Vol. 78 Thursday, 

No. 153 August 8, 2013 

Part II 

Department of the Treasury 

Office of the Comptroller of the Currency 

12 CFR Part 34 

Board of Governors of the Federal Reserve 

System 

12 CFR Part 226 

Bureau of Consumer Financial Protection 

12 CFR Part 1026 

Appraisals for Higher-Priced Mortgage Loans—Supplemental Proposal; 

Proposed Rule 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

48548 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

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—Supplemental Proposal 

AGENCIES: 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: Proposed rule; request for 

public comment. 

SUMMARY: The Board, Bureau, FDIC, 

FHFA, NCUA, and OCC (collectively, 

the Agencies) are proposing to amend 

Regulation Z, which implements the 

Truth in Lending Act (TILA), and the 

official interpretation to the regulation. 

This proposal relates to a final rule 

issued by the Agencies on January 18, 

2013 (2013 Interagency Appraisals Final 

Rule or Final Rule), which goes into 

effect on January 18, 2014. The 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 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 

Agencies are proposing amendments to 

the Final Rule implementing these 

requirements; specifically, the Agencies 

are proposing 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: Comments must be received on 

or before September 9, 2013, except that 

comments on the Paperwork Reduction 

Act analysis in part VIII of the 

Supplementary Information must be 

received on or before October 7, 2013. 

ADDRESSES: Interested parties are 

encouraged to submit written comments 

jointly to all of the Agencies. 

Commenters are encouraged to use the 

title ‘‘Appraisals for Higher-Priced 

Mortgage Loans—Supplemental 

Proposal’’ to facilitate the organization 

and distribution of comments among the 

Agencies. Commenters also are 

encouraged to identify the number of 

the specific question for comment to 

which they are responding. Interested 

parties are invited to submit written 

comments to: 

Board: You may submit comments, 

identified by Docket No. R–1443 or RIN 

7100–AD90, by any of the following 

methods: 

• Agency Web site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Email: 

regs.comments@federalreserve.gov. 

Include the docket number in the 

subject line of the message. 

• Fax: (202) 452–3819 or (202) 452– 

3102. 

• Mail: Address to Robert deV. 

Frierson, Secretary, Board of Governors 

of the Federal Reserve System, 20th 

Street and Constitution Avenue NW., 

Washington, DC 20551. 

All public comments will be made 

available on the Board’s Web site at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm as 

submitted, unless modified for technical 

reasons. Accordingly, comments will 

not be edited to remove any identifying 

or contact information. Public 

comments may also be viewed 

electronically or in paper in Room MP– 

500 of the Board’s Martin Building (20th 

and C Streets NW., Washington, DC 

20551) between 9:00 a.m. and 5:00 p.m. 

on weekdays. 

Bureau: You may submit comments, 

identified by Docket No. CFPB–2013– 

0020 or RIN 3170–AA11, by any of the 

following methods: 

• Electronic: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: Monica Jackson, Office of the 

Executive Secretary, Bureau of 

Consumer Financial Protection, 1700 G 

Street NW., Washington, DC 20552. 

• Hand Delivery/Courier in Lieu of 

Mail: Monica Jackson, Office of the 

Executive Secretary, Bureau of 

Consumer Financial Protection, 1700 G 

Street NW., Washington, DC 20552. 

All submissions must include the 

agency name and docket number or 

Regulatory Information Number (RIN) 

for this rulemaking. In general, all 

comments received will be posted 

without change to http:// 

www.regulations.gov. In addition, 

comments will be available for public 

inspection and copying at 1700 G Street 

NW., Washington, DC 20552, on official 

business days between the hours of 10 

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

make an appointment to inspect the 

documents by telephoning (202) 435– 

7275. 

All comments, including attachments 

and other supporting materials, will 

become part of the public record and 

subject to public disclosure. Sensitive 

personal information, such as account 

numbers or social security numbers, 

should not be included. Comments will 

not be edited to remove any identifying 

or contact information. 

FDIC: You may submit comments by 

any of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Agency Web site: http:// 

www.FDIC.gov/regulations/laws/ 

federal/propose.html. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments/Legal 

ESS, Federal Deposit Insurance 

Corporation, 550 17th Street NW., 

Washington, DC 20429. 

• Hand Delivered/Courier: The guard 

station at the rear of the 550 17th Street 

Building (located on F Street), on 

business days between 7:00 a.m. and 

5:00 p.m. 

• Email: comments@FDIC.gov. 

Comments submitted must include 

‘‘FDIC’’ and ‘‘Truth in Lending Act 

(Regulation Z).’’ Comments received 

will be posted without change to 

http://www.FDIC.gov/regulations/laws/ 

federal/propose.html, including any 

personal information provided. 

FHFA: You may submit your 

comments, identified by regulatory 

information number (RIN) 2590–AA58, 

by any of the following methods: 

• Email: Comments to Alfred M. 

Pollard, General Counsel, may be sent 

by email to RegComments@fhfa.gov. 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 48549 

Please include ‘‘RIN 2590–AA58’’ in the 

subject line of the message. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. If 

you submit your comment to the 

Federal eRulemaking Portal, please also 

send it by email to FHFA at 

RegComments@fhfa.gov to ensure 

timely receipt by the Agency. Please 

include ‘‘RIN 2590–AA58’’ in the 

subject line of the message. 

• Hand Delivered/Courier: The hand 

delivery address is: Alfred M. Pollard, 

General Counsel, Attention: Comments/ 

RIN 2590–AA58, Federal Housing 

Finance Agency, Eighth Floor, 400 

Seventh Street SW., Washington, DC 

20024. The package should be logged in 

at the Guard Desk, First Floor, on 

business days between 9 a.m. and 5 p.m. 

• U.S. Mail, United Parcel Service, 

Federal Express, or Other Mail Service: 

The mailing address for comments is: 

Alfred M. Pollard, General Counsel, 

Attention: Comments/RIN 2590–AA58, 

Federal Housing Finance Agency, 

Eighth Floor, 400 Seventh Street SW., 

Washington, DC 20024. 

Copies of all comments will be posted 

without change, including any personal 

information you provide, such as your 

name, address, email address, and 

phone number, on the FHFA Internet 

Web site at http://www.fhfa.gov. In 

addition, copies of all comments 

received will be available for 

examination by the public on business 

days between the hours of 10 a.m. and 

3 p.m., Eastern Time, at the Federal 

Housing Finance Agency, Eighth Floor, 

400 Seventh Street SW., Washington, 

DC 20024. To make an appointment to 

inspect comments, please call the Office 

of General Counsel at (202) 649–3804. 

NCUA: You may submit comments, 

identified by RIN 3133–AE21, by any of 

the following methods (Please send 

comments by one method only): 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• NCUA Web site: http:// 

www.ncua.gov/Legal/Regs/Pages/ 

PropRegs.aspx. Follow the instructions 

for submitting comments. 

• Email: Address to 

regcomments@ncua.gov. Include ‘‘[Your 

name] Comments on Appraisals for 

Higher-Priced Mortgage Loans— 

Supplemental Proposal’’ in the email 

subject line. 

• Fax: (703) 518–6319. Use the 

subject line described above for email. 

• Mail: Address to Mary Rupp, 

Secretary of the Board, National Credit 

Union Administration, 1775 Duke 

Street, Alexandria, Virginia 22314– 

3428. 

• Hand Delivery/Courier in Lieu of 

Mail: Same as mail address. 

You can view all public comments on 

NCUA’s Web site at http:// 

www.ncua.gov/Legal/Regs/Pages/ 

PropRegs.aspx as submitted, except for 

those we cannot post for technical 

reasons. NCUA will not edit or remove 

any identifying or contact information 

from the public comments submitted. 

You may inspect paper copies of 

comments in NCUA’s law library at 

1775 Duke Street, Alexandria, Virginia 

22314, by appointment weekdays 

between 9:00 a.m. and 3:00 p.m. To 

make an appointment, call (703) 518– 

6546 or send an email to 

OGCMail@ncua.gov. 

OCC: Because paper mail in the 

Washington, DC area and at the OCC is 

subject to delay, commenters are 

encouraged to submit comments by the 

Federal eRulemaking Portal or email, if 

possible. Please use the title ‘‘Appraisals 

for Higher-Priced Mortgage Loans— 

Supplemental Proposal’’ to facilitate the 

organization and distribution of the 

comments. You may submit comments 

by any of the following methods: 

• Federal eRulemaking Portal— 

‘‘regulations.gov’’: Go to http:// 

www.regulations.gov. Enter ‘‘Docket ID 

OCC–2013–0009’’ in the Search Box and 

click ‘‘Search’’. Results can be filtered 

using the filtering tools on the left side 

of the screen. Click on ‘‘Comment Now’’ 

to submit public comments. 

• Click on the ‘‘Help’’ tab on the 

Regulations.gov home page to get 

information on using Regulations.gov, 

including instructions for submitting 

public comments. 

• Email: 

regs.comments@occ.treas.gov. 

• Mail: Legislative and Regulatory 

Activities Division, Office of the 

Comptroller of the Currency, 400 7th 

Street SW., Suite 3E–218, Mail Stop 

9W–11, Washington, DC 20219. 

• Hand Delivery/Courier: 400 7th 

Street SW., Suite 3E–218, Mail Stop 

9W–11, Washington, DC 20219. 

• Fax: (571) 465–4326. 

Instructions: You must include 

‘‘OCC’’ as the agency name and ‘‘Docket 

ID OCC–2013–0009’’ in your comment. 

In general, OCC will enter all comments 

received into the docket and publish 

them on the Regulations.gov Web site 

without change, including any business 

or personal information that you 

provide such as name and address 

information, email addresses, or phone 

numbers. Comments received, including 

attachments and other supporting 

materials, are part of the public record 

and subject to public disclosure. Do not 

enclose any information in your 

comment or supporting materials that 

you consider confidential or 

inappropriate for public disclosure. 

You may review comments and other 

related materials that pertain to this 

rulemaking action by any of the 

following methods: 

• Viewing Comments Electronically: 

Go to http://www.regulations.gov. Enter 

‘‘Docket ID OCC–2013–0009’’ in the 

Search box and click ‘‘Search.’’ 

Comments can be filtered by Agency 

using the filtering tools on the left side 

of the screen. 

• Click on the ‘‘Help’’ tab on the 

Regulations.gov home page to get 

information on using Regulations.gov, 

including instructions for viewing 

public comments, viewing other 

supporting and related materials, and 

viewing the docket after the close of the 

comment period. 

• Viewing Comments Personally: You 

may personally inspect and photocopy 

comments at the OCC, 400 7th Street 

SW., Washington, DC. For security 

reasons, the OCC requires that visitors 

make an appointment to inspect 

comments. You may do so by calling 

(202) 649–6700. Upon arrival, visitors 

will be required to present valid 

government-issued photo identification 

and to submit to security screening in 

order to inspect and photocopy 

comments. 

Docket: You may also view or request 

available background documents and 

project summaries using the methods 

described above. 

FOR FURTHER INFORMATION CONTACT: 

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, (202) 452–3852, Board of 

Governors of the Federal Reserve 

System, Washington, DC 20551. 

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. 

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. 

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48550 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

1For 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). 

2See 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). 

3Public Law 111–203, 124 Stat. 1376 (DoddFrank Act). 

FHFA: Susan Cooper, Senior Policy 

Analyst, (202) 649–3121, Lori Bowes, 

Policy Analyst, Office of Housing and 

Regulatory Policy, (202) 649–3111, 

Ming-Yuen Meyer-Fong, Assistant 

General Counsel, Office of General 

Counsel, (202) 649–3078, Federal 

Housing Finance Agency, 400 Seventh 

Street SW., Washington, DC, 20024. 

NCUA: John Brolin and Pamela Yu, 

Staff Attorneys, or Frank Kressman, 

Associate General Counsel, 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. 

OCC: Robert L. Parson, Appraisal 

Policy Specialist, (202) 649–6423, G. 

Kevin Lawton, Appraiser (Real Estate 

Specialist), (202) 649–7152, Carolyn B. 

Engelhardt, Bank Examiner (Risk 

Specialist—Credit), (202) 649–6404, 

Charlotte M. Bahin, Senior Counsel or 

Mitchell Plave, Special Counsel, 

Legislative & Regulatory Activities 

Division, (202) 649–5490, Krista 

LaBelle, Special Counsel, Community 

and Consumer Law Division, (202) 649– 

6350, or 400 Seventh Street SW., 

Washington DC 20219. 

SUPPLEMENTARY INFORMATION: 

I. Summary of the Proposed 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 the 2013 

Interagency Appraisals Final Rule 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 may be appropriate. 

Specifically, the Agencies are proposing 

an exemption 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 

solicit comment on these proposed 

exemptions. In addition, the Agencies 

are proposing a different definition of 

‘‘business day’’ than the definition used 

in the Final Rule, as well as a few nonsubstantive technical corrections. 

A. Proposed Exemption for Transactions 

Secured Solely by an Existing 

Manufactured Home and Not Land 

The Agencies propose to exempt 

transactions secured solely by an 

existing (used) manufactured home and 

not land from the HPML appraisal 

requirements, but seek comment on 

whether an alternative valuation type 

should be required. 

The Agencies propose to retain 

coverage of loans secured by existing 

manufactured homes and land. The 

Agencies also propose to retain the 

exemption for transactions secured by 

new manufactured homes, but are 

seeking further comment on the scope of 

this exemption and whether certain 

conditions on the exemption might be 

appropriate. 

B. Proposed Exemption for Certain 

Refinancings 

The Agencies are also proposing to 

exempt from the HPML appraisal rules 

certain types of refinancings with 

characteristics common to refinance 

products often referred to as 

‘‘streamlined’’ refinances. Specifically, 

the Agencies propose 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. 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 outstanding 

principal balance on the existing 

obligation and to pay closing or 

settlement charges. 

C. Proposed Exemption for Extensions 

of Credit of $25,000 or Less 

Finally, the Agencies are also 

proposing an exemption from the HPML 

appraisal rules for extensions of credit 

of $25,000 or less, indexed every year 

for inflation. 

D. Effective Date 

The Agencies intend that exemptions 

adopted as a result of this supplemental 

proposal will be effective on January 18, 

2014, the same date on which the Final 

Rule will become effective. In the 

section-by-section analysis below, the 

Agencies request comment on a number 

of conditions that might be appropriate 

to require creditors to meet to qualify for 

the proposed exemptions. If the 

Agencies adopt any conditions on an 

exemption, the Agencies will consider 

establishing a later effective date for 

those conditions, to allow creditors 

sufficient time to adjust their 

compliance systems, if necessary. 

Question 1: The Agencies request 

comment on the need for a later 

effective date for any condition on a 

proposed exemption discussed in the 

section-by-section analysis below, and 

the appropriate effective date for those 

conditions. 

II. Background 

In general, the Truth in Lending Act 

(TILA), 15 U.S.C. 1601 et seq., 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.1 15 U.S.C. 1604(a). 

For most types of creditors and most 

provisions of the 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 Final 

Rule, the new appraisal section of TILA 

addressed in the 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 2013 

Interagency Appraisals Final Rule and 

corresponding official interpretations 

are substantively identical. The FDIC, 

NCUA, and FHFA adopted the Bureau’s 

version of the regulations under the 

Final Rule.2

The Dodd-Frank Act 3 was signed into 

law on July 21, 2010. Section 1471 of 

the Dodd-Frank Act’s Title XIV, Subtitle 

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Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 48551 

4See Dodd-Frank Act section 1401; TILA section 

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

‘‘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). 

5Added 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. 

6The 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). 

7 78 FR 6408 (Jan. 30, 2013). 

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’’4 secured 

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. 

The Agencies published proposed 

regulations for public comment on 

September 5, 2012, that would 

implement these higher-risk mortgage 

appraisal provisions (2012 Interagency 

Appraisals Proposed Rule or 2012 

Proposed Rule). 77 FR 54722 (Sept. 5, 

2012). The Agencies issued the 2013 

Interagency Appraisals 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). 

III. Summary of the 2013 Interagency 

Appraisals Final Rule 

A. Loans Covered 

To implement the statutory definition 

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

Rule used the term ‘‘higher-priced 

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 Dodd-Frank Act. In response to 

commenters, the Agencies used the term 

HPML to refer generally to the loans that 

could be subject to the 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. The term ‘‘higher-risk mortgage’’ 

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.5 Specifically, 

consistent with TILA section 129H, a 

loan is an HPML under the 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.6

Consistent with TILA, the Final Rule 

exempts ‘‘qualified mortgages’’ from the 

requirements of the rule. Qualified 

mortgages are 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).7 15 U.S.C. 

1639c. 

In addition, the Interagency 

Appraisals 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. 

B. Requirements That Apply to All 

Appraisals Performed for Non-Exempt 

HPMLs 

Consistent with TILA, the Final Rule 

allows a creditor to originate an HPML 

that is not exempt from the Final Rule 

only if the following conditions are met: 

• The creditor obtains a written 

appraisal; 

• The appraisal is performed by a 

certified or licensed appraiser; and 

• The appraiser conducts a physical 

property visit of the interior of the 

property. 

Also consistent with TILA, the 

following requirements also apply with 

respect to HPMLs subject to the Final 

Rule: 

• At application, the consumer must 

be provided with a statement regarding 

the purpose of the appraisal, that the 

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48552 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

8 If the Agencies do not adopt the proposed 

definition of ‘‘business day,’’ the definition that 

would apply would be ‘‘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). 

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. 

C. Requirement To Obtain an 

Additional Appraisal in Certain HPML 

Transactions 

In addition, the 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 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 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 are publishing this Proposed 

Rule. 

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 of the proposed provisions that 

would be published in the Bureau’s 

Regulation Z at 12 CFR 1026.35(c). As 

explained in the Final Rule, separate 

versions of the regulations and 

accompanying commentary were issued 

as part of the 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 proposed provisions are 

separately published in the HPML 

appraisal regulations of the OCC, the 

Board, and the Bureau. No substantive 

difference among the three sets of 

proposed rules is intended. 

Section 1026.2 Definitions and Rules 

of Construction 

2(a) Definitions 

2(a)(6) Business Day 

The term ‘‘business day’’ is used with 

respect to two requirements in the Final 

Rule. First, the 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 

a higher-priced mortgage loan’’ subject 

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

(ii). Second, the Final Rule requires the 

creditor to provide to the consumer a 

copy of each written appraisal obtained 

under the Final Rule ‘‘[n]o later than 

three business days prior to 

consummation of the loan.’’ 

§ 1026.35(6)(i) and (ii). 

The Agencies propose to define 

‘‘business day’’ in the Final Rule 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 propose 

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 

mortgages 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 propose to align the definition 

of ‘‘business day’’ under the Final Rule 

with the definition of ‘‘business day’’ for 

these disclosures is 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).8

The proposed definition of ‘‘business 

day’’ is also 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 require the creditor to 

deliver the early mortgage disclosures 

‘‘not later than the third business day 

after the creditor receives the 

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Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 48553 

9The Final Rule also exempts qualified 

mortgages; reverse mortgage loans; transactions 

secured by a mobile home, boat, or trailer; 

transactions to finance the initial construction of a 

dwelling; and 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. See § 1026.35(c)(2). 

10 78 FR 10368, 10379–80 (Feb. 13, 2013). 

11See, 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 10 

(reporting that ‘‘[c]hattel loans typically feature 

higher interest rates than mortgages: current rates 

range between 6% and 14%, depending on the 

borrower’s credit history and the size of the 

downpayment, compared to 2.5% to 5% for 

mortgages at the present time.’’). This report is 

available at http://cfed.org/assets/pdfs/IM_HOME_

Loan_Data_Collection_Project_Report.pdf. 

consumer’s application.’’ Proposed 

§ 1026.19(e)(1)(iii). The 2012 TILA– 

RESPA Proposal would require the final 

mortgage disclosures ‘‘not later than 

three business days before 

consummation.’’ Proposed 

§ 1026.19(f)(1)(ii). For these purposes, 

‘‘business day’’ would be defined as the 

Agencies propose to define ‘‘business 

day’’ in the Final Rule. 

If the Bureau adopts this aspect of the 

2012 TILA–RESPA Proposal, then using 

the proposed definition of ‘‘business 

day’’ in the Final 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). 

This would also ensure that the copy of 

the HPML appraisal and the final 

mortgage disclosures have to be 

provided at the same time (no later than 

three ‘‘business days’’ before 

consummation). The Agencies believe 

that this alignment will facilitate 

compliance and reduce consumer 

confusion by reducing the number of 

disclosures that consumers might 

receive at different times. 

Section 1026.35 Requirements for 

Higher-Priced Mortgage Loans 

35(c) Appraisals for Higher-Priced 

Mortgage Loans 

35(c)(2) Exemptions 

35(c)(2)(i) 

Qualified Mortgages 

By statute, qualified mortgages ‘‘as 

defined in [TILA] section 129C’’ are 

exempt from the special appraisal rules 

for ‘‘higher-risk 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 

Interagency Appraisals 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 

defined qualified mortgage under 

authority granted to the Bureau to issue 

ability-to-repay rules and define 

qualified mortgage. 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 propose to revise 

the cross-referenced definition of 

qualified mortgage 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 the U.S. 

Department of Housing and Urban 

Development (HUD), U.S. Department of 

Veterans Affairs (VA), 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 

recognize that HUD, VA, USDA, and 

RHS may issue rules defining qualified 

mortgages pursuant to their TILA 

section 129C authority. Therefore, the 

Agencies propose 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. 

Question 2: The Agencies request 

comment on this proposed revision. 

35(c)(2)(ii) 

35(c)(2)(ii)(A) 

Loans Secured by a New Manufactured 

Home 

In the Final Rule, the Agencies 

exempted several classes of loans from 

the HPML appraisal rules, including 

transactions secured by a ‘‘new 

manufactured home.’’ 9

§ 1026.35(c)(2)(ii). The exemption for 

transactions secured by a new 

manufactured home applies regardless 

of whether the transaction is also 

secured by the land on which it is sited. 

See comment 35(c)(2)(ii)–1. The reasons 

for the exemption were discussed in the 

Final Rule.10 The Agencies’ general 

rationale was that alternative means for 

valuing new manufactured homes exist 

that, based upon the Agencies’ 

understanding of historical practice, 

appeared more appropriate for these 

types of transactions. The Final Rule did 

not address loans secured by ‘‘existing’’ 

(used) manufactured homes, which are, 

therefore, subject to the appraisal 

requirements unless the Agencies adopt 

an exemption. 

The Agencies propose to retain the 

exemption for transactions secured by 

new manufactured homes in renumbered § 1026.35(c)(2)(ii)(A), but are 

seeking further comment on the scope of 

this exemption and whether certain 

conditions on the exemption might be 

appropriate. The Agencies further 

propose to re-number and revise 

comment 35(c)(2)(ii)–1 as proposed 

comment 35(c)(2)(ii)(A)–1. The 

proposed revisions to this comment are 

for clarity only; no substantive change is 

intended. 

Loans secured solely by a new 

manufactured home and not land. As 

noted previously, the Final Rule 

exempted HPMLs secured solely by a 

new manufactured home and not land 

from the HPML appraisal rules—thus, 

the Final Rule applies no valuation 

requirement to these transactions. 

Question 3: However, based on 

additional research and outreach, the 

Agencies seek comment on whether 

consumers in these transactions would 

benefit by receiving from the creditor a 

unit value estimate from an objective 

third-party source, such as an 

independent cost guide. 

Since the Final Rule was issued, 

consumer advocates have expressed 

concerns that some transactions in the 

lending channel for new home-only 

(chattel) transactions can result in 

consumers owing more than the 

manufactured home is worth. For this 

type of loan, consumer and affordable 

housing advocates assert 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. Advocates have 

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 have also 

noted that that chattel manufactured 

home loan transactions tend to have 

much higher rates than conventional 

mortgage loans.11 Some consumer 

advocates have 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 questions 

about the transaction. Consumer 

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12The National Automobile Dealers Association 

(NADA) Manufactured Housing Cost Guide 

provides for adjustments based on, among other 

factors, the state in which the home is located and 

the quality of the land-lease community in which 

the home is located, if applicable. See 

NADAguides.com Value Report, available at 

www.nadaguides.com/Manufactured-Homes/ 

images/forms/MHOnlineSample.pdf. 

13See 77 FR 54722, 54732–33 (Sept. 5, 2012). 

14Unless the manufactured home alone, without 

land, is titled as real property under state law, loans 

secured solely by a manufactured home are not 

subject to the early disclosure requirements under 

Regulation Z, 12 CFR 1026.19, because they are not 

subject to RESPA. See § 1026.19(a)(1)(i) and 12 CFR 

1024.2 (defining ‘‘federally related mortgage loan’’ 

to include only loans secured by residential real 

property). Therefore, the Agencies believe that in 

some chattel transactions, the time between 

application and consummation may be relatively 

short. 

15The Bureau’s new Regulation B valuation 

disclosure rules under the Equal Credit Opportunity 

Act (ECOA), 15 U.S.C. 1691 et seq. (2013 ECOA 

Valuations Rule), consistent with current ECOA 

Regulation B, does not provide for the consumer to 

receive a copy of the manufacturer’s invoice. See 12 

CFR 1002.14(c) and comment 14(c)–2.iii (current 

Regulation B); see also 78 FR 7216 (Jan. 31, 2013) 

(issuing new 12 CFR 1002.14(b)(3) and comment 

1002.14(b)(3)–3.iv, with an effective date of January 

18, 2014). 

16Comments on the Proposed Rule from a large 

real estate agent trade association also suggested 

that exempting these transactions may not be 

appropriate. 

17See, e.g., Texas Appraiser Licensing and 

Certification Board, ‘‘Assemblage As Applied to 

Manufactured Housing,’’ available at http:// 

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

AppliedToMfdHousing.pdf. 

18See, 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 (HUD Handbook 4150.2), 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). 

19Title 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 (page D–9). 

advocates and other outreach 

participants had questions about the 

accuracy of available cost services for 

estimating the unit value of new 

manufactured homes. They asserted, for 

example, that where a manufactured 

home will be sited can have a major 

impact on the value of the home and 

that cost services do not in all cases 

sufficiently account for that aspect of 

the value.12 Nonetheless, some 

advocates expressed the view that 

giving the consumer some cost estimate 

would be beneficial. 

Based on input from lenders and 

manufactured home valuation 

providers, the Agencies understand that 

in new home-only transactions, thirdparty cost services are not typically used 

to value the property. Instead, many 

creditors use the manufacturer’s 

invoice, or wholesale unit price, and 

lend a percentage of that amount, which 

might exceed 100 percent to reflect, for 

example, a dealer mark-up and siting 

costs. As discussed in the 

Supplementary Information to the 

Proposed Rule, outreach participants 

have indicated that this practice— 

similar to that sometimes used for 

automobiles—is longstanding in new 

manufactured home transactions.13

Lenders asserted that this method saves 

costs for consumers and creditors and 

has been found to be reasonably 

effective and accurate for purposes of 

ensuring a safe and sound loan. 

Question 4: In light of additional 

concerns expressed about valuations in 

new manufactured home chattel 

transactions, the Agencies request 

comment on whether it may be 

appropriate to condition the exemption 

from the HPML appraisal requirements 

on the creditor providing the consumer 

with a third-party estimate of the 

manufactured home unit cost. 

Question 5: If so, the Agencies request 

comment on which third-party 

estimate(s) should be used for this 

purpose. 

Question 6: The Agencies also request 

comment on when this information 

should be required to be provided.14

Question 7: The Agencies request 

comment on whether the consumer 

typically receives unit cost information 

in a new manufactured home chattel 

transaction and what, if any, cost 

information from an independent third 

party source might be reasonably 

available to creditors, reliable, and 

useful to a consumer. 

Question 8: The Agencies further 

request comment on the utility of thirdparty unit cost information to 

consumers in these transactions (even if 

the creditor is using a different method 

to value the home). 

Question 9: The Agencies understand 

that the location of the property can 

impact the value of the home, even if 

the property on which the unit is sited 

is not owned by the consumer, and seek 

more information about the impact on 

home value of a unit’s location and 

whether cost services are available that 

account adequately for differences in 

location. 

Question 10: The Agencies further 

request comment on whether readilyaccessible, publicly-available 

information exists that consumers could 

use to determine whether their loan 

amount exceeds the collateral value in 

a new manufactured home chattel 

transaction, and whether consumers are 

generally aware of this information.15

Question 11: Finally, the Agencies 

request comment on potential burdens 

and costs of imposing this condition on 

the exemption, and any implications for 

consumer access to credit (again, noting 

that any of these loans that are qualified 

mortgages are exempt under the 

separate exemption for qualified 

mortgages, § 1026.35(c)(2)(i)). 

Loans secured by a new manufactured 

home and land. Since issuing the Final 

Rule, the Agencies have obtained 

additional information on valuation 

methods for manufactured homes. 

Appraisers and state appraiser boards 

consulted in outreach efforts confirmed 

that USPAP-compliant real property 

appraisals with interior inspections are 

possible and conducted with at least 

some regularity in these transactions.16

The Agencies understand that these 

appraisals value the land and the home 

together as a package 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).17 They also can 

document additional value based on 

siting costs and the home’s location, and 

in some cases can identify visible 

discrepancies between the 

manufacturer’s specifications and the 

actual home once it is sited. 

In addition, USPAP-compliant real 

property appraisals are regularly 

conducted for all transactions under 

federal government agency and 

government-sponsored enterprise (GSE) 

manufactured home loan programs.18

HUD Title II program standards, for 

example, which apply to transactions 

secured by a manufactured home and 

land titled together as real property, 

require USPAP-compliant appraisals.19

A representative of manufactured 

home appraisers and a manufactured 

home community development 

financial institution (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. 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 are not unduly 

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20For HUD-insured loans secured by real 

property—a manufactured home and lot together— 

the Federal Housing Administration (FHA) requires 

creditors to use a HUD Title II Roster appraiser that 

can certify to prior experience appraising 

manufactured homes as real property. See HUD 

Title I Letter 481, Appendix 10–5. 

21See 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. 

22See HUD Handbook 4150.2, chapter 8.4 

(providing the following instructions on appraisals 

for manufactured homes insured under HUD’s 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.’’). 

23See Appraisal Institute, ‘‘Appraising 

Manufactured Housing—Seminar Handbook,’’ Doc. 

PS009SH–F (2008) at Part 8, 8–110. 

24Some 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. 25See, N.H. Rev. Stat. Ann Sec. 477:44 (2013). 

difficult to find to perform these 

appraisals.20

In commenting on the Proposed Rule 

and in outreach, lenders have raised 

concerns that comparable sales 

(‘‘comparables’’) of other manufactured 

homes can be particularly difficult to 

find. The Agencies understand that this 

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.21 The 

Agencies note, 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.22 A current version of the 

Appraisal Institute seminar on 

manufactured housing appraisals 

confirms that when necessary, USPAP 

appraisals can use non-manufactured 

homes as comparables, making 

adjustments where needed.23 Based on 

their experience, an appraiser 

representative and a manufactured 

home CDFI representative in informal 

outreach with the Agencies stated that 

comparable properties have not been 

unduly difficult to find, even in rural 

areas. 

Question 12: Based on this 

information, the Agencies request 

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. 

Question 13: The Agencies also seek 

comment on whether some other 

valuation method should be required as 

a condition of the exemption from the 

HPML appraisal requirements. 

At the same time, the Agencies 

believe that questions remain about the 

impact on the industry and consumers 

of requiring USPAP-compliant real 

property appraisals with interior 

inspections in transactions secured by a 

new manufactured home and land for 

which these types of appraisals are not 

already required. For example, 

manufactured home lenders commented 

on the Proposed Rule and shared in 

subsequent outreach that they typically 

do not conduct an interior inspection 

appraisal of a new manufactured home, 

but use other methods, such as relying 

on the manufacturer’s invoice for the 

new home and conducting a separate, 

USPAP-compliant appraisal of the 

land.24 Thus, requiring a USPAPcompliant appraisal with an interior 

inspection could require systems 

changes for some manufactured home 

lenders. If the USPAP-compliant 

appraisal with an interior inspection 

required under the Final Rule were 

more expensive than existing methods, 

then imposing the requirements of the 

Final Rule on these transactions would 

lead to additional costs that could be 

passed on in whole or in part to 

consumers. 

Question 14: Accordingly, the 

Agencies request data on the extent to 

which a USPAP-compliant real property 

appraisal with an interior property 

inspection would be of comparable cost 

to, or more or less expensive than, a 

USPAP-compliant appraisal of a lot 

combined with an invoice price for the 

home unit. 

Question 15: The Agencies also 

request comment on the potential 

burdens on creditors and consumers 

and any potential reduction in access to 

credit that might result from imposing 

requirement for a USPAP-compliant 

appraisal with an interior property 

inspection on all manufactured home 

creditors of loans secured by both a new 

manufactured home and land. In this 

regard, the Agencies ask 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). 

Question 16: Finally, the Agencies 

request 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. 

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

Loans Secured Solely by an Existing 

Manufactured Home and Not Land 

In new § 1026.35(c)(2)(ii)(B), the 

Agencies propose to exempt 

transactions secured solely by an 

existing (used) manufactured home and 

not land from the HPML appraisal 

requirements. Proposed comment 

35(c)(2)(ii)(B)-1 would clarify 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. The 

Agencies recognize that in certain states 

residential structures such as 

manufactured homes may be deemed 

real property, even though they are not 

titled together with the land.25 The 

Agencies believe that the barriers 

discussed in more detail below to 

producing USPAP-compliant real 

property appraisals with interior 

property inspections for manufactured 

homes in home-only transactions are the 

same regardless of whether a 

jurisdiction categorizes the 

manufactured home as personal 

property (chattel) or real property. 

Question 17: The Agencies request 

comment on this view and approach. 

The Agencies also considered an 

exemption for loans secured by both an 

existing manufactured home and land, 

but are not proposing an exemption for 

these HPMLs. A discussion of the 

proposed treatment of both types of 

loans (secured solely by an existing 

manufactured home and secured by an 

existing manufactured home plus land) 

is below. 

Loans secured solely by an existing 

manufactured home and not land. The 

Agencies propose an exemption for 

transactions secured solely by an 

existing manufactured home and not 

land based on additional research and 

outreach. For the loans secured solely 

by an existing manufactured home and 

not land, the Agencies understand that 

current valuation practices generally do 

not involve using a state-certified or 

-licensed appraiser to perform a USPAPand FIRREA-compliant real property 

appraisal with an interior property 

inspection, as required under TILA 

section 129H and the Final Rule. 15 

U.S.C. 1639h. Outreach to manufactured 

home lenders indicated that they 

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26See NADA, Manufactured Housing Cost Guide, 

available at NADAguides.com Value Report, 

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

27See generally, Howard Baker and Robin 

LeBaron, FAIR MORTGAGE COLLABORATIVE, 

Toward a Sustainable and Responsible Expansion 

of Affordable Mortgages for Manufactured Homes 

(March 2013) at 9. This report is available at http:// 

cfed.org/assets/pdfs/IM_HOME_Loan_Data_

Collection_Project_Report.pdf. 

28See, 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 10. 

29The Agencies understand that appraisers 

typically limit their valuations to clearly visible 

features or physical changes to the home that can 

impact value. Detailed examinations of wear and 

tear are the purview of home inspections, which 

generally are the responsibility of the consumer to 

obtain. 

30See HUD Title I Letter 481 (Aug. 14, 2009), 

Appendices 8–9, C, and 10–5. The Agencies note 

that the HUD Title I program appraisal 

requirements are for determining eligibility for 

insurance that benefits the creditor. 

31See HUD Title I Letter 481 (Aug. 14, 2009), 

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). 

The Agencies understand that the NADA National 

Appraisal System is an appraisal method involving 

both the comparable sales and the cost approach. 

32See id. 

33See id. VA and USDA manufactured home 

programs do not involve transactions secured solely 

by a manufactured home and not land; thus, these 

programs do not incorporate special requirements 

for valuing these types of properties. 

34See, e.g., USPAP Standards Rule 7–4. 

typically obtain replacement cost 

estimates derived from nationallypublished cost services, taking into 

account the age (to derive depreciated 

values) and regional location of the 

home. One cost service adjustment form 

often used for this purpose also allows 

for an adjustment based upon the 

quality of the land-lease community 

where the property is located (if 

applicable).26 Lenders have indicated 

that this method saves costs for 

consumers and creditors and has been 

found to be reasonably effective and 

accurate for purposes of ensuring a safe 

and sound loan. 

In addition, lender commenters on the 

Proposed Rule 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 multiple listing services of 

most states, for example, 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 

subsequently confirmed to the Agencies 

that manufactured home sales 

information is generally not available 

through standard real estate data 

sources. The Agencies also understand 

that, in many states, appraisers are not 

currently required to be licensed or 

certified in order to perform personal 

property appraisals. 

Accordingly, the Agencies believe 

that an exemption for these transactions 

from the HPML appraisal rules would 

be in the public interest because it 

would facilitate continued consumer 

access to HPML financing for existing 

manufactured homes, which are an 

important source of affordable 

housing.27 The Agencies believe that 

this exemption also would promote the 

safety and soundness of creditors, 

because creditors would be able to 

continue using currently prevalent 

valuation methods, which can facilitate 

offering products that they have relied 

on to ensure profitability and product 

diversity to mitigate risk. 

At the same time, consumer and 

affordable housing advocates have 

raised concerns about consumers 

borrowing more money than the home 

is worth in these transactions, which, as 

noted, also tend to have much higher 

rates than conventional loans secured 

by site-built homes.28 The Agencies 

generally believe that consumers and 

creditors benefit when an accurate 

valuation is obtained for a credit 

transaction secured by the consumer’s 

home. The Agencies further recognize 

that a manufactured home that has been 

previously occupied is subject to 

depreciation and might have wear and 

tear or other physical changes that can 

make the property value more difficult 

to assess than that of a new 

manufactured home.29 The value of the 

home also may have changed as a result 

of changes in the broader housing 

market. 

Question 18: The Agencies request 

comment on whether the proposed 

exemption should be conditioned on the 

creditor obtaining an alternative 

valuation (i.e., a valuation other than a 

USPAP- and FIRREA-compliant real 

property appraisal with an interior 

property inspection) that is tailored to 

estimating the value of an existing 

manufactured home without land and 

providing a copy of it to the consumer. 

The Agencies believe that an 

exemption conditioned in this way may 

be in keeping with the intent behind 

TILA section 129H to ensure that 

consumers have access to information 

about the value of the home that would 

secure the loan before entering into an 

HPML. See TILA section 129H(c), 15 

U.S.C. 1639h(c) (requiring a creditor to 

provide the applicant with a copy of any 

appraisal obtained under TILA section 

129H). 

Question 19: To inform the Agencies 

in considering this condition, the 

Agencies request information on 

whether creditors typically obtain 

valuations for loans secured solely by an 

existing manufactured home and not 

land and, if so, what types of valuations 

they obtain. 

Question 20: The Agencies also seek 

commenters’ views on the efficacy and 

accuracy of any prevailing valuation 

methods used for these loans. Some of 

these methods are discussed below. 

As noted, the Agencies are aware that 

HUD has property valuation standards 

for HUD-insured loans secured by an 

existing manufactured home and not 

land.30 In addition, for appraisals of 

manufactured homes ‘‘classified as 

personal property,’’ HUD standards call 

for, among other requirements, the use 

of ‘‘an independent fee appraiser who 

has been certified by NADA to use 

NADA’s National Appraisal System.’’ 31

Specifically, among other requirements, 

creditors of these types of HUD-insured 

loans must obtain an appraisal reflecting 

the retail value of comparable 

manufactured homes in similar 

condition and in the same geographic 

area.32 Relevant HUD appraisal 

requirements for these loans also 

include specifications for appraiser 

qualifications, information that the 

creditor must provide to the appraiser, 

and the creditor’s review of the 

appraisal.33 The Agencies have 

concerns, however, that appraisers 

trained to conduct the types of 

appraisals required by HUD for its Title 

I program may be limited, but seek 

information on the availability of 

individuals to perform appraisals 

compliant with HUD Title I standards. 

USPAP Standards 7 and 8 for 

personal property provide guidance for 

appraising personal property based on 

several approaches—the sales 

comparison approach, cost approach, 

and income approach—which are to be 

used as the appraiser determines 

necessary to produce a credible 

appraisal.34 The Agencies are aware that 

there are comparable-based methods of 

valuing existing manufactured homes 

without land other than the method 

prescribed for the HUD Title I program. 

In addition, for the cost approach, cost 

services are available for creditors to 

consult and make adjustments based on 

several factors (which might differ 

depending on the cost service used), 

such as the property age, condition, the 

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35See, e.g., NADAguides.com Value Report, 

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

also Fannie Mae Single Family 2013 Selling Guide 

B5–2.2–04, Manufactured Housing Appraisal 

Requirements (04/01/2009) and Freddie Mac Single 

Family Seller/Servicer Guide, H33: Manufactured 

Homes/H33.6: Appraisal requirements (02/10/12) 

(referencing the NADA Manufactured Housing 

Appraisal Guide® and the Marshall & Swift®

Residential Cost Handbook as resources for 

manufactured home cost information). 36See 78 FR 10368, 10379–80 (Feb. 13, 2013). 

37Under existing GSE ‘‘streamlined’’ refinance 

programs, Freddie Mac and Fannie Mae purchase 

and guarantee ‘‘streamlined’’ refinance loans for 

consumers under HARP (whose existing loans have 

loan-to-value ratios (LTVs) over 80 percent) as well 

as for consumers whose existing loans have LTVs 

at or below 80 percent. 

38See 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 

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 

Continued 

land-lease community, and the home’s 

geographic location.35 These resources 

enable the creditor to obtain a 

depreciated replacement cost for an 

existing manufactured home. 

Question 21: The Agencies request 

comment on whether, to obtain the 

proposed exemption from the HPML 

appraisal rules for HPMLs secured by an 

existing manufactured home without 

land, a creditor should have to comply 

with the appraisal requirements for a 

manufactured home classified as 

personal property under HUD’s Title I 

Manufactured Home Loan Insurance 

Program, or similar requirements 

involving comparable sales. 

Question 22: In this regard, the 

Agencies also seek additional comment 

and information on the availability of: 

(1) Comparable sales data for appraisers 

to use in an appraisal of a manufactured 

home alone, without land; and (2) statecertified or -licensed appraisers to 

appraise these properties. 

Question 23: The Agencies also 

request comment on whether the 

proposed exemption would 

appropriately be conditioned on the 

creditor obtaining, and providing to the 

consumer, a valuation of the dwelling 

that uses an independently published 

cost guide with appropriate adjustments 

for factors such as home condition, 

accessories, location, and community 

features, as applicable. 

Question 24: The Agencies request 

comment on whether use of a cost 

service with adjustments generally 

involves a physical inspection of the 

property, who conducts that physical 

inspection, and whether any condition 

on the proposed exemption allowing 

use of a cost service estimate with 

adjustments should require a physical 

inspection of the unit. 

Question 25: In addition, the Agencies 

seek comment on whether an 

appropriate condition for an exemption 

from the HPML appraisal rules would 

be more generally that the creditor have 

obtained and provided to the consumer 

an appraisal compliant with USPAP 

Standards 7 and 8 for personal property. 

The Agencies are considering whether it 

would be appropriate to provide the 

creditor with more than one option for 

obtaining an alternative valuation as a 

condition of this exemption. 

Loans secured by an existing 

manufactured home and land. The 

Agencies considered also exempting 

transactions that are secured by both an 

existing manufactured home and land. 

However, at this stage, the Agencies 

believe that an exemption for these 

transactions from the USPAP-compliant 

real property appraisal standards in the 

Final Rule would not be in the public 

interest and promote the safety and 

soundness of creditors. As discussed in 

the section-by-section analysis of 

§ 1026.35(c)(2)(ii)(A), federal 

government and GSE manufactured 

home loan programs generally require 

compliance with USPAP real property 

appraisal standards for appraisals in 

connection with transactions secured by 

both a manufactured home and land. 

The Agencies believe that these 

requirements may reflect that 

conducting a USPAP-compliant 

appraisal following USPAP Standards 1 

and 2 for real property appraisals are 

feasible for existing manufactured 

homes together with land. This view 

was affirmed by several participants in 

informal outreach with experience in 

the area of manufactured home loan 

appraisals, who indicated that USPAPcompliant real property appraisals with 

an interior inspection are feasible and 

performed with regularity in these types 

of transactions. 

For these reasons, the Agencies are 

not proposing to exempt loans secured 

by an existing manufactured home and 

land from the HPML appraisal 

requirements. The Agencies note that 

some commenters on the Proposed Rule 

recommended that the Agencies exempt 

these types of ‘‘land/home’’ 

transactions.36

Question 26: The Agencies request 

further comment whether to exempt 

these transactions and, if so, why an 

exemption would be in the public 

interest and promote the safety and 

soundness of creditors. 

35(c)(2)(vii) 

Certain Refinancings 

The Agencies are also proposing to 

exempt from the HPML appraisal rules 

certain types of refinancings with 

characteristics common to refinance 

products often referred to as 

‘‘streamlined’’ refinances. Specifically, 

the Agencies propose 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. In 

addition, the regular 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 be used 

solely to pay off the outstanding 

principal balance on the existing 

obligation and to pay closing or 

settlement charges. 

As discussed more fully below, the 

Agencies believe that this exemption 

would be in the public interest and 

promote the safety and soundness of 

creditors. The following discussion of 

this proposed exemption includes a 

description of ‘‘streamlined’’ 

refinancing programs; a summary of the 

comments regarding an exemption for 

refinancings received on the 2012 

Interagency Appraisals Proposed Rule; 

and an explanation of the requirements 

of, and conditions on, the proposed 

exemption. 

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 2015. 

Federal government agencies—HUD, 

VA, and USDA—as well as the GSEs 

have developed ‘‘streamlined’’ refinance 

programs to address consumer, creditor 

and investor risks.37 These programs 

enable many consumers to refinance the 

balance of those mortgages through an 

abbreviated application and 

underwriting process.38 Under these 

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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. 

39For 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. 

40See, 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%. This report 

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

investors/er/pdf/10k_030912.pdf. 

41Over 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. 

42For 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. 

43See, e.g., HUD Handbook 4155.1, chapter 6.C.1. 

44According to data from FHA, in calendar year 

2012, only 1.1 percent of FHA streamline refinances 

required an appraisal. 

45 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). 

programs, consumers with little or no 

equity in their homes,39 as well as 

consumers with significant equity in 

their homes,40 can restructure their 

mortgage debt, often at lower interest 

rates or payment amounts than under 

their existing loans.41

Valuation requirements of 

‘‘streamlined’’ refinance programs. The 

‘‘streamlined’’ underwriting for certain 

refinancings often, but not always, does 

not include a USPAP-compliant 

appraisal with an interior-inspection 

appraisal. One reason for this is that, in 

currently prevailing ‘‘streamlined’’ 

refinance programs, the value of the 

property securing the existing and 

refinance obligations is not considered 

to determine borrower eligibility for the 

refinance. The owner or guarantor of the 

existing loan retains the credit risk, and 

the ‘‘streamlined’’ refinance does not 

change the collateral component of that 

risk. 

For ‘‘streamlined’’ refinances where 

the LTV exceeds or nearly exceeds 100 

percent, the principal concern 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. 

However, a valuation—usually 

through an automated valuation model 

(AVM)—may be obtained 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 current holder of the loan does 

not have what it deems to be sufficient 

information about the property in its 

databases. 

Fannie Mae and Freddie Mac. Fannie 

Mae and Freddie Mac each have 

‘‘streamlined’’ refinance programs: 

Fannie Mae DU (‘‘Desktop 

Underwriter®’’) Refi Plus and Refi Plus®

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, which 

is then provided to lenders originating 

loans under these programs.42

HUD/FHA. The HUD ‘‘Streamline’’ 

Refinance program administered by the 

Federal Housing Administration (FHA) 

permits but generally does not require a 

creditor to obtain an appraisal.43 The 

Agencies understand that almost all 

FHA ‘‘streamlined’’ refinances are done 

without requiring an appraisal.44 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 

FHA, VA, and USDA streamline 

refinance programs also do not require 

an alternative valuation type for 

transactions that do not have appraisals. 

Private ‘‘streamlined’’ refinance 

programs. The Agencies also believe 

that private creditors may offer 

‘‘streamlined’’ refinance programs for 

borrowers meeting certain eligibility 

requirements. 

Question 27: The Agencies seek 

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 above) when no 

appraisal is conducted.45

Public Comments on the 2012 Proposed 

Rule 

A number of commenters on the 2012 

Proposed Rule—a trade association 

representing community banks, a credit 

union association, a bank, and GSEs— 

recommended that the Agencies exempt 

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. 

These types of refinancings often 

involve an abbreviated or ‘‘streamlined’’ 

underwriting process to facilitate the 

reduction of risks that the existing loan 

may pose for the consumer, the primary 

market creditor, and secondary market 

investors. 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 this proposal, expressed 

concerns about not requiring appraisals 

in HPML ‘‘streamlined’’ refinance 

programs. They expressed the view that 

a quality appraisal that is also 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. 

Question 28: The Agencies invite 

further comment on these and related 

concerns, and appropriate means of 

addressing these concerns as part of this 

rulemaking. 

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46 ‘‘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). 

47See § 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). 

48Creditors 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, or by 3.5 or more 

percentage points for a subordinate-lien covered 

transaction.’’ § 1026.43(b)(4). 

Discussion 

The Agencies decline to propose an 

exemption for all refinance loans, as a 

few commenters 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.46 Accordingly, the Agencies 

believe that an exemption for all HPML 

refinances would be overbroad. For 

example, in refinances 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. 

The Agencies do, however, 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, would be in the 

public interest and 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 refinances 

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 significantly benefit by 

refinancing into a lower rate mortgage 

for considerable cost savings over time. 

The Agencies also recognize that 

‘‘streamlined’’ refinancing programs 

assist creditors and secondary market 

investors in managing credit risks. 

Originating HPML refinances that are 

beneficial to consumers can be 

important to creditors to ensure the 

continuing performance of loans on 

their books and to strengthen customer 

relations. For investors holding these 

loans, the ‘‘streamlined’’ refinances can 

reduce financial risks associated with 

potential defaults and foreclosures. 

The Agencies believe that an 

exemption from the HPML appraisal 

rules for certain HPML refinances 

would ensure that the time and cost 

generated by new appraisal 

requirements are not introduced into 

HPML transactions that are not qualified 

mortgages but that are part of programs 

to help consumers avoid defaults and 

improve their financial positions, and 

help creditors and investors avoid losses 

and mitigate credit risk. 

As discussed previously, the Agencies 

understand that, under the 

‘‘streamlined’’ underwriting standards 

for several government and GSE 

refinancing programs, a full interior 

inspection appraisal is often not 

required. One reason for this is that the 

current value of the property securing 

the existing and refinance obligations 

generally is not considered to determine 

borrower eligibility for the refinance. 

The owner or guarantor of the existing 

loan retains the credit risk, and the 

‘‘streamlined’’ refinance does not 

change the collateral component of that 

risk. 

In a ‘‘streamlined refinance,’’ the 

principal concern is not valuing the 

collateral to determine whether the 

creditor or investor could in the near 

term recoup the mortgage amount by 

foreclosing upon and selling the 

securing property if necessary. Goals for 

these loan programs include securing 

payment relief for the borrower and 

thereby avoid default and foreclosure; 

allowing the borrower to take advantage 

of lower interest rates; and enabling the 

borrower to restructure his or her 

mortgage obligation to build equity 

more quickly—all of which reduce risk 

of default and thereby promote the 

safety and soundness of creditors and 

investors and benefit consumers. 

Relationship to the 2013 ATR Final 

Rule. 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 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,47

they are considered ‘‘qualified 

mortgages’’ entitled to either a 

presumption of compliance or a safe 

harbor ensuring compliance with the 

general ability-to-repay rules, depending 

on the loan’s interest rate.48 See 

§ 1026.43(e)(1), (e)(4). (Of course, they 

also can be ‘‘qualified mortgages’’ if they 

meet all the ability-to-repay criteria 

under the general definition of 

‘‘qualified mortgage’’ See 

§ 1026.43(e)(2).) As qualified mortgages, 

they are exempt from the HPML 

appraisal rules. See § 1026.35(c)(2)(i). 

However, the Agencies believe that 

the separate exemption for certain 

refinances from the HPML appraisal 

requirement proposed in 

§ 1026.35(c)(2)(vii) may be needed. 

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). However, these loans 

will not be eligible to be qualified 

mortgages if consummated on or after 

January 10, 2021, unless they meet the 

general definition of a qualified 

mortgage in § 1026.43(e)(2). See 

§ 1026.43(c)(4)(iii)(B). For 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) would 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). 

Second, the Agencies believe that 

many private ‘‘streamlined’’ mortgage 

programs are likely to have similar 

benefits to consumers, creditors, and 

credit markets as those under GSE and 

government agency programs. However, 

not all private ‘‘streamlined’’ refinances 

that are HPMLs will be qualified 

mortgages because some could exceed 

the 43 percent debt-to-income ratio cap 

or fail to meet other qualified mortgage 

conditions. See, e.g., § 1026.42(e)(2). 

The Agencies believe that an exemption 

for not only GSE and government 

agency ‘‘streamlined’’ refinances, but 

also refinance loans under proprietary 

‘‘streamlined’’ refinance programs, may 

be warranted. 

The Agencies considered limiting an 

exemption from the HPML appraisal 

rules for private ‘‘streamlined’’ 

refinances to refinances of non-standard 

to standard mortgages that would 

qualify for an exemption from the 

ability-to-repay rules under new 

§ 1026.43(d) of the 2013 ATR Final 

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48560 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

49See § 1026.20(a) for the definition of 

‘‘refinancing.’’ 

50Legislative 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 Federal Reserve Board and 

the CFPB use their rulemaking authority . . . to 

extend the same 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). 

Rule. However, the Agencies believe 

that the refinances exempt from the 

ability-to-repay rules under § 1026.43(d) 

include a universe of refinances that is 

narrower than the Agencies believe 

desirable for an exemption from the 

HPML appraisal rules. For example, to 

qualify for the ability-to-repay 

exemption as a refinance under 

§ 1026.43(d), the existing obligation 

must be an adjustable-rate mortgage 

(ARM), an interest-only loan, or a 

negative amortization loan. See 

§ 1026.43(d)(1)(i). In addition, among 

other conditions, the creditor must have 

considered whether the refinance loan 

‘‘likely will prevent a default by the 

consumer on the non-standard mortgage 

once the loan is recast’’ out of the 

introductory rate under an ARM or 

higher payments under an interest-only 

or negative amortization loan. See 

§ 1026.43(d)(3)(ii). However, the 

Agencies believe that ‘‘streamlined’’ 

refinance programs can benefit 

consumers and promote the safety and 

soundness of financial institutions even 

where the consumer is not at risk of 

imminent default. 

Definition of ‘‘refinancing.’’ Proposed 

§ 1026.35(c)(2)(vii) defines a 

‘‘refinancing’’ to mean ‘‘refinancing’’ in 

§ 1026.20(a).49 However, in contrast to 

the definition of ‘‘refinancing’’ under 

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

proposed § 1026.35(c)(2)(vii) does not 

restrict who the creditor is for either the 

refinancing or the existing obligation. 

Commentary to § 1026.20(a) 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 

proposed exemption allows a different 

creditor to extend the refinance loan, as 

long as the owner or guarantor remains 

the same on both the existing loan and 

the refinance. This aspect of the 

proposal is discussed more fully below. 

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

Same owner or guarantor. Consistent 

with ‘‘streamlined’’ refinance programs 

discussed previously, proposed 

§ 1026.35(c)(2)(vii)(A) requires that, for 

the exemption for certain refinancings 

to apply, the owner or guarantor of the 

refinance loan must be the current 

owner or guarantor of the existing 

obligation. The Agencies propose to 

include 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 promote 

the safety and soundness of financial 

institutions and in turn benefits the 

public. 

The proposed rule uses the terms 

‘‘owner or guarantor’’ rather than the 

term ‘‘holder’’ to clarify that the 

proposed regulation refers to the entity 

that either owns the credit risk because 

the loan is held in its portfolio or that 

guarantees the credit risk on a loan held 

in an asset-backed securitization. For 

example, assume Fannie Mae holds an 

existing obligation in its portfolio, 

which is then refinanced under one of 

Fannie Mae’s ‘‘streamlined’’ refinance 

programs into a loan with a better rate 

and lower payments for the consumer. 

Fannie Mae might then decide to place 

the new refinance loan into a pool of 

loans guaranteed by Fannie Mae; in this 

case, Fannie Mae would technically be 

the guarantor, not the ‘‘owner.’’ 

However, under the proposal, the 

refinance would meet the condition of 

proposed § 1026.35(c)(2)(vii)(A)(1) 

because the owner or guarantor remains 

the same on the refinance loan as on the 

existing obligation. Proposed comment 

35(c)(2)(vii)(A)–1 clarifies that the term 

‘‘owner’’ in § 1026.35(c)(2)(vii)(A) refers 

to an entity that owns and holds a loan 

in its portfolio. 

This comment would further clarify 

that ‘‘owner’’ does not refer to an 

investor in a mortgage-backed security. 

This proposed clarification is intended 

to ensure that creditors do not have to 

look to the individual owners of 

mortgage-backed securities to determine 

the same-owner status. The rationale for 

the same-owner requirement is not 

based upon the pooled mortgage 

situation where more than one investor 

holds an indirect interest in a loan 

through ownership of a mortgagebacked security. Accordingly, this 

comment also clarifies that the term 

‘‘guarantor’’ in proposed 

§ 1026.35(c)(2)(vii)(A)(1) refers to the 

entity that guarantees the credit risk on 

a loan held by the entity in a mortgagebacked security. 

The Agencies believe that 

conditioning the exemption on the 

owner or guarantor remaining the same 

helps to promote the safety and 

soundness of creditors. This includes 

situations in which the refinancing 

creditor either owns the existing loan or 

has arranged to transfer the loan to a 

GSE or other entity that owns the 

existing loan. In these cases, the owner 

or guarantor of the refinance already 

holds the credit risk. In addition, the 

owner or guarantor of the existing 

obligation may have familiarity with the 

property or relevant market conditions 

as a result of having evaluated property 

value documents when taking on the 

original credit risk, as well as ongoing 

portfolio monitoring. By contrast, when 

the owner or guarantor of the 

‘‘streamlined’’ refinance is not also the 

owner or guarantor of the existing loan, 

then the ‘‘streamlined’’ refinance 

involves new risk to the owner or 

guarantor of the ‘‘streamlined’’ 

refinance, whose safety and soundness 

would therefore be better served by a 

USPAP-compliant appraisal with an 

interior inspection.50

The Agencies generally believe that 

the ‘‘same owner or guarantor’’ criterion 

for the proposed exemption makes it 

unnecessary to require that the creditor 

(which is not necessarily the owner of 

the loan) also be the same for both the 

existing obligation and the refinance 

loan. If consumers can shop for a 

‘‘streamlined’’ refinancing among 

multiple creditors without having to 

obtain an appraisal, they may be able to 

obtain better rates and terms. 

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 higher-priced loans. 

When the consumer is not obtaining 

additional funds to increase the amount 

of the debt, and the entity that will own 

or guaranty the refinance loan is already 

the credit risk holder on the existing 

loan, there may be insufficient benefit 

from obtaining a new appraisal to 

warrant the additional cost. 

Questions have been raised, however, 

about whether safety and soundness 

issues might arise in some situations 

that would warrant an appraisal, even 

when the risk holder will remain the 

same. Specifically, in some private 

refinance transactions, the originating 

creditor for the refinance loan may be 

assuming ‘‘put-back’’ risk. This risk may 

be lessened if the holder or guarantor is 

a federal agency or GSE that operates 

under guidelines that limit the put-back 

risk for the originator. 

Question 29: Accordingly, the 

Agencies solicit comment on the 

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Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 48561 

51See 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). 

52Section 1026.18(s)(5)(i) defines ‘‘balloon 

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

times a regular periodic payment.’’ 

53Comment 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.’’ 

54The 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. 

55See, 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). 

56See 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). 

circumstances in which the originator’s 

assumption of put-back risk raises safety 

and soundness concerns that weigh in 

favor of requiring the originator to 

obtain a USPAP-compliant appraisal 

with an interior property inspection for 

a ‘‘streamlined’’ refinance loan. 

Question 30: The Agencies also seek 

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, 

including how often no valuation is 

obtained.51

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

Prohibition on certain risky features. 

Proposed § 1026.35(c)(2)(vii)(B) would 

require that a refinancing eligible for an 

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).52

Proposed comment 35(c)(2)(vii)(B)–1 

would state that, under 

§ 1026.35(c)(2)(vii)(D), 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 would thus clarify 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 would further state 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 would cross-reference 

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

2013 ATR Final Rule for an explanation 

of the term ‘‘substantially equal.’’ 53 The 

comment would also clarify that 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.’’ 

The information provided by a 

USPAP-compliant real property 

appraisal with an interior property 

inspection may be particularly 

important for creditors and consumer 

where these features are present. For 

example, additional equity may be 

needed to support a loan with negative 

amortization, and the risk of default 

might be higher for loans with interestonly 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.54

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 either independently 

make the balloon payment or refinance, 

with significant consequences if 

something unexpected happens and the 

consumer cannot do so. To protect the 

creditor’s safety and soundness, the 

creditor should have a firm 

understanding of the value of the 

collateral and the trajectory of property 

values in the area in making a balloon 

mortgage. This can help the creditor 

adjust loan and payment terms to 

mitigate default risk, which benefits 

both the creditor and the consumer. 

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.55 In 

addition, the prohibition on risky 

features for this proposed exemption is 

consistent with provisions in the DoddFrank Act reflecting congressional 

concerns about these loan terms. For 

example, in Dodd-Frank 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.56 The proposal is also 

consistent with a provision in the 

Bureau’s 2013 ATR Final Rule that 

exempts from all ability-to-repay 

requirements the refinancing of a ‘‘nonstandard mortgage’’ into a ‘‘standard 

mortgage.’’ 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). Further, no GSE or 

federal government agency 

‘‘streamlined’’ refinance program allows 

these features. 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, interest-only 

payment features, or balloon payments 

may increase risks to consumers and 

creditors. 

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48562 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

57See also OCC, Board, FDIC, NCUA, 

‘‘Interagency Guidance on Nontraditional Mortgage 

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

58See, 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. 

59Under 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). 

60A similar requirement under ECOA permits the 

consumer to waive the right to receive a copy of 

valuations or appraisals in connection with an 

application for a first-lien mortgage secured by a 

dwelling no later than three days before closing. 

The consumer may not, however, waive the right 

to receive copies of valuations or appraisals 

altogether. See ECOA section 701(e)(2), 15 U.S.C. 

1691(e)(2). Regulations implementing this provision 

were adopted by the Bureau earlier this year in the 

2013 ECOA Valuations Rule. See 78 FR 7216 (Jan. 

31, 2013); Regulation B, 12 CFR 1002.14(a)(1). 

In sum, 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. 57

Thus, in the Agencies’ view, permitting 

these non-qualified mortgage HPML 

refinances to proceed without USPAPcompliant real property appraisals with 

interior inspections 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. 

Question 31: The Agencies request 

comment on whether prohibiting the 

regular periodic payments on the 

refinance loan from resulting in negative 

amortization, payment of only interest, 

or a balloon payment is an appropriate 

condition for an exemption from the 

HPML appraisal rules for ‘‘streamlined’’ 

refinances. 

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

No cash out. Proposed 

§ 1026.35(c)(2)(vii)(C) would require 

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. 

Proposed comment 35(c)(2)(vii)(C)–1 

would state that the exemption for a 

refinancing under § 1026.35(c)(2)(vii) is 

available only if the proceeds from the 

refinancing are used exclusively for two 

purposes: paying off the consumer’s 

existing first-lien mortgage obligation 

and paying for closing costs, including 

paying escrow amounts required at or 

before closing. According to this 

comment, 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 

refinancing exemption from the HPML 

appraisal rules under 

§ 1026.35(c)(2)(vii). 

The Agencies also view the proposed 

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 

a full interior inspection appraisal 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.58 It is also consistent with the 

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

mortgages.’’ 59 See § 1026.43(d)(1)(ii)(E). 

The Agencies believe that consistency 

across mortgage rules can help facilitate 

compliance and ease compliance 

burden. 

Question 32: The Agencies request 

comment on this proposed condition on 

the ‘‘streamlined’’ refinance exemption, 

and whether other protections are 

warranted to ensure that the loan’s 

principal balance and overall costs to 

the consumer do not materially 

increase. 

Question 33: In this regard, the 

Agencies specifically seek comment on 

whether the Agencies should require 

that financed points and fees on the 

refinance loan not exceed a certain 

percent, such as the percentage caps for 

points and fees on qualified mortgages. 

See § 1026.43(e)(3); see also 

§ 1026.43(d)(1)(ii)(B) (capping points 

and fees for refinances of ‘‘non-standard 

mortgages’’ into ‘‘standard mortgages’’ 

exempt from ability-to-repay 

requirements). For example, the 

Agencies heard from consumer 

advocates that frequent, serial 

refinancing with higher points and fees 

could lead to a significant loss of equity, 

and increased exposure for creditors, 

that would warrant a new appraisal for 

the same or similar reasons that an 

appraisal would be important where 

additional cash out is obtained. 

Additional condition: obtaining an 

alternative valuation and providing a 

copy to the consumer. 

Question 34: The Agencies also seek 

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 

FIRREA- and USPAP-compliant real 

property appraisal with an interior 

inspection) and providing a copy to the 

consumer three days before 

consummation. In requesting comment 

on this issue, the Agencies note that the 

purpose of TILA section 129H is, in 

part, to protect consumers by ensuring 

that they receive a copy of an appraisal 

with an interior property inspection of 

the home before entering into a HPML 

that is not a qualified mortgage. 15 

U.S.C. 1639h. Specifically, TILA section 

129H mandates providing a copy of an 

appraisal with an interior property 

inspection for HPMLs that are not 

exempt from the appraisal requirements, 

three days before closing, with no 

option to waive this right. See TILA 

section 129H(c), 15 U.S.C. 1639h(c).60

The Agencies’ Final Rule implements 

these requirements. See § 1026.35(c)(6). 

A refinanced mortgage loan is a 

significant financial commitment: For 

example, the refinance loan can have an 

extended term, typically as long as 30 or 

40 years; the refinance loan can be an 

adjustable-rate mortgage that creates 

interest rate risk in the future; the 

refinance loan may actually have 

increased payments (for example, if the 

term of the new loan is shorter); and a 

‘‘streamlined’’ refinance transaction has 

transaction costs. 

Question 35: Because refinances do 

involve potential risks and costs, the 

Agencies seek comment on whether 

conditioning the proposed exemption 

on creditors obtaining an alternative 

valuation and giving a copy to the 

consumer would better position 

consumers to consider alternatives to 

refinancing, and whether consumers 

seeking refinances typically need or 

want to consider alternatives. These 

alternatives might include, among 

others, remaining in the home with the 

existing loan; refinancing through a 

different program that would involve 

underwriting, potentially at a better rate 

or other improved terms; seeking a 

possible loan modification; or selling 

the home. 

Question 36: The Agencies seek 

comment and relevant data on whether 

this additional condition would be 

necessary. In this regard, the Agencies 

understand that some type of estimate of 

value is typically developed in a 

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61See 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 inspection 

or exterior-only) was obtained for all ‘‘streamlined’’ 

refinances purchased by the GSEs in 2012. 

62All refinances proposed for an exemption 

would be first-lien mortgage loans. 

63 ‘‘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. 

64See 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). 

65See also Statement of Sen. Dodd, 156 Cong. 

Rec. S5928 (July 15, 2010). 

‘‘streamlined’’ refinance transaction. For 

example, for any loan not eligible for a 

federal government program or to be 

sold to a GSE, federally-regulated 

depositories have to obtain either an 

‘‘evaluation’’ or an appraisal for a 

refinance transaction.61

In addition, as of January 2014, 

amendments to ECOA, implemented by 

the Bureau in revised Regulation B, will 

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.62 See 12 CFR 1002.14(a)(1); 78 

FR 7216 (Jan. 31, 2013) (2013 ECOA 

Valuations Final Rule). The copies must 

be provided to the applicant promptly 

upon completion or three business days 

before consummation. See id. 

Regulation B defines ‘‘valuation’’ to 

mean ‘‘any estimate of the value of a 

dwelling developed in connection with 

an application for credit.’’ 63 Id. 

§ 1002.14(b)(3). 

The Agencies recognize, however, 

that estimates of value 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 depositories under 

FIRREA, and might not obtain a 

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

Question 37: The Agencies request 

comment generally on the extent to 

which either appraisals or other 

valuation tools such as AVMs or broker 

price opinions are used in connection 

with ‘‘streamlined’’ refinances by nondepositories in particular. 

Question 38: The Agencies also seek 

comment on whether additional criteria 

or guidance would be needed to 

describe the type of home value 

estimate that a creditor would have to 

obtain and provide to the consumer and, 

if so, what the additional criteria or 

guidance should address. 

Other conditions. The Agencies are 

not proposing additional conditions in 

the regulation text on the types of 

refinancings eligible for the exemption 

from the HPML appraisal rules. In this 

way, the Agencies seek to maintain 

flexibility for government agencies, 

GSEs, and private creditors 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. At this time the Agencies do 

not see the need to impose conditions 

that address borrower eligibility, such as 

requiring that the borrower have been 

on-time with payments on the existing 

mortgage for a certain period of time. 

For example, some ‘‘streamlined’’ 

refinance programs currently 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.64 Some of these 

programs also provide that certain 

benefits must be present in the 

transaction, such a lower monthly 

payment or lower interest rate. For this 

proposed exemption from the HPML 

appraisal requirements for refinances, 

the Agencies are not proposing to 

impose conditions that address 

borrower eligibility or to define what 

types of benefits must result from the 

transaction. The Agencies believe that it 

is unclear how the need for a particular 

type of appraisal (versus some other 

type of valuation that the creditor may 

perform under other regulations or its 

own policies) relates to borrower 

eligibility requirements or the existence 

of a borrower benefit in the new 

transaction. 

Question 39: However, the Agencies 

request comment on whether the 

Agencies should adopt additional 

criteria for HPML ‘‘streamlined’’ 

refinancings that would be exempt from 

the HPML appraisal rules, including, 

but not limited to, requirements 

regarding whether the consumer has an 

on-time payment history and whether 

consumer ‘‘benefits’’ exist as part of the 

refinance transaction. The Agencies 

request that commenters supporting 

inclusion of these types of criteria 

explain why and comment on what the 

parameters of an on-time payment 

history should be and how ‘‘benefit’’ 

should be defined. 

Conclusion 

For the reasons discussed previously, 

the Agencies believe that an exemption 

from the HPML appraisal rules for 

refinances under the proposed 

conditions would be ‘‘in the public 

interest and promotes the safety and 

soundness of creditors.’’ TILA section 

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

The Agencies believe that an exemption 

from the HPML appraisal rules for these 

loans would ensure that the time and 

cost of new appraisal requirements are 

not introduced into non-qualified 

mortgage HPML transactions that are 

part of programs designed to help 

consumers avoid defaults and improve 

their financial positions, and help 

creditors and investors avoid losses and 

mitigate credit risk. The Agencies 

further believe that the exemption is 

appropriately narrow in scope to 

capture the types of refinancings that 

Congress has generally expressed an 

intent to facilitate, without being 

overbroad by exempting all HPML 

refinances from the HPML appraisal 

rules. See, e.g., TILA sections 129C(a)(5) 

and (6), 15 U.S.C. 1639c(a)(5) and (6).65

35(c)(viii) 

Extensions of Credit for $25,000 or Less 

The Agencies are also proposing an 

exemption from the HPML appraisal 

rules for extensions of credit of $25,000 

or less, indexed every year for inflation. 

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 interior 

inspection appraisals on these loans 

would significantly raise total costs as a 

proportion of the loan and thus 

potentially be detrimental to consumers. 

Public Comments on the 2012 Proposed 

Rule 

Commenters on the 2012 Proposed 

Rule that indicated support for a smaller 

dollar loan exemption included a state 

credit union association, representatives 

of six banks, two manufactured housing 

trade associations, a national 

community development organization, 

and two individuals. No comments 

received opposed an exemption for 

smaller dollar loans, though no 

comments were received from 

consumers or consumer advocates. 

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48564 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

66This comment was filed before the Agencies 

had finalized exemptions from the HPML appraisal 

rules, including the exemption for ‘‘qualified 

mortgages.’’ See § 1026.35(c)(2); see also 2013 ATR 

Final Rule (defining ‘‘qualified mortgage’’ at 

§ 1026.42(e)). 

67The trade association’s estimate of median 

manufactured home prices was based on the U.S. 

Census Bureau’s 2009 American Housing Survey. 

According to the 2011 American Housing Survey, 

the median purchase price of all existing occupied 

manufactured homes is $30,000 (median value selfreported by respondents also is the same). See 

http://factfinder2.census.gov/faces/tableservices/ 

jsf/pages/productview.xhtml?pid=AHS_2011_

C13OO&prodType=table. However, this median 

price reflects purchases that may have occurred as 

much as a decade earlier (see id. for acquisition 

dates). The average price of manufactured homes 

purchased more recently is higher; as of March 

2013, the average price was $62,400. See http:// 

www.census.gov/construction/mhs/mhsindex.html. 68The Agencies recognize that, absent an 

exemption for smaller dollar loans from the HPML 

appraisal rules (which apply solely to closed-end 

loans), consumers might have the option of 

borrowing a home equity line of credit (HELOC) 

rather than a closed-end home equity loan (HEL) to 

avoid the costs of an appraisal. However, the 

Agencies are aware that HELs and HELOCs are not 

in all cases readily interchangeable. HELs and 

HELOCs are different product types used by 

consumers for different purposes; they also present 

different risks for creditors. As a consequence, they 

are priced differently and are subject to different 

sets of rules. See, e.g., § 1026.42(a)(1) 

(implementing a statutory exemption for HELOCs 

from TILA’s ability-to-repay rules; see TILA 

sections 103(cc)(5) and 129C(a)(1), 15 U.S.C. 

1602(cc)(5) and 1639c(a)(1)). 

69Based on HMDA data, for example, the mean 

loan size in 2011 for a first-lien, home purchase 

HPML secured by a one- to four-family site-built 

property was $141,600; the median loan size for 

this category of loans was 109,000. See Robert B. 

Avery, Neil Bhutta, Kenneth B. Brevoort, and Glenn 

Canner, ‘‘The Mortgage Market in 2011: Highlights 

from the Data Reported under the Home Mortgage 

Disclosure Act,’’ Table 10, FR Bulletin, Vol. 98, no. 

6 (Dec. 2012) http://www.federalreserve.gov/pubs/

bulletin/2012/PDF/2011_HMDA.pdf. 

70Consumer advocates have expressed concerns 

to the Agencies that home improvement loans can 

be part of schemes that are abusive to consumers 

in some cases, such as when little or no work or 

substandard work is performed. Whether an 

appraisal requirement could be used to combat 

these abuses is unclear. 

71See Federal Financial Institutions Examination 

Council (FFIEC), Home Mortgage Disclosure Act 

(HMDA), http://www.ffiec.gov/Hmda/default.htm. 

72See id. 

The commenters on this issue shared 

concerns that requiring an appraisal for 

smaller dollar residential mortgage 

loans would result in excessive costs to 

consumers without sufficient offsetting 

benefits. Some asserted that applying 

the HPML appraisal rules to smaller 

loans might disproportionately burden 

smaller institutions and potentially 

reduce access to credit for their 

consumers. 

In outreach since the Final Rule was 

issued, however, a consumer advocacy 

group expressed the view that low- to 

moderate-income (LMI) consumers 

obtaining or refinancing loans secured 

by lower-value homes may have a 

particular need for the protections of the 

HPML appraisal rules. During informal 

outreach with the Agencies for this 

proposal, consumer advocates 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. 

Regarding the appropriate threshold 

for a smaller loan exemption, the 

comments varied widely. One 

individual commenter suggested that a 

smaller dollar loan amount appropriate 

for an exemption from the final rule 

would be $10,000 or less. A comment 

letter from a community bank indicated 

that a $25,000 home improvement loan 

might not be an appropriate transaction 

type to cover in a final rule; this 

commenter asserted that to avoid the 

burden and expense to the consumer of 

the HPML appraisal rules, a community 

bank would have to lower its rates on 

smaller loans to below HPML levels, 

which could make them unprofitable.66

A national manufactured housing 

trade association asserted that the 

median price of a manufactured home is 

$27,000 67 and that, relative to these 

small loan amounts, the cost of a 

traditional interior inspection appraisal 

is ‘‘extremely expensive’’ and could 

reduce manufactured home lending. 

Similarly, a bank representative asserted 

that when the purchase price is $30,000, 

for example, the cost of a traditional 

appraisal is ‘‘substantial.’’ Comments 

from a community bank representative, 

the community development 

organization, and another individual 

indicated that loans of $50,000 or less 

might be appropriately exempted. A 

state bank commenter suggested that 

loans of $100,000 or less should be 

exempt. Finally, a state manufactured 

housing trade association recommended 

exempting manufactured home loans 

under $125,000. 

Discussion 

The Agencies are concerned that the 

potential burden and expense of 

imposing the HPML appraisal 

requirements on HPMLs of $25,000 or 

less (that are not qualified mortgages) 

will outweigh potential consumer 

protection benefits in many cases. The 

primary concern is the expense to the 

consumer of an interior inspection 

appraisal, which could be significant 

and unduly burdensome to consumers 

of smaller loans. Thus, an appraisal 

requirement could hamper consumers’ 

use of smaller home equity loans for 

home improvements, educational or 

medical expenses, and debt 

consolidation.68 The interior inspection 

appraisal requirement also may pose an 

additional cost for consumers who seek 

to purchase lower-dollar homes (using 

HPMLs that are not qualified 

mortgages); these tend to be LMI 

consumers who are less able to afford 

extra financing costs than higherincome consumers. 

In addition, the Agencies believe that 

the proposed exemption can facilitate 

creditors’ ability to meet consumers’ 

smaller dollar credit needs. 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. 

Public comments on the 2012 Proposed 

Rule suggested that applying the rule to 

smaller dollar loans might affect smaller 

institutions in particular, and that for 

these institutions the reduction in costs 

and burdens associated with this 

exemption would be most beneficial. 

Question 40: The Agencies seek data 

from commenters on this point. 

Finally, the Agencies believe that 

creditors would generally be better able 

to absorb losses that might be associated 

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

for example, a typical home purchase 

loan, which is several times larger than 

a $25,000 loan.69

$25,000 threshold. A $25,000 

threshold is within the range of 

thresholds recommended by proponents 

of a smaller dollar loan exemption in 

their comments on the 2012 Proposed 

Rule, noted previously. In light of 

public comments, the Agencies 

examined data submitted under the 

Home Mortgage Disclosure Act (HMDA), 

12 U.S.C. 2801 et seq., as one reference 

point for informing an exemption for 

smaller dollar loans. A subordinate-lien 

home improvement loan is one example 

of a loan type for which, in the 

Agencies’ view, an interior inspection 

appraisal might be burdensome on a 

consumer without sufficient off-setting 

consumer protection or safety and 

soundness benefits.70 Based on HMDA 

data, the Agencies found that in 2009, 

the mean loan size for subordinate-lien 

home improvement loans that were 

HPMLs was $26,000 and the median 

loan size for this category of loans was 

$17,000.71 In 2010, the mean loan size 

was $24,900 for subordinate-lien home 

improvement loans that were HPMLs 

and the median loan size for this 

category of loans was $19,000.72 In 

2011, the corresponding loan sizes for 

subordinate-lien home improvement 

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73See id. 

74See 12 CFR 1026.3(b) (exempting from 

Regulation Z for loans over the applicable threshold 

dollar amount, adjusted annually); 12 CFR 

1026.32(a)(1)(ii) (setting the points and fees trigger 

for high-cost mortgages, adjusted annually). 

75As of 2011, approximately 2.8 million homes 

had a value of less than $20,000. See 2011 

American Housing Survey, ‘‘Value, Purchase Price, 

and Source of Down Payment—Owner Occupied 

Units (NATIONAL),’’ available at http://fact

finder2.census.gov/faces/tableservices/jsf/pages/ 

productview.xhtml?pid=AHS_2011_C13OO&prod

Type=table. A recent study shows that at the end 

of 2012, 10.4 million properties with a residential 

mortgage (21.5 percent of residential properties 

with a mortgage) were in ‘‘negative equity’’ and an 

additional 11.3 million had less than 20 percent 

equity. This study also suggests that negative equity 

is greater with smaller home values (i.e., below 

$200,000). See Core Logic Press Release and 

Negative Equity Report Q4 2012 (Mar. 19, 2013) 

available at http://www.corelogic.com. 

76See FFIEC, HMDA, http://www.ffiec.gov/ 

Hmda/default.htm. 

77See, e.g., 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.federal

reserve.gov/pubs/feds/2013/201330/201330pap.pdf. 

See also, e.g., Michael LaCour-Little, California 

State University-Fullerton, Eric Rosenblatt and 

Vincent Yao, Fannie Mae, ‘‘A Close Look at Recent 

Southern California Foreclosures,’’ (May 23, 2009), 

available at http://www.areuea.org/conferences/ 

papers/download.phtml?id=2133. 

78Subordinate-lien loans are not covered by 

ECOA’s requirement that the creditor provide the 

Continued 

loans that were HPMLs were $26,500 

(mean) and $20,000 (median).73

The Agencies recognize that loan 

types other than home improvement 

loans would qualify for the proposed 

exemption and that other data and 

considerations may be relevant to 

determining the appropriate threshold. 

Question 41: The Agencies are 

proposing a threshold for a smaller 

dollar loan exemption of $25,000 or 

less, but request comment on whether a 

lower or higher threshold is appropriate 

and, if so, why. The Agencies strongly 

encourage commenters to offer data to 

support their view of an appropriate 

threshold. 

Annual adjustment for inflation. The 

Agencies also propose to adjust the 

threshold for inflation every year, based 

on the percentage increase of Consumer 

Price Index for Urban Wage Earners and 

Clerical Workers (CPI–W). Thus, under 

the proposal, if the CPI–W decreases in 

an annual period, the percentage 

increase would be zero, and the dollar 

amount threshold for the exemption 

would not change. The Agencies note 

that inflation adjustments for other 

thresholds in Regulation Z are also 

annual, and believe that consistency 

across mortgage rules can facilitate 

compliance.74

Question 42: The Agencies request 

comment on whether the threshold for 

a smaller dollar loan exemption should 

be adjusted periodically for inflation 

and whether the period for adjustments 

should be one year or some other 

period. 

In comments 35(c)(2)(viii)–1, –2, and 

–3, the Agencies propose to provide the 

threshold amount and additional 

guidance on applying it. Proposed 

comment 35(c)(2)(viii)–1 sets forth the 

applicable threshold to be updated 

every year. This comment states that, for 

purposes of § 1026.35(c)(2)(viii), the 

threshold amount in effect during a 

particular one-year period is the amount 

stated in comment 35(c)(2)(viii) for that 

period. The comment states 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 goes on to state 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. The comment states that any 

increase in the threshold amount will be 

rounded to the nearest $100 increment, 

and provides the following examples: 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. Finally, the 

comment states that, from January 18, 

2014, through December 31, 2014, the 

threshold amount is $25,000. 

Proposed comment 35(c)(2)(viii)–2 

states that a transaction meets the 

condition for an exemption under 

§ 1026.35(c)(2)(viii) 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. 

Proposed comment 35(c)(2)(viii)–3 

clarifies that a transaction does not meet 

the condition for an exemption under 

§ 1026.35(c)(2)(viii) 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. As an example, the comment 

assumes a closed-end loan that qualified 

for an exemption under 

§ 1026.35(c)(2)(viii) 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. The comment cross-references 

§ 1026.35(c)(2) and § 1026.35(c)(4)(vii) 

for other exemptions from the HPML 

appraisal rules. 

Additional Condition: Providing a Copy 

of a Valuation to the Consumer. 

Question 43: The Agencies seek 

comment on whether certain conditions 

should be placed on the proposed 

exemption from the HPML appraisal 

requirements for loans of $25,000 or 

less. 

In particular, the Bureau has 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 LTVs, including 

LTVs that lead to going ‘‘underwater’’— 

owing more than their home is worth. 

Data suggest that many existing homes 

are worth under $25,000 and that many 

consumers with lower value homes are 

underwater or nearly underwater.75 In 

addition, based upon HMDA data, more 

than half of subordinate liens originated 

in 2011 were at or below $25,000.76

Studies suggest that subordinate-lien 

loans and other forms of equity 

extraction can make consumers more 

likely to default, as they reduce the 

amount of equity in the home and raise 

LTVs.77 Receiving a written valuation 

might be helpful in informing a 

consumer’s decision to take the loan by 

making the consumer better aware of 

how the value of the home compares to 

the amount that the consumer might 

borrow. 

Question 44: The Agencies seek 

comment on the risks that smaller dollar 

loans could lead to high LTV or 

‘‘underwater’’ loans without the 

knowledge of the consumer, including 

whether these risks outweigh the 

burden to the consumer of added 

appraisal costs and transaction time in 

covered transactions. See § 1026.35(c)(2) 

for additional exemptions. 

Question 45: The Agencies also 

request comment on protections that 

may reduce these risks if loans of 

$25,000 or less are generally exempt 

from the HPML requirement for a 

USPAP-compliant appraisal with an 

interior inspection. 

Question 46: In particular, the 

Agencies request comment on whether 

the exemption should be conditioned on 

the creditor providing the consumer 

with any estimate of the value of the 

home that the creditor relied on in 

making the credit decision.78

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48566 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

consumer with a copy of valuations and appraisals 

obtained in connection with an application. See 15 

U.S.C. 1691(e)(1), implemented by the 2013 ECOA 

Valuations Rule at 12 U.S.C. 1002.14 (eff. Jan. 18, 

2014). Thus, the consumer of a subordinate-lien 

smaller dollar loan would not have a right to 

receive valuations from the creditor under ECOA. 

79See 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). 

80The analysis and views in this Part VI reflect 

those of the Bureau only, and not necessarily those 

of all of the Agencies. 

81Specifically, 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. 

82The Bureau has discretion in future 

rulemakings to choose the most appropriate 

baseline for that particular rulemaking. 83The 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, 

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 

prohibit model to predict DTI using loan amount, 

income, and other variables. This model is then 

used to estimate DTI for loans in HMDA. 

84Every 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/. 

Question 47: To inform the Agencies’ 

consideration of this condition, the 

Agencies seek data from commenters on 

the extent to which creditors anticipate 

originating HPMLs of $25,000 or less 

that are not qualified mortgages. 

Question 48: The Agencies also seek 

comment on the extent to which 

creditors typically obtain an estimate of 

the value of the home to calculate the 

LTV or combined LTV (CLTV) 

associated with a transaction of $25,000 

or less. The Agencies note that 

FIRREA’s appraisal and evaluation 

regulations apply to federally-regulated 

depositories, but that certain nondepositories and depositories are not 

subject to FIRREA.79

Question 49: In addition, the Agencies 

request comment on whether and what 

guidance would be needed regarding the 

type and quality of valuation that would 

meet the condition (or, if the creditor 

obtained more than one valuation, 

which valuation the creditor should 

provide). 

Question 50: The Agencies further 

request comment on whether other 

limitations on the exemption might be 

more appropriate. One alternative might 

be to limit the exemption to loans that 

do not bring the consumer’s CLTV over 

a certain threshold. The Agencies seek 

comment on what an appropriate 

threshold would be and the valuation 

sources on which a creditor should 

appropriately rely to calculate CLTV for 

this alternative limitation on the 

exemption. 

Question 51: The Agencies request 

comment and data on whether adding 

these or similar criteria to qualify for a 

smaller dollar exemption is an 

appropriate and adequate means for 

addressing the concerns raised about 

high LTV lending. 

Question 52: Finally, the Agencies 

also seek comment and data on whether 

these conditions would likely result in 

creditors of smaller dollar HPMLs (that 

are not exempt as qualified mortgages) 

deciding to forego the exemption and 

charge the consumer for an appraisal, 

offer the consumer an open-end home 

equity product instead (which is not 

covered by the HPML appraisal rules), 

or not offer a loan at all. 

35(c)(6) Copy of Appraisals 

35(c)(6)(ii) Timing 

In the Final Rule, 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. The Agencies 

propose 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). 

VI. Bureau’s Dodd-Frank Act Section 

1022(b)(2) Analysis 80

In developing this supplemental 

proposal, the Bureau has considered 

potential benefits, costs, and impacts to 

consumers and covered persons.81 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 such 

agencies. The Bureau also held 

discussions with or solicited feedback 

from the USDA, RHS, and VA regarding 

the potential impacts of this 

supplemental proposal on their loan 

programs. 

In this supplemental proposal, the 

Agencies are proposing to exempt three 

additional classes of HPMLs from the 

2013 Interagency Appraisals Final Rule: 

(1) Certain refinance HPMLs whose 

proceeds are used exclusively to satisfy 

an existing first-lien loan and to pay for 

closing costs; (2) new HPMLs that have 

a principal amount of $25,000 or less 

(indexed to inflation); and (3) HPMLs 

secured by existing manufactured 

homes but not land. As discussed in the 

section-by-section analysis, the 

Agencies also are seeking comment on 

whether to place conditions on these 

proposed exemptions that would ensure 

the consumer receives a copy of a home 

value estimate in transactions covered 

by the exemptions. 

The Bureau will further consider the 

benefits, costs and impacts of the 

proposed provisions and asks interested 

parties to provide general information, 

data, research results and other 

information that may inform the 

analysis of the benefits, costs, and 

impacts. 

A. Potential Benefits and Costs to 

Consumers and Covered Persons 

This analysis considers the benefits, 

costs, and impacts of the key provisions 

of the Interagency Appraisals 

Supplemental Proposal relative to the 

baseline provided by existing law, 

including the 2013 Interagency 

Appraisals Final Rule and the Bureau’s 

ATR Rules.82

The Bureau has relied on a variety of 

data sources to analyze the potential 

benefits, costs and impacts of the 

proposed rule.83 However, in some 

instances, the requisite data are not 

available or are quite limited. Data with 

which to quantify the benefits of the 

proposed 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 the 

Home Mortgage Disclosure Act (HMDA). 

The empirical analysis generally uses 

2011 data, including from the 4th 

quarter 2011 bank and thrift Call 

Reports,84 the 4th quarter 2011 credit 

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Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 48567 

85The 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. 

86 DataQuick is a database of property 

characteristics on more than 120 million properties 

and 250 million property transactions. 

87This exemption implemented the statute, 

which excluded qualified mortgages from the scope 

of the HPML appraisal requirements. 15 U.S.C. 

1639h(f)(1). The Bureau notes, however, that in 

order for qualified mortgages to be eligible for the 

qualified residential mortgage (QRM) exemption 

from Dodd-Frank Act risk retention requirements, a 

USPAP appraisal would be required under rules 

proposed under other provisions of the Dodd-Frank 

Act. See Proposed Credit Retention Rule, 76 FR 

24090, 24125 (April 29, 2011) (QRM Proposal 

‘‘proposing that a QRM be supported by a written 

appraisal that conforms to generally accepted 

appraisal standards, as evidenced by [USPAP]’’ and 

other specified laws). 

88 In the absence of data indicating otherwise, the 

Bureau believes few if any streamlined refinance 

HPMLs would fail to meet qualified mortgage 

definitions by virtue of having points and fees in 

excess of three percent. Indeed, points and fees on 

streamlined refinances may be lower than other 

mortgage loans because of the reduced complexity 

in refinance transactions generally and the further 

reduced complexity of the streamlined origination 

process. In addition, for HPMLs secured by existing 

manufactured homes, the Bureau believes that the 

points and fees threshold for qualified mortgages 

would be less likely to be exceeded, insofar as these 

transactions are less likely to include loan 

originator compensation to dealers or their 

employees, whose business focuses more on new 

manufactured homes. (In any event, the Bureau also 

has proposed comment 32(b)(1)(ii)–5 to the 2013 

ATR Final Rule to clarify that the sales price for 

manufactured homes does not include points and 

fees, and that payments of the sales commission to 

dealer employees also does not count as points and 

fees. See Amendments to the 2013 Mortgage Rules 

under the Equal Credit Opportunity Act (Regulation 

B), Real Estate Settlement Procedures Act 

(Regulation X), and the Truth in Lending Act 

(Regulation Z) (proposed rule issued June 24, 2013), 

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

201306_cfpb_proposed-modifications_mortgagerules.pdf. Finally, for smaller dollar closed-end 

dwelling-secured transactions, such as home equity 

loans up to $25,000, the Bureau has not identified 

data indicating that in the current market a 

significant number of these transactions have points 

and fees at the elevated levels for smaller loans in 

the 2013 ATR Final Rule. See § 1026.43(e)(3)(i)(C)– 

(E) (setting points and fees caps of eight percent for 

loans up to $12,500, $1,000 for loans from $12,500 

up to $20,000, and five percent for loans from 

$20,000 up to $60,000). 

89Focusing on whether the loan is insured or 

guaranteed, instead of eligible for insurance or 

guarantee, is conservative; the qualified mortgage 

exemption, at § 1026.43(e)(4), is defined in terms of 

eligibility. 

union call reports from the NCUA, and 

de-identified data from the National 

Mortgage Licensing System (NMLS) 

Mortgage Call Reports (MCR) 85 for the 

4th quarter of 2011 also were used to 

identify financial institutions and their 

characteristics. Most of the analysis 

relies on a dataset that merges this 

depository institution financial data 

from Call Reports with the data from 

HMDA including HPML counts that are 

created from the loan-level HMDA 

dataset. The unit of observation in this 

analysis is the entity: if there are 

multiple subsidiaries of a parent 

company, then their originations are 

summed and revenues are total 

revenues for all subsidiaries. 

Other portions of the analysis rely on 

property-level data regarding parcels 

and their related financing from 

DataQuick 86 Tabulations of the 

DataQuick data are used for estimation 

of the frequency of properties being sold 

within 180 days of a previous sale. In 

addition, in analyzing alternatives for 

the proposed exemption for certain 

refinances, the Bureau has considered 

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). 

These FHFA and FHA data are 

described below in greater detail. 

1. Overview: Estimated Number of 

Covered HPMLs 

To estimate the number of additional 

HPMLs that could be exempted by the 

proposal, it is first necessary to recall 

the number of HPMLs that are covered 

by the Final Rule. The 2013 Interagency 

Appraisal Rule exempts all qualified 

mortgages under the Bureau’s 2013 ATR 

Final Rule. See § 1026.35(c)(2)(i).87

Therefore, the only additional loans that 

would be exempted by the proposed 

rule would be HPMLs that are not 

qualified mortgages. Under special 

temporary provisions in the Bureau’s 

2013 ATR Final Rule, any loans eligible 

for purchase or guarantee by HUD, 

USDA, or VA (until they adopt their 

own qualified mortgage rules or 2021, 

whichever is earlier), or by GSEs (until 

2021), generally would be qualified 

mortgages. See § 1026.43(e)(4). This 

temporary qualified mortgage definition 

incorporates the criteria in 

§ 1026.43(e)(2)(i)–(iii)—a limit on the 

mortgage term of 30 years, regular 

periodic payments without changes in 

payment amounts except as part of an 

adjustable-rate or step-rate product, no 

negative amortization, no balloon 

payments except in certain cases, and a 

cap on points and with points and fees 

of three percent. The Bureau believes 

that virtually all transactions that are 

eligible for purchase, insurance, or 

guarantee by HUD, FHA, VA, or GSEs, 

as applicable, would meet these criteria. 

The Bureau requests additional data 

from commenters on the extent to which 

the three transaction types covered by 

this proposal may exceed the three 

percent cap on points and fees and 

therefore not satisfy the definition of a 

qualified mortgage.88

The Bureau seeks data from 

commenters on this point. Accordingly, 

the Bureau believes that almost all if not 

all of the loans that would be exempted 

solely by virtue of the proposed 

exemptions would be transactions 

originated by private lenders for their 

own portfolio, which are not eligible for 

purchase, insurance, or guarantee by 

HUD, USDA, VA, or GSEs,89 and which 

also are not qualified mortgages under 

the general definition at § 1026.43(e)(2). 

This definition includes the criteria in 

§ 1026.43(e)(2)(i)–(iii) discussed above 

as well as one additional criterion—a 

maximum debt-to-income ratio of 43 

percent at § 1026.43(e)(2)(iv). 

As discussed in the Section 1022(b) 

analysis in the 2013 Final Interagency 

Appraisals Rule, the Bureau estimates, 

based upon 2011 HMDA data, that there 

were 26,000 HPMLs that would not 

have been qualified mortgages, 12,000 of 

which were purchase-money mortgages, 

12,000 of which were first-lien 

transactions that were refinancings, and 

2,000 of which were closed-end 

subordinate lien mortgages that were 

not part of a purchase transaction. For 

purposes of this Section 1022(b) 

analysis, the Bureau refers to these loans 

as ‘‘covered loans.’’ The impact on 

creditors and consumers of the 

proposed exemptions—which at most 

would exempt some of these estimated 

26,000 covered loans annually—is 

discussed below. 

The impact of the proposed 

exemptions on creditors and consumers 

generally varies by exemption. It should 

be noted, however, that there are no 

mandatory costs imposed on creditors 

as a result of any of the proposed 

exemptions. Creditors are not required 

to utilize an exemption. Therefore, any 

associated burdens are also optional. 

Moreover, voluntary compliance costs 

should be minimal: Creditors complying 

with the 2013 Interagency Appraisals 

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48568 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

90 In this analysis under Section 1022(b) of the 

Dodd-Frank Act, the Bureau uses the term 

‘‘valuation’’ generically to refer to any estimate of 

value of the dwelling. 

91Based upon research in anticipation of this 

proposal, the Bureau has not identified easilyaccessible public information on current pricing 

practices of AVM providers. The Bureau notes, 

however, that one GSE charges a flat fee of $20 per 

loan for a report that includes an estimated home 

value. This report is primarily a risk assessment 

tool to assist loan originators (http:// 

www.loanprospector.com/about/#howmuch). It 

provides many features, including a no-fee home 

estimate (http://www.freddiemac.com/hve/ 

faq.html#3). Given that the home estimate is not 

listed on the report’s Web page (http:// 

www.loanprospector.com/about/#howmuch), the 

Bureau assumes that the value of the estimate itself 

is relatively minor, in particular far less than $20 

per loan. Even if the estimate itself is not available 

for a much lower price than $20, the price 

introduces competitive pressure that constrains 

other AVM providers from charging more for their 

services. 

92See Fannie Mae Annual Report 2011, at 156, 

and Fannie Mae Annual Report 2012, at 127 

(reporting that ‘‘cash out’’ refinances have been 

decreasing from 2009–2012, including for the 

conventional business, from 27% to 20% to 17% to 

14% in these four years, just as other refinances 

have been increasing). See also American Housing 

Survey (2011), Table C–14b–OO (approximately 

14% of homes with a refinance had obtained the 

refinance for purposes of receiving cash), available 

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

jsf/pages/productview.xhtml?pid=AHS_2011_

C14BOO&prodType=table. 

93The actual number may be lower, however, to 

the extent any of these refinances do not meet the 

additional restriction in the proposed exemption— 

that the owner or guarantor of the new refinance 

loan is the same as the owner or guarantor of the 

existing loan being refinanced. 

Final Rule should be able to incorporate 

these exemptions into their 

underwriting process and personnel 

training with little additional cost. 

2. Streamlined Refinances 

The Agencies are proposing to exempt 

first-lien refinances that satisfy certain 

restrictions, many of which are 

commonly referred to as ‘‘streamlined 

refinances.’’ As discussed in the 

preceding section-by-section analysis, 

the Agencies are seeking comment on 

whether this proposed exemption 

should be subject to the condition that 

the creditor obtain an estimate of the 

value of the dwelling that will secure 

the refinancing and provide a copy of it 

to the consumer before consummation. 

Background on Possible Condition on 

Proposed Exemption 

Before discussing the proposed 

exemption in detail, it would be useful 

to first discuss the request for comment 

on conditioning the exemption on 

obtaining and providing a home value 

estimate to the consumer. This 

condition would apply to any loan that 

is otherwise eligible for the streamlined 

refinance exemption and that is not 

exempt under another provision of the 

Final Rule, such as the exemption for 

qualified mortgages, § 1026.35(c)(2)(i). 

Other types of valuations 90 that are 

offered in the marketplace typically 

include exterior appraisals, automated 

valuation model (AVM) reports, and 

broker-price opinions, among others. 

Alternative forms of valuation might not 

be as accurate as a USPAP- and FIRREAcompliant appraisal with an interior 

inspection; for example, they might 

implicitly assume an interior of average 

quality. Nonetheless, the Bureau 

believes a valuation provides the 

consumer with more information with 

which to make decisions than no 

valuation. Obviously, more accurate 

valuations (including valuations that are 

more current and based upon more 

rigorous, validated methods) provide 

more meaningful information than less 

accurate valuations. However, the cost 

of providing this information also must 

be considered, particularly in a 

streamlined refinance transaction 

because the consumer already owns the 

home and thus the appraisal would not 

inform a home purchase decision. The 

Bureau estimates the cost of a full 

appraisal with an interior inspection to 

be approximately $350 in addition to 

the time required to obtain the 

appraisal. For an alternative valuation 

method such as an AVM, the Bureau 

believes the cost may be as little as $5 

and the time to obtain it may be only a 

few minutes.91 The Bureau seeks 

comment on the costs, benefits, and 

impacts of conditioning the proposed 

exemption on the requirement that the 

creditor obtain an estimate of value and 

provide a copy of it to the consumer. 

The Bureau also seeks data on the 

accuracy of AVMs relative to full 

interior appraisals. 

Discussion of Proposed Exemption 

In practice, the refinances eligible for 

the proposed exemption would fall into 

two categories. The first category is 

refinances held in the portfolios of 

private creditors or sold to a private 

investor that satisfy all of the criteria for 

an exempt refinance under proposed 

§ 1026.35(c)(2)(vii). The second category 

is refinances under GSE, FHA, USDA, or 

VA programs that satisfy the proposed 

criteria. The Bureau believes that 

virtually all transactions in the second 

category (under any public refinance 

programs) already would be exempted 

from this rule by virtue of being 

qualified mortgages under § 1043(e)(4). 

As discussed in the section-by-section 

analysis above, however, under the 2013 

ATR Final Rule streamlined refinances 

under GSE programs originated in or 

after 2021 would not be qualified 

mortgages if they do not meet all of the 

general criteria for a qualified mortgage 

in the 2013 ATR Final Rule, including 

debt-to-income limits. See 

§ 1026.43(e)(2). 

Private Refinances 

Refinances originated by private 

creditors that are not eligible under 

public programs still could satisfy the 

criteria in the proposed exemption. The 

Bureau believes that the condition in 

the proposed exemption of no cash-out 

except for closing costs would be 

satisfied in most private HPML 

refinances. In the current market, cashout refinances have become less 

common.92 In addition, when the 

consumer’s existing loan is a ‘‘nonstandard’’ loan, creditors may seek to 

qualify for the exemption from the 

ability-to-repay rules of the 2013 ATR 

Final Rule for the refinance of a ‘‘nonstandard’’ mortgage into a ‘‘standard’’ 

mortgage. To qualify, the ‘‘standard’’ 

refinance must involve no cash out to 

the consumer: the proceeds may be used 

only to pay off the existing principal 

obligation and for closing costs. See 

§ 1026.43(d)(1)(ii)(E). Thus, the Bureau 

believes that the most reasonable 

assumption is that lenders are unlikely 

to originate private cash-out HPML 

refinance mortgages that are not 

qualified mortgages. Moreover, the 

proposed exemption from this rule 

would reduce costs of the loan if an 

appraisal is not otherwise required, and 

therefore create an additional economic 

incentive to refinance without taking 

cash out. From the 2013 Interagency 

Appraisals Final Rule, Section 1022(b) 

Analysis, 78 FR 10419, the Bureau 

estimates that roughly 12,000 refinances 

were covered loans.93 Because the 

Bureau does not estimate that nonqualified mortgages will be originated 

under public programs, the Bureau 

estimates that these 12,000 covered 

loans would be private refinances. Some 

of these private refinances would be 

ineligible for the proposed exemption 

due to having a different holder/ 

guarantor, having negative amortization 

or interest-only features, or having 

balloon payments. The Bureau seeks 

data from commenters on how many of 

these private refinance loans would 

have these features. However, the 

Bureau believes that the vast majority of 

private refinance loans will not have 

these features. Accordingly, the Bureau 

believes this is a reasonable estimate of 

the number of refinance loans that 

would be covered by the proposed 

exemption. 

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Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 48569 

94See OCC: 12 CFR 34.43(b); Board: 12 CFR 

225.63(b); FDIC: 12 CFR 323.3(b) (FDIC); NCUA: 12 

CFR 722.3(d); see also OCC, Board, FDIC, NCUA, 

Interagency Appraisal and Evaluation Guidelines, 

75 FR 77450, 77461 (Dec. 10, 2010) (Parts XII–XIV). 

95See Section 1022(b) analysis, 78 FR 10418–21. 

96See OCC: 12 CFR 34.43(b); Board: 12 CFR 

225.63(b); FDIC: 12 CFR 323.3(b) (FDIC); NCUA: 12 

CFR 722.3(d). 

97Section 1022(b) Analysis, 78 FR 10420. 

98See Freddie Mac Press Release, ‘‘84 Percent of 

Refinancing Homeowners Maintain or Reduce 

Mortgage Debt in Fourth Quarter’’ (Feb. 4, 2013), 

available at http://freddiemac.mwnewsroom.com/ 

press-releases/84-percent-of-refinancinghomeowners-maintain-or-r-pinksheets-fmcc981668. See also Fannie Mae 2012 Annual Report 

at 11 (reporting $237 average decrease in monthly 

payment under Fannie Mae Refi Plus® program in 

fourth quarter 2012). 

99The Bureau does not have information 

indicating that there a significant number of other 

streamlined refinance HPMLs that are not otherwise 

qualified mortgages. 

As indicated in the section-by-section 

analysis above, the Agencies are seeking 

data from commenters on the extent to 

which creditors obtain appraisals or 

other valuations in no-cash out portfolio 

refinances that are not originated under 

public programs. 

The Bureau also believes that 

conditioning the exemption on 

obtaining a valuation and providing a 

copy of it to the consumer would be 

consistent with existing industry 

valuation practices for private 

refinances. The Bureau believes that 

creditors that do not obtain an appraisal 

obtain an alternative valuation. For 

example, private streamlined refinance 

programs administered by banks, thrifts, 

or credit unions are subject to FIRREA 

regulations and the Interagency 

Appraisal and Evaluation Guidelines. 

Under these standards, the creditors 

must obtain ‘‘evaluations,’’ which can 

include (but not consist solely of) 

estimates from AVMs, to support 

streamlined refinances that are kept on 

their portfolio and are not backed by 

public programs.94 Because the Bureau 

understands that an ‘‘evaluation’’ must 

include an estimate of the property 

value, 75 FR 77450, 77461 (Dec. 10, 

2010), creditors in these programs also 

would be required already to provide 

copies of these estimates to consumers 

under the Bureau’s 2013 ECOA 

Valuations Rule, 12 CFR 1002.14(a)(1). 

Public Program Refinances Including 

Streamlined Refinance Programs 

As mentioned above, in the short and 

medium term, the Bureau believes that 

no public program refinance loans will 

be covered loans because they will be 

exempt as qualified mortgages. 

Accordingly, the proposed exemption 

would only affect some of the HPML 

refinances under GSE programs starting 

in 2021 (and some HPML refinances 

under HUD, USDA, and VA programs at 

that time if those agencies have not 

already adopted their own qualified 

mortgage rules)—an impact that is too 

remote to quantify at this time as the 

state of the GSEs, the public refinance 

programs, and the market environment 

at that time is not possible to predict. 

Below, the Bureau analyzes the 

impact of the proposed exemption for 

certain refinances on covered persons 

and consumers. 

a. Covered Persons 

Any creditors originating refinances 

that are currently covered loans and 

which meet the criteria of the proposed 

exemption could choose to make use of 

the proposed exemption, which would 

reduce burden. In particular, these loans 

would not be subject to the estimated 

per-loan costs described in the 2013 

Interagency Appraisals Final Rule.95 For 

these transactions, these creditors 

would not be required to spend time 

reviewing the appraisals conducted for 

conformity to this rule, and providing 

copies of those appraisals to applicants. 

The Bureau is requesting that 

commenters provide data on the rate at 

which appraisals and other valuations 

are conducted for private refinances. If 

the Bureau is able to obtain this 

additional information, it can better 

estimate the burden that would be 

reduced if the proposed exemption is 

finalized for private refinances. 

In addition, the Bureau believes that 

conditioning the proposed exemption 

on the creditor obtaining and providing 

the consumer with an alternative 

valuation would not significantly 

decrease the amount of burden relieved 

by the exemption. Such alternative 

valuations cost significantly less than 

full interior appraisals and, in many 

cases, already are required by 

regulations or are otherwise obtained 

under current industry practice and 

therefore subject to disclosure to the 

consumer under the Bureau’s 2013 

ECOA Valuations Rule. According to the 

data that was provided to the Agencies 

by the FHFA, in 2012, all GSE 

streamlined refinance transactions have 

either an automated valuation estimate 

(more than 80%) or an appraisal 

performed (less than 20%). The Bureau 

also understands that the Agencies’ 

FIRREA regulations also generally 

mandate alternative valuation methods 

for streamlined refinances where 

appraisals are not used and the 

transaction is not sold to, guaranteed by, 

or insured by a government agency or 

GSE.96 A condition on the proposed 

exemption still could allow flexibility 

for creditors to determine the type of 

alternative valuation to provide; and 

just as Section 129H(d) of TILA notes 

that the appraisal required under the 

Dodd-Frank Act for covered HPMLs is 

for the creditor’s sole use, a condition 

would not necessarily prevent a creditor 

from informing the consumer that he or 

she uses the alternative valuation ‘‘at 

their own risk.’’ As noted in the sectionby-section analysis above, the Agencies 

seek comment on the extent to which 

creditors originating loans eligible for 

the proposed exemption obtain 

valuations currently. In any case, even 

if a condition were adopted, use of the 

proposed exemption would be 

voluntary. 

b. Consumers 

For those consumers whose HPML 

streamlined refinance would not have 

been a qualified mortgage (such as those 

HPMLs not associated with public 

programs and not otherwise meeting the 

general definition of qualified 

mortgage), the proposed exemption 

would ensure the rule—including its 

appraisal requirement—does not apply 

to their loan. This can result in several 

types of cost savings to consumers of 

these loans. First, as discussed in the in 

the 2013 Interagency Appraisals Final 

Rule, the Bureau believes the cost of 

appraisals—$350 on average—is 

generally passed on to consumers.97 In 

addition, streamlined refinance 

transactions may close more quickly 

without an appraisal, and recent data 

indicates that these refinances in the 

current rate environment have interest 

rates on average nearly two percent 

lower than the loan being refinanced.98

As a result, those consumers described 

above typically would save money 

because the transaction will not have to 

wait to close until an appraisal is 

conducted and reviewed: for example, if 

the consumer can close a refinance 

transaction two weeks earlier because a 

full appraisal is not performed, that will 

provide the consumer with an 

additional two weeks of payments at the 

reduced interest rate of the refinance 

loan. The exemption therefore may 

result in some reduced interest rate 

expenses for consumers seeking private 

streamlined refinance HPMLs that are 

not qualified mortgages and which 

would not have otherwise had an 

appraisal. The Bureau believes that the 

number of consumers affected by this 

benefit annually is quite small: Of the 

12,000 estimated private refinances 

eligible for the exemption discussed 

above, only the fraction that would not 

otherwise have had an appraisal would 

benefit.99

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48570 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

100Section 1022(b) Analysis, 78 FR 10417–18. 

101The proposed exemption already excludes 

loans with terms that are generally viewed as 

reducing consumer protection, such as negative 

amortization, interest-only, or balloons. 

102 Indeed, unlike in a home purchase 

transaction, in a streamlined refinance transaction 

(unless the originating creditor on the new loan is 

the same as on the existing loan), the consumer has 

an absolute three-day right of rescission under 

Regulation Z, § 1026.23. This right underscores the 

need for consumers to be informed prior to its 

expiration. 

103As discussed above, the Bureau does not 

believe that a significant number of smaller dollar 

HPML would exceed the points and fees threshold 

in the 2013 ATR Final Rule, but is requesting data 

from commenters on this issue. If a significant 

number of smaller dollar HPMLs did exceed that 

threshold, then the number of loans eligible for the 

proposed exemption would increase. 

The Bureau is uncertain, however, 

whether the proposed exemption would 

make it more likely that the transaction 

is consummated for these consumers. 

As noted above, when an appraisal is 

not conducted, an evaluation is 

generally required under FIRREA 

regulations for depository institutions. 

The Bureau does not believe, and had 

not identified any data indicating, that 

an appraisal is any more or less likely 

than an evaluation to cause a 

transaction to fail (for example because 

the valuation exceeds the price, or 

causes the loan to exceed any LTV 

limits). Accordingly, the Bureau 

requests data from commenters on 

whether the exemption would increase 

the likelihood of consummation for 

refinances eligible for the exemption. If 

the exemption made consummation of 

the transaction more likely for these 

consumers, the Bureau believes this 

would provide a benefit to these 

consumers whenever the refinance 

transaction is beneficial for the 

consumer. 

As discussed in the Bureau’s analysis 

under Section 1022 in the 2013 

Interagency Appraisals Final Rule, in 

general, consumers who are borrowing 

HPMLs that are covered loans and who 

would not otherwise have appraisals 

conducted for the transaction could 

benefit from an appraisal being 

conducted.100 Benefits of appraisals in 

residential mortgage transactions 

generally can range from having a 

valuation that better accounts for the 

interior and exterior of their particular 

property, to having information that can 

be used to evaluate insurance coverage 

levels and real estate tax valuations, to 

being better informed as to the value of 

their property before making a final 

decision to enter into a new transaction, 

among others. Consumers who are better 

informed before consummating a 

streamlined refinance loan would be 

better able to assess their alternatives, 

which can include the following, among 

others: 

• Remaining in the home with the 

existing loan; 

• Refinancing through a different 

program at a better rate or other 

improved terms (such as not requiring 

mortgage insurance); 101

• Seeking a modification; 

• Selling the home; or 

• Negotiating with the servicer to 

provide the deed-in-lieu without 

defaulting, among others. 

Of course, in a refinance transaction, 

a consumer having better home value 

information through an appraisal will 

not affect the consumer’s decision of 

whether to buy the home in the first 

place. Nonetheless, when considering a 

refinance loan, the appraisal can inform 

the consumer with respect to options to 

pursue such as those listed above, 

which could be more beneficial or 

appropriate for the consumer than 

refinancing the loan.102

For example, if the appraisal 

establishes that the value of the 

dwelling is higher than otherwise 

estimated, the consumer’s cost of credit 

could decrease and the consumer might 

even be able to borrow at rates below 

HPML thresholds. On the other hand, if 

an appraisal establishes that the value of 

the dwelling is lower than otherwise 

estimated, the consumer might be better 

positioned to consider alternative 

options discussed above. The new 

appraisal also may alert the consumer, 

in some cases, to flaws or even to an 

inflated valuation in the original 

appraisal used to purchase the home. 

The cost to consumers of the 

proposed exemption therefore would be 

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. 

Nonetheless, to mitigate the loss of 

potential benefits to consumers arising 

from not having an appraisal in an 

exempt refinance transaction, the 

Agencies are seeking comment on 

whether to condition the proposed 

exemption on the creditor obtaining and 

providing to the consumer an 

alternative valuation as a condition of 

the loan being eligible for the proposed 

streamlined refinance exemption. The 

Bureau believes that, in general, a 

consumer’s receipt of a home value 

estimate other than an appraisal can 

mitigate the information disadvantage 

when an appraisal is not obtained. More 

specifically, the Bureau believes that the 

cost of getting an AVM estimate is 

minimal and that it is already done as 

a standard business practice in many 

cases. Also, the Bureau believes that the 

cost of a broker price opinion (BPO) or 

any other reasonable valuation method 

that would be permitted under 

applicable law is well below the cost of 

a USPAP-compliant appraisal. The 

Bureau seeks comment on these 

assumptions. 

As discussed in the section-by-section 

analysis above, the Agencies also are 

requesting comment on whether 

consumers would benefit from a 

condition on the exemption relating to 

the amount of transaction costs that can 

be charged. One of the principal reasons 

why an appraisal may be less important 

to a consumer in a streamlined 

refinance transaction is that, except for 

closing costs that may be financed by 

the loan, the consumer is not losing 

equity. This rationale appears to be 

strongest if the exemption cannot be 

used in refinance transactions that also 

finance high transaction costs, 

especially given that consumers can 

engage in serial refinancing. Serial 

refinancing at high points and fees that 

are financed can reduce a consumer’s 

equity as much if not more than a cashout refinance. 

3. Smaller Dollar Loans 

As discussed in the section-by-section 

analysis above, the Agencies are 

proposing to exempt HPMLs secured by 

new loans with principal amounts of 

$25,000 or less (indexed to inflation) 

from the HPML appraisal rules, while 

seeking comment on whether the 

threshold for the exemption should be 

different. The Agencies also are seeking 

comment on whether to condition this 

exemption on the creditor providing the 

consumer with a copy of a valuation, as 

described in more detail in the sectionby-section analysis above. The Bureau 

estimates the number of transactions 

potentially eligible for this 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 

debt-to-income above 43 percent (so 

they would not meet the more general 

definition of a qualified mortgage). 

Accordingly, the Bureau estimates that 

approximately 4,800 covered loans are 

originated annually in an amount up to 

$25,000.103 Of these estimated 4,800 

covered loans at or below $25,000, the 

Bureau estimates that the types most 

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104See 78 FR 10419. 

105See Section 1022(b) analysis, 78 FR 10418–21. 

106Of course, this cost also would not be more 

than the cost of complying with the Final Rule 

without the proposed exemption, as the Final Rule 

requires providing a copy of an appraisal to the 

consumer in covered transactions. See 

§ 1026.35(c)(6). 

107 78 FR 10419. 

108See 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 SingleFamily 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-home-prices-q4-2012-single-family2013-02-11.pdf. 

109Core Logic Press Release and Negative Equity 

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

http://www.corelogic.com. 

110See 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. 

affected by this proposed 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. 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 2013 Interagency 

Appraisals Final Rule.104

a. Covered Persons 

Creditors originating smaller dollar 

covered loans would experience some 

reduced burden as a result of the 

proposed exemption for HPMLs of 

$25,000 or less. If the proposed 

exemption were adopted, these loans 

would not be subject to the estimated 

per-loan costs described in the 2013 

Interagency Appraisals Finale Rule.105

For these transactions, creditors 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, 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, for example 

if they are not qualified mortgages. 

Even if the proposed exemption 

reduces the number of interior 

inspection appraisals conducted for 

smaller dollar HPMLs, the overall 

impact of this proposed exemption on 

creditors is likely minimal for most 

creditors given that only 4,800 such 

loans were made among 12,000 

creditors. 

Finally, the Bureau does not estimate 

that the burden reduced by the 

exemption would be significantly 

lowered by conditioning the exemption 

on the creditor providing the consumer 

a copy of a valuation that the creditor 

relied on in extending credit. As noted 

above, for depository institutions and 

credit unions, FIRREA regulations 

generally require evaluations when an 

appraisal is not obtained because the 

transaction amount is below $250,000; 

thus, the Bureau estimates that most 

transactions of $25,000 involve a home 

estimate of some type. In first lien 

transactions, providing copies of 

valuations is already required under the 

2013 ECOA Valuations Rule, so the 

condition would impose no added 

burden. See 12 CFR 1002.14(a)(1). For 

subordinate lien transactions, the cost of 

such a condition would not be more 

than the small cost of copying and 

mailing a valuation, or scanning and 

transmitting it electronically.106 The 

Bureau seeks data from commenters on 

the extent to which depository 

institutions, credit unions, and nondepository institutions obtain appraisals 

or other types of valuations in these 

transactions. 

b. 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 proposed exemption for 

smaller dollar HPMLs (at or less than 

$25,000) would provide some benefits. 

Industry practice prior to 

implementation of the 2013 Final Rule 

suggests that appraisals are not 

otherwise frequently done for home 

improvement and subordinate lien 

transactions.107 Thus, by not requiring 

an appraisal, the cost of which typically 

would be passed on to consumers, the 

proposed exemption could facilitate 

access to smaller dollar HPMLs that are 

not otherwise exempt from the HPML 

appraisal rules. Without an exemption, 

some consumers may 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 qualified mortgage) or 

pursuing an alternative source of credit 

that is not subject to the rules, such as 

an open-end home equity line of credit. 

Under the proposed exemption, 

consumers in smaller dollar HPMLs 

(that are not otherwise exempt) would 

lose the benefits of the Final Rule, 

however. As discussed in the Bureau’s 

analysis under Section 1022 in the Final 

Rule, in general, consumers who are 

borrowing HPMLs could benefit from an 

appraisal. For HPMLs that are not 

purchase transactions, the general 

benefits discussed above 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 into negative 

equity, without the consumers 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.108 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.109 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.110 Moreover, based upon HMDA 

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111See, e.g., GAO Report GAO/GCD–98–169, 

High Loan-to-Value Lending—Information on Loans 

Exceeding Home Value (Aug. 1998), available at 

http://www.gao.gov/assets/230/226291.pdf at 2 

(‘‘data provided by a lender responsible for about 

one-third of HLTV lending showed that, in 1997, 

HLTV loans averaged about $30,000. The data also 

showed that the average contract interest rate was 

between 13 and 14 percent, with an average loan 

term of 25 years. The average combined 

indebtedness of the first mortgage and the HLTV 

loan represented about 110 percent of the 

borrower’s property value, although in some cases 

the combined loans reached or exceeded 125 

percent of value.’’). 

112The consumer would not otherwise receive a 

copy of valuations for a subordinate lien transaction 

because the requirement to provide the consumer 

with a copy of valuations obtained in connection 

with an application for credit under Regulation B, 

12 CFR 1002.14(a), does not apply to subordinatelien loans. 

114See Cost & Size Comparisons: New 

Manufactured Homes, available at http:// 

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

sitebuiltvsmh.pdf. 

115Only a few states provide for treating 

manufactured homes sited on leased land as real 

property. 

116This estimate would increase to the extent any 

other manufactured home purchase HPMLs would 

not be qualified mortgages solely because they 

exceed caps on points and fees in the Bureau’s ATR 

Rule. As noted in the footnote at the outset of the 

Section 1022 analysis above, however, the Bureau 

believes this is less likely based upon existing and 

potentially forthcoming clarifications on this issue. 

117The 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. 

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. In 

some of those cases, knowledge of the 

current value of the home could prevent 

consumers from unwittingly using up 

too much equity in their homes or going 

underwater or going further underwater, 

which could make it more difficult for 

them to sell or refinance in the future. 

The Bureau therefore seeks comment on 

the extent to which smaller dollar loans 

of $25,000 or less are nonetheless higher 

LTV loans, for example resulting in 

combined loan-to-value of 90 percent or 

more.111 In addition, the section-bysection analysis above seeks comment 

on whether the exemption should 

include a condition—such as providing 

the consumer with a copy of a valuation 

relied upon by the creditor in the 

transaction; 112 the purpose of the 

condition would be to prevent 

consumers from entering into loans that 

unwittingly use up most or all of the 

equity in their homes and which also 

could impede their ability to refinance 

or sell their home in the future. 

In summary, the cost of the proposed 

exemption to consumers would be the 

loss of benefits generally associated 

with appraisals for the number of 

covered loans that would be newlyexempted by the proposed exemption 

for smaller dollar loans—that is, for an 

estimated 4,800 loans annually, 

assuming that none of these loans 

currently get full interior appraisals. 

This cost could be mitigated by 

conditioning the exemption in a manner 

that reduces the risk the consumer 

would unwitting borrow an amount that 

consumes available equity in the home. 

4. Proposed Approach to Transactions 

Secured by Manufactured Homes 

As discussed in the section-by-section 

analysis above, the market for 

manufactured home loans can be 

classified according to collateral type: 

New home only, new home and land, 

existing home only, and existing home 

and land. The proposal seeks comment 

on whether changes are warranted to the 

exemption adopted 2013 Interagency 

Appraisals Final Rules regarding 

transactions secured by new homes. 

Such changes may include narrowing 

the exemption to apply only to 

transactions secured by a new 

manufactured home but not land. The 

proposal also seeks comment on 

conditioning the exemption for 

transactions secured by new 

manufactured homes on obtaining and 

providing the consumer with a home 

value estimate other than a USPAP- and 

FIRREA-compliant appraisal with an 

interior inspection prior to 

consummation. (The types of estimates 

that might satisfy such a condition are 

discussed in the section-by-section 

analysis above.) As also discussed in the 

section-by-section analysis above, the 

Agencies are proposing to exempt 

HPMLs secured by existing 

manufactured homes, and are seeking 

comment on conditioning this proposed 

exemption on obtaining and providing a 

home value estimate to the consumer. 

The Agencies’ proposed exemption for 

existing manufactured homes would not 

apply when land provides security; as 

indicated in the section-by-section 

analysis above, the Agencies believe 

that USPAP-compliant appraisals are 

feasible and commonly performed for 

these transactions. 

To assess the impact of the proposal’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 not 

qualified mortgages because the debt-toincome ratio exceeded 43 percent and 

the loan was not insured, guaranteed, or 

purchased by a federal government 

agency or GSE.113 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 proposed smaller dollar 

exemption discussed above. For 

purposes of this discussion, however, 

the Bureau analyzes all manufactured 

home loans regardless of amount. 

Transactions financing the purchase 

of a new manufactured home. Census 

data reports shipment of approximately 

51,000 new manufactured homes in 

2011, with approximately 17 percent 

titled as real estate.114 For purposes of 

this analysis, the Bureau 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 new 

manufactured home purchase 

transactions that are secured in part by 

land.115 The Bureau therefore 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 not 

qualified mortgages, and almost 700 

were land and home-secured HPMLs 

that were not qualified mortgages.116

Transactions financing the purchase 

of an existing manufactured home. 

Census data also reports an estimated 

369,000 move-ins to owner-occupied 

manufactured homes in 2011.117 As 

noted above, approximately 51,000 new 

manufactured homes were shipped. 

Therefore, the Bureau estimates that 

approximately 318,000 existing 

manufactured homes were purchased in 

2011. Again, the Bureau assumes that all 

of these purchases were financed. 

Further, based upon a review of nearly 

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118According 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. 

119These estimates would increase to the extent 

any other manufactured home purchase HPMLs 

would not be qualified mortgages solely because 

they exceed caps on points and fees in the Bureau’s 

ATR Rule. As noted in the footnote at the outset of 

the Section 1022 analysis above, however, the 

Bureau believes this is less likely based proposed 

clarifications on this issue. 

120A sample of this report, as noted in the 

section-by-section analysis, is available at http:// 

www.nadaguides.com/Manufactured-Homes/ 

images/forms/MHOnlineSample.pdf. 

121Outreach to a large appraiser trade association 

indicates that between 1998 and 2007 nearly 10,000 

individuals took their in-person or online seminars 

on appraising manufactured housing. The current 

version of these seminar materials, as well as 

outreach to state appraisal boards and related 

research, confirms that when necessary USPAP 

appraisals can use non-manufactured homes as 

comparables, making adjustments where needed. 

Therefore, the Bureau does not believe that 

appraiser availability and appraisal feasibility 

should affect its cost estimates here. 

122For example, a survey in Texas—the state with 

the highest number of new manufactured home 

purchases—estimated that manufactured home 

appraisals cost approximately the same as singlefamily appraisals. See Texas A&M Univ. Real Estate 

Center, Univ. of Chicago, and Univ. of Houston, 

‘‘The Texas Appraisers and Appraisal Management 

Company Survey’’ (Oct. 2012) at Table 2 (indicating 

that manufactured home appraisal costs cluster in 

the range of $351–400). In addition, in all nine 

Veterans Administration (VA) regions, VA appraiser 

fee schedules either do not separately break out the 

cost of manufactured home appraisals or provide 

for fees that are the same or lower than singlefamily appraisals. 123The average cost per-loan would therefore 

depending on the covered person’s total level of 

lending activity. This cost also could increase to the 

extent the condition were to require the creditor to 

gather information necessary to make adjustments 

to the estimate from the published cost service, 

such as information on the land lease community 

or location, or information necessary to confirm the 

accuracy of the estimate from the published cost 

service, such as verifying by interior inspection that 

the proper model was sited. The extent of cost 

increase generated by these steps would depend on 

how often they are performed under existing 

practice. 

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 estimates that 

approximately 105,000 purchases of 

existing manufactured homes also 

involved the acquisition of land which 

provided security for the purchase 

loan,118 while approximately 213,000 

purchases were secured only by the 

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 not qualified 

mortgages, and approximately 8,400 

were land- and home-secured HPMLs 

that were not qualified mortgages. As 

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 Rule. 

Refinances and home improvement 

loans on existing manufactured homes. 

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 refinance or home 

improvement loan. Applying this factor 

of 4:1, approximately 4,300 (17,000/4) 

were chattel HPMLs that were not 

qualified mortgages, and approximately 

2,100 (8,400/4) were land and homesecured HPMLs that were not qualified 

mortgages.119

a. Covered Persons 

Transactions Secured by New 

Manufactured Homes 

The proposal seeks comment on 

narrowing the exemption adopted in the 

Final Rule to cover only transactions 

secured solely by a new manufactured 

home but not land. The proposal also 

seeks comment on conditioning the 

exemption for those transactions on 

providing to the consumer an estimate 

of the replacement cost of the new 

manufactured home, including any 

appropriate adjustments, using a thirdparty published cost service such as the 

NADAGuides.com Value Report 120 or 

other methods discussed in more detail 

in the section-by-section analysis. The 

proposal also seeks comment on 

maintaining the exemption for 

transactions secured by both new 

manufactured homes and land but 

conditioning that exemption on use of 

an alternative valuation method. 

If the exemption were narrowed to no 

longer cover HPMLs secured by both a 

new manufactured home and land, the 

creditor would need to obtain USPAPand FIRREA-compliant appraisal with 

an interior inspection in these 

transactions. The Bureau believes the 

cost of this appraisal is not likely to be 

significantly higher than the cost of 

current valuation practices in these 

transactions. As discussed in the 

section-by-section analysis above, the 

Bureau understands that GSE, HUD 

Title II, USDA, and VA manufactured 

housing finance programs all require 

USPAP-compliant appraisals on 

standard GSE forms for transactions 

secured by manufactured homes and 

land, and that thousands of these 

transactions occur each year in these 

programs, some at HPML rates. Even if 

a creditor’s appraisal does not meet the 

appraisal standards for these programs 

(for example, GSE requirements 

mandating a minimum number of 

manufactured homes be used as 

comparables), it still may comply with 

USPAP.121 In addition, based upon 

further research, the Bureau has 

confirmed that USPAP appraisals of 

manufactured homes and land cost 

approximately the same on average as 

USPAP appraisals of other types of 

homes and land titled together as real 

property.122 Moreover, information 

obtained in outreach and research from 

a large manufactured housing lender 

and a large bank indicate that it is 

common to obtain at least an appraisal 

of the land in these transactions. The 

Bureau believes that the cost of a 

USPAP-complaint appraisal of a vacant 

lot is unlikely to cost more than the 

average $350 cost for a USPAPcompliant appraisal of a home. 

Therefore, based upon available 

information, the Bureau does not 

believe that narrowing the exemption to 

exclude these transactions is likely to 

lead to significant new costs for 

creditors. 

If the exemption were conditioned on 

obtaining an estimate of the value of the 

new manufactured home from a 

published cost service (such as a NADA 

Guide Valuation Report or a report from 

the Marshall & Swift Cost Estimator) 

and providing this to the consumer, the 

costs likely would be minimal. 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, 

while similar unlimited-use 

subscriptions to the Marshall & Swift 

service may cost approximately 

$1,200. 123 In addition, for transactions 

secured by both a new manufactured 

home and land, if this condition also 

required obtaining an appraisal of the 

land, costs are unlikely to increase in 

many of these transactions because 

information obtained in outreach 

suggests appraisals of the land already 

are a common practice in these 

transactions. The Bureau seeks 

comment on the frequency with which 

the type of valuation information is 

described in this paragraph is obtained 

in a new manufactured home 

transaction. 

Finally, the proposal requests 

comment on whether any condition on 

the exemption also should call for the 

consumer to receive a copy of the 

valuation obtained before 

consummation. The Bureau does not 

believe this aspect of any condition on 

an exemption would add significant 

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48574 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

124See Section 1022(b) analysis, 78 FR 10418–21. 

125Outreach to a provider of reports including 

comparables on existing manufactured homes in 

transactions secured by the home but not land 

indicates that they provide these reports to some of 

the lenders in the industry, and sell a total of 

approximately 3,000 reports at an average price of 

nearly $300. In addition, a large industry trade 

association also maintains a service that provides 

reports on comparables for manufactured homes 

located in larger lease communities. 

126The creditor also may have some pertransaction costs for obtaining information about 

the condition of the home, including through an 

inspection, used to develop the cost estimate. The 

Bureau believes, however, that it is standard 

industry practice for lenders to obtain information 

about the condition of the home as part of their 

underwriting process, whether by hiring a third 

party property inspector or obtaining photos of the 

home from the borrower. 

127See American Housing Survey, ‘‘Mortgage 

Characteristics—Owner Occupied Units 

(NATIONAL),’’ Table C14a–OO (2011) (as of 2011, 

39% of manufactured homes had outstanding loanto-value (LTV) ratios of over 100%, while the 

overall rate for owner-occupied housing was only 

19%), available at http://factfinder2.census.gov/

faces/tableservices/jsf/pages/product

view.xhtml?pid=AHS_2011_C14AOO&prod

Type=table. 

burden. For first-lien transactions, 

delivery already would be required 

under Regulation B. See 12 CFR 

1002.14(a)(1). For first- and subordinatelien transactions, transmission generally 

would occur electronically and the cost 

would be minimal, as discussed in the 

Bureau’s Section 1022(b) analysis in the 

Final Rule, 78 FR 10421. 

Transactions Secured by Existing 

Manufactured Homes and Not Land 

Creditors originating covered 

transactions secured by existing 

manufactured homes but not land that 

would be covered loans would 

experience some reduced burden as a 

result of the proposed exemption. In 

particular, these loans would not be 

subject to the estimated per-loan costs 

for a USPAP-complaint appraisal 

described in the 2013 Interagency 

Appraisals Final Rule.124 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. 

USPAP-complaint appraisals 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. 

As a result, for purposes of analyzing 

the benefits of the proposed exemption, 

the Bureau assumes that very few, if 

any, transactions secured by existing 

manufactured homes but not land 

include USPAP-compliant appraisals.125

While the Bureau believes that this is a 

reasonable assumption, it seeks 

nationally-representative data from 

commenters on valuation practices for 

these transactions. Meanwhile, the 

estimated burden reduced as a result of 

this proposed exemption would be the 

difference between the cost of a USPAPcomplaint appraisal (which the Bureau 

assumes would be no more than the cost 

of an appraisal in a transaction secured 

by a site-built home, i.e., $350) and the 

cost of current valuation practices, such 

as obtaining an estimate from a 

published cost service or an evaluation 

in the case of financial institutions 

subject to FIRREA regulations. The 

Bureau believes that most lenders obtain 

estimates from published cost services 

in most if not all of these transactions, 

thus, the Bureau believes the burden 

reduction of the exemption would be 

approximately the same, regardless of 

whether the exemption were 

conditioned on the creditor obtaining an 

estimate based upon a published cost 

service.126

b. Consumers 

The Bureau believes that consumers 

using HPMLs that are not qualified 

mortgages in an amount over $25,000 to 

purchase, improve, or refinance any 

manufactured home generally would 

benefit as much as any other type of 

homeowner from an estimate of the 

value of the home, including an 

appraisal, in the ways discussed in the 

Bureau’s analysis under Section 1022 in 

the 2013 Interagency Appraisals Final 

Rule. In some cases, this benefit could 

be even greater; some recent data 

suggests the risk of negative equity may 

be as much as two times greater for 

owners of manufactured homes than for 

owners of other types of housing. One 

reason that negative equity may be a 

more acute risk in manufactured home 

transactions is that, according to 

research and outreach conducted by the 

Agencies, the loan amount can 

frequently exceed the collateral value 

from the outset of the transaction 

without the consumer’s knowledge.127

Obtaining an appraisal, or in some cases 

an alternative valuation, can be an 

important means of informing the 

consumer (and creditor) of the equity 

position in the home at the time of 

consummation and preventing 

transactions where the consumer 

unknowingly begins home ownership in 

a negative equity position. This type of 

knowledge can be critical to making 

informed choices about what type of 

transactions to pursue. If a consumer 

who purchases a manufactured home 

has negative equity at the time of 

purchase (or a consumer who seeks to 

make home improvements has negative 

equity at the time of the improvements), 

this decreases the chance that the 

consumer will build equity for a 

significant period of time and, according 

to outreach with a consumer advocacy 

group, the consumer is more likely to 

face impediments when seeking to 

refinance the HPML (which in the case 

of chattel lending is more often at a high 

rate than loans for other types of 

housing) or sell the home (which can be 

an important loss mitigation option if 

the HPML becomes difficult to afford). 

Transactions Secured by New 

Manufactured Homes 

For HPMLs secured by new 

manufactured homes, as discussed in 

the section-by-section analysis above, 

the Agencies are seeking comment on 

options for ensuring the consumer is 

informed of the value of the dwelling 

serving as collateral—whether via 

narrowing or placing conditions on the 

exemption. If the exemption were 

narrowed to exclude transactions 

secured by both manufactured homes 

and land so that an appraisal is required 

and consumers receive an appraisal 

report copy, then, as noted above, 

information obtained in outreach 

suggests that the cost of the valuation 

(which typically is passed on to the 

consumer) would not necessarily 

increase relative to existing practice. 

Similarly, valuation costs would not 

necessarily increase if the exemption 

were conditioned on following an 

alternative practice, such as adding the 

appraised value of the land alone to the 

estimated value of the home using a cost 

approach, because that practice appears 

to be common currently. 

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128See 12 CFR 1002.14(a); comment 14(b)(3)–3.iv 

(clarifying that the manufacturer’s invoice is not a 

valuation that must be provided to the consumer 

under Regulation B). 129Section 1022(b) Analysis, 78 FR 10417–18. 

Finally, for transactions secured by a 

new manufactured home but not land, 

published cost estimates are not likely 

to add a significant expense, as 

discussed above. Any of these options 

also would ensure that consumers are 

informed of an estimate of the value of 

the manufactured home. Otherwise, the 

manufacturer’s invoice may be the only 

document relating to the value of the 

home, and the consumer would not 

have a right to receive a copy of that 

document under the ECOA Valuations 

Rule.128

Transactions Secured by Existing 

Manufactured Homes and Not Land 

For consumers seeking refinances or 

home improvement loans secured by 

existing manufactured homes, seeking 

to sell existing manufactured homes, or 

seeking to buy existing manufactured 

homes without using land as collateral 

for the transaction, the proposed 

exemption for transactions secured by 

existing manufactured homes but not 

land could provide a significant benefit 

if it would be difficult for a significant 

number of these transactions to be 

consummated without an exemption. 

The Bureau does not have information 

indicating that USPAP-complaint 

appraisals by state-certified or statelicensed appraisers for these 

transactions are common industry 

practice. In the section-by-section 

analysis above, the Agencies also have 

requested comment on how often statecertified or state-licensed appraisers are 

available to service these transactions. If 

such appraisers are not consistently 

available in these transactions, then 

without the exemption, buyers using 

HPMLs to purchase, and owners using 

HPMLs to refinance, existing 

manufactured homes without offering 

land as security could be faced with a 

significant barrier. Consumers selling 

their homes could be similarly affected 

because the Bureau believes that many 

buyers of these properties use HPMLs 

that are not qualified mortgages, which 

would make it difficult to find a buyer 

who could close the loan using an 

available valuation method. 

As discussed in the Bureau’s analysis 

under Section 1022 in the 2013 

Interagency Appraisals Final Rule, in 

general, consumers who are borrowing 

HPMLs that are covered by the rule 

nonetheless could benefit if an appraisal 

can be conducted. If the proposed 

exemption is for transactions secured by 

existing manufactured homes and not 

land is adopted, these benefits could be 

lost if creditors do not obtain a reliable 

home estimate in the transaction.129 The 

Agencies therefore have sought 

comment on conditioning the proposed 

exemption on use of a different type of 

home estimate, such as an independent 

estimate based upon comparables (as is 

required in HUD Title I transactions) or 

an estimate from a published cost 

service is more likely to achieve all of 

these same benefits. At least the latter 

type of valuation appears to be more 

common for these types of transactions 

based upon industry comments on the 

2012 Interagency Appraisals Proposal 

and further outreach and research in 

preparation for this proposal. As a 

result, the proposed exemption with 

such a condition would help to preserve 

access to credit for consumers seeking 

HPMLs secured by existing 

manufactured homes but not land (and 

not otherwise exempt as a qualified 

mortgage or in an amount of $25,000 or 

less) because the transactions could be 

supported not only by a market value 

(comparable-based) appraisal if 

available but also by an estimate from a 

published cost service. Allowing for a 

broader range of valuation options helps 

to ensure access to this type of credit for 

consumers who own or are seeking to 

buy existing manufactured homes 

without offering land as security for the 

transaction. 

As noted in the section-by-section 

analysis, consumer advocates in 

outreach raised questions about the 

accuracy of estimates derived from a 

published cost service such as the 

NADA Guide value report in part 

because this method of estimating home 

values does not analyze the market 

value of the home in the particular 

location based upon comparables. The 

Bureau notes, however, that one cost 

method—the NADAGuide.com Value 

Report—provides for adjustments based 

upon region and land-ease community 

which can take into account location 

factors. In addition, comparable-based 

estimates for existing manufactured 

homes can cost nearly $300 according to 

outreach to one provider, which the 

Bureau believes would be significantly 

more costly than an estimate based 

upon a published cost service. If such a 

valuation for a new manufactured home 

would be similarly priced, then it would 

be significantly more expensive than the 

cost estimate noted above (which can be 

used for new manufactured homes as 

well as existing manufactured homes). 

The Bureau believes that a lower-cost 

method would result in less cost passed 

along to the consumer. In any event, for 

both new and existing manufactured 

homes, the Bureau requests data from 

commenters on the cost and accuracy of 

valuations developed from local market 

comparables, and valuations based upon 

published cost services that provide for 

adjustments such as those noted above. 

Transactions Secured by Existing 

Manufactured Homes and Land 

Finally, as noted above, the Bureau 

does not believe that continuing to 

require USPAP-compliant appraisals for 

transactions secured by existing 

manufactured homes and land would 

pose any significant impediment to 

these transactions, as the cost of the 

appraisal is on par with that of other 

homes and the process used of selecting 

and adjustment comparables also is 

standard. 

B. Potential Specific Impacts of the 

Supplemental Proposal 

1. Potential Reduction in Access by 

Consumers to Consumer Financial 

Products or Services 

The proposed rule includes only 

exemptions. Exempting loans from the 

requirements of the HPML Appraisal 

Rule will not reduce access to credit. 

While the Agencies are seeking 

comment on whether to include certain 

conditions on these proposed 

exemptions as discussed in the sectionby-section analysis, these conditions 

would not reduce access to credit. The 

cost of complying with any conditions, 

if adopted, would not exceed the cost of 

complying with the HPML Appraisal 

Rule (which in turn could increase the 

cost of credit) because any exemptions 

are optional and thus cost or burdens of 

exemptions also are optional. In 

addition, as discussed above, the 

Agencies are seeking comment on 

whether to narrow the exemption for 

new manufactured homes and/or to 

include conditions on this exemption. 

The Bureau does not believe that 

requiring a USPAP- and FIRREAcompliant appraisal with an interior 

inspection for transactions secured by a 

new manufactured home and land or 

conditioning these or other new 

manufactured home transactions on the 

alternative valuation methods described 

above would reduce access to credit in 

these transactions. Such valuation 

methods at most would entail only 

slightly increased costs where different 

from existing methods, such that they 

do not carry the potential to impede 

access to credit. 

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48576 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

130Census 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/noteh

mdasm.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. 

131For its RFA analysis, the Board considered all 

creditors to which the Final Rule applies. The 

Board’s Regulation Z at 12 CFR 226.43 applies to 

a subset of these creditors. See § 226.43(g). 

132U.S. Small Business Administration, 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_Standards_Table.pdf. 

133The Board recognizes that the SBA’s revised 

size standards will be effective July 22, 2013 (see 

78 FR 37409 (June 20, 2013)). The Board will 

update its regulatory flexibility analysis accordingly 

in its final rule. 

2. Impact of the Proposed Rule on 

Depository Institutions and Credit 

Unions With $10 Billion or Less in Total 

Assets, as Described in Section 1026 of 

the Dodd-Frank Act 

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 benefits from the 

proposed exemption for smaller dollar 

loans. These benefits would not be high 

in absolute dollar terms, however, 

because the number of transactions that 

would be uniquely exempted by the 

proposed small loan exemption is still 

relatively low—less than 5,000, as 

discussed above. 

Otherwise, the Bureau does not 

believe that the impact of the proposal 

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 streamlined 

refinances that would be newlyexempted by the proposed exemption at 

any greater rate than other financial 

institutions. The Bureau requests 

relevant data on the impact of the 

proposed rule on DIs and credit unions 

with total assets below $10 billion. 

3. Impact of the Proposed Rule on 

Consumers in Rural Areas 

The Bureau understands that a 

significantly greater proportion of 

existing manufactured homes are 

located in rural areas compared to other 

single-family homes.130 Therefore, any 

impacts of the proposed 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 

proposed exemption for streamlined 

refinances would generate a similar 

benefit for consumers in rural areas as 

for consumers in non-rural areas. 

Finally, the Bureau does not believe the 

magnitude of the difference of the 

smaller dollar loans originated, between 

consumers in rural areas and not in 

rural areas, is significant. The Bureau 

requests comment and relevant data on 

the impact of the proposed rule on rural 

areas. 

VII. Regulatory Flexibility Act 

Board 

The Regulatory Flexibility Act (RFA), 

5 U.S.C. 601 et seq., requires an agency 

either to provide an initial regulatory 

flexibility analysis with a proposed rule 

or certify that the proposed rule will not 

have a significant economic impact on 

a substantial number of small entities. 

The proposed amendments apply to 

certain banks, other depository 

institutions, and non-bank entities that 

extend HPMLs.131 The Small Business 

Administration (SBA) establishes size 

standards that define which entities are 

small businesses for purposes of the 

RFA.132 The size standard to be 

considered a small business is: $175 

million or less in assets for banks and 

other depository institutions; and $7 

million or less in annual revenues for 

the majority of nonbank entities that are 

likely to be subject to the proposed 

regulations.133 Based on its analysis, 

and for the reasons stated below, the 

Board believes that the proposed rule 

will not have a significant economic 

impact on a substantial number of small 

entities. Nevertheless, the Board is 

publishing an initial regulatory 

flexibility analysis. The Board will, if 

necessary, conduct a final regulatory 

flexibility analysis after consideration of 

comments received during the public 

comment period. 

The Board requests public comment 

on all aspects of this analysis. 

A. Reasons for the Proposed Rule 

This proposal relates to the 2013 

Interagency Appraisals Final Rule, 

issued jointly by the Agencies on 

January 18, 2013, which goes into effect 

on January 18, 2014. See 78 FR 10368 

(Feb. 13, 2013). The 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 APOR 

by a specified percentage (designated as 

‘‘HPMLs’’ in the Final Rule), the Final 

Rule requires creditors, among other 

requirements, 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 openend mortgages reverse mortgage loans 

that are qualified mortgages as defined 

in TILA section 129C. 

The Agencies are now proposing 

amendments to the Final Rule to exempt 

the following transactions: (1) 

Transactions secured by existing 

manufactured homes and not land; (2) 

certain ‘‘streamlined’’ refinancings; and 

(3) transactions of $25,000 or less. The 

Agencies are also proposing to revise 

the Final Rule’s definition of ‘‘business 

day.’’ 

B. Statement of Objectives and Legal 

Basis 

As discussed above, 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 Final 

Rule implements these requirements 

and includes certain exemptions from 

the Rule’s requirements. The Agencies 

believe that several additional 

exemptions from the new appraisal 

rules may be appropriate. Specifically, 

the Agencies are proposing an 

exemption 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). In addition, the Agencies 

are proposing to revise the Final Rule’s 

definition of ‘‘business day’’ for 

consistency with disclosure timing 

requirements under existing Regulation 

Z mortgage disclosure timing 

requirements and the Bureau’s proposed 

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134See the Bureau’s Regulatory Flexibility 

Analysis in the Final Rule (78 FR 10368, 10424 

(Feb. 13, 2013)). 

135 5 U.S.C. 601 et seq. 

136 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 

Small Business Administration 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). 

137 Id. at 605(b). 

138 Id. at 609. 

139 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. 

rules for combined mortgage disclosures 

under TILA and the RESPA (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). 

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 proposed rule applies to creditors 

that make HPMLs subject to 12 CFR 

1026.35(c) (published by the Board in 

12 CFR 226.43). In the Board’s 

Regulatory Flexibility Analysis for the 

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.134 According 

to the data provided by the Bureau, 

approximately 3,466 commercial banks, 

373 savings institutions, 3,240 credit 

unions, and 2,294 non-depository 

institutions are considered small 

entities and extend mortgages, and 

therefore are potentially subject to the 

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 1026.35(c) 

(published by the Board in 12 CFR 

226.43), given the range of exemptions 

provided in the Final Rule, including 

the exemption for qualified mortgages. 

Further, the number of these small 

entities that will make HPMLs that 

would qualify for the proposed 

exemptions is unknown. 

D. Projected Reporting, Recordkeeping 

and Other Compliance Requirements 

The proposed rule does not impose 

any new recordkeeping, reporting, or 

compliance requirements on small 

entities. The proposed rule would 

reduce the number of transactions that 

are subject to the requirements of the 

Final Rule. The Final Rule generally 

applies to creditors that make HPMLs 

subject to 12 CFR 1026.35(c) (published 

by the Board in 12 CFR 226.43), which 

are generally mortgages with an APR 

that exceeds the APOR by a specified 

percentage, subject to certain 

exemptions. The proposal would 

exempt three additional classes of 

HPMLs from the Final Rule: HPMLs 

secured by existing manufactured loans 

(but not land); certain refinance HPMLs 

whose proceeds are used exclusively to 

satisfy 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). 

Accordingly, the proposal would 

decrease the burden on creditors by 

reducing the number of loan 

transactions that are subject to the Final 

Rule. 

E. Identification of Duplicative, 

Overlapping, or Conflicting Federal 

Regulations 

The Board has not identified any 

Federal statutes or regulations that 

would duplicate, overlap, or conflict 

with the proposed revisions. 

F. Discussion of Significant Alternatives 

The Board is not aware of any 

significant alternatives that would 

further minimize the economic impact 

of the proposed rule on small entities. 

The proposed rule would exempt three 

additional classes of HPMLs from the 

Final Rule and not impose any new 

recordkeeping, reporting, or compliance 

requirements on small entities. 

Bureau 

The RFA generally requires an agency 

to conduct an initial regulatory 

flexibility analysis (IRFA) and a final 

regulatory flexibility analysis (FRFA) of 

any rule subject to notice-and-comment 

rulemaking requirements.135 These 

analyses must ‘‘describe the impact of 

the proposed rule on small entities.’’ 136

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.137 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.138

An IRFA is not required for this 

proposal because if adopted it would 

not have a significant economic impact 

on a substantial number of small 

entities. 

The analysis below evaluates the 

potential economic impact of the 

proposed rule on small entities as 

defined by the RFA. The analysis 

generally examines the regulatory 

impact of the provisions of the proposed 

rule against the baseline of the Final 

Rule the Agencies issued on January 18, 

2013. 

A. Number and Classes of Affected 

Entities 

The proposed rule would apply 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 proposal. This 

proposal 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.139 Under such standards, 

depository institutions with $175 

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 $7 million. 

Thus, commercial banks, savings 

institutions, and credit unions with 

$175 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 $7 million. 

The Bureau can identify through data 

under 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 

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48578 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

140The 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. 

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 proposed 

rule would apply: 140

Counts of Creditors by Type. 

B. Impact of Proposed Exemptions 

The provisions of the proposed rule 

all provide or modify exemptions from 

the HPML appraisal requirements. 

Measured against the baseline of the 

burdens imposed by the 2013 

Interagency Appraisals Final Rule, the 

Bureau believes that these proposed 

provisions impose either no or 

insignificant additional burdens on 

small entities. The Bureau believes that 

these proposed 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. 

1. Exemption for Certain Transactions 

Secured by Manufactured Homes 

The proposed rule would exempt 

from the HPML appraisal requirements 

a transaction secured by an existing 

manufactured home and not land. This 

provision would remove certain 

burdens imposed by the Final Rule on 

small entities extending HPMLs covered 

by the final rule when they are secured 

solely by existing manufactured homes, 

whether for refinance, home 

improvement, purchase transactions, or 

other purposes. 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 FIRREA-compliant 

appraisals. As discussed in the sectionby-section analysis above, the Agencies 

are seeking comment on whether, to be 

eligible for this burden-reducing 

exemption, the creditor should be 

required to obtain an estimate of the 

value of the home based upon a 

published cost service method, a 

method required under HUD Title I 

programs, or an otherwise USPAPcomplaint method, and provide a copy 

to the consumer no later than three 

business days before closing. 

The requirement of obtaining an 

alternative valuation to qualify for the 

exemption might result in relatively less 

regulatory burden reduction. However, 

the Bureau understands from outreach 

that at least a cost estimate is often 

obtained in these transactions and, in 

any event, even if such a condition were 

adopted in the Final Rule, the decision 

to obtain an alternative estimate would 

be voluntary under this rule and the 

Bureau presumes that a small entity 

would not do so unless the exemption 

provided a net burden reduction versus 

obtaining a USPAP appraisal. Thus, the 

Bureau believes that the creditors would 

still experience a significant benefit 

from the exemption, even with this 

additional requirement. The Bureau 

requests comment on the impact of this 

proposed exemption on small entities. 

The Bureau also requests comment on 

how the impact would change, if at all, 

if the Agencies included a condition 

that the creditor obtain an estimate of 

the value of the home and provide this 

to the consumer. 

As also discussed in the Bureau’s 

Section 1022(b) analysis and in the 

section-by-section analysis, the 

Agencies are seeking comment on 

whether to narrow the scope of the 

exemption for new manufactured 

homes, and thereby subject transactions 

secured by both a new manufactured 

home and land to the HPML appraisal 

rules in the Final Rule, or to a condition 

that another type of valuation be 

obtained. If so narrowed or conditioned, 

the exemption adopted in the 2013 

Final Rule would no longer relieve as 

much burden in these transactions. 


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141See 5 U.S.C. 601 et seq. 

However, the Bureau believes it already 

is a common existing practice for 

creditors in these transactions to obtain 

either (1) an appraisal of the land and 

a separate estimate of the value of the 

home or (2) an appraisal of the land and 

home together. As discussed in the 

Section 1022 analysis above, the Bureau 

does not believe that there is a 

significant difference in cost between 

these methods. As also discussed in the 

Section 1022 analysis above, the Bureau 

does not believe there would be a 

significant cost to obtaining an estimate 

of the value of the home using a 

published cost service, including with 

adjustments. Accordingly, if the 

exemption from the requirement to 

obtain an appraisal were removed, or if 

the exemption were conditioned on 

obtaining an appraisal of the land and 

an estimate of the home using a 

published cost service, the Bureau does 

not believe these changes would impose 

significant economic impacts. Further, 

regardless, the requirements relating to 

‘‘flipped’’ properties would not apply to 

a new home. 

Finally, as discussed in the Bureau’s 

Section 1022(b) analysis and in the 

section-by-section analysis, the 

Agencies are seeking comment on 

whether to require the creditor to 

provide the consumer with a cost 

estimate of the value of the new 

manufactured home in transactions that 

are secured by a new manufactured 

home but not land. If adopted, this 

condition would not significantly 

change the amount of burden reduced 

by the existing exemption in these 

transactions, which comprise the 

significant majority of transactions 

involving new manufactured homes. 

The Bureau believes that the cost of 

obtaining an estimate of the value of the 

new manufactured home using a thirdparty cost source, and making 

appropriate adjustments, would be 

significantly less than the cost of 

obtaining a USPAP-complaint appraisal. 

2. Proposed Exemption for 

‘‘Streamlined’’ Refinancing Programs 

The proposed rule would provide an 

exemption for any transaction that is a 

refinancing satisfying certain 

conditions. In brief, the proceeds of the 

loan may only be used to pay off an 

existing first lien loan and to pay 

closing or settlement charges is exempt 

from the HPML appraisal requirements, 

provided the new loan has the same 

owner or guarantor as the existing loan, 

and provided further that the new loan 

provides for periodic payments that do 

not cause the principal balance to 

increase, allow for deferment in 

payment of principal, or result in a 

balloon payment. 

This provision would remove 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. Under an 

alternative discussed in the section-bysection analysis above, to be eligible for 

this burden-reducing exemption, the 

creditor would need to obtain a 

valuation—which need not be a USPAPand FIRREA-compliant appraisal—and 

provide it to the consumer no later than 

three business days before closing. 

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. 

Regulatory burden reduction might also 

be lower due to any additional 

condition the Agencies could adopt 

such as the condition of obtaining a 

valuation and providing it to the 

consumer, if one is not otherwise 

obtained through the normal creditor 

process as required by FIRREA 

regulations for some creditors and 

disclosed to the consumer as already 

required by the 2013 ECOA Valuations 

Rule. In either case, however, the 

decision to ensure eligibility for the 

exemption is voluntary and the Bureau 

presumes that a small entity would not 

do so unless the exemption provided a 

net burden reduction. The Bureau 

requests comment on the impact of this 

proposed exemption on small entities. 

3. Proposed Exemption for Smaller 

Dollar Loans 

The proposed rule would exempt 

from the HPML appraisal requirements 

loans equal to or less than $25,000, 

adjusted annually for inflation. This 

provision would remove burden 

imposed by the final rule on small 

entities extending any HPMLs covered 

by the final rule up to $25,000. 

Regulatory burden reduction might 

also be lower due to any additional 

condition the Agencies could adopt 

such as the condition of obtaining a 

valuation and/or providing the 

consumer with a copy of any valuation 

the creditor has obtained in connection 

with the application. However, the 

decision to ensure eligibility for the 

exemption is voluntary and the Bureau 

presumes that a small entity would not 

do so unless the proposed exemption 

provided a net burden reduction. The 

Bureau requests comment on the impact 

of this proposed exemption on small 

entities. 

C. Conclusion 

Each element of this proposal would 

reduce economic burden for small 

entities. The proposed exemption for 

HPMLs secured by existing 

manufactured homes and not land 

would lessen any economic impact 

resulting from the HPML appraisal 

requirements. The proposed 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 proposed 

exemption for smaller-dollar HPMLs 

similarly would lessen burden on small 

entities extending credit in the form of 

HPMLs up to the threshold amount. 

These impacts would be reduced to 

the extent the transactions are not 

already exempt from the Final Rule as 

qualified mortgages. While all of these 

proposed 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 if adopted this proposal would not 

have a significant economic impact on 

a substantial number of small entities. 

The Bureau requests comment on the 

analysis above and requests any relevant 

data. 

FDIC 

The RFA generally requires that, in 

connection with a notice of proposed 

rulemaking, an agency prepare and 

make available for public comment an 

initial regulatory flexibility analysis that 

describes the impact of a proposed rule 

on small entities.141 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 less than or equal to $175 

million) and publishes its certification 

and a short, explanatory statement in 

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48580 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

142The 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. 

143See 5 U.S.C. 601 et seq. 

144NCUA 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). 

145With only a fraction of small FICUs reporting 

data to HMDA, NCUA also analyzed FICUs not 

observed in the HMDA data. Using the total number 

of real estate loans originated by FICUs with less 

than $175M in total assets, NCUA estimated the 

average number of HPMLs per real estate loan 

originated. Using this ratio to interpolate the likely 

number of HPML originations, the analysis suggests 

that small FICUs originate on average less than 2 

HPML loans each year. 

the Federal Register together with the 

rule. 

As of March 31, 2013, there were 

approximately 3,711 small FDICsupervised banks, which include 2,275 

state nonmember banks and 158 statechartered savings banks. The FDIC 

analyzed the 2011 HMDA142 dataset to 

determine how many loans by FDICsupervised banks 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 banks 

originated at least 100 HPMLs, with 

only four banks originating more than 

500 HPMLs. Further, the FDICsupervised banks that met the definition 

of a small entity originated on average 

less than 8 HPMLs of $25,000 or less 

each in 2011. 

The proposed rule relates to the 2013 

Interagency Appraisals Final Rule, 

issued by the Agencies on January 18, 

2013, which goes into effect on January 

18, 2014. The 2013 Interagency 

Appraisals Final Rule requires that 

creditors satisfy the following 

requirements for each HPML they 

originate that is not exempt from the 

Final 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 (3) 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 Agencies are now proposing to 

amend the 2013 Interagency Appraisals 

Final Rule to provide the following 

changes and exemptions to 

requirements of the Final Rule: 

• To provide a different definition of 

‘‘business day’’ than the definition used 

in the Final Rule, as well as a few nonsubstantive technical corrections. 

• To exempt transactions secured 

solely by an existing (used) 

manufactured home and not land. 

• To exempt certain types of 

refinancings with characteristics 

common to refinance products often 

referred to as ‘‘streamlined’’ refinances. 

• To exempt extensions of credit of 

$25,000 or less, indexed every year for 

inflation. 

The proposed rule would exempt 

certain transactions that qualify as 

HPMLs under the 2013 Interagency 

Appraisals Final Rule from the appraisal 

requirements of the 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 

proposed rule will not have a significant 

economic impact on a substantial 

number of small entities that it regulates 

in light of the fact that: (1) The proposed 

rule would reduce regulatory burden on 

small institutions by exempting certain 

transactions from the requirements of 

the 2013 Interagency Appraisals Final 

Rule; and (2) the FDIC previously 

certified that the 2013 Interagency 

Appraisals Final Rule would not have a 

significant economic impact on a 

substantial number of small entities. 

Accordingly, the FDIC certifies that the 

proposed rule, if adopted in final form, 

would not have a significant economic 

impact on a substantial number of small 

entities. Therefore, a regulatory 

flexibility analysis is not required. 

Nonetheless, the FDIC seeks comment 

on whether the proposed rule, if 

adopted in final form, would impose 

undue burden on, or have unintended 

consequences for, small FDICsupervised institutions and whether 

there are ways such potential burden or 

consequences could be minimized in a 

manner consistent with section 129H of 

TILA. 

FHFA 

The supplemental proposal to amend 

the 2013 Interagency Appraisals 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). 

NCUA 

The RFA generally requires that, in 

connection with a notice of proposed 

rulemaking, an agency prepare and 

make available for public comment an 

initial regulatory flexibility analysis that 

describes the impact of the proposed 

rule on small entities.143 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 credit unions 

having less than fifty million dollars in 

assets144 in contrast to the definition of 

small entities in the rules issued by the 

SBA, which include banking 

organizations with total assets of less 

than or equal to $175 million. 

However, for purposes of the 2013 

Interagency Appraisals Final Rule and 

for consistency with the Agencies, 

NCUA reviewed the dataset for FICUs 

that met the small entity standard for 

banking organizations under the SBA’s 

regulations. As of March 31, 2012, there 

were approximately 6,060, FICUs with 

total assets of $175 million or less. Of 

the FICUs which reported 2010 HMDA 

data, 452 reported at least one HPML. 

The data reflects that only three FICUs 

originated at least 100 HPMLs, with no 

FICUs originating more than 500 

HPMLs, and eighty-eight percent of 

reporting FICUs originating 10 HPMLs 

or less. Further, FICUs that met the 

SBA’s definition of a small entity 

originated an average of 4 HPML loans 

each in 2010. 145

The 2013 Interagency Appraisals 

Final Rule requires that creditors satisfy 

the following requirements for each 

HPML they originate that is not exempt 

from the Final Rule: 

• The creditor must obtain a written 

appraisal; the appraisal must be 

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Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 48581 

146 ‘‘Based on the number of banks and their size 

(as of December 31, 2012) the OCC supervises 1,291 

small entities. We base our estimate of the number 

of small entities on the SBA’s size thresholds for 

commercial banks and savings institutions, and 

trust companies, which are $500 million and $35.5 

million, respectively. Consistent with the General 

Principles of Affiliation, 13 CFR 121.103(a), we 

count the assets of affiliated financial institutions 

when determining if we should classify a bank we 

supervise as a small entity. We use December 31, 

2012, to determine size because a ‘‘financial 

institution’s assets are determined by averaging the 

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. 

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 (3) 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 Agencies are now proposing to 

amend the 2013 Interagency Appraisals 

Final Rule to provide the following 

changes and exemptions to 

requirements of the Final Rule: 

• To provide a different definition of 

‘‘business day’’ than the definition used 

in the Final Rule, as well as a few nonsubstantive technical corrections. 

• To exempt transactions secured 

solely by an existing (used) 

manufactured home and not land from 

the HPML appraisal requirements. 

• To exempt from the HPML 

appraisal rules certain types of 

refinancings with characteristics 

common to refinance products often 

referred to as ‘‘streamlined’’ refinances. 

• To exempt from the HPML 

appraisal rules extensions of credit of 

$25,000 or less, indexed every year for 

inflation. 

As previously explained, the 

proposed rule would align the 

definition of ‘‘business day’’ under the 

Final Rule with the definition of 

‘‘business day’’ for the required 

disclosures to, among other things, 

improve streamlining and consistency 

in Regulation Z disclosures by avoiding 

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). In addition, the proposed rule 

would exempt certain transactions that 

qualify as HPMLs under the 2013 

Interagency Appraisal Final Rule from 

the requirements of the 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. NCUA believes 

these proposed changes will only serve 

to lessen regulatory burdens imposed by 

the Final Rule. 

In light of the fact that few loans made 

by FICUs would qualify as HPMLs, the 

fact that the NCUA certified that the 

2013 Interagency Appraisal Final Rule 

would not have a significant economic 

impact on a substantial number of small 

entities, and that the proposal would 

only further reduce any regulatory 

burdens imposed on small credit unions 

by the Final Rule, NCUA believes the 

proposed rule will not have a significant 

economic impact on small FICUs. 

For the reasons provided above, 

NCUA certifies that the proposed rule 

will not have a significant economic 

impact on a substantial number of small 

entities. Accordingly, a regulatory 

flexibility analysis is not required. 

OCC 

Pursuant to section 605(b) of the RFA, 

5 U.S.C. 605(b), the regulatory flexibility 

analysis otherwise required under 

section 603 of the RFA is not required 

if the agency certifies that the proposed 

rule will not, if promulgated, 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 and trust companies with total 

assets of $35.5 million or less 146) and 

publishes its certification and a short, 

explanatory statement in the Federal 

Register along with its proposed 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 higher-risk 

mortgages (termed ‘‘higher-priced 

mortgage loans’’ or HPMLs in the 2013 

Interagency Appraisals Final Rule). The 

statute expressly excludes from these 

appraisal requirements coverage of 

‘‘qualified mortgages,’’ the terms of 

which have been established by the 

CFPB as an exemption from its new 

TILA mortgage ‘‘ability to repay’’ 

underwriting requirements rule. 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 Final Rule on 

January 18, 2013, which will be 

effective on January 18, 2014. Pursuant 

to the general exemption authority in 

the statute, the Final Rule exempts from 

coverage of the HPML appraisal rules 

the following transactions: Transactions 

secured by new manufactured homes; 

transactions secured by 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 proposed 

rule to include three additional 

exemptions from the HPML appraisal 

requirements of section 129H of TILA: 

Transactions secured solely by an 

existing manufactured home and not 

land; certain ‘‘streamlined’’ 

refinancings; and extensions of credit of 

$25,000 or less, indexed every year for 

inflation. 

The OCC currently supervises 1,842 

banks (1,204 commercial banks, 63 trust 

companies, 527 federal savings 

associations, and 48 branches or 

agencies of foreign banks). We estimate 

that less than 1,291 of the banks 

supervised by the OCC are currently 

originating one- to four-family 

residential mortgage loans that could be 

HPMLs. Approximately 867 OCC 

supervised banks are small entities 

based on the SBA’s definition of small 

entities for RFA purposes. Of these, the 

OCC estimates that 428 banks originate 

mortgages and therefore may be 

impacted by the proposed 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, if the proposed rule is 

promulgated, will be zero. The proposal 

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 proposed 

exemptions will be less than the cost of 

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48582 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

147The 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. 

148The 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 proposal. 

149As 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). 

150The public disclosure of information 

originally supplied by the Federal government to 

the recipient for the purpose of disclosure to the 

public is not included within the definition of 

‘‘collection of information.’’ 5 CFR 1320.3(c)(2). 

compliance for a comparable loan under 

the Final Rule. 

Therefore, we believe the proposed 

rule will not have a significant 

economic impact on a substantial 

number of small entities. The OCC 

certifies that the proposed rule would 

not, if promulgated, have a significant 

economic impact on a substantial 

number of small entities. 

VIII. Paperwork Reduction Act 

Board, Bureau, FDIC, NCUA and OCC 

Certain provisions of the 2013 

Interagency Appraisals 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, 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 Office of Management 

and Budget (OMB) control number. The 

information collection requirements 

contained in this joint notice of 

proposed rulemaking to amend the 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 Board reviewed the 

proposed rule 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.147

Bureau: Insured depository 

institutions with more than $10 billion 

in assets, their depository institution 

affiliates, and certain non-depository 

mortgage institutions.148

FDIC: Insured state non-member 

banks, insured state branches of foreign 

banks, 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 2013 Final Rule are 

found in paragraphs (c)(3)(i), (c)(3)(ii), 

(c)(4), (c)(5), and (c)(6) of 12 CFR 

1026.35.149 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 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 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 

2013 Final Rule were described in the 

PRA section of that rule. See 78 FR 

10368, 10429 (February 13, 2013). As 

described in its section 1022 analysis in 

the 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 proposal 

stage and reduced to reflect those 

exemptions in the 2013 Final Rule for 

which the Bureau has identified data. 

As discussed in the 2013 Final Rule, the 

other Agencies did not adjust the 

calculations to account for the exempted 

transactions provided in the 2013 Final 

Rule. Accordingly, the estimated burden 

calculations in Table 3 in the 2013 Final 

Rule are overstated. 

Calculation of Estimated Burden 

As explained in the 2013 Final Rule, 

for the Initial Appraisal Disclosure, the 

creditor is required to provide a short, 

written disclosure within three days of 

application. Because the disclosure is 

classified as a warning label supplied by 

the Federal government, the Agencies 

have assigned it no burden for purposes 

of this PRA analysis.150

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 

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151 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=

AHSl2011lC13OO&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. 

152The Bureau assumes that manufactured 

housing loans secured solely by a manufactured 

home and not land mortgages 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 Bureau is asking for comment if any 

institutions believe that this is not the case. 

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 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. 

The Agencies use the estimated 

burden from the PRA section of the 

2013 Final Rule as the starting baseline 

for analyzing the impact the three 

exemptions in the proposal would have 

on PRA burden if adopted. 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 

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 proposed 

rule has been considered as follows: 

First, the Agencies find that, 

currently, only a small minority of 

refinances involves cash out beyond the 

levels eligible for this proposed 

exemption, and as a result most 

refinance loans may qualify for this 

exemption. The Agencies therefore 

assume that the proposed exemption for 

certain refinances affects all the 

refinance loans discussed in the 

analysis under Section 1022(b)(2) of the 

2013 Final Rule, and thus would 

eliminate all of the approximately 1,200 

new appraisals that had been estimated 

to result from these refinances as a 

result of Final Rule (out of the 3,800 

total new Written Appraisals estimated 

to occur in the Final Rule, or roughly 

32%). 

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 small dollar loans. 

Third, the Agencies find that many of 

the transactions secured by existing 

manufactured homes and not land 

involve either refinances (all of which 

are conservatively assumed to be 

covered by the proposed exemption for 

certain refinances), or smaller dollar 

loans (which cover many types of 

manufactured housing transactions).151

While covered HPMLs above smaller 

dollar levels that are secured by existing 

manufactured homes and not land may 

be newly-exempted, these transactions 

may need alternative valuations 

depending upon how the exemption is 

finalized. The Agencies therefore 

conservatively make no adjustment to 

the data in the first panel of Table 3 in 

the 2013 Final Rule as a result of that 

proposed exemption.152

The numbers above affect only the 

first panel in the Table 3 of the PRA 

section of the Final Rule. Refinances are 

not subject to the requirement to obtain 

an Additional Written Appraisal under 

the 2013 Final Rule, and it is 

conservatively assumed that none of the 

smaller dollar loans or the loans secured 

by manufactured homes sited on leased 

land were used to purchase homes being 

resold within 180 days with the 

requisite price increases to trigger that 

requirement (and thus the proposed 

exemptions for those loans will not 

reduce any burden associated with that 

requirement). Accordingly, only the first 

panel in Table 3 from the 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 also not affected. 

The following table summarizes the 

resulting burden estimates. 

Estimated PRA Burden 

SUMMARY OF PRA BURDEN HOURS FOR INFORMATION COLLECTIONS IN HPML APPRAISALS FINAL RULE IF THE

EXEMPTIONS IN THE SUPPLEMENTAL PROPOSAL ARE ADOPTED 153

Estimated 

number of 

respondents 

Estimated 

number of 

appraisals per 

respondent 154

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: 155 156 157 158

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 0.25 159 82 

FDIC ......................................................................................... 2,571 0. 0.25 93 

Board 160 ................................................................................... 418 0.18 0.25 19 

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48584 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

153Some of the intermediate numbers are 

rounded, resulting in Estimated Total Annual Hours 

not precisely matching up with columns a, b, and 

c. 154The ‘‘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 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. 155The information collection requirements (ICs) 

in the 2013 Final Rule (and this proposed rule) will 

be incorporated with the Bureau’s existing 

collection associated with Truth in Lending Act 

(Regulation Z) 12 CFR 1026 (OMB No. 3170–0015/ 

3170–0026). 156The burden estimates allocated to the Bureau 

are updated using the data described in the 

Bureau’s section 1022 analysis in the 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 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. 

157There 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. 

158The Bureau calculates its burden by including 

both HMDA reporting creditors and the HMDA nonreporting creditors, based on the 2012 counts. The 

other Agencies only report the burden for HMDA 

reporting creditors, based on the 2011 counts. 

159The 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. 

160The ICs in the 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, and Regulation AA (Unfair or 

Deceptive Acts or Practices), 12 CFR part 227 (OMB 

No. 7100–0199). The burden estimates provided in 

this proposed rule pertain only to the ICs associated 

with the Final Rule. 

161As discussed in the PRA section of the 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 (February 13, 

2013). 

SUMMARY OF PRA BURDEN HOURS FOR INFORMATION COLLECTIONS IN HPML APPRAISALS FINAL RULE IF THE

EXEMPTIONS IN THE SUPPLEMENTAL PROPOSAL ARE ADOPTED 153—Continued 

Estimated 

number of 

respondents 

Estimated 

number of 

appraisals per 

respondent 154

Estimated 

burden hours 

per appraisal 

Estimated 

total annual 

burden hours 

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

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). The Bureau will assume half of the burden for non-depository institutions and the privately-insured credit unions. 

Finally, as explained in the PRA 

section of the 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.161

The Agencies have a continuing 

interest in the public opinion of our 

collections of information. At any time, 

comments regarding the burden 

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Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 48585 

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 2013 Final Rule and this proposal 

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. 

Text of Proposed Revisions 

Certain conventions have been used 

to highlight the Federal Reserve 

System’s proposed revisions. New 

language is shown inside flbold-faced 

arrowsfi, while language that would be 

deleted is shown inside [bold-faced 

brackets]. 

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 proposes to amend 

12 CFR Part 34, as previously amended 

at 78 FR 10368, 10432 (Feb. 13, 2013), 

effective 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. 

■ 2. Section 34.202 is amended by 

adding new paragraph (a) and 

redesignating current paragraphs (a) 

through (c) as paragraphs (b) through (d) 

as follows: 

§ 34.202 Definitions applicable to higher 

priced mortgage loans. 

* * * * * 

(a) Business day has the same 

meaning as in 12 CFR 1026.2(a)(6). 

* * * * * 

■ 3. Section 34.203 is amended by 

revising paragraphs (b) introductory 

text, (b)(1), (b)(2), and (b)(5) and adding 

paragraphs (b)(2)(i), (b)(2)(ii), (b)(7) and 

(b)(8) as follows: 

§ 34.203 Appraisalsfor higher-priced 

mortgage loans. 

* * * * * 

(b) Exemptions. The requirements in 

paragraphs (c) through (f) of this section 

do not apply to the following types of 

transactions: 

(1) A qualified mortgage pursuant to 

15 U.S.C. 1639c; 

(2) A transaction: 

(i) Secured by a new manufactured 

home; or 

(ii) Secured solely by an existing 

manufactured home and not land. 

* * * * * 

(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, as defined under 12 CFR 

1026.20(a) except that the creditor need 

not be the original creditor or a holder 

or servicer of the original obligation, 

and that meets the following criteria: 

(i) The owner or guarantor of the 

refinance loan is the current owner or 

guarantor of 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 refinance 

loan are used solely for the following 

purposes: 

(A) To pay off the outstanding 

principal balance on the existing 

obligation; and 

(B) To pay closing or settlement 

charges required to be disclosed under 

the Real Estate Settlement Procedures 

Act, 12 U.S.C. 2601 et seq.; and 

(8) 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 Appendix C to Subpart 

G—OCC Interpretations, see Section 

34.203(b)(8) of Appendix C to Subpart 

G. 

* * * * * 

■ 4. In Appendix C to Subpart G—OCC 

Interpretations: 

■ a. Paragraph 34.203(b)(2) is 

redesignated Paragraph 34.203(b)(2)(i). 

■ b. Under redesignated Paragraph 

34.203(b)(2)(i), paragraph 1 is revised. 

■ c. New Paragraph 34.203(b)(2)(ii) is 

added. 

■ d. New Paragraph 34.203(b)(7) is 

added. 

■ e. New Paragraph 34. 203(b)(8) is 

added. 

■ f. Under Paragraph 34.203(f)(2), 

paragraph 2 is removed and current 

paragraph 3 is redesignated paragraph 2. 

The revisions read as follows: 

Appendix C to Subpart G—OCC 

Interpretations 

* * * * * 

34.203(b) Exemptions. 

Paragraph 34.203(b)(2)(i). 

1. Secured by new manufactured home. A 

higher-priced mortgage loan secured by a 

new manufactured home is not subject to the 

appraisal requirements of Subpart G, 

regardless of whether the transaction is also 

secured by the land on which it is sited is 

not a ‘‘higher-priced mortgage loan’’ subject 

to the appraisal requirements of Subpart G. 

Paragraph 34.203(b)(2)(ii). 

1. Secured solely by an existing 

manufactured home and not land. A higherpriced mortgage loan secured by a 

manufactured home and not land is not 

subject to the appraisal requirements of 

Subpart G, regardless of whether the home is 

titled as realty by operation of state law. 

* * * * * 

Paragraph 34.203(b)(7). 

Paragraph 34.203(b)(7)(i). 

1. Owner or guarantor. The term ‘‘owner’’ 

in § 34.203(b)(7)(i)(A) means an entity that 

owns and holds a loan in its portfolio. 

‘‘Owner’’ does not refer to an investor in a 

mortgage-backed security. The term 

‘‘guarantor’’ in § 34.203(b)(7)(i)(A)(1) refers to 

the entity that guarantees the credit risk on 

a loan that the entity holds in a mortgagebacked security. 

Paragraph 34.203(b)(7)(ii). 

1. Regular periodic payments. Under 

§ 34.203(b)(7)(ii), the regular periodic 

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48586 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

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 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 adjustable-rate or step-rate mortgage, the 

periodic payments must be substantially 

equal. For an explanation of the term 

‘‘substantially equal,’’ see 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 two purposes: paying off the 

consumer’s existing first-lien mortgage 

obligation and paying for closing costs, 

including paying escrow amounts required at 

or before closing. 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 Subpart G. 

Paragraph 34.203(b)(8). 

1. Threshold amount. For purposes of 

§ 34.203(b)(8), 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)(8) 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)(8) 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)(8) 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 Subpart G 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 Subpart G applies. See 

§ 34.203(b) and § 34.203(d)(7). 

* * * * * 

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 proposes to amend 

Regulation Z, 12 CFR Part 226, as 

previously amended at 78 FR 10368, 

10437 (Feb. 13, 2013), effective January 

18, 2014, as follows: 

PART 226—TRUTH IN LENDING ACT 

(REGULATION Z) 

■ 5. 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. 

■ 6. Section 226.2 is amended by 

revising paragraph (a)(6) as follows: 

§ 226.2—Definitions and rules of 

construction. 

(a) Definitions. For purposes of this 

part, the following definitions apply: 

* * * * * 

(6) Business day means a day on 

which the creditor’s offices are open to 

the public for carrying on substantially 

all of its business functions. However, 

for purposes of rescission under 

§§ 1026.15 and 1026.23, and for 

purposes of §§ 226.19(a)(1)(ii), 

226.19(a)(2), 226.31, fl226.43, fiand 

226.46(d)(4), the term means 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. 

* * * * * 

■ 7. Section 226.43 is amended by 

revising paragraph (b) as follows: 

§ 226.43—Appraisals for higher-priced 

mortgage loans. 

* * * * * 

(b) Exemptions. The requirements in 

paragraphs [(c)(3) through (6)] fl(c) 

through (f)fi of this section do not 

apply to the following types of 

transactions: 

(1) A qualified mortgage as defined [in 

12 CFR 1026.43(e)]flpursuant to 15 

U.S.C. 1639cfi; 

(2) A transactionfl: 

(i) Sfi[s]ecured by a new 

manufactured home;fl or 

(ii) Secured solely by an existing 

manufactured home and not land.fi 

* * * * * 

(5) A loan with flafi 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. 

* * * * * 

fl(7) An extension of credit that is a 

refinancing, as defined under 12 CFR 

1026.20(a), except that the creditor need 

not be the original creditor or a holder 

or servicer of the original obligation, 

and that meets the following criteria: 

(i) The owner or guarantor of the 

refinance loan is the current owner or 

guarantor of 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 refinance 

loan are used solely for the following 

purposes: 

(A) To pay off the outstanding 

principal balance on the existing 

obligation; and 

(B) To pay closing or settlement 

charges required to be disclosed under 

the Real Estate Settlement Procedures 

Act, 12 U.S.C. 2601 et seq.; and 

(8) 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)(8).fi 

* * * * * 

■ 8. In Supplement I to part 226, under 

Section 226.43—Appraisals for HigherPriced Mortgage Loans: 

■ a. Paragraph 43(b)(2) is redesignated 

Paragraph 43(b)(2)(i). 

■ b. Under redesignated Paragraph 

43(b)(2)(i), paragraph 1 is revised. 

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Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 48587 

■ c. New Paragraph 43(b)(2)(ii) is 

added. 

■ d. New Paragraph 43(b)(7) is added. 

■ e. New Paragraph 43(b)(8) is added. 

■ f. Under Paragraph 43(f)(2), paragraph 

2 is removed and current paragraph 3 is 

redesignated as paragraph 2. 

The revisions read as follows: 

Supplement I to Part 226—Official 

Interpretations 

* * * * * 

Section 226.43—Appraisals for Higher-Priced 

Mortgage Loans 

* * * * * 

43(b) Exemptions. 

Paragraph 43(b)(2)fl(i)fi. 

1. Secured by new manufactured home. A 

flhigher-priced mortgage loanfi[transaction] 

secured by a new manufactured homefl is 

not subject to the appraisal requirements of 

§ 226.43, firegardless of whether the 

transaction is also secured by the land on 

which it is sited [is not a ‘‘higher-priced 

mortgage loan’’ subject to the appraisal 

requirements of § 226.43]. 

flParagraph 43(b)(2)(ii). 

1. Secured solely by an existing 

manufactured home and not land. A higherpriced mortgage loan secured by a 

manufactured home and not land is not 

subject to the appraisal requirements of 

§ 226.43, regardless of whether the home is 

titled as realty by operation of state law.fi 

* * * * * 

fl Paragraph 43(b)(7). 

Paragraph 43(b)(7)(i). 

1. Owner or guarantor. The term ‘‘owner’’ 

in § 226.43(b)(7)(i) means an entity that owns 

and holds a loan in its portfolio. ‘‘Owner’’ 

does not refer to an investor in a mortgagebacked security. The term ‘‘guarantor’’ in 

§ 226.43(b)(7)(i) refers to the entity that 

guarantees the credit risk on a loan that the 

entity holds in a mortgage-backed security. 

PParagraph 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 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 adjustable-rate or step-rate mortgage, the 

periodic payments must be substantially 

equal. For an explanation of the term 

‘‘substantially equal,’’ see 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 § 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 two purposes: Paying off the 

consumer’s existing first-lien mortgage 

obligation and paying for closing costs, 

including paying escrow amounts required at 

or before closing. 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. 

Paragraph 43(b)(8). 

1. Threshold amount. For purposes of 

§ 226.43(b)(8), 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)(8) 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)(8) 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)(8) 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 § 226.43(d)(7).fi 

* * * * * 

43(f) Copy of appraisals. 

* * * * * 

43(f)(2) Timing. 

* * * * * 

[2. ‘‘Receipt’’ of the appraisal. For 

appraisals prepared by the creditor’s internal 

appraisal staff, the date of ‘‘receipt’’ is the 

date on which the appraisal is completed.]. 

fl2fi[3]. 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)(1). 

* * * * * 

Bureau of Consumer Financial 

Protection 

Authority and Issuance 

For the reasons stated above, the 

Bureau proposes to amend Regulation Z, 

12 CFR part 1026, as previously 

amended, including on February 13, 

2013 (78 FR 10368, 10442 (Feb. 13, 

2013)), effective January 18, 2014, as 

follows: 

PART 1026—TRUTH IN LENDING ACT 

(REGULATION Z) 

■ 9. 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. 

■ 10. Section 1026.2 is amended by 

revising paragraph (a)(6) to read as 

follows: 

§ 1026.2—Definitions and rules of 

construction. 

(a) Definitions. For purposes of this 

part, the following definitions apply: 

* * * * * 

(6) Business day means a day on 

which the creditor’s offices are open to 

the public for carrying on substantially 

all of its business functions. However, 

for purposes of rescission under 

sections 1026.15 and 1026.23, and for 

purposes of sections 1026.19(a)(1)(ii), 

1026.19(a)(2), 1026.31, 1026.35(c), and 

1026.46(d)(4), the term means 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. 

■ 11. Section 1026.35 is amended by 

revising paragraphs (c) heading, (c)(2)(i), 

(c)(2)(ii), (c)(2)(v) and adding paragraphs 

(c)(2)(ii)(A), (c)(2)(ii)(B), (c)(2)(vii), and 

(c)(2)(viii) to read as follows: 

§ 1026.35—Requirements for higher-priced 

mortgage loans. 

* * * * * 

(c) Appraisals.* * * 

* * * * * 

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48588 Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 

(2) * * * 

(i) A qualified mortgage as defined 

pursuant to 15 U.S.C. 1639c; 

(ii) A transaction: 

(A) Secured by a new manufactured 

home; or 

(B) Secured solely by an existing 

manufactured home and not land. 

* * * * * 

(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, as defined under 

§ 1026.20(a) except that the creditor 

need not be the original creditor or a 

holder or servicer of the original 

obligation, and that meets the following 

criteria: 

(A) The owner or guarantor of the 

refinance loan is the current owner or 

guarantor of 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 refinance 

loan are used solely for the following 

purposes: 

(1) To pay off the outstanding 

principal balance on the existing 

obligation; and 

(2) To pay closing or settlement 

charges required to be disclosed under 

the Real Estate Settlement Procedures 

Act, 12 U.S.C. 2601 et seq.; and 

(viii) 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 

(c)(2)(viii). 

* * * * * 

■ 12. In Supplement I to part 1026, 

under Section 1026.35—Requirements 

for Higher-Priced Mortgage Loans: 

■ a. Paragraph 35(c)(2)(ii) is 

redesignated Paragraph 35(c)(2)(ii)(A). 

■ b. Under redesignated Paragraph 

35(c)(2)(ii)(A), paragraph 1 is revised. 

■ c. New Paragraph 35(c)(2)(ii)(B) is 

added. 

■ d. New Paragraph 35(c)(2)(vii) is 

added. 

■ e. New Paragraph 35(c)(2)(viii) is 

added. 

■ f. Under Paragraph 35(c)(6)(ii), 

paragraph 2 is removed and current 

paragraph 3 is redesignated paragraph 2. 

The revisions read as follows: 

Supplement I to Part 1026—Official 

Interpretations 

* * * * * 

Section 1026.35—Requirements for HigherPriced Mortgage Loans 

* * * * * 

35(c)(2) Exemptions 

Paragraph 35(c)(2)(ii)(A) 

1. Secured by new manufactured home. A 

higher-priced mortgage loan secured by a 

new manufactured home is not subject to the 

appraisal requirements of § 1026.35(c), 

regardless of whether the transaction is also 

secured by the land on which it is sited. 

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

1. Secured solely by an existing 

manufactured home and not land. A higherpriced mortgage loan secured by a 

manufactured home and not land is not 

subject to the appraisal requirements of 

§ 1026.35(c), regardless of whether the home 

is titled as realty by operation of state law. 

* * * * * 

Paragraph 35(c)(2)(vii) 

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

1. Owner or guarantor. The term ‘‘owner’’ 

in § 1026.35(c)(2)(vii)(A) means an entity that 

owns and holds a loan in its portfolio. 

‘‘Owner’’ does not refer to an investor in a 

mortgage-backed security. The term 

‘‘guarantor’’ in § 1026.35(c)(2)(vii)(A)(1) 

refers to the entity that guarantees the credit 

risk on a loan that the entity holds in a 

mortgage-backed security. 

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

1. Regular periodic payments. Under 

§ 1026.35(c)(2)(vii)(D), 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 two purposes: Paying off the 

consumer’s existing first-lien mortgage 

obligation and paying for closing costs, 

including paying escrow amounts required at 

or before closing. 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). 

Paragraph 35(c)(2)(viii) 

1. Threshold amount. For purposes of 

§ 1026.35(c)(2)(viii), 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)(viii) 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)(viii) 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)(viii) 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). 

* * * * * 

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Federal Register / Vol. 78, No. 153 / Thursday, August 8, 2013 / Proposed Rules 48589 

Dated: July 9, 2013. 

Thomas J. Curry, 

Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System, July 10, 2013. 

Robert deV. Frierson, 

Secretary of the Board. 

Dated: July 9, 2013. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

By the National Credit Union 

Administration Board on July 9, 2013. 

Mary Rupp, 

Secretary of the Board. 

Dated at Washington, DC, this 9th day of 

July 2013. 

By order of the Board of Directors. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

Dated: July 8, 2013. 

Edward J. DeMarco, 

Acting Director, Federal Housing Finance 

Agency. 

[FR Doc. 2013–17086 Filed 8–7–13; 8:45 am] 

BILLING CODE 6210–01–P; 4810–33–P; 4810–AM–P; 

8070–01–P; 7590–01–P 

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