a refinancing under 

§ 1026.35(c)(2)(vii) from the appraisal 

requirements in § 1026.35(c). 

For applications received on or after July 18, 

2015 

Paragraph 35(c)(2)(viii)(A) 

1. Secured by new manufactured home and 

land—physical visit of the interior. A 

transaction secured by a new manufactured 

home and land is subject to the requirements 

of § 1026.35(c)(3) through (6) except for the 

requirement in § 1026.35(c)(3)(i) that the 

appraiser conduct a physical inspection of 

the interior of the property. Thus, for 


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78588 Federal Register / Vol. 78, No. 248 / Thursday, December 26, 2013 / Rules and Regulations 

example, a creditor of a loan secured by a 

new manufactured home and land could 

comply with § 1026.35(c)(3)(i) by obtaining 

an appraisal conducted by a state-certified or 

-licensed appraiser based on plans and 

specifications for the new manufactured 

home and an inspection of the land on which 

the property will be sited, as well as any 

other information necessary for the appraiser 

to complete the appraisal assignment in 

conformity with the Uniform Standards of 

Professional Appraisal Practice and the 

requirements of FIRREA and any 

implementing regulations. 

Paragraph 35(c)(2)(viii)(B) 

1. Secured by a manufactured home and 

not land. Section 1026.35(c)(2)(viii)(B) 

applies to a higher-priced mortgage loan 

secured by a manufactured home and not 

land, regardless of whether the home is titled 

as realty by operation of state law. 

Paragraph 35(c)(2)(viii)(B)(2) 

1. Independent. A cost service provider 

from which the creditor obtains a 

manufactured home unit cost estimate under 

§ 1026.35(c)(2)(viii)(B)(2) is ‘‘independent’’ if 

that person is not affiliated with the creditor 

in the transaction, such as by common 

corporate ownership, and receives no direct 

or indirect financial benefits based on 

whether the transaction is consummated. 

2. Adjustments. The requirement that the 

cost estimate be from an independent cost 

service provider does not prohibit a creditor 

from providing a cost estimate that reflects 

adjustments to account for factors such as 

special features, condition or location. 

However, the requirement that the estimate 

be obtained from an independent cost service 

provider means that any adjustments to the 

estimate must be based on adjustment factors 

available as part of the independent cost 

service used, with associated values that are 

determined by the independent cost service. 

Paragraph 35(c)(2)(viii)(C)(3) 

1. Interest in the property. A person has a 

direct or indirect in the property if, for 

example, the person has any ownership or 

reasonably foreseeable ownership interest in 

the manufactured home. To illustrate, a 

person who seeks a loan to purchase the 

manufactured home to be valued has a 

reasonably foreseeable ownership interest in 

the property. 

2. Interest in the transaction. A person has 

a direct or indirect interest in the transaction 

if, for example, the person or an affiliate of 

that person also serves as a loan officer of the 

creditor or otherwise arranges the credit 

transaction, or is the retail dealer of the 

manufactured home. A person also has a 

prohibited interest in the transaction if the 

person is compensated or otherwise receives 

financial or other benefits based on whether 

the transaction is consummated. 

3. Training in valuing manufactured 

homes. Training in valuing manufactured 

homes includes, for example, successfully 

completing a course in valuing manufactured 

homes offered by a state or national appraiser 

association or receiving job training from an 

employer in the business of valuing 

manufactured homes. 

4. Manufactured home valuation— 

example. A valuation in compliance with 

§ 1026.35(c)(2)(viii)(B)(3) would include, for 

example, an appraisal of the manufactured 

home in accordance with the appraisal 

requirements for a manufactured home 

classified as personal property under the 

Title I Manufactured Home Loan Insurance 

Program of the U.S. Department of Housing 

and Urban Development, pursuant to section 

2(b)(10) of the National Housing Act, 12 

U.S.C. 1703(b)(10). 

* * * * * 

Dated: December 10, 2013. 

Thomas J. Curry, 

Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System, December 11, 2013. 

Robert deV. Frierson, 

Secretary of the Board. 

Dated: December 10, 2013. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

In consultation with: 

By the National Credit Union 

Administration Board on December 10, 2013. 

Gerard Poliquin, 

Secretary of the Board. 

Dated at Washington, DC, this 10th day of 

December, 2013. 

By order of the Board of Directors. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

Dated: December 9, 2013. 

Edward J. DeMarco, 

Acting Director, Federal Housing Finance 

Agency. 

[FR Doc. 2013–30108 Filed 12–18–13; 4:15 pm] 

BILLING CODE 4810–33–P 


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