Vol. 78 Wednesday, 

No. 30 February 13, 2013 

Part III 

Department of the Treasury 

Office of the Comptroller of the Currency 

12 CFR Parts 34 and 164 

Federal Reserve System 

12 CFR Part 226 

National Credit Union Administration 

12 CFR Part 722 

Bureau of Consumer Financial Protection 

12 CFR Part 1026 

Federal Housing Finance Agency 

12 CFR Part 1222 

Appraisals for Higher-Priced Mortgage Loans; Final Rule 


srobinson on DSK4SPTVN1PROD with RULES3
10368 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

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 that contain such classifications, 

differentiations, or other provisions, or that provide 

for such adjustments and exceptions for any class 

of transactions, that in the Board’s judgment are 

necessary or proper to effectuate the purposes of 

TILA, or prevent circumvention or evasion of TILA. 

15 U.S.C. 5519; 15 U.S.C. 1604(a). 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Parts 34 and 164 

[Docket No. OCC–2012–0013] 

RIN 1557–AD62 

FEDERAL RESERVE SYSTEM 

12 CFR Part 226 

[Docket No. R–1443] 

RIN 7100–AD90 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 722 

RIN 3133–AE04 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1026 

[Docket No. CFPB–2012–0031] 

RIN 3170–AA11 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1222 

RIN 2590–AA58 

Appraisals for Higher-Priced Mortgage 

Loans 

AGENCY: Board of Governors of the 

Federal Reserve System (Board); Bureau 

of Consumer Financial Protection 

(Bureau); Federal Deposit Insurance 

Corporation (FDIC); Federal Housing 

Finance Agency (FHFA); National 

Credit Union Administration (NCUA); 

and Office of the Comptroller of the 

Currency, Treasury (OCC). 

ACTION: Final rule; official staff 

commentary. 

SUMMARY: The Board, Bureau, FDIC, 

FHFA, NCUA, and OCC (collectively, 

the Agencies) are issuing a final rule to 

amend Regulation Z, which implements 

the Truth in Lending Act (TILA), and 

the official interpretation to the 

regulation. The revisions to Regulation 

Z implement a new provision requiring 

appraisals for ‘‘higher-risk mortgages’’ 

that was added to TILA by the DoddFrank Wall Street Reform and Consumer 

Protection Act (the Dodd-Frank Act or 

Act). For 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. 

DATES: This final rule is effective on 

January 18, 2014. 

FOR FURTHER INFORMATION CONTACT: 

Board: Lorna Neill or Mandie Aubrey, 

Counsels, Division of Consumer and 

Community Affairs, at (202) 452–3667, 

or Carmen Holly, Supervisory Financial 

Analyst, Division of Banking 

Supervision and Regulation, at (202) 

973–6122, 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, 

Sumaya A. Muraywid, Examination 

Specialist, Risk Management Section, at 

(573) 875–6620, Glenn S. Gimble, 

Senior Policy Analyst, Division of 

Consumer Protection, at (202) 898–6865, 

Sandra S. Barker, Senior Policy Analyst, 

Division of Consumer Protection, at 

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

Legal Division, at (202) 898–3884, or 

Kimberly Stock, Counsel, Legal 

Division, at (202) 898–3815, or 550 17th 

St. NW., Washington, DC 20429. 

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, or Sharron 

P.A. Levine, Associate General Counsel, 

Office of General Counsel, (202) 649– 

3496, 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 250 E Street SW., Washington 

DC 20219. 

SUPPLEMENTARY INFORMATION: 

I. 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. 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 statute, 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 sectionby-section analysis of this 

SUPPLEMENTARY INFORMATION, the new 

appraisal section of TILA addressed in 

this 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, for creditors 

overseen by the OCC and the Board, 

respectively, by OCC regulations and 

the Board’s Regulation Z. See 12 CFR 

parts 34 and 164 (OCC regulations) and 

part 226 (the Board’s Regulation Z). The 

Bureau’s, the OCC’s and the Board’s 

versions of the appraisal rules and 

corresponding official interpretations 

are substantively identical. The FDIC, 

NCUA, and FHFA are adopting the 


srobinson on DSK4SPTVN1PROD with RULES3
Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10369 

2Public Law 111–203, 124 Stat. 1376 (DoddFrank Act). 

3See Dodd-Frank Act, § 1401; TILA section 

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

‘‘residential mortgage loan’’). 

4See Dodd-Frank Act, section 1400(c)(1). 

5See id. 

6Added 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. 7The 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). 8The Bureau released the 2013 ATR Final Rule 

on January 10, 2013, under Docket No. CFPB–2011– 

0008, CFPB–2012–0022, RIN 3170–AA17, at 

http://consumerfinance.gov/Regulations. 

Bureau’s version of the regulations 

under this final rule. 

The Dodd-Frank Act 2 was signed into 

law on July 21, 2010. Section 1471 of 

the Dodd-Frank Act’s Title XIV, Subtitle 

F (Appraisal Activities), added a new 

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 higherrisk mortgage loan to any consumer 

without first: 

• Obtaining a written appraisal 

performed by a certified or licensed 

appraiser who conducts a physical 

property visit of the interior of the 

property. 

• 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 of 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 (3) 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’’ 3 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 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 loan 

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. 

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). 

New TILA section 129H(b)(4)(A) 

requires the Agencies jointly to 

prescribe regulations to implement the 

property appraisal requirements for 

higher-risk mortgages. 15 U.S.C. 

1639h(b)(4)(A). The Dodd-Frank Act 

requires that final regulations to 

implement these provisions be issued 

within 18 months of the transfer of 

functions to the Bureau pursuant to 

section 1062 of the Act, or January 21, 

2013.4 These regulations are to take 

effect 12 months after issuance.5

The Agencies published proposed 

regulations on September 5, 2012, that 

would implement these higher-risk 

mortgage appraisal provisions. 77 FR 

54722 (Sept. 5, 2012). The comment 

period closed on October 15, 2012. The 

Agencies received more than 200 

comment letters regarding the proposal 

from banks, credit unions, other 

creditors, appraisers, appraisal 

management companies, industry trade 

associations, consumer groups, and 

others. 

II. Summary of the Final Rule 

Loans Covered 

To implement the statutory definition 

of ‘‘higher-risk mortgage,’’ the final rule 

uses the term ‘‘higher-priced mortgage 

loan’’ (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 are using the 

term HPML to refer generally to the 

loans that could be subject to this final 

rule because they are closed-end credit 

and meet the statutory rate triggers, but 

the Agencies are separately exempting 

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.6

Specifically, consistent with TILA 

section 129H, a loan is a ‘‘higher-priced 

mortgage loan’’ under the final rule if 

the APR exceeds the APOR by 1.5 

percent for first-lien conventional or 

conforming loans, 2.5 percent for firstlien jumbo loans, and 3.5 percent for 

subordinate-lien loans.7

Consistent with the statute, 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).8 15 

U.S.C. 1639c. 

In addition, the final rule excludes the 

following classes of loans from coverage 

of the higher-risk mortgage appraisal 

rule: 

(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. 

For reasons discussed more fully in 

the section-by-section analysis of 


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10370 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

9See 75 FR 58539, 58660–62 (Sept. 24, 2010); 76 

FR 11598, 11609, 11620, 11626 (March 2, 2011). 

10See 77 FR 51116 (Aug. 23, 2012). 

11The final rule was issued by the Bureau on 

January 18, 2013, in accordance with 12 CFR 

1074.1. 

12The Bureau released the 2013 Escrows Final 

Rule on January 10, 2013, under Docket No. CFPB– 

2013–0001, RIN 3170–AA16, at http:// 

consumerfinance.gov/Regulations. 

13 76 FR 11598, 11612 (March 2, 2011). 

§ 1026.35(a)(1), below, the proposal 

included a request for comments on an 

alternative method of determining 

coverage based on the ‘‘transaction 

coverage rate’’ or TCR, rather than the 

APR. Unlike the APR, the TCR would 

exclude all prepaid finance charges not 

retained by the creditor, a mortgage 

broker, or an affiliate of either.9 This 

change was proposed to address a 

possible expansion of the definition of 

‘‘finance charge’’ used to calculate the 

APR, proposed by the Bureau in its 

rulemaking to integrate mortgage 

disclosures (2012 TILA–RESPA 

Proposal 10). Accordingly, the proposal 

defined ‘‘higher-risk mortgage loan’’ 

(termed ‘‘higher-priced mortgage loan’’ 

in this final rule) in the alternative as 

calculated by either the TCR or APR, 

with comment sought on both 

approaches. 

As explained more fully in the 

section-by-section analysis of 

§ 1026.35(a)(1), below, the final rule 

requires creditors to determine whether 

a loan is an HPML by comparing the 

APR to the APOR. The Agencies are not 

at this time adopting the proposed 

alternative of replacing the APR with 

the TCR and comparing the TCR to the 

APOR. The Agencies will consider the 

merits of any modifications to this 

approach and public comments on this 

matter if and when the Bureau adopts 

the more inclusive definition of finance 

charge proposed in the 2012 TILA– 

RESPA Proposal. 

Finally, based on public comments, 

the Agencies intend to publish a 

supplemental proposal to request 

comment on possible exemptions for 

‘‘streamlined’’ refinance programs and 

small dollar loans, as well as to seek 

comment on whether application of the 

HPML appraisal rule to loans secured by 

certain other property types, such as 

existing manufactured homes, is 

appropriate. 

Requirements That Apply to All 

Appraisals Performed for Non-Exempt 

HPMLs 

Consistent with the statute, the final 

rule allows a creditor to originate an 

HPML that is not otherwise exempt 

from the appraisal rules 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 the statute, 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 

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 (3) business days before 

consummation. 

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 ‘‘higher-risk 

mortgage’’ will finance the purchase of 

the consumer’s principal dwelling and 

there has been an increase in the 

purchase price from a prior sale that 

took place within 180 days of the 

current sale. TILA section 

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

In the final rule, using their exemption 

authority, the Agencies are setting 

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. 

III. Legal Authority 

As noted above, TILA section 

129H(b)(4)(A), added by the Dodd-Frank 

Act, requires 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). 

IV. Section-by-Section Analysis 

For ease of reference, unless 

otherwise noted, the SUPPLEMENTARY

INFORMATION refers to the section 

numbers of the rules that will be 

published in the Bureau’s Regulation Z 

at 12 CFR 1026.35(a) and (c).11 As 

explained further in the section-bysection analysis of § 1026.35(c)(7), the 

rules are being published separately by 

the OCC, the Board, and the Bureau. No 

substantive difference among the three 

sets of rules is intended. The NCUA and 

FHFA adopt the rules as published in 

the Bureau’s Regulation Z at 12 CFR 

1026.35(a) and (c), by cross-referencing 

these rules in 12 CFR 722.3 and 12 CFR 

Part 1222, respectively. The FDIC 

adopts the rules as published in the 

Bureau’s Regulation Z at 12 CFR 

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

Section 1026.35 Prohibited Acts or 

Practices in Connection With HigherPriced Mortgage Loans 

The final rule is incorporated into 

Regulation Z’s existing section on 

prohibited acts or practices in 

connection with HPMLs, § 1026.35. As 

revised, § 1026.35 will consist of four 

subsections—(a) Definitions; (b) 

Escrows for higher-priced mortgage 

loans; (c) Appraisals for higher-priced 

mortgage loans; and (d) Evasion; openend credit. As explained in more detail 

in the Bureau’s final rule on escrow 

requirements for HPMLs (2013 Escrows 

Final Rule) 12 (finalizing the Board’s 

proposal to implement the Act’s escrow 

account requirements under TILA 

section 129D, 15 U.S.C. 1639d (2011 

Escrows Proposal) 13), the subsections 

on repayment ability (existing 

§ 1026.35(b)(1)) and prepayment 

penalties (existing § 1026.35(b)(2)) will 

be deleted because the Dodd-Frank Act 

addressed these matters in other ways. 

Accordingly, repayment ability and 

prepayment penalties are now 


srobinson on DSK4SPTVN1PROD with RULES3
Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10371 

14The Bureau released the 2013 HOEPA Final 

Rule on January 10, 2013, under Docket No. CFPB– 

2012–0029, RIN 3170–AA12, at http:// 

consumerfinance.gov/Regulations. 

addressed in the Bureau’s final abilityto-repay rule (2013 ATR Final Rule) and 

high-cost mortgage rule (2013 HOEPA 

Final Rule).14 See §§ 1026.32(d)(6) and 

1026.43(c), (d), (f), and (g). 

35(a) Definitions 

35(a)(1) Higher-priced mortgage loan 

TILA section 129H(f) defines a 

‘‘higher-risk mortgage’’ as a residential 

mortgage loan secured by a principal 

dwelling with an APR that exceeds the 

APOR for a comparable transaction by a 

specified percentage as of the date the 

interest rate is set. 15 U.S.C. 1639(f). 

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). 

Consistent with TILA sections 129H(f) 

and 103(cc)(5), the proposal provided 

that a ‘‘higher-risk mortgage loan’’ is a 

closed-end consumer credit transaction 

secured by the consumer’s principal 

dwelling with an APR that exceeds the 

APOR for a comparable transaction as of 

the date the interest rate is set by 1.5 

percentage points for first-lien 

conventional mortgages, 2.5 percentage 

points for first-lien jumbo mortgages, 

and 3.5 percentage points for 

subordinate-lien mortgages. 

The Agencies noted in the proposal 

that the statutory definition of higherrisk mortgage, though similar to that of 

the regulatory term ‘‘higher-priced 

mortgage loan,’’ differs from the existing 

regulatory definition of higher-priced 

mortgage loan in some important 

respects. First, the statutory definition 

of higher-risk mortgage expressly 

excludes loans that meet the definition 

of a ‘‘qualified mortgage’’ under TILA 

section 129C. In addition, the statutory 

definition of higher-risk mortgage 

includes an additional 2.5 percentage 

point threshold for first-lien jumbo 

mortgage loans, while the definition of 

higher-priced mortgage loan has 

contained this threshold only for 

purposes of applying the requirement to 

establish escrow accounts for higherpriced mortgage loans. Compare TILA 

section 129H(f)(2), 15 U.S.C. 1639h(f)(2), 

with 12 CFR 1026.35(a)(1) and 

1026.35(b)(3). The Agencies requested 

comment on whether the concurrent use 

of the defined terms ‘‘higher-risk 

mortgage loan’’ and ‘‘higher-priced 

mortgage loan’’ in different portions of 

Regulation Z may confuse industry or 

consumers and, if so, what alternative 

approach the Agencies could take to 

implementing the statutory definition of 

‘‘higher-risk mortgage loan’’ consistent 

with the requirements of TILA section 

129H. 15 U.S.C. 1639h. 

The final rule adopts the proposed 

definition, but replaces the term 

‘‘higher-risk mortgage loan’’ with the 

term ‘‘higher-priced mortgage loan’’ or 

HPML. See existing § 1026.35(a)(1). The 

final rule also makes certain changes to 

the existing definition of HPML, 

discussed in detail below. 

Public Comments on the Proposal 

Several credit unions, banks, and an 

individual commenter believed that the 

definition of ‘‘higher-risk mortgage 

loan’’ did not adequately capture loans 

that were truly ‘‘high risk.’’ Several of 

these commenters stated that the 

definition should account not only for 

the cost of the loan, but also for other 

risk factors, such as debt to income 

ratio, loan amounts, and credit scores 

and other measures of a consumer’s 

creditworthiness. A bank commenter 

believed that the interest rate thresholds 

in the definition were ambiguous and 

arbitrary and asserted that, for example, 

1.5 percent was not an exceptionally 

high interest margin in comparison with 

interest margins for credit cards and 

other financing. A credit union 

commenter believed the rule would 

apply to consumers who were in fact a 

low credit risk. 

Most commenters on the definition 

expressly supported using the existing 

term HPML rather than the new term 

‘‘higher-risk mortgage loan.’’ 

Commenters including, among others, a 

mortgage company, bank, credit union, 

financial holding company, credit union 

trade association, and banking trade 

association, asserted that the use of two 

terms with similar meanings would be 

confusing to the mortgage credit 

industry. Some asserted that consumers 

would be confused by this as well. 

Some of these commenters noted that 

Regulation Z also already used the term 

‘‘high-cost mortgage’’ with different 

requirements and believed this third 

term would further compound 

consumer and industry confusion. Of 

commenters who expressed a preference 

for the term that should be used, most 

recommended using the term HPML 

because this term has been used by 

industry for some time. 

Some commenters on this issue also 

advocated making the rate triggers and 

overall definition the same for existing 

HPMLs and ‘‘higher-risk mortgages’’ 

regardless of the terms used. They 

argued that this would reduce 

compliance burdens and confusion and 

ease costs associated with developing 

and managing systems. One commenter 

believed that developing a single 

standard would also avoid creating 

unnecessary delay and additional cost 

for consumers in the origination 

process. 

A few commenters acknowledged key 

differences between the statutory 

meaning of ‘‘higher-risk mortgage’’ and 

the regulatory term HPML, and 

suggested ways of harmonizing the two 

definitions. For example, these 

commenters noted that ‘‘higher-risk 

mortgages’’ do not include qualified 

mortgages, whereas HPMLs do. To 

address this difference, one commenter 

suggested, for example, that the 

appraisal requirements should apply to 

HPMLs as currently defined, except for 

qualified mortgages. Other commenters 

suggested that the basic definition of 

HPML be understood to refer solely to 

the rate thresholds and suggested that 

the exemption for qualified mortgages 

from the appraisal rules be inserted as 

a separate provision. They did not 

discuss how to address additional 

variances in the types of transactions 

excluded from HPML and ‘‘higher-risk 

mortgage,’’ respectively, such as the 

exclusion from the meaning of HPML 

but not the statutory definition of 

‘‘higher-risk mortgage’’ for constructiononly and bridge loans. 

Other commenters also acknowledged 

that the current definition of HPML 

includes only two rate thresholds—one 

for first-lien mortgages (APR exceeds 

APOR by 1.5 percentage points) and the 

other for subordinate-lien mortgages 

(APR exceeds APOR by 3.5 percentage 

points). By contrast, the statutory 

definition of ‘‘higher-risk mortgage’’ has 

an additional rate tier for first-lien 

jumbo mortgages (APR exceeds APOR 

by 2.5 percentage points). The HPML 

requirements in Regulation Z apply a 

rate threshold of 2.5 percentage points 

above APOR to jumbo loans only for 

purposes of the requirement to escrow. 

The commenters who noted this 

distinction held the view that the 

‘‘middle tier’’ threshold would not have 

a practical advantage for lenders or 

consumers. Instead, they recommended 

adopting a final rule with a single APR 

trigger of 1.5 percentage points above 

APOR for all first-lien loans. 

Discussion 

In the final rule, the Agencies use the 

term HPML rather than the proposed 

term ‘‘higher-risk mortgage loan’’ to 

refer generally to the loans covered by 

the appraisal rules. In a separate 


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10372 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

15The Bureau released the 2013 Escrows Final 

Rule on January 10, 2013, under Docket No. CFPB– 

2013–0001, RIN 3170–AA16, at http:// 

consumerfinance.gov/Regulations. 

16 In their respective publications of the final rule, 

the Board is publishing the definition of HPML at 

12 CFR 226.43(a)(3) and the OCC is including a 

cross-reference to the definition of HPML at 12 CFR 

34.202(b). 

17See 2012 TILA–RESPA Proposal, 77 FR 51116, 

51143–46, 51277–79, 51291–93, 51310–11 (Aug. 23, 

2012). 

18See 2012 HOEPA Proposal, 77 FR 49090, 

49100–07, 49133–35 (Aug. 15, 2012). 

19 15 U.S.C. 1639d; 76 FR 11598 (March 2, 2011). 

20See 75 FR 58539, 58660–62 (Sept. 24, 2010); 76 

FR 11598, 11609, 11620, 11626 (March 2, 2011). 

21 77 FR 54843 (Sept. 6, 2012); 77 FR 54844 (Sept. 

6, 2012). 

subsection of the final rule 

(§ 1026.35(c)(2), discussed in the 

section-by-section analysis below), the 

Agencies exempt several types of 

transactions from coverage of the HPML 

appraisal rules. 

On January 10, 2013, the Bureau 

published the 2013 Escrows Final Rule, 

its final rule to implement Dodd-Frank 

Act amendments to TILA regarding the 

requirement to escrow for certain 

consumer mortgages.15 See TILA section 

129D, 15 U.S.C. 1639d. These rules are 

to take effect in May 2013, before the 

effective date of this final rule (January 

18, 2014). 

Thus, consistent with TILA sections 

129H(f) and 103(cc)(5) and the proposal, 

the final rule in § 1026.35(a)(1) follows 

the Bureau’s 2013 Escrows Final Rule in 

defining an HPML as a closed-end 

consumer credit transaction secured by 

the consumer’s principal dwelling 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 loan secured by a first lien with a 

principal obligation at consummation 

that does not exceed the limit in effect 

as of the date the transaction’s interest 

rate is set for the maximum principal 

obligation eligible for purchase by 

Freddie Mac; 

• By 2.5 or more percentage points, 

for a loan secured by a first lien with a 

principal obligation at consummation 

that exceeds the limit in effect as of the 

date the transaction’s interest rate is set 

for the maximum principal obligation 

eligible for purchase by Freddie Mac; 

and 

• By 3.5 or more percentage points, 

for a loan secured by a subordinate lien. 

The Agencies acknowledge that some 

commenters have concerns about the 

rate thresholds; however, these rate 

thresholds are prescribed by statute. See 

TILA section 129H(f)(2), 15 U.S.C. 

1639h(f)(2); see also 15 U.S.C. 

1602(cc)(5). 

The Bureau in the 2013 Escrows Final 

Rule adopted a definition of HPML that 

is consistent for both TILA’s escrow 

requirement and TILA’s appraisal 

requirements for ‘‘higher-risk 

mortgages.’’ TILA sections 129D and 

129H, 15 U.S.C. 1639d and 1639h. This 

definition incorporates the APR 

thresholds for loans covered by these 

rules as prescribed by Dodd-Frank Act 

amendments to TILA and also reflects 

that both sets of rules apply only to 

closed-end mortgage transactions. TILA 

sections 129D(b)(3) and 129H(f), 15 

U.S.C. 1639d(b)(3) and 1639h(f). 

Overall, the revised definition of HPML 

adopted in the 2013 Escrows Final Rule 

reflects only minor changes from the 

current definition of HPML in existing 

12 CFR 1026.35(a). For clarity, the 

Agencies are re-publishing the 

definition published earlier in the 2013 

Escrows Final Rule.16 The incorporation 

by reference in § 1026.35(c) of the term 

HPML in § 1026.35(a) and the republishing of § 1026.35(a) in this final 

rule are not intended to subject 

§ 1026.35(a) to the joint rulemaking 

authority of the Agencies under TILA 

section 129H. 

Consistent with the proposal, the final 

rule uses the phrase ‘‘a closed-end 

consumer credit transaction secured by 

the consumer’s principal dwelling’’ in 

place of the statutory term ‘‘residential 

mortgage loan’’ throughout 

§ 1026.35(a)(1). As also proposed, the 

Agencies have elected to incorporate the 

substantive elements of the statutory 

definition of ‘‘residential mortgage 

loan’’ into the definition of HPML rather 

than using the term itself to avoid 

inadvertent confusion of the term 

‘‘residential mortgage loan’’ with the 

term ‘‘residential mortgage transaction,’’ 

which is an established term used 

throughout Regulation Z and defined in 

§ 1026.2(a)(24). Compare 15 U.S.C. 

1602(cc)(5) (defining ‘‘residential 

mortgage loan’’) with 12 CFR 

1026.2(a)(24) (defining ‘‘residential 

mortgage transaction’’). Accordingly, the 

final regulation text differs from the 

express statutory language, but with no 

intended substantive change to the 

scope of TILA section 129H. 

Annual Percentage Rate (APR) Versus 

Transaction Coverage Rate (TCR) 

The Agencies are not at this time 

adopting an alternative method of 

determining coverage based on the 

‘‘transaction coverage rate’’ or TCR. The 

proposal included a request for 

comments on a proposed amendment to 

the method of calculating the APR that 

was proposed as part of other mortgagerelated proposals issued for comment by 

the Bureau. In the Bureau’s proposal to 

integrate mortgage disclosures (2012 

TILA–RESPA Proposal), the Bureau 

proposed to adopt a more simple and 

inclusive finance charge calculation for 

closed-end credit secured by real 

property or a dwelling.17 The moreinclusive finance charge definition 

would affect the APR calculation 

because the finance charge is integral to 

the APR calculation. The Bureau 

therefore also sought comment on 

whether replacing APR with an 

alternative metric might be warranted to 

determine whether a loan is a ‘‘high-cost 

mortgage’’ covered by the Bureau’s 

proposal to implement the Dodd-Frank 

Act provision related to ‘‘high-cost 

mortgages’’ (2012 HOEPA Proposal),18

as well as by the proposal to implement 

the Dodd-Frank Act’s escrow 

requirements in TILA section 129D 

(2011 Escrows Proposal).19 The 

alternative metric would have 

implications for the 2013 ATR Final 

Rule as well. One possible alternative 

metric discussed in those proposals is 

the ‘‘transaction coverage rate’’ (TCR), 

which would exclude all prepaid 

finance charges not retained by the 

creditor, a mortgage broker, or an 

affiliate of either.20

The new rate triggers for both ‘‘highcost mortgages’’ and ‘‘higher-risk 

mortgages’’ under the Dodd-Frank Act 

are based on the percentage by which 

the APR exceeds APOR. Given this 

similarity, the Agencies sought 

comment in the higher-risk mortgage 

proposal on whether a modification 

should be considered for this final rule 

as well and, if so, what type of 

modification. Accordingly, the proposal 

defined ‘‘higher-risk mortgage loan’’ 

(termed HPML in this final rule) in the 

alternative as calculated by either the 

TCR or APR, with comment sought on 

both approaches. The Agencies relied 

on their exemption authority under 

section 1471 of the Dodd-Frank Act to 

propose this alternative definition of 

higher-risk mortgage. TILA section 

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

On September 6, 2012, the Bureau 

published notice in the Federal Register 

that the comment period for public 

comments on the more inclusive 

definition of ‘‘finance charge’’ in the 

2012 TILA–RESPA Proposal and the use 

of the TCR in the 2012 HOEPA Proposal 

would be extended to November 6, 

2012.21 The Bureau explained that it 

believed that commenters needed 

additional time to evaluate the proposed 

more inclusive finance charge in light of 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10373 

the other proposals affected by the more 

inclusive finance charge proposal and 

the Bureau’s request for data on the 

effects of a more inclusive finance 

charge. The Bureau stated that it did not 

expect to address any proposed changes 

to the definition of finance charge or 

methods of reconciling an expanded 

definition of finance charge with APR 

coverage tests until it finalizes the 

disclosures in the 2012 TILA–RESPA 

Proposal. A final TILA–RESPA 

disclosure rule is not expected to be 

issued until sometime after January of 

2013. 

For this reason, this final rule requires 

creditors to determine whether a loan is 

an HPML by comparing the APR to the 

APOR and is not at this time finalizing 

the proposed alternative of replacing the 

APR with the TCR and comparing the 

TCR to the APOR. The Agencies will 

consider the merits of any modifications 

to this approach that might be necessary 

and public comments on this matter if 

and when the Bureau adopts the more 

inclusive definition of finance charge 

proposed in the 2012 TILA–RESPA 

Proposal. 

Existing Definition of HPML Versus New 

Definition of HPML 

The new definition of HPML differs 

from the definition of HPML in existing 

§ 1026.35(a)(1) in several respects. 

First, the new definition of HPML 

incorporates an additional rate 

threshold for determining coverage for 

first-lien loans—an APR trigger of 2.5 

percentage points above APOR for firstlien jumbo mortgage loans. The 

definition retains the APR triggers of 1.5 

percentage points above APOR for firstlien conforming mortgages and 3.5 

percentage points above APOR for 

subordinate-lien loans. 

By statute, this additional APR 

threshold of 2.5 percentage points above 

APOR applies in determining coverage 

of both the escrow requirements in 

revised § 1026.35(b) and the appraisal 

requirements in revised § 1026.35(c). 

See TILA section 129D(b)(3)(B), 15 

U.S.C. 1639d(b)(3)(B) (escrow rules); 

TILA section 129H(f)(2)(B), 15 U.S.C. 

1639h(f)(2)(B) (appraisal rules). The 

APR trigger for first-lien jumbo loans 

has applied to the requirement to 

establish escrow accounts for HPMLs 

under Regulation Z since April 1, 2011. 

See existing § 1026.35(b)(3)(i) and (v); 

76 FR 11319 (March 2, 2011). 

Under the existing HPML rules in 

§ 1026.35, the APR threshold of 2.5 

percentage points above APOR applies 

only to the requirement to escrow 

HPMLs in § 1026.35(b)(3). See 

§ 1026.35(b)(3)(v). Due to amendments 

to TILA mandated by the Dodd-Frank 

Act, however, existing HPML rules on 

repayment ability (§ 1026.35(b)(1)) and 

prepayment penalties (§ 1026.35(b)(2)) 

will be eliminated from the HPML rules 

in § 1026.35. New rules on repayment 

ability and prepayment penalties are 

incorporated into the Bureau’s 2013 

ATR Final Rule and final rules on 

‘‘high-cost’’ mortgages. See 

§ 1026.32(b)(6) and (d)(6), 

§ 1026.43(b)(10), (c), (e). 

Thus, as revised, § 1026.35 will have 

only two sets of rules for HPMLs—the 

escrow requirements in revised 

§ 1026.35(b) and the appraisal 

requirements in new § 1026.35(c). The 

APR test of 2.5 percentage points above 

APOR applies, as noted, to both sets of 

rules, so is now folded into the general 

definition of HPML in § 1026.35(a)(1). 

Accordingly, the definition of ‘‘jumbo’’ 

loans in preexisting § 1026.35(b)(3)(v) is 

being removed. 

A second change is that the revised 

HPML definition adds the qualification 

that an HPML is a ‘‘closed-end’’ 

consumer credit transaction. This 

change is not substantive; instead, it 

merely replaces text previously in 

§ 1026.35(a)(3), that excludes from the 

definition of HPML ‘‘a home-equity line 

of credit subject to section 1026.5b.’’ 

Other exemptions from the current 

definition of HPML listed in existing 

§ 1026.35(a)(3) are moved into the 

specific provisions setting forth 

exemptions for certain types of HPMLs 

from coverage of the escrow rules and 

appraisal rules, respectively. See 

section-by-section analysis of 

§ 1026.35(c)(2). Thus, the final rule 

eliminates § 1026.35(a)(3), but with no 

substantive change intended. 

Third, with no substantive change 

intended, the language used to describe 

the HPML rate triggers has been revised 

from preexisting § 1026.35(a)(1) to 

conform to the language used in the 

proposed ‘‘higher-risk mortgage’’ 

appraisal rule, which in turn conforms 

more closely to the statutory language 

used to describe the rate triggers for 

‘‘higher-risk mortgages’’ and similar 

statutory rate triggers for application of 

the escrow requirements. See TILA 

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

1639d(b)(3) (escrow rules); TILA section 

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

(appraisal rules). 

Finally, the Official Staff 

Interpretations are reorganized with no 

substantive change intended. 

Specifically, comments 35(a)(2)–1 and 

–3, clarifying the terms ‘‘comparable 

transaction’’ and ‘‘rate set,’’ 

respectively, are moved to comments 

35(a)(1)–1 and 35(a)(1)–2. This 

modification reflects that the terms 

‘‘comparable transaction’’ and ‘‘rate set’’ 

occur in the definition of ‘‘higher-priced 

mortgage loan’’ in § 1026.35(a)(1). 

Comparable Transaction 

As comment 35(a)(1)–1 indicates, the 

table of APORs published by the Bureau 

will provide guidance to creditors in 

determining how to use the table to 

identify which APOR is applicable to a 

particular mortgage transaction. The 

Bureau publishes on the internet, 

currently at http://www.ffiec.gov/ 

ratespread/newcalc.aspx, in table form, 

APORs for a wide variety of mortgage 

transaction types based on available 

information. For example, the Bureau 

publishes a separate APOR for at least 

two types of variable rate transactions 

and at least two types of non-variable 

rate transactions. APORs are estimated 

APRs derived by the Bureau from 

average interest rates, points, and other 

loan pricing terms currently offered to 

consumers by a representative sample of 

creditors for mortgage transactions that 

have low-risk credit characteristics. 

Currently, the Bureau calculates APORs 

consistent with Regulation Z (see 12 

CFR 1026.22 and appendix J to part 

1026), for each transaction type for 

which pricing terms are available from 

a survey, and estimates APORs for other 

types of transactions for which direct 

survey data are not available based on 

the loan pricing terms available in the 

survey and other information. However, 

data are not available for some types of 

mortgage transactions, including reverse 

mortgages. In addition, the Bureau 

publishes on the internet the 

methodology it uses to arrive at these 

estimates. 

Rate Set 

Comment 35(a)(1)–2 clarifies that a 

transaction’s APR is compared to the 

APOR as of the date the transaction’s 

interest rate is set (or ‘‘locked’’) before 

consummation. The comment notes that 

sometimes a creditor sets the interest 

rate initially and then re-sets it at a 

different level before consummation. 

Accordingly, under the final rule, for 

purposes of § 1026.35(a)(1), the creditor 

should use the last date the interest rate 

for the mortgage is set before 

consummation. 

Average Prime Offer Rate 

The Agencies are not separately 

publishing the definition of the term 

‘‘average prime offer rate’’ in 

§ 1026.35(a)(2). The meaning of this 

term is determined by the Bureau and 

is published and explained in the 

Bureau’s 2013 Escrows Final Rule. 

Consistent with the proposal, in the 

Board’s publication of this final rule, the 

term APOR is defined to have the same 


srobinson on DSK4SPTVN1PROD with RULES3
10374 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

meaning as in § 1026.35(a)(2). See 12 

CFR 226.43(a)(3)(Board). The OCC’s 

publication of this final rule crossreferences the definition of HPML, 

which incorporates the term APOR as 

defined in § 1026.35(a)(2). See 12 CFR 

34.202(b). The OCC’s and the Board’s 

versions of Official Staff Interpretations 

to the final rule cross-reference 

comments to § 1026.35(a)(2) that explain 

the meaning of average prime offer rate 

as described below. See 12 CFR 34.202, 

comment 1 (OCC); 12 CFR 226.43, 

comment 2. Comment 35(a)(2)–1 

clarifies that APORs are APRs derived 

from average interest rates, points, and 

other loan pricing terms currently 

offered to consumers by a representative 

sample of creditors for mortgage 

transactions that have low-risk pricing 

characteristics. Other pricing terms 

include commonly used indices, 

margins, and initial fixed-rate periods 

for variable-rate transactions. Relevant 

pricing characteristics include a 

consumer’s credit history and 

transaction characteristics such as the 

loan-to-value ratio, owner-occupant 

status, and purpose of the transaction. 

Currently, to obtain APORs, the Bureau 

uses a survey of creditors that both 

meets the criteria of § 1026.35(a)(2) and 

provides pricing terms for at least two 

types of variable rate transactions and at 

least two types of non-variable rate 

transactions. The Freddie Mac Primary 

Mortgage Market Survey® is an example 

of such a survey, and is the survey 

currently used to calculate APORs. 

Principal Dwelling 

As in the proposal, the final versions 

of the OCC’s and the Board’s 

publication of the definition of ‘‘higherpriced mortgage loan’’ rules crossreference the Bureau’s Regulation Z and 

Official Staff Interpretations for the 

meanings of ‘‘principal dwelling,’’ 

‘‘average prime offer rate,’’ ‘‘comparable 

transaction,’’ and ‘‘rate set.’’ See 12 CFR 

34.202, comments 1 (OCC); 12 CFR 

226.43(a)(3), comments 1, 2, 3, and 4 

(Board). The Regulation Z comments to 

which the OCC’s and Board’s rules 

cross-reference regarding the meaning of 

‘‘average prime offer rate,’’ ‘‘comparable 

transaction,’’ and ‘‘rate set’’ are 

described above. See 12 CFR 34.202, 

comment1 (OCC); 12 CFR 226.43(a)(3), 

comments 2, 3, and 4 (Board). A 

proposed comment cross-referencing the 

Bureau’s Regulation Z for the meaning 

of the term ‘‘principal dwelling’’ is not 

adopted in the Bureau’s version of the 

final rule because the meaning of 

‘‘principal dwelling’’ in new 

§ 1026.35(a)(1) is understood to be 

consistent within the Bureau’s 

Regulation Z. The OCC’s version of this 

final rule also does not include the 

proposed comment specifically crossreferencing the meaning of ‘‘principal 

dwelling’’ in the Bureau’s Regulation Z 

because the OCC is adopting the 

Bureau’s definition of HPML, which the 

Bureau’s definition of ‘‘principal 

dwelling.’’ See 12 CFR 34.202(b); see 

also 12 CFR 34.202, comment 1. The 

proposed comment is, however, adopted 

in the Board’s publication of the rule. 

See 12 CFR 226.43(a)(3), comment 1. 

Consistent with the proposal, in the 

final rule, the term ‘‘principal dwelling’’ 

has the same meaning as in 

§ 1026.2(a)(24) and is further explained 

in existing comment 2(a)(24)–3. 

Consistent with comment 2(a)(24)–3, a 

vacation home or other second home 

would not be a principal dwelling. 

However, if a consumer buys or builds 

a new dwelling that will become the 

consumer’s principal dwelling within a 

year or upon the completion of 

construction, the comment clarifies that 

the new dwelling is considered the 

principal dwelling. 

Threshold for ‘‘Jumbo’’ Loans 

Comment 35(a)(1)–3 explains that 

§ 1026.35(a)(1)(ii) provides a separate 

threshold for determining whether a 

transaction is a higher-priced mortgage 

loan subject to § 1026.35 when the 

principal balance exceeds the limit in 

effect as of the date the transaction’s rate 

is set for the maximum principal 

obligation eligible for purchase by 

Freddie Mac (a ‘‘jumbo’’ loan). The 

comment further explains that FHFA 

establishes and adjusts the maximum 

principal obligation pursuant to rules 

under 12 U.S.C. 1454(a)(2) and other 

provisions of Federal law. The comment 

clarifies that adjustments to the 

maximum principal obligation made by 

FHFA apply in determining whether a 

mortgage loan is a ‘‘jumbo’’ loan to 

which the separate coverage threshold 

in § 1026.35(a)(1)(ii) applies. 

The Board’s publication of the 

definition of ‘‘higher-priced mortgage 

loan’’ rule in this final rule crossreferences this comment in the Bureau’s 

Official Staff Interpretations. See 12 CFR 

226.43(a)(3), comment 3 (Board). The 

OCC’s version of the final rule adopts 

this comment in 12 CFR 34.202, 

comment 1. 

35(c) Appraisals for Higher-Priced 

Mortgage Loans 

New § 1026.35(c) implements the 

substantive appraisal requirements for 

‘‘higher-risk mortgages’’ in TILA section 

129H. 15 U.S.C. 1639h. The OCC’s and 

the Board’s versions of these rules are 

substantively identical to the rules in 

§ 1026.35(c). See 12 CFR 34.201 et seq. 

(OCC) and 12 CFR 226.43 (Board); see 

also section-by-section analysis of 

§ 1026.35(c)(7). 

35(c)(1) Definitions 

As discussed above, revised 

§ 1026.35(a) contains the definitions of 

HPML and APOR, which are used in 

both the HPML escrow rules in 

§ 1026.35(b) and the HPML appraisal 

rules in new § 1026.35(c). Definitions 

specific to the substantive appraisal 

requirements of § 1026.35(c) are 

segregated in new § 1026.35(c)(1) and 

described below, along with applicable 

public comments. 

35(c)(1)(i) Certified or Licensed 

Appraiser 

TILA section 129H(b)(3) defines 

‘‘certified or licensed appraiser’’ as a 

person who ‘‘(A) is, at a minimum, 

certified or licensed by the State in 

which the property to be appraised is 

located; and (B) performs each appraisal 

in conformity with the Uniform 

Standards of Professional Appraisal 

Practice and title XI of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989, and the 

regulations prescribed under such title, 

as in effect on the date of the appraisal.’’ 

15 U.S.C. 1639h(b)(3). Consistent with 

the statute, the Agencies proposed to 

define ‘‘certified or licensed appraiser’’ 

as a person who is certified or licensed 

by the State agency in the State in 

which the property that secures the 

transaction is located, and who 

performs the appraisal in conformity 

with the Uniform Standards of 

Professional Appraisal Practice (USPAP) 

and the requirements applicable to 

appraisers in title XI of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989, as amended 

(FIRREA title XI) (12 U.S.C. 3331 et 

seq.), and any implementing regulations 

in effect at the time the appraiser signs 

the appraiser’s certification. 

The proposed definition of ‘‘certified 

or licensed appraiser’’ generally mirrors 

the statutory language in TILA section 

129H(b)(3) regarding State licensing and 

certification. However, the Agencies 

proposed to use the defined term ‘‘State 

agency’’ to clarify that the appraiser 

must be certified or licensed by a State 

agency that meets the standards of 

FIRREA title XI. The proposal defined 

the term ‘‘State agency’’ to mean a 

‘‘State appraiser certifying and licensing 

agency’’ recognized in accordance with 

section 1118(b) of FIRREA title XI (12 

U.S.C. 3347(b)) and any implementing 


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22 If the Appraisal Subcommittee of the Federal 

Financial Institutions Examination Council issues 

certain written findings concerning, among other 

things, a State agency’s failure to recognize and 

enforce FIRREA title XI standards, appraiser 

certifications and licenses issued by that State are 

not recognized for purposes of title XI and 

appraisals performed by appraisers certified or 

licensed by that State are not acceptable for 

federally-related transactions. 12 U.S.C. 3347(b). 

23See Appraisal Standards Bd., Appraisal Fdn., 

Standards Rule 2–3, USPAP (2012–2013 ed.) at U– 

29, available at http://www.uspap.org. 

24The Federal financial institutions regulatory 

agencies are the Board, the FDIC, the OCC, and the 

NCUA. 

25See OCC: 12 CFR Part 34, Subpart C; Board: 12 

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

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

CFR part 722. 

26TILA section 103(g), 15 U.S.C. 1602(g) 

(implemented by § 1026.2(a)(17)). See also 12 

U.S.C. 3350(4) and OCC: 12 CFR 34.42(f); Board: 12 

CFR 225.62(f); FDIC: 12 CFR 323.2(f); and NCUA: 

12 CFR 722.2(e) (defining ‘‘federally related 

transaction’’). 

27See OCC: 12 CFR 34.43(a)(1); Board: 12 CFR 

225.63(a)(1); FDIC: 12 CFR 323.3(a)(1); and NCUA: 

12 CFR 722.3(a)(1). 

28See 12 U.S.C. 3339, 3350(4) (defining 

‘‘federally related transaction,’’ (6) (defining 

‘‘federal financial institutions regulatory agencies’’) 

and (7) (defining ‘‘financial institution’’). 

regulations.22 See section-by-section 

analysis of § 1026.35(c)(1)(iv), below. 

As discussed below, the Agencies are 

adopting the proposed definition of 

‘‘certified or licensed appraiser’’ 

without change. 

Uniform Standards of Professional 

Appraisal Practice (USPAP). Consistent 

with the statutory definition of 

‘‘certified or licensed appraiser,’’ the 

proposal incorporated into the proposed 

definition the requirement that, to be a 

‘‘certified or licensed appraiser’’ under 

the appraisal rules, the appraiser has to 

perform the appraisal in conformity 

with the ‘‘Uniform Standards of 

Professional Appraisal Practice.’’ A 

comment was proposed to clarify that 

USPAP refers to the professional 

appraisal standards established by the 

Appraisal Standards Board of the 

‘‘Appraisal Foundation,’’ as defined in 

FIRREA section 1121(9). 12 U.S.C. 

3350(9). The Agencies believe that this 

terminology is appropriate for 

consistency with the existing definition 

in FIRREA title XI and adopt the 

definition and comment as proposed. 

See § 1026.35(c)(1)(i) and comment 

35(c)(1)(i)–1. 

In addition, TILA section 129H(b)(3) 

requires that the appraisal be performed 

in conformity with USPAP ‘‘as in effect 

on the date of the appraisal.’’ 15 U.S.C. 

1639h(b)(3). The Agencies proposed to 

incorporate this concept in the 

definition of ‘‘certified or licensed 

appraiser’’ and to include a comment 

clarifying that the ‘‘date of the 

appraisal’’ is the date on which the 

appraiser signs the appraiser’s 

certification. Again, the Agencies adopt 

the definition and comment as 

proposed. See § 1026.35(c)(1)(i) and 

comment 35(c)(1)(i)–1. Thus, the 

relevant edition of USPAP is the one in 

effect at the time the appraiser signs the 

appraiser’s certification. 

Appraiser’s certification. The 

proposal also included a comment to 

clarify that the term ‘‘appraiser’s 

certification’’ refers to the certification 

that must be signed by the appraiser for 

each appraisal assignment as specified 

in USPAP Standards Rule 2–3.23 The 

final rule adopts this clarification 

without change. See comment 

35(c)(1)(i)–2. 

FIRREA title XI and implementing 

regulations. As noted, TILA section 

129H(b)(3) defines ‘‘certified or licensed 

appraiser’’ as a person who is certified 

or licensed as an appraiser and 

‘‘performs each appraisal in accordance 

with [USPAP] and title XI of [FIRREA], 

and the regulations prescribed under 

such title, as in effect on the date of the 

appraisal.’’ 15 U.S.C. 1639h(b)(3). 

Section 1110 of FIRREA directs each 

Federal financial institutions regulatory 

agency 24 to prescribe ‘‘appropriate 

standards for the performance of real 

estate appraisals in connection with 

federally related transactions under the 

jurisdiction of each such agency or 

instrumentality.’’ 12 U.S.C. 3339. These 

rules must require, at a minimum—(1) 

that real estate appraisals be performed 

in accordance with generally accepted 

appraisal standards as evidenced by the 

appraisal standards promulgated by the 

Appraisal Standards Board of the 

Appraisal Foundation; and (2) that such 

appraisals shall be written appraisals. 

12 U.S.C. 3339(1) and (2). 

The Dodd-Frank Act added a third 

requirement—that real estate appraisals 

be subject to appropriate review for 

compliance with USPAP—for which the 

Federal financial institutions regulatory 

agencies must prescribe implementing 

regulations. FIRREA section 1110(3), 12 

U.S.C. 3339(3). FIRREA section 1110 

also provides that each Federal banking 

agency may require compliance with 

additional standards if the agency 

determines in writing that additional 

standards are required to properly carry 

out its statutory responsibilities. 12 

U.S.C. 3339. Accordingly, the Federal 

financial institutions regulatory 

agencies have prescribed appraisal 

regulations implementing FIRREA title 

XI that set forth, among other 

requirements, minimum standards for 

the performance of real estate appraisals 

in connection with ‘‘federally related 

transactions,’’ which are defined as real 

estate-related financial transactions that 

a Federal banking agency engages in, 

contracts for, or regulates, and that 

require the services of an appraiser.25 12 

U.S.C. 3339, 3350(4). 

The Agencies’ proposal provided that 

the relevant provisions of FIRREA title 

XI and its implementing regulations are 

those selected portions of FIRREA title 

XI requirements ‘‘applicable to 

appraisers,’’ in effect at the time the 

appraiser signs the appraiser’s 

certification. While the Federal financial 

institutions regulatory agencies’ 

requirements in FIRREA also apply to 

an institution’s ordering and review of 

an appraisal, the Agencies proposed that 

the definition of ‘‘certified or licensed 

appraiser’’ incorporate only FIRREA 

title XI’s minimum standards related to 

the appraiser’s performance of the 

appraisal. Accordingly, a proposed 

comment clarified that the relevant 

standards ‘‘applicable to appraisers’’ are 

found in regulations prescribed under 

FIRREA section 1110 (12 U.S.C. 3339) 

‘‘that relate to an appraiser’s 

development and reporting of the 

appraisal,’’ and that paragraph (3) of 

FIRREA, which relates to the review of 

appraisals, is not relevant. The Agencies 

are adopting these proposals as 

§ 1026.35(c)(1)(i) and comment 

35(c)(1)(i)–3. 

The Agencies also noted that FIRREA 

title XI applies by its terms to ‘‘federally 

related transactions’’ involving a 

narrower category of loans and 

institutions than the group of loans and 

lenders that fall within TILA’s 

definition of ‘‘creditor.’’ 26 For example, 

the FIRREA title XI regulations do not 

apply to transactions of $250,000 or 

less.27 They also do not apply to nondepository institutions.28 However, the 

Agencies believe that Congress, by 

including the higher-risk mortgage 

appraisal rules in TILA, which applies 

to all creditors, demonstrated its 

intention that all creditors that extend 

higher-risk mortgage loans, such as 

independent mortgage companies, 

should obtain appraisals from 

appraisers who conform to the 

standards in FIRREA related to the 

development and reporting of the 

appraisal. The Agencies also believe 

that, by placing this rule in TILA, 

Congress did not intend to limit its 

application to loans over $250,000. The 

Agencies adopt this broader 

interpretation in the final rule. 

In the proposed rule, the Agencies did 

not identify specific FIRREA regulations 

that relate to the appraiser’s 

development and reporting of the 

appraisal. The Agencies requested 


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29According to HMDA data, mean loan size for 

purchase-money HPMLs in 2011 was $141,600 

(median $109,000) and for refinance HPMLs in 

2011, mean loans size was $141,600 (median 

$104,000). In 2010, mean loan size for purchasemoney HPMLs was $140,400 (median $100,000) 

and for refinance HPMLs, mean loan size was 

$138,600 (median $95,000). 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,’’ FR Bulletin, Vol. 98, no. 6 (Dec. 

2012) http://www.federalreserve.gov/pubs/bulletin/ 

2012/PDF/2011_HMDA.pdf. 

comment on whether the final rule 

should address any particular FIRREA 

requirements applicable to appraisers 

that related to the development and 

reporting of the appraisal. Consistent 

with the proposal, the final rule does 

not identify specific FIRREA regulations 

that relate to the appraiser’s 

development and reporting of the 

appraisal. 

Public Comments on the Proposal 

Appraiser trade associations, a 

housing advocate, and a credit union 

commenter agreed that the rule should 

apply to all qualifying mortgage loans, 

and not only the subset of the higherrisk mortgage loans already covered by 

FIRREA, including those loans with a 

transaction value of $250,000 or less. 

The appraiser trade associations and the 

housing advocate commenters believed 

that all higher-risk mortgages must be 

included in the rule to ensure that 

consumers receive the protections 

offered by appraisals. The housing 

advocate commenter also believed that 

including all higher-risk mortgages 

would reduce risk to all parties involved 

in the financing and servicing of 

mortgages and would ensure equal 

access to credit. This commenter 

specifically requested that the Agencies 

at least require an interior appraisal by 

licensed appraisers for all residential 

mortgages above $50,000, regardless of 

whether they are originated or insured 

by the private sector, Fannie Mae, 

Freddie Mac, or the Federal Housing 

Administration (FHA). 

A banking trade association and a 

credit union commenter, however, 

believed that Congress intended the 

FIRREA requirements to apply only to a 

subset of higher-risk mortgages that are 

already covered by FIRREA. The 

banking trade association commenter 

believed the Agencies should not 

require the rule to apply to loans held 

in portfolio or loans with a value of 

$250,000 or less, because a bank holding 

a loan in portfolio has strong incentive 

to ensure that the property sale is 

legitimate and the property is properly 

valued. The commenter also believed 

the statute intended to apply the rules 

only to the subset of higher-risk 

mortgages with a value of over 

$250,000, as is provided in the Federal 

financial institutions regulatory 

agencies’ regulations implementing 

FIRREA. The banking trade association 

and a bank commenter noted that many 

community banks, particularly in rural 

areas, limit costs to consumers by not 

requiring appraisals on mortgages held 

in portfolio of $250,000 or less as 

permitted under FIRREA title XI or by 

performing cheaper, in-house 

evaluations of property. 

On whether the final rule should 

identify specific FIRREA regulations 

that relate to the development and 

reporting of the appraisal, the Agencies 

received one comment letter from 

appraiser trade associations. These 

commenters requested that the Agencies 

specify that creditors must use certified 

rather than licensed appraisers. The 

comment is discussed in more detail in 

the discussion of the use of ‘‘certified’’ 

versus ‘‘licensed’’ appraisers, below. 

Discussion 

As discussed in the proposal, the 

Agencies believe that, by referencing 

FIRREA requirements in the context of 

defining ‘‘certified or licensed 

appraiser,’’ the statute intended to limit 

FIRREA’s requirements to those that 

apply to the appraiser’s development 

and reporting of performance of the 

appraisal, rather than the FIRREA 

requirements that apply to a creditor’s 

ordering and review of the appraisal. 

TILA section 129H(b)(3), 15 U.S.C. 

1639h(b)(3). The Agencies also did not 

propose to interpret ‘‘certified or 

licensed appraiser’’ to include 

requirements related to appraisal review 

under FIRREA section 1110(3) because 

these requirements relate to an 

institution’s responsibilities after 

receiving the appraisal, rather than to 

how the certified or licensed appraiser 

performs the appraisal. Comment 

35(c)(1)(i)–3 is consistent with the 

proposal in this regard. Accordingly, as 

proposed, the final rule includes a 

comment clarifying that the 

requirements of FIRREA section 1110(3) 

that relate to the ‘‘appropriate review’’ 

of appraisals are not relevant for 

purposes of whether an appraiser is a 

certified or licensed appraiser under the 

proposal. See comment 35(c)(1)(i)–3. 

At the same time and in light of 

public comments, the Agencies 

reviewed the relevant statutory 

provisions and confirmed their 

conclusion that applying the FIRREA 

requirements related to an appraiser’s 

performance of an appraisal broadly—to 

transactions originated by creditors and 

transaction types not necessarily subject 

to FIRREA (such as loans of $250,000 or 

less)—is wholly consistent with the 

consumer protection purpose of title 

XIV of the Dodd-Frank Act, as well as 

specific language of the appraisal 

provisions. For example, the Agencies 

believe that if Congress intended to 

limit application of the FIRREA 

requirements to mortgage loans covered 

by FIRREA, such as loans of over 

$250,000 made by Federally-regulated 

depositories, Congress would have 

expressly done so. Instead, Congress 

placed the appraisal requirements, 

including the definition of ‘‘certified 

and licensed appraiser’’ referencing 

FIRREA, in TILA, which applies to 

loans made by all types of creditors. 

Moreover, limiting coverage of the 

Dodd-Frank Act higher-risk mortgage 

appraisal rules to loans of over $250,000 

would eliminate protections for most 

higher-risk mortgage consumers.29 From 

a practical standpoint, the Agencies 

believe that the most reasonable 

interpretation of the statute is that all 

mortgage loans meeting the definition of 

‘‘higher-risk mortgage’’ are subject to a 

uniform set of rules, regardless of the 

type of creditor. This creates a level 

playing field and ensures the same 

protections for all consumers of ‘‘higherrisk mortgages.’’ For these reasons, 

consistent with the proposal, the final 

rule applies the FIRREA requirements to 

appraisals for all HPMLs that are not 

exempt from the regulation. See 

§ 1026.35(c)(2). 

‘‘Certified’’ versus ‘‘licensed’’ 

appraiser. Neither TILA section 129H 

nor the proposed rule defined the 

individual terms ‘‘certified appraiser’’ 

and ‘‘licensed appraiser,’’ or specified 

when a certified appraiser or a licensed 

appraiser must be used. Instead, the 

proposed rule required that creditors 

obtain an appraisal performed by ‘‘a 

certified or licensed appraiser.’’ 15 

U.S.C. 1639h(b)(1), (b)(2). The Agencies 

noted in the proposal that certified 

appraisers generally differ from licensed 

appraisers based on the examination, 

education, and experience requirements 

necessary to obtain each credential. The 

proposal also stated that existing State 

and Federal law and regulations require 

the use of a certified appraiser rather 

than a licensed appraiser for certain 

types of transactions. The Agencies 

requested comment on whether the final 

rule should address the issue of when 

a creditor must use a certified appraiser 

rather than a licensed appraiser. 

Consistent with the proposal, the final 

rule does not separately define 

‘‘certified’’ appraiser or ‘‘licensed’’ 

appraiser, or specify when a creditor 


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30 75 FR 77450, 77465–68 (Dec. 10, 2010). 

31See, e.g., id. at 77465–68 (Dec. 10, 2010). 

Appraiser competency is critical to the quality and 

accuracy of residential mortgage appraisals. As a 

commenter noted, the federal banking agencies 

provide guidance in the Interagency Appraisal and 

Evaluation Guidelines regarding creditors’ criteria 

for selecting, evaluating, and monitoring the 

performance of appraisers. See id. 

should use a ‘‘certified’’ rather than a 

‘‘licensed’’ appraiser. 

Public Comments on the Proposal 

Several national and State credit 

union trade associations believed that 

the Agencies should not specify when a 

creditor must use a certified appraiser 

rather than a licensed appraiser and 

requested that the Agencies provide 

creditors with flexibility to make that 

determination. Some of these 

commenters noted that State 

requirements for certified or licensed 

appraisers may vary significantly; some 

states may not issue licenses for 

appraisers, and some may issue 

different certified appraiser credentials 

based on the type of property. A 

financial holding company commenter, 

on the other hand, requested that the 

Agencies clarify circumstances under 

which a lender must use a certified or 

a licensed appraiser to facilitate 

compliance. 

On the other hand, appraiser trade 

association commenters believed that 

creditors should be required to use only 

certified appraisers, because the 

certification is more rigorous than 

licensure. These commenters stated that 

the FHA requires newly-eligible 

appraisers to be certified, and noted that 

many states have phased out, or are in 

the process of phasing out, the licensing 

of appraisers rather than certification. 

The commenters further stated that 

when collateral property is complex, the 

Agencies should require a certified 

appraiser who is also credentialed by a 

recognized professional appraisal 

organization. Similarly, a realtor trade 

association commenter believed that 

using certified appraisers was 

preferable. The commenter believed that 

the rule should define appraisals for 

higher-risk mortgages as ‘‘complex,’’ 

thus requiring that only certified 

appraisers may perform the appraisals. 

Discussion 

As noted above, several commenters 

confirmed the Agencies’ concerns that 

State requirements for certified or 

licensed appraisers may vary 

significantly and are evolving. Overall, 

the Agencies believe that imposing 

specific requirements in this rule about 

when a certified or licensed appraiser is 

required goes beyond the scope of the 

statutory ‘‘higher-risk mortgage’’ 

appraisal provisions in TILA section 

129h. 15 U.S.C. 1639h. The Agencies do 

not believe that this rule is an 

appropriate vehicle for guidance on 

standards for use of a State certified or 

licensed appraiser that may change over 

time and vary by jurisdiction. Although 

the FIRREA appraisal regulations 

specifically require a ‘‘certified’’ 

appraiser for certain types of mortgage 

transactions, the Agencies do not 

believe that these FIRREA rules are 

incorporated into the higher-risk 

mortgage appraisal rules applicable to 

all creditors. See section-by-section 

analysis of § 1026.35(c)(1)(i) (defining 

‘‘certified or licensed appraiser’’ to 

incorporate FIRREA requirements 

related to the development and 

reporting of the appraisal, not appraiser 

selection or review). Thus, the final rule 

need not clarify these rules for entities 

not subject to the FIRREA appraisal 

regulations; entities subject to the 

FIRREA appraisal regulations are 

familiar with them. 

Appraiser competency. In the 

proposed rule, the Agencies also noted 

that, in selecting an appraiser for a 

particular appraisal assignment, 

creditors typically consider an 

appraiser’s experience, knowledge, and 

educational background to determine 

the individual’s competency to appraise 

a particular property and in a particular 

market. The proposed rule did not 

specify competency standards, but the 

Agencies requested comment on 

whether the rule should address 

appraiser competency. In keeping with 

the proposal, the final rule does not 

specify competency standards for 

appraisers. 

Public Comments on the Proposal 

A realtor trade association commenter 

suggested that the rule incorporate 

guidance from the Interagency 

Appraisal and Evaluation Guidelines 30

regarding creditors’ criteria for selecting, 

evaluating, and monitoring the 

performance of appraisers. However, a 

banking trade association, a financial 

holding company, appraiser trade 

association, and several national and 

State credit union trade association 

commenters stated that the Agencies 

should not require creditors to apply 

specific competency standards for 

appraisers. Several commenters asserted 

that competency standards would result 

in increased regulatory burden and cost, 

and a banking trade association 

expressed concern that requiring 

creditors to implement subjective 

competency standards could raise 

conflict of interest issues with respect to 

appraiser independence. 

Appraiser trade association 

commenters suggested that instead of 

setting forth competency standards, the 

Agencies should require a creditor to 

ensure that the engagement letter 

properly lays out the required scope of 

work, that the appraiser is independent, 

and that the appraiser possesses the 

appropriate experience to perform the 

assignment including, when necessary, 

geographic competency. The financial 

holding company commenter suggested 

that the rule should reference FIRREA 

and require creditors to ensure that 

appraisers are in good standing. The 

banking trade association commenter 

believed that the Agencies should 

include a reference to USPAP to create 

a uniform competency standard. One 

State credit union association believed 

that the Agencies should permit 

creditors to rely on appraisers’ 

representations regarding licensing and 

certification. 

Discussion 

The Agencies believe that the many 

aspects of appraiser competency are 

beyond the scope of TILA’s ‘‘higher-risk 

mortgage’’ provisions defining ‘‘certified 

or licensed appraiser,’’ which do not 

mention competency. Appraiser 

competency is addressed in a number of 

regulations and guidelines for Federallyregulated depositories, which are 

expected to know and follow rules and 

guidance under FIRREA regarding 

appraiser competency. 31

35(c)(1)(ii) Manufactured Home 

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

below, the final rule exempts a 

transaction secured by a new 

manufactured home from the appraisal 

requirements of § 1026.35(c). 

Accordingly, § 1026.35(c)(1)(ii) adds a 

definition of manufactured home, 

clarifying that, for the purposes of this 

section, the term manufactured home 

has the same meaning as in HUD 

regulation 24 CFR 3280.2. 

35(c)(1)(iii) National Registry 

As discussed in § 1026.35(c)(3)(ii)(B) 

below, to qualify for the safe harbor 

provided in the final rule, a creditor 

must verify through the ‘‘National 

Registry’’ that the appraiser is a certified 

or licensed appraiser in the State in 

which the property is located as of the 

date the appraiser signs the appraiser’s 

certification. Under FIRREA section 

1109, the Appraisal Subcommittee of 

the FFIEC is required to maintain a 

registry of State certified and licensed 

appraisers eligible to perform appraisals 

in connection with federally related 


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10378 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

transactions. 12 U.S.C. 3338. For 

purposes of qualifying for the safe 

harbor, the final rule requires that a 

creditor must verify that the appraiser 

holds a valid appraisal license or 

certification through the registry 

maintained by the Appraisal 

Subcommittee. Thus, as proposed, 

§ 1026.35(c)(1)(iii) in the final rule 

provides that the term ‘‘National 

Registry’’ means the database of 

information about State certified and 

licensed appraisers maintained by the 

Appraisal Subcommittee of the FFIEC. 

35(c)(1)(iv) State Agency 

TILA section 129H(b)(3)(A) provides 

that, among other things, a certified or 

licensed appraiser means a person who 

is certified or licensed by the ‘‘State’’ in 

which the property to be appraised is 

located. 15 U.S.C. 1639h(b)(3)(A). As 

discussed above, a certified or licensed 

appraiser means a person certified or 

licensed by the ‘‘State agency’’ in the 

State in which the property that secures 

the transaction is located. Under 

FIRREA section 1118, the Appraisal 

Subcommittee of the FFIEC is 

responsible for recognizing each State’s 

appraiser certifying and licensing 

agency for the purpose of determining 

whether the agency is in compliance 

with the appraiser certifying and 

licensing requirements of FIRREA title 

XI. 12 U.S.C. 3347. In addition, FIRREA 

section 1120(a) prohibits a financial 

institution from obtaining an appraisal 

from a person the financial institution 

knows is not a State certified or licensed 

appraiser in connection with a federally 

related transaction. 12 U.S.C. 3349(a). 

Accordingly, as proposed, 

§ 1026.35(c)(1)(iv) in the final rule 

defines the term ‘‘State agency’’ as a 

‘‘State appraiser certifying and licensing 

agency’’ recognized in accordance with 

section 1118(b) of FIRREA and any 

implementing regulations. 

35(c)(2) Exemptions 

The Agencies proposed to exclude 

from the definition of ‘‘higher-risk 

mortgage loan,’’ and thus from coverage 

of TILA’s ‘‘higher-risk mortgage’’ 

appraisal rules entirely, the following 

types of loans: (1) Qualified mortgage 

loans as defined in § 1026.43(e); (2) 

reverse-mortgage transactions subject to 

§ 1026.33(a); and (3) loans secured 

solely by a residential structure. These 

exclusions were proposed consistent 

with the express language of TILA 

section 129H(f) and pursuant to the 

Agencies’ exemption authority in TILA 

section 129H(b)(4)(B), which authorizes 

the Agencies to exempt from coverage of 

the appraisal rules a class of loans 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) and (f). 

The Agencies requested comment on 

these proposed exemptions. In addition, 

the Agencies requested comment on 

whether the final rule should exempt 

the following types of loans: 

• Loans to finance new construction 

of a dwelling; 

• Temporary or ‘‘bridge’’ loans, 

typically used to purchase a new 

dwelling where the consumer plans to 

sell the consumer’s current dwelling; 

and 

• Loans secured by properties in 

‘‘rural’’ areas. For this last exemption, 

the Agencies requested comment on 

how to define ‘‘rural’’; specifically, 

whether to define it as the Board did in 

its proposal to implement Dodd-Frank 

Act ability-to-repay requirements under 

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

76 FR 27390 (May 11, 2011) (2011 ATR 

Proposal) (and also in the 2011 Escrows 

Proposal), discussed in more detail 

below. 

Finally, the Agencies requested 

comment on whether commenters 

believed that any other types of loans 

should be exempt from the final rule. 

The final rule adopts two of the 

proposed exemptions: qualified 

mortgages and reverse mortgages. See 

§ 1026.35(c)(2)(i) and (vi). The final rule 

also adopts exemptions for loans 

secured by new manufactured homes 

and by mobile homes, boats, or trailers, 

which replace the proposed exemption 

for loans secured solely by a residential 

structure. See § 1026.35(c)(2)(ii) (new 

manufactured homes) and (iii) (mobile 

homes, boats, or trailers). In addition, 

the final rule exempts the two types of 

loans on which the Agencies 

specifically requested comment: new 

construction loans and bridge loans. See 

§ 1026.35(c)(2)(iv) (construction loans) 

and (v) (bridge loans). 

In addition, based on public 

comments, the Agencies intend to 

publish a supplemental proposal to 

request comment on possible 

exemptions for ‘‘streamlined’’ refinance 

programs and small dollar loans, as well 

as to seek comment on whether 

application of the HPML appraisal rule 

to loans secured by certain other 

property types, such as existing 

manufactured homes, is appropriate. 

Exemptions from the HPML appraisal 

rules of § 1026.35(c) are set out in new 

§ 1026.35(c)(2). The structure of the 

final rule differs from that of the 

proposed rule. The proposed rule 

excluded certain loan types from the 

definition of ‘‘higher-risk mortgage 

loan’’ and thereby excluded these loan 

types from coverage of all of the 

‘‘higher-risk mortgage’’ appraisal rules. 

By contrast, the final rule defines a 

general term—HPML—and incorporates 

exemptions from the appraisal rules in 

a separate subsection, § 1026.35(c)(2). 

As discussed, the general term HPML 

applies also to loans covered by the 

revised escrow rules in § 1026.35(b), 

with exemptions specific to those rules 

enumerated separately in 

§ 1026.35(b)(2). 

Thus, exemptions that are the same in 

both the escrow rules in § 1026.35(b) 

and the appraisal rules in § 1026.35(c) 

are stated separately in the 

‘‘exemptions’’ sections for each set of 

rules. See § 1026.35(b)(2) and (c)(2). The 

following exemptions are generally the 

same for both the HPML escrow rules 

and the HPML appraisal rules: new 

construction loans, bridge loans, and 

reverse mortgages. The intent of this 

structure is to make clear that the 

Agencies jointly have authority to 

exempt transactions from the appraisal 

rules, whereas only the Bureau has 

authority to exempt transactions from 

the escrow rules. 

These exemptions and related public 

comments are discussed in detail below. 

35(c)(2)(i) 

Qualified Mortgages 

TILA section 129H(f) expressly 

excludes from the definition of higherrisk mortgage any loan that is a qualified 

mortgage as defined in TILA section 

129C and a reverse mortgage loan that 

is a qualified mortgage as defined in 

TILA section 129C. 15 U.S.C. 1639(f). 

Rather than implement one exclusion 

for qualified mortgages and a separate 

exclusion for any reverse mortgage loans 

that may be defined by the Bureau as 

qualified mortgages, the Agencies 

proposed to provide a single exclusion 

for a qualified mortgage as that term 

would be defined in the Bureau’s final 

rule implementing TILA section 129C. 

15 U.S.C. 1639c. 

Before authority regarding TILA 

section 129C transferred to the Bureau 

under the Dodd-Frank Act, the Board 

issued the 2011 ATR Proposal, which, 

among other things, would have defined 

a ‘‘qualified mortgage’’ in a new 

subsection of Regulation Z. 12 CFR 

226.43(e). See 76 FR 27390, 27484–85 

(May 11, 2011). During the proposal 

period for the ‘‘higher-risk mortgage’’ 

rule, the Bureau had not yet issued final 

rules implementing TILA section 129C’s 

definition of ‘‘qualified mortgage.’’ 

Since that time, the Bureau has issued 

rules defining ‘‘qualified mortgage.’’ See 

2013 ATR Final Rule, § 1026.43(e). 

Consistent with the proposed definition 

of ‘‘qualified mortgage,’’ the Bureau’s 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10379 

32The Agencies proposed to exclude from the 

definition of ‘‘higher-risk mortgage loan’’ any loans 

secured solely by a ‘‘residential structure,’’ as that 

term is used in Regulation Z’s definition of 

‘‘dwelling.’’ See 12 CFR 1026.2(a)(19). The 

provision was intended to exclude loans that are 

not secured in whole or in part by land. Thus, for 

example, loans secured by manufactured homes 

that are not also secured by the land on which they 

are sited were proposed to be excluded from the 

definition of higher-risk mortgage loan, regardless 

of whether the manufactured home itself is deemed 

to be personal property or real property under 

applicable State law. 

33Note, however, that another manufactured 

housing trade association commenter stated that the 

majority of manufactured homes are not considered 

an improvement or enhancement of the real 

property on which they are sited. 

final rule defines ‘‘qualified mortgage’’ 

as generally including loans 

characterized by the absence of certain 

features considered risky, such as 

negative amortization and balloon 

payments. 

The Agencies adopt the exemption for 

‘‘qualified mortgages’’ as proposed, with 

a cross-reference to the Bureau’s final 

rules defining this class of loans in 12 

CFR 1026.43(e). 

Public Comments on the Proposal 

All commenters—including national 

and State credit union trade 

associations, as well as national and 

State banking trade associations— 

supported this exemption. Some 

banking trade associations believed the 

exemption was appropriate because 

qualified mortgages, by definition, are 

safe and sound transactions. Other 

banking and credit union trade 

associations expressed concern that they 

could not comment specifically on the 

exemption, because the term was not yet 

defined by the Bureau. 

Discussion 

The final rule incorporates the 

exemption for ‘‘qualified mortgages’’ as 

proposed because the exemption is 

prescribed by statute and widely 

supported by commenters. The 

Agencies note that some commenters 

requested that the final rule also exempt 

‘‘qualified residential mortgages,’’ 

which the Dodd-Frank Act exempts 

from the risk retention rules prescribed 

by the Act. See Dodd-Frank Act section 

941, section 15G of the Securities 

Exchange Act of 1934, 15 U.S.C. 780– 

11(c)(1)(C)(iii). A qualified residential 

mortgage, however, is by statute to be 

defined by regulation as ‘‘no broader 

than’’ the definition of qualified 

mortgage prescribed by the Bureau in its 

2013 ATR Final Rule. See id. at sec. 

780–11(e)(4)(C). Therefore, the 

exemption for qualified mortgages will 

capture all qualified residential 

mortgages and a separate exemption is 

not necessary. 

35(c)(2)(ii) 

Transactions Secured by a New 

Manufactured Home 

The Agencies proposed to exclude 

from coverage of the higher-risk 

mortgage appraisal rules any loan 

secured solely by a residential structure, 

such as a manufactured home.32 The 

Agencies believed that requiring 

appraisals performed by certified or 

licensed appraisers was not appropriate, 

because such transactions typically 

more closely resemble titled vehicle 

loans. At the same time, based on 

outreach, the Agencies believed that for 

loans for residential structures, such as 

manufactured homes that are secured by 

both the home and the land to which 

the home is attached, appraisals 

performed by certified or licensed 

appraisers are feasible. Such 

transactions were therefore covered by 

the proposed rule. The Agencies 

believed the exemption for a loan 

secured solely by a residential structure 

was appropriate pursuant to the 

exemption authority under TILA section 

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

1026.35(b)(4)(B). 

The Agencies requested comment on 

whether the proposed exclusion was 

appropriate, and if not, reasonable 

methods by which creditors could 

comply with the requirements of this 

proposed rule when providing loans 

secured solely by a residential structure. 

The Agencies also requested comment 

on whether some alternative standards 

for valuing residential structures 

securing higher-risk mortgage loans 

might be feasible and appropriate to 

include as part of the final rule, in lieu 

of an appraisal performed by a certified 

or licensed appraiser. 

Public Comments on the Proposal 

Commenters, including national and 

State credit union trade associations, a 

manufactured housing industry 

consultant, manufactured housing trade 

associations, a realtor trade association, 

a lender specializing in manufactured 

housing financing, and national and 

State banking trade associations, 

submitted comments regarding the 

exemption for loans secured ‘‘solely by 

a residential structure,’’ but limited 

their comments to the exemption as 

applied to manufactured homes. The 

commenters supported exempting loans 

secured solely by manufactured homes. 

Banking trade association commenters 

believed that the statute was intended to 

apply only to loans secured at least in 

part by real property. A manufactured 

housing industry consultant, a 

manufactured housing lender, and 

manufactured housing trade association 

commenters concurred that traditional 

appraisals were not appropriate for 

these transactions for a variety of 

reasons, including: (1) A lack of 

qualified and trained appraisers to 

appraise such transactions, especially in 

rural areas; (2) a lack of comparable 

sales and limited sales volume; (3) the 

high expense of appraisals relative to 

the cost of the transaction; and (4) 

inaccurate valuations resulting from 

traditional appraisals. The 

manufactured housing industry 

consultant suggested that an exemption 

was necessary in part because these 

loans were unlikely to qualify for the 

qualified mortgage exemption due to 

their small size, which would in turn 

increase the likelihood that they would 

exceed the points and fees thresholds 

defining qualified mortgages. See 

§ 1026.43(e)(3). 

Some of the commenters believed the 

Agencies should expand the exemption 

to include financing for both real estate 

and manufactured homes, known as 

‘‘land home’’ financing. Manufactured 

housing trade association commenters 

argued that traditional appraisals are not 

appropriate for these transactions for 

many of the same reasons cited for 

excluding loans secured solely by a 

residential structure. One of these 

manufactured housing trade 

associations also expressed the view 

that appraisals are not appropriate 

because the cost of the home itself is 

readily known to consumers through 

other means. In addition, the 

commenter stated that in rural areas, the 

cost of the land is small compared to the 

overall value of the transaction.33 This 

commenter recommended that if the 

Agencies did not exclude all land home 

transactions, the Agencies in the 

alternative should at least exclude those 

land home transactions that are under 

$125,000 or that are in a rural area. 

One commenter also questioned the 

feasibility of appraisals for such 

transactions. A lender specializing in 

manufactured housing financing stated 

that, in land home transactions, the land 

on which manufactured homes will be 

located is often not identified until well 

after the time appraisals are typically 

ordered. Moreover, the commenter 

stated that manufactured homes are 

typically not available for an interior 

visit until after closing, regardless of 

whether the transaction is secured 

solely by the home itself or by land and 

home together. As an alternative, the 

commenter suggested different 

regulatory language for the exclusion, 

which would expand the exemption to 


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34The Agencies note that the definition of 

‘‘higher-risk mortgage loan’’ in TILA section 129H 

incorporates the definition of ‘‘residential mortgage 

loan.’’ TILA section 129H(f). A residential mortgage 

loan is defined, in part, to include loans involving 

certain types of dwellings that are non-real estate 

residences. TILA section 103(cc)(5). For example, 

cooperatives are specifically described as dwellings 

under TILA section 103(w). Moreover, although 

TILA section 129H requires appraisals that conform 

to FIRREA title XI, the Agencies do not believe that 

TILA section 129H is limited to transactions subject 

to FIRREA title XI or other Federal regulations. 

Thus, the Agencies believe the statute intended to 

apply the appraisal requirements to some loans that 

are not secured by land. 

land home transactions and would 

incorporate an existing definition of 

‘‘manufactured home’’ to clearly 

eliminate site-built manufactured homes 

from the exemption. 

Discussion 

Public commenters generally 

confirmed Agencies’ concerns regarding 

the application of the appraisal rules to 

loans secured by certain manufactured 

homes. Accordingly, the Agencies are 

excluding certain manufactured homes 

from coverage under the final rule. 

However, in the final rule, the Agencies 

are modifying the exemption. The 

proposed rule would have exempted 

loans ‘‘secured solely by a residential 

structure,’’ which was intended to 

exempt manufactured homes and other 

types of dwellings when the loan was 

not secured at least in part by land. The 

language in the final rule is tailored to 

exempt transactions secured by specific 

types of dwellings. Accordingly, the 

final rule exempts transactions secured 

by a new manufactured home, 

regardless of whether the structure is 

attached to land or considered real 

property, and also exempts transactions 

secured by a mobile home, boat, or 

trailer. 

The Agencies believe that the 

manufactured home exemption should 

be based on whether the manufactured 

home securing the transaction is a new 

home, regardless of whether land also 

secures the transaction. Upon further 

consideration, the Agencies believe that 

TILA section 129H is intended to apply 

to certain transactions without regard to 

whether a transaction is secured by 

land.34 Thus, the approach in the final 

rule is focused on the feasibility and 

utility of requiring certified or licensed 

appraisers to perform appraisals for 

particular manufactured home 

transactions. 

The Agencies believe that an 

exemption for new manufactured homes 

regardless of whether the loan for such 

a home is also secured by land more 

precisely excludes from the rule those 

transactions that should not be subject 

to the new appraisal requirements. 

Based on further outreach, the Agencies 

understand that for loans secured by 

both new manufactured homes and 

land, a valuation is often performed by 

combining the manufactured home 

invoice price with the value of the land, 

rather than by a traditional appraisal 

that is based on the collective value of 

the structure and the land on which it 

is sited. 

The Agencies believe that requiring 

traditional appraisals with interior 

inspections for transactions secured by 

a new manufactured home would add 

very little value to the consumer beyond 

existing valuation methods. Moreover, 

because it may be difficult or impossible 

to retain qualified appraisers to perform 

such appraisals, the rule could result in 

some creditors declining to extend loans 

for manufactured homes. Exempting 

new manufactured homes from the rule 

is, therefore, in the public interest. The 

Agencies believe that such an 

exemption also promotes the safety and 

soundness of creditors, because 

creditors will be able to continue relying 

on standardized valuations that are 

more conducive to pricing new 

manufactured homes than are appraisals 

performed by a certified or licensed 

appraiser. 

Accordingly, in § 1026.35(c)(2)(ii), the 

Agencies are exempting from the 

appraisal requirements of § 1026.35(c) a 

transaction secured by a new 

manufactured home. Comment 

35(c)(2)(ii)–1 in the final rule clarifies 

that a transaction secured by a new 

manufactured home, 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 

§ 1026.35(c). 

35(c)(2)(iii) 

Transaction Secured by Mobile Home, 

Boat, or Trailer 

Section 1026.35(c)(2)(iii) of the final 

rule also specifically exempts 

transactions secured by a mobile home, 

boat, or trailer. This is consistent with 

the proposal, which would have 

exempted these transactions because 

they are secured ‘‘solely by a residential 

structure.’’ The Agencies note that this 

exemption applies even if the 

transaction is also secured by land. 

Comment 35(c)(2)(iii)–1 clarifies that, 

for purposes of the exemption in 

§ 1026.35(c)(2)(iii), a mobile home does 

not include a manufactured home, as 

defined in § 1026.35(c)(1)(ii). 

The Agencies believe the exemption 

is in the public interest, because 

requiring an appraisal with an interior 

property visit for these transactions 

would offer limited value due to 

existing pricing tools, such as new 

product invoices and publicly-available 

pricing guides. The Agencies further 

believe, for purposes of safety and 

soundness, that creditors would be 

better served by using other valuation 

methods geared specifically for mobile 

homes, boats, and trailers. 

35(c)(2)(iv) 

Construction Loans 

In the proposal, the Agencies asked 

for comment on whether to exempt from 

the higher-risk mortgage appraisal rules 

transactions that finance the 

construction of a new home. The 

Agencies recognized that for loans that 

finance the construction of a new home, 

an interior visit of the property securing 

the loan is generally not feasible 

because the homes are proposed to be 

built or are in the process of being built. 

At the same time, the Agencies 

recognized that construction loans that 

meet the pricing thresholds for higherrisk mortgage loans could pose many of 

the same risks to consumers as other 

types of loans meeting those thresholds. 

The Agencies therefore requested 

comment on whether to exclude 

construction loans from the definition of 

higher-risk mortgage loan. The Agencies 

also sought comment on whether, if an 

exemption for initial construction loans 

were not adopted in the final rule, 

creditors needed any additional 

compliance guidance for applying 

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

rules to construction loans. 

Alternatively, the Agencies requested 

comment on whether construction loans 

should be exempt only from the 

requirement to conduct an interior visit 

of the property, and be subject to all 

other appraisal requirements under the 

proposed rule. 

The final rule adopts an exemption 

from all of the HPML appraisal 

requirements for a ‘‘transaction that 

finances the initial construction of a 

dwelling.’’ This exemption mirrors an 

existing exemption from the current 

HPML rules. See existing 

§ 1026.35(a)(3), also retained in the 2013 

Escrows Final Rule, 

§ 1026.35(b)(2)(i)(B). 

Public Comments on the Proposal 

Appraiser trade association 

commenters believed that new 

construction loans should not be 

exempted because consumers needed 

the protection of the appraisal rules. 

However, all other commenters— 

including national and State credit 

union trade associations, national and 

State banking trade associations, banks, 


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35Moreover, the existing ‘‘high-cost’’ mortgage 

rules contain a longstanding exemption for 

construction loans from the limitation on balloon 

payments. See existing § 1026.32(d)(1)(i). 

a mortgage company, a financial holding 

company, a home builder trade 

association, and a loan origination 

software company—supported the 

proposed exemption. 

Commenters that supported an 

exemption for new construction loans 

had varying views on the risks 

associated with these loans, all 

supporting the commenters’ request for 

an exemption for such loans. A loan 

origination software company and a 

bank commenter asserted that new 

construction loan interest rates and fees 

are often high because the loans, which 

are short-term, have inherently greater 

risk. Thus, the appraisal rules would be 

over-inclusive because they would 

apply even when extended to prime 

borrowers. Similarly, a banking 

association commenter argued that new 

construction loans are not those that 

Congress intended to target in the 

appraisal rules, which the commenter 

viewed as loans priced higher due to the 

relative credit risk of the borrower. The 

home builder trade association, 

however, supported an exemption 

because the commenter believed that 

new construction loans are not as risky 

as the loans targeted by Congress in the 

‘‘higher-risk mortgage’’ appraisal rules 

because these loans require close 

coordination between a bank, home 

builder, and consumer. 

The financial holding company, 

mortgage company, banking association, 

and loan origination software company 

commenters supported an exemption for 

new construction loans because they are 

temporary. One of these commenters 

noted that most mortgage-related 

regulations, such as those in Regulation 

X and Z, make accommodations for 

temporary loans. Others noted that the 

property securing the new construction 

loan ultimately will be subject to an 

appraisal under TILA’s ‘‘higher-risk 

mortgage’’ appraisal rules if the 

permanent financing replacing the new 

construction loan is a ‘‘higher-risk 

mortgage.’’ 

Several commenters supporting an 

exemption cited concerns about the 

feasibility and utility of performing 

interior inspection appraisals during the 

construction phase. A bank commenter 

stated that an exemption was needed 

because a home under construction is 

not available for a physical inspection. 

Similarly, credit union association and 

banking association commenters stated 

that an interior visit would not be 

feasible during the construction phase. 

Moreover, the commenter believed an 

appraisal was unlikely to yield 

sufficient information about the 

condition of the property to justify the 

expense to the consumer. A banking 

association commenter further asserted 

that the usual value of a new 

construction loan is the value ‘‘at 

completion,’’ so an appraisal performed 

during construction would not assess 

the value of a completed home. 

A State banking association 

commenter asserted that failing to 

exempt new construction loans from the 

final rule would result in operational 

difficulties and that an interior 

inspection appraisal would be of little 

value to consumers in these 

circumstances. A bank commenter 

requested guidance on how to comply 

with the rules for these loans, if the 

Agencies did not exempt them from the 

rule. 

Discussion 

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

using their exemption authority to 

exempt from the final rule a 

‘‘transaction to finance the initial 

construction of a dwelling.’’ Unlike the 

exemption for ‘‘bridge’’ loans that the 

Agencies are also adopting (see sectionby-section analysis of § 1026.35(c)(2)(v), 

below), the exemption for new 

construction loans is not limited to 

loans of twelve months or less. This is 

because the Agencies recognize that 

new construction might take longer than 

twelve months and that therefore new 

construction loans might be for terms of 

longer than twelve months. This aspect 

of the exemption adopted in the final 

rule also reflects the existing exemption 

for new construction loans from the 

current HPML rules. See § 1026.35(a)(3). 

The Agencies’ decision to exempt 

these types of transactions is consistent 

with wide support for this exemption 

received from commenters, which 

largely confirmed the Agencies’ 

concerns about the drawbacks of 

subjecting these transactions to the new 

HPML appraisal requirements, 

particularly the requirement for an 

interior inspection, USPAP-compliant 

appraisal. The Agencies also believe 

that this exemption is important to 

ensure consistency across mortgage 

rules, and thus to facilitate compliance. 

In addition to noting the existing 

exemption for new construction loans 

from the current HPML requirements, 

the Agencies also note the exemption 

for these loans from the new DoddFrank Act ability-to-repay and ‘‘highcost’’ mortgage rules issued by the 

Bureau. See 2013 ATR Final Rule, 

§ 1026.43(a)(3)(ii), and 2013 HOEPA 

Final Rule, § 1026.32(a)(2)(ii).35

Due to their temporary nature and for 

other reasons, these loans tend to have 

higher rates and thus more of them 

would be subject to the HPML appraisal 

rules without an exemption. Applying 

the HPML appraisal rules to these 

products might subject them to rules 

with which creditors might not in fact 

be able to comply. The Agencies 

therefore believe that this exemption 

will help ensure that a useful credit 

vehicle for consumers remains available 

to build and revitalize communities. 

The Agencies also recognize that new 

construction loans can be an important 

product for many creditors, enabling 

them to strengthen and diversify their 

lending portfolios. The Agencies are 

also not aware of, and commenters did 

not offer, evidence of widespread 

valuation abuses in loans to finance new 

construction. Thus, the Agencies find 

that the exemption is both in the public 

interest and promotes the safety and 

soundness of creditors. See TILA 

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

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

The Agencies also wished to clarify in 

the final rule the treatment of 

‘‘construction to permanent’’ loans, 

consisting of a single loan that 

transforms into permanent financing at 

the end of the construction phase. For 

this reason, the commentary of the final 

rule includes guidance on the 

application of various rules in 

Regulation Z to these loans that 

parallels guidance provided in 

commentary for the new ‘‘high-cost’’ 

mortgage rules. See 2013 HOEPA Final 

Rule, comment 32(a)(2)(ii)–1. 

Specifically, comment 35(c)(2)(iv)–1 

clarifies that the exclusion for loans to 

finance the initial construction of a 

dwelling applies to a construction-only 

loan as well as to the construction phase 

of a construction-to-permanent loan. 

The comment further clarifies that the 

HPML appraisal rules in § 1026.35(c) do 

apply if the permanent financing 

qualifies as an HPML under 

§ 1026.35(a)(1) and is not otherwise 

exempt from the rules under 

§ 1026.35(c)(2). 

The comment also provides guidance 

on the application of Regulation Z’s 

general closed-end mortgage loan 

disclosure requirements to constructionto-permanent loans. To this end, the 

comment states that, when a 

construction loan may be permanently 

financed by the same creditor, the 

general disclosure requirements for 

closed-end credit (§ 1026.17) provide 

that the creditor may give either one 

combined disclosure for both the 

construction financing and the 

permanent financing, or a separate set of 

disclosures for each of the two phases 


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10382 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

as though they were two separate 

transactions. See § 1026.17(c)(6)(ii) and 

comment 17(c)(6)–2. The comment 

explains that § 1026.17(c)(6)(ii) 

addresses only how a creditor may elect 

to disclose a construction-to-permanent 

transaction, and that which disclosure 

option a creditor elects under 

§ 1026.17(c)(6)(ii) does not affect 

whether the permanent phase of the 

transaction is subject to § 1026.35(c). 

The comment further explains that, 

when the creditor discloses the two 

phases as separate transactions, the 

annual percentage rate for the 

permanent phase must be compared to 

the average prime offer rate for a 

transaction that is comparable to the 

permanent financing to determine 

coverage under § 1026.35(c). The 

comment also explains that, when the 

creditor discloses the two phases as a 

single transaction, a single annual 

percentage rate, reflecting the 

appropriate charges from both phases, 

must be calculated for the transaction in 

accordance with § 1026.35 and 

appendix D to part 1026. The comment 

also clarifies that the APR must be 

compared to the APOR for a transaction 

that is comparable to the permanent 

financing to determine coverage under 

§ 1026.35(c). If the transaction is 

determined to be an HPML that is not 

otherwise exempt under § 1026.35(c)(2), 

only the permanent phase is subject to 

the HPML appraisal requirements of 

§ 1026.35(c). 

35(c)(2)(v) 

Bridge Loans 

In the proposal, the Agencies also 

requested comment on whether the 

appraisal rules of TILA section 129H 

should apply to temporary or ‘‘bridge’’ 

loans with a term of 12 months or less. 

15 U.S.C. 1639h. If such an exemption 

were not adopted, the Agencies sought 

comment on whether any additional 

compliance guidance would be needed 

for applying the new appraisal rules to 

bridge loans. The Agencies stated 

concerns about the burden to both 

creditors and consumers of imposing 

the rule’s requirements on such loans 

and questioned whether such 

requirements would be useful for many 

consumers. 

As explained in the proposal, bridge 

loans are short-term loans typically used 

when a consumer is buying a new home 

before selling the consumer’s existing 

home. Usually secured by the existing 

home, a bridge loan provides financing 

for the new home (often in the form of 

the down payment) or mortgage 

payment assistance until the consumer 

can sell the existing home and secure 

permanent financing. Bridge loans 

normally carry higher interest rates, 

points and fees than conventional 

mortgages, regardless of the consumer’s 

creditworthiness. 

In § 1026.35(c)(2)(v), the final rule 

adopts an exemption from the new 

HPML appraisal rules for 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.’’ 

Public Comments on the Proposal 

Almost all commenters—including 

national and State banking associations, 

national and State credit union 

associations, a mortgage company, a 

financial holding company, a loan 

origination software company, a home 

builder trade association, and a bank— 

supported an exemption for bridge loans 

for many of the same reasons that 

commenters supported exempting 

construction loans. Several commenters 

emphasized that these loans are 

temporary, and some further pointed 

out that imposing appraisal 

requirements was unnecessary because 

bridge loans are ultimately converted to 

permanent financing that will be subject 

to the appraisal rules. Other 

commenters argued that the protections 

of the appraisal rules were not needed 

because bridge loans’ higher rates are 

generally unrelated to a consumer’s 

creditworthiness; they argued that 

TILA’s new ‘‘higher-risk mortgage’’ 

appraisal rules were intended for loans 

made to more vulnerable, less 

creditworthy consumers without other 

credit options. 

Some commenters asserted that 

failing to exempt these loans would 

result in operational difficulties and 

would be of little value to consumers. In 

this regard, one commenter discussed 

the difficulties of comparing an APR to 

a ‘‘comparable’’ APOR for these loans. 

One credit union association commenter 

believed that without an exemption, 

consumers’ access to bridge loans would 

be reduced. Some commenters 

requested that the Agencies exempt all 

types of temporary loans. Appraiser 

trade association commenters believed 

that the Agencies should not allow an 

exemption unless there was a 

compelling policy reason to do so. 

Discussion 

The Agencies are adopting an 

exemption for ‘‘bridge’’ loans of 12 

months or less that are connected with 

the acquisition of a dwelling intended to 

become the consumer’s principal 

dwelling for several reasons. First, the 

Agencies believe that with this 

exemption, the consumer would still be 

afforded the protection of the appraisal 

rules. This is because bridge loans used 

in connection with the acquisition of a 

new home are typically secured by the 

consumer’s existing home to facilitate 

the purchase of a new home. Thus, the 

consumer would be afforded the 

protections of the appraisal rules on the 

permanent financing secured by the 

new home. This would include the 

protections of § 1026.35(c)(4)(i) 

regarding properties that are potentially 

fraudulent flips. 

Second, commenters generally 

confirmed the Agencies’ concerns 

expressed in the proposal about the 

burden to both creditors and consumers 

of imposing TILA section 129H’s 

heightened appraisal requirements on 

short-term financing of this nature. As 

noted in the proposal, the Agencies 

recognize that rates on short-term bridge 

loans are often higher than on long-term 

home mortgages, so these loans may be 

more likely to meet the ‘‘higher-risk 

mortgage loan’’ triggers. As also noted in 

the proposal and echoed by 

commenters, ‘‘higher-risk mortgages’’ 

under TILA section 129H would 

generally be a credit option for less 

creditworthy consumers, who may be 

more vulnerable than others and in need 

of enhanced consumer protections, such 

as TILA section 129H’s special appraisal 

requirements. However, a bridge loan 

consumer could be subject to rates that 

would exceed the higher-risk mortgage 

loan thresholds even if the consumer 

would qualify for a non-higher-risk 

mortgage loan when seeking permanent 

financing. The Agencies do not believe 

that Congress intended TILA section 

129H to apply to loans simply because 

they have higher rates, regardless of the 

consumer’s creditworthiness or the 

purpose of the loan. 

Further, the Agencies recognize that 

the exemption can help facilitate 

compliance by generally ensuring 

consistency across residential mortgage 

rules. Such consistency can reduce 

compliance-related burdens and risks, 

thereby promoting the safety and 

soundness of creditors. The Agencies 

also believe that consistency across the 

rules can reduce operational risk and 

support a creditor’s ability to offer these 

loans, which can enable creditors to 

strengthen and diversify their lending 

portfolios. 

In particular, the Agencies note the 

current exemption for ‘‘temporary or 

‘bridge’ loans of twelve months or less 

from the existing HPML rules (retained 

in the 2013 Escrows Final Rule, 

§ 1026.35(b)(2)(i)(C)), but also a similar 

exemption from TILA’s new ability-torepay requirements. See existing 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10383 

36The exemption for ‘‘temporary or ‘bridge’ loans 

of twelve months or less’’ in TILA’s ability-to-repay 

rules codifies an exemption from the current ‘‘highcost’’ and HPML repayment ability requirements. 

See existing §§ 1026.34(a)(4)(v), 1026.35(a)(3) and 

(b)(1). 

37See Bureau, Reverse Mortgages: Report to 

Congress 14, 70–99 (June 28, 2012), available at 

http://www.consumerfinance.gov/reports/reversemortgages-report (Bureau Reverse Mortgage Report). 

38See HUD Handbook 4235.1, ch. 3. 

39See http://portal.hud.gov/hudportal/HUD?src=/ 

program_offices/housing/rmra/oe/rpts/hecm/ 

hecmmenu (‘‘Home Equity Conversion Mortgage 

Characteristics’’). 40Bureau Reverse Mortgage Report at 137–38. 

§ 1026.35(a)(3). See TILA section 

129C(a)(8), 15 U.S.C. 1639c(a)(8); 2013 

ATR Final Rule, § 1026.43(a)(3)(ii).36 In 

addition, longstanding HOEPA rules 

have included an exception from the 

balloon payment prohibition for ‘‘loans 

with maturities of less than one year, if 

the purpose of the loan is a ‘bridge’ loan 

connected with the acquisition or 

construction of a dwelling intended to 

become the consumer’s principal 

dwelling.’’ § 1026.32(d)(1)(ii). The final 

HOEPA rules adopted by the Bureau 

contain the same exception with minor 

changes for conformity across mortgage 

rules. See 2013 HOEPA Final Rule, 

§ 1026.32(d)(1)(ii)(B) (revising the 

exception to cover bridge loans of 12 

months or less, rather than less than one 

year). 

Like the HOEPA exception from the 

balloon payment prohibition, the final 

HPML appraisal rule does not exempt 

all loans with terms of 12 months or 

less. Only bridge loans of 12 months or 

less that are made in connection with 

the acquisition of a consumer’s 

principal dwelling are exempted. 

(Construction loans are separately 

exempted under § 1026.35(c)(2)(iv), 

discussed in the corresponding sectionby-section analysis above.) The 

Agencies believe that the HPML 

appraisal rule might be appropriately 

applied to other types of temporary 

financing, particularly temporary 

financing that does not result in the 

consumer ultimately obtaining 

permanent financing covered by the 

appraisal rule. 

Finally, as with new construction 

loans, the Agencies are not aware of, 

and commenters did not offer, evidence 

of widespread valuation abuses in 

bridge loans of twelve months or less 

used in connection with the acquisition 

of a consumer’s principal dwelling. For 

all these reasons, the Agencies find that 

the exemption is both in the public 

interest and promotes the safety and 

soundness of creditors. See TILA 

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

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

35(c)(2)(vi) 

Reverse Mortgage Transactions 

The Agencies proposed to exempt 

reverse mortgage transactions subject to 

§ 1026.33(a) from the definition of 

‘‘higher-risk mortgage loan.’’ The 

Agencies proposed this exemption in 

part because the proprietary (private) 

reverse mortgage market is effectively 

nonexistent, thus the vast majority of 

reverse mortgage transactions made in 

the United States today are insured by 

FHA as part of the U.S. Department of 

Housing and Urban Development’s 

(HUD) Home Equity Conversion 

Mortgage (HECM) Program.37 The 

Agencies stated that TILA’s new 

‘‘higher-risk mortgage’’ appraisal rules 

are arguably unnecessary because 

HECM creditors must adhere to specific 

standards designed to protect both the 

creditor and the consumer, including 

robust appraisal rules.38 In addition, a 

methodology for determining APORs for 

reverse mortgage transactions does not 

currently exist, so creditors would be 

unable to determine whether the APR of 

a given reverse mortgage transaction 

exceeded the rate thresholds defining a 

‘‘higher-risk mortgage loan’’ (HPML in 

the final rule). 

At the same time, the Agencies 

expressed concern that providing a 

permanent exemption for all reverse 

mortgage transactions, both private and 

HECM products, could deny key 

protections to consumers who rely on 

reverse mortgages. However, the 

Agencies proposed the exemption on at 

least a temporary basis, asserting that 

avoiding any potential disruption of this 

segment of the mortgage market in the 

near term would be in the public 

interest and promote the safety and 

soundness of creditors. 

The Agencies requested comment on 

the appropriateness of this exemption. 

The Agencies also sought comment on 

whether available indices exist that 

track the APR for reverse mortgages and 

could be used by the Bureau to develop 

and publish an APOR for these 

transactions, or whether such an index 

could be developed, noting, for 

example, information published by 

HUD on HECMs, including the contract 

rate.39

As discussed further below, in 

§ 1026.35(c)(2)(vi) of the final rule, the 

Agencies are adopting the proposed 

exemption for a ‘‘reverse-mortgage 

transaction subject to § 1026.33(a).’’ 

Public Comments on the Proposal 

National and State credit union trade 

associations, as well as a State banking 

trade association, supported the 

proposed exemption. However, 

appraiser trade association commenters 

generally believed that excluding 

appraisal protections would harm 

consumers, particularly senior citizens, 

and is contrary to public policy. 

Appraiser trade association, realtor 

trade association, and reverse mortgage 

lending trade association commenters 

suggested that any exemption should be 

limited to reverse mortgages under the 

FHA HECM program and not extended 

to proprietary products, because HECM 

consumers are afforded a 

comprehensive and mandatory set of 

appraisal protections. The reverse 

mortgage lending trade association also 

suggested circumstances under which 

reverse mortgages should be deemed 

qualified mortgages and, thus, qualify 

for an exemption on that basis. See 

section-by-section analysis of 

§ 1026.35(c)(2)(i). 

No commenters offered suggestions 

on an appropriate approach for 

developing an APOR for reverse 

mortgages. Appraiser trade associations, 

who only supported an exemption for 

HECMs, believed that the rules should 

apply to reverse mortgages even though 

indices do not currently exist. A reverse 

mortgage lending trade association 

believed that benchmark indices for 

reverse mortgages could be developed, 

but, supporting the proposed 

exemption, questioned whether one 

should be. 

Discussion 

The Agencies are adopting the 

proposed exemption for a ‘‘reversemortgage transaction subject to 

§ 1026.33’’ for the same basic reasons 

discussed in the proposal, which were 

affirmed by most commenters. The 

Agencies share concerns expressed by 

some commenters about the risks to 

consumers of reverse mortgages 

generally, and of proprietary reverse 

mortgage loans in particular. Proprietary 

reverse mortgage loans are not insured 

by FHA or any other government entity, 

so payments are not guaranteed by the 

U.S. government to either consumers or 

creditors. By contrast, HECMs are 

insured by FHA and subject to a number 

of rules and restrictions designed to 

reduce risk to both consumers and 

creditors, including appraisal rules. See 

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

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

As noted in the proposal, however, 

there is little to no market for 

proprietary reverse mortgages, and 

prospects for the reemergence of this 

market in the near-term are remote.40

HECMs comprise virtually the entire 

reverse mortgage market and are subject 


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41See HUD Handbook 4235.1, ch. 3. 

42Bureau Reverse Mortgage Report at 154, 157. 

43By statute, the term ‘‘higher-risk mortgage’’ 

excludes any ‘‘qualified mortgage’’ and any ‘‘reverse 

mortgage loan that is a qualified mortgage.’’ 15 

U.S.C. 1639h(f). The Bureau was authorized by the 

Dodd-Frank Act to define the term ‘‘qualified 

mortgage’’ and has done so in its 2013 ATR Final 

Rule. However, the 2013 ATR Final Rule does not 

define the types of reverse mortgage loans that 

should be considered ‘‘qualified mortgages’’ 

because, by statute, TILA’s ability-to-repay rules do 

not apply to reverse mortgages. See TILA section 

129C(a)(8), 15 U.S.C. 1639c(a)(8). Thus the Agencies 

are not able to implement the precise statutory 

exemption for ‘‘reverse mortgage loans that are 

qualified mortgages.’’ Instead, the exemption for 

reverse mortgages is based on the Agencies’ express 

authority to exempt from TILA’s ‘‘higher-risk 

mortgage’’ appraisal rules ‘‘a class of loans,’’ if the 

exemption ‘‘is 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). 

to FHA’s extensive HECM rules, which 

include appraisal requirements.41 In 

addition, the Agencies believe that 

unwarranted creditor liability and 

operational risk could arise if the rule 

were applied to loans that a creditor 

cannot definitively determine are in fact 

subject to the rule, as is the case here, 

where no rate benchmark exists for 

measuring whether a reverse mortgage 

loan is an HPML. Thus, without an 

exemption for reverse mortgages, 

creditors would be susceptible to risks 

that could negatively affect their safety 

and soundness. 

In reevaluating the proposed 

exemption, the Agencies also focused 

more attention on the fact that TILA’s 

‘‘higher-risk mortgage’’ appraisal rules 

apply only to closed-end products. 

Many (and historically most) reverse 

mortgages are open-end products. The 

Agencies are concerned about creating 

anomalies in the market and compliance 

confusion among creditors by applying 

one set of rules to closed-end reverse 

mortgages and another to open-end 

reverse mortgages. The Agencies note 

that compliance confusion among 

creditors can create burden and 

operational risk that can have a negative 

impact on the safety and soundness of 

the creditors. The Agencies are 

concerned that this bifurcation of the 

rule’s application could also hinder 

creditors from offering a range of reverse 

mortgage product choices that support 

the creditors’ loan portfolios while also 

benefitting consumers. In short, 

questions remain for the Agencies about 

whether this rule is the appropriate 

vehicle for addressing appraisal issues 

in the reverse mortgage market. 

The Agencies remain concerned about 

the potential for abuse related to 

appraisals even with HECMs, which are 

subject to appraisal rules. Indeed, 

evidence exists that problems of 

property value inflation and fraudulent 

flipping occur even in the HECM 

market.42 The Agencies plan to continue 

monitoring the reverse mortgage market 

closely and address appraisal issues as 

needed, including through consultations 

with the Bureau regarding any 

initiatives to revisit previously-issued 

reverse mortgage proposals (76 FR 

58539, 53638–58659 (Sept. 24, 2012)). 

For all these reasons, the Agencies 

have concluded that an exemption for 

all reverse mortgages at this time from 

this rule is in the public interest and 

promotes the safety and soundness of 

creditors.43

35(c)(3) Appraisals Required for HigherPriced Mortgage Loans 

35(c)(3)(i) In General 

Consistent with TILA section 129H(a) 

and (b)(1), the proposal provided that a 

creditor shall not extend a higher-risk 

mortgage loan to a consumer without 

obtaining, prior to consummation, a 

written appraisal performed by a 

certified or licensed appraiser who 

conducts a physical visit of the interior 

of the property that will secure the 

transaction. 15 U.S.C. 1639h(a) and 

(b)(1). In new § 1026.35(c)(3)(i), the final 

rule adopts this proposal without 

change. 

35(c)(3)(ii) Safe Harbor 

In the proposed rule, the Agencies 

proposed a safe harbor that would 

establish affirmative steps creditors can 

follow to ensure that they satisfy 

statutory obligations under TILA section 

129H(a) and (b)(1). 15 U.S.C. 1639h(a) 

and (b)(1). This was done to address 

compliance uncertainties, which are 

discussed in more detail below. 

The Agencies are adopting the final 

rule substantially as proposed. 

Specifically, under new 

§ 1026.35(c)(3)(ii), a creditor would be 

deemed to have obtained a written 

appraisal that meets the general 

appraisal requirements now adopted in 

§ 1026.35(c)(3)(i) if the creditor: 

• Orders the appraiser to perform the 

appraisal in conformity with USPAP 

and FIRREA title XI, and any 

implementing regulations, in effect at 

the time the appraiser signs the 

appraiser’s certification 

(§ 1026.35(c)(3)(ii)(A)); 

• Verifies through the National 

Registry that the appraiser who signed 

the appraiser’s certification holds a 

valid appraisal license or certification in 

the State in which the appraised 

property is located as of the date the 

appraisal is signed 

(§ 1026.35(c)(3)(ii)(B)); 

• Confirms that the elements set forth 

in appendix N to part 1026 are 

addressed in the written appraisal 

(§ 1026.35(c)(3)(ii)(C)); and 

• Has no actual knowledge to the 

contrary of facts or certifications 

contained in the written appraisal 

(§ 1026.35(c)(3)(ii)(D)). 

The Agencies are also adopting 

proposed comments to the safe harbor. 

In particular, comment 35(c)(3)(ii)–1 

clarifies that a creditor that satisfies the 

safe harbor conditions in 

§ 1026.35(c)(3)(ii)(A)–(D) will be 

deemed to have complied with the 

general appraisal requirements of 

§ 1026.35(c)(3)(i). This comment further 

clarifies that a creditor that does not 

satisfy the safe harbor conditions in 

§ 1026.35(c)(3)(ii)(A)–(D) does not 

necessarily violate the appraisal 

requirements of § 1026.35(c)(3)(i). 

Consistent with the proposal, 

appendix N to part 1026 provides that, 

to qualify for the safe harbor, a creditor 

must check to confirm that the written 

appraisal: 

• Identifies the creditor who ordered 

the appraisal and the property and the 

interest being appraised. 

• Indicates whether the contract price 

was analyzed. 

• Addresses conditions in the 

property’s neighborhood. 

• Addresses the condition of the 

property and any improvements to the 

property. 

• Indicates which valuation 

approaches were used, and included a 

reconciliation if more than one 

valuation approach was used. 

• Provides an opinion of the 

property’s market value and an effective 

date for the opinion. 

• Indicates that a physical property 

visit of the interior of the property was 

performed. 

• Includes a certification signed by 

the appraiser that the appraisal was 

prepared in accordance with the 

requirements of USPAP. 

• Includes a certification signed by 

the appraiser that the appraisal was 

prepared in accordance with the 

requirements of FIRREA title XI, as 

amended, and any implementing 

regulations. 

As discussed in the proposal, other 

than the certification for compliance 

with FIRREA title XI, the items in 

appendix N were derived from the 

Uniform Residential Appraisal Report 

(URAR) form used as a matter of 

practice in the residential mortgage 

industry. The final rule incorporates 

without change a proposed comment 

clarifying that a creditor need not look 

beyond the face of the written appraisal 

and the appraiser’s certification to 

confirm that the elements in appendix 

N are included in the written appraisal. 


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44The Agencies proposed to interpret the State 

certification or licensing requirement under TILA 

section 129H(b)(3) to mean certification or licensing 

by a State agency that is recognized for purposes of 

credentialing appraisers to perform appraisals 

required for federally related transactions pursuant 

to FIRREA title XI. 

45See Appraisal Standards Bd., Appraisal Fdn., 

USPAP (2012–2013 ed.) available at http:// 

www.uspap.org. 

46As discussed above in the section-by-section 

analysis of the definition of ‘‘certified or licensed 

appraiser’’ (§ 1026.35(c)(1)(i)), under FIRREA title 

XI, the Federal financial institutions regulatory 

agencies have issued regulations requiring insured 

depository institutions and their affiliates, bank 

holding companies and their affiliates, and insured 

credit unions to obtain written appraisals prepared 

by a State certified or licensed appraiser in 

accordance with USPAP for federally related 

transactions, including loans secured by real estate, 

exceeding certain dollar thresholds. See OCC: 12 

CFR Part 34, Subpart C; FRB: 12 CFR part 208, 

subpart E, and 12 CFR part 225, subpart G; FDIC: 

12 CFR part 323; and NCUA: 12 CFR part 722. 

See § 1026.35(c)(3)(ii)(C)–1. However, as 

also provided in the proposal, the final 

rule provides that the safe harbor does 

not apply if the creditor has actual 

knowledge to the contrary of facts or 

certifications contained in the written 

appraisal. See § 1026.35(c)(3)(ii)(D). 

Public Comments on the Proposal 

The Agencies collectively received 17 

comments from 13 trade groups, three 

financial institutions, and one bank 

holding company that addressed the 

proposed safe harbor. Of these, 14 

commenters unequivocally supported 

the safe harbor. Several commenters 

requested clarification of certain issues. 

Two commenters recommended that the 

Agencies clarify that a lender has not 

necessarily violated the appraisal 

requirements when an appraisal does 

not meet the safe harbor’s requirements. 

Another commenter recommended the 

final rule provide that a creditor may 

outsource the safe harbor requirements 

to a third party and that the creditor 

would be permitted to rely upon the 

third party’s certification. The 

commenter also requested confirmation 

that creditors could use automated 

processes for checking whether the safe 

harbor’s criteria were met. 

The same commenter stated that the 

safe harbor did not indicate whether the 

creditor could rely on the face of the 

written appraisal report and the 

appraiser’s certification. One 

commenter stated that the safe harbor 

was not clear regarding the scope and 

type of information that was required 

for some of the criteria. One commenter 

requested that the Agencies eliminate 

the certification for compliance with 

FIRREA. 

Two commenters questioned 

implementation of the safe harbor and 

the creditor’s responsibility under the 

safe harbor standard. These commenters 

recommended that the Agencies should 

use the same appraisal review standards 

that exist in FIRREA and the 

Interagency Appraisal and Evaluation 

Guidelines. One of the commenters 

questioned whether a creditor was being 

tasked under the safe harbor with 

adequate responsibility for review of an 

appraisal. This commenter noted that 

the proposal appeared to lower the bar 

for creditors in connection with 

appraisal review responsibilities. The 

commenter strongly opposed allowing 

creditors to perform appraisal review 

functions without necessarily using 

licensed or certified appraisers and 

recommended requiring lenders to use 

certified or licensed appraisers to 

perform any substantive appraisal 

review functions. 

Discussion 

As noted, the safe harbor is being 

adopted to address compliance 

uncertainties for creditors raised by the 

general appraisal requirements. 

Specifically, TILA section 129H(b)(1) 

requires that appraisals mandated by 

section 129H be performed by ‘‘a 

certified or licensed appraiser’’ who 

conducts a physical property visit of the 

interior of the mortgaged property. 15 

U.S.C. 1639h(b)(1). The statute goes on 

to define a ‘‘certified or licensed’’ 

appraiser in some detail. TILA section 

129H(b)(3), 15 U.S.C. 1639h(b)(3). The 

statute, however, is silent on how 

creditors should determine whether the 

written appraisals they have obtained 

comply with these statutory 

requirements. 

TILA section 129H(b)(3) defines a 

‘‘certified or licensed appraiser’’ as a 

person who is (1) certified or licensed 

by the State in which the property to be 

appraised is located, and (2) performs 

each appraisal in conformity with 

USPAP and the requirements applicable 

to appraisers in FIRREA title XI, and the 

regulations prescribed under such title, 

as in effect on the date of the appraisal. 

15 U.S.C. 1639h(b)(3). These two 

elements of the definition of ‘‘certified 

or licensed appraiser’’ are discussed in 

more detail below. 

Certified or licensed in the State in 

which the property is located. State 

certification and licensing of real estate 

appraisers has become a nationwide 

practice largely as a result of FIRREA 

title XI. Pursuant to FIRREA title XI, 

entities engaging in certain ‘‘federally 

related transactions’’ involving real 

estate are required to obtain written 

appraisals performed by an appraiser 

who is certified or licensed by the 

appropriate State. 12 U.S.C. 3339, 3341. 

As noted, to facilitate identification of 

appraisers meeting this requirement, the 

Appraisal Subcommittee of the FFIEC 

maintains an on-line National Registry 

of appraisers identifying all federally 

recognized State certifications or 

licenses held by U.S. appraisers.44 12 

U.S.C. 3332, 3338. 

Performs appraisals in conformity 

with USPAP and FIRREA. Again, TILA 

section 129H(b)(3) also defines 

‘‘certified or licensed appraiser’’ as a 

person who performs each appraisal in 

accordance with USPAP and FIRREA 

title XI, and the regulations prescribed 

under such title, in effect on the date of 

the appraisal. 15 U.S.C. 1639h(b)(3). 

USPAP is a set of standards 

promulgated and interpreted by the 

Appraisal Standards Board of the 

Appraisal Foundation, providing 

generally accepted and recognized 

standards of appraisal practice for 

appraisers preparing various types of 

property valuations.45 USPAP provides 

guiding standards, not specific 

methodologies, and application of 

USPAP in each appraisal engagement 

involves the application of professional 

expertise and judgment. 

FIRREA title XI and the regulations 

prescribed thereunder regulate entities 

engaging in real estate-related financial 

transactions that are engaged in, 

contracted for, or regulated by the 

Federal financial institutions regulatory 

agencies.46 See 12 U.S.C. 3339, 3350. 

The statute does not specifically 

address Congress’s intent in referencing 

USPAP and FIRREA title XI. Congress 

could have amended FIRREA title XI 

directly to expand the scope of the 

statute to subject all creditors to its 

requirements. Instead, Congress inserted 

language into TILA requiring that the 

appraisers who perform appraisals in 

connection with higher-risk mortgage 

loans comply with USPAP and FIRREA 

title XI. The statute is silent, however, 

as to the extent of creditors’ obligations 

under the statute to evaluate appraisers’ 

compliance. 

The Agencies remain concerned that, 

practically speaking, a creditor might 

not be able to determine with certainty 

whether an appraiser complied with 

USPAP for a residential appraisal. An 

appraisal performed in accordance with 

USPAP represents an expert opinion of 

value. Not only does USPAP require 

extensive application of professional 

judgment, it also establishes standards 

for the scope of inquiry and analysis to 

be performed that cannot be verified 

absent substantially re-performing the 

appraisal. Conclusive verification of 

FIRREA title XI compliance (which 

itself incorporates USPAP) poses similar 

problems. On an even more basic level, 


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10386 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

47The Agencies are aware that the URAR, 

currently used widely in the industry, includes a 

pro forma appraiser certification for USPAP 

compliance, but not for compliance with FIRREA 

Title XI appraisal regulations. Nonetheless, the 

URAR form accommodates ‘‘free text’’ additions by 

the appraiser, through which appraisers can add an 

appropriate FIRREA Title XI certification. 

48The Agencies also note that the Interagency 

Appraisal and Evaluation Guidelines provide 

comprehensive guidance on creditors’ use of third 

parties for appraisal functions for institutions 

subject to the appraisal regulations under FIRREA 

title XI. See Interagency Appraisal and Evaluation 

Guidelines, 75 FR 77450, 77463–77464 (Dec. 10, 

2010). 

it may not be possible for a creditor to 

determine conclusively whether the 

appraiser actually performed the 

interior visit required by TILA section 

129H(a). Moreover, TILA subjects 

creditors to significant liability and risk 

of litigation, including private actions 

and class actions for actual and 

statutory damages and attorneys’ fees. 

TILA section 130, 15 U.S.C. 1640. If 

TILA section 129H is construed to 

require creditors to assume liability 

under TILA for the appraiser’s 

compliance with these obligations, the 

Agencies also remain concerned that it 

would unduly increase the cost and 

restrict the availability of higher-risk 

mortgage loans. Absent clear language 

requiring such a construction, the 

Agencies did not believe that the statute 

should be construed to intend this 

result. 

As discussed in the proposal, the 

Agencies continue to be of the opinion 

that the safe harbor will be particularly 

useful to consumers, industry, and 

courts with regard to the statutory 

requirement that the appraisal be 

obtained from a ‘‘certified or licensed 

appraiser’’ who conducts each appraisal 

in compliance with USPAP and FIRREA 

title XI. While determining whether an 

appraiser is licensed or certified by a 

particular State is straightforward, 

USPAP and FIRREA provide a broad set 

of professional standards and 

requirements. The appraisal process 

involves the application of subjective 

judgment to a variety of information 

points about individual properties; thus, 

application of these professional 

standards is often highly contextspecific. (The Agencies noted in the 

proposed rule, however, that a 

certification of USPAP compliance, one 

of the required safe harbor elements, is 

already an element of the URAR form 

used as a matter of practice in the 

industry.) 

Regarding the first element of the safe 

harbor, that the creditor ‘‘order’’ that the 

appraiser perform the appraisal in 

conformity with USPAP and FIRREA, 

the Agencies generally understand that 

creditors seeking the safe harbor would 

include this assignment requirement in 

the engagement letter with the 

appraiser. See § 1026.35(c)(3)(ii)(A). 

Regarding specific comments received 

on the proposal, the Agencies note that 

the proposed staff commentary, now 

adopted, specifically addresses some of 

the issues the commenters raised. In 

particular, comment 35(c)(3)(ii)–1, 

discussed above, states that a creditor 

who does not satisfy the safe harbor 

conditions in § 1026.35(c)(3)(ii) does not 

necessarily violate the general appraisal 

requirements of § 1026.35(c)(3)(i). In 

addition, the Agencies note that another 

proposed element of the commentary, 

adopted as comment 35(c)(3)(ii)(C)–1, 

states a creditor need not look beyond 

the face of the written appraisal and the 

appraiser’s certification to confirm that 

the elements in appendix N to this 

subpart are included in the written 

appraisal. 

Some commenters sought clarification 

on whether the creditor could rely on 

the face of the appraisal report, and 

what scope and type of information is 

required for the appendix N criteria. As 

the Agencies discussed in the proposal, 

compliance with the appendix N safe 

harbor review requires the creditor to 

check certain elements of the written 

appraisal and the appraiser’s 

certification on its face for completeness 

and internal consistency. The final rule, 

consistent with the proposed rule, does 

not require the creditor to make an 

independent judgment about or perform 

an independent analysis of the 

conclusions and factual statements in 

the written appraisal. As discussed 

above, the Agencies believe that 

imposing such obligations on the 

creditor could effectively require it to 

re-appraise the property. The Agencies 

also are retaining the requirement for 

the safe harbor that the appraiser certify, 

in the appraisal report, the appraiser’s 

compliance with both USPAP and 

applicable FIRREA title XI regulations, 

although one commenter requested 

eliminating the certification of 

compliance with FIRREA.47 This 

certification reflects that TILA requires 

creditors to obtain appraisals for 

‘‘higher-risk mortgages’’ that are 

performed by the appraiser in 

conformity with the requirements of 

USPAP and applicable FIRREA title XI 

regulations. See TILA section 

129H(b)(3)(B), 15 U.S.C. 1639h(b)(3)(B). 

In response to comments about using 

third parties for the review of appendix 

N elements, the Agencies realize that 

some creditors may want to outsource 

the appraisal review function to confirm 

that the elements in appendix N are 

addressed in the written appraisal. 

Nonetheless, the Agencies emphasize 

that while a creditor may outsource this 

function to a third party as the creditor’s 

agent, the creditor remains responsible 

for its agent’s compliance with these 

requirements, just as if the creditor had 

performed the function itself, and the 

creditor cannot simply rely on the 

agent’s certification. The same principle 

applies regarding a public comment 

seeking clarification about the use of 

automated review processes for the safe 

harbor; use of automated processes can 

be appropriate, but the creditor remains 

responsible for their effectiveness.48

As stated in the proposed rule, the 

Agencies are of the opinion that the safe 

harbor requirements would provide 

reasonable protections to consumers 

and compliance guidance to creditors. 

For the reasons previously provided and 

in light of commenters’ general support, 

the Agencies have adopted the safe 

harbor provision as proposed. 

35(c)(4) Additional Appraisal for 

Certain Higher-Risk Mortgage Loans 

35(c)(4)(i) In General 

Under TILA section 129H(b)(2), a 

creditor must obtain a ‘‘second 

appraisal’’ from a ‘‘different’’ certified or 

licensed appraiser if the higher-risk 

mortgage loan will ‘‘finance the 

purchase or acquisition of the 

mortgaged property from a seller within 

180 days of the purchase or acquisition 

of such property by the seller at a price 

that was lower than the current sale 

price of the property.’’ 15 U.S.C. 

1639h(b)(2)(A). In the proposal, the 

Agencies interpreted this requirement to 

obtain a ‘‘second appraisal’’ to mean 

that the creditor must obtain an 

appraisal in addition to the one required 

under the general ‘‘higher-risk 

mortgage’’ appraisal rules in TILA 

section 129H(a) and (b)(1). See 15 U.S.C. 

1639h(a) and (b)(1), implemented at 

new § 1026.35(b)(1)(i), discussed above. 

Thus, a creditor would be required to 

obtain two appraisals before extending a 

higher-risk mortgage loan to finance a 

consumer’s acquisition of the property. 

The Agencies proposed to implement 

the basic statutory requirement without 

material change. Thus, in ‘‘higher-risk 

mortgage loan’’ transactions under the 

proposal, creditors would have to apply 

additional scrutiny to properties being 

resold for a higher price within a 180- 

day period. 

Using the exemption authority under 

TILA section 129H(b)(4)(B), the final 

rule adopts the proposal, but with 

substantive changes. 15 U.S.C. 

1639h(b)(4)(B). Specifically, under new 

§ 1026.35(c)(4)(i), a creditor may not 

extend an HPML that is not otherwise 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10387 

49See U.S. House of Reps., Comm. on Fin. Servs., 

Report on H.R. 1728, Mortgage Reform and AntiPredatory Lending Act, No. 111–94, 59 (May 4, 

2009) (House Report); Federal Bureau of 

Investigation, 2010 Mortgage Fraud Report Year in 

Review 18 (August 2011), available at http:// 

www.fbi.gov/stats-services/publications/mortgagefraud-2010/mortgage-fraud-report-2010. 

50 77 FR 71099, 71100 (Nov. 29, 2012). The 

waiver rules were first issued in May 2010 and 

waived the existing regulations through December 

31, 2011. 75 FR 38633 (May 21, 2010). The waiver 

was subsequently extended through December 31, 

2012. 76 FR 81363 (Dec. 28, 2011). 

51 77 FR 71099, 71100–71101 (Nov. 29, 2012). 

exempt from the appraisal requirements 

(see section-by-section analysis of 

§ 1026.35(c)(2), above, and 

§ 1026.35(c)(4)(vi), below) without 

obtaining, prior to consummation, two 

written appraisals, if: 

• 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 Agencies are adopting a proposed 

comment to clarify that an appraisal that 

was previously obtained in connection 

with the seller’s acquisition or the 

financing of the seller’s acquisition of 

the property does not satisfy the 

requirements to obtain two written 

appraisals under § 1026.35(c)(4)(i). As 

discussed in more detail below, the 

Agencies are also adopting several other 

proposed comments to this rule without 

substantive change. See comments 

35(c)(4)(i)–2 through –6. 

Public Comments on the Proposal 

The Agencies received over 50 

comments concerning the proposal to 

implement the ‘‘second’’ appraisal 

requirement under TILA section 

129H(b)(2) from trade associations, 

banks, credit unions, mortgage lending 

corporations, non-profit organizations, 

government-sponsored enterprises 

(GSEs), and individuals. The 

commenters offered responses to some 

of the questions the Agencies posed in 

the proposal and made suggestions for 

exemptions from the additional 

appraisal requirement. Exemptions and 

related public comments are discussed 

in the section-by-section analysis of 

§ 1026.35(c)(4)(vi), below. 

In the proposal, the Agencies 

requested comment on thirteen separate 

questions concerning the general 

requirement to obtain an additional 

appraisal and appropriate exemptions 

from this requirement. Public comments 

on proposals related to more specific 

rules for the additional appraisal are 

discussed in the section-by-section 

analysis of § 1026.35(c)(ii)–(v), below. 

On the general requirements adopted in 

§ 1026.35(c)(4)(i), the Agencies received 

substantive comments on the following 

two questions. 

Use of the term ‘‘additional 

appraisal’’ rather than ‘‘second 

appraisal.’’ The Agencies used the term 

‘‘additional appraisal’’ rather than 

‘‘second appraisal’’ throughout the 

proposed rule and commentary because 

the term ‘‘second’’ may imply that the 

additional appraisal must be later in 

time than the first appraisal. In the 

proposal, the Agencies asked whether 

commenters agreed with the proposal’s 

use of the term ‘‘additional appraisal’’ 

instead of the statutory term ‘‘second 

appraisal.’’ The Agencies received six 

comments on this question. The 

commenters agreed that the use of the 

term ‘‘additional’’ appraisal is 

appropriate. 

Three commenters requested 

clarification on how to distinguish 

between appraisals of different 

valuations in a lending decision, noting 

that the proposal did not specify which 

of the two required appraisals a creditor 

must rely on in extending a higher-risk 

mortgage loan if the appraisals provide 

different opinions of value. 

Reliance on appraisal for seller’s 

purchase of the property. The Agencies 

also requested comment on a proposed 

comment clarifying that an appraisal 

previously obtained in connection with 

the seller’s acquisition or the financing 

of the seller’s acquisition of the property 

cannot be used as one of the two 

required appraisals under the 

requirement for two appraisals under 

TILA section 129H(b)(2). 15 U.S.C. 

1639h(b)(2). The Agencies received one 

comment on this question, which 

supported the Agencies’ approach to 

this issue. 

Discussion 

Consistent with the statute and the 

proposal, new § 1026.35(c)(4)(i) requires 

a creditor to apply additional scrutiny to 

the value of properties securing HPMLs 

when they are being resold for a higher 

price within a 180-day period. The 

Agencies believe that the intent of TILA 

section 129H(b)(2), as implemented in 

§ 1026.35(c)(4)(i), is to discourage 

fraudulent property ‘‘flipping,’’ a 

practice in which a seller resells a 

property at an artificially inflated price 

within a short time period after 

purchasing it, typically after some 

minor renovations and frequently 

relying on an inflated appraisal to 

support the increase in value.49 15 

U.S.C. 1639h(b)(2). Consumers who 

purchase properties at inflated values 

can be financially disadvantaged if, for 

example, they incur mortgage debt that 

exceeds the value of their dwelling at 

the time of the acquisition. The 

Agencies recognize that a property may 

be resold at a higher price within a short 

timeframe for legitimate reasons, such 

as when a seller makes valuable 

improvements to the property or market 

prices increase. Section 1026.35(c)(4)(i) 

requires an additional appraisal 

analyzing the property’s resale price to 

ensure that the increased sales price is 

appropriate. 

In the proposal, the Agencies noted 

that this approach is generally 

consistent with rules promulgated by 

HUD to address property flipping in 

single-family mortgage insurance 

programs of the FHA. See 24 CFR 

203.37a; 68 FR 23370, May 1, 2003; 71 

FR 33138, June 7, 2006; 77 FR 71099, 

Nov. 29, 2012 (FHA Anti-Flipping 

Rules, or FHA Rules). In general, under 

the FHA Anti-Flipping Rules, properties 

that have been resold within 90 days are 

ineligible as security for FHA-insured 

mortgage financing. See 24 CFR 

§ 237a(b)(2). Properties that have been 

resold 91 to 180 days from the seller’s 

acquisition date are generally ineligible 

as security for FHA-insured mortgage 

financing if the sales price exceeds the 

seller’s price by 100 percent. To obtain 

FHA insurance in this case, HUD 

requires additional documentation that 

must include an additional appraisal. 

See 24 CFR 237a(b)(3). 

However, under temporary rules in 

effect until December 31, 2013, that 

waive the existing HUD anti-flipping 

regulations during the first 90-day 

period described above, FHA insurance 

may be obtained for a mortgage secured 

by a property resold within 90 days if 

certain conditions are met.50 Among 

these conditions is a requirement for 

additional documentation if the sales 

price exceeds the seller’s acquisition 

cost by more than 20 percent, including 

‘‘a second appraisal and/or supporting 

documentation’’ verifying that the seller 

completed legitimate renovation, repair 

and rehabilitation work on the property 

to justify the price increase.51

Use of the term ‘‘additional 

appraisal’’ rather than ‘‘second 

appraisal.’’ The Agencies are adopting 

use of the term ‘‘additional appraisal’’ 

rather than ‘‘second appraisal’’ 

throughout the final rule and 

commentary, as proposed. The Agencies 

are concerned that the term ‘‘second’’ 

may imply that the additional appraisal 

must be later in time than the first 

appraisal, when in some cases creditors 

might wish to order both appraisals 


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10388 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

52 75 FR 66554, 66561 (Oct. 28, 2010) (emphasis 

added). 

53 75 FR 77450, 77458 (Dec. 10, 2010). The 

Guidelines refer creditors to the section of the 

Guidelines on ‘‘Reviewing Appraisals and 

Evaluations’’ for information on determining and 

documenting the credibility of an appraisal or 

evaluation. See id. at 77458, 77461–77463. 

simultaneously. In addition, creditors 

might not be able to identify easily 

which of the two appraisals is the 

‘‘second appraisal’’ for purposes of 

complying with the prohibition on 

charging the consumer for any ‘‘second 

appraisal’’ under TILA section 

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

(implemented at § 1026.35(c)(4)(v), 

discussed in the section-by-section 

analysis of that provision, below). 

Public commenters supported use of the 

term ‘‘additional appraisal,’’ and the 

Agencies do not believe that this term 

changes the substantive requirements of 

the statute. 

Regarding concerns expressed by 

commenters about which appraisal to 

use for the credit decision when the two 

appraisals show different values, the 

Agencies acknowledge that the 

introduction of a second appraisal will 

sometimes place creditors in the 

position of exercising judgment as to 

which appraisal reflects the more robust 

analysis and opinion of property value. 

The Agencies recognize that creditors 

ordering two appraisals from different 

certified or licensed appraisers may 

likely receive appraisals providing 

different opinions. The Agencies 

decline to provide additional guidance 

on this matter in the final rule, however, 

because other rules and regulatory 

guidance address the issue and are more 

appropriate vehicles for this purpose. 

TILA section 129H does not require that 

the creditor use any particular appraisal, 

and the Agencies believe that a creditor 

should retain the discretion to select the 

most reliable valuation, consistent with 

applicable safety and soundness 

obligations and prudential regulatory 

guidance. 15 U.S.C. 1639h. 

In particular, the Agencies noted in 

the proposal that TILA’s valuation 

independence rules permit a creditor to 

obtain multiple valuations for the 

consumer’s principal dwelling to select 

the most reliable valuation.52 12 CFR 

1026.42(c)(3)(iv). The Interagency 

Appraisal and Evaluation Guidelines 

also acknowledge that an institution 

may find it necessary to obtain another 

appraisal or evaluation of a property. In 

that case, the Guidelines affirm that the 

creditor is ‘‘expected to adhere to a 

policy of selecting the most credible 

appraisal or evaluation, rather than the 

appraisal or valuation that states the 

highest [or lowest] value.’’ 53

Reliance on appraisal for seller’s 

purchase of the property. In comment 

35(c)(4)(i)–1, the Agencies are adopting 

without change a proposed comment 

clarifying that an appraisal previously 

obtained in connection with the seller’s 

acquisition or the financing of the 

seller’s acquisition of the property 

cannot be used as one of the two 

required appraisals under the 

‘‘additional’’ appraisal requirement. The 

Agencies believe that this clarification is 

consistent with the statutory purpose of 

TILA section 129H of mitigating fraud 

on the part of parties to the transaction. 

15 U.S.C. 1639h. As noted, the one 

commenter who weighed in on this 

issue supported the Agencies’ approach. 

Section 1026.35(c)(4)(i) is consistent 

with the proposal in requiring the 

creditor to obtain the additional 

appraisal before consummating the 

HPML. TILA section 129H(b)(2) does 

not specifically require that the 

additional appraisal be obtained prior to 

consummation of the ‘‘higher-risk 

mortgage,’’ but the Agencies believe that 

this timing requirement is necessary to 

effectuate the statute’s policy of 

requiring creditors to apply greater 

scrutiny to potentially flipped 

properties that will secure the 

transaction. 15 U.S.C. 1639h(b)(2). 

Section 1026.35(c)(4)(i) is consistent 

with the proposal in several other 

respects as well. First, the statute 

requires an additional appraisal ‘‘if the 

purpose of a higher-risk mortgage loan 

is to finance the purchase or acquisition 

of the mortgaged property,’’ among 

other conditions. TILA section 

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

(emphasis added). Accordingly, 

§ 1026.35(c)(4)(i) requires an additional 

appraisal only when the purpose of the 

HPML is to finance the acquisition of 

the consumer’s principal dwelling—the 

requirement does not apply to refinance 

loans. 

In addition, the final rule replaces the 

statutory term ‘‘mortgaged property’’ 

with the term ‘‘principal dwelling.’’ 

TILA section 129H(b)(2)(A), 15 U.S.C. 

1639h(b)(2)(A). The Agencies have 

made this change to be consistent with 

Regulation Z, which elsewhere uses the 

term ‘‘principal dwelling,’’ most notably 

in the existing definition of HPML. See 

existing § 1026.35(a)(1) and the sectionby-section analysis of revised 

§ 1026.35(a)(1). Although a property that 

the consumer has not yet acquired will 

not at that time be the consumer’s actual 

dwelling, existing commentary to 

Regulation Z explains that the term 

‘‘principal dwelling’’ refers to properties 

that will become the consumer’s 

principal dwelling within a year. See 

§ 1026.2(a)(24) and comment 2(a)(24)–3. 

See also 12 CFR 34.202, comment 1 

(OCC) and 12 CFR 226.43(a)(3), 

comment 1 (Board) (cross-referencing 

Regulation Z, which contains the 

Bureau’s definition of ‘‘principal 

dwelling,’’ and accompanying Official 

Staff Interpretations of Regulation Z for 

purposes of this rule). When referring to 

the date on which the seller acquired 

the ‘‘property’’ in § 1026.35(c)(4)(i)(A) 

and (B), however, the Agencies use the 

more general term ‘‘property’’ rather 

than ‘‘principal dwelling,’’ because the 

subject property may not have been 

used as a principal dwelling when the 

seller acquired and owned it. The 

Agencies intend the term ‘‘principal 

dwelling’’ and ‘‘property’’ to refer to the 

same property. 

Criteria for Whether an Additional 

Appraisal Is Required—Acquisition 

Dates 

As noted, the final rule requires a 

creditor to obtain two appraisals in two 

sets of circumstances: first, 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 (new 

§ 1026.35(c)(4)(i)(A)); and second, 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 (new 

§ 1026.35(c)(4)(i)(B)). To determine 

whether either set of circumstances 

exists and which price threshold 

applies, a creditor must determine the 

date on which the seller acquired the 

property and the date on which the 

consumer became obligated to acquire 

the property from the seller. These 

aspects of the final rule are discussed 

below. 

Public Comments on the Proposal 

The Agencies asked for public 

comment on several questions regarding 

the first of these conditions, 

§ 1026.35(c)(4)(i)(A). 

Treatment of non-purchase 

acquisitions and use of the term 

‘‘acquisition.’’ The proposal generally 

used the term ‘‘acquisition’’ instead of 

the longer statutory phrase ‘‘purchase or 

acquisition’’ to refer to the events in 

which the seller purchased or acquired 

the dwelling at issue. The Agencies 

proposed to use the sole term 

‘‘acquisition’’ because this term, as 

clarified in a proposed comment 

adopted as comment 35(c)(4)-1, includes 

acquisition of legal title to the property, 

including by purchase. In the proposal, 

the Agencies interpreted ‘‘acquisition’’ 

broadly in order to encompass the broad 

statutory phrase ‘‘purchase or 

acquisition.’’ Thus, as proposed, the 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10389 

additional appraisal rule would apply to 

a consumer’s purchase of a property 

previously acquired by the seller 

through a non-purchase acquisition, 

such as inheritance, divorce, or gift. 

In the proposal, the Agencies asked 

for comment on whether an additional 

appraisal should be required for 

consumer acquisitions where the 

property had been conveyed to the 

seller in a non-purchase transaction and 

where, arguably in the consumer’s 

purchase, that seller may not have the 

same motive to earn a quick, 

unreasonable profit on a short-term 

investment. The Agencies also 

requested comment on how a creditor 

should calculate the seller’s 

‘‘acquisition price’’ in non-purchase 

scenarios. The Agencies offered the 

example of a case where the seller 

acquired the property by inheritance. In 

such a case, the seller’s acquisition price 

could be considered ‘‘zero,’’ which 

could make a subsequent sale offered at 

any price within 180 days subject to the 

additional appraisal requirement. 

The Agencies also invited comment 

on whether the term ‘‘acquisition’’ 

might be over-inclusive in describing 

the consumer’s transaction because nonpurchase acquisitions by the consumer 

do not readily appear to trigger the 

additional appraisal requirement. For 

example, if the consumer acquired the 

property by means other than a 

purchase, he or she likely would not 

seek a mortgage loan to ‘‘finance’’ the 

acquisition. 

Two commenters, national trade 

associations for appraisers, stated that 

they had no objections to excluding 

non-purchase transactions by either the 

seller or consumer from the additional 

appraisal requirement. A third 

commenter, a bank, affirmatively 

supported an exemption for nonpurchase acquisitions, suggesting that 

such transactions are less likely to 

involve fraudulent flipping schemes. 

The Agencies also asked for comment 

on whether the term ‘‘acquisition’’ is the 

appropriate term to use in connection 

with both the seller and mortgage 

consumer. In addition, the Agencies 

asked whether the term ‘‘acquisition’’ 

should be clarified to address situations 

in which a consumer previously held a 

partial interest in the property, and is 

acquiring the remainder of the interest 

from the seller. As noted in the 

proposal, the Agencies do not expect 

that fraudulent property flipping 

schemes would likely occur in this 

context. The Agencies also noted that 

existing commentary in Regulation Z 

clarifies that a ‘‘residential mortgage 

transaction’’ does not include 

transactions involving the consumer’s 

principal dwelling when the consumer 

had previously purchased and acquired 

some interest in the dwelling, even 

though the consumer had not acquired 

full legal title, such as when one joint 

owner purchases the other owner’s joint 

interest. See comments 2(a)(24)–5(i) and 

–5(ii); see also section-by-section 

analysis of § 1026.35(a)(1) (defining 

HPML and discussing the distinctions 

between the term ‘‘residential mortgage 

transaction’’ in Regulation Z and 

‘‘residential mortgage loan’’ in the 

Dodd-Frank Act). 

The Agencies received three 

comments as well on the 

appropriateness of using term 

‘‘acquisition’’ rather than another term 

such as ‘‘purchase.’’ Two commenters 

endorsed use of this term, without 

elaboration. A third commenter, a 

mortgage lending corporation, objected 

to the term ‘‘acquisition’’ and proposed 

the phrase ‘‘purchase acquisition’’ 

instead. The commenter suggested that 

consumers who acquire property 

through inheritance, divorce or other 

non-purchase means frequently want to 

sell the property quickly; therefore, 

application of the additional appraisal 

requirement is not appropriate and will 

needlessly delay such transactions. 

The Agencies received three 

comments as well on the question of 

whether the additional appraisal should 

apply to partial interests in a 

transaction. One commenter, a regional 

trade association for credit unions, 

supported an exemption to cover a 

situation in which a consumer holds a 

partial interest in property and is 

acquiring the remainder of the interest 

from the seller. In support of its 

position, the commenter cited the 

commentary to Regulation Z mentioned 

in the proposal (comments 2(a)(24)–5(i) 

and –5(ii)), which clarifies that a 

‘‘residential mortgage transaction’’ does 

not include transactions involving the 

consumer’s principal dwelling when the 

consumer has a partial interest in the 

dwelling, such as when one joint owner 

purchases the other’s joint interest. The 

other two commenters, national trade 

associations for appraisers, opposed 

exemptions for partial interest 

transactions, given what the 

commenters described as the inherent 

riskiness of higher-priced loans. 

Discussion 

Use of the term ‘‘acquisition.’’ 

Consistent with the proposal, the 

Agencies have decided to adopt the 

proposal to use the term ‘‘acquisition’’ 

in place of the statutory phrase 

‘‘purchase or acquisition’’ to refer to 

acquisitions by both the seller and the 

consumer. The Agencies are also 

adopting a proposed comment clarifying 

that, throughout § 1026.35(c)(4), the 

terms ‘‘acquisition’’ and ‘‘acquire’’ refer 

to the acquisition of legal title to the 

property pursuant to applicable State 

law, including by purchase. See 

comment 35(c)(4)–1. However, the 

Agencies are adopting a separate 

exemption from the additional appraisal 

requirement for HPMLs that finance the 

purchase of a property ‘‘[f]rom a person 

who acquired title to the property by 

inheritance or pursuant to a court order 

of dissolution of marriage, civil union, 

or domestic partnership, or of partition 

of joint or marital assets to which the 

seller was a party.’’ This exemption and 

other exemptions from the additional 

appraisal requirement are discussed in 

more detail in the section-by-section 

analysis of § 1026.35(c)(4)(vii), below. 

‘‘Acquisition’’ by the seller. The final 

rule generally applies to transactions in 

which the seller had acquired the 

property without purchasing it, other 

than through divorce or inheritance. For 

example, the Agencies are concerned 

that fraudulent flipping can easily be 

accomplished when one party 

purchases a property and quickly deeds 

the property to another party (for 

example, as a gift), who then sells the 

property to an HPML consumer at an 

inflated price. If the final rule applied 

only to instances in which the seller had 

purchased the property, the consumer’s 

transaction would not trigger the added 

protections of the requirement to obtain 

two appraisals. By retaining the broader 

terms ‘‘acquisition’’ and ‘‘acquire,’’ 

rather than a narrower term such as 

‘‘purchase,’’ the final rule ensures that 

two appraisals will be required to 

confirm the property’s true value. See 

section-by-section analysis of 

§ 1026.35(c)(4)(vi)(B) (explaining that, 

when a price paid by the seller for the 

property cannot be determined, two 

appraisals are required before an HPML 

can be extended). The different 

treatment by the rule for transactions 

involving seller acquisitions through 

inheritance or divorce are explained 

more fully in the section-by-section 

analysis of § 1026.35(c)(4)(vii), below. 

‘‘Acquisition’’ by the consumer. The 

Agencies believe that the terms 

‘‘acquisition’’ or ‘‘acquire’’ to describe 

the consumer’s acquisition of the 

property as well is desirable for 

consistency throughout the rule. The 

Agencies do not anticipate that the rule 

would apply where the consumer 

acquires the property without 

purchasing it. As a practical matter, if 

the consumer acquired the property by 

means other than a purchase, the rule 

would not come into play because he or 

she likely would not seek a mortgage to 


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10390 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

‘‘finance’’ the acquisition. Moreover, if 

the consumer paid a nominal or no 

amount to acquire the property, the 

additional appraisal requirement would 

not likely be triggered—in this case, the 

consumer’s price would rarely if ever 

exceed the seller’s acquisition price, 

which is a condition for triggering the 

requirement for two appraisals. See 

§ 1026.35(c)(4)(i)(B). In terms of whether 

and how the rule applies, however, the 

outcome of these scenarios would not 

change based on use of the term 

‘‘acquisition’’ as opposed to a more 

precise term such as ‘‘purchase.’’ 

Seller. As proposed, the final rule 

uses the term ‘‘seller’’ throughout 

§ 1026.35(c)(4) to refer to the party 

conveying the property to the consumer. 

The Agencies use this term to conform 

to the reference to ‘‘sale price’’ in TILA 

section 129H(b)(2)(A). 15 U.S.C. 

1639h(b)(2)(A). Also, as discussed 

above, the Agencies do not foresee 

instances in which the rule would apply 

if the consumer acquired the property 

other than by a purchase transaction. 

Agreement. The final rule follows the 

proposal in referring to the consumer’s 

‘‘agreement’’ to acquire the property 

throughout § 1026.35(c)(4). A ‘‘sale 

price,’’ as referenced in TILA section 

129H(b)(2)(A), is typically contained in 

a legally binding agreement or contract 

between a buyer and a seller. 15 U.S.C. 

1639h(b)(2)(A). The commenters did not 

raise any objections to the use of this 

term as proposed. 

Acquisition timeframe. As described 

above, TILA section 129H(b)(2)(A) 

requires creditors to obtain an 

additional appraisal for ‘‘higher-risk 

mortgages’’ that will finance the 

consumer’s purchase or acquisition if 

the following two circumstances are 

present: (1) The consumer is financing 

the purchase or acquisition of the 

mortgaged property from a seller within 

180 days of the seller’s purchase or 

acquisition of the property; and (2) the 

current sale price of the property is 

higher than the price the seller paid for 

the property. 15 U.S.C. 1639h(b)(2)(A). 

For a creditor to determine whether 

the first condition is met, the creditor 

has to compare two dates: the date of 

the consumer’s acquisition and the date 

of the seller’s acquisition. However, the 

statute does not provide specific 

guidance regarding the dates that a 

creditor must use to perform this 

comparison. TILA section 

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

To implement this provision, the 

Agencies proposed to require that the 

creditor compare (1) the date on which 

the consumer entered into the 

agreement to acquire the property from 

the seller, and (2) the date on which the 

seller acquired the property. A proposed 

comment provided an illustration in 

which the creditor determines the seller 

acquired the property on April 17, 2012, 

and the consumer’s acquisition 

agreement is dated October 15, 2012; an 

additional appraisal would not be 

required because 181 days would have 

elapsed between the two dates. 

The Agencies did not receive public 

comment on these aspects of the 

proposal and adopt them without 

change in § 1026.35(c)(4)(i)(A) and (B), 

and comment 35(c)(4)(i)(A)–2. 

Date the seller acquired the property. 

Regarding the date of the seller’s 

acquisition, TILA section 129H(b)(2)(A) 

refers to the date of that person’s 

‘‘purchase or acquisition’’ of the 

property being financed by the higherrisk mortgage loan. 15 U.S.C. 

1639h(b)(2)(A). Accordingly, 

§ 1026.35(c)(4)(i)(A) and (B) refer to the 

date on which the seller ‘‘acquired’’ the 

property. Comment 35(c)(4)(i)–3, 

adopted from a proposed comment 

without change, clarifies that this refers 

to the date on which the seller became 

the legal owner of the property under 

State law, which the Agencies 

understand to be, in most cases, the date 

on which the seller acquired title. The 

Agencies have interpreted TILA section 

129H(b)(2)(A) in this manner because 

the Agencies understand that creditors, 

in most cases, will not extend credit to 

finance the acquisition of a property 

from a seller who cannot demonstrate 

clear title. 15 U.S.C. 1639h(b)(2)(A). 

Also, as discussed above, the Agencies 

have proposed to use the single term 

‘‘acquisition’’ because this term is 

generally understood to comprise 

acquisition of legal title to the property, 

including by purchase. 

To assist creditors in identifying the 

date on which the seller acquired title 

to the property, comment 35(c)(4)(i)–3 is 

intended to clarify that the creditor may 

rely on records that provide information 

as to the date on which the seller 

became vested as the legal owner of the 

property pursuant to applicable State 

law. As provided in 

§ 1026.35(c)(4)(vi)(A) and explained in 

comments 35(c)(4)(vi)(A)–1 through –3, 

the creditor may determine this date 

through reasonable diligence, requiring 

reliance on a written source document. 

The reasonable diligence standard is 

discussed further below under the 

section-by-section analysis of 

§ 1026.35(c)(4)(vi)(A). 

Date of the consumer’s agreement to 

acquire the property. Regarding the date 

of the consumer’s acquisition, TILA 

refers to the date on which the ‘‘higherrisk mortgage’’ consumer purchases or 

acquires the mortgaged property, but 

does not provide detail on how to define 

the consumer’s acquisition. TILA 

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

1639h(b)(2)(A). The Agencies proposed 

to interpret this provision to refer to 

‘‘the date of the consumer’s agreement 

to acquire the property.’’ A proposed 

comment explained that, in determining 

this date, the creditor should use a copy 

of the agreement provided by the 

consumer to the creditor, and use the 

date on which the consumer and the 

seller signed the agreement. If the 

consumer and seller signed on different 

dates, the creditor should use the date 

on which the last party signed the 

agreement. 

This comment is incorporated into the 

final rule without change as comment 

35(c)(4)(i)–4. As explained in the 

proposal, the Agencies believe that use 

of the date on which the consumer and 

the seller agreed on the purchase 

transaction best accomplishes the 

purposes of the statute. This approach is 

substantially similar to existing creditor 

practice under the FHA Anti-Flipping 

Rule, which uses the date of execution 

of the consumer’s sales contract to 

determine whether the restrictions on 

FHA insurance applicable to property 

resales are triggered. See 24 CFR 

203.37a(b)(1). The Agencies have not 

interpreted the date of the consumer’s 

acquisition to refer to the actual date of 

title transfer to the consumer under 

State law, or the date of consummation 

of the HPML, because it would be 

difficult if not impossible for creditors 

to determine, at the time that they must 

order an appraisal or appraisals to 

comply with § 1026.35(c), when title 

transfer or consummation will occur. 

The actual date of title transfer typically 

depends on whether a creditor 

consummates financing for the 

consumer’s purchase and the seller 

delivers the deed to the consumer in 

exchange for the proceeds from the 

mortgage loan. Various factors 

considered in the underwriting 

decision, including a review of 

appraisals, will affect whether the 

creditor extends the loan. In addition, 

the Agencies are concerned that even if 

a creditor could identify a date certain 

by which the loan would be 

consummated and title would be 

transferred to the consumer, the creditor 

could potentially set a date that exceeds 

the 180-day time period to circumvent 

the requirements of § 1026.35(c)(4)(i). 

Comment 35(c)(4)(i)–4 also clarifies 

that the date on which the consumer 

and the seller agreed on the purchase 

transaction, as evidenced by the date the 

last party signed the agreement, may not 

necessarily be the date on which the 

consumer became contractually 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10391 

54The Agencies proposed a trigger for the 

additional appraisal requirement, adopted and 

revised in new § 1026.35(c)(4)(i)(B), as follows: 

‘‘The price at which the seller acquired the property 

was lower than the price that the consumer is 

obligated to pay to acquire the property, as 

specified in the consumer’s agreement to acquire 

the property from the seller, by an amount equal to 

or greater than XX.’’ 77 FR 54722, 54772 (Sept. 5, 

2012). 

obligated under State law to acquire the 

property. It may be difficult for a 

creditor to determine the date on which 

the consumer became legally obligated 

under the acquisition agreement as a 

matter of State law. Using the date on 

which the consumer and the seller 

agreed on the purchase transaction, as 

evidenced by their signatures and the 

date on the agreement, avoids 

operational and other potential issues 

because the Agencies expect that this 

date would be apparent on its face from 

the signature dates on the acquisition 

agreement. 

Criteria for Whether an Additional 

Appraisal Is Required—Acquisition 

Prices 

TILA section 129H(b)(2)(A) requires 

creditors to obtain an additional 

appraisal if the seller had acquired the 

property ‘‘at a price that was lower than 

the current sale price of the property’’ 

within the past 180 days. 15 U.S.C. 

1639h(b)(2)(A). To determine whether 

this statutory condition has been met, a 

creditor would have to compare the 

current sale price with the price at 

which the seller had acquired the 

property. Accordingly, the Agencies 

proposed to implement this requirement 

by requiring the creditor to compare the 

price paid by the seller to acquire the 

property with the price that the 

consumer is obligated to pay to acquire 

the property, as specified in the 

consumer’s agreement to acquire the 

property. Thus, if the price paid by the 

seller to acquire the property is lower 

than the price in the consumer’s 

acquisition agreement by a certain 

amount or percentage to be determined 

by the Agencies in the final rule, and 

the seller had acquired the property 180 

or fewer days prior to the date of the 

consumer’s acquisition agreement, the 

creditor would be required to obtain an 

additional appraisal before extending a 

higher-risk mortgage loan to finance the 

consumer’s acquisition of the 

property.54

As noted above, the Agencies are 

adopting the general approach proposed 

of setting a particular price increase 

threshold that triggers the additional 

appraisal requirement, and are 

specifying the price increase thresholds 

as follows: A creditor is required to 

obtain two appraisals in two sets of 

circumstances—first, when the seller is 

reselling the property within 90 days of 

acquiring it at a price that exceeds the 

seller’s acquisition price by more than 

10 percent (new § 1026.35(c)(4)(i)(A)); 

and second, when the seller is reselling 

the property within 91 to 180 days of 

acquiring it at a price that exceeds the 

seller’s acquisition price by more than 

20 percent (new § 1026.35(c)(4)(i)(B)). 

This aspect of the final rule and related 

comments are discussed in greater detail 

below. 

Price at which the seller acquired the 

property. TILA section 129H(b)(2)(A) 

refers to a property that the seller 

previously purchased or acquired ‘‘at a 

price.’’ 15 U.S.C. 1639h(b)(2)(A). The 

proposal also referred to the ‘‘price’’ at 

which the seller acquired the property; 

a proposed comment clarified that the 

seller’s acquisition price refers to the 

amount paid by the seller to acquire the 

property. The proposed comment also 

explained that the price at which the 

seller acquired the property does not 

include the cost of financing the 

property. This comment was intended 

to clarify that the creditor should 

consider only the price of the property, 

not the total cost of financing the 

property. 

The Agencies are adopting these 

aspects of the proposal without 

substantive change in 

§ 1026.35(c)(4)(i)(A) and (B), and 

comment 35(c)(4)(i)–5. 

Public Comments on the Proposal 

The Agencies asked for comment on 

whether additional clarification was 

needed regarding how a creditor should 

identify the price at which the seller 

acquired the property. In particular, the 

Agencies also requested comment on 

how a creditor would calculate the price 

paid by a seller to acquire a property as 

part of a bulk sale that is later resold to 

a higher-risk mortgage consumer. The 

Agencies understand that, in bulk sales, 

a sales price might be assigned to 

individual properties for tax or 

accounting reasons, but asked for public 

input on whether guidance may be 

needed for determining the sales price 

of a property for purposes of 

determining whether an additional 

appraisal is required. The Agencies also 

asked for comment on any operational 

challenges that might arise for creditors 

in determining purchase prices for 

homes purchased as part of a bulk sale 

transaction, as well as for views on 

whether any challenges presented could 

impede neighborhood revitalization in 

any way, and, if so, whether the 

Agencies should consider an exemption 

from the additional appraisal 

requirement for these types of 

transactions altogether. 

An appraiser trade association stated 

that an appraiser’s expertise is 

important in valuing properties that are 

part of a bulk sale. No other commenters 

commented on this question. In view of 

the value that appraisers can add in 

valuing properties as part of a bulk sale, 

and in the absence of requests or 

suggestions for additional guidance, the 

Agencies are adopting the rule as 

proposed with no additional provisions 

or clarifications regarding the purchase 

price of properties purchased in bulk 

sales. 

Price the consumer is obligated to pay 

to acquire the property. TILA section 

129H(b)(2)(A) refers to the ‘‘current sale 

price of the property’’ being financed by 

a higher-risk mortgage loan. 15 U.S.C. 

1639h(b)(2)(A). The proposal referred to 

‘‘the price that the consumer is 

obligated to pay to acquire the property, 

as specified in the consumer’s 

agreement to acquire the property from 

the seller.’’ The final rule adopts this 

language in § 1026.35(c)(4)(i)(A) and (B). 

The final rule also adopts a proposed 

comment clarifying that the price the 

consumer is obligated to pay to acquire 

the property is the price indicated on 

the consumer’s agreement with the 

seller to acquire the property that is 

signed and dated by both the consumer 

and the seller. See comment 35(c)(4)(i)– 

6. In keeping with the proposal, 

comment 35(c)(4)(i)–6 also explains that 

the price at which the consumer is 

obligated to pay to acquire the property 

from the seller does not include the cost 

of financing the property to clarify that 

a creditor should only consider the sale 

price of the property as reflected in the 

consumer’s acquisition agreement. 

In addition, the comment refers to 

comment 35(c)(4)(i)–4 (providing 

guidance on the ‘‘date of the consumer’s 

agreement to acquire the property,’’ as 

discussed above). The intention of this 

cross-reference is to indicate that the 

document on which the creditor may 

rely to determine the consumer’s 

acquisition price will be the same 

document on which a creditor may rely 

to determine the date of the consumer’s 

agreement to acquire the property. Also 

tracking the proposal, comment 

35(c)(4)(i)–6 further explains that the 

creditor is not obligated to determine 

whether and to what extent the 

agreement is legally binding on both 

parties. The Agencies expect that the 

price the consumer is obligated to pay 

to acquire the property will be apparent 

from the consumer’s acquisition 

agreement. 


srobinson on DSK4SPTVN1PROD with RULES3
10392 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

55See Fannie Mae Single Family Servicing Guide 

Announcement SVC 2012–19, page 13; and Freddie 

Mac Single Family Seller Servicer Guide, Chapter 

B65.40(i). 

56See U.S. Dept. of Treasury, Supplemental 

Directive 12–07 (Nov. 1, 2012). 

57See Fannie Mae Single Family Servicing Guide 

Announcement SVC 2012–19, page 13; and Freddie 

Mac Single Family Seller Servicer Guide, Chapter 

B65.40(i); U.S. Dept. of Treasury, Supplemental 

Directive 12–07 (Nov. 1, 2012). 

58See, e.g., 77 FR 71099 (Nov. 29, 2012). 

59As noted earlier, the GSE and Treasury short 

sale rules ban resales outright for 30 days after the 

short sale and also ban them if the sales price 

increases by more than 20 percent for resales in the 

next 31 to 90 days. See Fannie Mae Single Family 

Servicing Guide Announcement SVC 2012–19, page 

13; and Freddie Mac Single Family Seller Servicer 

Guide, Chapter B65.40(i); U.S. Dept. of Treasury, 

Supplemental Directive 12–07 (Nov. 1, 2012). 

Public Comments on the Proposal 

The Agencies requested comment on 

whether the price at which the 

consumer is obligated to pay to acquire 

the property, as reflected in the 

consumer’s acquisition agreement, 

provides sufficient clarity to creditors 

on how to comply while providing 

consumers adequate protection. The 

Agencies did not receive comments on 

this issue, and is adopting the 

proposal’s use of the phrase ‘‘the price 

the consumer is obligated to pay to 

acquire the property, as specified in the 

consumer’s agreement to acquire the 

property from the seller.’’ 

35(c)(4)(i)(A) and (B) 

TILA section 129H(b)(2)(A) provides 

that an additional appraisal is required 

when the price at which the seller had 

purchased or acquired the property was 

‘‘lower’’ than the current sale price and 

the resale occurs within 180 days of the 

seller’s acquisition. 15 U.S.C. 

1639h(b)(2)(A). TILA does not define 

the term ‘‘lower.’’ Thus, as written, the 

statute would require an additional 

appraisal for any price increase above 

the seller’s acquisition price, if the 

resale occurred within 180 days of the 

seller’s acquisition. As discussed in 

more detail below, the Agencies do not 

believe that the public interest or the 

safety and soundness of creditors would 

be served if the law is implemented to 

require an additional appraisal for any 

increase in price. Accordingly, the 

Agencies proposed an exemption to the 

additional appraisal requirement for 

some threshold increase in the price. As 

described above, the proposal contained 

a placeholder for the amount by which 

the resale price would have to have 

exceeded the price at which the seller 

had acquired the property. 

In § 1026.35(c)(4)(i)(A) and (B), the 

Agencies are adopting a tiered approach 

to the proposed exemption for certain 

price increases. Specifically: 

• Section 1026.35(c)(4)(i)(A) exempts 

from the additional appraisal 

requirement HPMLs that finance the 

consumer’s purchase of a property 

within 90 days of the seller’s acquisition 

of the property at a price that does not 

exceed 10 percent of the seller’s 

acquisition purchase price. 

• Section 1026.35(c)(4)(i)(B), exempts 

from the additional appraisal 

requirement HPMLs that finance the 

consumer’s purchase of a property 

within 91 to 180 days of the seller’s 

acquisition of the property at a price 

that does not exceed 20 percent of the 

seller’s acquisition price. 

Public Comments on the Proposal 

The Agencies solicited comment on 

potential exemptions for mortgage 

transactions that have a sale price that 

exceeds the seller’s purchase price by a 

relatively small amount or by a certain 

percentage. The Agencies requested 

comment on whether a fixed dollar 

amount, a fixed percentage, or some 

alternate approach should be used to 

determine an exempt price increase, and 

what specific price threshold would be 

appropriate. 

The Agencies received a large number 

of comments on these questions. The 

commenters generally endorsed the 

proposed exemption, based either on a 

dollar amount, or a percentage of the 

seller’s acquisition price. Four 

commenters (a bank holding company, 

two national trade associations for 

mortgage lending companies and 

consumer and small-business lenders, 

and a large mortgage lending company) 

suggested that a 10 percent price 

increase exception would be 

appropriate. One of these commenters 

argued that 10 percent is a customary 

standard in the industry because it 

represents typical realtor and other 

closing costs. 

A national trade association for 

community banks suggested a minimum 

of 15 percent. Two commenters, a 

regional trade association for credit 

unions and a community bank, argued 

that the exception should be at least 25 

percent. One large national bank 

suggested a threshold of 5 percent. 

Another commenter, a credit union, 

suggested that an exemption be for the 

greater of three percent or a $10,000 

increase in the price. A GSE suggested 

that the Agencies exempt from the 

second appraisal requirement sales that 

are subject to an ‘‘anti-flipping’’ clause. 

When an investor purchases a property 

in short sales from the GSEs, for 

example, certain clauses in the sales 

contract prohibit the investor from 

reselling that property for the first 30 

days after the short sale purchase. The 

investor is then prohibited from 

reselling the property without 

justification and permission from the 

GSE for the next 31 to 90 days for a 

price that exceeds the seller’s price by 

more than 20 percent.55 Identical resale 

restrictions apply to investors 

purchasing property through a short sale 

under the Home Affordable Foreclosure 

Alternatives (HAFA) program.56 Some 

commenters suggested that the Agencies 

incorporate FHA’s regime as the 

standard for the higher-risk mortgage 

rule. 

Discussion 

As noted, the Agencies are adopting a 

tiered approach to the proposed 

exemption from the additional appraisal 

requirement of TILA section 

§ 1026.35(c)(4)(i) for HPMLs that finance 

the resale of properties that do not 

exceed certain price increases from the 

prior sale. Specifically, 

§ 1026.35(c)(4)(i)(A) exempts from the 

additional appraisal requirement 

HPMLs that finance the consumer’s 

purchase of a property within 90 days 

of the seller’s acquisition of the property 

where the resale price does not exceed 

10 percent of the seller’s acquisition 

price. Section 1026.35(c)(4)(i)(B), 

exempts from the additional appraisal 

requirement HPMLs that finance the 

consumer’s purchase of a property 

within 91 to 180 days of the seller’s 

acquisition of the property where the 

resale price does not exceed 20 percent 

of the seller’s acquisition price. In 

developing this approach, the Agencies 

reviewed public comments as well as 

other government standards and rules 

designed to curb harmful flipping in 

residential mortgage transactions. These 

included short sale reselling restrictions 

imposed by Fannie Mae, Freddie Mac 

and the U.S. Treasury Department,57 as 

well as HUD’s Anti-Flipping Rules— 

both HUD’s existing regulations (24 CFR 

203.37a(b)) and HUD rules currently in 

effect that temporarily ‘‘waive’’ existing 

regulations and replace them with other 

standards.58

The Agencies believe that short sale 

reselling restrictions of the GSEs and 

Treasury are instructive. Like these 

rules, the final rule incorporates a 

bifurcated approach to addressing 

fraudulent flipping, based on the 

number of days between the seller’s 

purchase and the consumer’s 

purchase.59 The Agencies are not 

adopting an exemption for HPMLs 

financing sales subject to an antiflipping clause, however. The Agencies 


srobinson on DSK4SPTVN1PROD with RULES3
Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10393 

60See, e.g., 68 FR 23370 (May 1, 2003); 77 FR 

71099 (Nov. 29, 2012). 

61 68 FR 23370, 23372 (May 1, 2003). 

62See id. 

63See id. 

64See U.S. House of Reps., Comm. on Fin. Servs., 

Report on H.R. 1728, Mortgage Reform and AntiPredatory Lending Act, No. 111–94, 59 (May 4, 

2009) (House Report); Federal Bureau of 

Investigation, 2010 Mortgage Fraud Report Year in 

Review 18 (August 2011), available at http:// 

www.fbi.gov/stats-services/publications/mortgagefraud-2010/mortgage-fraud-report-2010. See also 71 

FR 33138, 33141–33142 (June 7, 2006); HUD, 

Mortgagee Letter 2006–14 (June 8, 2006) (‘‘FHA’s 

policy prohibiting property flipping eliminates the 

most egregious examples of predatory flips of 

properties within the FHA mortgage insurance 

programs.’’). 

65 77 FR 71099 (Nov. 29, 2012). 

66See id. at 71100. A property inspection is also 

required. See id. at 71100–71101. For loans 

financing resales within 90 days where the sales 

price does not exceed the seller’s acquisition price 

by more than 20 percent, FHA insurance is 

conditioned on the transactions being ‘‘arms-length, 

with no identity of interest between the buyer and 

seller or other parties participating in the sales 

transaction.’’ Id. at 71100. HUD provides several 

examples of ways that lenders can ensure that there 

is no inappropriate collusion or agreement between 

parties. Id. 

are concerned that such an exemption 

would not be sufficiently protective of 

the HPML consumers the statute was 

intended to protect. If such an 

exemption covered only loans subject to 

GSE and Treasury anti-flipping clauses, 

HPML consumers purchasing homes 

from investors who acquired them from 

GSEs or Treasury would not receive the 

protection of the additional appraisal 

requirement. Meanwhile, HPML 

consumers purchasing homes from 

investors who acquired them from other 

creditors or investors would receive the 

protection of the additional appraisal 

requirement. It is unclear why HPML 

consumers in the latter case should 

receive these protections and consumers 

in the former case should not. In 

addition, the purpose of the additional 

appraisal requirement in the final rule is 

to ensure a second opinion on the value 

of a purchased home; the purpose of 

anti-flipping clauses generally is to 

restrict the transaction entirely. Thus, 

these clauses may be instructive, but 

should not necessarily determine who 

receives the protection of this rule. 

If an exemption for HPMLs financing 

sales subject to an anti-flipping clause 

covered loans subject to anti-flipping 

clauses more generally, the Agencies 

would be concerned about more HPML 

consumers not receiving the protections 

of the statute. Moreover, if creditors 

were concerned that the additional 

appraisal requirement might impede 

disposal of their distressed properties, 

they could devise ‘‘anti-flipping’’ 

clauses that would impose only 

minimal restrictions on the resale of 

those properties, simply to take 

advantage of the exemption. The 

Agencies recognize the importance to 

creditors and investors of being able to 

sell distressed properties in a timely 

manner to decrease losses. The Agencies 

further understand that restrictions on 

the resale of distressed properties 

purchased from creditors and investors 

can affect how quickly creditors and 

investors can dispose of these 

properties, and that creditors and 

investors design resale restrictions 

accordingly. However, the appraisal 

requirement under this final rule is not 

a restriction on resale by the seller; it is 

a requirement for additional 

documentation regarding the value of 

homes purchased by a certain subset of 

consumers who finance the transaction 

with an HPML. 

The Agencies view the FHA AntiFlipping Rules as also instructive for the 

final rule. In the preamble to its original 

Anti-Flipping Final Rule and waiver 

notices after it, HUD states that 

‘‘fraudulent property flipping involves 

the rapid re-sale, often within days, of 

a recently acquired property.’’ 60 HUD 

also states in its original final rule that 

‘‘resales executed within 90 days imply 

pre-arranged transactions that often 

prove to be among the most egregious 

examples of predatory lending.’’ 61

Thus, under existing HUD regulations, 

FHA insurance is not available for loans 

that finance the purchase of a property 

within 90 days of the previous sale. See 

24 CFR 203.37a(b)(2). HUD’s rule is 

based on the conclusion that 90 days is 

a reasonable waiting period to ensure 

that legitimate rehabilitation and repairs 

of a property have occurred.62

HUD has also stated that a 180-day 

ban on eligibility for FHA insurance 

would have provided a disincentive to 

legitimate contractors who improve 

houses—thus increasing the stock of 

affordable housing.63 Therefore, for 

transactions involving resales in the 91– 

180 day period, HUD will insure resales 

at any price, but requires additional 

documentation, which must include a 

second appraisal, if the price increase 

exceeds the seller’s acquisition price by 

100 percent. See 24 CFR 203.37a(b)(3). 

The Agencies believe that HUD’s 

basic approach—the use of more 

restrictive conditions for 90 days, 

followed by somewhat lesser 

restrictions for the next 90 days—has 

merit as an approach to combatting the 

kind of flipping with which Congress 

seemed concerned.64 The Agencies 

recognize that, since issuing the 

regulation in 24 CFR 203.37a(b)(3), HUD 

has issued rules that temporarily replace 

its existing regulations, with the goal of 

encouraging investors to rehabilitate 

homes and thus help ‘‘stabilize real 

estate prices as well as neighborhoods 

and communities where foreclosure 

activity has been high.’’ 65 Under these 

temporary rules, FHA insurance is now 

available for loans that finance property 

resales within 90 days of the previous 

sale, as long as certain conditions are 

met. One condition is that ‘‘a second 

appraisal and/or supporting 

documentation’’ is required if the sales 

price exceeds the seller’s acquisition 

price by more than 20 percent.66

However, the Agencies recognize that 

these rules are designed to address a 

temporary market condition; the 

Agencies believe that the HPML 

appraisal rules must be designed to 

address property flipping beyond a 

temporary market condition. 

At the same time, the Agencies 

believe that the approach adopted with 

respect to the additional appraisal 

requirement resembles the FHA waiver 

rules in some important ways that 

mitigate concerns about chilling 

investment. Like the FHA waiver rules, 

the final rule does not prohibit HPML 

financing of resales within 90 days (by 

contrast, the existing FHA regulations 

ban FHA insurance on resales within 90 

days). Rather, the final rule imposes an 

additional condition on the 

transaction—namely, that the creditor 

must obtain a second appraisal for the 

creditor’s use in considering the loan 

application and, more specifically, the 

collateral value of the dwelling that will 

secure the mortgage. The Agencies 

believe that this protection is consistent 

with congressional intent to provide 

additional protections for borrowers of 

loans considered by Congress to pose 

higher risks to those borrowers. 

Consistent with the views expressed by 

some commenters, however, the 

Agencies have determined that 

consumer protection is not served by 

requiring a second appraisal in 

circumstances where the increase 

generally is not indicative of a seller 

attempting to profit on a flip. The 

Agencies believe it is reasonable to 

expect a seller, faced with 

circumstances dictating resale of a 

dwelling that the seller very recently 

acquired, to seek to recoup the seller’s 

transaction costs on the purchase and 

resale, in addition to the seller’s 

acquisition price. These costs may 

include fees from the seller’s 

acquisition, such as mortgage 

application fees, origination points, 

escrow and attorney’s fees, transfer 

taxes and recording fees, title search 

charges and title insurance premiums, 

as well as fees incurred in the resale, 

such as real estate commissions, sellerVerDate Mar<15>2010 18:30 Feb 12, 2013 Jkt 229001 PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 E:\FR\FM\13FER3.SGM 13FER3

srobinson on DSK4SPTVN1PROD with RULES3
10394 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

67See OCC: 12 CFR 34.45; Board: 12 CFR 225.65; 

FDIC: 12 CFR 323.5; NCUA: 12 CFR 722.5. 

68Appraisal Standards Board, Appraisal 

Foundation, Uniform Standards of Professional 

Appraisal Practice, 2012–2013 Ed., pp. U–7 through 

U–9. 

paid points, and other sales concessions 

on the resale. These costs will vary to 

some extent by State and by transaction. 

However, the Agencies believe that 

providing an allowance of 10 percent 

over the seller’s acquisition price 

reasonably accommodates these 

transaction costs and strikes an 

appropriate balance with respect to ease 

of administration for purposes of the 

rule. 

Regarding HPMLs that occur within 

91 to 180 days, the final rule provides 

that an additional appraisal is required 

only if the property price increased by 

more than 20 percent of the seller’s 

acquisition price. See 

§ 1026.35(c)(4)(i)(B). In this way, the 

final rule provides a modest additional 

10 percent allowance for legitimate 

repairs, and builds in a 90-day period in 

the interest of ensuring enough time to 

allow such repairs to be made. At the 

same time, the approach preserves 

added consumer protections in the first 

90 days, when predatory flipping is 

most likely to occur. The Agencies 

recognize that this element of the final 

rule differs from the FHA Anti-Flipping 

Rules, which require additional 

documentation for a resale from 91 to 

180 days only if the price increases by 

100 percent of the seller’s acquisition 

price. However, FHA insurance applies 

to HPMLs and non-HPMLs alike, and 

the Agencies believe that Congress 

intended special protections to apply to 

HPML consumers. 

The Agencies believe that requiring 

an additional appraisal for HPMLs 

financing the purchase of a home being 

resold within a 180-day period, 

regardless of the amount of the price 

increase, could restrict home sales to 

HPML consumers, because investors 

might be less likely to sell properties to 

them. The additional appraisal rules 

could potentially affect the safety and 

soundness of creditors holding 

properties as a result of foreclosure or 

deed-in-lieu of foreclosure. This might 

arise if potential application of the twoappraisal requirement makes the 

properties less desirable for investors to 

purchase from financial institutions and 

rehabilitate for resale, out of investor 

concerns about the potential scope of 

the HPML requirement as applied to the 

pool of likely purchasers for their 

investment properties. This could create 

additional losses for creditors holding 

these properties. The Agencies do not 

believe that these potential negative 

impacts would be outweighed by 

consumer protections afforded by the 

additional appraisal requirement. The 

Agencies believe that the approach 

adopted by the final rule strikes the 

appropriate balance between allowing 

legitimate resales without undue 

restrictions and providing HPML 

consumers with additional protections 

from fraudulent flipping. For these 

reasons, the Agencies have concluded 

that the exemptions from the additional 

appraisal requirement reflected in 

§ 1026.35(c)(4)(i)(A) and (B) are in the 

public interest and promote the safety 

and soundness of creditors. 

35(c)(4)(ii) Different Certified or 

Licensed Appraisers 

Under the proposed rule, the two 

appraisals required under the proposed 

paragraph now adopted as 

§ 1026.35(c)(4)(i) could not be 

performed by the same certified or 

licensed appraiser. This proposal was 

consistent with TILA section 

129H(b)(2)(A), which expressly requires 

that the additional appraisal must be 

performed by a ‘‘different’’ certified or 

licensed appraiser than the appraiser 

who performed the other appraisal for 

the ‘‘higher-risk mortgage’’ transaction. 

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

As discussed in the proposal, during 

informal outreach conducted by the 

Agencies, some participants suggested 

that the Agencies impose additional 

requirements regarding the appraiser 

performing the second appraisal for the 

higher-risk mortgage loan, such as a 

requirement that the second appraiser 

not have knowledge of the first 

appraisal. Outreach participants 

indicated that this requirement would 

minimize undue pressure to value the 

property at a price similar to the value 

assigned by the first appraiser. 

The Agencies explained that they did 

not propose any additional conditions 

on what it means to obtain an appraisal 

from a ‘‘different’’ certified or licensed 

appraiser because the Agencies expect 

that existing valuation independence 

requirements would be sufficient to 

ensure that the second appraiser 

performs an independent valuation. 

Rules to ensure that appraisers exercise 

their independent judgment in 

conducting appraisals exist under TILA 

(§ 1026.42), as well as FIRREA title XI.67

In addition, the USPAP Ethics Rule 

requires that appraisers ‘‘perform 

assignments with impartiality, 

objectivity, and independence, and 

without accommodation of personal 

interests,’’ and includes several 

examples of forbidden conduct related 

to this rule.68 However, the Agencies 

requested comment on whether the rule 

should include additional conditions on 

what it means for the additional 

appraisal to be performed by a 

‘‘different’’ appraiser. Specifically, the 

Agencies sought comment on whether 

the final rule should prohibit creditors 

from obtaining two appraisals by 

appraisers employed by the same 

appraisal firm, or who received the 

assignments from same appraisal 

management company (AMC). 

The final rule follows the proposal 

and the statute in requiring that the 

additional appraisal must be performed 

by a ‘‘different’’ certified or licensed 

appraiser than the appraiser who 

performed the other appraisal for the 

HPML transaction. See 

§ 1026.35(c)(4)(ii). In the final rule, the 

Agencies also adopt a new comment 

clarifying what it means to obtain an 

appraisal from a ‘‘different’’ certified or 

licensed appraiser, discussed below. 

Public Comments on the Proposal 

The Agencies received approximately 

36 comments relating to requirements 

that (1) the additional appraisal be 

performed by a ‘‘different’’ certified or 

licensed appraiser, discussed 

immediately below; (2) the additional 

appraisal include analysis of the sales 

price differences between the prior and 

current home sale transaction (see 

section-by-section analysis of 

§ 1026.35(c)(4)(iv), below); and (3) the 

creditor may not charge the consumer 

for the additional appraisal (see sectionby-section analysis of § 1026.35(c)(4)(v), 

below). These comments were 

submitted by banks and bank holding 

companies, credit unions, bank and 

credit union trade associations, and 

appraisal, realtor, and mortgage industry 

trade associations. 

Of the commenters addressing the 

requests for comment on whether 

additional conditions should apply 

regarding the requirement that a 

‘‘different’’ appraiser perform the 

additional appraisal, most urged that the 

rule allow a creditor to obtain two 

appraisals from the same appraisal firm 

or AMC, provided that they are 

performed by separate appraisers. 

Commenters favoring this approach 

suggested that allowing a creditor to use 

a single appraisal firm or AMC would 

reduce costs, ease compliance burdens, 

and mitigate concerns regarding the 

availability of appraisers, particularly in 

rural or sparsely populated areas. 

Several commenters noted that the use 

of a single appraisal firm or AMC would 

not weaken the different appraiser 

requirement since each appraisal is 

subject to USPAP and appraisal 

independence requirements. One 

commenter, however, stated the rule 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10395 

69See OCC: 12 CFR 34.45; Board: 12 CFR 225.65; 

FDIC: 12 CFR 323.5; and NCUA: 12 CFR 722.5. 

70Appraisal Standards Board, Appraisal 

Foundation, Uniform Standards of Professional 

Appraisal Practice, 2012–2013 Ed., pp. U–7 through 

U–9. 

should prohibit a creditor from hiring 

appraisers from the same valuation firm 

and, with respect to AMCs, a creditor 

should be prohibited from hiring two 

appraisers through the same AMC if the 

AMC is an affiliate of the creditor. 

Discussion 

Consistent with the proposal, new 

§ 1026.35(c)(4)(ii) provides that the two 

appraisals required under 

§ 1026.35(c)(4)(i) may not be performed 

by the same certified or licensed 

appraiser. The Agencies are also 

adopting new comment 35(c)(4)(ii)–1, 

clarifying that the requirements that a 

creditor obtain two separate appraisals 

(§ 1026.35(c)(4)(i)), and that each 

appraisal be conducted by a ‘‘different’’ 

licensed or certified appraiser 

(§ 1026.35(c)(4)(ii)), indicate that the 

two appraisals must be conducted 

independently of each other. The 

comment explains that, if the two 

certified or licensed appraisers are 

affiliated, such as by being employed by 

the same appraisal firm, then whether 

they have conducted the appraisal 

independently of each other must be 

determined based on the facts and 

circumstances of the particular case 

known to the creditor. 

As discussed in the proposal, the 

Agencies believe that the appraisal 

independence requirements of TILA 

(implemented at § 1026.42) help ensure 

that the two appraisals reflect valuation 

judgments that are independent of the 

creditor’s loan origination interests and 

not biased by an appraiser’s personal or 

business interest in the property or the 

transaction. TILA section 129E, 15 

U.S.C. 1639e. In addition, FIRREA title 

XI includes rules to ensure that 

appraisers exercise their independent 

judgment in conducting appraisals, such 

as requirements that federally-regulated 

depositories separate appraisers from 

the lending, investment, and collection 

functions of the institution, and that the 

appraiser have ‘‘no direct or indirect 

interest, financial or otherwise, in the 

property.’’ 69 As noted, USPAP’s Ethics 

Rule, which applies to appraisers, also 

requires that appraisers ‘‘perform 

assignments with impartiality, 

objectivity, and independence, and 

without accommodation of personal 

interests,’’ and includes several 

examples of prohibited conduct related 

to this rule.70 As discussed in the 

section-by-section analysis of 

§ 1026.35(c)(1)(a), compliance with 

USPAP is a condition of being a 

‘‘certified or licensed appraiser’’ under 

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

rules implemented in this final rule. 

TILA section 129H(b)(3), 15 U.S.C. 

1639h(b)(3); § 1026.35(c)(1)(a). 

Requirements for valuation 

independence for consumer credit 

transactions secured by the consumer’s 

principal dwelling were adopted under 

amendments to TILA in the Dodd-Frank 

Act in 2010 and have been in effect 

since April of 2011. See 12 CFR 

1026.42; 75 FR 66554 (Oct. 28, 2010), 

implementing TILA section 129E, 15 

U.S.C. 1639e. The requirements in 

TILA, which carry civil liability, were 

designed to ensure that real estate 

appraisals used to support creditors’ 

underwriting decisions are based on the 

appraiser’s independent professional 

judgment, free of any influence or 

pressure that may be exerted by parties 

that have an interest in the transaction. 

Existing appraisal independence 

requirements expressly prohibit 

appraisers, AMCs, or appraisal firms (all 

providers of settlement services) from 

having an interest in the property or 

transaction or from causing the value 

assigned to a consumer’s principal 

dwelling to be based on any factor other 

than the independent judgment of the 

person preparing the appraisal. Material 

misstatements of the value are also 

prohibited for these parties, as is having 

a direct or indirect interest in the 

transaction, which prohibits these 

parties from being compensated based 

on the outcome of the transaction. 

The Agencies understand that, in light 

of these rules, a principal reason that 

creditors contract with third-party 

AMCs and appraisal firms is to ensure 

that the appraisal function is 

independent from the loan origination 

function, as required by law. In 

addition, the creditor remains 

responsible for compliance with the 

appraisal requirements of § 1026.35(c), 

and both the creditor and the creditor’s 

third party agent risk liability for 

violations of TILA’s appraisal 

independence requirements. 

At the same time, the Agencies have 

concerns about whether the unbiased 

appraiser independence will always be 

fully realized if, for example, the two 

appraisals are performed by appraisers 

employed by the same company. The 

Agencies recognize that in some cases, 

obtaining two appraisals from different 

appraisal firms might not be feasible, 

and moreover that appraisers working 

for the same company are cognizant of 

their independence, and indeed might 

not even interact at all. Thus, the rule 

is intended to allow flexibility in 

ordering the two appraisals from the 

same entity. However, as underscored in 

comment 35(c)(4)(ii)–1, in all cases the 

two appraisers should function 

independently of each other to ensure 

that in fact two separate and 

independent judgments of the property 

value are reflected in the required 

appraisals. If the creditor knows of facts 

or circumstances about the performance 

of the additional appraisal by the same 

firm indicating that the additional 

appraisal was not performed 

independently, the creditor should 

refrain from extending credit, unless the 

creditor obtains another appraisal. 

35(c)(4)(iii) Relationship to General 

Appraisal Requirements 

The proposed rule required that the 

additional appraisal meet the 

requirements of the first appraisal, 

including the requirements that the 

appraisal be performed by a certified or 

licensed appraiser who conducts a 

physical visit of the interior of the 

mortgaged property. See new 

§ 1026.35(c)(3)(i). The Agencies 

expressed in the proposal the belief that 

this approach best effectuates the 

purposes of the statute. TILA section 

129H(b)(1) provides that, ‘‘[s]ubject to 

the rules prescribed under paragraph 

(4), an appraisal of property to be 

secured by a higher-risk mortgage does 

not meet the requirements of this 

section unless it is performed by a 

certified or licensed appraiser who 

conducts a physical property visit of the 

interior of the mortgaged property.’’ 15 

U.S.C. 1639h(b)(1). The ‘‘second 

appraisal’’ required under TILA section 

129H(b)(2)(A) is ‘‘an appraisal of 

property to be secured by a higher-risk 

mortgage’’ under TILA section 

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

(b)(2)(A). Therefore, to meet the 

requirements of TILA section 129H, the 

additional appraisal would be required 

to be ‘‘performed by a certified or 

licensed appraiser who conducts a 

physical visit of the interior of the 

property that will secure the 

transaction.’’ TILA section 129H(b)(1), 

15 U.S.C. 1639h(b)(1). 

In addition, under TILA section 

129H(b)(2)(A), the additional appraisal 

must analyze several elements, 

including ‘‘any improvements made to 

the property between the date of the 

previous sale and the current sale.’’ 15 

U.S.C. 1639h(b)(2)(A). The Agencies 

believe that the purposes of the statute 

would be best implemented by requiring 

the second appraiser to perform a 

physical interior property visit to 

analyze any improvements made to the 

property. Without an on-site visit, the 

second appraiser would have difficulty 

confirming that any improvements 


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10396 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

identified by the seller or the first 

appraiser were made. 

In § 1026.35(c)(4)(iii), the Agencies 

are adopting the proposed requirement 

that, if the conditions requiring an 

additional appraisal are present (see 

new § 1026.35(c)(4)(i)), the creditor 

must obtain an additional appraisal that 

meets the requirements of the first 

appraisal, as provided in 

§ 1026.35(c)(3)(i). In response to some 

commenters who expressed confusion 

about whether the creditor could rely on 

the safe harbor under § 1026.35(c)(3)(ii) 

in satisfying the general appraisal 

requirements under § 1026.35(c)(3)(i) for 

the additional appraisal, the Agencies 

are adopting a new comment. New 

comment 35(c)(4)(iii)–1 clarifies that 

when a creditor is required to obtain an 

additional appraisal under 

§ 1026(c)(4)(i), the creditor must comply 

with the requirements of both 

§ 1026.35(c)(3)(i) and § 1026.35(c)(4)(ii)– 

(v) for that appraisal. If the creditor 

meets the safe harbor criteria in 

§ 1026.35(c)(3)(ii) for the additional 

appraisal, the creditor complies with the 

requirements of § 1026.35(c)(3)(i) for 

that appraisal. 

35(c)(4)(iv) Required Analysis in the 

Additional Appraisal 

The proposed rule required that the 

additional appraisal include an analysis 

of the difference between the price at 

which the seller acquired the property 

and the price the consumer is obligated 

to pay to acquire the property, as 

specified in the consumer’s acquisition 

agreement. The proposal specified that 

the changes in market conditions and 

improvements made to the property 

must be analyzed between the date of 

the seller’s acquisition of the property 

and the date of the consumer’s 

agreement to acquire the property. 

These proposed requirements are 

consistent with the statute, which 

requires that the additional appraisal 

‘‘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.’’ TILA section 129H(b)(2)(A), 15 

U.S.C. 1639h(b)(2)(A). 

A proposed comment clarified that 

guidance on identifying the date the 

seller acquired the property could be 

found in the proposed comment now 

adopted as comment 35(c)(4)(i)(A)–3. 

This comment further stated that 

guidance on identifying the date of the 

consumer’s agreement to acquire the 

property could be found in the proposed 

comment adopted as comment 

35(c)(4)(i)(A)–2. The comment also 

stated that guidance on identifying the 

price at which the seller acquired the 

property could be found in the proposed 

comment adopted as comment 

35(c)(4)(i)(B)–1 and that guidance on 

identifying the price the consumer is 

obligated to pay to acquire the property 

could be found in the proposed 

comment adopted as comment 

35(c)(4)(i)(B)–2. 

The Agencies requested comment on 

these proposed requirements for the 

additional appraisal, including the 

appropriateness of listing the 

requirement to analyze the difference in 

sales prices separately from the other 

two analytical requirements. 

In § 1026.35(c)(4)(iii) and comment 

35(c)(4)(iii)–1, the final rule adopts the 

proposed regulation text and comment 

with only one non-substantive change: 

for clarification about the subject of this 

subsection of the rule, the title of the 

subsection has been changed from 

‘‘Requirements for the additional 

appraisal’’ to ‘‘Required analysis in the 

additional appraisal.’’ 

Public Comments on the Proposal 

Two commenters addressed this 

issue. Of these, one commenter fully 

supported the proposed requirements 

for the additional appraisal, noting they 

are consistent with USPAP. The other 

commenter, however, suggested that the 

additional appraisal should not be 

required to include an analysis of the 

sale price paid by the seller and the 

acquisition price as set forth in the 

borrower’s purchase agreement and 

improvements made to the property by 

the seller. The commenter argued that 

value should be based solely on the 

current market value of the property at 

the time of the appraisal and sale, of 

which the first appraisal should be 

determinative. 

The Agencies also requested comment 

on the appropriateness of using, as 

prices that the additional appraisal must 

analyze, the terms ‘‘price at which seller 

acquired property’’ and ‘‘price 

consumer is obligated to pay to acquire 

property, as specified in consumer’s 

agreement to acquire property from 

seller.’’ Further, the Agencies asked for 

comment on the appropriateness of 

using, as the dates the additional 

appraisal must analyze in considering 

changes in market conditions and 

improvements to property, the terms 

‘‘date seller acquired property’’ and 

‘‘date of consumer’s agreement to 

acquire property.’’ No comments were 

received on this issue. 

Discussion 

After consideration of public 

comments, the Agencies believe that the 

proposal is appropriate to adopt without 

substantive change, as discussed above. 

Regarding the comment that the 

additional appraisal should not include 

an analysis of the property price 

increase between the seller’s price and 

the consumer’s price, but that market 

value as reflected in the first appraisal 

should be determinative, the Agencies 

point out that the analysis in the 

additional appraisal required under new 

§ 1026.35(c)(4)(iii) is mandated by 

statute. Moreover, the Agencies believe 

that the intent of these requirements is 

to ensure that creditor, in considering 

the value of the collateral in connection 

with its lending decision, is presented 

with information focused specifically on 

factors that reasonably increase 

collateral value in a relatively short 

period, such as market changes and 

property improvements. These statutory 

requirements are designed to serve as a 

backstop for consumers against fraud in 

flipped transactions and thus are 

implemented largely unchanged in the 

final rule. 

35(c)(4)(v) No Charge for the Additional 

Appraisal 

Under the proposed rule, if a creditor 

must obtain a second appraisal, it may 

charge the consumer for only one of the 

appraisals. The Agencies proposed a 

comment clarifying that this rule means 

that the creditor would be prohibited 

from imposing a fee specifically for that 

appraisal or by marking up the interest 

rate or any other fees payable by the 

consumer in connection with the 

higher-risk mortgage loan. The proposal 

was designed to implement TILA 

section 129H(b)(2)(B), which provides 

that ‘‘[t]he cost of the second appraisal 

required under subparagraph (A) may 

not be charged to the applicant.’’ 15 

U.S.C. 1639h(b)(2)(B). 

The Agencies requested comment on 

this proposed approach, and whether 

there might be particular ways that the 

creditor could identify the appraisal for 

which the consumer may not be charged 

in cases where, for example, the 

appraisals are ordered simultaneously. 

The proposed rule and clarifying 

comment are adopted without change in 

§ 1026.35(c)(4)(v) and comment 

35(c)(4)(v)–1. 

Public Comments on the Proposal 

Most commenters were strongly 

opposed to requiring the additional 

appraisal to be obtained at the creditor’s 

expense. While a number of 

commenters acknowledged that the 

requirement is statutorily mandated 

under Dodd-Frank they were 

nevertheless critical of it, cautioning 

that the requirement would ultimately 

limit the availability of credit to 


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71See, e.g., USPAP Standards Rule 1–5(b) 

(requiring an appraiser to ‘‘analyze all sales of the 

subject property that occurred within the three 

years prior to the effective date of the appraisal’’); 

USPAP Standards Rule 1–4(a) (stating that ‘‘an 

appraiser must analyze such comparable sales data 

as are available to indicate a value conclusion’’) and 

USPAP Standards Rule 1–4(f) (stating that ‘‘when 

analyzing anticipated public or private 

improvements * * * an * * * appraiser must 

analyze the effect on value, if any, of such 

anticipated improvements to the extent they are 

reflected in market actions.’’ 

72As explained in a footnote in the proposed 

comment, the Bureau’s 2012 TILA–RESPA Proposal 

contains a proposed successor form to the RESPA 

settlement statement. See § 1026.38 (Closing 

Disclosure Form) of the Bureau’s 2012 TILA– 

RESPA Proposal, 77 FR 51116 (Aug. 23, 2012). 

consumers. Many commenters indicated 

that the cost of an additional appraisal 

would make the loan too costly or 

unprofitable, leading creditors to cease 

offering higher-risk mortgage loans to 

riskier borrowers. Several commenters 

argued it is unfair for creditors to bear 

the cost responsibility of a second 

appraisal, where the applicant has no 

incentive to go forward with the loan 

and there is no guarantee that the loan 

will be consummated. Commenters 

urged the Agencies to exercise their 

exemption authority to permit creditors 

to charge consumers a reasonable fee for 

the additional appraisal. Alternatively, 

one comment letter recommended that 

creditors be prohibited from charging a 

direct cost for the additional appraisal 

but not an indirect cost. 

Discussion 

As noted, TILA section 129H(b)(2)(B) 

provides that ‘‘[t]he cost of the second 

appraisal required under subparagraph 

(A) may not be charged to the 

applicant.’’ 15 U.S.C. 1639h(b)(2)(B). 

Consistent with the statute and the 

proposal, § 1026.35(c)(4)(v) provides 

that ‘‘[i]f the creditor must obtain two 

appraisals under paragraph (c)(4)(i) of 

this section, the creditor may charge the 

consumer for only one of the 

appraisals.’’ As clarified in comment 

35(c)(4)(v)–1, adopted without change 

from the proposal, the creditor would be 

prohibited from imposing a fee 

specifically for that appraisal or by 

marking up the interest rate or any other 

fees payable by the consumer in 

connection with the higher-risk 

mortgage loan (now HPML). 

The proposed comment adopted in 

the final rule also explains that the 

creditor would be prohibited from 

charging the consumer for the 

‘‘performance of one of the two 

appraisals required under 

§ 1026.35(c)(4)(i).’’ This comment is 

intended to clarify that the prohibition 

on charging the consumer under 

§ 1026.35(b)(4)(v) applies to the cost of 

providing the consumer with a copy of 

the appraisal, not to charges for the cost 

of performing the appraisal. As 

implemented by new § 1026.35(c)(6)(iv), 

TILA section 129H(c) prohibits the 

creditor from charging the consumer for 

one copy of each appraisal conducted 

pursuant to the higher-risk mortgage 

rule. 15 U.S.C. 1639h(c); see also 

section-by-section analysis of 

§ 1026.35(c)(6)(iv), below. As in the 

proposal, the final rule does not use the 

statutory term ‘‘second’’ appraisal, but 

instead refers to the ‘‘additional’’ 

appraisal because, in practice, a creditor 

ordering two appraisals at the same time 

may not know which of the two 

appraisals would be the ‘‘second’’ 

appraisal. The Agencies understand that 

the additional appraisal could be 

separately identified because it must 

contain an analysis of elements in 

proposed § 1026.35(c)(4)(iv). The 

Agencies also understand that 

appraisers may perform such an 

analysis as a matter of routine, and that 

it may be difficult to distinguish the two 

appraisals on that basis.71

In addition, the final rule also tracks 

the proposal in prohibiting the creditor 

from charging ‘‘the consumer,’’ rather 

than, as in the statute, the ‘‘applicant.’’ 

The Agencies believe that use of the 

broader term ‘‘consumer’’ is necessary 

to clarify that the creditor may not 

charge the consumer for the cost of the 

additional appraisal after consummation 

of the loan. 

Regarding commenters’ requests that 

creditors be permitted to charge the 

consumer for the additional appraisal, 

the Agencies point out that they do not 

jointly have authority to provide for 

adjustments and exceptions to TILA 

under TILA section 105(a), which 

belongs to the Bureau alone. 15 U.S.C. 

1604(a). The prohibition on charging the 

consumer for the additional appraisal is 

mandated by statute. The Agencies have 

implemented this statutory prohibition 

with certain clarifications appropriate to 

carry out the statutory mandate 

consistently with their general authority 

to interpret the statute—specifically 

clarifying in commentary that the 

creditor is prohibited from imposing a 

fee specifically for that appraisal or by 

marking up the interest rate or any other 

fees payable by the consumer in 

connection with the higher-risk 

mortgage loan. See § 1026.35(c)(4)(v) 

and comment 35(c)(4)(v)–1. 

The Agencies recognize that neither 

the statute’s plain language nor the final 

rule precludes a creditor from spreading 

costs of additional appraisals over a 

large number of loans and products. The 

Agencies believe, however, that 

Congress clearly intended to ensure that 

the consumer offered an HPML, who 

may have limited credit options, not be 

exclusively affected by having to bear 

this cost in full. The Agencies further 

believe that the final rule is consistent 

with this statutory purpose. 

35(c)(4)(vi) Creditor’s Determination of 

Prior Sale Date and Price 

35(c)(4)(vi)(A) Reasonable Diligence 

The Agencies proposed to require that 

the creditor have exercised reasonable 

diligence to support any determination 

that an additional appraisal under 

§ 1026.35(c)(4)(i) is not required. (For a 

discussion of the factors triggering the 

requirement, see the section-by-section 

analysis of § 1026.35(c)(4)(i)(A) and (B), 

above.) Absent an exemption (see 

§ 1026.35(c)(2) and (c)(4)(vii)), an 

additional appraisal would always be 

required for an HPML where the 

creditor elected not to conduct 

reasonable diligence, could not find the 

relevant sales price and sales date 

information, or where the information 

found led to conflicting conclusions 

about whether an additional appraisal 

were required. See section-by-section 

analysis of § 1026.35(c)(4)(vi)(B), below. 

To help creditors meet the proposed 

reasonable diligence standard, the 

Agencies proposed that creditors be able 

to rely on written source documents that 

are generally available in the normal 

course of business. Accordingly, a 

proposed comment clarified that a 

creditor has acted with reasonable 

diligence to determine when the seller 

acquired the property and whether the 

price at which the seller acquired the 

property is lower than the price 

reflected in the consumer’s acquisition 

agreement if, for example, the creditor 

bases its determination on information 

contained in written source documents, 

as discussed below. 

The proposed comment provided a 

list of written source documents, not 

intended to be exhaustive, that the 

creditor could use to perform reasonable 

diligence as follows: A copy of the 

recorded deed from the seller; a copy of 

a property tax bill; a copy of any 

owner’s title insurance policy obtained 

by the seller; a copy of the RESPA 

settlement statement from the seller’s 

acquisition (i.e., the HUD–1 or any 

successor form 72); a property sales 

history report or title report from a 

third-party reporting service; sales price 

data recorded in multiple listing 

services; tax assessment records or 

transfer tax records obtained from local 

governments; a written appraisal, 

including a signed appraiser’s 


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certification stating that the appraisal 

was performed in conformity with 

USPAP, that shows any prior 

transactions for the subject property; a 

copy of a title commitment report; or a 

property abstract. 

The proposed comment contained a 

footnote explaining that a ‘‘title 

commitment report’’ is a document from 

a title insurance company describing the 

property interest and status of its title, 

parties with interests in the title and the 

nature of their claims, issues with the 

title that must be resolved prior to 

closing of the transaction between the 

parties to the transfer, amount and 

disposition of the premiums, and 

endorsements on the title policy. The 

footnote also explained that the 

document is issued by the title 

insurance company prior to the 

company’s issuance of an actual title 

insurance policy to the property’s 

transferee and/or creditor financing the 

transaction. In different jurisdictions, 

this instrument may be referred to by 

different terms, such as a title 

commitment, title binder, title opinion, 

or title report. 

An additional proposed comment 

explained that reliance on oral 

statements of interested parties, such as 

the consumer, seller, or mortgage 

broker, do not constitute reasonable 

diligence. The Agencies explained in 

the proposal that they do not believe 

that creditors should be permitted to 

rely on oral statements offered by 

parties to the transaction because they 

may be engaged in the type of fraud the 

statutory provision was designed to 

prevent. 

In new § 1026.35(c)(4)(vi) and 

Appendix O, the Agencies are adopting 

the reasonable diligence standard and 

proposed comments discussed above 

without material change. Certain 

technical changes to the regulation text 

and corresponding comments have been 

made for clarity, without substantive 

change intended. The Agencies are also 

adding a new comment providing 

guidance on written source documents 

that show only an estimated or assumed 

value for the seller’s acquisition price. 

Specifically, this new comment clarifies 

that, if a written source document 

describes the seller’s acquisition price 

in a manner that indicates that the price 

described is an estimated or assumed 

amount and not the actual price, the 

creditor should look at an alternative 

document to satisfy the reasonable 

diligence standard in determining the 

price at which the seller acquired the 

property. See comment (c)(4)(vi)(A)–1. 

The reasons for the final rule and 

revisions to the proposal are discussed 

in more detail below. 

Public Comments on the Proposal 

The Agencies requested comment on 

a number of aspects of the reasonable 

diligence standard and accompanying 

comments. Specifically, comment was 

requested on whether the list of written 

source documents now adopted in 

comment 35(c)(4)(vi)–1 would provide 

reliable information about a property’s 

sales history and could be relied on in 

making the additional appraisal 

determination, provided they indicate 

the seller’s acquisition date or the 

seller’s acquisition price. 

The Agencies also requested comment 

on whether a creditor should be 

permitted to rely on a signed USPAPcompliant written appraisal prepared 

for the transaction to determine the 

seller’s acquisition date and price, and 

whether a creditor could take any 

specific measures to ensure that the 

appraiser is reporting prior sales 

accurately. The Agencies indicated 

particular interest in commenters’ view 

on whether, for creditors that are 

required to select an independent 

appraiser, such as creditors subject to 

the Federal financial institutions 

regulatory agencies’ FIRREA title XI 

rules, the creditor’s selection of an 

independent appraiser is sufficient to 

address the concern that the appraiser 

may be colluding with a seller in 

perpetrating a fraudulent flipping 

scheme. 

Noting that public documents listed 

might not include the requisite 

information and that there might be 

risks inherent in allowing reliance on 

seller-provided documents, the 

Agencies also asked whether non-public 

information sources are likely to be 

more easily available or more accurate 

than public ones. 

Finally, the Agencies requested 

comment on the proposed clarification 

that reliance on oral statements alone 

would not be sufficient to satisfy the 

reasonable diligence standard, 

specifically on whether circumstances 

exist in which oral statements offered by 

parties to the transaction could be 

considered reliable if documented 

appropriately, and how such statements 

should be documented to ensure greater 

reliability. 

General comments on the list of 

source documents. Four commenters 

responded to general questions about 

whether the list of source documents 

was appropriate. Several of these 

commenters affirmed the Agencies’ 

understanding that some jurisdictions 

have a lengthy delay between the time 

a purchase and sale transaction is closed 

and the recording of the deed. In those 

cases, these commenters averred, that 

delay would preclude using the deed as 

a source document since it would not be 

available to the creditor for its due 

diligence. 

One commenter suggested that the 

seller be required to provide the source 

documents rather than the creditor 

having to obtain them from the public 

records, although recognizing the 

possibility that the seller may 

intentionally alter the documents to his 

needs. Appraiser trade associations 

concurred with the proposal’s ‘‘flexible 

approach’’ to due diligence sources in 

allowing use of seller-provided 

documents. This commenter believed 

that this approach would mitigate the 

possibility that a lack of access to or 

availability of source documents would 

result in a ‘‘chilling effect’’ on mortgage 

lending. Another commenter noted that 

the borrower’s creditor would have 

difficulty obtaining copies of documents 

from the seller. This commenter 

recommended that the rule provide that, 

where none of the source documents 

provides the required information, the 

creditor may provide a certified or 

attested document signed by the parties 

as sufficient evidence of ‘‘reasonable 

diligence.’’ 

Use of the first appraisal in the 

transaction. All three comments relating 

to the question of whether the final rule 

should allow creditors to use and rely 

on the entire contents of USPAPcompliant appraisals prepared by 

certified and licensed appraisers 

supported allowing this. Nevertheless, 

commenters noted that oversight of 

appraisal services by users and 

regulators would be necessary, as would 

vigorous enforcement if appraisers 

violate the requirements. One 

commenter recommended that creditors 

use data from multiple listing services 

captured by the appraisal to obtain prior 

sales price information. That commenter 

also requested clarification in the rule 

that where multiple listing documents 

have different sales price data, that the 

creditor is deemed to have complied 

with the rule if it chooses to use any 

one. 

Additional comments from appraiser 

trade associations agreed with allowing 

creditors to rely on appraisal 

information relating to sellers’ 

acquisition dates but only so far as that 

information is available to the appraiser 

in the normal course of business, which 

is all that is required of an appraiser 

under USPAP. These commenters urged 

the Agencies to be careful not to impose 

requirements on appraisers relating to 

information, data, and analysis that are 

not required of appraisers in a typical 

USPAP-compliant report. 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10399 

73 During informal outreach conducted by the 

Agencies for the proposal, representatives of large, 

small, and regional lenders expressed concern that 

in some cases, a creditor may be unable to 

determine the seller’s date and price due to 

information gaps in the public record. The Agencies 

also understand that a creditor may not be able to 

determine prior transaction data because of delays 

in the recording of public records. The Agencies 

also understand that certain ‘‘non-disclosure’’ 

jurisdictions do not make the price at which a seller 

acquired a property available in the public records. 

These concerned were affirmed by public 

comments on the proposal. 

Use of seller-provided and other nonpublic documents. Several commenters 

recognized that sometimes creditors 

have no other reliable sources than 

seller-provided or other non-public 

documents. Appraiser association 

commenters proposed that the Agencies 

consider a ‘‘good-faith’’ exception that 

would allow creditors to rely on nontraditional sources of information when 

more reliable ones are not available. 

These commenters reasoned that this 

exception would balance the underlying 

public policy of supporting ‘‘higher-risk 

mortgage loans’’ (now HPMLs) when no 

other loan product is available or 

feasible, against the risk that creditors 

will rely on bad information. 

Reliability of oral statements. No 

commenters opposed the proposed 

comment, adopted as comment 

35(c)(4)(vi)–2, clarifying that reliance on 

oral statements alone would not satisfy 

the reasonable diligence standard. 

Appraiser trade associations generally 

shared the Agencies’ concern about the 

potential risk of relying on information 

presented by interested parties. 

Discussion 

As noted, the Agencies are adopting 

the proposed reasonable diligence 

standard and associated comments 

without material change. The Agencies 

believe that this standard is important to 

facilitate compliance because it may be 

difficult in some cases for a creditor to 

know with absolute certainty that the 

criteria triggering the additional 

appraisal requirement have been met. 

See § 1026.35(c)(4)(i)(A) and (B). 

Similarly, a creditor may have difficulty 

knowing whether it relied on the ‘‘best 

information’’ available in making the 

determination, which could require that 

creditors perform an exhaustive review 

of every document that might contain 

information about a property’s sales 

history and unduly limit the availability 

of credit to higher-risk mortgage 

consumers. 

Regarding the proposed list of source 

documents on which creditors may 

appropriately rely, now adopted in 

Appendix O, the Agencies note that the 

first four listed items would be 

voluntarily provided directly or 

indirectly by the seller, rather than 

collected from publicly available 

sources. As did commenters, the 

Agencies recognize that permitting the 

use of these documents presents the risk 

that the creditor would be presented 

with altered copies. Balanced against 

this risk, however, is the concern that 

no information sources are publicly 

available in non-disclosure jurisdictions 

and jurisdictions with significant lag 

times before public land records are 

updated to reflect new transactions.73

The Agencies are concerned that, unless 

the creditor can rely on other sources, 

such as sources provided by the seller, 

the higher-risk mortgage transaction 

may not proceed at all, or could proceed 

only with an additional appraisal 

containing a limited form of the analysis 

that would be required by TILA section 

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

The proposed footnote explaining the 

term ‘‘title commitment report’’ (Item 9), 

described above, is moved in the final 

rule to new comment 1 of Appendix O. 

As noted, new comment 

35(c)(4)(vi)(A)–1 clarifies that, if a 

written source document describes the 

seller’s acquisition price in a manner 

that indicates that the price described is 

an estimated or assumed amount and 

not the actual price, the creditor should 

look at an alternative document to 

satisfy the reasonable diligence standard 

in determining the price at which the 

seller acquired the property. 

Regarding a commenter’s 

recommendation that a creditor be 

permitted to provide a certified or 

attested document signed by the parties 

as sufficient evidence of ‘‘reasonable 

diligence,’’ the Agencies believe that 

this allowance could easily be abused 

and would not constitute sufficient 

diligence. Instead, as discussed in the 

section-by-section analysis of 

§ 1026.35(c)(4)(vi)(B) below, the 

Agencies believe that the consumer 

protection purposes of the statute are 

better served by simply requiring two 

appraisals where reliable written 

documentation of the sales price and 

date are unavailable. Similarly, 

regarding questions about multiple 

listing documents that have different 

sales price data, the Agencies believe 

that in cases of conflicting listing price 

information, the consumer protection 

purposes of the statute are best served 

if the creditor obtains better information 

from other sources through the exercise 

of reasonable diligence and, failing that, 

obtains a second appraisal. See sectionby-section analysis of 

§ 1026.35(c)(4)(vi)(B), below. 

On the recommendation that the 

Agencies consider a ‘‘good-faith’’ 

exception that would allow creditors to 

rely on non-traditional sources of 

information, the Agencies believe that 

the ‘‘reasonable diligence’’ standard 

alone is more appropriate and addresses 

the commenters’ concerns. Under this 

standard, a broad array of widely used 

public and non-public documents, set 

forth in the non-exhaustive list under 

comment 35(c)(4)(vi)–1, could be relied 

on by creditors. In short, the Agencies 

expect that, with the parameters 

established in this comment, the rule 

will appropriately balance the need to 

assure access to HPML credit against the 

risk that creditors will rely on bad 

information. 

Regarding reliance on another 

USPAP-compliant appraisal to satisfy 

the reasonable diligence standard, the 

Agencies are revising the proposed list 

to clarify that a creditor would not be 

permitted to rely on an appraisal other 

than the one prepared for the creditor 

for the subject HPML. Specifically, the 

Agencies are revising Item 8, which, in 

the proposal read as follows: ‘‘A written 

appraisal signed by an appraiser who 

certifies that the appraisal has been 

performed in conformity with USPAP 

that shows any prior transactions for the 

subject property.’’ In the final rule, this 

comment has been revised to read as 

follows: ‘‘A written appraisal performed 

in compliance with § 1026.35(c)(3)(i) for 

the same transaction that shows any 

prior transactions for the subject 

property.’’ The Agencies are concerned 

that, as proposed, this item in the 

written source document list could lead 

creditors to believe that appraisals 

performed for the seller’s acquisition or 

other appraisals that might otherwise be 

considered ‘‘stale’’ could be relied on. 

As revised, the list item allows reliance 

specifically on an appraisal performed 

in compliance with the HPML appraisal 

requirements for the same HPML 

transaction. That means that the 

appraisal would have to have been 

performed by a state-certified or 

-licensed appraiser in conformity with 

USPAP and FIRREA. 

On a related issue, the Agencies 

emphasize that allowing the creditor to 

rely on the first appraisal for prior sales 

information does not require more of 

appraisers than does USPAP. Again, the 

first appraisal must be performed in 

compliance with USPAP and FIRREA. 

The Agencies understand that USPAP 

Standards Rule 1–5 requires appraisers 

to ‘‘analyze all sales of the subject 

property that occurred within the three 

(3) years prior to the effective date of the 

appraisal’’ if that information is 

available to the appraiser ‘‘in the normal 


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10400 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

74Appraisal Standards Bd., Appraisal Fdn., 

Standards Rule 1–5, USPAP (2012–2013 ed.). 

75Based on county recorder information from 

select counties licensed to FHFA by DataQuick 

Information Systems. 

course of business.’’ 74 If the appraiser 

did not include that information 

because it was not available to the 

appraiser under the USPAP standard, 

the creditor must turn to another 

document under the reasonable 

diligence standard. 

Overall, due to the many 

requirements to which the first 

appraisal is subject, including 

independence requirements under TILA 

(implemented by § 1026.42), and in the 

absence of public comments to the 

contrary, the Agencies expect that, in 

cases where the appraiser has provided 

a price, a creditor generally could rely 

on the first appraisal prepared for the 

HPML transaction to satisfy the 

reasonable diligence standard under 

§ 1026.35(c)(4)(vi)(A). The exception 

would be circumstances under which 

other information obtained by the 

creditor makes reliance on the price 

unreasonable. See also section-bysection analysis of § 1026.35(c)(4)(ii), 

above. 

Comment 35(c)(4)(vi)(A)–2 clarifies 

that reliance on oral statements of 

interested parties, such as the consumer, 

seller, or mortgage broker, does not 

constitute reasonable diligence under 

§ 1026.35(c)(4)(vi)(A). This comment is 

adopted from the proposal without 

change. 

Requirement for two appraisals when 

sale information is unavailable or 

conflicting. Under the proposal, a 

creditor that cannot determine the 

seller’s acquisition date, or a creditor 

that can determine that the date is 

within 180 days but cannot determine 

the price, would have to obtain an 

additional appraisal before originating a 

‘‘higher-risk mortgage loan’’ (now 

HPML). The proposal included a 

comment with two examples of how 

this rule would apply: one in which a 

creditor is unable to obtain information 

on the seller’s acquisition price or date 

and the other in which a creditor 

obtains conflicting information about 

the seller’s acquisition price or date. 

Comment 35(c)(4)(vi)(A)–3, discussed 

further below, gives two examples of 

how the rule applies. This comment was 

moved from its placement in the 

proposal with no substantive change to 

the requirements of the reasonable 

diligence standard intended. 

Public Comments on the Proposal 

The Agencies requested comment on 

whether the enhanced protections for 

consumers afforded by requiring an 

additional appraisal whenever the 

seller’s acquisition date or price cannot 

be determined merit the potential 

restraint on the availability of higherrisk mortgage loans. The Agencies also 

requested comment on whether 

concerns about these potential restraints 

on credit availability make it 

particularly important to include the 

first four source documents listed in the 

proposed commentary, even though 

they would be seller-provided, and 

whether these concerns warrant further 

expanding the sources of information 

creditors may rely on to satisfy the 

reasonable diligence standard under the 

proposed rule. 

The Agencies did not receive 

comments directly responsive to these 

questions. 

Discussion 

In general, the Agencies believe that, 

based on recent data provided by FHFA 

discussed in the proposal, most 

property resales would not trigger the 

proposal’s conditions requiring an 

additional appraisal.75 However, the 

Agencies understand that, in some 

cases, a creditor performing typical 

underwriting and documentation 

procedures may be unable to ascertain 

through information derived from 

public records whether the conditions 

in the additional appraisal requirement 

have been triggered. For example, a 

creditor may be unable to determine 

information about the seller’s 

acquisition because of lag times in 

recording public records. The Agencies 

also understand that some source 

documents often report only estimated 

amounts of consideration when 

describing the consideration paid by the 

current titleholder for the property. 

Moreover, as noted, several ‘‘nondisclosure’’ jurisdictions do not make 

the price at which a seller acquired a 

property publicly available. In addition, 

the creditor may obtain conflicting 

information from written source 

documents. In these cases, a creditor 

may be unable to determine, based on 

its reasonable diligence, whether the 

criteria in § 1026.35(c)(4)(i)(A) and 

(c)(4)(i)(B) have been met. 

Comment 35(c)(4)(vi)(A)–3 provides 

two examples of how the rule would 

apply: one in which a creditor is unable 

to obtain information on the seller’s 

acquisition price or date and the other 

in which a creditor obtains conflicting 

information about the seller’s 

acquisition price or date. In the first 

example, comment 35(c)(4)(vi)(A)–3.i 

assumes that a creditor orders and 

reviews the results of a title search 

showing the seller’s acquisition date 

occurred between 91 and 180 days ago, 

but the seller’s acquisition price was not 

included. In this case, the creditor 

would not be able to determine whether 

the price the consumer is obligated to 

pay under the consumer’s acquisition 

agreement exceeded the seller’s 

acquisition price by more than 20 

percent. Before extending an HPML 

subject to the appraisal requirements of 

§ 1026.35(c), the creditor must either: (1) 

Perform additional diligence to obtain 

information showing the seller’s 

acquisition price and determine 

whether two written appraisals in 

compliance with § 1026.35(c)(4) would 

be required based on that information; 

or (2) obtain two written appraisals in 

compliance with § 1026.35(c)(4). This 

comment also contains a cross-reference 

to comment 35(c)(4)(vi)(B)–1, which 

explains the modified requirements for 

the analysis that must be included in 

the additional appraisal. See 

§ 1026.35(c)(4)(iv); see also section-bysection analysis of § 1026.35(c)(4)(vi)(B). 

In the second example, comment 

35(c)(4)(vi)(A)–3.ii assumes that a 

creditor reviews the results of a title 

search indicating that the last recorded 

purchase was more than 180 days before 

the consumer’s agreement to acquire the 

property. This comment also assumes 

that the creditor subsequently receives a 

written appraisal indicating that the 

seller acquired the property fewer than 

180 days before the consumer’s 

agreement to acquire the property. In 

this case, unless one of these sources is 

clearly wrong on its face, the creditor 

would not be able to determine whether 

the seller acquired the property within 

180 days of the date of the consumer’s 

agreement to acquire the property from 

the seller, pursuant to 

§ 1026.35(c)(4)(i)(A). Before extending 

an HPML subject to the appraisal 

requirements of § 1026.35(c), the 

creditor must either: (1) Perform 

additional diligence to obtain 

information confirming the seller’s 

acquisition date (and price, if within 

180 days) and determine whether two 

written appraisals in compliance with 

§ 1026.35(c)(4) would be required based 

on that information; or (2) obtain two 

written appraisals in compliance with 

§ 1026.35(c)(4). This comment also 

contains a cross-reference to comment 

35(c)(4)(vi)(B)–1, which explains the 

modified requirements for the analysis 

that must be included in the additional 

appraisal. See § 1026.35(c)(4)(iv); see 

also section-by-section analysis of 

§ 1026.35(c)(4)(vi)(B). 

As under the proposal, in the final 

rule, when information about a property 

is not available from written source 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10401 

documents, creditors extending HPMLs 

will routinely incur increased costs 

associated with obtaining the additional 

appraisal. One risk of this rule is that, 

because TILA section 129H(b)(2)(B) 

prohibits creditors from charging their 

customers for the additional appraisal, 

creditors will simply refrain from 

engaging in any HPML where sales 

history data cannot be obtained. 15 

U.S.C. 1639h(b)(2)(B). See also 

§ 1026.35(c)(4)(v) (requiring that the 

creditor cannot charge the consumer for 

the additional appraisal). 

As expressed in the proposal, 

however, the Agencies believe that 

requiring an additional appraisal where 

creditors are unable to obtain the seller’s 

acquisition price and date is necessary 

to prevent circumvention of the statute. 

In particular, the Agencies are 

concerned that not requiring an 

additional appraisal in cases of limited 

information may inadequately address 

the problem of fraudulent property 

flipping to borrowers of HPMLs in 

‘‘non-disclosure’’ jurisdictions, where 

prior sales data is routinely unavailable 

through public sources. Similarly, the 

Agencies are concerned that sellers that 

acquire and sell properties within a 

short timeframe could take advantage of 

delays in the public recording of 

property sales to engage in fraudulent 

flipping transactions. The Agencies 

believe that, where the seller’s 

acquisition date in particular is not in 

the public record due to recording 

delays, it is more reasonable to assume 

that the seller’s transaction was 

sufficiently recent to be covered by the 

rule than not. 

35(c)(4)(vi)(B) Inability To Determine 

Prior Sale Date or Price—Modified 

Requirements for Additional Appraisal 

Section 35(c)(4)(vi)(B) provides that if, 

after exercising reasonable diligence, a 

creditor cannot determine whether the 

conditions in § 1026.35(c)(4)(i)(A) and 

(B) are present and therefore must 

obtain two written appraisals under 

§ 1026.35(c)(4), the additional appraisal 

must include an analysis of the factors 

in § 1026.35(c)(4)(iv) (difference in sales 

price, changes in market conditions, and 

property improvements) only to the 

extent that the information necessary for 

the appraiser to perform the analysis 

can be determined. 

For the reasons discussed above, the 

Agencies believe that an HPML creditor 

should be required to obtain an 

additional appraisal if the creditor 

cannot determine the seller’s acquisition 

date, or if it can determine the date is 

within 180 days but cannot determine 

the price, based on written source 

documents. However, in keeping with 

the proposal, § 1026.35(c)(4)(vi)(B) also 

provides that the additional appraisal in 

this situation would not have to contain 

the full analysis required for additional 

appraisals of flipping transactions under 

TILA section 129H(b)(2)(A), 

implemented in the final rule as 

§ 1026.35(c)(4)(iv)(A)–(C). 15 U.S.C. 

1639h(b)(2)(A). 

Public Comments on the Proposal 

The Agencies requested comment on 

whether an appraiser would be unable 

to analyze the difference in the price the 

consumer is obligated to pay to acquire 

the property and the price at which the 

seller acquired the property without 

knowing when the seller acquired the 

property. If such an analysis is not 

possible without information about 

when the seller acquired the property, 

the Agencies requested comment on 

whether the rule should assume the 

seller acquired the property 180 days 

prior to the date of the consumer’s 

agreement to acquire the property. The 

Agencies also requested comment 

generally on the proposed approach to 

situations in which the creditor cannot 

obtain the necessary information and 

whether the rule should address 

information gaps about the flipping 

transaction in other ways. 

The Agencies did not receive 

comments directly responsive to these 

questions. 

Discussion 

Under the proposal, now adopted in 

§ 1026.35(c)(4)(vi)(B), the additional 

appraisal must include an analysis of 

the elements that would be required in 

proposed § 1026.35(c)(4)(iv)(A)–(C) only 

to the extent that the creditor knows the 

seller’s purchase price and acquisition 

date. As discussed in the section-bysection analysis of § 1026.35(c)(4)(iv), 

TILA section 129H(b)(2)(A) requires that 

the additional appraisal analyze the 

difference in sales prices, changes in 

market conditions, and improvements to 

the property between the date of the 

previous sale and the current sale. 15 

U.S.C. 1639h(b)(2)(A). An appraiser 

could not perform this analysis if efforts 

to obtain the seller’s acquisition date 

and price were not successful. 

Consistent with the proposal, 

comment 35(c)(4)(vi)(B)–1 confirms 

that, in general, the additional appraisal 

required under § 1026.35(c)(4)(i) should 

include an analysis of the factors listed 

in § 1026.35(c)(4)(iv)(A)–(C). However, 

the comment also confirms that if, 

following reasonable diligence, a 

creditor cannot determine whether the 

conditions in § 1026.35(c)(4)(i) are 

present due to a lack of information or 

conflicting information, the required 

additional appraisal must include the 

analyses required under 

§ 1026.35(c)(4)(iv)(A)–(C) only to the 

extent that the information necessary to 

perform the analysis is known. As an 

example, comment 35(c)(4)(vi)(B)–1 

assumes that a creditor is able, 

following reasonable diligence, to 

determine that the date on which the 

seller acquired the property occurred 

between 91 and 180 days prior to the 

date of the consumer’s agreement to 

acquire the property, but cannot 

determine the sale price. In this case, 

the creditor is required to obtain an 

additional written appraisal that 

includes an analysis under 

§ 1026.35(c)(4)(iv)(B) and (c)(4)(iv)(C) of 

the changes in market conditions and 

any improvements made to the property 

between the date the seller acquired the 

property and the date of the consumer’s 

agreement to acquire the property. 

However, the creditor is not required to 

obtain an additional written appraisal 

that includes analysis under 

§ 1026.35(c)(4)(iv)(A) of the difference 

between the price at which the seller 

acquired the property and the price that 

the consumer is obligated to pay to 

acquire the property. 

The Agencies note that the proposed 

rule does not provide commentary with 

guidance on the modified requirements 

for the additional analysis in a situation 

in which the creditor is unable to 

determine the date the seller acquired 

the property but is able to determine the 

price at which the seller acquired the 

property. As noted, the Agencies 

requested but did not receive public 

comments on this aspect of the 

proposal. The Agencies are unaware of 

situations in which the seller’s 

acquisition price, but not the acquisition 

date, would be known. In the absence of 

public comment on the issue, the 

Agencies are not adopting additional 

guidance on this theoretical situation. 

The Agencies believe that allowing 

creditors to comply with a modified 

form of the full analysis where a 

creditor cannot determine information 

about a property based on its reasonable 

diligence is a reasonable interpretation 

of the statute. If a creditor could not 

determine when or for how much the 

prior sale occurred, it would be 

impossible for a creditor to obtain an 

appraisal that complies with the full 

analysis requirement of TILA section 

129H(b)(2)(A) concerning the change in 

price, market conditions, and 

improvements to the property. 15 U.S.C. 

1639h(b)(2)(A). 

The Agencies’ approach to situations 

in which the creditor cannot obtain the 

necessary information, either due to a 

lack of information or conflicting 


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10402 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

76The FHA exceptions to the restrictions on FHA 

insurance are as follows: 

(1) Sales by HUD of Real Estate-Owned (REO) 

properties under 24 CFR part 291 and of single 

family assets in revitalization areas pursuant to 

section 204 of the National Housing Act (12 U.S.C. 

1710); 

(2) Sales by another agency of the United States 

Government of REO single family properties 

pursuant to programs operated by these agencies; 

(3) Sales of properties by nonprofit organizations 

approved to purchase HUD REO single family 

properties at a discount with resale restrictions; 

(4) Sales of properties that were acquired by the 

sellers by inheritance; 

(5) Sales of properties purchased by an employer 

or relocation agency in connection with the 

relocation of an employee; 

(6) Sales of properties by state- and federallychartered financial institutions and governmentsponsored enterprises (GSEs); 

(7) Sales of properties by local and state 

government agencies; and 

(8) Only upon announcement by HUD through 

issuance of a notice, sales of properties located in 

areas designated by the President as federal disaster 

areas. The notice will specify how long the 

exception will be in effect. 

24 CFR 203.37a(c). 

77 76 FR 27390, 28471 (May 11, 2011) (2011 ATR 

Proposal). 

78 76 FR 11598, 11612 (March 2, 2011) (2011 

Escrows Proposal). 

information, can be summed up as 

follows: 

• An additional appraisal is required. 

• However, to account for missing or 

conflicting information, only a modified 

version of the full additional analysis 

required under TILA section 

129H(b)(2)(A), as implemented by 

§ 1026.35(c)(4)(iv) is required. 15 U.S.C. 

1639h(b)(2)(A). 

Alternative approaches not chosen by 

the Agencies include prohibiting 

creditors from extending the HPML 

altogether under these circumstances. 

As stated in the proposal, however, the 

Agencies believe that a flat prohibition 

would unduly limit the availability of 

higher-risk mortgage loans to 

consumers. 

35(c)(4)(vii) Exemptions From the 

Additional Appraisal Requirement 

TILA section 129H(b)(4)(B) permits 

the Agencies to exempt jointly a class of 

loans from the additional appraisal 

requirement if the Agencies determine 

the exemption ‘‘is in the public interest 

and promotes the safety and soundness 

of creditors.’’ 15 U.S.C. 1639h(b)(4)(B). 

The Agencies did not expressly propose 

any exemptions from the additional 

appraisal requirement, but invited 

comment on whether exempting any 

classes of higher-risk mortgage loans 

from the additional appraisal 

requirement (beyond the exemptions in 

§ 1026.35(c)(2)) would be in the public 

interest and promote the safety and 

soundness of creditors. The Agencies 

offered a number of examples of 

potential exemptions, such as loans 

made in rural areas, and transactions 

that are currently exempt from the 

restrictions on FHA insurance 

applicable to property resales in the 

FHA Anti-Flipping Rule, including, 

among others, sales by government 

agencies of certain properties, sales of 

properties acquired by inheritance, and 

sales by State- and federally-chartered 

financial institutions.76 See, e.g., 24 CFR 

203.37a(c). Regarding a possible 

exemption for higher-risk mortgage 

loans (now HPMLs) made in ‘‘rural’’ 

areas from the additional appraisal 

requirement, the Agencies requested 

comment on whether the rule should 

use the same definition of ‘‘rural’’ that 

was provided in the 2011 ATR 

Proposal.77 This same definition of 

‘‘rural’’ was also proposed by the Board 

regarding Dodd-Frank Act escrow 

requirements (2011 Escrows 

Proposal).78 This definition is reviewed 

in more detail in the section-by-section 

analysis of § 1026.35(c)(4)(vii)(H), 

below. 

In the final rule, the Agencies are 

adopting exemptions from the 

additional appraisal requirement under 

§ 1026.35(c)(4)(i) for extensions of credit 

that finance the consumer’s acquisition 

of a property: 

(1) From a local, State or Federal 

government agency 

(§ 1026.35(c)(4)(vii)(A)); 

(2) From a person that acquired the 

property through foreclosure, deed-inlieu of foreclosure or other similar 

judicial or non-judicial procedures as a 

result of exercising the person’s rights as 

a holder of a defaulted mortgage loan 

(§ 1026.35(c)(4)(vii)(B)); 

(3) From a non-profit entity as part of 

a local, State or Federal government 

program under which the non-profit 

entity is permitted to acquire singlefamily properties for resale from a seller 

who acquired title to the property 

through the process of foreclosure, 

deed-in-lieu of foreclosure, or other 

similar judicial or non-judicial 

procedure (§ 1026.35(c)(4)(vii)(C)); 

(4) From a person who acquired title 

to the property by inheritance or 

pursuant to a court order of dissolution 

of marriage, civil union, or domestic 

partnership, or of partition of joint or 

marital assets to which the seller was a 

party (§ 1026.35(c)(4)(vii)(D)); 

(5) From an employer or relocation 

agency in connection with the 

relocation of an employee 

(§ 1026.35(c)(4)(vii)(E)); 

(6) From a servicemember, as defined 

in 50 U.S.C. Appx. 511(1), who received 

deployment or permanent change of 

station orders after the servicemember 

acquired the property 

(§ 1026.35(c)(4)(vii)(G)); 

(7) Located in an area designated by 

the President as a federal disaster area, 

if and for as long as the Federal 

financial institutions regulatory 

agencies, as defined in 12 U.S.C. 

3350(6), waive the requirements in title 

XI of the Financial Institutions Reform, 

Recovery, and Enforcement Act of 1989, 

as amended (12 U.S.C. 3331 et seq.), and 

any implementing regulations in that 

area (§ 1026.35(c)(4)(vii)(F)); and 

(8) Located in a ‘‘rural’’ county, as 

defined in the Bureau’s 2013 Escrows 

Final Rule, § 1026.35(b)(2)(iv)(A) (which 

is the same definition used in the 2013 

ATR Final Rule, § 1026.43(f)(2)(vi) and 

comment 43(f)(2)(vi–1) 

(§ 1026.35(c)(4)(vii)(H)). 

Public Comments on the Proposal 

The Agencies received over fifty 

comments concerning the questions 

asked by the Agencies about appropriate 

exemptions from the additional 

appraisal requirement. Several 

commenters opposed requiring two 

appraisals under any circumstances. 

However, the Agencies note that the 

additional appraisal requirement is 

mandated by statute. TILA section 

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

Commenters in general strongly 

supported an exemption for loans made 

in rural areas. The commenters stated 

that there are limited numbers of 

licensed and certified appraisers in rural 

areas, which would make the additional 

appraisal requirement (requiring 

appraisals by two independent 

appraisers) particularly burdensome in 

these areas. In addition, commenters 

argued that lenders in rural areas may 

be forced to hire appraisers from far 

outside the geographic area, which 

would increase the time and cost 

associated with the transaction. Several 

commenters also stated that rural areas 

have not historically been sources of 

fraudulent real estate flipping activity. 

A number of commenters noted that 

property prices in rural areas tend to be 

lower, so the cost of the second 

appraisal is higher as a percentage of the 

overall transaction. Two commenters, 

national trade associations for 

appraisers, opposed the exemption for 

rural loans, suggesting that it is not 

difficult to find two appraisers to value 

rural properties. 

As for how to define ‘‘rural,’’ one 

commenter, a national trade association 

for community banks, suggested that the 

agencies use a definition of ‘‘rural’’ that 

is consistent with the definition used in 

rules addressing the use of escrow 

accounts. See 2011 Escrows Proposal, 

discussed below, revised and adopted in 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10403 

79See also 2011 ATR Proposal at 28471, revised 

and adopted in the 2013 ATR Final Rule, 

§ 1026.43(f)(2)(vi) and comment 43(f)(2)(vi–1). 

the 2013 Escrows Final Rule.79 Another 

commenter, a financial holding 

company, suggested that the final rule 

exempt lenders located in areas where 

the State appraiser licensing or 

certification roster shows five or fewer 

unaffiliated appraisers within a 

reasonable distance, such as 50 miles or 

less. A large bank further recommended 

that the final rule exempt loans secured 

by properties in low-density appraiser 

markets, such as states with fewer than 

500 appraisers or counties with fewer 

than five appraisers. 

A large number of commenters also 

supported an exemption for transactions 

that are currently exempted from the 

restrictions on FHA insurance 

applicable to property resales in the 

FHA Anti-Flipping Rule. The 

commenters argued that these categories 

of transactions do not present the same 

risk to consumers and therefore do not 

require the additional anti-flipping 

consumer protections. 

Two commenters, national trade 

associations for appraisers, objected to 

adding any exemptions to the additional 

appraisal requirement, and suggested 

that there should be a strong 

presumption that an additional 

appraisal is necessary to protect 

consumers and to promote the safety 

and soundness of financial institutions. 

A number of commenters suggested 

other exemptions or endorsed 

exemptions from the entire rule already 

in the proposal. These are as follows. 

• Three commenters (a national trade 

association for the banking industry, a 

State trade association for the banking 

industry, and a bank holding company) 

suggested an exemption from the second 

appraisal requirement in cases when the 

initial appraisal is performed by an 

appraiser who was selected from the 

creditor’s list of qualified appraisers. 

The commenters stated that eliminating 

the seller’s ability to influence the 

selection of the appraiser in this fashion 

would be sufficient to protect the 

borrower from the risk of an artificiallyinflated appraisal, thereby addressing 

the fraudulent ‘‘flipping’’ concern the 

statute seeks to address. 

• Two commenters (a nonprofit 

organization and State credit union 

association) suggested an exemption for 

active duty military personnel who 

receive permanent change of duty 

station orders. 

• A number of commenters 

(including national trade associations 

for the mortgage finance and retail 

banking industry) suggested exemptions 

for certain non-purchase transactions, 

such as gifts, transfers in connection 

with trusts, transfers that do not 

generate capital gains, and intra-family 

transfers for estate planning purposes, 

on grounds that these transactions are 

not ‘‘profit seeking.’’ Several 

commenters suggested that transfers in 

connection with a divorce decree be 

included in this category as an 

exemption. 

• Many commenters (including two 

national trade associations for the 

mortgage finance and retail banking 

industry, a national trade association for 

the banking industry, a national trade 

association for community banks, a 

national trade association for credit 

unions, four regional associations for 

credit unions, a large national bank, a 

financial holding company, and a 

community bank) endorsed exemptions 

for construction and bridge loans, on 

grounds that these are temporary loans 

and that consumers are not exposed to 

risk at the level comparable to other 

residential loans that Congress targeted 

in the statute. These commenters also 

argued that the additional appraisal 

requirement would be impractical for 

construction loans, given the inability to 

conduct interior inspections. 

• Two commenters (a community 

bank and a credit union) suggested an 

exemption for non-purchase 

acquisitions and transfers where the 

consumer previously held a partial 

interest in the property and cited to 

Regulation Z (commentary on the 

definition of residential mortgage 

transaction) as support. 

Discussion 

In response to widespread support for 

adopting exemptions consistent with 

exemptions from the restrictions on 

FHA financing in the FHA AntiFlipping Rule, the Agencies are 

adopting several exemptions from the 

additional appraisal requirement 

generally consistent with exemptions in 

the FHA Anti-Flipping Rule under 24 

CFR 203.37a(c). These are extensions of 

credit that finance the consumer’s 

acquisition of a property: 

• From a local, State or Federal 

government agency 

(§ 1026.35(c)(4)(vii)(A); see also 24 CFR 

203.37a(c)(1), (2) and (7)). 

• From an entity that acquired the 

property through foreclosure, deed-inlieu of foreclosure or other similar 

judicial or non-judicial procedures as a 

result of exercising the person’s rights as 

a holder of a defaulted mortgage loan 

(§ 1026.35(c)(4)(vii)(B); see also 24 CFR 

203.37a(c)(6)). 

• From a non-profit entity as part of 

a local, State or Federal government 

program under which the non-profit 

entity is permitted to acquire singlefamily properties for resale from a seller 

who acquired the property through 

foreclosure, deed-in-lieu of foreclosure, 

or other similar judicial or non-judicial 

procedure (§ 1026.35(c)(4)(vii)(C); see 

also 24 CFR 203.37a(c)(3)). 

• From a seller who acquired the 

property pursuant to a court order of 

dissolution of marriage, civil union or 

domestic partnership, or of partition of 

joint or marital assets to which the seller 

was a party (§ 1026.35(c)(4)(vii)(D); see 

also 24 CFR 203.37a(c)(4)). 

• From an employer or relocation 

agency in connection with the 

relocation of an employee 

(§ 1026.35(c)(4)(vii)(E); see also 24 CFR 

203.37a(c)(4)). 

• Located in an area designated by 

the President as a federal disaster area, 

if and for as long as the Federal 

financial institutions regulatory 

agencies, as defined in 12 U.S.C. 

3350(6), waive the requirements in title 

XI of the Financial Institutions Reform, 

Recovery, and Enforcement Act of 1989, 

as amended (12 U.S.C. 3331 et seq.), and 

any implementing regulations in that 

area (§ 1026.35(c)(4)(vii)(F); see also 12 

CFR 203.37a(c)(4)). 

In addition, the Agencies are adopting 

an exemption for extensions of credit to 

finance the consumer’s purchase of 

property being sold by a servicemember, 

as defined in 50 U.S.C. Appx. 511(1), if 

the servicemember receives deployment 

or permanent change of station orders 

after the servicemember purchased the 

property (§ 1026.35(c)(4)(vii)(G)). 

Finally, the Agencies are adopting an 

exemption for HPMLs in rural areas 

(§ 1026.35(c)(4)(vii)(H)). The exemption 

would apply to HPMLs secured by 

properties in counties considered 

‘‘rural’’ under definitions promulgated 

by the Bureau in the 2013 ATR Final 

Rule and 2013 Escrows Final Rule— 

specifically, properties located within 

the following Urban Influence Codes 

(UICs), established by the United States 

Department of Agriculture’s Economic 

Research Services (USDA–ERS): 4, 6, 7, 

8, 9, 10, 11, or 12. These UICs generally 

correspond with areas outside of 

metropolitan statistical areas (MSAs) 

and Micropolitan Statistical Areas, 

defined by the Office of Management 

and Budget (OMB). For reasons 

discussed in more detail in the sectionby-section analysis of 

§ 1026.35(c)(4)(vii)(H) and the DoddFrank Act Section 1022(b)(2) analysis in 

the SUPPLEMENTARY INFORMATION below, 

rural properties located in micropolitan 

statistical areas that are not adjacent to 

an MSA (UIC 8) are also included in the 

exemption. 


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10404 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

Each of these exemptions is discussed 

in turn below. 

35(c)(4)(vii)(A) 

Acquisitions of Property From Local, 

State or Federal Government Agencies 

In § 1026.35(c)(4)(vii)(A), the 

Agencies are adopting an exemption for 

HPMLs financing consumer acquisitions 

of property being sold by a local, State 

or Federal government agency. This 

exemption generally corresponds with 

exemptions in the FHA Anti-Flipping 

Rule for loans financing the purchase of 

an ‘‘REO’’ (real estate owned) property 

being sold by HUD or another U.S. 

government agency (see 12 CFR 

203.37a(c)(1) and (2)) and a broad 

exemption for sales of properties by 

local and State government agencies 

(see 12 CFR 203.37a(c)(7)). The 

Agencies do not believe that purchases 

of properties being sold by local, State 

or Federal government agencies present 

the fraudulent flipping risks that the 

special ‘‘higher-risk mortgage’’ appraisal 

rules in TILA section 129H were 

intended to address. 15 U.S.C. 1639h. 

Typically, these types of sales are in 

connection with government programs 

involving the sale of property obtained 

through foreclosure or by deed-in-lieu of 

foreclosure, which can promote 

affordable housing and neighborhood 

revitalization. Government agency sales 

may also be related to foreclosures due 

to tax liability or related reasons. 

Without an exemption, most consumer 

acquisitions involving these types of 

sales would be subject to the additional 

appraisal requirement because the 

government agency typically would 

have ‘‘acquired’’ the property (for 

example, in a foreclosure or by deed-inlieu of foreclosure) for the outstanding 

balance of the government’s lien (plus 

costs), which is generally less than the 

value of the property; thus, the price 

paid to the government agency by the 

consumer would typically be 

substantially higher than the 

government agency’s acquisition 

‘‘price.’’ In addition, these sales might 

occur relatively soon after the 

government agency acquired the 

property, particularly if the acquisition 

resulted from a foreclosure or tax sale. 

The Agencies believe that requiring 

an HPML creditor to obtain two 

appraisals to finance transactions 

involving the purchase of property from 

government agencies could interfere 

with beneficial government programs. 

The Agencies further do not believe that 

this interference is warranted for these 

transactions, which do not involve a 

profit-motivated seller and thus do not 

present the kinds of flipping concerns 

that the statute is intended to address. 

The Agencies believe that an exemption 

for HPMLs financing the sale of 

property by a local, State, or Federal 

government agency is in the public 

interest because it allows beneficial 

government programs to go forward as 

intended. By reducing costs for creditors 

that might offer HPMLs to finance these 

transactions, the exemption helps 

creditors to strengthen and diversify 

their lending portfolios, thereby 

promoting the safety and soundness of 

creditors as well. 

35(c)(4)(vii)(B) 

Acquisitions of Property Obtained 

Through Foreclosure and Related Means 

In § 1026.35(c)(4)(vii)(B), the Agencies 

are adopting an exemption for HPMLs 

financing the purchase of a property 

from a person that had acquired the 

property through foreclosure, deed-inlieu of foreclosure, or other similar 

judicial or non-judicial procedures as a 

result of exercising the person’s rights as 

a holder of a defaulted mortgage loan. 

This exemption generally corresponds 

with an exemption from the FHA AntiFlipping Rule for loans financing the 

purchase of properties sold by Stateand Federally-chartered financial 

institutions and GSEs (see 12 CFR 

203.37a(c)(6)). The Agencies recognize 

that this exemption might overlap with 

the exemption in § 1026.35(c)(4)(vii)(A) 

for sales by government agencies, which 

might sell properties that the agencies 

acquire in connection with liquidating a 

mortgage. However, the Agencies 

believe that a separate exemption for 

sales by government agencies is 

advisable because government agencies 

might have other reasons for acquiring 

a property that they then determined 

was advisable to sell, such as property 

acquired through exercise of the 

government’s eminent domain powers. 

The exemption covers HPMLs that 

finance the acquisition of a home from 

a ‘‘person’’ who has acquired title of the 

property through foreclosure and related 

means. ‘‘Person’’ is defined in 

Regulation Z to mean ‘‘a natural person 

or an organization, including a 

corporation, partnership, 

proprietorship, association, cooperative, 

estate, trust, or government unit.’’ 

§ 1026.2(a)(22). Thus, consistent with 

the FHA Anti-Flipping Rule 

exemptions, the exemption in 

§ 1026.35(c)(4)(vii)(B) covers purchases 

of properties being sold by State- and 

Federally-chartered financial 

institutions, as well as by GSEs such as 

Fannie Mae, Freddie Mac, and the 

Federal Home Loan Banks. In addition, 

the exemption covers HPML loans 

financing property acquisitions from 

non-bank mortgage companies, servicers 

that administer loans held in the 

portfolios of financial institutions or in 

pools of mortgages that underlie private 

and government or GSE asset-backed 

securitizations, and, less commonly, 

private individuals. The Agencies 

believe that a more inclusive exemption 

for foreclosures better reflects the way 

that mortgage loans are held and 

serviced in today’s market. 

Several commenters pointed out that 

the sale of REO properties to consumers 

and potential investors contributes 

significantly to revitalizing 

neighborhoods and stabilizing 

communities. They expressed concerns 

that the additional appraisal 

requirement might unduly interfere 

with these sales, which could have a 

number of negative effects. First, 

holders of the mortgages might be forced 

to hold properties after foreclosure 

longer than is financially optimal, 

increasing losses; some public 

commenters indicated that waiting six 

months so that the additional appraisal 

requirement would not apply would be 

far too long. Second, holders who want 

or need to clear these properties off of 

their books might be forced to accept 

lower prices offered by investors, which 

would also increase losses. When the 

holder in this situation is a creditor 

such as a bank or other financial 

institution, increased losses can have a 

negative effect on its safety and 

soundness. Third, incentives for 

investors to buy and rehabilitate 

properties could be reduced, which 

could be counterproductive to 

community development and the 

revitalization of the housing market. 

Finally, more consumers might have to 

forego opportunities for 

homeownership. 

For all of these reasons, the Agencies 

believe that the exemption in 

§ 1026.35(c)(4)(vii)(B) is in the public 

interest and promotes the safety and 

soundness of creditors. 

35(c)(4)(vii)(C) 

Acquisitions of Property From Certain 

Non-Profit Entities 

In § 1026.35(c)(4)(vii)(C), the Agencies 

are adopting an exemption for HPMLs 

financing the purchase of a property 

from a non-profit entity as part of a 

local, State, or Federal government 

program under which the non-profit 

entity is permitted to acquire singlefamily properties for resale from a seller 

who acquired the property through 

foreclosure or similar means. Comment 

35(c)(4)(vii)(C)–1 clarifies that, for 

purposes of 1026.35(c)(4)(vii)(C), a 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10405 

80 ‘‘Person’’ is defined in Regulation Z as ‘‘a 

natural person or an organization, including a 

corporation, partnership, proprietorship, 

association, cooperative, estate, trust, or 

government unit.’’ § 1026.2(a)(22). 

‘‘non-profit entity’’ refers to a person 

with a tax exemption ruling or 

determination letter from the Internal 

Revenue Service under section 501(c)(3) 

of the Internal Revenue Code of 1986 

(12 U.S.C. 501(c)(3)).80 This exemption 

generally builds on an exemption from 

the FHA Anti-Flipping Rule for loans 

financing the purchase of properties 

from nonprofit organizations approved 

to purchase HUD REO single-family 

properties at a discount with resale 

restrictions (see 12 CFR 203.37a(c)(3)). 

Consistent with the FHA AntiFlipping Rule exemptions, the 

exemption in § 1026.35(c)(4)(vii)(C) 

would cover nonprofit organizations 

approved to purchase HUD REO singlefamily properties. In addition, the 

exemption would cover purchases of 

these types of properties from nonprofit 

organizations as part of other local, State 

or Federal government programs under 

which the non-profit entity is permitted 

to acquire title to REO single family 

properties for resale. 

For reasons similar to those discussed 

under the exemption for loan holders 

selling a property acquired through 

liquidating a mortgage 

(§ 1026.35(c)(4)(vii)(B)), the Agencies 

believe that the exemption for HPMLs 

financing the acquisitions described in 

§ 1026.35(c)(4)(vii)(C) is in the public 

interest and promotes the safety and 

soundness of creditors. The exemption 

is intended in part to help holders such 

as banks and other financial institutions 

sell properties held as a result of 

foreclosure or deed-in-lieu of 

foreclosure, thereby removing them 

from their books. This can minimize 

losses, which improves institutions’ 

safety and soundness. The exemption is 

also intended to facilitate neighborhood 

revitalization for the benefit of 

communities and individual consumers. 

Government programs involving 

purchases and sales of REO property by 

non-profits can foster positive 

community investment and help 

investors dispense with loss-generating 

properties efficiently and in a manner 

that maximizes public benefit. The 

Agencies do not believe that these types 

of sales to consumers by non-profits 

involve serious risks of fraudulent 

flipping, and thus do not believe that 

TILA’s additional appraisal requirement 

was intended to apply to these 

transactions. For these reasons, the 

Agencies believe that the exemption in 

§ 1026.35(c)(4)(vii)(C) is in the public 

interest and promotes the safety and 

soundness of creditors. 

35(c)(4)(vii)(D) 

Acquisitions From Persons Acquiring 

the Property Through Inheritance or 

Dissolution of Marriage, Civil Union, or 

Domestic Partnership 

In § 1026.35(c)(4)(vii)(D), the Agencies 

are adopting an exemption for HPMLs 

financing the purchase of a property 

that was acquired by the seller by 

inheritance or pursuant to a court order 

of dissolution of marriage, civil union, 

or domestic partnership, or of partition 

of joint or marital assets to which the 

seller was a party. The exemption 

would include HPMLs financing the 

acquisition by a joint owner of the 

property of a residual interest in that 

property, if the joint owner acquired 

that interest by inheritance or 

dissolution of a marriage, civil union, or 

domestic partnership. This exemption 

generally corresponds with an 

exemption from the FHA Anti-Flipping 

Rule for purchases of properties that 

had been acquired by the seller by 

inheritance (see 12 CFR 203.37a(c)(4)). 

As discussed in the section-by-section 

analysis of § 1026.35(c)(4)(i), above, an 

exemption for HPMLs that finance the 

purchase of a property acquired by the 

seller through a non-purchase 

transaction was widely supported by 

commenters. 

In response to comments, the 

Agencies have decided to expand the 

FHA Anti-Flipping Rule exemption for 

loans financing the purchase of a 

property from a seller who had acquired 

it by inheritance, to include properties 

acquired as the result of a dissolution of 

a marriage, civil union, or domestic 

partnership. The Agencies are not aware 

that sales of properties so acquired have 

been the source of fraudulent flipping 

activity and note that no commenters 

suggested that this type of flipping 

occurs. In addition, the Agencies do not 

believe that Congress intended to cover 

purchases of property acquired by 

sellers in this manner with the ‘‘higherrisk mortgage’’ additional appraisal 

requirement. The Agencies believe that 

consumer protection from fraudulent 

flipping is aided by the requirement that 

the acquisition of property through 

dissolution of a marriage or civil union 

must be part of a court order, which can 

be easily confirmed and helps ensure 

that the original transfer was for 

legitimate purposes and not merely to 

defraud a subsequent purchaser. 

As for the exemption for HPMLs 

financing the purchase of a property 

acquired by the seller as an inheritance, 

the Agencies similarly do not see the 

risk of fraudulent flipping that Congress 

intended to address occurring in these 

transactions. Finally, in both the case of 

inheritance and that of divorce or 

dissolution, the seller has acquired the 

property (or full ownership of the 

property) under adverse circumstances; 

the Agencies see no reason as a public 

policy matter to impose further burden 

on the seller attempting to sell property 

obtained in this manner. With respect to 

promoting the safety and soundness of 

creditors, the Agencies note that a seller 

attempting to sell property obtained via 

inheritance or dissolution of marriage 

may not be in a position to satisfy the 

mortgage obligation associated with the 

property. As a result, creditors could be 

subject to losses, which can negatively 

affect the safety and soundness of the 

creditors. 

For these reasons, the Agencies 

believe that the exemptions in 

§ 1026.35(c)(4)(vii)(D) are in the public 

interest and promote the safety and 

soundness of creditors. 

35(c)(4)(vii)(E) 

Acquisitions of Property From 

Employers or Relocation Agencies 

In § 1026.35(c)(4)(vii)(E), the Agencies 

are adopting an exemption for HPMLs 

financing the purchase of a property 

from an employer or relocation agency 

that had acquired the property in 

connection with the relocation of an 

employee. This exemption mirrors an 

identical exemption from the FHA AntiFlipping Rule. See 12 CFR 

203.37a(c)(5)). As with other 

exemptions adopted in the final rule 

that correspond with similar FHA AntiFlipping Rule exemptions, the Agencies 

concur with FHA’s longstanding 

conclusion that these types of 

transactions do not present significant 

fraudulent flipping risks. Rather, the 

circumstances of the transaction provide 

evidence that the impetus for the resales 

stems from bona fide reasons other than 

the seller’s efforts to profit from a flip. 

The Agencies believe that these 

transactions benefit both employees and 

employers by helping to ensure that 

employees can relocate as needed for 

business reasons in an efficient manner. 

The Agencies also believe that the 

exemption can benefit HPML consumers 

and creditors by reducing costs 

otherwise associated with purchasing 

and extending credit to finance the 

purchase of these properties. In 

addition, due to reduced burden 

involved with the sale of the home, the 

Agencies believe the exemption will 

promote the purchase of homes by 

employers. This, in turn, promotes the 

safety and soundness of the employees’ 


srobinson on DSK4SPTVN1PROD with RULES3
10406 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

81 In the proposal, ‘‘rural’’ was defined as a loan 

made outside of a micropolitan or metropolitan 

creditors by ensuring that the 

employees’ mortgage obligations will be 

met. 

For these reasons, the Agencies 

believe that the exemption in 

§ 1026.35(c)(4)(vii)(E) is in the public 

interest and promotes the safety and 

soundness of creditors. 

35(c)(4)(vii)(F) 

Acquisitions of Property From 

Servicemembers With Deployment or 

Permanent Change of Station Orders 

In § 1026.35(c)(4)(vii)(F), the Agencies 

are adopting an exemption from the 

additional appraisal requirement for 

HPMLs financing the purchase of a 

property being sold by a servicemember, 

as defined in 50 U.S.C. Appx. 511(1), 

who received a deployment or 

permanent change of station order after 

acquiring the property. This exemption 

is not in the FHA Anti-Flipping Rule. 

The exemption was suggested by some 

commenters in response to a request for 

recommendations for other appropriate 

exemptions, however. The Agencies 

believe that many of the reasons for the 

exemptions in the final rule based on 

the FHA Anti-Flipping Rule support a 

servicemember exemption as well. For 

example, as with the exemption for 

HPMLs financing the sale of a property 

by an employer or relocation agency in 

connection with the relocation of an 

employee, the exemption for HPMLs 

financing the sale of a property by a 

servicemember with permanent 

relocation orders facilitates the efficient 

transfer of servicemembers. 

Without this exemption, 

servicemembers might have more 

limited options for eligible buyers. For 

reasons discussed earlier, some 

creditors might be reticent about 

lending to an HPML consumer in a 

transaction that would trigger the 

additional appraisal requirement. This 

could result in servicemembers being 

forced to retain mortgages that are 

difficult for them to afford when they 

must also support themselves and their 

families in a new living arrangement 

elsewhere. In turn, the positions of 

creditors and investors on those existing 

mortgages could be compromised by 

servicemembers not being able to meet 

their mortgage obligations. 

The Agencies do not believe that this 

exemption would be used frequently. 

Regardless, the Agencies believe that an 

exemption for HPMLs financing the 

purchase of the property in that instance 

is in the public interest and promotes 

the safety and soundness of creditors. 

35(c)(4)(vii)(G) 

Acquisitions of a Property in a Federal 

Disaster Area 

In § 1026.35(c)(4)(vii)(G), the Agencies 

are adopting an exemption for HPMLs 

financing the purchase of a property 

located in an area designated by the 

President as a federal disaster area, if 

and for as long as the Federal financial 

institutions regulatory agencies, as 

defined in 12 U.S.C. 3350(6), waive the 

requirements in title XI of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989, as amended 

(12 U.S.C. 3331 et seq.), and any 

implementing regulations in that area. 

This exemption generally corresponds 

to an exemption in the FHA AntiFlipping Rule for loans financing the 

purchase of properties located in areas 

designated by the President as federal 

disaster areas, if HUD has announced 

that these transactions will not be 

subject to the restrictions. See 12 CFR 

203.37a(c)(8). 

The Agencies believe that this 

exemption appropriately facilitates the 

repair and restoration of disaster areas 

to the benefit of individual consumers, 

communities, and credit markets. The 

Agencies also recognize that disasters 

might result in some consumers being 

unable to meet their mortgage 

obligations. As a result, creditors could 

be subject to losses, which could 

negatively affect the safety and 

soundness of the creditors. The 

Agencies believe that this exemption 

would help creditors extend HPMLs 

that finance the purchase of properties 

in disaster areas without undue burden, 

thus enabling the creditors to improve 

their lending positions more effectively. 

As noted, the Agencies specified that 

the exemption would take effect only if 

and for as long as the Federal financial 

institutions regulatory agencies also 

waive application of the FIRREA title XI 

appraisal rules for properties in the 

disaster area. The Agencies believe that 

this provision helps protect consumers 

from fraudulent flipping by giving the 

Federal financial institutions regulatory 

agencies, all of which are parties to this 

final rule, authority to monitor the area 

and determine when appraisal 

requirements should be reinstated. 

For these reasons, the Agencies have 

concluded that the exemption in 

§ 1026.35(c)(4)(vii)(G) for the purchase 

of properties in disaster areas is in the 

public interest and promotes the safety 

and soundness of creditors. 

35(c)(4)(vii)(H) 

Acquisitions of Properties in Rural 

Counties 

In § 1026.35(c)(4)(vii)(H), the 

Agencies are adopting an exemption 

from the additional appraisal 

requirement for HPMLs that finance the 

purchase of a property in a ‘‘rural’’ 

county, as defined in 

§ 1026.35(b)(iv)(A), which is a county 

assigned one of the following Urban 

Influence Codes (UICs), established by 

the United States Department of 

Agriculture’s Economic Research 

Services (USDA–ERS): 4, 6, 7, 8, 9, 10, 

11, or 12. These UICs correspond to 

areas outside of MSAs as well as most 

micropolitan statistical areas; the 

definition would also include properties 

located in micropolitan statistical areas 

that are not adjacent to an MSA. This 

rural county exemption is not an 

exemption in the FHA Anti-Flipping 

Rule. However, the Agencies received 

requests to consider an exemption for 

loans in rural areas during informal 

outreach for the proposal, as well as 

from public commenters. 

In the proposal, the Agencies did not 

propose an exemption for loans secured 

by properties in ‘‘rural’’ areas from all 

of the Dodd-Frank Act ‘‘higher-risk 

mortgage’’ appraisal rules, but requested 

comment on an exemption for these 

loans from the additional appraisal 

requirement. As discussed earlier, 

commenters widely supported an 

exemption for loans secured by 

properties in rural areas, citing several 

reasons: a lack of appraisers; the 

disproportionate cost of an extra 

appraisal, based on commenters’ view 

that property values tend to be lower in 

rural areas than in non-rural areas; the 

assertion that many lenders in rural 

areas hold the loans in portfolio and 

therefore are more mindful of ensuring 

that properties securing their loans are 

valued properly; the assertion that 

lenders in rural areas tend to need to 

price loans higher for legitimate reasons, 

so a disproportionate amount of their 

loans (compared to those of larger 

lenders) will be subject to the appraisal 

rules and thus these lenders will bear an 

unfair burden that they are less 

equipped than larger lenders to bear; 

and the assertion that property flipping 

is rare in rural areas. 

The analysis in the proposal of the 

impact of the proposed rule in rural 

areas corroborated commenters’ concern 

that a larger share of loans in rural areas 

tend to be HPMLs than in non-rural 

areas.81 Although many small and rural 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10407 

statistical area. See 77 FR 54722, 54752 n. 108 

(Sept. 5, 2012). 

82 77 FR 54722, 54752 (Sept. 5, 2012). Similar 

percentages for rural and non-rural first-lien 

purchase HPML lending are reflected in 2011 

HMDA data. 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,’’ FR Bulletin, Vol. 98, no. 6 (Dec. 2012) 

http://www.federalreserve.gov/pubs/bulletin/2012/ 

PDF/2011_HMDA.pdf. 

83See 77 FR 54722, 54752–54753 (Sept. 5, 2012). 

lenders are excluded from HMDA 

reporting, tabulations of rural loans by 

HMDA reporters may be informative 

about patterns of rural HPML usage. As 

conveyed in the proposal, 10 percent of 

rural first-lien purchase-money loans 

were HPMLs in 2010 compared to 3 

percent of non-rural first-lien purchase 

loans.82 Based on this information, the 

Bureau concluded that rural borrowers 

may be more likely to incur the cost of 

an additional appraisal requirement 

than non-rural consumers. 

Regarding appraiser availability, 

analysis conducted for the proposal 

indicated that more than two appraisers 

are located in all but 22 counties 

nationwide (13 of which are in 

Alaska).83 An appraiser was considered 

‘‘located’’ in a county if the appraiser’s 

home or business address listed on the 

Appraisal Subcommittee’s National 

Appraiser Registry was in that county. 

Public commenters pointed out, 

however, that while many rural areas 

might have more than two appraisers, 

these few appraisers are often busy and 

not readily available. One reason may be 

that many rural counties cover large 

areas, perhaps making it more difficult 

to arrange timely appraisals in such 

areas. As noted, a financial holding 

company suggested that the final rule 

exempt lenders located in areas where 

the State appraiser licensing or 

certification roster shows five or fewer 

unaffiliated appraisers within a 

reasonable distance, such as 50 miles or 

less. A large bank further recommended 

that the final rule exempt loans secured 

by properties in low-density appraiser 

markets, such as states with fewer than 

500 appraisers or counties with fewer 

than five appraisers. The final rule does 

not adopt an exemption based on the 

number of appraisers within a particular 

geographic area or radius of the property 

securing the HPML. The Agencies 

believe that a simpler approach is 

consistent with the objectives of the 

statute, facilitates compliance, and 

reduces burden on creditors. 

Other than the commenters who 

suggested a ‘‘radius’’ or low-density 

approach for the rural exemption, only 

one other commenter offered 

suggestions on how to define rural. This 

commenter recommended that the 

Agencies adopt a definition of ‘‘rural’’ 

that is consistent with the definition 

used in rules addressing the use of 

escrow accounts. See 2013 Escrows 

Final Rule, § 1026.35(b)(2)(iv); see also 

2013 ATR Final Rule, § 1026.43(f)(2)(vi) 

and comment 43(f)(2)(vi–1). The 

Agencies specifically requested 

comment on whether the definition of 

‘‘rural’’ used in any exemption adopted 

should be the same as the definition in 

the 2011 ATR Proposal and 2011 

Escrows Proposal. These exemptions are 

described below. 

2011 Escrows Proposal. Since 2010, 

Regulation Z, implementing TILA, has 

required creditors to establish escrow 

accounts for taxes and insurance on 

HPMLs. See 12 CFR 1026.35(b)(3). The 

Dodd-Frank Act subsequently amended 

TILA to codify and augment the escrow 

requirements in Regulation Z. See 

Dodd-Frank Act §§ 1461 and 1462, 

adding 15 U.S.C. 1639d. The Board 

issued the 2011 Escrows Proposal to 

implement a number of these 

provisions. 

Among other amendments, one new 

section of TILA authorizes the Board 

(now, the Bureau) to create an 

exemption from the requirement to 

establish escrow accounts for 

transactions originated by creditors 

meeting certain criteria, including that 

the creditor ‘‘operates predominantly in 

rural or underserved areas.’’ 15 U.S.C. 

1639d(c). 

Accordingly, the 2011 Escrows 

Proposal proposed to create an 

exemption for any loan extended by a 

creditor that makes most of its first-lien 

HPMLs in counties designated by the 

Board as ‘‘rural or underserved,’’ has 

annual originations of 100 or fewer firstlien mortgage loans, and does not 

escrow for any mortgage transaction it 

services. 

Definition of ‘‘Rural’’ 

In the 2011 Escrows Proposal, the 

Board proposed to define ‘‘area’’ as 

‘‘county’’ and to provide that a county 

would be designated as ‘‘rural’’ during 

a calendar year if: 

* * * it is not in a metropolitan statistical 

area or a micropolitan statistical area, as 

those terms are defined by the U.S. Office of 

Management and Budget, and either (1) it is 

not adjacent to any metropolitan or 

micropolitan area; or (2) it is adjacent to a 

metropolitan area with fewer than one 

million residents or adjacent to a 

micropolitan area, and it contains no town 

with 2,500 or more residents. 

See 76 FR 11598, 11610–13 (March 2, 

2011); proposed 12 CFR 

1026.45(b)(2)(iv)(A). 

Further, the Board proposed to clarify 

in Official Staff Commentary to this 

provision that, on an annual basis, the 

Board would ‘‘determine[] whether each 

county is ‘rural’ by reference to the 

currently applicable Urban Influence 

Codes (UICs), established by the United 

States Department of Agriculture’s 

Economic Research Service (USDA– 

ERS). Specifically the Board classifies a 

county as ‘‘rural’’ if the USDA–ERS 

categorizes the county under UIC 7, 10, 

11, or 12.’’ See proposed comment 

45(b)(2)(iv)–1. 

The Board explained its proposed 

definition of ‘‘rural’’ in the 

SUPPLEMENTARY INFORMATION to the 

proposal as follows: 

The Board is proposing to limit the 

definition of ‘‘rural’’ areas to those areas most 

likely to have only limited sources of 

mortgage credit. The test for ‘‘rural’’ in 

proposed § 226.45(b)(2)(iv)(A), described 

above, is based on the ‘‘urban influence 

codes’’ numbered 7, 10, 11, and 12, 

maintained by the Economic Research 

Service (ERS) of the United States 

Department of Agriculture. The ERS devised 

the urban influence codes to reflect such 

factors as counties’ relative population sizes, 

degrees of ‘‘urbanization,’’ access to larger 

communities, and commuting patterns. The 

four codes captured in the proposed ‘‘rural’’ 

definition represent the most remote rural 

areas, where ready access to the resources of 

larger, more urban communities and mobility 

are most limited. Proposed comment 

45(b)(2)(iv)–1 would state that the Board 

classifies a county as ‘‘rural’’ if it is 

categorized under ERS urban influence code 

7, 10, 11, or 12. 

Id. at 11612. 

2011 ATR Proposal. The Dodd-Frank 

Act also amended TILA to impose new 

requirements that creditors consider a 

consumer’s ability to repay a mortgage 

loan secured by the consumer’s 

principal dwelling. See Dodd-Frank Act 

section 1411, adding 15 U.S.C. 1639c. 

As part of these amendments, the DoddFrank Act created a new class of loans 

called ‘‘qualified mortgages’’ and 

provided that creditors making qualified 

mortgages would be presumed to have 

met the new ability to repay 

requirements. See id. section 1412. 

Under the Act, balloon mortgages can be 

considered qualified mortgages if they 

meet certain criteria, including that the 

creditor ‘‘operates predominantly in 

rural or underserved areas.’’ Id. 

In May 2011, the Board issued the 

2011 ATR Proposal to implement these 

provisions. 

In the ATR Proposal, the Board’s 

proposed definition of ‘‘rural’’ and 

accompanying explanation in the 

Official Staff Commentary and 

SUPPLEMENTARY INFORMATION are 

identical to the definition and 


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10408 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

84For the exemption from the escrow 

requirement, the statute states that the Board (now, 

the Bureau) may exempt a creditor that: ‘‘(1) 

Operates predominantly in rural or underserved 

areas; (2) together with all affiliates, has total 

annual mortgage loan originations that do not 

exceed a limit set by the [Bureau]; (3) retains its 

mortgage loan originations in portfolio; and (4) 

meets any asset size threshold and any other criteria 

the [Bureau] may establish . * * *’’ TILA section 

129D(c), 15 U.S.C. 1639d(c); see also TILA section 

129C(b)(2)(E), 15 U.S.C. 1639c(b)(2)(E) (granting the 

Bureau authority to deem balloon loans ‘‘qualified 

mortgages’’ under certain circumstances, including 

that the loan is extended by a creditor described 

meeting the same conditions set forth for the 

exemption from the escrow requirement). 

85See 77 FR 54722, 54752–54753 (Sept. 5, 2012). 

86The appraisers accounted for in the Bureau’s 

analysis of the National Appraiser Registry were 

listed on the Registry as ‘‘active,’’ ‘‘AQB 

Compliant’’ and either licensed or certified. The 

Registry is available at https://www.asc.gov/

National-Registry/NationalRegistry.aspx. ‘‘AQB 

Compliant’’ means that the appraiser met the Real 

Property Appraisal Qualification Criteria as 

promulgated by the Appraisal Qualifications Board 

on education, experience, and examination. See 

Appraisal Subcommittee of the Federal Financial 

Institutions Examination Council, https://www.asc.

gov/Frequently-Asked-Questions/FrequentlyAsked

Questions.aspx#AQB%20Compliant%20meaning. 

explanation quoted above in the 2011 

Escrows Proposal. See 76 FR 27390, 

27469–72 (May 11, 2011); proposed 

§ 1026.43(f)(2)(i) and comment 43(f)(2)– 

1. 

As discussed in more detail in the 

2013 ATR Final Rule and 2013 Escrows 

Final Rule, most commenters on the 

proposals for those rulemakings 

objected to this definition of ‘‘rural’’ as 

too narrow (it covers approximately 2 

percent of the U.S. population). The 

narrow scope of the definition of ‘‘rural’’ 

was viewed as especially onerous 

because the scope was narrowed even 

further by a number of additional 

conditions on the exemption imposed 

by the statute.84 As explained more fully 

in the 2013 ATR Final Rule and 2013 

Escrows Final Rule, the Bureau is 

finalizing a more broad definition of 

‘‘rural,’’ acknowledging that the 

exemption will nonetheless be 

narrowed by the additional conditions. 

The Bureau is defining ‘‘rural’’ as 

UICs 4, 6, 7, 8, 9, 10, 11, or 12. These 

codes comprise all areas outside of 

MSAs and outside of all micropolitan 

statistical areas except micropolitan 

statistical areas that are not adjacent to 

MSAs. According to current U.S. Census 

data, approximately 10 percent of the 

U.S. population lives in these areas. 

Exemption for HPMLs secured by 

properties in rural counties from the 

additional appraisal requirement. The 

Agencies believe that the definition of 

‘‘rural’’ county used by the Bureau is 

appropriate for the exemption from the 

requirement to obtain an additional 

appraisal under § 1026.35(c)(4)(i) for 

loans in rural areas. In addition, the 

Agencies view consistency across 

mortgage rules in defining rural county 

as desirable for compliance and 

enforcement. Thus, the exemption in 

§ 1026.35(c)(4)(vii)(H) cross-references 

the definition of rural county in the 

HPML escrow provisions of revised 

§ 1026.35(b) (see 2013 Escrows Final 

Rule, § 1026.35(b)(2)(iv)). (The same 

definition of rural county is adopted by 

the Bureau in the 2013 ATR Final rule, 

§ 1026.43(f)(2)(vi) and comment 

43(f)(2)(vi–1).) The Agencies have 

considered several factors in 

determining how to define the scope of 

the exemption. 

First, the Agencies believe that 

creditors must be readily able to 

determine whether a particular 

transaction qualifies for the exemption. 

This will be possible because the 

Bureau will annually publish on its Web 

site a table of the counties in which 

properties would qualify for this 

exemption. Comment 35(c)(4)(vii)(H)–1 

cross-references comment 35(b)(2)(iv)–1, 

which clarifies that the Bureau will 

publish on its Web site the applicable 

table of counties for each calendar year 

by the end of that calendar year. The 

comment further clarifies that a 

property securing an HPML subject to 

§ 1026.35(c) is in a rural county under 

§ 1026(c)(4)(vii)(H) if the county in 

which the property is located is on the 

table of rural counties most recently 

published by the Bureau. The comment 

provides the following example: for a 

transaction occurring in 2015, assume 

that the Bureau most recently published 

a table of rural counties at the end of 

2014. The property securing the 

transaction would be located in a rural 

county for purposes of 

§ 1026(c)(4)(vii)(H) if the county is on 

the table of rural counties published by 

the Bureau at the end of 2014. The 

Agencies anticipate that loan officers 

and others will be able to look on the 

Bureau Web site to identify whether the 

county in which the subject property is 

located is on the list. 

Second, the Agencies endeavored to 

create an exemption tailored to address 

key concerns raised by commenters 

requesting a rural exemption, based on 

data findings by the Agencies. The 

principal concerns that the Agencies 

identified among commenters were that: 

first, adequate numbers of appraisers 

might not be available in rural areas for 

creditors to comply with the additional 

appraisal requirement and; second, the 

cost of obtaining the additional 

appraisal might deter some creditors 

from making HPMLs in these areas, 

many of which might already be 

underserved, reducing credit access for 

rural consumers. As noted in the 

proposed rule and discussed below, the 

potential reduction in credit access 

might be disproportionally greater in 

rural areas than in non-rural areas 

because the proportion of HPMLs is 

higher in rural as opposed to non-rural 

areas. 

For the reasons explained below, the 

Agencies believe that the exemption for 

loans in rural areas as defined in the 

final rule is appropriately tailored to 

address these and related concerns. By 

better ensuring credit access and 

lowering costs among creditors 

extending HPMLs in rural areas, 

including small community banks, the 

exemption is expected to benefit the 

public and promote the safety and 

soundness of creditors. See TILA 

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

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

Appraiser availability. As noted, 

commenters indicated that in some rural 

areas it can be difficult to find 

appraisers who are both competent to 

appraise a particular rural property and 

also readily available. The cost-benefit 

analysis conducted by the Bureau for 

the proposal focused in part on 

estimating appraiser availability in 

particular areas and identified counties 

in which fewer than two appraisers with 

requisite credentials indicated having a 

business or home address.85 However, 

commenters noted and the Agencies 

confirmed based on additional outreach 

for this final rule that not all appraisers 

whose home or business address is in a 

particular geographic area are 

competent to appraise properties in that 

area. Thus, to inform the final rule, the 

Bureau expanded its research from that 

conducted for the proposal. 

For the final rule, the Bureau 

computed how many appraisers showed 

that they had a home or business 

address within a 50-mile radius of the 

center of each census tract in which an 

HPML loan was reported in the 2011 

HMDA data.86 The 50-mile radius test 

was intended to be a proxy for the 

potential service area for an appraiser in 

a more rural area and would cover 

properties located in roughly an hour’s 

drive of an appraiser’s home or office 

location. 

On this basis, the Bureau found that, 

of 262,989 HMDA-reported HPMLs in 

2011, 603 had fewer than five appraisers 

within a 50-mile radius of the center of 

the tract in which the securing property 

was located; 484 of these loans were in 

areas covered by the final rule’s rural 

exclusion. Based on FHFA data, the 

Bureau estimates that 5 percent of these 

HPMLs were potentially covered by the 

statute’s additional appraisal 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10409 

87Based on county recorder information from 

select counties licensed to FHFA by DataQuick 

Information Systems. 

88Robert 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,’’ FR Bulletin, 

Vol. 98, no. 6 (Dec. 2012) http://www.federal

reserve.gov/pubs/bulletin/2012/PDF/2011_HMDA.

pdf. 

89More detail about the population densities 

represented by the 12 UICs is provided in the 

Section 1022(b)(2) analysis in Part V of the 

SUPPLEMENTARY INFORMATION. 

90Ten creditors reported extending HPML credit 

in 2011 in UICs 6 and 4; six in UIC 11; seven in 

UIC 9; six in UIC 7; four in UIC 10; and three in 

UIC 12. 

91Based on county recorder information from 

select counties licensed to FHFA by DataQuick 

Information Systems. 

requirement because they were 

purchase-money HPMLs secured by 

properties sold within a 180-day 

window.87 A lower proportion would 

have been flips with a price increase. 

See TILA section 129H(b)(2)(A), 15 

U.S.C. 1639h(b)(2)(A). But taking solely 

the number of flips without regard to 

price increase or other exemptions (see 

§ 1026.35(c)(2) and (c)(4)(vii)), an 

estimated 30 HPML transactions that 

were flips had fewer than five 

appraisers within a 50-mile radius of the 

center of the census tract in which they 

were located (5 percent of 603 HPMLs). 

Twenty-four of these would have been 

covered by the rural exemption as 

defined in the final rule (5 percent of 

484 HPMLs). 

On this basis, the Agencies have 

concluded that the exemption is 

reasonably tailored to exclude from 

coverage of the additional appraisal 

requirement the loans for which 

appraiser availability might be an issue. 

Credit access. Commenters also raised 

concerns about credit access, 

emphasizing that a larger proportion of 

loans in rural areas are HPMLs than in 

non-rural areas. Commenters suggested 

that the additional appraisal 

requirement could deter some creditors 

from extending HPML credit. See 

§ 1026.35(c)(4)(v) and corresponding 

section-by-section analysis. 

The additional appraisal requirement 

entails several compliance steps. After 

identifying that a loan is an HPML 

under § 1026.35(a), a creditor will need 

to assess whether the HPML is exempt 

from the appraisal requirements entirely 

under § 1026.35(c)(2). If the loan is not 

exempt as a qualified mortgage or other 

type of transaction exempt under 

§ 1026.35(c)(2), the creditor will need to 

determine whether the HPML is one of 

the transactions that is exempt from the 

additional appraisal requirement under 

§ 1026.35(c)(4)(vii). If the HPML is not 

exempt from the additional appraisal 

requirement, the creditor will need to 

determine whether the requirement to 

obtain an additional appraisal is 

triggered based on the date and, if 

necessary, price of the seller’s 

acquisition of the property securing the 

HPML. See § 1026.35(c)(4)(i)(A) and (B). 

(Alternatively, the creditor could 

assume that the requirement applies and 

order two appraisals without taking 

each of these steps.) If the requirement 

is triggered, the creditor must obtain an 

additional appraisal performed by a 

certified or licensed appraiser, the cost 

of which cannot be charged to the 

consumer. See id. and § 1026.35(c)(4)(v). 

If these compliance obligations would 

deter some creditors from extending 

HPMLs, the impact on credit access 

might be greater in rural areas as 

defined in the final rule than in nonrural areas, because a significantly larger 

proportion of residential mortgage loans 

made in rural areas are HPMLs than in 

non-rural areas. Again, based on 2011 

HMDA data, 12 percent of rural firstlien, purchase-money loans were 

HPMLs compared to four percent of 

non-rural first-lien, purchase-money 

loan.88 That is, recent data indicates that 

HPMLs occur three times as often in the 

rural setting. 

Thus, an important consideration for 

the Agencies in determining the scope 

of the exemption was the comparative 

number of creditors extending HPMLs 

in various geographic areas. To this end, 

the Agencies considered, based on 

HMDA data, the number of creditors 

reported to have extended HPML credit 

in the geographic units defined by the 

12 UICs. (For more details, see the 

Section 1022(b)(2) cost-benefit analysis 

in the SUPPLEMENTARY INFORMATION

below.) The Agencies believe that in the 

areas with a greater number of lenders 

reporting that they extended HPMLs, 

the additional appraisal requirement 

will have a lower impact on credit 

access. 

HMDA data for 2011 show that a 

sharp drop-off in the number of 

creditors reporting to extend HPML 

credit occurs in micropolitan statistical 

areas not adjacent to MSAs (UIC 8), 

compared to MSAs and micropolitan 

statistical areas that are adjacent to 

MSAs.89 Specifically, 10 creditors 

reported that they extended HPMLs in 

a median county classified as UIC 8 in 

2011; by contrast, in the median 

counties of the UICs with the next 

highest populations (UICs 2, 3, 5), the 

number of creditors reporting that they 

extended HPMLs was 24, 18, and 16, 

respectively. The drop-off in numbers of 

HPML creditors continues for UICs 

representing non-MSAs and nonmicropolitan statistical areas.90

The Agencies also looked at the 

estimated number of flips in areas 

encompassed by the rural exemption of 

the final rule to determine whether the 

consumer protections lost might 

outweigh the benefits of the exemption. 

As explained in greater detail in the 

Section 1022(b)(2) analysis, the Bureau 

estimates that, based on HMDA data, 

122,806 purchase-money HPMLs were 

made in 2011; 21,370 of those were in 

the areas covered by the rural exclusion. 

As noted, the Bureau estimates that the 

proportion of purchase-money HPMLs 

involving properties sold within 180 

days is 5 percent.91 Thus, of HPMLs in 

rural counties as defined in the final 

rule, an estimated 5 percent would have 

been flips. This number does not 

account for any other exemptions from 

the HPML appraisal rules that might 

apply to these HPMLs under 

§ 1026.35(c)(2) or (c)(4)(vii). It also does 

not account for the price increase 

thresholds defining a transaction 

covered under the additional appraisal 

requirement in this final rule. See 

§ 1026.35(c)(4)(i)(A) and (B) and 

corresponding section-by-section 

analysis. 

The Agencies believe that the 

exemption for HPMLs secured by rural 

properties appropriately balances credit 

access and consumer protection. As the 

data above suggests, the estimated 

number of HPML consumers that would 

not receive the protections of an 

additional appraisal due to this 

exemption is very small. Moreover, the 

Agencies note that affected HPML 

consumers would still receive the 

consumer protections afforded by the 

general requirement for an interiorinspection appraisal performed by a 

certified or licensed appraiser. See 

§ 1026.35(c)(3)(i). 

In sum, the Agencies believe that the 

exemption in § 1026.35(c)(4)(vii)(G) will 

help ensure that creditors in rural areas 

are able to extend HPML credit without 

undue burden, which will in turn 

mitigate any detrimental impacts on 

access to credit in rural areas that might 

result absent the exemption. The 

Agencies further believe that the 

exemption is appropriately tailored to 

ensure that needed consumer 

protections regarding appraisals are in 

place in areas where they are needed. 

For all of the reasons explained above, 

the Agencies have concluded that the 

exemption in § 1026.35(c)(4)(vii)(H) is 

in the public interest and promotes the 

safety and soundness of creditors. 


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10410 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

92The Bureau released the 2013 ECOA Appraisals 

Final Rule on January 18, 2013, under Docket No. 

CFPB–2012–0032, RIN 3170–AA26, at http:// 

consumerfinance.gov/Regulations. 

93The Interagency Guidelines state: ‘‘An 

institution’s use of a borrower-ordered or borrowerprovided appraisal violates the [FIRREA title XI] 

appraisal regulations. However, a borrower can 

inform an institution that a current appraisal exists, 

and the institution may request it directly from the 

other financial services institution.’’ 75 FR 77450, 

77458 (Dec. 10, 2010). 

35(c)(5) Required Disclosure 

35(c)(5)(i) In General 

Title XIV of the Dodd-Frank Act 

added two new appraisal-related 

notification requirements for 

consumers. First, TILA section 129H(d) 

states that, at the time of the initial 

mortgage application for a higher-risk 

mortgage loan, the applicant shall be 

‘‘provided with a statement by the 

creditor 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 expense of the 

applicant.’’ 15 U.S.C. 1639h(d). The 

Agencies interpret TILA section 129H(d) 

to provide the elements that a disclosure 

imposed by regulation should address. 

In addition, new section 701(e)(5) of the 

Equal Credit Opportunity Act (ECOA) 

similarly requires a creditor to notify an 

applicant in writing, at the time of 

application, of the ‘‘right to receive a 

copy of each written appraisal and 

valuation’’ subject to ECOA section 

701(e). 15 U.S.C. 1691(e)(5); see also 77 

FR 50390 (Aug. 21, 2012) (2012 ECOA 

Appraisals Proposal) and the Bureau’s 

final ECOA appraisals rule (2013 ECOA 

Appraisals Final Rule).92 Read together, 

the revisions to TILA and ECOA require 

creditors to provide two appraisal 

disclosures to consumers applying for a 

higher-risk mortgage loan secured by a 

first lien on a consumer’s principal 

dwelling. 

The Agencies proposed text for the 

notice required by TILA section 129H 

that was intended to incorporate the 

statutory elements, using language 

honed through consumer testing 

designed to minimize confusion both 

with respect to the language on its face, 

as well as when read in conjunction 

with appraisal notices required under 

the ECOA. Under the proposal, the TILA 

section 129H notice stated: ‘‘We may 

order an appraisal to determine the 

property’s value and charge you for this 

appraisal. We will promptly give you a 

copy of any appraisal, even if your loan 

does not close. You can pay for an 

additional appraisal for your own use at 

your own cost.’’ 

As explained more fully below, in 

§ 1026.35(c)(5), the Agencies are 

adopting the proposed disclosure 

provision with one change—in effect, 

including the word ‘‘promptly’’ in the 

disclosure is optional. 

Public Comments on the Proposal 

The Agencies received approximately 

20 comments pertaining to the proposal 

on the text, timing, and form of the 

HRM appraisal notice. The comments 

came from banks and bank holding 

companies, credit unions, bank and 

credit union trade associations, an 

appraisal industry trade association, 

GSEs, consumer advocates, and an 

industry service provider. Regarding the 

text of the disclosure, the Agencies 

requested comment on the proposed 

language and whether additional 

changes should be made to the language 

to further enhance consumer 

comprehension. 

Combining ECOA/TILA notices. A 

bank and service provider commented 

that the proposed text was clear and 

easy to understand. A major bank, a 

credit union trade association, and GSEs 

supported the proposal to streamline 

and integrate the ECOA appraisal notice 

and the TILA appraisal notice into a 

single notice. The credit union trade 

association noted this harmonization 

would increase the likelihood 

consumers would read and understand 

the notice. No commenters objected to 

the integration of the ECOA and TILA 

notices. 

Use of ‘‘promptly’’ for the timing of 

disclosure of appraisals. Several 

commenters—a bank and two bank 

trade associations at the State level— 

expressed concern that the term 

‘‘promptly’’ in the proposed notice was 

not defined, and that the failure to 

define the term could lead to consumer 

confusion as well as disputes. One 

commenter suggested that the term 

‘‘promptly’’ be defined as within three 

days before closing, which the 

commenter indicated would be 

consistent with Regulation B. 

Use of the term ‘‘appraisal,’’ without 

reference to ‘‘valuations.’’ A major bank 

suggested that the term ‘‘valuations’’ 

should be added to the text of the 

notice, because disclosure of valuations 

also is required by ECOA (and the 2012 

ECOA Appraisals Proposal, finalized in 

the 2013 ECOA Appraisals Final Rule). 

Because consumers may be unfamiliar 

with the term ‘‘valuation,’’ the bank also 

suggested that the notice include a list 

of documents that constitute a 

‘‘valuation,’’ and several other 

statements regarding how valuations 

may be conducted and used by the 

lender. A GSE also suggested that the 

term ‘‘valuations’’ appear in the notice, 

so that when copies of valuations are 

provided under ECOA consumers 

would not mistake them for appraisals. 

Statement that the appraisal will be 

provided even if the loan does not close. 

A bank trade association at the State 

level commented on the part of the 

notice stating that the appraisal would 

be provided ‘‘even if your loan does not 

close.’’ The commenter suggested that 

consumers need to be informed that the 

creditor is not ‘‘compelled to order an 

appraisal if it is determined that the 

loan will not be consummated prior to 

appraisal order process.’’ This 

commenter suggested adding the 

qualifier, ‘‘if an appraisal was 

obtained.’’ 

Ability of creditor to levy certain 

charges. One bank commenter 

expressed concern that the proposed 

notice did not condition the right of the 

borrower to receive a copy of the 

appraisal upon the borrower’s payment 

for the appraisal. A credit union trade 

association suggested that the notice 

clarify that the borrower may be charged 

for any ‘‘additional copies’’ of the 

appraisal that are requested by the 

borrower. 

Potential for consumer expectations 

regarding creditor use of the applicantordered appraisal. Several 

commenters—national and State 

banking trade associations, a major 

credit union trade association, and an 

appraisal industry trade association— 

expressed concern over the text 

informing the applicant of the 

applicant’s right to order his or her own 

appraisal for his or her own use. These 

commenters noted that the proposed 

notice did not clearly state what use, if 

any, a creditor could make of a 

borrower-ordered appraisal. 

• Three commenters suggested that 

the notice clarify that the borrowerordered appraisal would not be used by 

the creditor. One of these commenters 

stated that Federal guidelines prohibited 

use of the borrower-ordered appraisal as 

the appraisal for the transaction. The 

bank trade associations argued that the 

creditor is prohibited by law from 

‘‘considering’’ the borrower-ordered 

appraisal (pointing, for example, to the 

Appraisal and Evaluation Interagency 

Guidelines 93). Similarly, a national 

credit union trade association suggested 

that the notice clarify that a borrowerordered appraisal ‘‘will not be taken 

into consideration.’’ 

• By contrast, another State bank 

trade association suggested a less 

categorical clarification, that the lender 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10411 

‘‘has no obligation to use or review any 

borrower-ordered appraisal.’’ 

Discussion 

Section 1026.35(c)(5) of the final rule 

provides that, unless an exemption from 

the HPML appraisal rules applies under 

§ 1026.35(c)(2) (discussed in the 

corresponding section-by-section 

analysis above), a creditor shall disclose 

the following statement, in writing, to a 

consumer who applies for an HPML: 

‘‘We may order an appraisal to 

determine the property’s value and 

charge you for this appraisal. We will 

give you a copy of any appraisal, even 

if your loan does not close. You can pay 

for an additional appraisal for your own 

use at your own cost.’’ Section 

1026.35(c)(5) further provides that 

compliance with the disclosure 

requirement in Regulation B, 12 CFR 

§ 1002.14(a)(2) satisfies the 

requirements of this paragraph. Under 

§ 1026.35(c)(5)(ii) in the final rule, this 

disclosure shall be delivered or placed 

in the mail no later than the third 

business day after the creditor receives 

the consumer’s application for a higherpriced mortgage loan subject to 

§ 1026.35(c). In the case of a loan that 

is not a higher-priced mortgage loan 

subject to § 1026.35(c) at the time of 

application, but becomes a higherpriced mortgage loan subject to 

§ 1026.35(c) after application, the 

disclosure shall be delivered or placed 

in the mail not later than the third 

business day after the creditor 

determines that the loan is a higherpriced mortgage loan subject to 

§ 1026.35(c). 

Combining ECOA/TILA notices. As 

noted, there was strong industry support 

for harmonizing the ECOA/TILA notice 

language. Consumer testing also 

supported this harmonization, as 

discussed in the proposal. The Agencies 

therefore retain the proposed approach 

of harmonizing the TILA appraisal 

notice with language for the ECOA 

notice. 

Use of ‘‘promptly’’ for the timing of 

disclosure of appraisals. The Agencies 

have decided to give creditors the 

option of providing the HPML appraisal 

disclosure with or without the word 

‘‘promptly.’’ Specifically, the final rule 

clarifies that a creditor may comply 

with the HPML appraisal disclosure 

requirement—which does not 

incorporate ‘‘promptly’’—by providing 

the disclosure required under ECOA’s 

Regulation B, which does. Indeed, this 

is the only difference between the two 

notices. The model language for the 

Bureau’s final rule implementing 

ECOA’s appraisal disclosure 

requirement in Regulation B 

incorporates ‘‘promptly’’ to conform to 

statutory language in ECOA. See ECOA 

section 701(e)(1), 15 U.S.C. 1691(e)(1); 

see also 2013 ECOA Appraisals Final 

Rule, 12 CFR part 1002, Appendix C 

(model form C–9). Specifically, ECOA 

requires that a creditor of a first-lien 

dwelling-secured mortgage provide the 

applicant with a copy of each written 

appraisal and other valuation 

‘‘promptly, and in no case later than 

three days prior to closing of the loan, 

whether the creditor grants or denies the 

applicant’s request for credit or the 

application is incomplete or 

withdrawn.’’ ECOA section 701(e)(1), 15 

U.S.C. 1691(e)(1). TILA’s ‘‘higher-risk 

mortgage’’ appraisal requirements in 

section 129H(c) do not use the word 

‘‘promptly’’ in describing the timing 

requirement for creditors to provide a 

copy of the appraisal. Instead, the 

timing requirement is defined only as 

‘‘at least 3 days prior to the transaction 

closing date.’’ 15 U.S.C. 1639h(c). 

In the final rule, the Agencies are not 

requiring HPML creditors to include 

‘‘promptly’’ in the HPML appraisal 

notice under § 1026.35(c)(5)(i) because 

‘‘promptly’’ is not the legal standard for 

providing a copy of the appraisal in 

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

1639h(c). 

At the same time, the Agencies 

recognize that all first-lien dwellingsecured mortgages, including first-lien 

HPMLs, are subject to the ECOA 

disclosure and appraisal copy 

requirements. Therefore, under the final 

rule, first-lien HPML creditors who wish 

to provide a single notice to comply 

with both TILA and ECOA can do so by 

using the ECOA notice with the word 

‘‘promptly’’ into the disclosure. 

Subordinate-lien HPMLs are subject 

only to TILA’s rules on appraisal copies, 

not ECOA’s, so the timing requirement 

of ‘‘promptly’’ does not apply to 

creditors of subordinate-lien HPMLs. 

Therefore, under the final rule, 

subordinate-lien HPML creditors have 

the option of providing a disclosure 

without the word ‘‘promptly;’’ however, 

the final rule also makes it clear that any 

creditor, whether of a first- or 

subordinate-lien HPML, complies with 

the HPML appraisal disclosure 

requirement by complying with the 

disclosure requirement under ECOA’s 

Regulation B. As noted, the model 

language for the ECOA/Regulation B 

disclosure includes the word 

‘‘promptly.’’ 

Use of term ‘‘appraisal,’’ without 

reference to ‘‘valuations.’’ For several 

reasons, the Agencies have decided to 

retain the term ‘‘appraisal’’ in the 

disclosure notice and not refer to 

‘‘valuations.’’ First, the duty to disclose 

valuations in addition to appraisals 

arises under ECOA, not TILA. The 

Bureau sought comment on the issue in 

its proposed ECOA appraisal rule and is 

not requiring the use of the term 

‘‘valuation’’ in its final version of that 

rule. See 77 FR 50390, 50396 (Aug. 21, 

2012); 2013 ECOA Appraisals Final 

Rule § 1002.14(a)(1) and appendix C, 

Form C–9. The Agencies do not believe 

that the issue is appropriately addressed 

in a rule implementing the TILA 

requirement expressly relating only to 

‘‘appraisals.’’ 

The Agencies also note that, as 

discussed more fully in the Bureau’s 

2013 ECOA Appraisals Final Rule, 

consumer comprehension would not 

necessarily be enhanced by use of the 

term ‘‘valuation.’’ In consumer testing 

by the Bureau, for example, a settlement 

statement whose ‘‘appraisal’’ section did 

not refer to valuations generally was 

viewed as less confusing than one that 

did refer to valuations. Including the 

term ‘‘valuations’’ in the HPML 

appraisal notice also might confuse 

subordinate-lien borrowers and 

creditors, because neither TILA nor 

ECOA requires disclosure of valuations 

for subordinate-lien loans. 

Statement that the appraisal will be 

provided even if the loan does not close. 

The Agencies are retaining the proposed 

language that the consumer will receive 

a copy of the appraisal ‘‘even if your 

loan does not close.’’ This reflects the 

statutory requirement of providing a 

copy of each appraisal ‘‘conducted,’’ a 

requirement the Agencies interpret as 

applying whether or not the loan 

ultimately is consummated. TILA 

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

1639h(c) and (d). 

The Agencies decline to add a 

qualifier suggested in public comments 

explaining that the creditor might not 

order an appraisal if the creditor 

determines that the applicant will not 

qualify for a loan before the appraisal is 

ordered. The Agencies do not believe 

that this clarification, while true, is 

necessary for the disclosure. The 

proposed notice, now adopted, states 

that the creditor ‘‘may’’ order an 

appraisal. This language indicates that 

the creditor is not always required to 

order an appraisal. Further, the 

proposed text, now adopted, states that 

the creditor will provide a copy of ‘‘any 

appraisal.’’ This additional language 

also underscores the possibility that in 

some situations (such as if the loan will 

not close), an appraisal might not be 

ordered. 

Ability of creditor to levy certain 

charges. The Agencies decline to add 

language to the disclosure indicating 

that the consumer’s right to receive a 


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10412 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

94Regulation B currently does not require a 

creditor to provide an appraisal before the borrower 

pays for it. 12 CFR 1002.14(a)(2)(ii). The Bureau’s 

2012 ECOA Appraisals Proposal would have 

eliminated this aspect of Regulation B, however. 

See 77 FR 50390, 50403 (Aug. 21, 2012). The 

Bureau adopted this change in the 2013 ECOA 

Appraisals Final Rule. See new § 1002.14(a)(1). 

95 Kleimann Communication Group, Inc., Know 

Before You Owe: Evolution of the Integrated TILARESPA Disclosures (July 9, 2012), at 254–56 (Round 

9, Version 1). 

96 Id. 

97This language was included in the disclosure 

testing in Round 10. 

copy of the appraisal is conditioned on 

payment for the appraisal. TILA does 

not condition the consumer’s right to 

receive a copy of each appraisal in an 

HPML transaction on payment for the 

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

U.S.C. 1639h(c). Moreover, a statement 

to this effect would directly contradict 

the statutory prohibition against 

charging for any second appraisal 

required by the HPML appraisal rule. 

See TILA section 129H(b)(2)(B), 15 

U.S.C. 1639h(b)(2)(B), implemented in 

§ 1026.35(c)(4)(v), discussed above. 

Such a statement would also further 

complicate the disclosure, potentially 

increasing consumer confusion. 

Regarding whether a creditor may 

condition the consumer’s right to 

receive a copy of an appraisal for a firstlien HPML transaction that is also 

subject to ECOA, the Agencies believe 

that the issue is more properly 

addressed in the 2013 ECOA Appraisals 

Final Rule.94

The Agencies also decline to revise 

the appraisal notice to state that the 

creditor may charge the consumer for 

additional copies. The proposed notice, 

as adopted, refers to the obligation to 

provide ‘‘a copy,’’ singular. Consumer 

testing did not suggest consumers were 

likely to believe that they had a right to 

multiple free copies, and it is unclear 

that borrowers frequently or even 

regularly request multiple copies of the 

appraisals. The Agencies believe that 

consumer understanding is best 

enhanced by keeping the disclosure as 

simple as possible, in part by excluding 

nonessential information. 

Potential for consumer expectations 

regarding creditor use of a borrowerordered appraisal. The proposed 

disclosure stated: ‘‘You can pay for an 

additional appraisal for your own use at 

your own cost.’’ As noted, several 

commenters expressed concerns that 

this statement might create 

misunderstandings about whether the 

creditor has an obligation to consider an 

appraisal ordered by a consumer. Some 

commenters suggested additional 

language to address the issue. 

The Agencies are not adopting 

additional language for the disclosure 

on this issue. Consumer testing on 

iterations of the disclosure language did 

not indicate that the proposed notice 

would mislead borrowers into believing 

that creditors are required to consider 

borrower-ordered appraisals. The 

language concerning use of a borrowerordered appraisal evolved during the 

consumer testing, to reduce confusion. 

One version of language the Bureau 

tested contained no suggestion as to the 

use of borrower-ordered appraisals: 

‘‘You can choose to pay for your own 

appraisal of the property.’’ 95 Consumers 

participating in the testing had 

difficulty understanding the purpose of 

this language; moreover, industry 

testing participants noted a concern that 

consumers might take it to mean that 

the consumer could order the 

consumer’s own appraisal to be used by 

the creditor in lieu of the creditorordered appraisal.96 The Bureau 

subsequently modified the language to 

add the ‘‘for your own use’’ language,97

and this is the language the Agencies 

proposed. The Agencies believe that the 

phrase, ‘‘for your own use,’’ is succinct 

and enhances consumer understanding 

that an appraisal ordered by the 

consumer is not a substitute for the 

appraisal ordered by the creditor. 

In addition, the Agencies do not wish 

to include language in a disclosure that 

might inadvertently discourage 

consumers from questioning the 

appraisal report ordered by the creditor 

and providing the creditor with any 

supporting information that may be 

relevant to the question of the property’s 

value. 

The Agencies also recognize that 

creditors are subject to existing Federal 

regulatory and supervisory regulations 

and requirements that provide 

additional guidance to creditors about 

appropriate and inappropriate use of 

borrower-ordered appraisals. To affirm 

these existing requirements, the final 

rule states in comment 35(c)(5)(i)–2 that 

nothing in the text of the consumer 

notice required by § 1026.35(c)(5) 

should be construed to affect, modify, 

limit, or supersede the operation of any 

legal, regulatory, or other requirements 

or standards relating to independence in 

the conduct of appraisers or the 

prohibitions against use of borrowerordered appraisals by creditors. 

Finally, comment 35(c)(5)(i)–1 reflects 

without change a proposed comment 

clarifying that when two or more 

consumers apply for a loan subject to 

this section, the creditor is required to 

give the disclosure to only one of the 

consumers. This interpretation is 

consistent with the statutory language 

requiring the creditor to provide a 

disclosure to ‘‘the applicant.’’ This 

interpretation is also consistent with 

comment 14(a)(2)(i)–1 in Regulation B, 

which interprets the requirement in 

§ 1002.14(a)(2)(i) that creditors notify 

applicants of the right to receive copies 

of appraisals. 12 CFR 1002.14(a)(2) and 

comment 14(a)(2)(i)–1. This aspect of 

existing Regulation B is retained in the 

Bureau’s 2013 ECOA Appraisals Final 

Rule, in § 1002.14(a)(1) and comment 

14(a)–1. 

35(c)(5)(ii) Timing of Disclosure 

TILA section 129H(d) requires that 

the appraisal notice be provided at the 

time of the application. 15 U.S.C. 

1639h(d). Consistent with this 

requirement, and recognizing that the 

‘‘higher-risk’’ status of the proposed 

loan would not necessarily be 

determined at the precise moment of the 

application, the Agencies proposed to 

require that the TILA section 129H 

notice ‘‘be mailed or delivered not later 

than the third business day after the 

creditor receives the consumer’s 

application.’’ The proposed requirement 

also stated that, if the notice is not 

provided to the consumer in person, the 

consumer is presumed to have received 

the notice three days after its mailing or 

delivery. 

The final rule adopts this provision 

with two changes. First, the final rule 

omits the proposed language providing 

that ‘‘[i]f the disclosure is not provided 

to the consumer in person, the 

consumer is presumed to have received 

the disclosure three business days after 

they are mailed or delivered.’’ While 

commenters did not address the issue, 

the Agencies have concluded that the 

date of consumer receipt in this context 

is not relevant. By contrast, as discussed 

in the section-by-section analysis for 

§ 1026.35(c)(6), below, the Agencies 

emphasize in the final rule the 

relevance of the date that a consumer 

receives the copy of the appraisal. 

Second, the final rule provides that, in 

the case of an application for a loan that 

is not an HPML at the time of 

application, but whose rate is set at an 

HPML level after application, the 

disclosure must be delivered or placed 

in the mail not later than the third 

business day after the creditor 

determines that the loan is an HPML. 

Public Comments on the Proposal 

In the proposal, the Agencies asked 

for comment on whether providing the 

notification at some other time would be 

more beneficial to consumers, and how 

the notification should be provided 

when an application is submitted by 

telephone, facsimile, or electronically. 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10413 

98 77 FR 51116 (Aug. 23, 2012). 

The Agencies further asked whether, in 

cases such as in-person or telephone 

applications, the notice should be 

provided at the time the application is 

received, or as part of the application. 

The Agencies also requested comment 

on whether a creditor who has a 

reasonable belief that the transaction 

will not be a ‘‘higher-risk mortgage 

loan’’ (now, HPML) at the time of 

application, but later determines that 

the applicant only qualifies for an 

HPML, should be allowed an 

opportunity to give the notice at some 

later time in the application process. 

Timing issues for the HPML appraisal 

notice. The majority of commenters— 

banks, major industry trade 

associations, and a software and 

document service provider—supported 

a timing requirement that would allow 

them to integrate the HPML appraisal 

notice into the TILA-RESPA Loan 

Estimate (as proposed in the 2012 TILARESPA Proposal 98), using the same 

disclosure timing requirement as 

proposed for that disclosure—within 

three business days after the 

application. This timing requirement is 

consistent with the Agencies’ proposal 

for the HPML disclosure. These 

commenters offered three reasons why 

an earlier deadline would be 

inappropriate: 

• The trade associations and the 

service provider noted that the lender 

cannot charge an appraisal fee before 

the TILA Good Faith Estimate (GFE) is 

disclosed and the consumer elects to 

proceed. See § 1026.19(a)(1)(ii) As a 

result, there is no value to an appraisal 

notice that precedes the TILA GFE. 

• One of the banks asserted that it 

would be difficult for a creditor to 

comply with a deadline for the notice 

that is any earlier than the TILA GFE 

disclosure deadline, because the rate 

and therefore ‘‘higher-risk mortgage’’ 

status of a loan is not typically known 

earlier. Similarly, the service provider 

also added that it would be unrealistic 

to expect the creditor to determine the 

status while the applicant is submitting 

the application. 

• The service provider also noted that 

consumers prefer integrated disclosures. 

Two community banks and a State 

bank trade association submitted 

substantially identical comments 

opposing the three-business-day 

deadline, however. These commenters 

argued that complying with the notice 

requirement in the first few days after 

the application will slow the loan 

approval process and increase loan 

costs. These commenters called instead 

for a 10 business day deadline. 

No commenters responded to the 

question in the proposed rule of 

whether the notice should be provided 

at the time the application is received, 

or as part of the application. 

Potential need for a mechanism to 

provide the notice later. Two banks, a 

credit union trade association at the 

State level, and a service provider 

supported including a method in the 

rule for a creditor to comply with the 

disclosure requirement if the loan is 

determined to be an HPML after the 

time of application. For example, if the 

rate were not locked, HPML status could 

arise later in the application process 

when the rate is set. One large bank 

noted, however, that if the language in 

the notice under this rule is the same as 

in the ECOA notice, then there would be 

no need to allow this type of cure right 

for loans that are subject to ECOA (i.e., 

first-lien dwelling-secured HPMLs). 

Discussion 

Again, under § 1026.35(c)(5)(ii) of the 

final rule, the disclosure required under 

§ 1026.35(c)(5)(i) shall be delivered or 

placed in the mail no 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). In the case of a loan that 

is not a higher-priced mortgage loan 

subject to § 1026.35(c) at the time of 

application, but becomes a higherpriced mortgage loan subject to 

§ 1026.35(c) after application, the 

disclosure must be delivered or placed 

in the mail not later than the third 

business day after the creditor 

determines that the loan is a higherpriced mortgage loan subject to 

§ 1026.35(c). 

Timing issues for the HPML appraisal 

notice. In § 1026.35(c)(5)(ii), the final 

rule adopts the proposed timing 

requirement of three business days after 

application. Congress did not define the 

statutory phrase ‘‘at the time of the 

application’’ when describing when the 

HRM appraisal notice must be provided. 

The Agencies believe that the threebusiness-day timeframe in the proposed 

rule is a reasonable and appropriate 

interpretation of the statute. As noted, 

commenters generally supported a 

timeframe that would allow for 

including the notice in the proposed 

combined TILA-RESPA Loan Estimate, 

which would be provided within three 

business days after the application. No 

commenter suggested that the Agencies 

should mandate either an earlier or 

separate notice. Industry commenters 

correctly pointed out that the appraisal 

charge cannot be levied prior to the 

TILA GFE (and, as proposed, the TILARESPA Loan Estimate) being provided 

in any event. As a result, it appears 

unlikely that creditors would order 

appraisals before this time, so 

consumers would not appear to have a 

significant need to receive the appraisal 

notice either earlier or separately from 

the GFE or Loan Estimate. Adding new 

separate notices could increase the 

volume of information consumers 

receive, and potentially decrease 

consumer understanding. 

The Agencies decline to adopt a 

timing requirement of more than three 

business days after application, as some 

commenters suggested. The statute 

requires that the disclosure be provided 

‘‘at application,’’ and a three-businessday timing requirement implementing 

this would be consistent with the 

application-related disclosure 

requirements of other residential 

mortgage rules, most notably the current 

GFE and proposed TILA-RESPA Loan 

Estimate discussed above. See, e.g., 

§ 1026.19(a)(1)(i); 77 FR 51116 (Aug. 23, 

2012). 

Potential need for a mechanism to 

provide the notice later. As one 

commenter noted, clarification may be 

needed on how a creditor could comply 

with the notice requirement when the 

loan becomes an HPML more than three 

days after application due to the higherpriced rate being set at a later date. As 

one commenter noted, this clarification 

would not be necessary for first-lien 

loans. ECOA, as implemented in 

Regulation B of the Bureau’s 2013 ECOA 

Appraisals Final Rule, requires notice 

within three business days after 

application for all first-lien dwellingsecured loans, regardless of whether 

they are HPMLs. ECOA section 

701(e)(5), 15 U.S.C. 1691(e)(5); 2013 

ECOA Appraisals Final Rule 

§ 1002.14(a)(1). Further, the HPML 

appraisal notice is integrated with the 

ECOA appraisal notice. See 2013 ECOA 

Appraisals Final Rule, § 1002.14(b) and 

appendix C, Form C–9. As the final rule 

makes clear, by complying with the 

ECOA notice requirement, the creditor 

would automatically comply with the 

HPML appraisal notice requirement, 

even if the creditor had not yet 

determined that the loan would be an 

HPML. Again, § 1026.35(c)(5)(i) 

provides that ‘‘[c]ompliance with the 

disclosure requirement in Regulation B 

§ 1002.14(a)(2) satisfies the 

requirements of [the HPML appraisal 

disclosure requirement of 

§ 1026.35(c)(5)(i)].’’ 

By contrast, the ECOA appraisal 

notice requirement does not apply to 

subordinate-lien loans. Thus, for 

subordinate-lien mortgage creditors, a 

rate increase that occurs more than three 

business days after application (i.e., 


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10414 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

after the required HPML appraisal rule 

disclosure should have been given) 

could trigger the HPML notice 

requirement. Accordingly, the Agencies 

are adopting additional regulation text 

providing that a creditor may issue the 

HPML appraisal notice within three 

business days of determining the rate. 

35(c)(6) Copy of Appraisals 

35(c)(6)(i) In General 

Consistent with TILA section 129H(c), 

the proposal required that a creditor 

must provide a copy of any written 

appraisal performed in connection with 

a higher-risk mortgage loan (now HPML) 

to the applicant. 15 U.S.C. 1639h(c). A 

proposed comment clarified that when 

two or more consumers apply for a loan 

subject to this section, the creditor is 

required to give the copy of required 

appraisals to only one of the consumers. 

The Agencies received no comments 

on these aspects of the proposal and, in 

§ 1026.35(c)(6)(i) and comment 

35(c)(6)(i)–1, adopt them without 

change. 

35(c)(6)(ii) Timing 

TILA section 129H(c) requires that the 

appraisal copy must be provided to the 

consumer at least three days prior to the 

transaction closing date. 15 U.S.C. 

1639h(c). The proposal required 

creditors to provide copies of written 

appraisals no later than ‘‘three business 

days’’ prior to consummation of the 

higher-risk mortgage loan (now HPML). 

The Agencies did not receive public 

comment on this aspect of the proposal, 

but are making certain changes to the 

proposal, explained below. Specifically, 

the Agencies have revised the proposed 

timing requirement to include a timing 

rule for loans that are not consummated. 

Thus, under new § 1026.35(c)(6)(ii), 

creditors must provide a copy of an 

appraisal required under 

§ 1026.35(c)(6)(i): 

• No later than three business days 

prior to consummation of the higherpriced mortgage loan; or 

• In the case of a loan that is not 

consummated, no later than 30 days 

after the creditor determines that the 

loan will not be consummated. 

For consistency with the other 

provisions of Regulation Z, the proposal 

also used the term ‘‘consummation’’ 

instead of the statutory term ‘‘closing’’ 

that is used in TILA section 129H(c). 15 

U.S.C. 1639h(c). The term 

‘‘consummation’’ is defined in 

§ 1026.2(a)(13) as the time that a 

consumer becomes contractually 

obligated on a credit transaction. The 

Agencies have interpreted the two terms 

as having the same meaning for the 

purpose of implementing TILA section 

129H. 15 U.S.C. 1639h. The Agencies 

did not receive comment on this aspect 

of the proposal, and adopt the proposed 

term ‘‘consummation’’ in 

§ 1026.35(c)(6)(ii). 

As noted, TILA’s requirement for 

when a creditor must give a copy of the 

appraisal to the consumer is ‘‘at least 3 

days prior to the transaction closing 

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

1639h(c). Thus, the timing requirement 

is clear for consummated loans. 

The Agencies interpret the statute, 

however, to require that a copy of the 

appraisal also be given to HPML 

applicants when their loans do not close 

because they are denied or withdrawn, 

or for any other reason. In reaching this 

interpretation, the Agencies note that 

TILA section 129H specifies that the 

appraisal copy shall be provided ‘‘to the 

applicant,’’ without suggesting that only 

applicants whose loans are closed are 

entitled to a copy. In addition, the 

requirement refers to appraisals that are 

‘‘conducted,’’ a term whose meaning is 

independent of whether the loan closes. 

In the case of applicants’ loans that do 

not close, the Agencies are adopting a 

requirement that the appraisal be 

provided ‘‘no later than 30 days after the 

creditor determines that the loan will 

not be consummated.’’ 

§ 1026.35(c)(6)(ii)(A). The Agencies 

believe that this timing requirement is a 

reasonable interpretation of the statute, 

which is silent on the matter. The 

timing requirement is clear, which the 

Agencies believe will reduce 

compliance burden and risks for 

creditors, and generally consistent with 

longstanding timing requirements for 

providing copies of appraisals under 

existing Regulation B, 12 CFR 

1002.14(a)(2)(ii). The approach is also 

reflected in the Bureau’s 2013 ECOA 

Appraisals Final Rule in § 1002.14(a)(1). 

In addition, as stated in the proposal, 

the Agencies believe that requiring that 

the appraisal be provided three 

‘‘business’’ days in advance of 

consummation is a reasonable 

interpretation of the statute and is 

consistent with the Agencies’ 

interpretation of the statutory term 

‘‘days’’ used in the Bureau’s 2013 ECOA 

Appraisals Final Rule, which 

implements the appraisal requirements 

of new ECOA section 701(e)(1). See 15 

U.S.C. 1691(e)(1). The Agencies did not 

receive comment on this aspect of the 

proposal, and adopt the proposed 

language ‘‘no later than three business 

days prior to consummation’’ in 

§ 1026.35(c)(6)(ii). 

To ensure that the consumer actually 

receives the appraisal in advance of 

consummation so that the consumer can 

use it to inform the consumer’s credit 

decision, comment 35(c)(6)(ii)–1 

explains that, for purposes of the 

requirement to provide a copy of the 

appraisal three days before 

consummation, ‘‘provide’’ means 

‘‘deliver.’’ This comment further 

explains that delivery occurs three 

business days after mailing or delivering 

the copies to the last-known address of 

the applicant, or when evidence 

indicates actual receipt by the applicant 

(which, in the case of electronic receipt 

must be based upon consent that 

complies with the Electronic Signatures 

in Global and National Commerce Act 

(E-Sign Act) (15 U.S.C. 7001 et seq.)), 

whichever is earlier. Comment 

35(c)(6)(ii)–2 clarifies that, for 

appraisals prepared by the creditor’s 

internal appraisal staff, the date of 

‘‘receipt’’ is the date on which the 

appraisal is completed. 

Finally, comment 35(c)(6)(ii)–3 

clarifies that the ECOA provision 

allowing a consumer to waive the 

requirement that the appraisal copy be 

provided three business days before 

consummation, does not apply to 

higher-priced mortgage loans subject to 

§ 1026.35(c). ECOA section 701(e)(2), 15 

U.S.C. 1691(e)(2), implemented in the 

2013 ECOA Appraisals Final Rule, 

Regulation B § 1002.14(a)(1). The 

comment further clarifies that a 

consumer of a higher-priced mortgage 

loan subject to § 1026.35(c) may not 

waive the timing requirement to receive 

a copy of the appraisal under 

§ 1026.35(c)(6)(i). 

35(c)(6)(iii) Form of Copy 

Section 1026.31(b) currently provides 

that the disclosures required under 

subpart E of Regulation Z may be 

provided to the consumer in electronic 

form, subject to compliance with the 

consumer consent and other applicable 

provisions of the E-Sign Act. In the 

proposal, the Agencies stated their 

belief that it is also appropriate to allow 

creditors to provide applicants with 

copies of written appraisals in 

electronic form if the applicant consents 

to receiving the copies in this form. 

Accordingly, the proposal provided that 

any copy of a written appraisal may be 

provided to the applicant in electronic 

form, subject to compliance with the 

consumer consent and other applicable 

provisions of the E-Sign Act. 

Public Comments on the Proposal 

Two commenters—a bank holding 

company and a credit union—requested 

that the final rule not impose the E-Sign 

Act requirement of consumer consent to 

receiving HPML appraisals 

electronically. The first commenter 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10415 

99Specifically, 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. 

indicated that challenges with the ESign Act compliance may result in 

issuing a duplicate copy in paper form. 

The second commenter indicated that 

these challenges may lead institutions to 

refuse to provide appraisal copies 

electronically (to the detriment of those 

consumers who prefer to receive them 

this way). A third commenter—a credit 

union trade association—supported the 

option of electronic delivery, but did 

not challenge the proposed E-Sign 

consent requirement. 

Discussion 

The E-Sign Act generally requires 

that, before written consumer 

disclosures are made electronically, the 

consumer receive certain prescribed 

notices and consent to the electronic 

disclosures in a manner that reasonably 

demonstrates the ability to access the 

information that will be disclosed 

electronically. The E-Sign Act generally 

applies to statutes that require consumer 

disclosures ‘‘in writing.’’ 15 U.S.C. 

7001(c)(1). It is unclear from the 

comments whether this E-Sign consent 

requirement would place a significant 

burden on creditors. The Agencies 

continue to believe that the proposed 

clarification that the E-Sign Act applies 

to providing copies of the appraisal is 

appropriate and notes that it is 

consistent with the Bureau’s approach 

in the 2013 ECOA Appraisals Final 

Rule. Thus, in § 1026.35(c)(6)(iii), this 

clarification is adopted as proposed. 

35(c)(6)(iv) No Charge for Copy of 

Appraisal 

TILA section 129H(c) provides that a 

creditor shall provide one copy of each 

appraisal conducted in accordance with 

this section in connection with a higherrisk mortgage to the applicant without 

charge. 15 U.S.C. 1639h(c). In the 

proposal, the Agencies interpreted this 

provision to prohibit creditors from 

charging consumers for providing a 

copy of written appraisals required for 

higher-risk mortgage loans. Accordingly, 

the proposal provided that a creditor 

must not charge the consumer for a copy 

of a written appraisal required to be 

provided to the consumer pursuant to 

new § 1026.35(c)(6)(i). 

A proposed comment clarified that 

the creditor is prohibited from charging 

the consumer for any copy of a required 

appraisal, including by imposing a fee 

specifically for a required copy of an 

appraisal or by marking up the interest 

rate or any other fees payable by the 

consumer in connection with the 

higher-risk mortgage loan. 

The Agencies received no comments 

on this aspect of the proposal and adopt 

the proposed regulation text and 

comment without change in 

§ 1026.35(c)(6)(iv) and comment 

35(c)(6)(iv)–1. 

35(c)(7) Relation to Other Rules 

Section 1026.35(c)(7) clarifies that the 

final rule was adopted jointly by the 

Agencies. This provision states that the 

Board is codifying the HPML appraisal 

rules at 12 CFR 226.43 et seq.; the 

Bureau is codifying the HPML appraisal 

rules at 12 CFR 1026.35(a) and (c); and 

the OCC is codifying the HPML 

appraisal rules at 12 CFR Part 34 and 12 

CFR Part 164. Section 1026.35(c)(7) 

further clarifies that there is no 

substantive difference among the three 

sets of rules. 

The NCUA and FHFA are adopting 

the rules as published in the Bureau’s 

Regulation Z at 12 CFR 1026.35(a) and 

(c), by cross-referencing these rules in 

12 CFR 722.3 and 12 CFR Part 1222, 

respectively. The FDIC is adopting the 

Bureau’s Regulation Z at 12 CFR 

1026.35(a) and (c) without a crossreference. 

As noted above at the beginning of the 

section-by-section analysis, § 1026.35(a) 

is re-published in the final rule for ease 

of reference, and the joint rulemaking 

authority extends to § 1026.35(c). 

V. Bureau’s Section 1022(b)(2) Analysis 

of the Dodd-Frank Act 

Overview 

In developing the final rule, the 

Bureau has considered potential 

benefits, costs, and impacts to 

consumers and covered persons.99 The 

Bureau is issuing this final rule jointly 

with the Federal financial institutions 

regulatory agencies and FHFA, and has 

consulted with these agencies, HUD, 

and the FTC, including regarding 

consistency with any prudential, 

market, or systemic objectives 

administered by such agencies. The 

Bureau also has considered the 

comments filed by industry, consumer 

groups, and others as described in the 

section-by-section analysis. Data 

received from commenters relating to 

potential benefits and costs, such as the 

cost of an appraisal, is discussed below. 

As discussed above, the final rule 

implements section 1471 of the DoddFrank Act, which establishes appraisal 

requirements for certain HPMLs. 

Consistent with the statute, the final 

rule allows a creditor to originate a 

covered HPML transaction 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. 

In addition, as required by the Act, 

the final rule requires a creditor in a 

covered HPML transaction to obtain an 

additional written appraisal, at no cost 

to the borrower, if the transaction has 

each of the following characteristics 

(subject to certain exemptions, as 

discussed below): 

• The HPML will finance the 

acquisition of the consumer’s principal 

dwelling; 

• The seller acquired the property 

within 180 days prior to the consumer’s 

purchase agreement (measured from the 

date of the consumer’s purchase 

agreement); and 

• The consumer is acquiring the 

home for a price that exceeds the price 

at which the seller acquired the home 

by more than 10 percent (if the seller 

acquisition was within 90 days of the 

consumer’s purchase agreement) or by 

more than 20 percent (if the seller 

acquisition was within the past 91 to 

180 days of the consumer’s purchase 

agreement). 

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 price 

at which the seller acquired the 

property and the price at which the 

consumer would acquire 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. 

The final rule also requires that 

within three days of the application, the 

creditor provide the applicant with a 

brief disclosure statement that the 

creditor may charge the applicant for an 

appraisal, that the creditor will provide 

the applicant a copy of any appraisal, 

and that the applicant may choose to 

have a separate appraisal conducted at 

the expense of the applicant. Finally, 

the final rule requires that the creditor 

provide the consumer with a free copy 

of any written appraisals obtained for 

the transaction at least three (3) business 

days before consummation, or within 30 

days of determining the transaction will 

not be consummated. 

In many respects, the final rule 

codifies mortgage lenders’ current 

practices. In outreach calls to industry, 


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100Respondents include a large bank, a trade 

group of smaller depository institutions, a credit 

union, and an independent mortgage bank. 

101Respondents include a large bank, a trade 

group of smaller depository institutions, and an 

independent mortgage bank. 

102While it is possible that some clarifications 

would put greater burdens on creditors as compared 

to what the statute would ultimately be found to 

mandate, the Bureau believes that the rule’s 

clarifying provisions generally mitigate burden. 

103The Bureau has discretion in any rulemaking 

to choose an appropriate scope of analysis with 

respect to potential benefits and costs and an 

appropriate baseline. The Bureau, as a matter of 

discretion, has chosen to describe a broader range 

of potential effects to more fully inform the 

rulemaking. 

104The 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 

higher-priced mortgage loans for depositories that 

do not report HMDA in a similar fashion. 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-toincome (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 probit model to 

predict DTI using loan amount, income, and other 

variables. This model is then used to estimate DTI 

for loans in HMDA. 

105HMDA, enacted by Congress in 1975, as 

implemented by the Bureau’s Regulation C requires 

lending institutions annually to report public loanlevel data regarding mortgage originations. For more 

information, see http://www.ffiec.gov/hmda. It 

should be noted that not all mortgage lenders report 

HMDA data. The HMDA data capture roughly 90– 

95 percent of lending by the FHA and 75–85 

percent of other first-lien home loans, in both cases 

including first liens on manufactured homes (which 

in some cases are subject to the final rule). HUD, 

Office of Policy Development and Research (2011), 

‘‘A Look at the FHA’s Evolving Market Shares by 

Race and Ethnicity,’’ U.S. Housing Market 

Conditions (May), pp. 6–12. Depository institutions 

(including credit unions) with assets less than $40 

million (in 2011), for example, and those with 

branches exclusively in non-metropolitan areas and 

those that make no home purchase loan or loan 

refinancing a home purchase loan secured by a first 

lien on a dwelling, are not required to report under 

HMDA. Reporting requirements for non-depository 

institutions depend on several factors, including 

whether the company made fewer than 100 home 

purchase loans or refinancings of home purchase 

loans, the dollar volume of mortgage lending as 

share of total lending, and whether the institution 

had at least five applications, originations, or 

purchased loans from metropolitan areas. Robert B. 

Avery, Neil Bhutta, Kenneth P. Brevoort & Glenn B. 

Canner, The Mortgage Market in 2011: Highlights 

from the Data Reported under the Home Mortgage 

Disclosure Act, 98 Fed. Res. Bull., December 2012, 

n.6. In addition, HMDA data used in this analysis 

does not include transactions secured by properties 

located in U.S. territories, or refinance transactions 

where the existing loan is already a refinance or a 

subordinate lien. Although the TILA HRM rule 

would apply to otherwise covered HPMLs in these 

categories, the Bureau does not believe there are a 

high number of transactions in these categories. To 

the extent this gap understates costs, that effect will 

be at least partially offset by the overstatement 

resulting from including other data on transactions 

that are not subject to the rule. 

106Every 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/. 

107The 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. Additionally, the 

Bureau has thus far not yet received data from the 

National Mortgage Database pilot phases. The 

Bureau also requested that commenters submit 

relevant data. All probative data submitted by 

commenters are discussed in this final rule. 

108 DataQuick is a database of property 

characteristics on more than 120 million properties 

and 250 million property transactions. 

109The National Registry is a database containing 

selected information about State certified and 

licensed real estate appraisers and is publicly 

all respondents reported requiring the 

use of full-interior appraisals in 95 

percent or more of first-lien 

transactions 100 and providing copies of 

appraisals to borrowers as a matter of 

course if such a loan is originated.101

The convention of using full-interior 

appraisals on first liens has been 

developing to improve underwriting 

quality, and the implementation of this 

rule would assure that the practice 

would continue even under different 

market conditions. 

The Bureau notes that many of the 

provisions in the final rule implement 

self-effectuating amendments to TILA. 

The costs and benefits of these 

provisions arise largely or in some cases 

entirely from the statute and not from 

the rule that implements them. This rule 

provides benefits compared to allowing 

these TILA amendments to take effect 

without implementing regulations, 

however, by clarifying parts of the 

statute that are ambiguous. Greater 

clarity on these issues covered by the 

rule should reduce the compliance 

burdens on covered persons by reducing 

costs for attorneys and compliance 

officers as well as potential costs of 

over-compliance and unnecessary 

litigation.102

Section 1022 permits the Bureau to 

consider the benefits, costs, and impacts 

of the final rule solely compared to the 

state of the world in which the statute 

takes effect without an implementing 

regulation. To provide the public better 

information about the benefits and costs 

of the statute, however, the Bureau has 

chosen to consider the benefits, costs, 

and impacts of the major provisions of 

the final rule against a pre-statutory 

baseline (i.e., the benefits, costs, and 

impacts of the relevant provisions of the 

Dodd-Frank Act and the regulation 

combined).103

The Bureau has relied on a variety of 

data sources to analyze the potential 

benefits, costs, and impacts of the final 

rule.104 However, in some instances, the 

requisite data are not available or are 

quite limited. Data with which to 

quantify the benefits of the rule are 

particularly limited. As a result, 

portions of this analysis rely in part on 

general economic principles to provide 

a qualitative discussion of the benefits, 

costs, and impacts of the rule. 

The primary source of data used in 

this analysis is data collected under the 

Home Mortgage Disclosure Act 

(HMDA).105 Because the latest wave of 

complete data available is for loans 

made in calendar year 2011, the 

empirical analysis generally uses the 

2011 market as the baseline. Data from 

the 4th quarter 2011 bank and thrift Call 

Reports,106 the 4th quarter 2011 credit 

union call reports from the NCUA, and 

de-identified data from the National 

Mortgage Licensing System (NMLS) 

Mortgage Call Reports (MCR) 107 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 108 and on data on the 

location of certified appraisers from the 

Appraisal Subcommittee Registry.109


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10417 

available at https://www.asc.gov/National-Registry/ 

NationalRegistry.aspx. 

110Levitt, Steven and Chad Syverson. ‘‘Market 

Distortions When Agents are Better Informed: The 

Value of Information In Real Estate Transactions.’’ 

The Review of Economics and Statistics 90 no. 4 

(2008): 599–611. 

111Scott, Peter and Colin Lizieri. ‘‘Consumer 

House Price Judgments: New Evidence of 

Anchoring and Arbitrary Coherence.’’ Journal of 

Property Research 29 no. 1 (2012): 49–68. 

112For example, in Quan and Quigley’s 

theoretical model where buyers and sellers have 

incomplete information, trades are decentralized, 

and prices are the result of pairwise bargaining, 

‘‘[t]he role of the appraiser is to provide information 

so that the variance of the price distribution is 

reduced.’’ Quan, Daniel and John Quigley. ‘‘Price 

Formation and the Appraisal Function in Real 

Estate Markets.’’ Journal of Real Estate Finance and 

Economics 4 (1991): 127–146. 

Tabulations of the DataQuick data are 

used for estimation of the frequency of 

properties being sold within 180 days of 

a previous sale. The Appraisal 

Subcommittee’s Registry is used to 

describe the availability of appraisers. 

Potential Benefits of the Rule for 

Covered Persons and Consumers 

In a mortgage transaction, the 

appraisal helps the creditor avoid 

lending based on an inflated valuation 

of the property, and similarly helps 

consumers avoid borrowing based upon 

an inflated valuation. Assuming that 

full-interior appraisals conducted by a 

certified or licensed appraiser are more 

accurate than other valuation methods, 

the rule would improve the quality of 

home valuations for those transactions 

where such an appraisal would not be 

performed currently. While the 

appraisal is used by the creditor, the 

improved valuation also can prevent 

inflated valuations that would lead 

consumers to borrowing that would not 

be supported by their true home value, 

as well as deflated valuations (such as 

those that do not value an interior 

which is of different than average 

quality) that can lead consumers to be 

eligible for a narrower class of loan 

products that are priced less 

advantageously. The requirement that a 

second appraisal be conducted in 

certain circumstances would further 

reduce the likelihood of an inflated 

sales price for those transactions. 

Benefits to covered persons. 

Transactions where the collateral is 

overvalued expose the creditor to higher 

default risk. By tightening valuation 

standards for a class of transactions that 

are already priced as higher-risk 

transactions, the rule may reduce both 

the risk of default for creditors, as well 

as more accurately value the collateral 

available to the creditor in the event of 

default. Furthermore, by requiring the 

use of full interior appraisals in 

transactions involving covered HPMLs, 

the statute prevents creditors from 

attempting to compete on price by using 

less costly and possibly less accurate 

valuation methods in underwriting. 

Eliminating the ability to use lower-cost 

valuation methods, and thereby 

eliminating price competition on this 

component of the transaction, may 

benefit firms that prefer to employ more 

thorough valuation methods. 

Benefits to consumers. The final rule 

ensures that covered HPML transactions 

will have a written interior appraisal, 

and in some cases a second written 

interior appraisal, and that consumers 

will receive an appraisal notice and a 

copy of these appraisals. These 

requirements will mostly benefit 

consumers whose transactions would 

not already have written interior 

appraisals a copy of which they receive. 

The benefits enjoyed by these 

consumers are described below. 

Individual consumers engage in real 

estate transactions infrequently, so 

developing the expertise to value real 

estate is costly and consumers often rely 

on experts, such as real estate agents, as 

well as on list prices, to make price 

determinations. These methods may not 

lead a consumer to an accurate 

valuation of a property they intend to 

purchase. For example, there is 

evidence that real estate agents sell their 

own homes for significantly more than 

other similar homes, which suggests 

that consumers may not be able to 

accurately price the homes that they are 

selling.110 Other research, this time in a 

laboratory setting, provides evidence 

that individuals are sensitive to anchor 

values when estimating home prices.111

In such cases, an independent signal of 

the value of the home should benefit the 

consumer. Having a professional 

valuation as a point of reference may 

help consumers who are applying for a 

HPML to gain a more accurate 

understanding of the home’s value and 

improve overall market efficiency, 

relative to the case where the knowledge 

of true valuations is more limited.112

While the consumer can order an 

appraisal voluntarily at any time, an 

especially valuable time for the 

consumer to receive a copy of an 

appraisal is before closing an HPML— 

whether it is for a home purchase, a 

refinance, or a home improvement. 

Undoubtedly, some consumers are 

aware of the benefits of an appraisal, 

and could have decided for themselves 

whether they want to pay for it if one 

was not required or otherwise prepared 

and provided under standard industry 

practice. However, other consumers 

may be unaware of the benefits of an 

appraisal in terms of improving 

accuracy of a home valuation, and to 

these consumers the rule is especially 

valuable in an HPML transaction that 

would not otherwise include an 

appraisal. Moreover, even the 

consumers who are aware of the benefits 

would not be able to use the selfordered appraisal for any transactions 

with creditors, since those require 

creditor-ordered valuations. 

The Bureau believes that ensuring 

HPML borrowers receive appraisals 

ensures that they will have more 

accurate information about the value of 

their dwelling, and therefore about their 

net worth and whether they have any 

equity in their dwelling. For 

transactions that would already include 

the appraisal, the rule ensures that in 

similar transactions consumers will 

continue to have an appraisal; for other 

transactions, the rule will result in the 

appraisal. In either case, more accurate 

information leads to better decisions 

and can lead to more investment in the 

property in some cases by removing the 

uncertainty over the value of the 

dwelling. The appraisal may also help 

to inform the consumer of whether they 

may be overpaying for the property with 

a new home purchase, about to invest 

more into a property that might be 

valued at less than they think with a 

home improvement loan, or about to 

pay the refinance cost on a property that 

they should sell instead. The latter two 

points are especially valuable for 

consumers who are in negative equity, 

or ‘‘underwater’’ situations (where the 

loan amount exceeds the value of the 

dwelling). A consumer who finds out 

that she is not underwater, when she 

thought that she might have been, has 

an incentive to continue investing in the 

property and make sure that she does 

not lose it in foreclosure or otherwise 

default. Conversely, a consumer who 

finds out that he is underwater, when he 

thought that he might not have been, 

might have second thoughts about any 

investments, and will potentially want 

to pursue loss mitigation options or, if 

they do not succeed and the consumer 

is facing financial difficulties or default, 

agree on a short-sale or on a deed-in-lieu 

of foreclosure with the creditor. 

Aside from the aforementioned 

decisions, depending on the alternative 

valuation, an appraisal can help the 

consumer to lower their property tax, to 

forgo private mortgage insurance (PMI), 

and to choose the correct property value 

for insurance purposes. A lower loan-tovalue (LTV) ratio might also result in a 

lower interest rate on the loan, all else 

equal, as discussed further below. 

Again, the final rule ensures these 

benefits are available to consumers in 


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10418 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

113Congress has noted a concern, for example, 

that parties to a flipping transaction ‘‘can often find 

an appraiser to inflate the home’s value.’’ H.Rep. 

111–94 (May 4, 2009) at 59. 

114See FHA FAQ ‘‘Are FHA Home Loan 

Appraisals Portable?’’ available at http:// 

www.fha.com/fha_article.cfm?id=350, citing FHA 

Mortgagee Letter 09–29 (Sept. 18, 2009) (stating that 

FHA programs allow for appraisal portability). 

115Poisson regressions are run, projecting loan 

volumes in these categories on the natural log of 

characteristics available in the Call Reports (total 1– 

4 family residential loan volume outstanding, fulltime equivalent employees, and assets), separately 

for each category of depository institutions. 

116 ‘‘Independent Mortgage Bank’’ refers to nondepository mortgage lenders. 

transactions that do not currently have 

appraisals or provide copies to 

applicants. 

If a borrower is prepared to pay an 

inflated price for a property, then an 

appraisal that reflects its value more 

accurately may prevent the transaction 

from being completed at the inflated 

price and consequently, at a higher loan 

amount, which would be more costly to 

the consumer who, in the case of an 

HPML borrower, also may have fewer 

resources to repay the loan. This is 

particularly true when considering that 

transactions subject to the rule will be 

those HPMLs that are not qualified 

mortgages, and which therefore may 

involve higher points, greater fees, or a 

higher debt-to-income ratio, among 

other differences. In addition to the 

direct costs of paying more than the true 

value for a property, buying an 

overvalued property is associated with 

higher risk of default. If a property that 

is sold shortly after its previous sale is 

more likely to have an inflated price, 

since it may have been purchased the 

first time with the intention to improve 

the property quickly and resell it for a 

profit, the additional appraisal 

requirement also would help ensure an 

accurate estimate of the value of the 

property. This would be particularly 

true in transactions involving fraudulent 

flipping using an inadequate or 

improperly performed first appraisal.113

Ensuring a more accurate valuation of a 

flipped property might be especially 

valuable to a consumer when borrowing 

an HPML (due to its higher price). In the 

case of subordinate-lien transactions, 

the full-interior appraisal requirement 

may prevent borrowers on HPMLs from 

extracting too much equity if their 

property is overvalued by other 

valuation methods. Accordingly, the 

appraisals required by the final rule 

could reduce the chance consumers 

would be in a negative equity or near 

negative equity situation, which can 

limit refinancing and selling 

opportunities. 

At the same time, if a borrower is 

prepared to take out an HPML based 

upon the creditor’s use of a valuation 

other than an interior appraisal, that 

valuation may be less likely to take into 

account unique characteristics of the 

subject property, such as its setting in 

the immediate neighborhood, its views, 

the quality of the exterior or the 

residential structure, or its interior 

condition. For borrowers where direct 

assessments of those characteristics 

would have improved the valuation, the 

price of the loan may be based upon an 

LTV ratio that is overstated, and the 

loan may be overpriced to the extent 

that higher LTVs correlate with higherpriced loans. 

The final rule also may support 

greater consumer choice in HPML 

transactions, to the extent new creditors 

treat the appraisals required as portable. 

For example, the FHA has taken steps 

to ensure appraisal portability in the 

situation of an ‘‘applicant who has 

gotten to the appraisal stage of the home 

loan process, but’’ the applicant decides 

he or she is ‘‘dissatisfied with [the] 

lender and decide[s] to find a new 

one.’’ 114 The final rule ensures that if 

consumers would not otherwise have an 

appraisal in HPML transactions for 

which they have applied, then they will 

have an appraisal that may be able to be 

used in alternative transactions that the 

consumer may pursue. 

Codifying HPML valuation standards 

across the industry likely would 

simplify the shopping process for 

consumers who receive HPML offers. 

First, for consumers in HPML 

transactions that would not have 

otherwise included an appraisal, the 

appraisals required by the rule may help 

to improve consumers’ understanding of 

the determinants of the value of the 

property that they intend to purchase. In 

cases where a loan is denied due to an 

appraiser valuing the property at less 

than the contract price, the appraisal 

will include support for its findings of 

the lower value, which may help the 

consumer in future negotiations or 

property searches. Second, codifying 

appraisal standards across the industry 

would simplify the shopping process for 

consumers by making the process of 

applying for HPMLs more consistent 

between lenders. Full-interior appraisals 

typically cost more than other valuation 

methods, and appraisal costs are often 

passed on to consumers. Consumers 

may not understand the differences 

between different valuation methods or 

know that different creditors will use 

different methods, and therefore may 

benefit from the standardization the rule 

can be expected to promote. 

The final rule also will ensure that 

borrowers in covered HPML 

transactions involving subordinate liens 

receive a notice informing them about 

the appraisal process, of their ability to 

order their own appraisal, and that they 

will receive copies of any appraisals at 

least three business days prior to the 

consummation. Under ECOA section 

701(e) and its implementing rules, 

applicants in transactions secured by a 

first lien on a dwelling will receive this 

notice and a copy of an appraisal; under 

this provision in the statute and the 

Bureau’s 2013 ECOA Appraisals Final 

Rule, which takes effect on January 18, 

2014, these requirements do not apply 

to subordinate lien transactions, 

however. The final rule fills this gap for 

borrowers on covered HPMLs, ensuring 

they are better informed prior to 

entering into subordinate lien loans, 

such as for home improvement purposes 

and other common purposes. 

Potential Costs of the Rule for Covered 

Persons 

The costs of the rule, which are 

predominantly related to compliance, 

are more readily quantifiable than the 

benefits and can be calculated based on 

the mix of loans originated by an entity 

and the number of employees at that 

entity. These compliance costs may be 

considered as the discrete tasks that 

would be required by the rule. These 

can be separated into costs that are 

associated with the origination of a 

single HPML and the costs of reviewing 

and implementing the regulation. 

Costs per HPML. The costs of the rule 

for covered persons that derive from 

requirements to obtain appraisals 

depend on the number of appraisals that 

would be conducted, above and beyond 

current practice, and the degree to 

which those costs are passed to 

consumers. For HMDA reporters, counts 

of HPMLs that are purchase-money 

loans, first-lien refinance loans, or 

closed-end subordinate lien loans are 

computed from the loan-level HMDA 

data. Accepted statistical methods are 

used to project loan counts for nonHMDA reporting depository 

institutions.115 Estimates of the number 

of loan officers are calculated from 

similar projections of applications per 

institution. 

The calculation of costs for IMBs uses 

a slightly different approach.116

Consistent with the results from HMDAreporting IMBs, the Bureau estimates 

the costs to IMBs by multiplying a cost 

per loan by the total number of loans 

originated by IMBs. To obtain a count of 

full-time equivalent employees, this 

number is imputed for HMDA-reporting 

IMBs based on the number of 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10419 

117Sumit Agarwal and Faye Wang, Perverse 

Incentives at the Banks? Evidence from Loan 

Officers (Federal Reserve Bank of Chicago Working 

Paper 2009–08). 

118Purchase-money mortgages include 

subordinate-lien HPMLs that were part of a 

purchase transaction. The Bureau assumes that 

these loans were part of a transaction where the 

first-lien mortgage was not a HPML; to the extent 

that any of these subordinate-lien purchase-money 

HPMLs were part of a transaction where the first 

lien mortgage was a HPML the costs imposed by the 

rule would be double-counted. First-lien 

refinancings include loans classified as first-lien 

‘‘home improvement’’ loans in HMDA. 

119 Very conservatively, the PRA burden estimates 

for Agencies other than the Bureau do not estimate 

and exclude the number of HPMLs that are 

qualified mortgages. By contrast, based upon data 

available to it, the Bureau does so in this section 

1022 analysis and its Regulatory Flexibility Act 

certification. 

120Similarly, no subtractions are made for boats, 

trailers, or mobile homes, which also are exempt 

from the final rule. The Bureau also notes that 

HMDA data includes same-creditor refinances with 

lower rates and new payment schedules, within the 

meaning of 12 CFR 1026.20(a)(2). For purposes of 

this analysis, the Bureau assumes the final rule 

applies to those transactions, which the HMDA data 

also does not segregate. This assumption also 

accounts for the fact that these transactions would 

not be qualified mortgages, under Regulation Z 

comment 43(a)–1 adopted in the 2013 ATR Final 

Rule. 

121The final rule exempts all loans that would 

meet one or more of the definitions of qualified 

mortgage in § 1026.43(e). See also 2013 ATR Final 

Rule, available at http://consumerfinance.gov. 

These loans are therefore excluded from the HPML 

count. 

122As other Agencies noted in the proposed rule, 

federal regulations do not require interior appraisals 

in some cases, such as for transactions below 

$250,000. To the extent creditors in those 

transactions elect not to order interior appraisals, 

those transactions would fall within the 5 percent 

of purchase-money transactions, 10 percent of 

refinance transactions, and 95 percent of 

subordinate lien transactions in which the Bureau 

assumes no interior appraisal is currently 

performed. 

123 (5%*12,249) + (10%*11,950) + (95%*2,091) = 

3,794. 

124The Bureau has not been able to locate 

nationally-representative data on the number of 

HPMLs that are flips that fall within other 

categories of transactions that are exempt from the 

second appraisal requirement. 

125 (12,249*5%*(100% ¥ 20.6%)) = 486. 

126The Bureau believes that under the 2013 ATR 

Final Rule creditors generally will be able to 

determine at the outset of the application process 

whether the loan will be a qualified mortgage. Some 

creditors may, for their own risk management and 

at their option, over-comply during the application 

process to mitigate any risk that due to an error the 

loan as closed or handled post-closing ultimately 

would not be a qualified mortgage. For example, 

under the temporary qualified mortgage provision 

related to GSEs, a creditor may determine early in 

the application process that a proposed HPML 

would be a qualified mortgage because it meets the 

criteria for purchase or guarantee by a GSE 

consistent with comment 43(e)(4)(iii)-4 in the 

Bureau’s 2013 ATR Final Rule, but later find that 

the loan is rejected by the GSE as ineligible for 

reasons unrelated to the HPML rule. For the loan 

to be a qualified mortgage, it is not necessary that 

the loan ultimately be purchased or guaranteed by 

the GSE. But if the original eligibility determination 

were invalid, then this could create a risk that the 

loan would not meet the definition of a qualified 

mortgage. Such a loan potentially still could meet 

the definition of qualified mortgage on other bases 

than being eligible for purchase or guarantee by a 

GSE. But if not, then under this final rule, 

origination of such a loan would have been a 

violation if the creditor did not comply with the 

requirements for HPML appraisals and no other 

exemption applied. While these situations may be 

infrequent, some creditors may seek to over-comply 

in order to mitigate the risk they may pose. The 

Bureau does not believe over-compliance, to control 

for the risk of an erroneous determination by the 

creditor that the loan was a qualified mortgage, 

would lead to creditors ordering a significant 

number of new appraisals above those estimated 

here. 

127Creditors must disclose the following 

statement, in writing, to a consumer who applies for 

a higher-risk mortgage loan: ‘‘We may order an 

appraisal to determine the property’s value and 

charge you for this appraisal. We will give you a 

copy of any appraisal, even if your loan does not 

close. You can also pay for an additional appraisal 

for your own use at your own cost.’’ 

applications (assuming 1.38 days per 

loan application).117

Based on these data sources, the 

Bureau estimates that there were 

approximately 292,000 HPMLs in 2011. 

Of these, the Bureau estimates that 

146,000 were purchase-money 

mortgages, 116,000 were first-lien 

refinancings, and 30,000 were closedend subordinate lien mortgages that 

were not part of a purchase 

transaction.118 Due to the exemptions 

from the rule, only a subset of HPMLs 

will be covered by the rule. Qualified 

mortgages, for example, are exempt from 

the final rule, as are reverse mortgages, 

loans for initial construction, temporary 

bridge loans, and new manufactured 

housing sales.119 Conservatively, the 

Bureau is preparing this estimate based 

upon a loan count without subtracting 

construction loans, temporary bridge 

loans, loans for new manufactured 

housing, or reverse mortgages. While 

these loans are exempt from the final 

rule, the data sources do not separately 

break them out and nationallyrepresentative data on the number of 

loans that fall into these specific 

categories and also meet the HPML 

definition is not available.120

Subtracting only those HPMLs that 

would be qualified mortgages under 

Regulation Z, § 1026.43(e) 121 results in 

a loan count of approximately 26,000 

HPMLs that are not qualified mortgages, 

12,000 of which were purchase-money 

mortgages, 12,000 of which were firstlien refinancings, and 2,000 of which 

were closed-end subordinate lien 

mortgages that were not part of a 

purchase transaction. These are the 

number of loans originated annually 

that the Bureau conservatively estimates 

currently would be subject to the final 

rule. 

The Bureau estimates that the 

probability that full-interior appraisals 

are conducted as part of current practice 

is 95 percent for purchase-money 

transactions, 90 percent for refinance 

transactions, and 5 percent for 

subordinate lien mortgage 

transactions.122 The Bureau therefore 

estimates that the proposal would lead 

to full-interior appraisals for 

approximately 3,800 HPML originations 

annually that would not otherwise have 

a full-interior appraisal.123 A portion of 

these HPMLs also would be subject to 

the requirement that lenders obtain a 

second full-interior appraisal in 

situations where the home that would 

secure the higher-risk mortgage is being 

resold at or within 180 days at a higher 

price that exceeds the seller’s 

acquisition price by 10 percent (if the 

seller acquired the property within 90 

days) or 20 percent (if the seller 

acquired the property within 91 to 180 

days). Based on FHFA estimates from 

DataQuick noted in the proposal, the 

Bureau estimates that the proportion of 

sales that are resales within 180 days is 

5 percent. A significant number of 

HPMLs financing resales would not be 

subject to the second appraisal 

requirement, however, due to the price 

increase thresholds discussed above and 

to various exemptions from the second 

appraisal requirement. For purposes of 

estimating the number of HPMLs that 

are subject to the second appraisal 

requirement, however, the Bureau 

conservatively only excludes the 

estimated number of loans subject to the 

exemption for rural loans.124 The rural 

exemption excludes 20.6 percent of the 

relevant market by transaction volume, 

according to the 2011 HMDA data. The 

Bureau therefore estimates that this 

provision of the rule would apply to 

approximately 500 HPMLs annually.125

Accordingly, the Bureau estimates that 

the number of HPMLs subject to only 

one new interior appraisal under the 

rule would be 3,800, and the number of 

HPMLs subject to a second interior 

appraisal under the rule would be 500, 

resulting in a combined addition of 

4,300 interior appraisals to HPML 

transactions each year. This combined 

addition is the estimated total effect of 

the rule on the number of appraisals 

each year.126

The following discussion considers 

estimated compliance costs in the order 

in which they arise in the mortgage 

origination process. First, the rule 

requires that the creditor furnish the 

applicant with the disclosure required 

by § 1026.35(c)(5)(i).127 The cost of this 

disclosure—at most, delivery of a single 

piece of paper with a standardized 

disclosure that could be delivered with 


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10420 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

128The Bureau notes that creditors in first lien 

transactions making a disclosure required by 

Bureau rules implementing ECOA section 701(e) 

also would automatically satisfy the disclosure 

requirement under this rule; the final rule. In 

addition, the disclosure is included in the proposed 

Loan Estimate as part of the 2012 TILA–RESPA 

Proposal (see 2012 TILA–RESPA Proposal, 

(published July 9, 2012), available at http:// 

files.consumerfinance.gov/f/ 

201207_cfpb_proposed-rule_integrated-mortgagedisclosures.pdf.); if that proposal were adopted, the 

cost of providing the disclosure would be part of 

the overall costs of implementing that disclosure. 

129 12 CFR 1026.35. 

130 15 U.S.C. 1639. 

131One community bank commenter stated that 

this estimate was too low, but did not explain the 

amount of time it believed would be required to 

review the appraisal under the rule. In any event, 

the 15 minute assumption is on average. Some 

appraisals would be assumed to take more time, 

and others less. To the extent an appraisal is 

deficient, and is sent for revision and then further 

review by the creditor upon revision, this is not 

assumed to be a cost imposed by the rule and rather 

is part of a standard underwriting process. 

132 (.25* $48.29) = $12.07. The hourly wage rate 

is based on the higher of the loan officer wages at 

depository institutions of $31.69 and at nondepository institution of $32.16. Wages comprised 

66.6 percent of compensation for employees in 

credit intermediation and related fields in Q4 2011, 

according to the Bureau of Labor Statistics Series 

ID CMU2025220000000D,CMU2025220000000P, 

available at http://www.bls.gov/ncs/ect/#tables. All 

the hourly wage rates below are computed similarly 

from the same source. 

133 ($12.07*4,280) = $58,000 (rounded to the 

nearest thousand). 134 (.25*$45.80) = $11.45. 135 ($12.07*12,249) = $148,000 (rounded to the 

nearest thousand). 

136The final rule, in § 1026.35(c)(4)(v), prohibits 

the creditor from charging the consumer for the cost 

of the additional appraisal. For purposes of 

estimating the cost the rule imposes on creditors, 

the Bureau assumes that the creditors will not pass 

through any of the cost of the second appraisal to 

the consumers. 

137Based upon the industry dataset used in the 

proposal, the Bureau calculates the median for the 

United States overall is $350, the average is $351, 

and standard deviation is $92. The $350 estimated 

cost also falls within the range of $225 to $750 cited 

by industry comments, most of which referred to 

costs between $300 and $600. While the proposal 

had assumed a $600 cost, that cost was at the 

highest state median (Alaska) in the industry 

dataset. Upon further review, the Bureau believes 

that $350 is a more accurate estimate of the average 

cost and that using a $600 cost would, while being 

conservative, also overestimate the cost. In any 

event, the estimated costs do not change 

significantly using a $600 estimate, as noted in the 

Bureau’s Regulatory Flexibility Analysis below. 

138 (350*486) = $170,000 (rounded to the nearest 

thousand). 

139 Interviews conducted on May 15, 2012 and 

May 24, 2012. 

140Fannie Mae Selling Guide, ‘‘Appraiser 

Independence Requirements’’ (Oct. 15, 2010) (Part 

III), available at https://www.fanniemae.com/ 

content/fact_sheet/air.pdf; Freddie Mac, Single 

Family Seller/Servicer Guide, Vol. 1, Exhibit 35, 

Appraiser Independence Requirements (October 15, 

2010) (same). 

other documents or disclosures—would 

be very low.128

Second, the rule requires the creditor 

to verify whether a loan is a HPML. 

However, the Bureau believes this 

activity does not to introduce any 

significant costs beyond the regular cost 

of business because creditors already 

must compare APRs to APOR for a 

variety of compliance purposes under 

existing Regulation Z 129 or to determine 

if a loan is subject to the protections of 

the Home Ownership and Equity 

Protection Act of 1994 (HOEPA).130

The third step is an optional one. If 

a creditor decides to seek to be eligible 

for the safe harbor provided for in 

§ 1026.35(c)(3)(ii), the creditor likely 

would take certain steps in the process 

of ordering and reviewing a full-interior 

appraisal as prescribed by the rule. The 

review process is described in the 

Appendix N of the rule, and the Bureau 

assumes it will be performed by a loan 

officer and to take 15 minutes on 

average (including the very brief time 

needed to send a copy to the applicant, 

as discussed below).131 Assuming an 

average total hourly labor cost of loan 

officers of $48.29, the cost of review per 

additional appraisal is $12.07.132 With 

an estimated total number of annual 

additional appraisals—pursuant to both 

the first and second appraisal 

requirements—of 4,300, the total cost of 

reviewing those appraisals is $58,000 

(rounded to the nearest thousand).133

In purchase transactions financed by 

a covered HPML, creditors also will 

need to determine whether a second 

appraisal would be required based upon 

prior sales or acquisitions involving the 

property that would secure the loan. 

This would require labor costs to 

determine, through reasonable 

diligence, whether the seller acquired 

the property in the past 180 days, and 

if so, at a price that is sufficiently lower 

than the contract sale price for the 

current transaction to trigger the second 

appraisal requirement. The rule 

provides that reasonable diligence can 

be performed through reliance on 

written source documents, which may 

include, among others, the 10 types of 

documents listed in new Appendix O to 

Part 1026. The Bureau believes creditors 

typically already obtain many of the 

common source documents for other 

purposes during the application process 

for a purchase-money HPML. The 

Bureau estimates that reasonable 

diligence would take, on average, 15 

minutes of staff time. Because an 

estimated 95 percent of covered HPML 

transactions are not flips at all, in many 

cases this may be determined from the 

available documentation more quickly 

than 15 minutes, simply by determining 

that the seller’s acquisition occurred 

more than 180 days before the 

borrower’s purchase agreement. Of the 5 

percent that are flips, creditors may take 

more time to analyze price differences 

versus the thresholds in the rule. Thus 

the 15 minute estimation is an average. 

The dollar cost per covered HPML loan 

is therefore $12.07.134 With total annual 

non-QM HPMLs that are purchase 

transactions of 12,000, the total cost per 

year is estimated to be $148,000 

(rounded to the nearest thousand).135

The Bureau believes based on 

outreach that the direct costs of 

conducting appraisals would be passed 

through to consumers, except in the 

case of an additional appraisal that 

would be required by § 1026.35(c)(4)(i) 

(requiring an additional appraisal for 

properties that are the subject of certain 

180-day resales).136 Based on a 

nationally-representative dataset of the 

cost of appraisals, which as a standard 

matter include interior inspections per 

the URAR form discussed in the sectionby-section analysis in this final rule, the 

Bureau believes that the average cost of 

each full-interior appraisal is $350.137

As noted above, the Bureau estimates 

that 486 second full-interior appraisals 

would be required each year under the 

rule, for a total cost to creditors of 

$170,000 (rounded to the nearest 

thousand).138

Finally, the rule also requires that free 

copies of appraisals be provided to 

borrowers at least three business days 

before the loan is consummated (or 

within 30 days of determining the loan 

will not be consummated). In outreach 

prior to the proposal stage, market 

participants, including a large bank, 

representatives from a national 

community banking trade association, 

and a large independent mortgage 

bank 139 told the Bureau that, in cases 

where loans are consummated, copies of 

appraisals that are ordered are provided 

to consumers 100 percent of the time. 

Indeed, GSEs also generally require that, 

as a condition of eligibility for their 

purchase of a loan, copies of appraisals 

be provided to consumers promptly 

upon completion but no later than three 

days before consummation.140 The 

Bureau therefore believes that for 

covered HPML first lien transactions, 

the requirement to provide copies in the 

rule imposes no additional costs; any 

cost due to providing copies for the 

small proportion of first lien 

transactions that do not currently obtain 

and provide copies of appraisals is 

estimated not to be significant. The only 

other costs of providing copies of the 

appraisals would be for the 2,000 new 

appraisals in subordinate lien 

transactions that the Bureau estimates 

would be caused by the rule on an 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10421 

141As stated in the proposal, the Bureau estimates 

that on average one lawyer and a variable number 

of compliance officers at each institution will 

review the regulation for 1.5 hours each person. 

Compliance officer review is assumed to vary by 

size and type of the institution, and it is assumed 

that in some cases there is no compliance officer 

review: one compliance officer at each independent 

mortgage bank; two compliance officers at each 

depository institution larger than $10 billion in 

assets; and half a compliance officer (on average) at 

each depository institution smaller than $10 billion 

in assets. Total hourly labor costs are estimated to 

be: $116.08 for attorneys and $52.04 for compliance 

officers. Actual review time will vary by institution. 

At some institutions that do not originate non-QM 

HPMLs, review time may be lower as lawyers and 

compliance officers may review secondary trade 

press or other free sources of information. By 

contrast, for those institutions that originate nonQM HPMLs, the review time may be greater as it 

may include activities to prepare for 

implementation, such as training. As also stated in 

the proposal, the Bureau estimates that on average 

an additional 0.5 hours of training time will be 

added to regular training programs for each loan 

officer. Here again, training time will vary 

depending on whether the officer is involved in 

origination of non-QM HPMLs. One community 

bank commenter stated that the estimate in the 

proposal of 30 minutes for training time was too 

low, but did not explain the amount of time it 

believed would be required for training. Training 

time per officer may be lower than average for many 

loan officers to the extent they do not or are not 

likely to originate non-QM HPMLs, and closer to or 

potentially more than average in some cases for 

those who do or may originate such loans (because 

those officers would need to be trained on how to 

comply with the rule, rather than simply alerted to 

its existence). Finally, the Bureau also believes that 

as part of routine software updates, creditors may 

make adjustments to software systems to ensure 

compliance with this rule; the Bureau does not 

believe these adjustments would impose significant 

additional costs beyond the existing routine 

upgrade processes. 

annual basis. As noted in the PRA 

section of the final rule, the time to send 

the copy can be assumed to be part of 

the 15 minutes of time needed on 

average to review the appraisal. Given 

the number of extra copies that would 

need to be provided, and the provision 

in the final rule that allows these copies 

to be provided electronically based 

upon consent under the E-Sign Act, the 

Bureau believes that this cost is not 

significant. 

As noted above, the Bureau assumes 

that costs of many of the new first 

appraisals would be borne directly by 

the consumers. This increase in costs 

charged to HPML borrowers could deter 

some consumers from agreeing to 

HPMLs. In these cases, however, 

creditors could agree to fold the 

appraisal cost into the cost of the loan. 

To the extent consumers would still be 

deterred from borrowing, creditors also 

could waive the cost of the appraisal 

and absorb it, or otherwise reduce 

origination fees. 

Costs per institution or loan officer. 

Aside from the per-loan costs just 

described, the Bureau has estimated that 

each institution would incur the onetime cost of reviewing the regulation, 

and one-time training costs for loan 

officers to become familiar with the 

provisions of the rule.141

Potential Costs of the Rule to Consumers 

The direct pecuniary costs to 

consumers that would be imposed by 

the rule can be calculated as the 

incremental cost of having a full interior 

appraisal instead of using another 

valuation method for the relatively 

small subset of covered HPML 

transactions (a few thousand annually 

as discussed above) where an appraisal 

is not currently performed. As described 

above, the Bureau believes that 

consumers would pay directly for all 

new first appraisals—but not the new 

second appraisals that would be 

required because of a recent resale of the 

property—for a total of 3,794 new first 

appraisals per year. Assuming the 

consumer pays $350 for an appraisal 

that would not otherwise have been 

conducted, versus $5 for an alternative 

valuation, gives a total direct costs to 

consumers of 3,794 * ($350-$5) = 

$1,308,930 (rounded to the nearest 

thousand). 

Potential Reduction in Access by 

Consumers to Consumer Financial 

Products or Services 

Incremental costs in covered HPML 

transactions that would not otherwise 

have a full-interior appraisal could 

reduce consumers’ access to non-QM 

HPMLs. However, the impact on access 

to credit is probably negligible. Any 

costs that derive from the additional 

underwriting requirements incurred 

under the rule are likely to be very 

small. What matters, for both first and 

subordinate lien loans, are the 

incremental costs from the difference 

between the full-interior appraisal and 

alternative valuation method costs. 

These only arise in the fraction of 

HPMLs where use of the interior 

appraisal is not already accepted 

practice. For first liens, full interior 

inspection appraisals are common 

industry practice: passing the cost of 

appraisals on to consumers is current 

industry practice, and consumers 

appear to accept the appraisal fee. The 

interior appraisal requirement therefore 

is unlikely to cause a significant adverse 

effect on consumers’ access to this kind 

of credit. Furthermore, these costs may 

also be rolled into the loan, up to LTV 

ratio limits, so buyers are unlikely to 

face short-term liquidity constraints that 

prevent purchasing the home. The 

impact of the rule on the volume of nonQM HPMLs originated may be relatively 

greater for subordinate liens because in 

these transactions the rule would 

impose an interior appraisal practice 

that is not as widespread currently, and 

also because the cost of a full interior 

appraisal is a larger proportion of the 

loan amount (because subordinate lien 

loans are typically lower in amount than 

first lien loans). However, the number of 

subordinate lien HPMLs that will be 

covered by the rule will be small to 

begin with, excluding qualified 

mortgages; any changes in non-QM 

HPML subordinate lien transaction 

volume may be mitigated by consumers 

rolling the appraisal costs into the loan 

or the consumer and the creditor 

splitting the incremental cost of the fullinterior appraisal if it is profitable for 

the creditor to do so. 

Significant Alternatives Considered 

In determining what level of review 

by creditors should be required for full 

interior appraisals related to HPMLs, 

two alternatives were considered in 

developing the proposed rule. One 

alternative considered was to require a 

full technical review of the appraisal 

that would comply with USPAP 

Standard 3 (USPAP3). Such a 

requirement, however, would add 

substantially to the cost of each 

appraisal, as a USPAP3-compliant 

review can cost nearly as much as a full 

interior appraisal. Another alternative 

was to require creditors to have 

USPAP3-compliant reviews conducted 

on a sample of the appraisals carried out 

on properties related to an HPML. 

Reviewing a sample of appraisals, 

however, would be most useful for 

creditors making a large number of 

HPMLs and employing the same 

appraisers for a large number of those 

loans. Given the small number of 

HPMLs made each year, the value of 

sampling appraisals for full USPAP3 

review is likely to be small. 

In addition to the exemptions that 

were adopted in the final rule, based 

upon its review of comments discussed 

in the section-by-section analysis above, 

the Agencies also considered possible 

exemptions from the final rule for 

‘‘streamlined’’ refinance programs (such 

as programs designed by certain 

government agencies and governmentsponsored enterprises that do not 

require appraisals), and loans of lower 

dollar amounts, and clarification on 

application of the rule to loans secured 

by certain property types. As discussed 

in the section-by-section analysis, 

however, the Agencies did not adopt 

these exemptions or clarifications in the 

final rule and instead intend to publish 

a supplemental proposal to request 

additional comment on these issues. 


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142Approximately 50 banks with under $10 

billion in assets are affiliates of large banks with 

over $10 billion in assets and subject to Bureau 

supervisory authority under Section 1025. 

However, these banks are included in this 

discussion for convenience. 

143 Despite receiving some comments requesting 

an exemption from the entire rule for rural HPMLs, 

the Agencies have not received nationallyrepresentative data indicating that the cost of first 

appraisals for HPMLs would be disproportionately 

difficult to incur in rural transactions. 

144 If rural consumers had been subject to the 

additional appraisal requirement for transactions in 

rural areas, then this requirement may also have 

had a disproportionate impact on consumers in 

rural areas because significantly more rural first lien 

mortgage transactions were HPMLs according to 

2010 HMDA data described in Table 2 of the 

proposal. 

Finally, the Agencies considered 

alternatives to the scope of the second 

appraisal requirement for HPMLs on 

properties being resold within 180 days. 

With respect to what price increase 

would trigger this requirement, in 

addition to the approach adopted in the 

final rule, the Agencies also considered 

whether the trigger should be any 

amount greater than zero, an increase of 

10 percent regardless of the number of 

days between 0 and 180 days since the 

acquisition, or an increase of 20 percent 

regardless of the number of days 

between 0 and 180 days since the 

acquisition. For the reasons outlined in 

the section-by-section analysis above, 

the Agencies determined that setting 

staggered price increase thresholds— 

more than 10 percent for properties 

acquired within 90 days and more than 

20 percent for properties acquired 

within 91 and 180 days—was more 

appropriate. In addition, the Agencies 

considered providing no exemption 

from the second appraisal requirement 

for loans on properties located in rural 

areas (as proposed), or providing an 

exemption for loans on properties in 

rural areas defined using combinations 

of urban influence codes (UICs). For the 

reasons outlined in the section-bysection analysis above, the Agencies 

determined that an exemption was 

appropriate for HPMLs secured by 

properties located in certain UICs, as 

discussed in the section-by-section 

analysis of § 1026.35(c)(4)(vii)(H) above. 

Impact of the Rule on Depository 

Institutions and Credit Unions With $10 

Billion or Less in Total Assets, as 

Described in Section 1026 142

Depository institutions and credit 

unions with $10 billion or less in assets 

would experience the same types of 

impacts as those described above. The 

impact on individual institutions would 

depend on the mix of mortgages that 

these institutions originate, the number 

of loan officers that would need to be 

trained, and the cost of reviewing the 

regulation. The Bureau estimates that 

these institutions originated 151,000 

HPML loans in 2011. Assuming the mix 

of purchase money, refinancings, and 

subordinate lien mortgages, and the 

proportion of loans exempt as qualified 

mortgages, was the same at these 

institutions as for the industry as a 

whole, the Bureau estimates that the 

rule will require these institutions to 

have 1,966 full interior appraisals 

conducted for transactions that would 

otherwise not have a full-interior 

appraisal, and 252 new second fullinterior appraisal (as is be required by 

§ 1026.35(c)(4)), for a total of 2,218 

appraisals. As noted above, these 

estimates are derived without 

subtracting some of the loans that are 

exempt from the overall rule. These 

estimates therefore are conservative, 

given that these exemptions collectively 

apply to a significant number of loans. 

The Bureau believes that the impact on 

each creditor under $10 billion is 

substantially the same as for the broader 

group of creditors described above. In 

particular, based upon analysis of the 

same data sources described above, the 

Bureau has determined the under $10 

billion creditors have the same cost per 

loan and similar one-time and ongoing 

burdens, with the specific differences 

described above. 

Impact of the Final Rule on Consumers 

in Rural Areas 

The Bureau does not anticipate that 

the final rule will have a unique impact 

on consumers in rural areas. The Bureau 

does not believe that requiring one 

interior USPAP-compliant appraisal for 

a covered HPML on a rural property will 

have a significantly greater impact than 

the same requirement for a covered 

HPML on a non-rural property.143

Further, the final rule exempts these 

rural transactions from the requirement 

to obtain a second appraisal on the 

property. Therefore, the cost of creditor 

compliance with the second appraisal 

requirement (including due diligence) 

will not be present for these 

transactions. For these reasons, 

explained in more detail below, the 

Bureau does not anticipate the final rule 

will have a unique or disproportionate 

impact on consumers in rural areas. 

As in the section 1022 analysis in the 

proposal, the Bureau continues to 

conclude that there would be no unique 

impact on rural consumers of the 

requirement to obtain the first appraisal. 

For first lien transactions, conditional 

on taking out a mortgage, rural 

consumers may take out first lien 

HPMLs at a higher rate than non-rural 

consumers. Such a difference between 

rural and non-rural rates of first lien 

HPMLs does not have a unique impact 

on rural consumers, however, because 

the rule does not alter existing industry 

practice with respect to appraisals for 

most first lien transactions. For 

subordinate lien transactions, 

conditional on taking out a mortgage, in 

2010 the proportion of subordinate liens 

that were HPMLs were roughly the same 

for consumers in rural areas as in nonrural areas, as illustrated in Table 2 of 

the proposal. In addition, HMDA data 

for 2011 indicates the proportion of 

subordinate liens in rural areas that 

were HPMLs (6.77 percent) was lower 

than the proportion for non-rural areas 

(8.53 percent). Thus, even though the 

rule may have a greater impact on 

subordinate lien HPML transactions 

because appraisals are less common 

currently for these transactions, rural 

consumers’ subordinate liens appear no 

more likely to be HPMLs than non-rural 

consumers, based upon the recent 

HMDA data. As a result, there is no 

unique or disproportionate impact on 

rural consumers in subordinate lien 

transactions either. 

With respect to the second appraisal 

requirement for certain transactions 

involving flips, the Bureau believes that 

flips occur at the same rate in rural areas 

as in non-rural areas. The second 

appraisal requirement will not have any 

impact on consumers engaging in 

transactions on properties in rural areas, 

however, because they are exempt from 

the second appraisal requirement.144 As 

discussed in the preamble to the final 

rule, based upon comments received 

and further analysis, the Agencies have 

determined that there is a sufficient 

basis for concern over availability of 

appraisers in rural areas to conduct a 

second appraisal on rural HPML 

transactions, and consequently some 

concern over credit availability if the 

second appraisal requirement were 

applied to these transactions. The 

Agencies therefore have exempted these 

transactions from the second appraisal 

requirement. This determination in the 

final rule is based upon a broader 

consideration of appraiser availability, 

as well as other factors discussed in the 

section-by-section analysis above, than 

the Bureau considered in its section 

1022 analysis in the proposal stage. In 

its section 1022 analysis in the proposal, 

the Bureau concluded that sufficient 

appraisers likely would be available for 

a property if there were two active 

certified and licensed appraisers on the 

National Appraiser Registry in the same 

or adjacent county. After reviewing a 

number of industry comments 


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145U.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. 

146The Board notes that for purposes of its 

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). 

147As discussed in the SUPPLEMENTARY

INFORMATION above, the Agencies in the final rule 

are referring to ‘‘higher-risk mortgages’’ as HPMLs 

subject to 12 CFR 1026.35(c) in order to use 

terminology consistent with that already used in 

Regulation Z. 

148See the Bureau’s Regulatory Flexibility 

Analysis. 

summarized in the section-by-section 

analysis above, however, the Agencies 

concluded that this approach was too 

narrow. The existence of an appraiser 

on the registry did not necessarily 

guarantee that the appraiser was 

available, or if they were, that they 

would be competent or charging a 

reasonable fee for the transaction. As 

discussed in more detail in the sectionby-section analysis above, when the 

Agencies considered more broadly 

whether five appraisers were available 

within 50 miles, the potential for 

appraiser availability issues grew more 

apparent. This broader approach was 

viewed as necessary, to account for the 

fact that one or more of the active 

appraisers in the registry results for a 

given property may not be available or 

appropriate for the transaction. 

VI. Regulatory Flexibility Act 

Board 

The Board prepared an initial 

regulatory flexibility analysis as 

required by the Regulatory Flexibility 

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

in connection with the proposed rule. 

The regulatory flexibility analysis 

otherwise required under section 604 of 

the RFA is not required if an agency 

certifies, along with a statement 

providing the factual basis for such 

certification, that the rule will not have 

a significant economic impact on a 

substantial number of small entities. 5 

U.S.C. 604, 605(b). The final rule covers 

certain banks, other depository 

institutions, and non-bank entities that 

extend higher-risk mortgage loans to 

consumers. The Small Business 

Administration (SBA) establishes size 

standards that define which entities are 

small businesses for purposes of the 

RFA.145 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 final rule. 

Based on its analysis and for the reasons 

stated below, the Board believes that 

this final rule will not have a significant 

economic impact on a substantial 

number of small entities.146

A. Reasons for the Final Rule 

Section 1471 of the Dodd-Frank Act 

establishes a new TILA section 129H, 

which sets forth appraisal requirements 

applicable to ‘‘higher-risk mortgages.’’ 

The Act generally defines ‘‘higher-risk 

mortgage’’ as a closed-end consumer 

loan secured by a principal dwelling 

with an APR that exceeds the APOR by 

1.5 percent for first-lien loans, 2.5 

percent for first-lien jumbo loans, or 3.5 

percent for subordinate-liens. The 

definition of higher-risk mortgage in 

new TILA section 129H expressly 

excludes qualified mortgages, as defined 

in TILA section 129C, as well as reverse 

mortgage loans that are qualified 

mortgages as defined in TILA section 

129C. 

Specifically, new TILA section 129H 

does not permit a creditor to extend 

credit in the form of a ‘‘higher-risk 

mortgage’’ to any consumer without 

first: 

• Obtaining a written appraisal 

performed by a certified or licensed 

appraiser who conducts a physical 

property visit of the interior of the 

property. 

• Obtaining an additional appraisal 

from a different certified or licensed 

appraiser if the purpose of the higherrisk mortgage loan is to finance the 

purchase or acquisition of a mortgaged 

property from a seller within 180 days 

of the purchase or acquisition of the 

property by that seller at a price that 

was lower than the current sale price of 

the property. 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. 

• Providing 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. 

• Providing the applicant with one 

copy of each appraisal conducted in 

accordance with TILA section 129H 

without charge, at least three (3) days 

prior to the transaction closing date. 

Section 1400 of the Dodd-Frank Act 

requires that final regulations to 

implement these provisions be issued 

no later than January 21, 2013. The 

Agencies are issuing the final rule to 

fulfill their statutory duty to implement 

the appraisal provisions added in new 

TILA section 129H. 

B. Statement of Objectives and Legal 

Basis 

The SUPPLEMENTARY INFORMATION

above contains this information. As 

discussed above, the legal basis for the 

final rule is new TILA section 

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

TILA section 129H was established by 

section 1471 of the Dodd-Frank Act. 

C. Summary of Issues Raised by 

Commenters 

In the proposed rule to implement the 

appraisal provisions in new TILA 

section 129H, the Board sought 

information and comment on any costs, 

compliance requirements, or changes in 

operating procedures arising from the 

application of the rule to small 

institutions. The Board received 

comments from various industry 

representatives, including banks, credit 

unions, and the trade associations that 

represent them. As discussed in the 

SUPPLEMENTARY INFORMATION above, the 

commenters asserted that compliance 

with the proposed rule would have a 

disproportionate impact on small 

entities and cited concerns about the 

utility and expense of requiring these 

entities to comply with all or some of 

the rule’s requirements. These 

comments, however, did not contain 

specific information about costs that 

will be incurred or changes in operating 

procedures that will be required for 

compliance. 

In general, the commenters discussed 

the impact of statutory requirements 

rather than any impact that the 

proposed rules themselves would 

generate. Moreover, the Agencies have 

reduced the compliance burden in the 

final rule by adding exemptions from 

both the written appraisal and the 

additional written appraisal 

requirements. Thus, the Board 

continues to believe that the final rule 

will not have a significant impact on a 

substantial number of small entities. 

D. Description of Small Entities to 

Which the Rules Apply 

The final rule applies to creditors that 

make HPMLs subject to 12 CFR 

1026.35(c).147 To estimate the number of 

small entities that will be subject to the 

requirements of the rule, the Board is 

relying primarily on data provided by 

the Bureau.148 According to the data 


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10424 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

149This estimate does not account for exemptions 

provided in the final rule. 

150For purposes of assessing the impacts of the 

final rule on small entities, ‘‘small entities’’ is 

defined in the RFA to include small businesses, 

small not-for-profit organizations, and small 

government jurisdictions. 5 U.S.C. 601(6). A ‘‘small 

business’’ is determined by application of Small 

Business Administration regulations and reference 

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), given 

the range of exemptions from the rules, 

including the exemption for qualified 

mortgages. Further, the number of these 

small entities that will make HPMLs 

subject to 12 CFR 1026.35(c) in the 

future is unknown. 

E. Projected Reporting, Recordkeeping 

and Other Compliance Requirements 

The compliance requirements of the 

final rule are described in detail in the 

SUPPLEMENTARY INFORMATION above. 

The final rule generally applies to 

creditors that make HPMLs subject to 12 

CFR 1026.35(c), which are generally 

mortgages with an APR that exceeds the 

APOR by a specified percentage, subject 

to certain exceptions. The final rule 

generally 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. 

A creditor is required to determine 

whether it extends HPMLs subject to 12 

CFR 1026.35(c); if so, the creditor must 

analyze the regulations. The creditor 

must establish procedures for 

identifying mortgages subject to the new 

appraisal requirements. A creditor 

making a HPML subject to 12 CFR 

1026.35(c) must obtain a written 

appraisal performed by a certified or 

licensed appraiser who conducts a 

physical property visit of the interior of 

the property. Creditors seeking a safe 

harbor for compliance with this 

requirement must: 

• Order that the appraiser perform the 

written appraisal in conformity with the 

USPAP and title XI of the FIRREA, and 

any implementing regulations, in effect 

at the time the appraiser signs the 

appraiser’s certification; 

• Verify through the National Registry 

that the appraiser who signed the 

appraiser’s certification was a certified 

or licensed appraiser in the State in 

which the appraised property is located 

as of the date the appraiser signed the 

appraiser’s certification; 

• Confirm that the elements set forth 

in appendix N to this part are addressed 

in the written appraisal; and 

• Have no actual knowledge to the 

contrary of facts or certifications 

contained in the written appraisal. 

A creditor must also determine 

whether it is financing the purchase or 

acquisition of a mortgaged property by 

a consumer from a seller (1) within 90 

days of the seller’s acquisition of the 

property for a resale price that exceeds 

the seller’s acquisition price by more 

than 10 percent; or (2) 91 to 180 days 

of the seller’s acquisition of the property 

for a resale price that exceeds the 

seller’s acquisition price by more than 

20 percent. If so, the creditor must 

obtain an additional appraisal of the 

property and confirm that the additional 

appraisal meets the requirements of the 

first appraisal. The creditor also must 

ensure that the additional appraisal 

includes 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. 

Creditors extending HPMLs subject to 

12 CFR 1026.35(c) also must design, 

generate, and provide a new notice to 

applicants. Specifically, within three 

business days of application, a creditor 

must provide a disclosure that informs 

consumers of the purpose of the 

appraisal, that the creditor will provide 

the consumer with a copy of any 

appraisal, and that the consumer may 

choose to have a separate appraisal 

conducted at the expense of the 

consumer. In addition, creditors making 

HPMLs subject to 12 CFR 1026.35(c) 

must provide the consumer with a copy 

of each appraisal conducted at least 

three business days prior to closing and 

develop systems for that purpose. 

The Board believes that certain factors 

will mitigate the economic impact of the 

final rule. First, the Board believes that 

only a small number of loans will be 

affected by the final rule. For example, 

according to HMDA data, less than four 

percent of first-lien home purchase 

mortgage loans in 2010 or 2011 would 

potentially be subject to the appraisal 

requirements of 12 CFR 1026.35(c).149

Moreover, most home purchase loans do 

not involve properties that were 

previously purchased within 180 days 

and therefore would not require an 

additional written appraisal. In 

addition, based on outreach, the Board 

believes that many creditors are already 

obtaining written appraisals performed 

by certified or licensed appraisers who 

conduct a physical property visit of the 

interior of the property. Creditors may 

be obtaining such appraisals pursuant to 

other requirements, such as of FIRREA 

title XI or the FHA Anti-Flipping Rule, 

or they may be obtaining the appraisals 

voluntarily. 

Because of the small number of 

transactions affected, the Board believes 

that the final rule is unlikely to have a 

significant economic impact on a 

substantial number of small entities. 

F. 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 final rule. The final rule will 

work in conjunction with the existing 

requirements of FIRREA title XI and its 

implementing regulations. 

G. Discussion of Significant Alternatives 

As described in the SUPPLEMENTARY

INFORMATION, above, the Board has 

sought to minimize the economic 

impact on small entities in several ways. 

First, the final rule provides exemptions 

from both the written appraisal and the 

additional written appraisal 

requirements, and provides creditors 

with a safe harbor for determining that 

an appraiser has met certain specified 

requirements. The final rule also 

replaces the term ‘‘higher-risk mortgage 

loan’’ with ‘‘higher-priced mortgage 

loan’’ in order to use terminology 

consistent with that already used in 

Regulation Z. Moreover, the final rule 

seeks to reduce burden by providing 

that the disclosure required at 

application may be fulfilled by 

compliance with the disclosure 

requirement in Regulation B, 12 CFR 

1002.14(a)(2). Lastly, the final rule seeks 

to reduce burden by allowing a creditor 

subject to the additional appraisal 

requirement under TILA section 

129H(b)(2) to obtain an appraisal that 

contains the analysis required in TILA 

section 129H(b)(2)(A) only to the extent 

that needed information is known. 15 

U.S.C. 1639h(b)(2). 

Bureau 

The Regulatory Flexibility Act (RFA) 

generally requires an agency to conduct 

an initial regulatory flexibility analysis 

(IRFA) and a final regulatory flexibility 

analysis (FRFA) of any rule subject to 

notice-and-comment rulemaking 

requirements, unless the agency certifies 

that the rule will not have a significant 

economic impact on a substantial 

number of small entities.150 The Bureau 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10425 

to the North American Industry Classification 

System (NAICS) classifications and size standards. 

5 U.S.C. 601(3). A ‘‘small organization’’ is any ‘‘notfor-profit enterprise which is independently owned 

and operated and is not dominant in its field.’’ 5 

U.S.C. 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. 5 U.S.C. 601(5). 

151 5 U.S.C. 609. 

152 13 CFR Ch. 1. 

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.151 A FRFA is not required 

because this rule will not have a 

significant economic impact on a 

substantial number of small entities. 

A. Summary of Final Rule 

The empirical approach to calculating 

the impact that the regulation has on 

small entities subject to the final rule 

follows the methodology, and uses the 

same data, as the above analysis 

conducted under Section 1022 of the 

Dodd-Frank Act. The impact analysis 

focuses on the economic impact of the 

final rule, relative to a pre-statute 

baseline, for small depository 

institutions (DIs) and non-depository 

independent mortgage banks (IMBs), 

also described in this impact analysis as 

non-DIs. The Small Business 

Administration classifies DIs 

(commercial banks, savings institutions, 

credit unions, and other depository 

institutions) as small if they have no 

more than $175 million in assets, and 

classifies other real estate credit firms 

(including non-DIs) as small if they have 

no more than $7 million in annual 

revenues.152

The final rule implements section 

1471 of the Dodd-Frank Act, which 

establishes appraisal requirements for 

HPMLs that are not otherwise exempt 

under the final rule. Under the 

exemptions in the final rule, the final 

rule does not apply qualified mortgages 

as defined in the Bureau’s 2013 ATR 

Final Rule, transactions secured by a 

new manufactured home, transactions 

secured by a mobile home, boat, or 

trailer, transactions to finance the initial 

construction of a dwelling, temporary 

bridge loans with a term of 12 months 

or less, or reverse mortgages. 

Consistent with the statute, the final 

rule allows a creditor to make a covered 

HPML 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. 

In addition, as required by the Act, 

the final rule requires a creditor 

originating a covered HPML to obtain an 

additional written appraisal, at no cost 

to the borrower, if certain conditions are 

met, unless a transaction falls into one 

of the exemptions from this requirement 

in the rule (exemptions are described in 

§ 1026.35(c)(4)(vii). The following 

conditions trigger this requirement: 

• The HPML will finance the 

acquisition of the consumer’s principal 

dwelling; 

• The seller selling what will become 

the consumer’s principal dwelling 

acquired the home within 180 days 

prior to the consumer’s purchase 

agreement (measured from the date of 

the consumer’s purchase agreement); 

and 

• The consumer is acquiring the 

home for a price that is more than 10 

percent higher than the price at which 

the seller acquired the property (if the 

seller acquired the property within 90 

days of the consumer’s purchase 

agreement) or more than 20 percent 

higher than the price at which the seller 

acquired the property (if the seller 

acquired the property within 91 to 180 

days of the consumer’s purchase 

agreements). 

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 price 

at which the seller previously acquired 

the property, and the price at which the 

consumer agreed to acquire 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 seller’s previous acquisition and 

the consumer’s agreement to acquire the 

property. 

Finally, the rule requires creditors in 

covered HPML transactions to provide a 

standardized notice to consumers 

regarding the appraisal process within 

three days of the application, as well as 

a free copy of any written appraisal 

obtained for the transaction no later 

than three business days prior to 

consummation of the transaction (or 

within 30 days of determining the 

transaction will not be consummated). 

B. Number and Classes of Affected 

Entities 

Of the roughly 17,462 depository 

institutions (including credit unions) 

and IMBs, 12,568 are below the relevant 

small entity thresholds. Of the small 

institutions, 9,094 are estimated to have 

originated mortgaged loans in 2011. 

While loan counts exist for credit 

unions and HMDA-reporting DIs and 

IMBs, they must be projected for nonHMDA reporters. For IMBs, an accepted 

statistical method (‘‘nearest neighbor 

matching’’) is used to estimate the 

number of these institutions that have 

no more than $7 million in revenues 

from the MCR. 

TABLE 1—COUNTS OF CREDITORS BY TYPE

Category NAICS code Total entities Small entities 

Entities that 

originate any 

mortgage 

loans b

Small entities 

that originate 

any mortgage 

loans 

Commercial Banking ............................................................ 522110 6,505 3,601 a 6,307 a 3,466 

Savings Institutions .............................................................. 522120 930 377 a 922 a 373 

Credit Unions c ..................................................................... 522130 7,240 6,296 a 4,178 a 3,240 

Real Estate Credit d e ............................................................ 522292 2,787 2,294 2,787 a 2,294 

Total .............................................................................. ........................ 17,462 12,568 14,194 9,373 

Source: 2011 HMDA, Dec 31, 2011 Bank and Thrift Call Reports, Dec 31, 2011 NCUA Call Reports, Dec 31, 2011 NMLSR Mortgage Call Reports. aFor HMDA reporters, loan counts from HMDA 2011. For institutions that are not HMDA reporters, loan counts projected based on Call Report 

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


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10426 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

153Banks, saving institutions, and credit unions 

all have comparatively lower numbers. For the 

small IMBs, 85 percent are going to have one-time 

setup costs of less than $445. 

154Even for the small IMBs this ratio is less than 

1 percent for 85 percent of the IMBs. The numbers 

are much lower for the other types of creditors. 

155The final rule would not have a significant 

impact on a substantial number of small DIs, even 

if the cost of appraisals were assumed to be 

significantly higher than the average cost—such as 

at $600, as conservatively assumed in the proposal 

based upon the state with the highest median—and 

even if the analysis did not assume any HPMLs 

would meet the criteria for exemptions in the final 

rule. The switches from $350 to $600 for appraisal 

cost and from non-QM to all HPMLs would increase 

the percentages in the table approximately by a 

factor of 20. However, even then the impact remains 

well within 3 percent for 85 percent of the 

institutions. 

156The final rule would not have a significant 

impact on a substantial number of small IMBs, even 

if the cost of appraisals were assumed to be 

significantly higher than the average cost—at $600, 

as conservatively assumed in the proposal—and 

even if the analysis did not assume any HPMLs 

would meet the criteria for exemptions in the final 

rule. The switches from $350 to $600 for appraisal 

cost and from non-QM to all HPMLs would increase 

the percentages in the table approximately by a 

factor of 20. However, even then the impact remains 

well within 3 percent for 85 percent of the 

institutions. 

c Does not include cooperatives operating in Puerto Rico. The Bureau has limited data about these institutions, which are subject to Regulation 

Z, or their mortgage activity. d NMLSR Mortgage Call Report (‘‘MCR’’) for 2011. All MCR reporters that originate at least one loan or that have positive loan amounts are 

considered to be engaged in real estate credit (instead of purely mortgage brokers). For institutions with missing revenue values, the probability 

that institution was a small entity is estimated based on the count and amount of originations and the count and amount of brokered loans. e Data do not distinguish nonprofit from for-profit organizations, but Real Estate Credit presumptively includes nonprofit organizations. 

C. Analysis 

Although most DIs and non-DIs are 

affected by the final rule, the final rule 

does not have a significant impact on a 

substantial number of small entities, as 

is demonstrated by the burden estimates 

for small institutions calculated below. 

For each institution the cost of 

compliance is calculated and then 

divided by a measure of revenue. For 

DIs, revenue is obtained from the 

appropriate call report. For non-DIs, the 

frequency of HPMLs is not available in 

the MCR. However, data available in 

HMDA shows that the proportion of 

HPMLs in a non-DI’s originations does 

not vary by origination volume. As 

such, HMDA data is used in lieu of the 

MCR data to calculate costs of 

compliance with the final rule. 

The creditors will incur one-time 

costs of review, as described in the 

analysis under section 1022 above, and 

ongoing costs, proportional to the 

volume of HPMLs originated, and also 

as described in the section 1022 analysis 

above. 

The Bureau estimates that 85 percent 

of the creditors affected are going to 

have one-time costs of less than $300.153

Using an alternative metric, 85 percent 

of the creditors have a ratio of one-time 

costs to their revenue of less than 0.1 

percent.154

For small DIs, Table 2 reports various 

statistics for the estimated annual cost 

of compliance with the final rule as a 

percentage of revenues using 

conservative assumptions. The 

assumptions underlying the Bureau’s 

estimates are explained in the table and 

are generally discussed in more detail in 

the Section 1022(b)(2) analysis. The 

table shows that 85 percent of the small 

DIs and credit unions that originate any 

HPMLs have costs of significantly less 

than one percent of the revenue. This 

stays the same when the creditors are 

separated into types.155

TABLE 2—RECURRING COSTS OF RULE AS A SHARE OF REVENUE BY TYPE OF CREDITOR (85TH PERCENTILE). 

Small HPML 

originators 85th Percentile 

All Institutions ........................................................................................................................................................... 4461 <0.01% 

Banks ....................................................................................................................................................................... 3006 <0.01% 

Thrifts ....................................................................................................................................................................... 310 <0.01% 

Credit Unions ........................................................................................................................................................... 1145 <0.01% 

Assumptions: Costs per-transaction and per-loan officer are as described in the section 1022(b)(2) analysis. These include but are not limited 

to the following: Full-interior appraisals—whether first or second—cost $350, alternative valuations cost $5. In the absence of the rule, the probability of a full-interior appraisal for a transaction is 95 percent for purchase-money transactions, 90 percent for refinance transactions, and 5 percent for subordinate-lien mortgages. The proportion of resales within 180 days is 5 percent, without regard to difference in price. Costs of the first 

full interior appraisal are passed on completely to consumers. The review of the appraisal upon receipt takes 15 minutes of loan officer time. The 

Bureau also includes 15 minutes of loan officer time per loan to estimate whether the transaction is a flip. 

The Bureau also has analyzed the data 

for IMBs separately. Most IMBs are 

small, and the Bureau does not possess 

the data on the revenues of 

approximately 700 of those. As with the 

DIs and credit unions, the effects of the 

rule are insignificant. Out of the 1,325 

small IMBs that originate any HPMLs, 

and for whom the Bureau possesses 

revenue information, 85 percent of the 

IMBs have costs below 0.30 percent of 

the revenue, using the same cost 

assumptions as for the depository 

institutions and credit unions.156 The 

exemptions from the rule and from its 

second appraisal requirement 

significantly reduce the number of 

HPMLs subject to these requirements, 

almost tenfold. For the remaining 

HPMLs that are covered by the rule, 

such as non-QM HPMLs, because many 

of the costs imposed by the final rule are 

likely to be passed on to consumers, this 

may result in a decrease in demand for 

those loans (such as non-QM HPMLs). 

However, any possible decrease in nonQM HPML volume is likely to be 

negligible. For both first-lien and 

subordinate-lien HPMLs, the principal 

increase in cost to consumers is the 

difference in costs between the fullinterior appraisal and any alternative 

valuation method costs; some other 

costs imposed by the rule, such as 

creditor labor costs discussed in the 

section 1022(b)(2) analysis above, and 

the cost of providing required 

disclosures, also may be reflected in 

increases in the fees or rates charged in 

a class of loans. These charges are 

unlikely to exceed $600. For first lien 

transactions, full interior inspections are 

common industry practice so for the 

typical first lien transaction this 

increase in cost to consumers would be 

small. Furthermore, these costs may also 

be rolled into the loan, up to loan-tovalue ratio limits, so short-term 

liquidity constraints for buyers are 

unlikely to bind. Passing the cost of 

appraisals on to consumers is current 

industry practice, and consumers 

appear to accept the appraisal fee, so 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10427 

157See 5 U.S.C. 601 et seq. 

158The 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-priced loans were generated in 2010, 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. 

159The FDIC notes that the exact number of small 

entities likely to be affected by the final rule is 

unknown because the FDIC lacks reliable sources 

for certain information. 

160The requirements to provide consumers with 

a statement disclosing the purpose of the appraisal 

and to furnish consumers a copy of the appraisal 

without charge at least three days prior to closing 

should not create a significant new burden, as most 

FDIC-supervised institutions routinely provide 

required disclosures and copies of the appraisal to 

consumers in a timely manner. 

161 12 CFR Part 323. 

there is unlikely to be an adverse effect 

on demand. 

A more likely impact—albeit 

significantly reduced by the scope of 

exemptions adopted in the final rule— 

would be on the volume of non-QM 

HPMLs secured by subordinate liens 

because, in practice, these are the 

transactions on which final rule 

imposes a change from the status quo, 

and also because the cost of a full 

interior appraisal is a larger proportion 

of the loan amount to the extent 

subordinate lien loan amounts generally 

are lower than first lien loan amounts. 

However, changes in the volume of 

subordinate lien non-QM HPMLs may 

be mitigated by consumers rolling the 

appraisal costs into the loan or the 

consumer and the creditor splitting the 

incremental cost of the full-interior 

appraisal if it is profitable for the 

creditor to do so. In addition, many 

creditors originating subordinate lien 

non-QM HPMLs can offer alternative 

products that are not subject to the rule, 

such as qualified mortgages or home 

equity lines of credit (HELOCs). 

Similarly, the costs imposed on 

creditors are sufficiently small that they 

are unlikely to result in a decrease in 

the supply of credit. 

D. Certification 

Accordingly, the Director of the 

Consumer Financial Protection Bureau 

certifies that this rule will not have a 

significant economic impact on a 

substantial number of small entities. 

FDIC 

The RFA generally requires that, in 

connection with a final rulemaking, an 

agency prepare a final regulatory 

flexibility analysis that describes the 

impact of the final rule on small 

entities.157 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 Small Business Administration to 

include banking organizations with total 

assets of less than or equal to $175 

million) and publishes its certification 

along with a statement providing the 

factual basis for such certification in the 

Federal Register together with the rule. 

As of March 31, 2012, there were 

approximately 2,571 small FDICsupervised banks, which include 2,410 

state nonmember banks and 161 statechartered savings banks. The FDIC 

analyzed the 2010 Home Mortgage 

Disclosure Act 158 (HMDA) dataset to 

determine how many loans by FDICsupervised banks might qualify as 

HPMLs under section 129H of TILA, as 

added by section 1471 of the DoddFrank Act.159 This analysis reflected 

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 eight HPML loans each in 

2010. 

The three requirements 160 in the final 

rule that could impact small FDICsupervised institutions most 

significantly are: 

1. Requiring an appraisal in 

connection with real estate financial 

transactions that previously did not 

require an appraisal, 

2. mandating that the appraiser 

conduct a physical visit to the interior 

of the property, and 

3. requiring a second appraisal at the 

lender’s expense in certain situations. 

As for the first potential impact, the 

FDIC notes that Part 323 of the FDIC 

Rules and Regulations 161 (Part 323) 

requires financial institutions to obtain 

an appraisal for federally related 

transactions unless an exemption 

applies. Part 323 grants an exemption to 

the appraisal requirement for real estaterelated financial transactions of 

$250,000 or less. However, Part 323 

requires financial institutions to obtain 

an appropriate evaluation that is 

consistent with safe and sound banking 

practices for such transactions. The final 

rule will supersede this exemption, 

resulting in creditors having to obtain 

an appraisal for an HPML transaction 

regardless of the transaction amount. 

The requirement to obtain an appraisal 

rather than an evaluation does not add 

much, if any, new burden on FDICsupervised institutions, as they are 

required by Part 323 to obtain some type 

of valuation of the mortgaged property. 

The final rule merely limits the type of 

permissible valuation to an appraisal for 

HPMLs. 

As for the second potential impact, 

the final rule’s requirement affects a 

lender only to the extent that a lender 

must instruct the appraiser to conduct a 

physical visit of the interior of the 

mortgaged property. USPAP and title XI 

of FIRREA, and the regulations 

prescribed thereunder, do not require 

appraisers to perform on-site visits. 

Instead, USPAP requires appraisers to 

include a certification which clearly 

states whether the appraiser has or has 

not personally inspected the subject 

property. During informal outreach 

conducted by the Agencies, outreach 

participants indicated that many 

creditors require appraisers to perform a 

physical inspection of the mortgaged 

property. This requirement is 

documented in the Uniform Residential 

Appraisal Report form used as a matter 

of practice in the industry, which 

includes a certification that the 

appraiser performed a complete visual 

inspection of the interior and exterior 

areas of the subject property. Outreach 

participants indicated that requiring a 

physical visit of the interior of the 

mortgaged property added, on average, 

an additional cost of about $50 to the 

appraisal fee, which is paid by the 

applicant. Thus, the physical visit 

requirement creates a potential burden 

for the appraiser, not the lender, and the 

cost is born by the applicant. 

As for the third potential impact, the 

final rule’s requirement to conduct a 

second appraisal for certain transactions 

should not affect many FDIC-supervised 

banks. As previously indicated, FDICsupervised banks that meet the 

definition of a small entity originated an 

average of less than eight HPMLs each 

in 2010. According to estimates 

provided by FHFA, about 5 percent of 

single-family property sales in 2010 

reflected situations in which the same 

property had been sold within a 180-day 

period. This information shows that 

most small FDIC-supervised banks will 

have to obtain a second appraisal for a 

nominal number of transactions at the 

bank’s expense. The estimated cost of a 

second appraisal is between $350 to 

$600. 

In sum, the FDIC believes that the 

final 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) Part 323 

already requires FDIC-supervised 

depository institutions to obtain some 

type of valuation for real estate-related 

financial transactions; (2) the 


srobinson on DSK4SPTVN1PROD with RULES3
10428 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

162See 5 U.S.C. 601 et seq. 

163 68 FR 31949 (May 29, 2003). 

164NCUA based its analysis on the HMDA data, 

as it provided a proxy for the characteristics of 

HPMLs. The analysis is restricted to 2010 HMDA 

data because the average offer price (a key data 

element for this review) was not added in the 

HMDA data until the fourth quarter of 2009. 

165With 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 two 

HPML loans each year. 

166Codified at section 129H of the Truth-inLending Act, 15 U.S.C. 1631 et seq. 

167 12 CFR part 722. 

requirement of conducting a physical 

visit of the interior of the mortgaged 

property creates a potential burden for 

an appraiser, rather than the lender, 

with the cost being born by the 

applicant; and (3) the second appraisal 

requirement should affect a nominal 

number of transactions. Accordingly, 

pursuant to section 605(b) of the RFA, 

the FDIC certifies that the final rule will 

not have a significant economic impact 

on a substantial number of small 

entities. 

FHFA 

The 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 

Regulatory Flexibility Act. See 5 U.S.C. 

601(6)). 

NCUA 

The RFA generally requires that, in 

connection with a final rule, an agency 

prepare and make available for public 

comment a final regulatory flexibility 

analysis that describes the impact of the 

final rule on small entities.162 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 ten million 

dollars in assets 163 in contrast to the 

definition of small entities in the rules 

issued by the Small Business 

Administration (SBA), which include 

banking organizations with total assets 

of less than or equal to $175 million. 

NCUA staff analyzed the 2010 Home 

Mortgage Disclosure Act (HMDA) 

dataset to determine how many loans by 

federally insured credit unions (FICUs) 

might qualify as HPMLs under section 

129H of TILA.164 As of March 31, 2012, 

there were 2,475 FICUs that met 

NCUA’s small entity definition but none 

of these institutions reported data to 

HMDA in 2010. For purposes of this 

rulemaking 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 88 percent of reporting 

FICUs originating ten HPMLs or less. 

Further, FICUs that met the SBA’s 

definition of a small entity originated an 

average four HPML loans each in 

2010.165

As previously discussed, section 1471 

of the Dodd-Frank Act 166 generally 

prohibits a creditor from extending 

credit in the form of a HPML to any 

consumer without first: 

• Obtaining a written appraisal 

performed by a certified or licensed 

appraiser who conducts a physical 

property visit of the interior of the 

property. 

• Obtaining an additional appraisal 

from a different certified or licensed 

appraiser if the HPML 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. 

• Providing 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. 

• Providing the applicant with one 

copy of each appraisal conducted in 

accordance with TILA section 129H 

without charge, at least three (3) days 

prior to the transaction closing date. 

The final rule implements the 

appraisal requirements of section 1471 

of the Dodd-Frank Act. Part 722 of 

NCUA’s regulations 167 requires FICUs 

to obtain an appraisal for federally 

related transactions unless an 

exemption applies. Part 722 grants an 

exemption to the appraisal requirement 

for real estate-related financial 

transactions of $250,000 or less. 

However, part 722 requires FICUs to 

obtain an appropriate evaluation that is 

consistent with safe and sound practices 

for such transactions. 

The final rule will supersede this 

exemption, resulting in FICUs having to 

obtain an appraisal for a HPML 

transaction regardless of the transaction 

amount. The requirement to obtain an 

appraisal rather than an evaluation does 

not pose a new burden to financial 

institutions, as they are required by part 

722 to obtain some type of valuation of 

the mortgaged property. The final rule 

merely limits the type of permissible 

valuations to an appraisal for HPMLs. 

The final rule’s requirement to 

conduct a physical visit of the interior 

of the mortgaged property potentially 

adds an additional burden to the 

appraiser. The USPAP and title XI of 

FIRREA and the regulations prescribed 

thereunder do not require appraisers to 

perform on-site visits. Instead, USPAP 

requires appraisers to include a 

certification which clearly states 

whether the appraiser has or has not 

personally inspected the subject 

property. During informal outreach 

conducted by the Agencies, outreach 

participants indicated that many 

creditors require appraisers to perform a 

physical inspection of the mortgaged 

property. This requirement is 

documented in the Uniform Residential 

Appraisal Report form used as a matter 

of practice in the industry, which 

includes a certification that the 

appraiser performed a complete visual 

inspection of the interior and exterior 

areas of the subject property. Outreach 

participants indicated that requiring a 

physical visit of the interior of the 

mortgaged property added on average an 

additional cost of about $50 to the 

appraisal fee, which is paid by the 

applicant. 

In light of the fact that few loans made 

by FICUs would qualify as HPMLs, the 

fact that many creditors already require 

that an appraiser conduct an interior 

inspection of mortgage collateral 

property in connection with an 

appraisal; the fact that requiring an 

interior inspection would add a 

relatively small amount to the cost of an 

appraisal; and the various exemptions 

and exclusions from the requirements 

provided in the rule, NCUA believes the 

final rule will not have a significant 

economic impact on small FICUs. 

For the reasons provided above, 

NCUA certifies that the final rule will 


srobinson on DSK4SPTVN1PROD with RULES3
Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10429 

168Public Law 104–121, 110 Stat. 857 (1996). 

169 5 U.S.C. 551. 

170 ‘‘A financial institution’s asset are determined 

by averaging assets reported on its four quarterly 

financial statements for the preceding year.’’ See 

footnote 8 of the U.S. Small Business 

Administration’s Table of Size Standards. 

not have a significant economic impact 

on a substantial number of small 

entities. Accordingly, a regulatory 

flexibility analysis is not required. 

Executive Order 13132 

Executive Order 13132 encourages 

independent regulatory agencies to 

consider the impact of their actions on 

state and local interests. NCUA, an 

independent regulatory agency as 

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

complies with the executive order to 

adhere to fundamental federalism 

principles. This final rule applies to 

Federally insured credit unions and will 

not have a substantial direct effect on 

the states, on the relationship between 

the national government and the states, 

or on the distribution of power and 

responsibilities among the various 

levels of government. NCUA has 

determined that this final rule does not 

constitute a policy that has federalism 

implications for purposes of the 

Executive Order. 

The Treasury and General Government 

Appropriations Act, 1999—Assessment 

of Federal Regulations and Policies on 

Families 

NCUA has determined this final rule 

will not affect family well-being within 

the meaning of section 654 of the 

Treasury and General Government 

Appropriations Act, 1999, Public Law 

105–277, 112 Stat. 2681 (1998). 

Small Business Regulatory Enforcement 

Fairness Act 

The Small Business Regulatory 

Enforcement Fairness Act of 1996 168

(SBREFA) provides generally for 

congressional review of agency rules. A 

reporting requirement is triggered in 

instances where NCUA issues a final 

rule as defined by Section 551 of the 

Administrative Procedure Act.169 NCUA 

does not believe this final rule is a 

‘‘major rule’’ within the meaning of the 

relevant sections of SBREFA. NCUA has 

submitted the rule to the Office of 

Management and Budget (OMB) for its 

determination. 

OCC 

Pursuant to section 605(b) of the 

Regulatory Flexibility Act, 5 U.S.C. 

605(b) (RFA), the regulatory flexibility 

analysis otherwise required under 

section 603 of the RFA is not required 

if the agency certifies that the final rule 

will not, 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 $175 

million 170 and trust companies with 

total assets of $7 million or less) and 

publishes its certification and a short, 

explanatory statement in the Federal 

Register along with its final rule. 

Section 1471 of the Dodd-Frank Act 

establishes a new TILA section 129H, 

which sets forth appraisal requirements 

applicable to higher-priced mortgage 

loans. A ‘‘higher-priced mortgage’’ 

generally is a closed-end consumer loan 

secured by a principal dwelling with an 

APR that exceeds the APOR by 1.5 

percent for first-lien loans with a 

principal amount below the conforming 

loan limit, 2.5 percent for first-lien 

jumbo loans, or 3.5 percent for 

subordinate-liens. The definition of 

higher-priced mortgage loan expressly 

excludes qualified mortgages, as defined 

in TILA section 129C, as well as reverse 

mortgage loans that are qualified 

mortgages as defined in TILA section 

129C. 

Specifically, section 129H does not 

permit a creditor to extend credit in the 

form of a higher-priced mortgage loan to 

any consumer without first: 

• Obtaining a written appraisal 

performed by a certified or licensed 

appraiser who conducts a physical 

property visit of the interior of the 

property. 

• Obtaining an additional written 

appraisal from a different certified or 

licensed appraiser if the purpose of the 

higher-risk mortgage loan is to finance 

the purchase or acquisition of a 

mortgaged property from a seller within 

180 days of the purchase or acquisition 

of the property by that seller at a price 

that was lower than the current sale 

price of the property. The additional 

written 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. 

• Providing the applicant, at the time 

of the initial mortgage application, with 

a statement that any written 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. 

• Providing the applicant with one 

copy of each appraisal conducted in 

accordance with TILA section 129H 

without charge, at least three (3) days 

prior to the transaction closing date. 

The OCC currently supervises 1,926 

banks (1,262 commercial banks, 65 trust 

companies, 552 federal savings 

associations, and 47 branches or 

agencies of foreign banks). We estimate 

that less than 1,400 of the banks 

supervised by the OCC are currently 

originating one- to four-family 

residential mortgage loans. 

Approximately 772 OCC supervised 

banks are small entities based on the 

SBA’s definition of small entities for 

RFA purposes. Of these, the OCC 

estimates that 465 banks originate 

mortgages and therefore may be 

impacted by the final rule. 

The OCC classifies the economic 

impact of total costs on a bank as 

significant if the total costs in a single 

year are greater than 5 percent of total 

salaries and benefits, or greater than 2.5 

percent of total non-interest expense. 

The OCC estimates that the average cost 

per small bank will range from a lower 

bound of approximately $10,000 to an 

upper bound of approximately $18,000. 

Using the upper bound cost estimate, 

we believe the final rule will have a 

significant economic impact on three 

small banks, which is not a substantial 

number. 

Therefore, we believe the final rule 

will not have a significant economic 

impact on a substantial number of small 

entities. The OCC certifies that the Final 

Rule would not, if promulgated, have a 

significant economic impact on a 

substantial number of small entities. 

OCC Unfunded Mandates Reform Act of 

1995 Determination 

Section 202 of the Unfunded 

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

1532), requires the OCC to prepare a 

budgetary impact statement before 

promulgating a rule that includes a 

Federal mandate that may result in the 

expenditure by state, local, and tribal 

governments, in the aggregate, or by the 

private sector, of $100 million or more 

in any one year (adjusted annually for 

inflation). The OCC has determined that 

this final rule will not result in 

expenditures by state, local, and tribal 

governments, or the private sector, of 

$100 million or more in any one year. 

Accordingly, the OCC has not prepared 

a budgetary impact statement. 

VII. Paperwork Reduction Act 

Certain provisions of this 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.). Under the PRA, 

the Agencies may not conduct or 

sponsor, and a person is not required to 


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10430 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

171The 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. 

172The 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. 

173The 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). 

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 final 

rulemaking 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 final 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.171

Bureau: Insured depository 

institutions with more than $10 billion 

in assets, their depository institution 

affiliates, and certain non-depository 

mortgage institutions.172

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 this final rule are found 

in paragraphs (c)(3)(i), (c)(3)(ii), (c)(4), 

(c)(5), and (c)(6) of 12 CFR 1026.35. 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 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 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). 

Comments on Proposed PRA Estimate 

In the proposal, the Agencies 

proposed a Calculation of Estimated 

Burden based on the proposed 

requirements. The Agencies received 

one comment from a bank in response 

to the PRA estimate in the proposed 

rule. The commenter asserted that the 

Agencies’ proposed PRA estimates to 

comply with the new requirements were 

understated, but the commenter did not 

provide alternative estimates. The 

Agencies recognize that the amount of 

time required of institutions to comply 

with the requirements may vary; 

however, the Agencies continue to 

believe that estimates provided are 

reasonable averages. 

The requirements provided in the 

final rule are substantially similar to 

those provided in the proposed rule. 

Based upon data available to the Bureau 

as described in its section 1022 analysis 

above and in the table below, the 

estimated burdens allocated to the 

Bureau are revised from the proposal to 

reflect an institution count based upon 

updated data and reduced to reflect 

those exemptions in the final rule for 

which the Bureau has identified data. 

Because these data were unavailable to 

the other Agencies before finalizing this 

PRA section, the other Agencies did not 

adjust the calculations to account for the 

exempted transactions provided in the 

final rule. Accordingly, the estimated 

burden calculations in the table below 

are overstated. 

Calculation of Estimated Burden 

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 are assigning 

it no burden for purposes of this PRA 

analysis.173

The estimated burden for the Written 

Appraisal requirements includes the 

creditor’s burden of reviewing the 

Written Appraisal in order to satisfy the 

safe harbor criteria set forth in the rule 

and providing a copy of the Written 

Appraisal to the consumer. 

Additionally, as discussed above, an 

Additional Written Appraisal 

containing additional analyses is 

required in certain circumstances. The 

Additional Written Appraisal must meet 

the standards of the Written Appraisal. 

The Additional Written Appraisal is 

also required to be prepared by a 

certified or licensed appraiser different 

from the appraiser performing the 

Written Appraisal, and a copy of the 

Additional Written Appraisal must be 

provided to the consumer. The creditor 

must separately review the Additional 

Written Appraisal in order to qualify for 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10431 

174The ‘‘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 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. 

175The information collection requirements (ICs) 

in this final rule will be incorporated with the 

Bureau’s existing collection associated with Truth 

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

No. 3170–0015). 

176The burden estimates allocated to the Bureau 

are updated using the data described 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. 

177There 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. 

178The Bureau assumes half of the burden for the 

IMBs and the credit unions supervised by the 

Bureau. The FTC assumes the burden for the other 

half. 

Continued 

the safe harbor provided in the final 

rule. 

The Agencies 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 

estimate further 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 

following table summarizes these 

burden estimates. 

Estimated PRA Burden 

TABLE 3—SUMMARY OF PRA BURDEN HOURS FOR INFORMATION COLLECTIONS IN FINAL RULE

Estimated 

number of 

respondents 

Estimated 

number of 

appraisals 

per 

respondent 174

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 175 176 177.

Depository Inst. > $10 B in total assets + Depository Inst. Affiliates .............. 132 6.21 0.25 205 

Non-Depository Inst. and Credit Unions .......................................................... 2,853 0.38 0.25 178136 

FDIC ................................................................................................................. 2,571 8 0.25 5,142 

Board 179 .......................................................................................................... 418 24 0.25 2,508 

OCC ................................................................................................................. 1,399 69 0.25 24,133 

NCUA ............................................................................................................... 2,437 6 0.25 3,656 

Total .......................................................................................................... 9,810 ........................ ........................ 35,780 

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 15 0.25 9,641 

Board ............................................................................................................... 418 24 0.25 2,508 

OCC ................................................................................................................. 1,399 69 0.25 24,133 

NCUA ............................................................................................................... 2,437 6 0.25 3,656 

Total .......................................................................................................... 9,810 ........................ ........................ 41,035 

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 1 0.25 643 

Board ............................................................................................................... 418 1 0.25 105 

OCC ................................................................................................................. 1,399 3 0.25 1,049 

NCUA ............................................................................................................... 2,437 0.3 0.25 183 

Total .......................................................................................................... 9,810 ........................ ........................ 2,015 

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, respondents must also review 

the instructions and legal guidance 


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10432 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

179The ICs in this 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 rule pertain 

only to the ICs associated with this final rule. 

180Estimated one-time burden is 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 per-institution one-time burdens vary 

across the Agencies. 

associated with the final rule and train 

loan officers regarding the requirements 

of the final rule. The Agencies 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.180

The Agencies have a continuing 

interest in the public’s opinions of our 

collections of information. At any time, 

comments regarding the burden 

estimate, or any other aspect of this 

collection of information, including 

suggestions for reducing the burden, 

may be sent to the OMB desk officer for 

the Agencies by mail to U.S. Office of 

Management and Budget, Office of 

Information and Regulatory Affairs, 

Washington, DC 20503, or by the 

internet to http:// 

oira_submission@omb.eop.gov, with 

copies to the Agencies at the addresses 

listed in the ADDRESSES section of this 

SUPPLEMENTARY INFORMATION. 

FHFA 

The final rule does not contain any 

collections of information applicable to 

the FHFA, requiring review by the 

Office of Management and Budget 

(OMB) under the Paperwork Reduction 

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

Therefore, FHFA has not submitted any 

materials to OMB for review. 

VIII. Section 302 of the Riegle 

Community Development and 

Regulatory Improvement Act 

Section 1400 of the Dodd Frank Act 

requires this rule to take effect not later 

than 12 months after the date of 

issuance of the final rule. This rule is 

issued on January 18, 2013 and will 

become effective on January 18, 2014. 

Section 302 of the Riegle Community 

Development and Regulatory 

Improvement Act of 1994 (‘‘RCDRIA’’) 

requires that, subject to certain 

exceptions, regulations issued by the 

OCC, the Board and the FDIC that 

impose additional reporting, disclosure, 

or other requirements on insured 

depository institutions, shall take effect 

on the first day of a calendar quarter 

which begins on or after the date on 

which the regulations are published in 

final form. This effective date 

requirement does not apply if the 

issuing agency finds for good cause that 

the regulation should become effective 

before such time. 12 U.S.C. 4802. 

The OCC, the Board and the FDIC find 

that good cause exists to establish an 

effective date for this rule other than the 

first date of a calendar quarter, 

specifically January 18, 2014. This rule 

incorporates key definitions from, and is 

designed to accommodate combined 

disclosures with, other new mortgagerelated rules being issued by the Bureau 

that also have effective dates on and 

around January 18, 2014. The consistent 

application of these rules will permit 

depository institutions to implement the 

systems, policies and procedures 

required to comply with this group of 

regulations in a coordinated and 

efficient way. In addition, insured 

depository institutions wishing to 

comply at the beginning of a calendar 

quarter prior to the effective date retain 

the flexibility to do so. 

List of Subjects 

12 CFR Part 34 

Appraisal, Appraiser, Banks, Banking, 

Consumer protection, Credit, Mortgages, 

National banks, Reporting and 

recordkeeping requirements, Savings 

associations, Truth in Lending. 

12 CFR Part 164 

Appraisals, Mortgages, 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 722 

Appraisal, Credit, Credit unions, 

Mortgages, Reporting and recordkeeping 

requirements. 

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. 

12 CFR Part 1222 

Government sponsored enterprises, 

Mortgages, Appraisals. 

Department of the Treasury 

Office of the Comptroller of the 

Currency 

Authority and Issuance 

For the reasons set forth in the 

preamble, the OCC amends 12 CFR parts 

34 and 164, as follows: 

PART 34—REAL ESTATE LENDING 

AND APPRAISALS 

■ 1. The authority citation for part 34 is 

revised 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. Subpart G to part 34 is added to 

read as follows: 

Subpart G— Appraisals for Higher-Priced 

Mortgage Loans 

Sec. 

34.201 Authority, purpose, and scope. 

34.202 Definitions applicable to higherpriced mortgage loans. 

34.203 Appraisals for higher-priced 

mortgage loans. 

Appendix A to Subpart G—Higher-Priced 

Mortgage Loan Appraisal Safe Harbor 

Review 

Appendix B to Subpart G—Illustrative 

Written Source Documents for Higherpriced Mortgage Loan Appraisal Rules 

Appendix C to Subpart G—OCC 

Interpretations 

Subpart G—Appraisals for HigherPriced Mortgage Loans 

§ 34.201 Authority, purpose and scope. 

(a) Authority. This subpart is issued 

by the Office of the Comptroller of the 

Currency under 12 U.S.C. 93a, 12 U.S.C. 

1463, 1464 and 15 U.S.C. 1639h. 

(b) Purpose. The OCC adopts this 

subpart pursuant to the requirements of 

section 129H of the Truth in Lending 

Act (15 U.S.C. 1639h) which provides 

that a creditor, including a national 

bank or operating subsidiary, a Federal 

branch or agency or a Federal savings 

association or operating subsidiary, may 

not extend credit in the form of a 

higher-risk mortgage without complying 

with the requirements of section 129H 

of the Truth in Lending Act (15 U.S.C. 

1639h) and this subpart G. The 

definition of a higher-risk mortgage in 

section 129H is consistent with the 

definition of a higher-priced mortgage 

loan under Regulation Z, 12 CFR part 

1026. Specifically, 12 CFR 1026.35 

defines a higher-priced mortgage loan as 

a closed-end consumer credit 

transaction secured by the consumer’s 

principal dwelling with an annual 

percentage rate that exceeds the average 

prime offer rate for a comparable 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10433 

transaction as of the date the interest 

rate is set: 

(1) By 1.5 or more percentage points, 

for a loan secured by a first lien with a 

principal obligation at consummation 

that does not exceed the limit in effect 

as of the date the transaction’s interest 

rate is set for the maximum principal 

obligation eligible for purchase by 

Freddie Mac; 

(2) By 2.5 or more percentage points, 

for a loan secured by a first lien with a 

principal obligation at consummation 

that exceeds the limit in effect as of the 

date the transaction’s interest rate is set 

for the maximum principal obligation 

eligible for purchase by Freddie Mac; or 

(3) By 3.5 or more percentage points, 

for a loan secured by a subordinate lien. 

(c) Scope. This subpart applies to 

higher-priced mortgage loan 

transactions entered into by national 

banks and their operating subsidiaries, 

Federal branches and agencies and 

Federal savings associations and 

operating subsidiaries of savings 

associations. 

(d) Official Interpretations. Appendix 

C to this subpart sets out OCC 

Interpretations of the requirements 

imposed by the OCC pursuant to this 

subpart. 

§ 34.202 Definitions applicable to higherpriced mortgage loans. 

(a) Creditor has the same meaning as 

in 12 CFR 1026.2(a)(17). 

(b) Higher-priced mortgage loan has 

the same meaning as in 12 CFR 

1026.35(a)(1). 

(c) Reverse mortgage has the same 

meaning as in 12 CFR 1026.33(a). 

§ 34.203 Appraisals for higher-priced 

mortgage loans. 

(a) Definitions. For purposes of this 

section: 

(1) Certified or licensed appraiser 

means a person who is certified or 

licensed by the State agency in the State 

in which the property that secures the 

transaction is located, and who 

performs the appraisal in conformity 

with the Uniform Standards of 

Professional Appraisal Practice and the 

requirements applicable to appraisers in 

title XI of the Financial Institutions 

Reform, Recovery, and Enforcement Act 

of 1989, as amended (12 U.S.C. 3331 et 

seq.), and any implementing 

regulations, in effect at the time the 

appraiser signs the appraiser’s 

certification. 

(2) Manufactured home has the same 

meaning as in 24 CFR 3280.2. 

(3) National Registry means the 

database of information about State 

certified and licensed appraisers 

maintained by the Appraisal 

Subcommittee of the Federal Financial 

Institutions Examination Council. 

(4) State agency means a ‘‘State 

appraiser certifying and licensing 

agency’’ recognized in accordance with 

section 1118(b) of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (12 U.S.C. 

3347(b)) and any implementing 

regulations. 

(b) Exemptions. The requirements in 

paragraphs (c) through (f) of this section 

do not apply to the following types of 

transactions: 

(1) A qualified mortgage as defined in 

12 CFR 1026.43(e). 

(2) A transaction secured by a new 

manufactured home. 

(3) A transaction secured by a mobile 

home, boat, or trailer. 

(4) A transaction to finance the initial 

construction of a dwelling. 

(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. 

(6) A reverse-mortgage transaction 

subject to 12 CFR 1026.33(a). 

(c) Appraisals required—(1) In 

general. Except as provided in 

paragraph (b) of this section, a creditor 

shall not extend a higher-priced 

mortgage loan to a consumer without 

obtaining, prior to consummation, a 

written appraisal of the property to be 

mortgaged. The appraisal must be 

performed by a certified or licensed 

appraiser who conducts a physical visit 

of the interior of the property that will 

secure the transaction. 

(2) Safe harbor. A creditor obtains a 

written appraisal that meets the 

requirements for an appraisal required 

under paragraph (c)(1) of this section if 

the creditor: 

(i) Orders that the appraiser perform 

the appraisal in conformity with the 

Uniform Standards of Professional 

Appraisal Practice and title XI of the 

Financial Institutions Reform, Recovery, 

and Enforcement Act of 1989, as 

amended (12 U.S.C. 3331 et seq.), and 

any implementing regulations in effect 

at the time the appraiser signs the 

appraiser’s certification; 

(ii) Verifies through the National 

Registry that the appraiser who signed 

the appraiser’s certification was a 

certified or licensed appraiser in the 

State in which the appraised property is 

located as of the date the appraiser 

signed the appraiser’s certification; 

(iii) Confirms that the elements set 

forth in appendix A to this subpart are 

addressed in the written appraisal; and 

(iv) Has no actual knowledge contrary 

to the facts or certifications contained in 

the written appraisal. 

(d) Additional appraisal for certain 

higher-priced mortgage loans—(1) In 

general. Except as provided in 

paragraphs (b) and (d)(7) of this section, 

a creditor shall not extend a higherpriced mortgage loan to a consumer to 

finance the acquisition of the 

consumer’s principal dwelling without 

obtaining, prior to consummation, two 

written appraisals, if: 

(i) The seller acquired the property 90 

or fewer days prior to the date of the 

consumer’s agreement to acquire the 

property and the price in the 

consumer’s agreement to acquire the 

property exceeds the seller’s acquisition 

price by more than 10 percent; or 

(ii) The seller acquired the property 

91 to 180 days prior to the date of the 

consumer’s agreement to acquire the 

property and the price in the 

consumer’s agreement to acquire the 

property exceeds the seller’s acquisition 

price by more than 20 percent. 

(2) Different certified or licensed 

appraisers. The two appraisals required 

under paragraph (d)(1) of this section 

may not be performed by the same 

certified or licensed appraiser. 

(3) Relationship to general appraisal 

requirements. If two appraisals must be 

obtained under paragraph (d)(1) of this 

section, each appraisal shall meet the 

requirements of paragraph (c)(1) of this 

section. 

(4) Required analysis in the additional 

appraisal. One of the two required 

appraisals must include an analysis of: 

(i) The difference between the price at 

which the seller acquired the property 

and the price that the consumer is 

obligated to pay to acquire the property, 

as specified in the consumer’s 

agreement to acquire the property from 

the seller; 

(ii) Changes in market conditions 

between the date the seller acquired the 

property and the date of the consumer’s 

agreement to acquire the property; and 

(iii) Any improvements made to the 

property between the date the seller 

acquired the property and the date of 

the consumer’s agreement to acquire the 

property. 

(5) No charge for the additional 

appraisal. If the creditor must obtain 

two appraisals under paragraph (d)(1) of 

this section, the creditor may charge the 

consumer for only one of the appraisals. 

(6) Creditor’s determination of prior 

sale date and price—(i) Reasonable 

diligence. A creditor must obtain two 

written appraisals under paragraph 

(d)(1) of this section unless the creditor 

can demonstrate by exercising 

reasonable diligence that the 


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10434 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

requirement to obtain two appraisals 

does not apply. A creditor acts with 

reasonable diligence if the creditor bases 

its determination on information 

contained in written source documents, 

such as the documents listed in 

appendix B to this subpart. 

(ii) Inability to determine prior sale 

date or price—modified requirements 

for additional appraisal. If, after 

exercising reasonable diligence, a 

creditor cannot determine whether the 

conditions in paragraphs (d)(1)(i) and 

(d)(1)(ii) are present and therefore must 

obtain two written appraisals in 

accordance with paragraphs (d)(1) 

through (d)(5) of this section, one of the 

two appraisals shall include an analysis 

of the factors in paragraph (d)(4) of this 

section only to the extent that the 

information necessary for the appraiser 

to perform the analysis can be 

determined. 

(7) Exemptions from the additional 

appraisal requirement. The additional 

appraisal required under paragraph 

(d)(1) of this section shall not apply to 

extensions of credit that finance a 

consumer’s acquisition of property: 

(i) From a local, State or Federal 

government agency; 

(ii) From a person who acquired title 

to the property through foreclosure, 

deed-in-lieu of foreclosure, or other 

similar judicial or non-judicial 

procedure as a result of the person’s 

exercise of rights as the holder of a 

defaulted mortgage loan; 

(iii) From a non-profit entity as part 

of a local, State, or Federal government 

program under which the non-profit 

entity is permitted to acquire title to 

single-family properties for resale from 

a seller who acquired title to the 

property through the process of 

foreclosure, deed-in-lieu of foreclosure, 

or other similar judicial or non-judicial 

procedure; 

(iv) From a person who acquired title 

to the property by inheritance or 

pursuant to a court order of dissolution 

of marriage, civil union, or domestic 

partnership, or of partition of joint or 

marital assets to which the seller was a 

party; 

(v) From an employer or relocation 

agency in connection with the 

relocation of an employee; 

(vi) From a servicemember, as defined 

in 50 U.S.C. App. 511(1), who received 

a deployment or permanent change of 

station order after the servicemember 

purchased the property; 

(vii) Located in an area designated by 

the President as a federal disaster area, 

if and for as long as the Federal 

financial institutions regulatory 

agencies, as defined in 12 U.S.C. 

3350(6), waive the requirements in title 

XI of the Financial Institutions Reform, 

Recovery, and Enforcement Act of 1989, 

as amended (12 U.S.C. 3331 et seq.), and 

any implementing regulations in that 

area; or 

(viii) Located in a rural county, as 

defined in 12 CFR 1026.35(b)(2)(iv)(A). 

(e) Required disclosure—(1) In 

general. Except as provided in 

paragraph (b) of this section, a creditor 

shall disclose the following statement, 

in writing, to a consumer who applies 

for a higher-priced mortgage loan: ‘‘We 

may order an appraisal to determine the 

property’s value and charge you for this 

appraisal. We will give you a copy of 

any appraisal, even if your loan does not 

close. You can pay for an additional 

appraisal for your own use at your own 

cost.’’ Compliance with the disclosure 

requirement in Regulation B, 12 CFR 

1002.14(a)(2), satisfies the requirements 

of this paragraph. 

(2) Timing of disclosure. The 

disclosure required by paragraph (e)(1) 

of this section shall be delivered or 

placed in the mail no later than the 

third business day after the creditor 

receives the consumer’s application for 

a higher-priced mortgage loan subject to 

this section. In the case of a loan that 

is not a higher-priced mortgage loan 

subject to this section at the time of 

application, but becomes a higherpriced mortgage loan subject to this 

section after application, the disclosure 

shall be delivered or placed in the mail 

not later than the third business day 

after the creditor determines that the 

loan is a higher-priced mortgage loan 

subject to this section. 

(f) Copy of appraisals—(1) In general. 

Except as provided in paragraph (b) of 

this section, a creditor shall provide to 

the consumer a copy of any written 

appraisal performed in connection with 

a higher-priced mortgage loan pursuant 

to paragraphs (c) and (d) of this section. 

(2) Timing. A creditor shall provide to 

the consumer a copy of each written 

appraisal pursuant to paragraph (f)(1) of 

this section: 

(i) No later than three business days 

prior to consummation of the loan; or 

(ii) In the case of a loan that is not 

consummated, no later than 30 days 

after the creditor determines that the 

loan will not be consummated. 

(3) Form of copy. Any copy of a 

written appraisal required by paragraph 

(f)(1) of this section may be provided to 

the applicant in electronic form, subject 

to compliance with the consumer 

consent and other applicable provisions 

of the Electronic Signatures in Global 

and National Commerce Act (E-Sign 

Act) (15 U.S.C. 7001 et seq.). 

(4) No charge for copy of appraisal. A 

creditor shall not charge the consumer 

for a copy of a written appraisal 

required to be provided to the consumer 

pursuant to paragraph (f)(1) of this 

section. 

(g) Relation to other rules. The rules 

in this section 34.203 were adopted 

jointly by the Board of Governors of the 

Federal Reserve System (the Board), the 

OCC, the Federal Deposit Insurance 

Corporation, the National Credit Union 

Administration, the Federal Housing 

Finance Agency, and the Consumer 

Financial Protection Bureau (Bureau). 

These rules are substantively identical 

to the Board’s and the Bureau’s higherpriced mortgage loan appraisal rules 

published separately in 12 CFR 226.43 

(for the Board) and 12 CFR 1026.35(a) 

and (c) (for the Bureau). 

Appendix A to Subpart G — HigherPriced Mortgage Loan Appraisal Safe 

Harbor Review 

To qualify for the safe harbor provided in 

§ 34.203(c)(2), a creditor must confirm that 

the written appraisal: 

1. Identifies the creditor who ordered the 

appraisal and the property and the interest 

being appraised. 

2. Indicates whether the contract price was 

analyzed. 

3. Addresses conditions in the property’s 

neighborhood. 

4. Addresses the condition of the property 

and any improvements to the property. 

5. Indicates which valuation approaches 

were used, and includes a reconciliation if 

more than one valuation approach was used. 

6. Provides an opinion of the property’s 

market value and an effective date for the 

opinion. 

7. Indicates that a physical property visit 

of the interior of the property was performed. 

8. Includes a certification signed by the 

appraiser that the appraisal was prepared in 

accordance with the requirements of the 

Uniform Standards of Professional Appraisal 

Practice. 

9. Includes a certification signed by the 

appraiser that the appraisal was prepared in 

accordance with the requirements of title XI 

of the Financial Institutions Reform, 

Recovery and Enforcement Act of 1989, as 

amended (12 U.S.C. 3331 et seq.), and any 

implementing regulations. 

Appendix B to Subpart G—Illustrative 

Written Source Documents for HigherPriced Mortgage Loan Appraisal Rules 

A creditor acts with reasonable diligence 

under § 34.203(d)(6)(i) if the creditor bases its 

determination on information contained in 

written source documents, such as: 

1. A copy of the recorded deed from the 

seller. 

2. A copy of a property tax bill. 

3. A copy of any owner’s title insurance 

policy obtained by the seller. 

4. A copy of the RESPA settlement 

statement from the seller’s acquisition (i.e., 

the HUD–1 or any successor form). 

5. A property sales history report or title 

report from a third-party reporting service. 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10435 

6. Sales price data recorded in multiple 

listing services. 

7. Tax assessment records or transfer tax 

records obtained from local governments. 

8. A written appraisal performed in 

compliance with § 34.203(c)(1) for the same 

transaction. 

9. A copy of a title commitment report 

detailing the seller’s ownership of the 

property, the date it was acquired, or the 

price at which the seller acquired the 

property. 

10. A property abstract. 

Appendix C to Subpart G—OCC 

Interpretations 

Section 34.202—Definitions applicable to 

higher-priced mortgage loans 

1. Staff Interpretations. Section 34.202 

incorporates definitions from Regulation Z, 

12 CFR part 1026. These OCC Interpretations 

of 12 CFR part 34, subpart G, incorporate the 

Official Staff Interpretations to the Bureau’s 

Regulation Z associated with those 

definitions, at 12 CFR part 1026, Supplement 

I. 

Section 34.203—Appraisals for higherpriced mortgage loans 

34.203(a) Definitions. 

34.203(a)(1) Certified or licensed appraiser. 

1. USPAP. The Uniform Standards of 

Professional Appraisal Practice (USPAP) are 

established by the Appraisal Standards Board 

of the Appraisal Foundation (as defined in 12 

U.S.C. 3350(9)). Under § 34.203(a)(1), the 

relevant USPAP standards are those found in 

the edition of USPAP in effect at the time the 

appraiser signs the appraiser’s certification. 

2. Appraiser’s certification. The appraiser’s 

certification refers to the certification that 

must be signed by the appraiser for each 

appraisal assignment. This requirement is 

specified in USPAP Standards Rule 2–3. 

3. FIRREA title XI and implementing 

regulations. The relevant regulations are 

those prescribed under section 1110 of the 

Financial Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA), as 

amended (12 U.S.C. 3339), that relate to an 

appraiser’s development and reporting of the 

appraisal in effect at the time the appraiser 

signs the appraiser’s certification. Paragraph 

(3) of FIRREA section 1110 (12 U.S.C. 

3339(3)), which relates to the review of 

appraisals, is not relevant for determining 

whether an appraiser is a certified or licensed 

appraiser under § 34.203(a)(1). 

34.203(b) Exemptions. 

Paragraph 34.203(b)(2). 

1. Secured by new manufactured home. A 

transaction secured by a new manufactured 

home, 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 

§ 34.203. 

Paragraph 34.203(b)(3). 

1. Secured by a mobile home. For purposes 

of the exemption in § 34.203(b)(3), a mobile 

home does not include a manufactured 

home, as defined in § 34.203(a)(2). 

Paragraph 34.203(b)(4). 

1. Construction-to-permanent loans. 

Section 34.203 does not apply to a 

transaction to finance the initial construction 

of a dwelling. This exclusion applies to a 

construction-only loan as well as to the 

construction phase of a construction-topermanent loan. Section 34.203 does apply, 

however, to permanent financing that 

replaces a construction loan, whether the 

permanent financing is extended by the same 

or a different creditor, unless the permanent 

financing is otherwise exempt from the 

requirements of § 34.203. See § 34.203(b). 

When a construction loan may be 

permanently financed by the same creditor, 

the general disclosure requirements for 

closed-end credit pursuant to Regulation Z 

(12 CFR 1026.17) provide that the creditor 

may give either one combined disclosure for 

both the construction financing and the 

permanent financing, or a separate set of 

disclosures for each of the two phases as 

though they were two separate transactions. 

See 12 CFR 1026.17(c)(6)(ii) and the Official 

Staff Interpretations to the Bureau’s 

Regulation Z, comment 17(c)(6)–2. Which 

disclosure option a creditor elects under 

§ 1026.17(c)(6)(ii) does not affect the 

determination of whether the permanent 

phase of the transaction is subject to § 34.203. 

When the creditor discloses the two phases 

as separate transactions, the annual 

percentage rate for the permanent phase must 

be compared to the average prime offer rate 

for a transaction that is comparable to the 

permanent financing to determine coverage 

under § 34.203. When the creditor discloses 

the two phases as a single transaction, a 

single annual percentage rate, reflecting the 

appropriate charges from both phases, must 

be calculated for the transaction in 

accordance with 12 CFR 1026.35(a)(1) 

(incorporated into 12 CFR part 34, subpart G 

by § 34.202) and appendix D to 12 CFR part 

1026. The annual percentage rate must be 

compared to the average prime offer rate for 

a transaction that is comparable to the 

permanent financing to determine coverage 

under § 34.203. If the transaction is 

determined to be a higher-priced mortgage 

loan not otherwise exempt under § 34.203(b), 

only the permanent phase is subject to the 

requirements of § 34.203. 

34.203(c) Appraisals required. 

34.203(c)(1) In general. 

1. Written appraisal—electronic 

transmission. To satisfy the requirement that 

the appraisal be ‘‘written,’’ a creditor may 

obtain the appraisal in paper form or via 

electronic transmission. 

34.203(c)(2) Safe harbor. 

1. Safe harbor. A creditor that satisfies the 

safe harbor conditions in § 34.203(c)(2)(i) 

through (iv) complies with the appraisal 

requirements of § 34.203(c)(1). A creditor that 

does not satisfy the safe harbor conditions in 

§ 34.203(c)(2)(i) through (iv) does not 

necessarily violate the appraisal 

requirements of § 34.203(c)(1). 

2. Appraiser’s certification. For purposes of 

§ 34.203(c)(2), the appraiser’s certification 

refers to the certification specified in item 9 

of appendix A to this subpart. See also 

comment 34.203(a)(1)–2. 

Paragraph 34.203(c)(2)(iii). 

1. Confirming elements in the appraisal. To 

confirm that the elements in appendix A to 

this subpart are included in the written 

appraisal, a creditor need not look beyond 

the face of the written appraisal and the 

appraiser’s certification. 

34.203(d) Additional appraisal for certain 

higher-priced mortgage loans. 

1. Acquisition. For purposes of § 34.203(d), 

the terms ‘‘acquisition’’ and ‘‘acquire’’ refer 

to the acquisition of legal title to the property 

pursuant to applicable State law, including 

by purchase. 

34.203(d)(1) In general. 

1. Appraisal from a previous transaction. 

An appraisal that was previously obtained in 

connection with the seller’s acquisition or 

the financing of the seller’s acquisition of the 

property does not satisfy the requirements to 

obtain two written appraisals under 

§ 34.203(d)(1). 

2. 90-day, 180-day calculation. The time 

periods described in § 34.203(d)(1)(i) and (ii) 

are calculated by counting the day after the 

date on which the seller acquired the 

property, up to and including the date of the 

consumer’s agreement to acquire the property 

that secures the transaction. For example, 

assume that the creditor determines that date 

of the consumer’s acquisition agreement is 

October 15, 2012, and that the seller acquired 

the property on April 17, 2012. The first day 

to be counted in the 180-day calculation 

would be April 18, 2012, and the last day 

would be October 15, 2012. In this case, the 

number of days from April 17 would be 181, 

so an additional appraisal is not required. 

3. Date seller acquired the property. For 

purposes of § 34.203(d)(1)(i) and (ii), the date 

on which the seller acquired the property is 

the date on which the seller became the legal 

owner of the property pursuant to applicable 

State law. 

4. Date of the consumer’s agreement to 

acquire the property. For the date of the 

consumer’s agreement to acquire the property 

under § 34.203(d)(1)(i) and (ii), the creditor 

should use the date on which the consumer 

and the seller signed the agreement provided 

to the creditor by the consumer. The date on 

which the consumer and the seller signed the 

agreement might not be the date on which 

the consumer became contractually obligated 

under State law to acquire the property. For 

purposes of § 34.203(d)(1)(i) and (ii), a 

creditor is not obligated to determine 

whether and to what extent the agreement is 

legally binding on both parties. If the dates 

on which the consumer and the seller signed 

the agreement differ, the creditor should use 

the later of the two dates. 

5. Price at which the seller acquired the 

property. The price at which the seller 

acquired the property refers to the amount 

paid by the seller to acquire the property. 

The price at which the seller acquired the 

property does not include the cost of 

financing the property. 

6. Price the consumer is obligated to pay 

to acquire the property. The price the 

consumer is obligated to pay to acquire the 

property is the price indicated on the 

consumer’s agreement with the seller to 

acquire the property. The price the consumer 

is obligated to pay to acquire the property 

from the seller does not include the cost of 

financing the property. For purposes of 

§ 34.203(d)(1)(i) and (ii), a creditor is not 

obligated to determine whether and to what 


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10436 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

extent the agreement is legally binding on 

both parties. See also comment 34.203(d)(1)– 

4. 

34.203(d)(2) Different certified or licensed 

appraisers. 

1. Independent appraisers. The 

requirements that a creditor obtain two 

separate appraisals under § 34.203(d)(1), and 

that each appraisal be conducted by a 

different licensed or certified appraiser under 

§ 34.203(d)(2), indicate that the two 

appraisals must be conducted independently 

of each other. If the two certified or licensed 

appraisers are affiliated, such as by being 

employed by the same appraisal firm, then 

whether they have conducted the appraisal 

independently of each other must be 

determined based on the facts and 

circumstances of the particular case known 

to the creditor. 

34.203(d)(3) Relationship to general 

appraisal requirements. 

1. Safe harbor. When a creditor is required 

to obtain an additional appraisal under 

§ 34.203(d)(1), the creditor must comply with 

the requirements of both § 34.203(c)(1) and 

§ 34.203(d)(2) through (5) for that appraisal. 

The creditor complies with the requirements 

of § 34.203(c)(1) for the additional appraisal 

if the creditor meets the safe harbor 

conditions in § 34.203(c)(2) for that appraisal. 

34.203(d)(4) Required analysis in the 

additional appraisal. 

1. Determining acquisition dates and prices 

used in the analysis of the additional 

appraisal. For guidance on identifying the 

date on which the seller acquired the 

property, see comment 34.203(d)(1)–3. For 

guidance on identifying the date of the 

consumer’s agreement to acquire the 

property, see comment 34.203(d)(1)–4. For 

guidance on identifying the price at which 

the seller acquired the property, see comment 

34.203(d)(1)–5. For guidance on identifying 

the price the consumer is obligated to pay to 

acquire the property, see comment 

34.203(d)(1)–6. 

34.203(d)(5) No charge for additional 

appraisal. 

1. Fees and mark-ups. The creditor is 

prohibited from charging the consumer for 

the performance of one of the two appraisals 

required under § 34.203(d)(1), including by 

imposing a fee specifically for that appraisal 

or by marking up the interest rate or any 

other fees payable by the consumer in 

connection with the higher-priced mortgage 

loan. 

34.203(d)(6) Creditor’s determination of 

prior sale date and price. 

34.203(d)(6)(i) In general. 

1. Estimated sales price. If a written source 

document describes the seller’s acquisition 

price in a manner that indicates that the price 

described is an estimated or assumed amount 

and not the actual price, the creditor should 

look at an alternative document to satisfy the 

reasonable diligence standard in determining 

the price at which the seller acquired the 

property. 

2. Reasonable diligence—oral statements 

insufficient. Reliance on oral statements of 

interested parties, such as the consumer, 

seller, or mortgage broker, does not constitute 

reasonable diligence under § 34.203(d)(6)(i). 

3. Lack of information and conflicting 

information—two appraisals required. If a 

creditor is unable to demonstrate that the 

requirement to obtain two appraisals under 

§ 34.203(d)(1) does not apply, the creditor 

must obtain two written appraisals before 

extending a higher-priced mortgage loan 

subject to the requirements of § 34.203 See 

also comment 34.203(d)(6)(ii)–1. For 

example: 

i. Assume a creditor orders and reviews the 

results of a title search, which shows that a 

prior sale occurred between 91 and 180 days 

ago, but not the price paid in that sale. Thus, 

based on the title search, the creditor would 

not be able to determine whether the price 

the consumer is obligated to pay under the 

consumer’s acquisition agreement is more 

than 20 percent higher than the seller’s 

acquisition price, pursuant to 

§ 34.203(d)(1)(ii). Before extending a higherpriced mortgage loan subject to the appraisal 

requirements of § 34.203, the creditor must 

either: perform additional diligence to 

ascertain the seller’s acquisition price and, 

based on this information, determine 

whether two written appraisals are required; 

or obtain two written appraisals in 

compliance with § 34.203(d)(6). See also 

comment 34.203(d)(6)(ii)–1. 

ii. Assume a creditor reviews the results of 

a title search indicating that the last recorded 

purchase was more than 180 days before the 

consumer’s agreement to acquire the 

property. Assume also that the creditor 

subsequently receives a written appraisal 

indicating that the seller acquired the 

property between 91 and 180 days before the 

consumer’s agreement to acquire the 

property. In this case, unless one of these 

sources is clearly wrong on its face, the 

creditor would not be able to determine 

whether the seller acquired the property 

within 180 days of the date of the consumer’s 

agreement to acquire the property from the 

seller, pursuant to § 34.203(d)(1)(ii). Before 

extending a higher-priced mortgage loan 

subject to the appraisal requirements of 

§ 34.203, the creditor must either: perform 

additional diligence to ascertain the seller’s 

acquisition date and, based on this 

information, determine whether two written 

appraisals are required; or obtain two written 

appraisals in compliance with § 34.203(d)(6). 

See also comment 34.203(d)(6)(ii)–1. 

34.203(d)(6)(ii) Inability to determine prior 

sales date or price—modified requirements 

for additional appraisal. 

1. Required analysis. In general, the 

additional appraisal required under 

§ 34.203(d)(1) should include an analysis of 

the factors listed in § 34.203(d)(4)(i) through 

(iii). However, if, following reasonable 

diligence, a creditor cannot determine 

whether the conditions in § 34.203(d)(1)(i) or 

(ii) are present due to a lack of information 

or conflicting information, the required 

additional appraisal must include the 

analyses required under § 34.203(d)(4)(i) 

through (iii) only to the extent that the 

information necessary to perform the 

analyses is known. For example, assume that 

a creditor is able, following reasonable 

diligence, to determine that the date on 

which the seller acquired the property 

occurred between 91 and 180 days prior to 

the date of the consumer’s agreement to 

acquire the property. However, the creditor is 

unable, following reasonable diligence, to 

determine the price at which the seller 

acquired the property. In this case, the 

creditor is required to obtain an additional 

written appraisal that includes an analysis 

under § 34.203(d)(4)(ii) and (iii) of the 

changes in market conditions and any 

improvements made to the property between 

the date the seller acquired the property and 

the date of the consumer’s agreement to 

acquire the property. However, the creditor is 

not required to obtain an additional written 

appraisal that includes analysis under 

§ 34.203(d)(4)(i) of the difference between the 

price at which the seller acquired the 

property and the price that the consumer is 

obligated to pay to acquire the property. 

34.203(d)(7) Exemptions from the 

additional appraisal requirement. 

Paragraph 34.203(d)(7)(iii). 

1. Non-profit entity. For purposes of 

§ 34.203(d)(7)(iii), a ‘‘non-profit entity’’ is a 

person with a tax exemption ruling or 

determination letter from the Internal 

Revenue Service under section 501(c)(3) of 

the Internal Revenue Code of 1986 (12 U.S.C. 

501(c)(3)). 

Paragraph 34.203(d)(7)(viii). 

1. Bureau table of rural counties. The 

Bureau publishes on its Web site a table of 

rural counties under 12 CFR 

1026.35(b)(2)(iv)(A) for each calendar year by 

the end of that calendar year. See Official 

Staff Interpretations to the Bureau’s 

Regulation Z, comment 35(b)(2)(iv)–1. A 

property securing an HPML subject to 

§ 34.203 is in a rural county under 

§ 34.203(d)(7)(viii) if the county in which the 

property is located is on the table of rural 

counties most recently published by the 

Bureau. For example, for a transaction 

occurring in 2015, assume that the Bureau 

most recently published a table of rural 

counties at the end of 2014. The property 

securing the transaction would be located in 

a rural county for purposes of 

§ 34.203(d)(7)(viii) if the county is on the 

table of rural counties published by the 

Bureau at the end of 2014. 

34.203(e) Required disclosure. 

34.203(e)(1) In general. 

1. Multiple applicants. When two or more 

consumers apply for a loan subject to this 

section, the creditor is required to give the 

disclosure to only one of the consumers. 

2. Appraisal independence requirements 

not affected. Nothing in the text of the 

consumer notice required by § 34.203(e)(1) 

should be construed to affect, modify, limit, 

or supersede the operation of any legal, 

regulatory, or other requirements or 

standards relating to independence in the 

conduct of appraisals or restrictions on the 

use of borrower-ordered appraisals by 

creditors. 

34.203(f) Copy of appraisals. 

34.203(f)(1) In general. 

1. Multiple applicants. When two or more 

consumers apply for a loan subject to this 

section, the creditor is required to give the 

copy of each required appraisal to only one 

of the consumers. 

34.203(f)(2) Timing. 

1. ‘‘Provide.’’ For purposes of the 

requirement to provide a copy of the 

appraisal within a specified time under 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10437 

§ 34.203(f)(2), ‘‘provide’’ means ‘‘deliver.’’ 

Delivery occurs three business days after 

mailing or delivering the copies to the lastknown address of the applicant, or when 

evidence indicates actual receipt by the 

applicant (which, in the case of electronic 

receipt, must be based upon consent that 

complies with the E-Sign Act), whichever is 

earlier. 

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. 

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 § 34.203. A 

consumer of a higher-priced mortgage loan 

subject to § 34.302 may not waive the timing 

requirement to receive a copy of the appraisal 

under § 34.203(f)(1). 

34.203(f)(4) No charge for copy of 

appraisal. 

1. Fees and mark-ups. The creditor is 

prohibited from charging the consumer for 

any copy of an appraisal required to be 

provided under § 34.203(f)(1), including by 

imposing a fee specifically for a required 

copy of an appraisal or by marking up the 

interest rate or any other fees payable by the 

consumer in connection with the higherpriced mortgage loan. 

Appendix B—Illustrative Written 

Source Documents for Higher-Priced 

Mortgage Loan Appraisal Rules 

1. Title commitment report. The ‘‘title 

commitment report’’ is a document from a 

title insurance company describing the 

property interest and status of its title, parties 

with interests in the title and the nature of 

their claims, issues with the title that must 

be resolved prior to closing of the transaction 

between the parties to the transfer, amount 

and disposition of the premiums, and 

endorsements on the title policy. This 

document is issued by the title insurance 

company prior to the company’s issuance of 

an actual title insurance policy to the 

property’s transferee and/or creditor 

financing the transaction. In different 

jurisdictions, this instrument may be referred 

to by different terms, such as a title 

commitment, title binder, title opinion, or 

title report. 

PART 164—APPRAISALS 

■ 3. The authority citation for Part 164 

is revised to read as follows: 

Authority: 12 U.S.C.1462, 1462a, 

1463,1464, 1828(m), 3331 et seq., 

5412(b)(2)(B), 15 U.S.C. 1639h. 

§§ 164.1–164.8 [Designated as Subpart A] 

■ 4. Sections 164.1 through 164.8 are 

designated as Subpart A to part 164. 

Subpart A—Appraisals 

■ 5. The heading of subpart A is added 

to read as set forth above. 

■ 6. Subpart B to part 164 is added to 

read as follows: 

Subpart B—Appraisals for HigherPriced Mortgage Loans 

Sec. 

164.20 Authority, purpose and scope. 

164.21 Application of appraisal 

requirements for higher-priced mortgage 

loans to Federal savings associations and 

their operating subsidiaries. 

§ 164.20 Authority, purpose and scope. 

(a) Authority. This subpart is issued 

by the Office of the Comptroller of the 

Currency under 12 U.S.C. 1463, 1464 

and 15 U.S.C. 1639h. 

(b) Purpose. The OCC adopts this 

subpart pursuant to the requirements of 

section 129H of the Truth in Lending 

Act (15 U.S.C. 1639h) which provides 

that a creditor, including a Federal 

savings association or its operating 

subsidiary, may not extend credit in the 

form of a higher-priced mortgage loan 

without complying with the 

requirements of section 129H of the 

Truth in Lending Act (15 U.S.C. 1639h) 

and these implementing regulations. 

(c) Scope. This subpart applies to 

higher priced mortgage loan 

transactions entered into by Federal 

savings associations and operating 

subsidiaries of savings associations. 

§ 164.21 Application of appraisal 

requirements for higher-priced mortgage 

loans to Federal savings associations and 

their operating subsidiaries. 

Federal savings associations and their 

operating subsidiaries may not extend 

credit in the form of a higher-priced 

mortgage loan without complying with 

the requirements of Section 129H of the 

Truth in Lending Act (15 U.S.C. 1639h) 

and the implementing regulations 

adopted by the OCC at 12 CFR part 34, 

subpart G. 

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 amends Regulation Z, 

12 CFR part 226, as follows: 

PART 226—TRUTH IN LENDING ACT 

(REGULATION Z) 

■ 7. The authority citation for part 226 

is revised 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. 

■ 8. New § 226.43 is added to read as 

follows: 

§ 226.43 Appraisals for higher-priced 

mortgage loans. 

(a) Definitions. For purposes of this 

section: 

(1) Certified or licensed appraiser 

means a person who is certified or 

licensed by the State agency in the State 

in which the property that secures the 

transaction is located, and who 

performs the appraisal in conformity 

with the Uniform Standards of 

Professional Appraisal Practice and the 

requirements applicable to appraisers in 

title XI of the Financial Institutions 

Reform, Recovery, and Enforcement Act 

of 1989, as amended (12 U.S.C. 3331 et 

seq.), and any implementing 

regulations, in effect at the time the 

appraiser signs the appraiser’s 

certification. 

(2) Creditor has the same meaning as 

in 12 CFR 1026.2(a)(17). 

(3) Higher-priced mortgage loan 

means a closed-end consumer credit 

transaction secured by the consumer’s 

principal dwelling 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: 

(i) By 1.5 or more percentage points, 

for a loan secured by a first lien with a 

principal obligation at consummation 

that does not exceed the limit in effect 

as of the date the transaction’s interest 

rate is set for the maximum principal 

obligation eligible for purchase by 

Freddie Mac; 

(ii) By 2.5 or more percentage points, 

for a loan secured by a first lien with a 

principal obligation at consummation 

that exceeds the limit in effect as of the 

date the transaction’s interest rate is set 

for the maximum principal obligation 

eligible for purchase by Freddie Mac; or 

(iii) By 3.5 or more percentage points, 

for a loan secured by a subordinate lien. 

(4) Manufactured home has the same 

meaning as in 24 CFR 3280.2. 

(5) National Registry means the 

database of information about State 

certified and licensed appraisers 

maintained by the Appraisal 

Subcommittee of the Federal Financial 

Institutions Examination Council. 

(6) State agency means a ‘‘State 

appraiser certifying and licensing 

agency’’ recognized in accordance with 

section 1118(b) of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (12 U.S.C. 

3347(b)) and any implementing 

regulations. 

(b) Exemptions. The requirements in 

paragraphs (c)(3) through (6) of this 

section do not apply to the following 

types of transactions: 

(1) A qualified mortgage as defined in 

12 CFR 1026.43(e). 


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10438 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

(2) A transaction secured by a new 

manufactured home. 

(3) A transaction secured by a mobile 

home, boat, or trailer. 

(4) A transaction to finance the initial 

construction of a dwelling. 

(5) A loan with 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. 

(6) A reverse-mortgage transaction 

subject to 12 CFR 1026.33(a). 

(c) Appraisals required—(1) In 

general. Except as provided in 

paragraph (b) of this section, a creditor 

shall not extend a higher-priced 

mortgage loan to a consumer without 

obtaining, prior to consummation, a 

written appraisal of the property to be 

mortgaged. The appraisal must be 

performed by a certified or licensed 

appraiser who conducts a physical visit 

of the interior of the property that will 

secure the transaction. 

(2) Safe harbor. A creditor obtains a 

written appraisal that meets the 

requirements for an appraisal required 

under paragraph (c)(1) of this section if 

the creditor: 

(i) Orders that the appraiser perform 

the appraisal in conformity with the 

Uniform Standards of Professional 

Appraisal Practice and title XI of the 

Financial Institutions Reform, Recovery, 

and Enforcement Act of 1989, as 

amended (12 U.S.C. 3331 et seq.), and 

any implementing regulations in effect 

at the time the appraiser signs the 

appraiser’s certification; 

(ii) Verifies through the National 

Registry that the appraiser who signed 

the appraiser’s certification was a 

certified or licensed appraiser in the 

State in which the appraised property is 

located as of the date the appraiser 

signed the appraiser’s certification; 

(iii) Confirms that the elements set 

forth in appendix N to this part are 

addressed in the written appraisal; and 

(iv) Has no actual knowledge contrary 

to the facts or certifications contained in 

the written appraisal. 

(d) Additional appraisal for certain 

higher-priced mortgage loans—(1) In 

general. Except as provided in 

paragraphs (b) and (d)(7) of this section, 

a creditor shall not extend a higherpriced mortgage loan to a consumer to 

finance the acquisition of the 

consumer’s principal dwelling without 

obtaining, prior to consummation, two 

written appraisals, if: 

(i) The seller acquired the property 90 

or fewer days prior to the date of the 

consumer’s agreement to acquire the 

property and the price in the 

consumer’s agreement to acquire the 

property exceeds the seller’s acquisition 

price by more than 10 percent; or 

(ii) The seller acquired the property 

91 to 180 days prior to the date of the 

consumer’s agreement to acquire the 

property and the price in the 

consumer’s agreement to acquire the 

property exceeds the seller’s acquisition 

price by more than 20 percent. 

(2) Different certified or licensed 

appraisers. The two appraisals required 

under paragraph (d)(1) of this section 

may not be performed by the same 

certified or licensed appraiser. 

(3) Relationship to general appraisal 

requirements. If two appraisals must be 

obtained under paragraph (d)(1) of this 

section, each appraisal shall meet the 

requirements of paragraph (c)(1) of this 

section. 

(4) Required analysis in the additional 

appraisal. One of the two required 

appraisals must include an analysis of: 

(i) The difference between the price at 

which the seller acquired the property 

and the price that the consumer is 

obligated to pay to acquire the property, 

as specified in the consumer’s 

agreement to acquire the property from 

the seller; 

(ii) Changes in market conditions 

between the date the seller acquired the 

property and the date of the consumer’s 

agreement to acquire the property; and 

(iii) Any improvements made to the 

property between the date the seller 

acquired the property and the date of 

the consumer’s agreement to acquire the 

property. 

(5) No charge for the additional 

appraisal. If the creditor must obtain 

two appraisals under paragraph (d)(1) of 

this section, the creditor may charge the 

consumer for only one of the appraisals. 

(6) Creditor’s determination of prior 

sale date and price—(i) Reasonable 

diligence. A creditor must obtain two 

written appraisals under paragraph 

(d)(1) of this section unless the creditor 

can demonstrate by exercising 

reasonable diligence that the 

requirement to obtain two appraisals 

does not apply. A creditor acts with 

reasonable diligence if the creditor bases 

its determination on information 

contained in written source documents, 

such as the documents listed in 

Appendix O to this part. 

(ii) Inability to determine prior sale 

date or price—modified requirements 

for additional appraisal. If, after 

exercising reasonable diligence, a 

creditor cannot determine whether the 

conditions in paragraphs (d)(1)(i) and 

(d)(1)(ii) are present and therefore must 

obtain two written appraisals in 

accordance with paragraphs (d)(1) 

through (5) of this section, one of the 

two appraisals shall include an analysis 

of the factors in paragraph (d)(4) of this 

section only to the extent that the 

information necessary for the appraiser 

to perform the analysis can be 

determined. 

(7) Exemptions from the additional 

appraisal requirement. The additional 

appraisal required under paragraph 

(d)(1) of this section shall not apply to 

extensions of credit that finance a 

consumer’s acquisition of property: 

(i) From a local, State or Federal 

government agency; 

(ii) From a person who acquired title 

to the property through foreclosure, 

deed-in-lieu of foreclosure, or other 

similar judicial or non-judicial 

procedure as a result of the person’s 

exercise of rights as the holder of a 

defaulted mortgage loan; 

(iii) From a non-profit entity as part 

of a local, State, or Federal government 

program under which the non-profit 

entity is permitted to acquire title to 

single-family properties for resale from 

a seller who acquired title to the 

property through the process of 

foreclosure, deed-in-lieu of foreclosure, 

or other similar judicial or non-judicial 

procedure; 

(iv) From a person who acquired title 

to the property by inheritance or 

pursuant to a court order of dissolution 

of marriage, civil union, or domestic 

partnership, or of partition of joint or 

marital assets to which the seller was a 

party; 

(v) From an employer or relocation 

agency in connection with the 

relocation of an employee; 

(vi) From a servicemember, as defined 

in 50 U.S.C. App. 511(1), who received 

a deployment or permanent change of 

station order after the servicemember 

purchased the property; 

(vii) Located in an area designated by 

the President as a federal disaster area, 

if and for as long as the Federal 

financial institutions regulatory 

agencies, as defined in 12 U.S.C. 

3350(6), waive the requirements in title 

XI of the Financial Institutions Reform, 

Recovery, and Enforcement Act of 1989, 

as amended (12 U.S.C. 3331 et seq.), and 

any implementing regulations in that 

area; or 

(viii) Located in a rural county, as 

defined in 12 CFR 1026.35(b)(2)(iv)(A). 

(e) Required disclosure—(1) In 

general. Except as provided in 

paragraph (b) of this section, a creditor 

shall disclose the following statement, 

in writing, to a consumer who applies 

for a higher-priced mortgage loan: ‘‘We 

may order an appraisal to determine the 

property’s value and charge you for this 

appraisal. We will give you a copy of 

any appraisal, even if your loan does not 

close. You can pay for an additional 


srobinson on DSK4SPTVN1PROD with RULES3
Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10439 

appraisal for your own use at your own 

cost.’’ Compliance with the disclosure 

requirement in Regulation B, 12 CFR 

1002.14(a)(2), satisfies the requirements 

of this paragraph. 

(2) Timing of disclosure. The 

disclosure required by paragraph (e)(1) 

of this section shall be delivered or 

placed in the mail no later than the 

third business day after the creditor 

receives the consumer’s application for 

a higher-priced mortgage loan subject to 

this section. In the case of a loan that 

is not a higher-priced mortgage loan 

subject to this section at the time of 

application, but becomes a higherpriced mortgage loan subject to this 

section after application, the disclosure 

shall be delivered or placed in the mail 

not later than the third business day 

after the creditor determines that the 

loan is a higher-priced mortgage loan 

subject to this section. 

(f) Copy of appraisals—(1) In general. 

Except as provided in paragraph (b) of 

this section, a creditor shall provide to 

the consumer a copy of any written 

appraisal performed in connection with 

a higher-priced mortgage loan pursuant 

to paragraphs (c) and (d) of this section. 

(2) Timing. A creditor shall provide to 

the consumer a copy of each written 

appraisal pursuant to paragraph (f)(1) of 

this section: 

(i) No later than three business days 

prior to consummation of the loan; or 

(ii) In the case of a loan that is not 

consummated, no later than 30 days 

after the creditor determines that the 

loan will not be consummated. 

(3) Form of copy. Any copy of a 

written appraisal required by paragraph 

(f)(1) of this section may be provided to 

the applicant in electronic form, subject 

to compliance with the consumer 

consent and other applicable provisions 

of the Electronic Signatures in Global 

and National Commerce Act (E-Sign 

Act) (15 U.S.C. 7001 et seq.). 

(4) No charge for copy of appraisal. A 

creditor shall not charge the consumer 

for a copy of a written appraisal 

required to be provided to the consumer 

pursuant to paragraph (f)(1) of this 

section. 

(g) Relation to other rules. The rules 

in this section were adopted jointly by 

the Board, the Office of the Comptroller 

of the Currency (OCC), the Federal 

Deposit Insurance Corporation, the 

National Credit Union Administration, 

the Federal Housing Finance Agency, 

and the Consumer Financial Protection 

Bureau (Bureau). These rules are 

substantively identical to the OCC’s and 

the Bureau’s higher-priced mortgage 

loan appraisal rules published 

separately in 12 CFR part 34, subpart G 

and 12 CFR part 164, subpart B (for the 

OCC) and 12 CFR 1026.35(a) and (c) (for 

the Bureau). The Board’s rules apply to 

all creditors who are State member 

banks, bank holding companies and 

their subsidiaries (other than a bank), 

savings and loan holding companies 

and their subsidiaries (other than a 

savings and loan association), and 

insured branches and agencies of 

foreign banks. Compliance with the 

Board’s rules satisfies the requirements 

of 15 U.S.C. 1639h. 

■ 9. Appendix N to Part 226 is added to 

read as follows: 

Appendix N to Part 226—Higher-Priced 

Mortgage Loan Appraisal Safe Harbor 

Review 

To qualify for the safe harbor provided in 

§ 226.43(c)(2), a creditor must confirm that 

the written appraisal: 

1. Identifies the creditor who ordered the 

appraisal and the property and the interest 

being appraised. 

2. Indicates whether the contract price was 

analyzed. 

3. Addresses conditions in the property’s 

neighborhood. 

4. Addresses the condition of the property 

and any improvements to the property. 

5. Indicates which valuation approaches 

were used, and includes a reconciliation if 

more than one valuation approach was used. 

6. Provides an opinion of the property’s 

market value and an effective date for the 

opinion. 

7. Indicates that a physical property visit 

of the interior of the property was performed. 

8. Includes a certification signed by the 

appraiser that the appraisal was prepared in 

accordance with the requirements of the 

Uniform Standards of Professional Appraisal 

Practice. 

9. Includes a certification signed by the 

appraiser that the appraisal was prepared in 

accordance with the requirements of title XI 

of the Financial Institutions Reform, 

Recovery and Enforcement Act of 1989, as 

amended (12 U.S.C. 3331 et seq.), and any 

implementing regulations. 

■ 10. Appendix O to Part 226 is added 

to read as follows: 

Appendix O to Part 226—Illustrative 

Written Source Documents for HigherPriced Mortgage Loan Appraisal Rules 

A creditor acts with reasonable diligence 

under § 226.43(d)(6)(i) if the creditor bases its 

determination on information contained in 

written source documents, such as: 

1. A copy of the recorded deed from the 

seller. 

2. A copy of a property tax bill. 

3. A copy of any owner’s title insurance 

policy obtained by the seller. 

4. A copy of the RESPA settlement 

statement from the seller’s acquisition (i.e., 

the HUD–1 or any successor form). 

5. A property sales history report or title 

report from a third-party reporting service. 

6. Sales price data recorded in multiple 

listing services. 

7. Tax assessment records or transfer tax 

records obtained from local governments. 

8. A written appraisal performed in 

compliance with § 226.43(c)(1) for the same 

transaction. 

9. A copy of a title commitment report 

detailing the seller’s ownership of the 

property, the date it was acquired, or the 

price at which the seller acquired the 

property. 

10. A property abstract. 

■ 11. In Supplement I to part 226: 

■ a. New Section 226.43—Appraisals for 

Higher-Priced Mortgage Loans is added. 

■ b. New Appendix O—Illustrative 

Written Source Documents for HigherPriced Mortgage Loan Appraisal Rules is 

added. 

The additions read as follows: 

Supplement I to Part 226—Official 

Interpretations 

* * * * * 

Section 226.43—Appraisals for Higher-Risk 

Mortgage Loans 

43(a) Definitions. 

43(a)(1) Certified or licensed appraiser. 

1. USPAP. The Uniform Standards of 

Professional Appraisal Practice (USPAP) are 

established by the Appraisal Standards Board 

of the Appraisal Foundation (as defined in 12 

U.S.C. 3350(9)). Under § 226.43(a)(1), the 

relevant USPAP standards are those found in 

the edition of USPAP in effect at the time the 

appraiser signs the appraiser’s certification. 

2. Appraiser’s certification. The appraiser’s 

certification refers to the certification that 

must be signed by the appraiser for each 

appraisal assignment. This requirement is 

specified in USPAP Standards Rule 2–3. 

3. FIRREA title XI and implementing 

regulations. The relevant regulations are 

those prescribed under section 1110 of the 

Financial Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA), as 

amended (12 U.S.C. 3339), that relate to an 

appraiser’s development and reporting of the 

appraisal in effect at the time the appraiser 

signs the appraiser’s certification. Paragraph 

(3) of FIRREA section 1110 (12 U.S.C. 

3339(3)), which relates to the review of 

appraisals, is not relevant for determining 

whether an appraiser is a certified or licensed 

appraiser under § 226.43(a)(1). 

43(a)(3) Higher-priced mortgage loan. 

1. Principal dwelling. The term ‘‘principal 

dwelling’’ has the same meaning under 

§ 226.43(a)(3) as under 12 CFR 1026.2(a)(24). 

See the Official Staff Interpretations to the 

Bureau’s Regulation Z (Supplement I to Part 

1026), comment 2(a)(24)–3. 

2. Average prime offer rate. For guidance 

on average prime offer rates, see the Official 

Staff Interpretations to the Bureau’s 

Regulation Z, comments 35(a)(2)–1 and –3. 

3. Comparable transaction. For guidance 

on determining the average prime offer rate 

for comparable transactions, see the Official 

Staff Interpretations to the Bureau’s 

Regulation Z, comments 35(a)(1)–1 and 

35(a)(2)–2. 

4. Rate set. For guidance on the date the 

annual percentage rate is set, see the Official 

Staff Interpretations to the Bureau’s 

Regulation Z, comment 35(a)(1)–2. 


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5. Threshold for ‘‘jumbo’’ loans. For 

guidance on determining whether a 

transaction’s principal balance exceeds the 

limit in effect as of the date the transaction’s 

rate is set for the maximum principal 

obligation eligible for purchase by Freddie 

Mac, see the Official Staff Interpretations to 

the Bureau’s Regulation Z, comment 

35(a)(1)–3. 

43(b) Exemptions. 

Paragraph 43(b)(2). 

1. Secured by new manufactured home. A 

transaction secured by a new manufactured 

home, 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 

§ 226.43. 

Paragraph 43(b)(3). 

1. Secured by a mobile home. For purposes 

of the exemption in § 226.43(b)(3), a mobile 

home does not include a manufactured 

home, as defined in § 226.43(a)(3). 

Paragraph 43(b)(4) 

1. Construction-to-permanent loans. 

Section 226.43 does not apply to a 

transaction to finance the initial construction 

of a dwelling. This exclusion applies to a 

construction-only loan as well as to the 

construction phase of a construction-topermanent loan. Section 226.43 does apply, 

however, to permanent financing that 

replaces a construction loan, whether the 

permanent financing is extended by the same 

or a different creditor, unless the permanent 

financing is otherwise exempt from the 

requirements of § 226.43. See § 226.43(b). 

When a construction loan may be 

permanently financed by the same creditor, 

the general disclosure requirements for 

closed-end credit pursuant to Regulation Z 

(12 CFR 1026.17) provide that the creditor 

may give either one combined disclosure for 

both the construction financing and the 

permanent financing, or a separate set of 

disclosures for each of the two phases as 

though they were two separate transactions. 

See 12 CFR 1026.17(c)(6)(ii) and the Official 

Staff Interpretations to the Bureau’s 

Regulation Z, comment 17(c)(6)–2. Which 

disclosure option a creditor elects under 

§ 1026.17(c)(6)(ii) does not affect the 

determination of whether the permanent 

phase of the transaction is subject to § 226.43. 

When the creditor discloses the two phases 

as separate transactions, the annual 

percentage rate for the permanent phase must 

be compared to the average prime offer rate 

for a transaction that is comparable to the 

permanent financing to determine coverage 

under § 226.43. When the creditor discloses 

the two phases as a single transaction, a 

single annual percentage rate, reflecting the 

appropriate charges from both phases, must 

be calculated for the transaction in 

accordance with § 226.43(a)(3) and appendix 

D to 12 CFR part 1026. The annual 

percentage rate must be compared to the 

average prime offer rate for a transaction that 

is comparable to the permanent financing to 

determine coverage under § 226.43. If the 

transaction is determined to be a higherpriced mortgage loan not otherwise exempt 

under § 226.43(b), only the permanent phase 

is subject to the requirements of § 226.43. 

43(c) Appraisals required. 

43(c)(1) In general. 

1. Written appraisal—electronic 

transmission. To satisfy the requirement that 

the appraisal be ‘‘written,’’ a creditor may 

obtain the appraisal in paper form or via 

electronic transmission. 

43(c)(2) Safe harbor. 

1. Safe harbor. A creditor that satisfies the 

safe harbor conditions in § 226.43(c)(2)(i) 

through (iv) complies with the appraisal 

requirements of § 226.43(c)(1). A creditor that 

does not satisfy the safe harbor conditions in 

§ 226.43(c)(2)(i) through (iv) does not 

necessarily violate the appraisal 

requirements of § 226.43(c)(1). 

2. Appraiser’s certification. For purposes of 

§ 226.43(c)(2), the appraiser’s certification 

refers to the certification specified in item 9 

of appendix N. See also comment 43(a)(1)– 

2. 

Paragraph 43(c)(2)(iii). 

1. Confirming elements in the appraisal. To 

confirm that the elements in appendix N to 

this part are included in the written 

appraisal, a creditor need not look beyond 

the face of the written appraisal and the 

appraiser’s certification. 

43(d) Additional appraisal for certain 

higher-priced mortgage loans. 

1. Acquisition. For purposes of § 226.43(d), 

the terms ‘‘acquisition’’ and ‘‘acquire’’ refer 

to the acquisition of legal title to the property 

pursuant to applicable State law, including 

by purchase. 

43(d)(1) In general. 

1. Appraisal from a previous transaction. 

An appraisal that was previously obtained in 

connection with the seller’s acquisition or 

the financing of the seller’s acquisition of the 

property does not satisfy the requirements to 

obtain two written appraisals under 

§ 226.43(d)(1). 

2. 90-day, 180-day calculation. The time 

periods described in § 226.43(d)(1)(i) and (ii) 

are calculated by counting the day after the 

date on which the seller acquired the 

property, up to and including the date of the 

consumer’s agreement to acquire the property 

that secures the transaction. For example, 

assume that the creditor determines that date 

of the consumer’s acquisition agreement is 

October 15, 2012, and that the seller acquired 

the property on April 17, 2012. The first day 

to be counted in the 180-day calculation 

would be April 18, 2012, and the last day 

would be October 15, 2012. In this case, the 

number of days from April 17 would be 181, 

so an additional appraisal is not required. 

3. Date seller acquired the property. For 

purposes of § 226.43(d)(1)(i) and (ii), the date 

on which the seller acquired the property is 

the date on which the seller became the legal 

owner of the property pursuant to applicable 

State law. 

4. Date of the consumer’s agreement to 

acquire the property. For the date of the 

consumer’s agreement to acquire the property 

under § 226.43(d)(1)(i) and (ii), the creditor 

should use the date on which the consumer 

and the seller signed the agreement provided 

to the creditor by the consumer. The date on 

which the consumer and the seller signed the 

agreement might not be the date on which 

the consumer became contractually obligated 

under State law to acquire the property. For 

purposes of § 226.43(d)(1)(i) and (ii), a 

creditor is not obligated to determine 

whether and to what extent the agreement is 

legally binding on both parties. If the dates 

on which the consumer and the seller signed 

the agreement differ, the creditor should use 

the later of the two dates. 

5. Price at which the seller acquired the 

property. The price at which the seller 

acquired the property refers to the amount 

paid by the seller to acquire the property. 

The price at which the seller acquired the 

property does not include the cost of 

financing the property. 

6. Price the consumer is obligated to pay 

to acquire the property. The price the 

consumer is obligated to pay to acquire the 

property is the price indicated on the 

consumer’s agreement with the seller to 

acquire the property. The price the consumer 

is obligated to pay to acquire the property 

from the seller does not include the cost of 

financing the property. For purposes of 

§ 226.43(d)(1)(i) and (ii), a creditor is not 

obligated to determine whether and to what 

extent the agreement is legally binding on 

both parties. See also comment 43(d)(1)–4. 

43(d)(2) Different certified or licensed 

appraisers. 

1. Independent appraisers. The 

requirements that a creditor obtain two 

separate appraisals under § 226.43(d)(1), and 

that each appraisal be conducted by a 

different licensed or certified appraiser under 

§ 226.43(d)(2), indicate that the two 

appraisals must be conducted independently 

of each other. If the two certified or licensed 

appraisers are affiliated, such as by being 

employed by the same appraisal firm, then 

whether they have conducted the appraisal 

independently of each other must be 

determined based on the facts and 

circumstances of the particular case known 

to the creditor. 

43(d)(3) Relationship to general appraisal 

requirements. 

1. Safe harbor. When a creditor is required 

to obtain an additional appraisal under 

§ 226(d)(1), the creditor must comply with 

the requirements of both § 226.43(c)(1) and 

§ 226.43(d)(2) through (5) for that appraisal. 

The creditor complies with the requirements 

of § 226.43(c)(1) for the additional appraisal 

if the creditor meets the safe harbor 

conditions in § 226.43(c)(2) for that appraisal. 

43(d)(4) Required analysis in the 

additional appraisal. 

1. Determining acquisition dates and prices 

used in the analysis of the additional 

appraisal. For guidance on identifying the 

date on which the seller acquired the 

property, see comment 43(d)(1)–3. For 

guidance on identifying the date of the 

consumer’s agreement to acquire the 

property, see comment 43(d)(1)–4. For 

guidance on identifying the price at which 

the seller acquired the property, see comment 

43(d)(1)–5. For guidance on identifying the 

price the consumer is obligated to pay to 

acquire the property, see comment 43(d)(1)– 

6. 

43(d)(5) No charge for additional 

appraisal. 

1. Fees and mark-ups. The creditor is 

prohibited from charging the consumer for 

the performance of one of the two appraisals 

required under § 226.43(d)(1), including by 


srobinson on DSK4SPTVN1PROD with RULES3
Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10441 

imposing a fee specifically for that appraisal 

or by marking up the interest rate or any 

other fees payable by the consumer in 

connection with the higher-priced mortgage 

loan. 

43(d)(6) Creditor’s determination of prior 

sale date and price. 

43(d)(6)(i) In general. 

1. Estimated sales price. If a written source 

document describes the seller’s acquisition 

price in a manner that indicates that the price 

described is an estimated or assumed amount 

and not the actual price, the creditor should 

look at an alternative document to satisfy the 

reasonable diligence standard in determining 

the price at which the seller acquired the 

property. 

2. Reasonable diligence—oral statements 

insufficient. Reliance on oral statements of 

interested parties, such as the consumer, 

seller, or mortgage broker, does not constitute 

reasonable diligence under § 226.43(d)(6)(i). 

3. Lack of information and conflicting 

information—two appraisals required. If a 

creditor is unable to demonstrate that the 

requirement to obtain two appraisals under 

§ 226.43(d)(1) does not apply, the creditor 

must obtain two written appraisals before 

extending a higher-priced mortgage loan 

subject to the requirements of § 226.43. See 

also comment 43(d)(6)(ii)–1. For example: 

i. Assume a creditor orders and reviews the 

results of a title search, which shows that a 

prior sale occurred between 91 and 180 days 

ago, but not the price paid in that sale. Thus, 

based on the title search, the creditor would 

not be able to determine whether the price 

the consumer is obligated to pay under the 

consumer’s acquisition agreement is more 

than 20 percent higher than the seller’s 

acquisition price, pursuant to 

§ 226.43(d)(1)(ii). Before extending a higherpriced mortgage loan subject to the appraisal 

requirements of § 226.43, the creditor must 

either: perform additional diligence to 

ascertain the seller’s acquisition price and, 

based on this information, determine 

whether two written appraisals are required; 

or obtain two written appraisals in 

compliance with § 226.43(d). See also 

comment 43(d)(6)(ii)–1. 

ii. Assume a creditor reviews the results of 

a title search indicating that the last recorded 

purchase was more than 180 days before the 

consumer’s agreement to acquire the 

property. Assume also that the creditor 

subsequently receives a written appraisal 

indicating that the seller acquired the 

property between 91 and 180 days before the 

consumer’s agreement to acquire the 

property. In this case, unless one of these 

sources is clearly wrong on its face, the 

creditor would not be able to determine 

whether the seller acquired the property 

within 180 days of the date of the consumer’s 

agreement to acquire the property from the 

seller, pursuant to § 226.43(d)(1)(ii). Before 

extending a higher-priced mortgage loan 

subject to the appraisal requirements of 

§ 226.43, the creditor must either: (1) Perform 

additional diligence to ascertain the seller’s 

acquisition date and, based on this 

information, determine whether two written 

appraisals are required; or (2) obtain two 

written appraisals in compliance with 

§ 226.43(d). See also comment 43(d)(6)(ii)–1. 

43(d)(6)(ii) Inability to determine prior 

sales date or price—modified requirements 

for additional appraisal. 

1. Required analysis. In general, the 

additional appraisal required under 

§ 226.43(d)(1) should include an analysis of 

the factors listed in § 226.43(d)(4)(i) through 

(iii). However, if, following reasonable 

diligence, a creditor cannot determine 

whether the conditions in § 226.43(d)(1)(i) or 

(ii) are present due to a lack of information 

or conflicting information, the required 

additional appraisal must include the 

analyses required under § 226.43(d)(4)(i) 

through (iii) only to the extent that the 

information necessary to perform the 

analyses is known. For example, assume that 

a creditor is able, following reasonable 

diligence, to determine that the date on 

which the seller acquired the property 

occurred between 91 and 180 days prior to 

the date of the consumer’s agreement to 

acquire the property. However, the creditor is 

unable, following reasonable diligence, to 

determine the price at which the seller 

acquired the property. In this case, the 

creditor is required to obtain an additional 

written appraisal that includes an analysis 

under § 226.43(d)(4)(ii) and (iii) of the 

changes in market conditions and any 

improvements made to the property between 

the date the seller acquired the property and 

the date of the consumer’s agreement to 

acquire the property. However, the creditor is 

not required to obtain an additional written 

appraisal that includes analysis under 

§ 226.43(d)(4)(i) of the difference between the 

price at which the seller acquired the 

property and the price that the consumer is 

obligated to pay to acquire the property. 

43(d)(7) Exemptions from the additional 

appraisal requirement. 

Paragraph 43(d)(7)(iii). 

1. Non-profit entity. For purposes of 

§ 226.43(d)(7)(iii), a ‘‘non-profit entity’’ is a 

person with a tax exemption ruling or 

determination letter from the Internal 

Revenue Service under section 501(c)(3) of 

the Internal Revenue Code of 1986 (12 U.S.C. 

501(c)(3)). 

Paragraph 43(d)(7)(viii). 

1. Bureau table of rural counties. The 

Bureau publishes on its Web site a table of 

rural counties under § 226.43(d)(7)(viii) for 

each calendar year by the end of the calendar 

year. See Official Staff Interpretations to the 

Bureau’s Regulation Z, comment 35(b)(2)(iv)– 

1. A property securing an HPML subject to 

§ 226.43 is in a rural county under 

§ 226.43(d)(7)(viii) if the county in which the 

property is located is on the table of rural 

counties most recently published by the 

Bureau. For example, for a transaction 

occurring in 2015, assume that the Bureau 

most recently published a table of rural 

counties at the end of 2014. The property 

securing the transaction would be located in 

a rural county for purposes of 

§ 226.43(d)(7)(viii) if the county is on the 

table of rural counties published by the 

Bureau at the end of 2014. 

43(e) Required disclosure. 

43(e)(1) In general. 

1. Multiple applicants. When two or more 

consumers apply for a loan subject to this 

section, the creditor is required to give the 

disclosure to only one of the consumers. 

2. Appraisal independence requirements 

not affected. Nothing in the text of the 

consumer notice required by § 226.43(e)(1) 

should be construed to affect, modify, limit, 

or supersede the operation of any legal, 

regulatory, or other requirements or 

standards relating to independence in the 

conduct of appraisers or restrictions on the 

use of borrower-ordered appraisals by 

creditors. 

43(f) Copy of appraisals. 

43(f)(1) In general. 

1. Multiple applicants. When two or more 

consumers apply for a loan subject to this 

section, the creditor is required to give the 

copy of each required appraisal to only one 

of the consumers. 

43(f)(2) Timing. 

1. ‘‘Provide.’’ For purposes of the 

requirement to provide a copy of the 

appraisal within a specified time under 

§ 226.43(f)(2), ‘‘provide’’ means ‘‘deliver.’’ 

Delivery occurs three business days after 

mailing or delivering the copies to the lastknown address of the applicant, or when 

evidence indicates actual receipt by the 

applicant (which, in the case of electronic 

receipt, must be based upon consent that 

complies with the E-Sign Act), whichever is 

earlier. 

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. 

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). 

43(f)(4) No charge for copy of appraisal. 

1. Fees and mark-ups. The creditor is 

prohibited from charging the consumer for 

any copy of an appraisal required to be 

provided under § 226.43(f)(1), including by 

imposing a fee specifically for a required 

copy of an appraisal or by marking up the 

interest rate or any other fees payable by the 

consumer in connection with the higherpriced mortgage loan. 

* * * * * 

Appendix O—Illustrative Written 

Source Documents for Higher-Priced 

Mortgage Loan Appraisal Rules 

1. Title commitment report. The ‘‘title 

commitment report’’ is a document from a 

title insurance company describing the 

property interest and status of its title, parties 

with interests in the title and the nature of 

their claims, issues with the title that must 

be resolved prior to closing of the transaction 

between the parties to the transfer, amount 

and disposition of the premiums, and 

endorsements on the title policy. This 

document is issued by the title insurance 

company prior to the company’s issuance of 

an actual title insurance policy to the 

property’s transferee and/or creditor 

financing the transaction. In different 

jurisdictions, this instrument may be referred 


srobinson on DSK4SPTVN1PROD with RULES3
10442 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

to by different terms, such as a title 

commitment, title binder, title opinion, or 

title report. 

National Credit Union Administration 

Authority and Issuance 

For the reasons discussed above, 

NCUA amends 12 CFR part 722 as 

follows: 

PART 722—APPRAISALS 

■ 12. The authority citation for part 722 

is revised to read as follows: 

Authority: 12 U.S.C. 1766, 1789 and 3339. 

Section 722.3(f) is also issued under 15 

U.S.C. 1639h. 

■ 13. In § 722.3, add paragraph (f) to 

read as follows: 

§ 722.3 Appraisals required; transactions 

requiring a State certified or licensed 

appraiser. 

* * * * * 

(f) Higher-priced mortgage loans. A 

credit union may not extend credit to a 

consumer in the form of a ‘‘higherpriced mortgage loan’’ as defined in 12 

CFR 1026.35(a)(1), without meeting the 

requirements of section 129H of the 

Truth in Lending Act, 15 U.S.C. 1639h, 

and its implementing regulations in 

Regulation Z, 12 CFR 1026.35(c). 

Bureau of Consumer Financial 

Protection 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Bureau amends 

Regulation Z, 12 CFR part 1026, as 

follows: 

PART 1026—TRUTH IN LENDING ACT 

(REGULATION Z) 

■ 14. The authority citation for part 

1026 continues to read as follows: 

Authority: 12 U.S.C. 2601; 2603–2605, 

2607, 2609, 2617, 5511, 5512, 5532, 5581; 15 

U.S.C. 1601 et seq. 

Subpart C—Closed-End Credit 

■ 15. Section 1026.35 is amended by 

republishing paragraphs (a) introductory 

text and (a)(1), and adding paragraph (c) 

as follows: 

* * * * * 

§ 1026.35 Prohibited acts or practices in 

connection with higher-priced mortgage 

loans. 

(a) Definitions. For purposes of this 

section: 

(1) ‘‘Higher-priced mortgage loan’’ 

means a closed-end consumer credit 

transaction secured by the consumer’s 

principal dwelling 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: 

(i) By 1.5 or more percentage points, 

for a loan secured by a first lien with a 

principal obligation at consummation 

that does not exceed the limit in effect 

as of the date the transaction’s interest 

rate is set for the maximum principal 

obligation eligible for purchase by 

Freddie Mac; 

(ii) By 2.5 or more percentage points, 

for a loan secured by a first lien with a 

principal obligation at consummation 

that exceeds the limit in effect as of the 

date the transaction’s interest rate is set 

for the maximum principal obligation 

eligible for purchase by Freddie Mac; or 

(iii) By 3.5 or more percentage points, 

for a loan secured by a subordinate lien. 

* * * * * 

(c) Appraisals for higher-priced 

mortgage loans—(1) Definitions. For 

purposes of this section: 

(i) Certified or licensed appraiser 

means a person who is certified or 

licensed by the State agency in the State 

in which the property that secures the 

transaction is located, and who 

performs the appraisal in conformity 

with the Uniform Standards of 

Professional Appraisal Practice and the 

requirements applicable to appraisers in 

title XI of the Financial Institutions 

Reform, Recovery, and Enforcement Act 

of 1989, as amended (12 U.S.C. 3331 et 

seq.), and any implementing regulations 

in effect at the time the appraiser signs 

the appraiser’s certification. 

(ii) Manufactured home has the same 

meaning as in 24 CFR 3280.2. 

(iii) National Registry means the 

database of information about State 

certified and licensed appraisers 

maintained by the Appraisal 

Subcommittee of the Federal Financial 

Institutions Examination Council. 

(iv) State agency means a ‘‘State 

appraiser certifying and licensing 

agency’’ recognized in accordance with 

section 1118(b) of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (12 U.S.C. 

3347(b)) and any implementing 

regulations. 

(2) Exemptions. The requirements in 

paragraphs (c)(3) through (6) of this 

section do not apply to the following 

types of transactions: 

(i) A qualified mortgage as defined in 

12 CFR 1026.43(e). 

(ii) A transaction secured by a new 

manufactured home. 

(iii) A transaction secured by a mobile 

home, boat, or trailer. 

(iv) A transaction to finance the initial 

construction of a dwelling. 

(v) A loan with 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. 

(vi) A reverse-mortgage transaction 

subject to 12 CFR 1026.33(a). 

(3) Appraisals required—(i) In 

general. Except as provided in 

paragraph (c)(2) of this section, a 

creditor shall not extend a higher-priced 

mortgage loan to a consumer without 

obtaining, prior to consummation, a 

written appraisal of the property to be 

mortgaged. The appraisal must be 

performed by a certified or licensed 

appraiser who conducts a physical visit 

of the interior of the property that will 

secure the transaction. 

(ii) Safe harbor. A creditor obtains a 

written appraisal that meets the 

requirements for an appraisal required 

under paragraph (c)(3)(i) of this section 

if the creditor: 

(A) Orders that the appraiser perform 

the appraisal in conformity with the 

Uniform Standards of Professional 

Appraisal Practice and title XI of the 

Financial Institutions Reform, Recovery, 

and Enforcement Act of 1989, as 

amended (12 U.S.C. 3331 et seq.), and 

any implementing regulations in effect 

at the time the appraiser signs the 

appraiser’s certification; 

(B) Verifies through the National 

Registry that the appraiser who signed 

the appraiser’s certification was a 

certified or licensed appraiser in the 

State in which the appraised property is 

located as of the date the appraiser 

signed the appraiser’s certification; 

(C) Confirms that the elements set 

forth in appendix N to this part are 

addressed in the written appraisal; and 

(D) Has no actual knowledge contrary 

to the facts or certifications contained in 

the written appraisal. 

(4) Additional appraisal for certain 

higher-priced mortgage loans—(i) In 

general. Except as provided in 

paragraphs (c)(2) and (c)(4)(vii) of this 

section, a creditor shall not extend a 

higher-priced mortgage loan to a 

consumer to finance the acquisition of 

the consumer’s principal dwelling 

without obtaining, prior to 

consummation, two written appraisals, 

if: 

(A) The seller acquired the property 

90 or fewer days prior to the date of the 

consumer’s agreement to acquire the 

property and the price in the 

consumer’s agreement to acquire the 

property exceeds the seller’s acquisition 

price by more than 10 percent; or 

(B) The seller acquired the property 

91 to 180 days prior to the date of the 

consumer’s agreement to acquire the 

property and the price in the 

consumer’s agreement to acquire the 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10443 

property exceeds the seller’s acquisition 

price by more than 20 percent. 

(ii) Different certified or licensed 

appraisers. The two appraisals required 

under paragraph (c)(4)(i) of this section 

may not be performed by the same 

certified or licensed appraiser. 

(iii) Relationship to general appraisal 

requirements. If two appraisals must be 

obtained under paragraph (c)(4)(i) of 

this section, each appraisal shall meet 

the requirements of paragraph (c)(3)(i) of 

this section. 

(iv) Required analysis in the 

additional appraisal. One of the two 

required appraisals must include an 

analysis of: 

(A) The difference between the price 

at which the seller acquired the 

property and the price that the 

consumer is obligated to pay to acquire 

the property, as specified in the 

consumer’s agreement to acquire the 

property from the seller; 

(B) Changes in market conditions 

between the date the seller acquired the 

property and the date of the consumer’s 

agreement to acquire the property; and 

(C) Any improvements made to the 

property between the date the seller 

acquired the property and the date of 

the consumer’s agreement to acquire the 

property. 

(v) No charge for the additional 

appraisal. If the creditor must obtain 

two appraisals under paragraph (c)(4)(i) 

of this section, the creditor may charge 

the consumer for only one of the 

appraisals. 

(vi) Creditor’s determination of prior 

sale date and price—(A) Reasonable 

diligence. A creditor must obtain two 

written appraisals under paragraph 

(c)(4)(i) of this section unless the 

creditor can demonstrate by exercising 

reasonable diligence that the 

requirement to obtain two appraisals 

does not apply. A creditor acts with 

reasonable diligence if the creditor bases 

its determination on information 

contained in written source documents, 

such as the documents listed in 

Appendix O to this part. 

(B) Inability to determine prior sale 

date or price—modified requirements 

for additional appraisal. If, after 

exercising reasonable diligence, a 

creditor cannot determine whether the 

conditions in paragraphs (c)(4)(i)(A) and 

(c)(4)(i)(B) are present and therefore 

must obtain two written appraisals in 

accordance with paragraphs (c)(4)(i) 

through (v) of this section, one of the 

two appraisals shall include an analysis 

of the factors in paragraph (c)(4)(iv) of 

this section only to the extent that the 

information necessary for the appraiser 

to perform the analysis can be 

determined. 

(vii) Exemptions from the additional 

appraisal requirement. The additional 

appraisal required under paragraph 

(c)(4)(i) of this section shall not apply to 

extensions of credit that finance a 

consumer’s acquisition of property: 

(A) From a local, State or Federal 

government agency; 

(B) From a person who acquired title 

to the property through foreclosure, 

deed-in-lieu of foreclosure, or other 

similar judicial or non-judicial 

procedure as a result of the person’s 

exercise of rights as the holder of a 

defaulted mortgage loan; 

(C) From a non-profit entity as part of 

a local, State, or Federal government 

program under which the non-profit 

entity is permitted to acquire title to 

single-family properties for resale from 

a seller who acquired title to the 

property through the process of 

foreclosure, deed-in-lieu of foreclosure, 

or other similar judicial or non-judicial 

procedure; 

(D) From a person who acquired title 

to the property by inheritance or 

pursuant to a court order of dissolution 

of marriage, civil union, or domestic 

partnership, or of partition of joint or 

marital assets to which the seller was a 

party; 

(E) From an employer or relocation 

agency in connection with the 

relocation of an employee; 

(F) From a servicemember, as defined 

in 50 U.S.C. App. 511(1), who received 

a deployment or permanent change of 

station order after the servicemember 

purchased the property; 

(G) Located in an area designated by 

the President as a federal disaster area, 

if and for as long as the Federal 

financial institutions regulatory 

agencies, as defined in 12 U.S.C. 

3350(6), waive the requirements in title 

XI of the Financial Institutions Reform, 

Recovery, and Enforcement Act of 1989, 

as amended (12 U.S.C. 3331 et seq.), and 

any implementing regulations in that 

area; or 

(H) Located in a rural county, as 

defined in 12 CFR 1026.35(b)(2)(iv)(A). 

(5) Required disclosure—(i) In 

general. Except as provided in 

paragraph (c)(2) of this section, a 

creditor shall disclose the following 

statement, in writing, to a consumer 

who applies for a higher-priced 

mortgage loan: ‘‘We may order an 

appraisal to determine the property’s 

value and charge you for this appraisal. 

We will give you a copy of any 

appraisal, even if your loan does not 

close. You can pay for an additional 

appraisal for your own use at your own 

cost.’’ Compliance with the disclosure 

requirement in Regulation B, 12 CFR 

1002.14(a)(2), satisfies the requirements 

of this paragraph. 

(ii) Timing of disclosure. The 

disclosure required by paragraph 

(c)(5)(i) of this section shall be delivered 

or placed in the mail no later than the 

third business day after the creditor 

receives the consumer’s application for 

a higher-priced mortgage loan subject to 

paragraph (c) of this section. In the case 

of a loan that is not a higher-priced 

mortgage loan subject to paragraph (c) of 

this section at the time of application, 

but becomes a higher-priced mortgage 

loan subject to paragraph (c) of this 

section after application, the disclosure 

shall be delivered or placed in the mail 

not later than the third business day 

after the creditor determines that the 

loan is a higher-priced mortgage loan 

subject to paragraph (c) of this section. 

(6) Copy of appraisals—(i) In general. 

Except as provided in paragraph (c)(2) 

of this section, a creditor shall provide 

to the consumer a copy of any written 

appraisal performed in connection with 

a higher-priced mortgage loan pursuant 

to paragraphs (c)(3) and (c)(4) of this 

section. 

(ii) Timing. A creditor shall provide to 

the consumer a copy of each written 

appraisal pursuant to paragraph (c)(6)(i) 

of this section: 

(A) No later than three business days 

prior to consummation of the loan; or 

(B) In the case of a loan that is not 

consummated, no later than 30 days 

after the creditor determines that the 

loan will not be consummated. 

(iii) Form of copy. Any copy of a 

written appraisal required by paragraph 

(c)(6)(i) of this section may be provided 

to the applicant in electronic form, 

subject to compliance with the 

consumer consent and other applicable 

provisions of the Electronic Signatures 

in Global and National Commerce Act 

(E-Sign Act) (15 U.S.C. 7001 et seq.). 

(iv) No charge for copy of appraisal. 

A creditor shall not charge the 

consumer for a copy of a written 

appraisal required to be provided to the 

consumer pursuant to paragraph (c)(6)(i) 

of this section. 

(7) Relation to other rules. The rules 

in this paragraph (c) were adopted 

jointly by the Federal Reserve Board 

(Board), the Office of the Comptroller of 

the Currency (OCC), the Federal Deposit 

Insurance Corporation, the National 

Credit Union Administration, the 

Federal Housing Finance Agency, and 

the Bureau. These rules are 

substantively identical to the Board’s 

and the OCC’s higher-priced mortgage 

loan appraisal rules published 

separately in 12 CFR 226.43 (for the 

Board) and in 12 CFR part 34, subpart 


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10444 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

G and 12 CFR part 164, subpart B (for 

the OCC). 

* * * * * 

■ 16. Appendix N to Part 1026 is added 

to read as follows: 

Appendix N to Part 1026—HigherPriced Mortgage Loan Appraisal Safe 

Harbor Review 

To qualify for the safe harbor provided in 

§ 1026.35(c)(3)(ii), a creditor must confirm 

that the written appraisal: 

1. Identifies the creditor who ordered the 

appraisal and the property and the interest 

being appraised. 

2. Indicates whether the contract price was 

analyzed. 

3. Addresses conditions in the property’s 

neighborhood. 

4. Addresses the condition of the property 

and any improvements to the property. 

5. Indicates which valuation approaches 

were used, and includes a reconciliation if 

more than one valuation approach was used. 

6. Provides an opinion of the property’s 

market value and an effective date for the 

opinion. 

7. Indicates that a physical property visit 

of the interior of the property was performed. 

8. Includes a certification signed by the 

appraiser that the appraisal was prepared in 

accordance with the requirements of the 

Uniform Standards of Professional Appraisal 

Practice. 

9. Includes a certification signed by the 

appraiser that the appraisal was prepared in 

accordance with the requirements of title XI 

of the Financial Institutions Reform, 

Recovery and Enforcement Act of 1989, as 

amended (12 U.S.C. 3331 et seq.), and any 

implementing regulations. 

■ 17. Appendix O to Part 1026 is added 

to read as follows: 

Appendix O to Part 1026—Illustrative 

Written Source Documents for HigherPriced Mortgage Loan Appraisal Rules 

A creditor acts with reasonable diligence 

under § 1026.35(c)(4)(vi)(A) if the creditor 

bases its determination on information 

contained in written source documents, such 

as: 

1. A copy of the recorded deed from the 

seller. 

2. A copy of a property tax bill. 

3. A copy of any owner’s title insurance 

policy obtained by the seller. 

4. A copy of the RESPA settlement 

statement from the seller’s acquisition (i.e., 

the HUD–1 or any successor form). 

5. A property sales history report or title 

report from a third-party reporting service. 

6. Sales price data recorded in multiple 

listing services. 

7. Tax assessment records or transfer tax 

records obtained from local governments. 

8. A written appraisal performed in 

compliance with § 1026.35(c)(3)(i) for the 

same transaction. 

9. A copy of a title commitment report 

detailing the seller’s ownership of the 

property, the date it was acquired, or the 

price at which the seller acquired the 

property. 

10. A property abstract. 

■ 18. In Supplement I to part 1026, 

■ A. Under Section 1026.35—Prohibited 

Acts or Practices in Connection with 

Higher-Priced Mortgage Loans, as 

amended January 22, 2013 (78 FR 4754): 

■ i. Under 35(a) Definitions, the heading 

of Paragraph 35(a)(1) and paragraphs 1, 

2, and 3 are republished. 

■ ii. New 35(c) Appraisals is added. 

■ B. New Appendix O—Illustrative 

Written Source Documents for HigherPriced Mortgage Loan Appraisal Rules is 

added. 

The revisions, additions, and 

removals read as follows: 

Supplement I to Part 1026—Official 

Interpretations 

* * * * * 

Section 1026.35—Requirements for HigherPriced Mortgage Loans 

35(a) Definitions 

Paragraph 35(a)(1) 

1. Comparable transaction. A higherpriced mortgage loan is a consumer credit 

transaction secured by the consumer’s 

principal dwelling 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 the specified 

margin. The table of average prime offer rates 

published by the Bureau indicates how to 

identify the comparable transaction. 

2. Rate set. A transaction’s annual 

percentage rate is compared to the average 

prime offer rate as of the date the 

transaction’s interest rate is set (or ‘‘locked’’) 

before consummation. Sometimes a creditor 

sets the interest rate initially and then re-sets 

it at a different level before consummation. 

The creditor should use the last date the 

interest rate is set before consummation. 

3. Threshold for ‘‘jumbo’’ loans. Section 

1026.35(a)(1)(ii) provides a separate 

threshold for determining whether a 

transaction is a higher-priced mortgage loan 

subject to § 1026.35 when the principal 

balance exceeds the limit in effect as of the 

date the transaction’s rate is set for the 

maximum principal obligation eligible for 

purchase by Freddie Mac (a ‘‘jumbo’’ loan). 

The Federal Housing Finance Agency (FHFA) 

establishes and adjusts the maximum 

principal obligation pursuant to rules under 

12 U.S.C. 1454(a)(2) and other provisions of 

Federal law. Adjustments to the maximum 

principal obligation made by FHFA apply in 

determining whether a mortgage loan is a 

‘‘jumbo’’ loan to which the separate coverage 

threshold in § 1026.35(a)(1)(ii) applies. 

* * * * * 

35(c)—Appraisals 

35(c)(1) Definitions 

35(c)(1)(i) Certified or Licensed Appraiser 

1. USPAP. The Uniform Standards of 

Professional Appraisal Practice (USPAP) are 

established by the Appraisal Standards Board 

of the Appraisal Foundation (as defined in 12 

U.S.C. 3350(9)). Under § 1026.35(c)(1)(i), the 

relevant USPAP standards are those found in 

the edition of USPAP and that are in effect 

at the time the appraiser signs the appraiser’s 

certification. 

2. Appraiser’s certification. The appraiser’s 

certification refers to the certification that 

must be signed by the appraiser for each 

appraisal assignment. This requirement is 

specified in USPAP Standards Rule 2–3. 

3. FIRREA title XI and implementing 

regulations. The relevant regulations are 

those prescribed under section 1110 of the 

Financial Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA), as 

amended (12 U.S.C. 3339), that relate to an 

appraiser’s development and reporting of the 

appraisal in effect at the time the appraiser 

signs the appraiser’s certification. Paragraph 

(3) of FIRREA section 1110 (12 U.S.C. 

3339(3)), which relates to the review of 

appraisals, is not relevant for determining 

whether an appraiser is a certified or licensed 

appraiser under § 1026.35(c)(1)(i). 

35(c)(2) Exemptions 

Paragraph 35(c)(2)(ii) 

1. Secured by new manufactured home. A 

transaction secured by a new manufactured 

home, 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 

§ 1026.35(c). 

Paragraph 35(c)(2)(iii) 

1. Secured by a mobile home. For purposes 

of the exemption in § 1026.35(c)(2)(iii), a 

mobile home does not include a 

manufactured home, as defined in 

§ 1026.35(c)(1)(ii). 

Paragraph 35(c)(2)(iv) 

1. Construction-to-permanent loans. 

Section 1026.35(c) does not apply to a 

transaction to finance the initial construction 

of a dwelling. This exclusion applies to a 

construction-only loan as well as to the 

construction phase of a construction-topermanent loan. Section 1026.35(c) does 

apply, however, to permanent financing that 

replaces a construction loan, whether the 

permanent financing is extended by the same 

or a different creditor, unless the permanent 

financing is otherwise exempt from the 

requirements of § 1026.35(c). See 

§ 1026.35(c)(2). When a construction loan 

may be permanently financed by the same 

creditor, the general disclosure requirements 

for closed-end credit (§ 1026.17) provide that 

the creditor may give either one combined 

disclosure for both the construction financing 

and the permanent financing, or a separate 

set of disclosures for each of the two phases 

as though they were two separate 

transactions. See § 1026.17(c)(6)(ii) and 

comment 17(c)(6)–2. Section 1026.17(c)(6)(ii) 

addresses only how a creditor may elect to 

disclose a construction-to-permanent 

transaction. Which disclosure option a 

creditor elects under § 1026.17(c)(6)(ii) does 

not affect the determination of whether the 

permanent phase of the transaction is subject 

to § 1026.35(c). When the creditor discloses 

the two phases as separate transactions, the 

annual percentage rate for the permanent 

phase must be compared to the average prime 

offer rate for a transaction that is comparable 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10445 

to the permanent financing to determine 

coverage under § 1026.35(c). When the 

creditor discloses the two phases as a single 

transaction, a single annual percentage rate, 

reflecting the appropriate charges from both 

phases, must be calculated for the transaction 

in accordance with § 1026.35 and appendix 

D to part 1026. The annual percentage rate 

must be compared to the average prime offer 

rate for a transaction that is comparable to 

the permanent financing to determine 

coverage under § 1026.35(c). If the 

transaction is determined to be a higherpriced mortgage loan not otherwise exempt 

under § 1026.35(c)(2), only the permanent 

phase is subject to the requirements of 

§ 1026.35(c). 

35(c)(3) Appraisals Required 

35(c)(3)(i) In General 

1. Written appraisal—electronic 

transmission. To satisfy the requirement that 

the appraisal be ‘‘written,’’ a creditor may 

obtain the appraisal in paper form or via 

electronic transmission. 

35(c)(3)(ii) Safe Harbor. 

1. Safe harbor. A creditor that satisfies the 

safe harbor conditions in 

§ 1026.35(c)(3)(ii)(A) through (D) complies 

with the appraisal requirements of 

§ 1026.35(c)(3)(i). A creditor that does not 

satisfy the safe harbor conditions in 

§ 1026.35(c)(3)(ii)(A) through (D) does not 

necessarily violate the appraisal 

requirements of § 1026.35(c)(3)(i). 

2. Appraiser’s certification. For purposes of 

§ 1026.35(c)(3)(ii), the appraiser’s 

certification refers to the certification 

specified in item 9 of appendix N. See also 

comment 35(c)(1)(i)–2. 

Paragraph 35(c)(3)(ii)(C) 

1. Confirming elements in the appraisal. To 

confirm that the elements in appendix N to 

this part are included in the written 

appraisal, a creditor need not look beyond 

the face of the written appraisal and the 

appraiser’s certification. 

35(c)(4) Additional Appraisal for Certain 

Higher-Priced Mortgage Loans 

1. Acquisition. For purposes of 

§ 1026.35(c)(4), the terms ‘‘acquisition’’ and 

‘‘acquire’’ refer to the acquisition of legal title 

to the property pursuant to applicable State 

law, including by purchase. 

35(c)(4)(i) In General 

1. Appraisal from a previous transaction. 

An appraisal that was previously obtained in 

connection with the seller’s acquisition or 

the financing of the seller’s acquisition of the 

property does not satisfy the requirements to 

obtain two written appraisals under 

§ 1026.35(c)(4)(i). 

2. 90-day, 180-day calculation. The time 

periods described in § 1026.35(c)(4)(i)(A) and 

(B) are calculated by counting the day after 

the date on which the seller acquired the 

property, up to and including the date of the 

consumer’s agreement to acquire the property 

that secures the transaction. For example, 

assume that the creditor determines that date 

of the consumer’s acquisition agreement is 

October 15, 2012, and that the seller acquired 

the property on April 17, 2012. The first day 

to be counted in the 180-day calculation 

would be April 18, 2012, and the last day 

would be October 15, 2012. In this case, the 

number of days from April 17 would be 181, 

so an additional appraisal is not required. 

3. Date seller acquired the property. For 

purposes of § 1026.35(c)(4)(i)(A) and (B), the 

date on which the seller acquired the 

property is the date on which the seller 

became the legal owner of the property 

pursuant to applicable State law. 

4. Date of the consumer’s agreement to 

acquire the property. For the date of the 

consumer’s agreement to acquire the property 

under § 1026.35(c)(4)(i)(A) and (B), the 

creditor should use the date on which the 

consumer and the seller signed the agreement 

provided to the creditor by the consumer. 

The date on which the consumer and the 

seller signed the agreement might not be the 

date on which the consumer became 

contractually obligated under State law to 

acquire the property. For purposes of 

§ 1026.35(c)(4)(i)(A) and (B), a creditor is not 

obligated to determine whether and to what 

extent the agreement is legally binding on 

both parties. If the dates on which the 

consumer and the seller signed the agreement 

differ, the creditor should use the later of the 

two dates. 

5. Price at which the seller acquired the 

property. The price at which the seller 

acquired the property refers to the amount 

paid by the seller to acquire the property. 

The price at which the seller acquired the 

property does not include the cost of 

financing the property. 

6. Price the consumer is obligated to pay 

to acquire the property. The price the 

consumer is obligated to pay to acquire the 

property is the price indicated on the 

consumer’s agreement with the seller to 

acquire the property. The price the consumer 

is obligated to pay to acquire the property 

from the seller does not include the cost of 

financing the property. For purposes of 

§ 1026.35(c)(4)(i)(A) and (B), a creditor is not 

obligated to determine whether and to what 

extent the agreement is legally binding on 

both parties. See also comment 35(c)(4)(i)–4. 

35(c)(4)(ii) Different Certified or Licensed 

Appraisers 

1. Independent appraisers. The 

requirements that a creditor obtain two 

separate appraisals under § 1026.35(c)(4)(i), 

and that each appraisal be conducted by a 

different licensed or certified appraiser under 

§ 1026.35(c)(4)(ii), indicate that the two 

appraisals must be conducted independently 

of each other. If the two certified or licensed 

appraisers are affiliated, such as by being 

employed by the same appraisal firm, then 

whether they have conducted the appraisal 

independently of each other must be 

determined based on the facts and 

circumstances of the particular case known 

to the creditor. 

35(c)(4)(iii) Relationship to General 

Appraisal Requirements 

1. Safe harbor. When a creditor is required 

to obtain an additional appraisal under 

§ 1026(c)(4)(i), the creditor must comply with 

the requirements of both § 1026.35(c)(3)(i) 

and § 1026.35(c)(4)(ii) through (v) for that 

appraisal. The creditor complies with the 

requirements of § 1026.35(c)(3)(i) for the 

additional appraisal if the creditor meets the 

safe harbor conditions in § 1026.35(c)(3)(ii) 

for that appraisal. 

35(c)(4)(iv) Required Analysis in the 

Additional Appraisal 

1. Determining acquisition dates and prices 

used in the analysis of the additional 

appraisal. For guidance on identifying the 

date on which the seller acquired the 

property, see comment 35(c)(4)(i)–3. For 

guidance on identifying the date of the 

consumer’s agreement to acquire the 

property, see comment 35(c)(4)(i)–4. For 

guidance on identifying the price at which 

the seller acquired the property, see comment 

35(c)(4)(i)–5. For guidance on identifying the 

price the consumer is obligated to pay to 

acquire the property, see comment 

35(c)(4)(i)–6. 

35(c)(4)(v) No Charge for Additional 

Appraisal 

1. Fees and mark-ups. The creditor is 

prohibited from charging the consumer for 

the performance of one of the two appraisals 

required under § 1026.35(c)(4)(i), including 

by imposing a fee specifically for that 

appraisal or by marking up the interest rate 

or any other fees payable by the consumer in 

connection with the higher-priced mortgage 

loan. 

35(c)(4)(vi) Creditor’s Determination of Prior 

Sale Date and Price 

35(c)(4)(vi)(A) In General 

1. Estimated sales price. If a written source 

document describes the seller’s acquisition 

price in a manner that indicates that the price 

described is an estimated or assumed amount 

and not the actual price, the creditor should 

look at an alternative document to satisfy the 

reasonable diligence standard in determining 

the price at which the seller acquired the 

property. 

2. Reasonable diligence—oral statements 

insufficient. Reliance on oral statements of 

interested parties, such as the consumer, 

seller, or mortgage broker, does not constitute 

reasonable diligence under 

§ 1026.35(c)(4)(vi)(A). 

3. Lack of information and conflicting 

information—two appraisals required. If a 

creditor is unable to demonstrate that the 

requirement to obtain two appraisals under 

§ 1026.35(c)(4)(i) does not apply, the creditor 

must obtain two written appraisals before 

extending a higher-priced mortgage loan 

subject to the requirements of § 1026.35(c). 

See also comment 35(c)(4)(vi)(B)–1. For 

example: 

i. Assume a creditor orders and reviews the 

results of a title search, which shows that a 

prior sale occurred between 91 and 180 days 

ago, but not the price paid in that sale. Thus, 

based on the title search, the creditor would 

not be able to determine whether the price 

the consumer is obligated to pay under the 

consumer’s acquisition agreement is more 

than 20 percent higher than the seller’s 

acquisition price, pursuant to 

§ 1026.35(c)(4)(i)(B). Before extending a 

higher-priced mortgage loan subject to the 

appraisal requirements of § 1026.35(c), the 

creditor must either: (1) Perform additional 

diligence to ascertain the seller’s acquisition 

price and, based on this information, 


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10446 Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 

determine whether two written appraisals are 

required; or (2) obtain two written appraisals 

in compliance with § 1026.35(c)(4). See also 

comment 35(c)(4)(vi)(B)–1. 

ii. Assume a creditor reviews the results of 

a title search indicating that the last recorded 

purchase was more than 180 days before the 

consumer’s agreement to acquire the 

property. Assume also that the creditor 

subsequently receives a written appraisal 

indicating that the seller acquired the 

property between 91 and 180 days before the 

consumer’s agreement to acquire the 

property. In this case, unless one of these 

sources is clearly wrong on its face, the 

creditor would not be able to determine 

whether the seller acquired the property 

within 180 days of the date of the consumer’s 

agreement to acquire the property from the 

seller, pursuant to § 1026.35(c)(4)(i)(B). 

Before extending a higher-priced mortgage 

loan subject to the appraisal requirements of 

§ 1026.35(c), the creditor must either: 

perform additional diligence to ascertain the 

seller’s acquisition date and, based on this 

information, determine whether two written 

appraisals are required; or obtain two written 

appraisals in compliance with 

§ 1026.35(c)(4). See also comment 

35(c)(4)(vi)(B)–1. 

35(c)(4)(vi)(B) Inability To Determine Prior 

Sales Date or Price—Modified Requirements 

for Additional Appraisal 

1. Required analysis. In general, the 

additional appraisal required under 

§ 1026.35(c)(4)(i) should include an analysis 

of the factors listed in § 1026.35(c)(4)(iv)(A) 

through (C). However, if, following 

reasonable diligence, a creditor cannot 

determine whether the conditions in 

§ 1026.35(c)(4)(i)(A) or (B) are present due to 

a lack of information or conflicting 

information, the required additional 

appraisal must include the analyses required 

under § 1026.35(c)(4)(iv)(A) through (C) only 

to the extent that the information necessary 

to perform the analyses is known. For 

example, assume that a creditor is able, 

following reasonable diligence, to determine 

that the date on which the seller acquired the 

property occurred between 91 and 180 days 

prior to the date of the consumer’s agreement 

to acquire the property. However, the 

creditor is unable, following reasonable 

diligence, to determine the price at which the 

seller acquired the property. In this case, the 

creditor is required to obtain an additional 

written appraisal that includes an analysis 

under § 1026.35(c)(4)(iv)(B) and (c)(4)(iv)(C) 

of the changes in market conditions and any 

improvements made to the property between 

the date the seller acquired the property and 

the date of the consumer’s agreement to 

acquire the property. However, the creditor is 

not required to obtain an additional written 

appraisal that includes analysis under 

§ 1026.35(c)(4)(iv)(A) of the difference 

between the price at which the seller 

acquired the property and the price that the 

consumer is obligated to pay to acquire the 

property. 

35(c)(4)(vii) Exemptions From the Additional 

Appraisal Requirement 

Paragraph 35(c)(4)(vii)(C) 

1. Non-profit entity. For purposes of 

§ 1026.35(c)(4)(vii)(C), a ‘‘non-profit entity’’ 

is a person with a tax exemption ruling or 

determination letter from the Internal 

Revenue Service under section 501(c)(3) of 

the Internal Revenue Code of 1986 (26 U.S.C. 

501(c)(3)). 

Paragraph 35(c)(4)(vii)(H) 

1. Bureau table of rural counties. The 

Bureau publishes on its Web site a table of 

rural counties under § 1026.35(c)(4)(vii)(H) 

for each calendar year by the end of that 

calendar year. See comment 35(b)(2)(iv)–1. A 

property securing an HPML subject to 

§ 1026.35(c) is in a rural county under 

§ 1026.35(c)(4)(vii)(H) if the county in which 

the property is located is on the table of rural 

counties most recently published by the 

Bureau. For example, for a transaction 

occurring in 2015, assume that the Bureau 

most recently published a table of rural 

counties at the end of 2014. The property 

securing the transaction would be located in 

a rural county for purposes of 

§ 1026.35(c)(4)(vii)(H) if the county is on the 

table of rural counties published by the 

Bureau at the end of 2014. 

35(c)(5) Required Disclosure 

35(c)(5)(i) In General 

1. Multiple applicants. When two or more 

consumers apply for a loan subject to this 

section, the creditor is required to give the 

disclosure to only one of the consumers. 

2. Appraisal independence requirements 

not affected. Nothing in the text of the 

consumer notice required by 

§ 1026.35(c)(5)(i) should be construed to 

affect, modify, limit, or supersede the 

operation of any legal, regulatory, or other 

requirements or standards relating to 

independence in the conduct of appraisers or 

restrictions on the use of borrower-ordered 

appraisals by creditors. 

35(c)(6) Copy of Appraisals 

35(c)(6)(i) In General 

1. Multiple applicants. When two or more 

consumers apply for a loan subject to this 

section, the creditor is required to give the 

copy of each required appraisal to only one 

of the consumers. 

35(c)(6)(ii) Timing 

1. ‘‘Provide.’’ For purposes of the 

requirement to provide a copy of the 

appraisal within a specified time under 

§ 1026.35(c)(6)(ii), ‘‘provide’’ means 

‘‘deliver.’’ Delivery occurs three business 

days after mailing or delivering the copies to 

the last-known address of the applicant, or 

when evidence indicates actual receipt by the 

applicant (which, in the case of electronic 

receipt, must be based upon consent that 

complies with the E-Sign Act), whichever is 

earlier. 

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. 

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 § 1026.35(c). 

A consumer of a higher-priced mortgage loan 

subject to § 1026.35(c) may not waive the 

timing requirement to receive a copy of the 

appraisal under § 1026.35(c)(6)(i). 

35(c)(6)(iv) No Charge for Copy Of Appraisal 

1. Fees and mark-ups. The creditor is 

prohibited from charging the consumer for 

any copy of an appraisal required to be 

provided under § 1026.35(c)(6)(i), including 

by imposing a fee specifically for a required 

copy of an appraisal or by marking up the 

interest rate or any other fees payable by the 

consumer in connection with the higherpriced mortgage loan. 

* * * * * 

Appendix O—Illustrative Written Source 

Documents for Higher-Priced Mortgage Loan 

Appraisal Rules 

1. Title commitment report. The ‘‘title 

commitment report’’ is a document from a 

title insurance company describing the 

property interest and status of its title, parties 

with interests in the title and the nature of 

their claims, issues with the title that must 

be resolved prior to closing of the transaction 

between the parties to the transfer, amount 

and disposition of the premiums, and 

endorsements on the title policy. This 

document is issued by the title insurance 

company prior to the company’s issuance of 

an actual title insurance policy to the 

property’s transferee and/or creditor 

financing the transaction. In different 

jurisdictions, this instrument may be referred 

to by different terms, such as a title 

commitment, title binder, title opinion, or 

title report. 

Federal Housing Finance Agency 

Authority and Issuance 

For the reasons stated in the 

SUPPLEMENTARY INFORMATION, and under 

the authority of 15 U.S.C. 1639h and 12 

U.S.C. 4511(b), 4526, and 4617, the 

Federal Housing Finance Agency adds 

Part 1222 to subchapter B of chapter XII 

of title 12 of the Code of the Federal 

Regulations as follows: 

PART 1222—APPRAISALS 

Subpart A—Requirements for Higher-Priced 

Mortgage Loans 

Sec. 

1222.1 Purpose and scope. 

1222.2 Reservation of authority. 

Subparts B to Z—[Reserved] 

Authority: 12 U.S.C. 4511(b), 4526, and 

4617; 15 U.S.C. 1639h (TILA). 

Subpart A—Requirements for HigherPriced Mortgage Loans 

§ 1222.1 Purpose and scope. 

This subpart cross-references the 

requirement that creditors extending 


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Federal Register / Vol. 78, No. 30 / Wednesday, February 13, 2013 / Rules and Regulations 10447 

credit in the form of higher-priced 

mortgage loans comply with Section 

129H of the Truth-in-Lending Act 

(TILA), 15 U.S.C. 1639h, and its 

implementing regulations in Regulation 

Z, 12 CFR 1026.35. Neither the Banks 

nor the Enterprises are subject to 

Section 129H of TILA or 12 CFR 

1026.35. Originators of higher-priced 

mortgage loans, including Bank 

members and institutions that sell 

mortgage loans to the Enterprises, are 

subject to those provisions. A failure of 

those institutions to comply with 

Section 129H of TILA and 12 CFR 

1026.35 may limit their ability to sell 

such loans to the Banks or Enterprises 

or to pledge such loans to the Banks as 

collateral, to the extent provided in the 

parties’ agreements. 

§ 1222.2 Reservation of authority. 

Nothing in this subpart A shall be 

read to limit the authority of the 

Director of the Federal Housing Finance 

Agency to take supervisory or 

enforcement action, including action to 

address unsafe and unsound practices 

or conditions, or violations of law. In 

addition, nothing in this subpart A shall 

be read to limit the authority of the 

Director to impose requirements for any 

purchase of higher-priced mortgage 

loans by an Enterprise or a Federal 

Home Loan Bank, or acceptance of 

higher-priced mortgage loans as 

collateral to secure advances by a 

Federal Home Loan Bank. 

Subparts B to Z—[Reserved] 

Dated: January 18, 2013. 

Thomas J. Curry, 

Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System, January 16, 2013. 

Robert deV. Frierson, 

Secretary of the Board. 

By the National Credit Union 

Administration Board on January 11, 2013. 

Mary Rupp, 

Secretary of the Board. 

Dated: January 18, 2013. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

This rule is being adopted by the FDIC 

jointly with the other agencies as mandated 

by section 129H of the Truth in Lending Act 

as added by section 1471 of the Dodd-Frank 

Wall Street Reform and Consumer Protection 

Act. 

Dated at Washington, DC, this 15th day of 

January, 2013. 

By order of the Board of Directors. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

Dated: January 18, 2013. 

Edward J. DeMarco, 

Acting Director, Federal Housing Finance 

Agency. 

[FR Doc. 2013–01809 Filed 2–12–13; 8:45 am] 

BILLING CODE 4810–33–4810–AM– 6210–01– 6714–01– 

7535–01–P 


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