[Federal Register Volume 82, Number 247 (Wednesday, December 27, 2017)]
[Rules and Regulations]
[Pages 61147-61151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27897]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026


Truth in Lending Act (Regulation Z) Adjustment to Asset-Size 
Exemption Threshold

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule; official interpretation.

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SUMMARY: The Bureau is amending the official commentary that interprets 
the requirements of the Bureau's Regulation Z (Truth in Lending) to 
reflect a change in the asset-size threshold for certain creditors to 
qualify for an exemption to the requirement to establish an escrow 
account for a higher-priced mortgage loan based on the annual 
percentage change in the average of the Consumer Price Index for Urban 
Wage Earners and Clerical Workers (CPI-W) for the 12-month period 
ending in November. The exemption threshold is adjusted to increase to 
$2.112 billion from $2.069 billion. The adjustment is based on the 2.1 
percent increase in the average of the CPI-W for the 12-month period 
ending in November 2017. Therefore, creditors with assets of less than 
$2.112 billion (including assets of certain affiliates) as of December 
31, 2017, are exempt, if other requirements of Regulation Z also are 
met, from establishing escrow accounts for higher-priced mortgage loans 
in 2018. This asset limit will also apply during a grace period, in 
certain circumstances, with respect to transactions with applications 
received before April 1 of 2019. The adjustment to the escrows asset-
size exemption threshold will also increase a similar threshold for 
small-creditor portfolio and balloon-payment qualified mortgages. 
Balloon-payment qualified mortgages that satisfy all applicable

[[Page 61148]]

criteria, including being made by creditors that have (together with 
certain affiliates) total assets below the threshold, are also excepted 
from the prohibition on balloon payments for high-cost mortgages.

DATES: This final rule is effective January 1, 2018.

FOR FURTHER INFORMATION CONTACT: Monique Chenault, Paralegal 
Specialist, Office of Regulations, Consumer Financial Protection 
Bureau, 1700 G Street NW, Washington, DC 20552, at (202) 435-7700.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) amended TILA to add section 129D(a), which contains a 
general requirement that an escrow account be established by a creditor 
to pay for property taxes and insurance premiums for certain first-lien 
higher-priced mortgage loan transactions. TILA section 129D also 
generally permits an exemption from the higher-priced mortgage loan 
escrow requirement for a creditor that meets certain requirements, 
including any asset-size threshold the Bureau may establish.
    In the 2013 Escrows Final Rule,\1\ the Bureau established such an 
asset-size threshold of $2 billion, which would adjust automatically 
each year, based on the year-to-year change in the average of the CPI-W 
for each 12-month period ending in November, with rounding to the 
nearest million dollars.\2\ In 2015, the Bureau revised the criteria 
for small creditors, and rural and underserved areas, for purposes of 
certain special provisions and exemptions from various requirements 
provided to certain small creditors under the Bureau's mortgage 
rules.\3\ As part of this revision the Bureau made certain changes that 
affect how the asset-size threshold applies. The Bureau revised Sec.  
1026.35(b)(2)(iii)(C) and its accompanying commentary to include in the 
calculation of the asset-size threshold the assets of the creditor's 
affiliates that regularly extended covered transactions secured by 
first liens during the applicable period. The Bureau also added a grace 
period from calendar year to calendar year to allow an otherwise 
eligible creditor that exceeded the asset limit in the preceding 
calendar year (but not in the calendar year before the preceding year) 
to continue to operate as a small creditor with respect to transactions 
with applications received before April 1 of the current calendar 
year.<SUP>4 5</SUP> For 2017, the threshold was $2.069 billion.
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    \1\ 78 FR 4726 (Jan. 22, 2013).
    \2\ See 12 CFR 1026.35(b)(2)(iii)(C).
    \3\ See 80 FR 59944 (Oct. 2, 2015).
    \4\ See 80 FR 59943, 59951 (Oct. 2, 2015).
    \5\ The Bureau also issued an interim final rule in March 2016 
to revise certain provisions in Regulation Z to effectuate the 
Helping Expand Lending Practices in Rural Communities Act's 
amendments to TILA (Pub. L. 114-94, section 89003, 129 Stat. 1312, 
1800-01 (2015)). The rule broadened the cohort of creditors that may 
be eligible under TILA for the special provisions allowing 
origination of balloon-payment qualified mortgages and balloon-
payment high-cost mortgages, as well as for the escrow exemption. 
See 81 FR 16074 (Mar. 25, 2016).
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    During the 12-month period ending in November 2017, the average of 
the CPI-W increased by 2.1 percent. As a result, the exemption 
threshold is increased to $2.112 billion for 2018. Thus, if the 
creditor's assets together with the assets of its affiliates that 
regularly extended first-lien covered transactions during calendar year 
2017 are less than $2.112 billion on December 31, 2017, and it meets 
the other requirements of Sec.  1026.35(b)(2)(iii), it will be exempt 
in 2018 from the escrow-accounts requirement for higher-priced mortgage 
loans and will also be exempt from the escrow-accounts requirement for 
higher-priced mortgage loans for purposes of any loan consummated in 
2019 for which the application was received before April 1, 2019. The 
adjustment to the escrows asset-size exemption threshold will also 
increase the threshold for small-creditor portfolio and balloon-payment 
qualified mortgages under Regulation Z. The requirements for small-
creditor portfolio qualified mortgages at Sec.  1026.43(e)(5)(i)(D) 
reference the asset threshold in Sec.  1026.35(b)(2)(iii)(C). Likewise, 
the requirements for balloon-payment qualified mortgages at Sec.  
1026.43(f)(1)(vi) reference the asset threshold in Sec.  
1026.35(b)(2)(iii)(C). Under Sec.  1026.32(d)(1)(ii)(C), balloon-
payment qualified mortgages that satisfy all applicable criteria in 
Sec.  1026.43(f)(1)(i) through (vi) and (f)(2), including being made by 
creditors that have (together with certain affiliates) total assets 
below the threshold in Sec.  1026.35(b)(2)(iii)(C), are also excepted 
from the prohibition on balloon payments for high-cost mortgages.

II. Procedural Requirements

A. Administrative Procedure Act

    Under the Administrative Procedure Act (APA), notice and 
opportunity for public comment are not required if the Bureau finds 
that notice and public comment are impracticable, unnecessary, or 
contrary to the public interest. 5 U.S.C. 553(b)(B). Pursuant to this 
final rule, comment 35(b)(2)(iii)-1 in Regulation Z is amended to 
update the exemption threshold. The amendment in this final rule is 
technical and merely applies the formula previously established in 
Regulation Z for determining any adjustments to the exemption 
threshold. For these reasons, the Bureau has determined that publishing 
a notice of proposed rulemaking and providing opportunity for public 
comment are unnecessary. Therefore, the amendment is adopted in final 
form.
    Section 553(d) of the APA generally requires publication of a final 
rule not less than 30 days before its effective date, except (1) a 
substantive rule which grants or recognizes an exemption or relieves a 
restriction; (2) interpretive rules and statements of policy; or (3) as 
otherwise provided by the agency for good cause found and published 
with the rule. 5 U.S.C. 553(d). At a minimum, the Bureau believes the 
amendments fall under the third exception to section 553(d). The Bureau 
finds that there is good cause to make the amendments effective on 
January 1, 2018. The amendment in this document is technical and 
applies the method previously established in the agency's regulations 
for automatic adjustments to the threshold.

B. Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required, the 
Regulatory Flexibility Act does not require an initial or final 
regulatory flexibility analysis. 5 U.S.C. 603(a), 604(a).

C. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR part 1320), the agency reviewed this final rule. No 
collections of information pursuant to the Paperwork Reduction Act are 
contained in the final rule.

D. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
CFPB will submit a report containing this rule and other required 
information to the U.S. Senate, the U.S. House of Representatives, and 
the Comptroller General of the United States prior to the rule taking 
effect. The Office of Information and Regulatory Affairs (OIRA) has 
designated this rule as not a ``major rule'' as defined by 5 U.S.C. 
804(2).

List of Subjects in 10 CFR Part 1026

    Advertising, Appraisal, Appraiser, Banking, Banks, Consumer 
protection, Credit, Credit unions, Mortgages,

[[Page 61149]]

National banks, Reporting and recordkeeping requirements, Savings 
associations, Truth in lending.

Authority and Issuance

    For the reasons set forth above, the Bureau amends Regulation Z, 12 
CFR part 1026, as set forth below:

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
1. The authority citation for part 1026 continues to read as follows:

    Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353, 
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.

0
2. In Supplement I to Part 1026--Official Interpretations, under 
Section 1026.35--Requirements for Higher-Priced Mortgage Loans, 
35(b)(2) Exemptions, Paragraph 35(b)(2)(iii) is revised to read as 
follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Section 1026.35--Requirements for Higher-Priced Mortgage Loans

* * * * *
35(b)(2) Exemptions.
* * * * *
Paragraph 35(b)(2)(iii).
    1. Requirements for exemption. Under Sec.  1026.35(b)(2)(iii), 
except as provided in Sec.  1026.35(b)(2)(v), a creditor need not 
establish an escrow account for taxes and insurance for a higher-priced 
mortgage loan, provided the following four conditions are satisfied 
when the higher-priced mortgage loan is consummated:
    i. During the preceding calendar year, or during either of the two 
preceding calendar years if the application for the loan was received 
before April 1 of the current calendar year, a creditor extended a 
first-lien covered transaction, as defined in Sec.  1026.43(b)(1), 
secured by a property located in an area that is either ``rural'' or 
``underserved,'' as set forth in Sec.  1026.35(b)(2)(iv).
    A. In general, whether the rural-or-underserved test is satisfied 
depends on the creditor's activity during the preceding calendar year. 
However, if the application for the loan in question was received 
before April 1 of the current calendar year, the creditor may instead 
meet the rural-or-underserved test based on its activity during the 
next-to-last calendar year. This provides creditors with a grace period 
if their activity meets the rural-or-underserved test (in Sec.  
1026.35(b)(2)(iii)(A)) in one calendar year but fails to meet it in the 
next calendar year.
    B. A creditor meets the rural-or-underserved test for any higher-
priced mortgage loan consummated during a calendar year if it extended 
a first-lien covered transaction in the preceding calendar year secured 
by a property located in a rural-or-underserved area. If the creditor 
does not meet the rural-or-underserved test in the preceding calendar 
year, the creditor meets this condition for a higher-priced mortgage 
loan consummated during the current calendar year only if the 
application for the loan was received before April 1 of the current 
calendar year and the creditor extended a first-lien covered 
transaction during the next-to-last calendar year that is secured by a 
property located in a rural or underserved area. The following examples 
are illustrative:
    1. Assume that a creditor extended during 2016 a first-lien covered 
transaction that is secured by a property located in a rural or 
underserved area. Because the creditor extended a first-lien covered 
transaction during 2016 that is secured by a property located in a 
rural or underserved area, the creditor can meet this condition for 
exemption for any higher-priced mortgage loan consummated during 2017.
    2. Assume that a creditor did not extend during 2016 a first-lien 
covered transaction secured by a property that is located in a rural or 
underserved area. Assume further that the same creditor extended during 
2015 a first-lien covered transaction that is located in a rural or 
underserved area. Assume further that the creditor consummates a 
higher-priced mortgage loan in 2017 for which the application was 
received in November 2017. Because the creditor did not extend during 
2016 a first-lien covered transaction secured by a property that is 
located in a rural or underserved area, and the application was 
received on or after April 1, 2017, the creditor does not meet this 
condition for exemption. However, assume instead that the creditor 
consummates a higher-priced mortgage loan in 2017 based on an 
application received in February 2017. The creditor meets this 
condition for exemption for this loan because the application was 
received before April 1, 2017, and the creditor extended during 2015 a 
first-lien covered transaction that is located in a rural or 
underserved area.
    ii. The creditor and its affiliates together extended no more than 
2,000 covered transactions, as defined in Sec.  1026.43(b)(1), secured 
by first liens, that were sold, assigned, or otherwise transferred by 
the creditor or its affiliates to another person, or that were subject 
at the time of consummation to a commitment to be acquired by another 
person, during the preceding calendar year or during either of the two 
preceding calendar years if the application for the loan was received 
before April 1 of the current calendar year. For purposes of Sec.  
1026.35(b)(2)(iii)(B), a transfer of a first-lien covered transaction 
to ``another person'' includes a transfer by a creditor to its 
affiliate.
    A. In general, whether this condition is satisfied depends on the 
creditor's activity during the preceding calendar year. However, if the 
application for the loan in question is received before April 1 of the 
current calendar year, the creditor may instead meet this condition 
based on activity during the next-to-last calendar year. This provides 
creditors with a grace period if their activity falls at or below the 
threshold in one calendar year but exceeds it in the next calendar 
year.
    B. For example, assume that in 2015 a creditor and its affiliates 
together extended 1,500 loans that were sold, assigned, or otherwise 
transferred by the creditor or its affiliates to another person, or 
that were subject at the time of consummation to a commitment to be 
acquired by another person, and 2,500 such loans in 2016. Because the 
2016 transaction activity exceeds the threshold but the 2015 
transaction activity does not, the creditor satisfies this condition 
for exemption for a higher-priced mortgage loan consummated during 2017 
if the creditor received the application for the loan before April 1, 
2017, but does not satisfy this condition for a higher-priced mortgage 
loan consummated during 2017 if the application for the loan was 
received on or after April 1, 2017.
    C. For purposes of Sec.  1026.35(b)(2)(iii)(B), extensions of 
first-lien covered transactions, during the applicable time period, by 
all of a creditor's affiliates, as ``affiliate'' is defined in Sec.  
1026.32(b)(5), are counted toward the threshold in this section. 
``Affiliate'' is defined in Sec.  1026.32(b)(5) as ``any company that 
controls, is controlled by, or is under common control with another 
company, as set forth in the Bank Holding Company Act of 1956 (12 
U.S.C. 1841 et seq.).'' Under the Bank Holding Company Act, a company 
has control over a bank or another company if it ``directly or 
indirectly or acting through one or more persons owns, controls, or has 
power to vote 25 per centum or more of any class of voting securities 
of the bank or company''; it ``controls in any manner the election of a 
majority of the directors

[[Page 61150]]

or trustees of the bank or company''; or the Federal Reserve Board 
``determines, after notice and opportunity for hearing, that the 
company directly or indirectly exercises a controlling influence over 
the management or policies of the bank or company.'' 12 U.S.C. 
1841(a)(2).
    iii. As of the end of the preceding calendar year, or as of the end 
of either of the two preceding calendar years if the application for 
the loan was received before April 1 of the current calendar year, the 
creditor and its affiliates that regularly extended covered 
transactions secured by first liens, together, had total assets that 
are less than the applicable annual asset threshold.
    A. For purposes of Sec.  1026.35(b)(2)(iii)(C), in addition to the 
creditor's assets, only the assets of a creditor's ``affiliate'' (as 
defined by Sec.  1026.32(b)(5)) that regularly extended covered 
transactions (as defined by Sec.  1026.43(b)(1)) secured by first 
liens, are counted toward the applicable annual asset threshold. See 
comment 35(b)(2)(iii)-1.ii.C for discussion of definition of 
``affiliate.''
    B. Only the assets of a creditor's affiliate that regularly 
extended first-lien covered transactions during the applicable period 
are included in calculating the creditor's assets. The meaning of 
``regularly extended'' is based on the number of times a person extends 
consumer credit for purposes of the definition of ``creditor'' in Sec.  
1026.2(a)(17). Because covered transactions are ``transactions secured 
by a dwelling,'' consistent with Sec.  1026.2(a)(17)(v), an affiliate 
regularly extended covered transactions if it extended more than five 
covered transactions in a calendar year. Also consistent with Sec.  
1026.2(a)(17)(v), because a covered transaction may be a high-cost 
mortgage subject to Sec.  1026.32, an affiliate regularly extends 
covered transactions if, in any 12-month period, it extends more than 
one covered transaction that is subject to the requirements of Sec.  
1026.32 or one or more such transactions through a mortgage broker. 
Thus, if a creditor's affiliate regularly extended first-lien covered 
transactions during the preceding calendar year, the creditor's assets 
as of the end of the preceding calendar year, for purposes of the asset 
limit, take into account the assets of that affiliate. If the creditor, 
together with its affiliates that regularly extended first-lien covered 
transactions, exceeded the asset limit in the preceding calendar year--
to be eligible to operate as a small creditor for transactions with 
applications received before April 1 of the current calendar year--the 
assets of the creditor's affiliates that regularly extended covered 
transactions in the year before the preceding calendar year are 
included in calculating the creditor's assets.
    C. If multiple creditors share ownership of a company that 
regularly extended first-lien covered transactions, the assets of the 
company count toward the asset limit for a co-owner creditor if the 
company is an ``affiliate,'' as defined in Sec.  1026.32(b)(5), of the 
co-owner creditor. Assuming the company is not an affiliate of the co-
owner creditor by virtue of any other aspect of the definition (such as 
by the company and co-owner creditor being under common control), the 
company's assets are included toward the asset limit of the co-owner 
creditor only if the company is controlled by the co-owner creditor, 
``as set forth in the Bank Holding Company Act.'' If the co-owner 
creditor and the company are affiliates (by virtue of any aspect of the 
definition), the co-owner creditor counts all of the company's assets 
toward the asset limit, regardless of the co-owner creditor's ownership 
share. Further, because the co-owner and the company are mutual 
affiliates the company also would count all of the co-owner's assets 
towards its own asset limit. See comment 35(b)(2)(iii)-1.ii.C for 
discussion of the definition of ``affiliate.''
    D. A creditor satisfies the criterion in Sec.  
1026.35(b)(2)(iii)(C) for purposes of any higher-priced mortgage loan 
consummated during 2016, for example, if the creditor (together with 
its affiliates that regularly extended first-lien covered transactions) 
had total assets of less than the applicable asset threshold on 
December 31, 2015. A creditor that (together with its affiliates that 
regularly extended first-lien covered transactions) did not meet the 
applicable asset threshold on December 31, 2015 satisfies this 
criterion for a higher-priced mortgage loan consummated during 2016 if 
the application for the loan was received before April 1, 2016 and the 
creditor (together with its affiliates that regularly extended first-
lien covered transactions) had total assets of less than the applicable 
asset threshold on December 31, 2014.
    E. Under Sec.  1026.35(b)(2)(iii)(C), the $2,000,000,000 asset 
threshold adjusts automatically each year based on the year-to-year 
change in the average of the Consumer Price Index for Urban Wage 
Earners and Clerical Workers, not seasonally adjusted, for each 12-
month period ending in November, with rounding to the nearest million 
dollars. The Bureau will publish notice of the asset threshold each 
year by amending this comment. For calendar year 2018, the asset 
threshold is $2,112,000,000. A creditor that together with the assets 
of its affiliates that regularly extended first-lien covered 
transactions during calendar year 2017 has total assets of less than 
$2,112,000,000 on December 31, 2017, satisfies this criterion for 
purposes of any loan consummated in 2018 and for purposes of any loan 
consummated in 2019 for which the application was received before April 
1, 2019. For historical purposes:
    1. For calendar year 2013, the asset threshold was $2,000,000,000. 
Creditors that had total assets of less than $2,000,000,000 on December 
31, 2012, satisfied this criterion for purposes of the exemption during 
2013.
    2. For calendar year 2014, the asset threshold was $2,028,000,000. 
Creditors that had total assets of less than $2,028,000,000 on December 
31, 2013, satisfied this criterion for purposes of the exemption during 
2014.
    3. For calendar year 2015, the asset threshold was $2,060,000,000. 
Creditors that had total assets of less than $2,060,000,000 on December 
31, 2014, satisfied this criterion for purposes of any loan consummated 
in 2015 and, if the creditor's assets together with the assets of its 
affiliates that regularly extended first-lien covered transactions 
during calendar year 2014 were less than that amount, for purposes of 
any loan consummated in 2016 for which the application was received 
before April 1, 2016.
    4. For calendar year 2016, the asset threshold was $2,052,000,000. 
A creditor that together with the assets of its affiliates that 
regularly extended first-lien covered transactions during calendar year 
2015 had total assets of less than $2,052,000,000 on December 31, 2015, 
satisfied this criterion for purposes of any loan consummated in 2016 
and for purposes of any loan consummated in 2017 for which the 
application was received before April 1, 2017.
    5. For calendar year 2017, the asset threshold was $2,069,000,000. 
A creditor that together with the assets of its affiliates that 
regularly extended first-lien covered transactions during calendar year 
2016 had total assets of less than $2,069,000,000 on December 31, 2016, 
satisfied this criterion for purposes of any loan consummated in 2017 
and for purposes of any loan consummated in 2018 for which the 
application was received before April 1, 2018.
    iv. The creditor and its affiliates do not maintain an escrow 
account for any mortgage transaction being serviced by the creditor or 
its affiliate at the time the transaction is consummated, except as

[[Page 61151]]

provided in Sec.  1026.35(b)(2)(iii)(D)(1) and (2). Thus, the exemption 
applies, provided the other conditions of Sec.  1026.35(b)(2)(iii) are 
satisfied, even if the creditor previously maintained escrow accounts 
for mortgage loans, provided it no longer maintains any such accounts 
except as provided in Sec.  1026.35(b)(2)(iii)(D)(1) and (2). Once a 
creditor or its affiliate begins escrowing for loans currently serviced 
other than those addressed in Sec.  1026.35(b)(2)(iii)(D)(1) and (2), 
however, the creditor and its affiliate become ineligible for the 
exemption in Sec.  1026.35(b)(2)(iii) on higher-priced mortgage loans 
they make while such escrowing continues. Thus, as long as a creditor 
(or its affiliate) services and maintains escrow accounts for any 
mortgage loans, other than as provided in Sec.  
1026.35(b)(2)(iii)(D)(1) and (2), the creditor will not be eligible for 
the exemption for any higher-priced mortgage loan it may make. For 
purposes of Sec.  1026.35(b)(2)(iii), a creditor or its affiliate 
``maintains'' an escrow account only if it services a mortgage loan for 
which an escrow account has been established at least through the due 
date of the second periodic payment under the terms of the legal 
obligation.
* * * * *

     Dated: December 14, 2017.
Mick Mulvaney,
Acting Director, Bureau of Consumer Financial Protection.
[FR Doc. 2017-27897 Filed 12-21-17; 4:15 pm]
 BILLING CODE 4810-AM-P