65300 Federal Register / Vol. 79, No. 212 / Monday, November 3, 2014 / Rules and Regulations 

1Specifically, on January 10, 2013, the Bureau 

issued Escrow Requirements Under the Truth in 

Lending Act (Regulation Z), 78 FR 4725 (Jan. 22, 

2013) (2013 Escrows Final Rule), High-Cost 

Mortgage and Homeownership Counseling 

Amendments to the Truth in Lending Act 

(Regulation Z) and Homeownership Counseling 

Amendments to the Real Estate Settlement 

Procedures Act (Regulation X), 78 FR 6855 (Jan. 31, 

2013) (2013 HOEPA Final Rule), and Ability to 

Repay and Qualified Mortgage Standards Under the 

Truth in Lending Act (Regulation Z), 78 FR 6407 

(Jan. 30, 2013) (January 2013 ATR Final Rule). The 

Bureau concurrently issued a proposal to amend the 

January 2013 ATR Final Rule, and a final rule 

related to the proposal was issued on May 29, 2013. 

See 78 FR 6621 (Jan. 30, 2013) (January 2013 ATR 

Proposal) and 78 FR 35429 (June 12, 2013) (May 

2013 ATR Final Rule). On January 17, 2013, the 

Bureau issued the Mortgage Servicing Rules under 

the Real Estate Settlement Procedures Act 

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

Mortgage Servicing Rules under the Truth in 

Lending Act (Regulation Z), 78 FR 10901 (Feb. 14, 

2013) (collectively, 2013 Mortgage Servicing Final 

Rules). On January 18, 2013, the Bureau issued the 

Disclosure and Delivery Requirements for Copies of 

Appraisals and Other Written Valuations Under the 

Equal Credit Opportunity Act (Regulation B), 78 FR 

7215 (Jan. 31, 2013) (2013 ECOA Valuations Final 

Rule) and, jointly with other agencies, issued 

Appraisals for Higher-Priced Mortgage Loans 

(Regulation Z), 78 FR 10367 (Feb. 13, 2013) (2013 

Interagency Appraisals Final Rule). On January 20, 

2013, the Bureau issued the Loan Originator 

Compensation Requirements under the Truth in 

Lending Act (Regulation Z), 78 FR 11279 (Feb. 15, 

2013) (2013 Loan Originator Final Rule). 

2See, e.g., sections 1011 and 1021 of the DoddFrank Act, 12 U.S.C. 5491 and 5511 (establishing 

and setting forth the purpose, objectives, and 

functions of the Bureau); section 1061 of the DoddFrank Act, 12 U.S.C. 5581 (consolidating certain 

rulemaking authority for Federal consumer 

financial laws in the Bureau); section 1100A of the 

Dodd-Frank Act (codified in scattered sections of 15 

U.S.C.) (similarly consolidating certain rulemaking 

authority in the Bureau). But see Section 1029 of 

the Dodd-Frank Act, 12 U.S.C. 5519 (subject to 

certain exceptions, excluding from the Bureau’s 

authority any rulemaking authority over a motor 

vehicle dealer that is predominantly engaged in the 

sale and servicing of motor vehicles, the leasing and 

servicing of motor vehicles, or both). 

3See title XIV of the Dodd-Frank Act, Public Law 

111–203, 124 Stat. 1376 (2010) (codified in 

scattered sections of 12 U.S.C., 15 U.S.C., and 42 

U.S.C.). 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1026 

[Docket No. CFPB–2014–0009] 

RIN 3170–AA43 

Amendments to the 2013 Mortgage 

Rules Under the Truth in Lending Act 

(Regulation Z) 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Final rule; official 

interpretations. 

SUMMARY: The Bureau of Consumer 

Financial Protection (Bureau) is 

amending certain mortgage rules issued 

in 2013. The final rule provides an 

alternative small servicer definition for 

nonprofit entities that meet certain 

requirements and amends the existing 

exemption from the ability-to-repay rule 

for nonprofit entities that meet certain 

requirements. The final rule also 

provides a cure mechanism for the 

points and fees limit that applies to 

qualified mortgages. 

DATES: Effective dates: The final rule is 

effective on November 3, 2014, except 

amendatory instruction 5, which is 

effective August 1, 2015. For additional 

discussion regarding the effective date 

of the rule, see section VI of the 

SUPPLEMENTARY INFORMATION below. 

Applicability dates: The amendments 

to § 1026.43 and commentary to 

§ 1026.43 in Supplement I to part 1026, 

other than amendatory instruction 5, 

apply to transactions consummated on 

or after November 3, 2014. 

FOR FURTHER INFORMATION CONTACT: 

Pedro De Oliveira, Counsel; William R. 

Corbett, Nicholas Hluchyj, and Priscilla 

Walton-Fein, Senior Counsels, Office of 

Regulations, at (202) 435–7700. 

SUPPLEMENTARY INFORMATION: 

I. Summary of the Final Rule 

In January 2013, the Bureau issued 

several final rules concerning mortgage 

markets in the United States (2013 Title 

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

Protection Act (Dodd-Frank Act), Public 

Law 111–203, 124 Stat. 1376 (2010).1

The Bureau clarified and revised those 

rules through notice and comment 

rulemaking during the summer and fall 

of 2013. The purpose of those updates 

was to address important questions 

raised by industry, consumer groups, 

and other stakeholders. On April 30, 

2014, the Bureau proposed several 

additional amendments to the 

regulations adopted by the Bureau in 

the 2013 Title XIV Final Rules to revise 

regulatory provisions and official 

interpretations primarily relating to the 

Regulation Z ability-to-repay/qualified 

mortgage requirements and servicing 

rules, and sought comment on 

additional issues. The proposal was 

published in the Federal Register on 

May 6, 2014. See 79 FR 25730 (May 6, 

2014). 

Specifically, the Bureau proposed 

three amendments to Regulation Z: 

• To provide an alternative definition 

of the term ‘‘small servicer,’’ which 

would apply to certain nonprofit 

entities that service for a fee loans on 

behalf of other nonprofit chapters of the 

same organization. A ‘‘small servicer’’ is 

exempt from certain requirements that 

apply to servicers under the Bureau’s 

Regulations Z (12 CFR part 1026) and X 

(12 CFR part 1024). The Bureau 

proposed this change in Regulation Z, 

but the change would also affect several 

provisions of Regulation X, which crossreference the Regulation Z small 

servicer definition. 

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

certain non-interest bearing, contingent 

subordinate liens originated by 

nonprofit creditors will not be counted 

towards the credit extension limit that 

applies to the nonprofit exemption from 

the ability-to-repay requirements. 

• To provide a limited, postconsummation cure mechanism for 

loans that exceed the points and fees 

limit for qualified mortgages, but that 

meet the other requirements for being a 

qualified mortgage at consummation. 

The Bureau is issuing a final rule with 

respect to these proposals. With respect 

to the proposals related to nonprofit 

servicers and the nonprofit exemption 

from the ability-to-repay rule, the 

Bureau is finalizing those provisions as 

proposed, with minor technical 

revisions to the nonprofit servicer 

provision. The Bureau is generally 

finalizing the points and fees cure 

provision as proposed but with certain 

modifications to address concerns 

raised by commenters. 

The proposal sought comment on 

issues related to a possible cure for the 

debt-to-income ratio limit that applies to 

certain qualified mortgages and to the 

credit extension limit that applies to 

small creditor exemptions and special 

provisions in certain of the regulations 

adopted by the Bureau in the 2013 Title 

XIV Mortgage Rules. Those issues are 

not addressed in this final rule. The 

Bureau is considering comments 

submitted on those issues and whether 

to address those issues in a future 

rulemaking. 

II. Background 

In response to an unprecedented cycle 

of expansion and contraction in the 

mortgage market that sparked the most 

severe U.S. recession since the Great 

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

on July 21, 2010. In the Dodd-Frank Act, 

Congress established the Bureau and 

generally consolidated the rulemaking 

authority for Federal consumer financial 

laws, including the Truth in Lending 

Act (TILA) and the Real Estate 

Settlement Procedures Act (RESPA), in 

the Bureau.2 At the same time, Congress 

significantly amended the statutory 

requirements governing mortgage 

practices, with the intent to restrict the 

practices that contributed to and 

exacerbated the crisis.3


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

U.S.C. 1601 note. 

5 78 FR 44685 (July 24, 2013) (clarifying which 

mortgages to consider in determining small servicer 

status and the application of the small servicer 

exemption with regard to servicer/affiliate and 

master servicer/subservicer relationships); 78 FR 

45842 (July 30, 2013); 78 FR 60381 (Oct. 1, 2013) 

(revising exceptions available to small creditors 

operating predominantly in ‘‘rural’’ or 

‘‘underserved’’ areas); 78 FR 62993 (Oct. 23, 2013) 

(clarifying proper compliance regarding servicing 

requirements when a consumer is in bankruptcy or 

sends a cease communication request under the 

Fair Debt Collection Practice Act). 

6The proposal also sought comment on 

additional issues relating to qualified mortgage 

debt-to-income ratio overages and the credit 

extension limit for the small creditor definition. 

The comment period for those aspects of the 

proposal closed on July 7, 2014. As noted above, 

the Bureau is not addressing those issues through 

this final rule. 

7 Dodd-Frank Act section 1002(14), 12 U.S.C. 

5481(14) (defining ‘‘Federal consumer financial 

law’’ to include the ‘‘enumerated consumer laws,’’ 

the provisions of title X of the Dodd-Frank Act, and 

the laws for which authorities are transferred under 

title X subtitles F and H of the Dodd-Frank Act); 

Dodd-Frank Act section 1002(12), 12 U.S.C. 

5481(12) (defining ‘‘enumerated consumer laws’’ to 

include TILA); Dodd-Frank section 1400(b), 12 

U.S.C. 5481(12) note (defining ‘‘enumerated 

consumer laws’’ to include certain subtitles and 

provisions of Dodd-Frank Act title XIV); DoddFrank Act section 1061(b)(7), 12 U.S.C. 5581(b)(7) 

(transferring to the Bureau all of HUD’s consumer 

protection functions relating to RESPA). 

Under the statute, most of these new 

requirements would have taken effect 

automatically on January 21, 2013 if the 

Bureau had not issued implementing 

regulations by that date.4 To avoid 

uncertainty and potential disruption in 

the national mortgage market at a time 

of economic vulnerability, the Bureau 

issued several final rules in a span of 

less than two weeks in January 2013 to 

implement these new statutory 

provisions and provide for an orderly 

transition. Those rules included the 

January 2013 ATR Final Rule and the 

2013 Mortgage Servicing Final Rules. 

Pursuant to the Dodd-Frank Act, which 

permitted a maximum of one year for 

implementation, the January 2013 ATR 

Final Rule and the 2013 Mortgage 

Servicing Final Rules had effective dates 

of January 10, 2014. 

Concurrent with the January 2013 

ATR Final Rule, on January 10, 2013, 

the Bureau issued proposed 

amendments to the rule (the January 

2013 ATR Proposal), which the Bureau 

adopted on May 29, 2013 (the May 2013 

ATR Final Rule). 78 FR 6621 (Jan. 30, 

2013); 78 FR 35429 (June 12, 2013). The 

Bureau issued additional corrections 

and clarifications to the provisions 

adopted by the Bureau in the 2013 

Mortgage Servicing Final Rules and the 

May 2013 ATR Final Rule in the 

summer and fall of 2013.5 This final rule 

concerns additional revisions to the new 

rules. The purpose of these updates is 

to address important questions raised by 

industry, consumer groups, or other 

stakeholders. 

III. Comments 

On May 6, 2014, the Bureau 

published a proposal in the Federal 

Register to amend certain aspects of the 

Regulation Z ability-to-repay/qualified 

mortgage requirements and servicing 

rules. See 79 FR 25730 (May 6, 2014). 

The comment period closed on June 5, 

2014.6 In response to the proposal, the 

Bureau received more than 40 

comments from consumer groups, 

creditors, industry trade associations, 

and others. As discussed in more detail 

below, the Bureau has considered these 

comments in adopting this final rule. 

IV. Legal Authority 

The Bureau is issuing this final rule 

pursuant to its authority under TILA, 

RESPA, and the Dodd-Frank Act. 

Section 1061 of the Dodd-Frank Act 

transferred to the Bureau the ‘‘consumer 

financial protection functions’’ 

previously vested in certain other 

Federal agencies, including the Board of 

Governors of the Federal Reserve 

System (Board). The term ‘‘consumer 

financial protection function’’ is defined 

to include ‘‘all authority to prescribe 

rules or issue orders or guidelines 

pursuant to any Federal consumer 

financial law, including performing 

appropriate functions to promulgate and 

review such rules, orders, and 

guidelines.’’ Section 1061 of the DoddFrank Act also transferred to the Bureau 

all of the Department of Housing and 

Urban Development’s (HUD’s) consumer 

protection functions relating to RESPA. 

Title X of the Dodd-Frank Act, 

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

and certain subtitles and provisions of 

title XIV of the Dodd-Frank Act, are 

Federal consumer financial laws.7

A. TILA 

Section 105(a) of TILA authorizes the 

Bureau to prescribe regulations to carry 

out the purposes of TILA. 15 U.S.C. 

1604(a). Under section 105(a), such 

regulations may contain such additional 

requirements, classifications, 

differentiations, or other provisions, and 

may provide for such adjustments and 

exceptions for all or any class of 

transactions, as in the judgment of the 

Bureau are necessary or proper to 

effectuate the purposes of TILA, to 

prevent circumvention or evasion 

thereof, or to facilitate compliance 

therewith. A purpose of TILA is ‘‘to 

assure a meaningful disclosure of credit 

terms so that the consumer will be able 

to compare more readily the various 

credit terms available to him and avoid 

the uninformed use of credit.’’ TILA 

section 102(a), 15 U.S.C. 1601(a). In 

particular, it is a purpose of TILA 

section 129C, as added by the DoddFrank Act, to assure that consumers are 

offered and receive residential mortgage 

loans on terms that reasonably reflect 

their ability to repay the loans and that 

are understandable and not unfair, 

deceptive, or abusive. 15 U.S.C. 

1639b(a)(2). 

Section 105(f) of TILA authorizes the 

Bureau to exempt from all or part of 

TILA a class of transactions if the 

Bureau determines that TILA coverage 

does not provide a meaningful benefit to 

consumers in the form of useful 

information or protection. 15 U.S.C. 

1604(f)(1). That determination must 

consider: 

• The loan amount and whether 

TILA’s provisions ‘‘provide a benefit to 

the consumers who are parties to such 

transactions’’; 

• The extent to which TILA 

requirements ‘‘complicate, hinder, or 

make more expensive the credit process 

for the class of transactions’’; 

• The borrowers’ ‘‘status,’’ including 

their ‘‘related financial arrangements,’’ 

their financial sophistication relative to 

the type of transaction, and the 

importance to the borrowers of the 

credit, related supporting property, and 

TILA coverage; 

• Whether the loan is secured by the 

consumer’s principal residence; and 

• Whether consumer protection 

would be undermined by such an 

exemption. 

15 U.S.C. 1604(f)(2). 

TILA section 129C(b)(3)(B)(i) provides 

the Bureau with authority to prescribe 

regulations that revise, add to, or 

subtract from the criteria that define a 

qualified mortgage upon a finding that 

such regulations: Are necessary or 

proper to ensure that responsible, 

affordable mortgage credit remains 

available to consumers in a manner 

consistent with the purposes of the 

ability-to-repay requirements; are 

necessary and appropriate to effectuate 

the purposes of the ability-to-repay and 

residential mortgage loan origination 

requirements; prevent circumvention or 

evasion thereof; or facilitate compliance 

with TILA sections 129B and 129C. 15 

U.S.C. 1639c(b)(3)(B)(i). In addition, 

TILA section 129C(b)(3)(A) requires the 

Bureau to prescribe regulations to carry 

out such purposes. 15 U.S.C. 

1639c(b)(3)(A). 


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8 ‘‘Residential mortgage loan’’ is generally defined 

as any consumer credit transaction (other than 

open-end credit plans) that is secured by a mortgage 

(or equivalent security interest) on ‘‘a dwelling or 

on residential real property that includes a 

dwelling’’ (except, in certain instances, timeshare 

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

9 12 CFR 1026.41(e) (requiring delivery each 

billing cycle of a periodic statement, with specific 

content and form). For loans serviced by a small 

servicer, a creditor or assignee is also exempt from 

the Regulation Z periodic statement requirements. 

12 CFR 1026.41(e)(4)(i). 

10 12 CFR 1024.17(k)(5) (prohibiting purchase of 

force-placed insurance in certain circumstances). 

11 12 CFR 1024.30(b)(1) (exempting small 

servicers from §§ 1024.38 through 41, except as 

otherwise provided under § 1024.41(j), as discussed 

in note 12, infra). Sections 1024.38 through 40, 

respectively, impose general servicing policies, 

procedures, and requirements; early intervention 

requirements for delinquent borrowers; and policies 

and procedures to maintain continuity of contact 

with delinquent borrowers). 

12See 12 CFR 1024.41 (loss mitigation 

procedures). Though exempt from most of the rule, 

small servicers are subject to the prohibition of 

foreclosure referral before the loan obligation is 

more than 120 days delinquent and may not make 

the first notice or filing for foreclosure if a borrower 

is performing pursuant to the terms of an agreement 

on a loss mitigation option. 12 CFR 1024.41(j). 

13Under the BHCA, a company has ‘‘control’’ 

over another company if it (i) ‘‘directly or indirectly 

. . . owns, controls, or has power to vote 25 per 

centum or more of any class of voting securities’’ 

of the other company; (ii) ‘‘controls . . . the 

election of a majority of the directors or trustees’’ 

of the other company; or (iii) ‘‘directly or indirectly 

exercises a controlling influence over the 

management or policies’’ of the other company 

(based on a determination by the Board). 12 U.S.C. 

1841(a)(2). 

14Section 1026.41(e)(4)(ii) also excludes from 

consideration reverse mortgage transactions and 

mortgage loans secured by consumers’ interests in 

timeshare plans for purposes of determining 

whether a servicer qualifies as a small servicer. 

B. RESPA 

Section 19(a) of RESPA authorizes the 

Bureau to prescribe such rules and 

regulations, to make such 

interpretations, and to grant such 

reasonable exemptions for classes of 

transactions, as may be necessary to 

achieve the purposes of RESPA, which 

include RESPA’s consumer protection 

purposes. 12 U.S.C. 2617(a). In addition, 

section 6(j)(3) of RESPA authorizes the 

Bureau to establish any requirements 

necessary to carry out section 6 of 

RESPA, and section 6(k)(1)(E) of RESPA 

authorizes the Bureau to prescribe 

regulations that are appropriate to carry 

out RESPA’s consumer protection 

purposes. 12 U.S.C. 2605(j)(3) and 

(k)(1)(E). The consumer protection 

purposes of RESPA include responding 

to borrower requests and complaints in 

a timely manner, maintaining and 

providing accurate information, helping 

borrowers avoid unwarranted or 

unnecessary costs and fees, and 

facilitating review for foreclosure 

avoidance options. 

C. The Dodd-Frank Act 

Section 1405(b) of the Dodd-Frank 

Act provides that, ‘‘in order to improve 

consumer awareness and understanding 

of transactions involving residential 

mortgage loans through the use of 

disclosures,’’ the Bureau may exempt 

from disclosure requirements, ‘‘in whole 

or in part . . . any class of residential 

mortgage loans’’ if the Bureau 

determines that such exemption ‘‘is in 

the interest of consumers and in the 

public interest.’’ 15 U.S.C. 1601 note.8

Notably, the authority granted by 

section 1405(b) applies to ‘‘disclosure 

requirements’’ generally, and is not 

limited to a specific statute or statutes. 

Accordingly, Dodd-Frank Act section 

1405(b) is a broad source of authority for 

exemptions from the disclosure 

requirements of TILA and RESPA. 

Moreover, section 1022(b)(1) of the 

Dodd-Frank Act authorizes the Bureau 

to prescribe rules ‘‘as may be necessary 

or appropriate to enable the Bureau to 

administer and carry out the purposes 

and objectives of the Federal consumer 

financial laws, and to prevent evasions 

thereof.’’ 12 U.S.C. 5512(b)(1). 

Accordingly, the Bureau is exercising its 

authority under Dodd-Frank Act section 

1022(b) to prescribe rules that carry out 

the purposes and objectives of TILA, 

RESPA, title X of the Dodd-Frank Act, 

and certain enumerated subtitles and 

provisions of title XIV of the DoddFrank Act, and to prevent evasion of 

those laws. 

The Bureau is amending rules that 

implement certain Dodd-Frank Act 

provisions. In particular, the Bureau is 

amending provisions of Regulation Z 

(and, by reference, Regulation X) 

adopted by the Bureau in the 2013 

Mortgage Servicing Final Rules 

(including July 2013 amendments 

thereto), the January 2013 ATR Final 

Rule, and the May 2013 ATR Final Rule. 

V. Section-by-Section Analysis 

Section 1026.41 Periodic Statements 

for Residential Mortgage Loans 

41(e) Exemptions 

41(e)(4) Small Servicers 

The Bureau’s Proposal 

The Bureau proposed to revise the 

scope of the exemption for small 

servicers in § 1026.41(e)(4)(ii) and 

incorporated by cross-reference in 

certain provisions of Regulation X. The 

proposal would have added an 

alternative definition of small servicer 

in § 1026.41(e)(4)(ii)(C), which would 

apply to certain nonprofit entities that 

service for a fee only loans for which the 

servicer or an associated nonprofit 

entity is the creditor. The proposal also 

would have made conforming changes 

to § 1026.41(e)(4)(ii) and (iii) and 

associated commentary. 

Currently, Regulation Z exempts 

small servicers from certain mortgage 

servicing requirements. Small servicers 

are defined in Regulation Z 

§ 1026.41(e)(4)(ii), and Regulation X also 

relies on this same definition. 

Regulation Z exempts small servicers 

from the requirement to provide 

periodic statements for residential 

mortgage loans.9 Regulation X exempts 

small servicers from: (1) Certain 

requirements relating to obtaining forceplaced insurance; 10 (2) the provisions 

relating to general servicing policies, 

procedures, and requirements; 11 and (3) 

certain requirements and restrictions 

relating to communicating with 

borrowers about, and evaluation of loss 

mitigation applications.12

Current § 1026.41(e)(4)(ii) defines the 

term ‘‘small servicer’’ as a servicer that 

either: (A) Services, together with any 

affiliates, 5,000 or fewer mortgage loans, 

for all of which the servicer (or its 

affiliate) is the creditor or assignee; or 

(B) is a Housing Finance Agency, as 

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

defined in § 1026.32(b)(5) as any 

company that controls, is controlled by, 

or is under common control with 

another company, as set forth in the 

Bank Holding Company Act of 1956, 12 

U.S.C. 1841 et seq. (BHCA).13 Generally, 

under current § 1026.41(e)(4)(ii)(A), a 

servicer cannot be a small servicer if it 

services any loan for which the servicer 

or its affiliate is not the creditor or 

assignee. However, § 1026.41(e)(4)(iii) 

provides exceptions, which include 

mortgage loans that are voluntarily 

serviced by the servicer for a creditor or 

assignee that is not an affiliate of the 

servicer and for which the servicer does 

not receive any compensation or fees.14

Prior to issuing the proposal related to 

this final rule, the Bureau learned that 

certain nonprofit entities may, for a fee, 

service loans for another nonprofit 

entity that is part of the same larger 

network of nonprofits. These nonprofits 

are separately incorporated but operate 

under mutual contractual obligations to 

serve the same charitable mission, and 

use a common name, trademark, or 

servicemark. Such entities likely do not 

meet the definition of ‘‘affiliate’’ under 

the BHCA due to the limits imposed on 

nonprofits with respect to ownership 

and control. Accordingly, these 

nonprofits likely do not qualify for the 

small servicer exemption because they 

service, for a fee, loans on behalf of an 

entity that is not an affiliate as defined 

under the BHCA (and because the 


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servicer is neither the creditor for, nor 

an assignee of, those loans). Groups of 

nonprofit entities that are associated 

with one another in the described 

manner may consolidate servicing 

activities to achieve economies of scale 

necessary to service loans costeffectively, and such cost savings may 

reduce the cost of credit or enable the 

nonprofit to extend a greater number of 

loans overall. However, because of their 

corporate structures, such groups of 

nonprofit entities may be unable to 

qualify for the small servicer exemption, 

unlike their for-profit counterparts. 

To address these concerns, the Bureau 

proposed to revise the scope of the 

small servicer exemption in Regulation 

Z § 1026.41 that is also applicable to 

certain provisions of Regulation X. The 

Bureau believed that the ability of such 

nonprofit entities to consolidate 

servicing activities may be beneficial to 

consumers—to the extent servicing cost 

savings are passed on to consumers or 

lead to increased credit availability— 

and may outweigh the consumer 

protections provided by the servicing 

rules to those consumers affected by the 

proposal. The Bureau was concerned 

that, if nonprofit servicers are subject to 

all of the servicing rules, low- and 

moderate-income consumers may face 

increased costs or reduced access to 

credit. Although the servicing rules 

provide important protections for 

consumers, the Bureau was concerned 

that these protections may not outweigh 

the risk of reduction in credit access for 

low- and moderate-income consumers 

served by nonprofit entities that would 

qualify for the proposed 

§ 1026.41(e)(4)(ii)(C) exemption. 

Furthermore, the Bureau believed these 

nonprofit entities, because of their scale 

and community-focused lending 

programs, have other incentives to 

provide high levels of customer contact 

and information—incentives that 

warrant exempting those servicers from 

complying with the periodic statement 

requirements under Regulation Z and 

certain requirements of Regulation X 

discussed above. 

Accordingly, the proposal would have 

added an alternative definition of small 

servicer that would apply to nonprofit 

entities that service loans on behalf of 

other nonprofits within a common 

network or group of nonprofit entities. 

Specifically, proposed 

§ 1026.41(e)(4)(ii)(C) would have 

provided that a small servicer is a 

nonprofit entity that services 5,000 or 

fewer mortgage loans, including any 

mortgage loans serviced on behalf of 

associated nonprofit entities, for all of 

which the servicer or an associated 

nonprofit entity is the creditor. 

Proposed § 1026.41(e)(4)(ii)(C)(1) would 

have defined the term ‘‘nonprofit 

entity,’’ for purposes of proposed 

§ 1026.41(e)(4)(ii)(C), to mean an entity 

having a tax exemption ruling or 

determination letter from the Internal 

Revenue Service (IRS) under section 

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

of 1986 (IRC). See 26 U.S.C. 501(c)(3); 

26 CFR 501(c)(3)–1. Proposed 

§ 1026.41(e)(4)(ii)(C)(2) would have 

defined ‘‘associated nonprofit entities’’ 

to mean nonprofit entities that by 

agreement operate using a common 

name, trademark, or servicemark to 

further and support a common 

charitable mission or purpose. 

The Bureau also proposed technical 

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

would have addressed the timing of the 

small servicer determination and also 

excludes certain loans from being 

counted toward the 5,000-loan 

limitation. The proposed changes would 

have added language to the existing 

timing requirement to limit its 

application to the small servicer 

determination for purposes of 

§ 1026.41(e)(4)(ii)(A) and inserted a 

separate timing requirement for 

purposes of determining whether a 

nonprofit servicer is a small servicer 

pursuant to § 1026.41(e)(4)(ii)(C). 

Specifically, that requirement would 

have provided that the servicer is 

evaluated based on the mortgage loans 

serviced by the servicer as of January 1 

and for the remainder of the calendar 

year. 

In addition, the Bureau proposed 

technical changes to comment 

41(e)(4)(ii)–2 and proposed to add 

comment 41(e)(4)(ii)–4 to parallel 

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

would have addressed the requirements 

to be a small servicer under the existing 

definition in § 1026.41(e)(4)(ii)(A)). 

Specifically, new comment 41(e)(4)(ii)– 

4 would have clarified that there would 

be two elements to satisfying the 

nonprofit small servicer definition in 

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

comment would have clarified that a 

nonprofit entity must service 5,000 or 

fewer mortgage loans, including any 

mortgage loans serviced on behalf of 

associated nonprofit entities. For each 

associated nonprofit entity, the small 

servicer determination would be made 

separately without consideration of the 

number of loans serviced by another 

associated nonprofit entity. Second, the 

comment would have explained that the 

nonprofit entity would have to service 

only mortgage loans for which the 

servicer (or an associated nonprofit 

entity) is the creditor. To be the creditor, 

the servicer (or an associated nonprofit 

entity) would have to be the entity to 

which the mortgage loan obligation was 

initially payable (that is, the originator 

of the mortgage loan). The comment 

would have explained that a nonprofit 

entity would not be a small servicer 

under § 1026.41(e)(4)(ii)(C) if it services 

any mortgage loans for which the 

servicer or an associated nonprofit 

entity is not the creditor (that is, for 

which the servicer or an associated 

nonprofit entity was not the originator). 

The comment would have provided two 

examples to demonstrate the application 

of the small servicer definition under 

§ 1026.41(e)(4)(ii)(C). 

The Bureau also proposed, along with 

some other clarifying and technical 

changes, to revise existing comment 

41(e)(4)(iii)–3 to explain that mortgage 

loans that are not considered pursuant 

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

small servicer determination under 

§ 1026.41(e)(4)(ii)(A) are also not 

considered for determining whether a 

servicer (together with any affiliates) 

services 5,000 or fewer mortgage loans 

or for determining whether a servicer is 

servicing only mortgage loans that it (or 

an affiliate) owns or originated. Finally, 

the Bureau proposed a new comment 

41(e)(4)(iii)–4 to explain that mortgage 

loans that are not considered pursuant 

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

small servicer determination under 

§ 1026.41(e)(4)(ii)(C) also would not be 

considered for determining whether a 

nonprofit entity services 5,000 or fewer 

mortgage loans, including any mortgage 

loans serviced on behalf of associated 

nonprofit entities, or for determining 

whether a nonprofit entity is servicing 

only mortgage loans that it or an 

associated nonprofit entity originated. 

The comment would have provided 

examples to illustrate the rule. 

For the reasons discussed below, the 

Bureau is adopting § 1026.41(e)(4)(ii)(C) 

and (iii) and the accompanying 

commentary as proposed, with minor 

technical revisions. 

Comments 

The Bureau received comments on the 

proposed amendment to the small 

servicer definition from a nonprofit 

servicer, consumer groups, credit union 

trade associations, and a mortgage trade 

association. Commenters generally 

favored the proposed provision, but 

they suggested certain revisions to the 

proposed nonprofit small servicer 

definition and expressed concerns about 

possible evasion. 

In the proposal, the Bureau sought 

comment on whether the definition of a 

nonprofit entity should contain 

additional criteria regarding the 

nonprofit’s activities or the loan’s 

features or purposes. Consumer group 


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15The Bureau previously considered, but 

declined to adopt, a broad exemption for credit 

unions in adopting the original small servicer 

definition in § 1026.41(e)(4)(ii)(A) in the 2013 Final 

Mortgage Servicing Rule. See 78 FR 10901, 10976 

(Feb. 14, 2013). Subsequently, in clarifying the 

small servicer definition in the July 2013 Mortgage 

Servicing Final Rule, the Bureau considered 

concerns that affiliate relationships between certain 

credit unions and credit union service organizations 

(CUSOs) may prevent the credit unions and CUSOs 

from qualifying for the small servicer exemption, 

but declined to adopt such an exemption because 

the comments were beyond the scope of the 

rulemaking. See 78 FR 44685, 44694 (July 24, 2013). 

The Bureau finds that a broad exemption for credit 

unions is outside the scope of this rulemaking as 

well. 

commenters expressed concern that the 

proposed definition of nonprofit entity 

might allow evasion. These groups 

urged the Bureau to add language and 

clarification to avoid abuse by dishonest 

nonprofits. These commenters stated 

that some entities may cease to comply 

with section 501(c)(3) of the IRC, but 

could still have a tax exemption ruling 

or determination letter from the IRS 

until the IRS formally revoked its status. 

The commenters stated that a nonprofit 

would remain eligible for the exemption 

despite blatant evidence that the entity 

was not a bona fide nonprofit. These 

commenters urged the Bureau to require 

the nonprofit entity to be a bona fide 

nonprofit operating in compliance with 

IRC section 501(c)(3). 

Consumer group commenters also 

expressed concern with proposed 

comment 41(e)(4)(ii)–4, which would 

provide that each associated nonprofit 

entity may service no more than 5,000 

loans under the nonprofit small servicer 

definition. These commenters requested 

that the Bureau publicly state that it 

would monitor use of the exemption to 

prevent abuse by servicers that service 

more than 5,000 loans. 

Credit union trade associations 

generally supported expansion of the 

small servicer exemption. However, 

they requested the exemption be 

expanded further to exempt credit 

unions. They noted that Federal and 

State chartered credit unions are 

typically designated as tax-exempt 

under IRC sections 501(c)(1) and (14), 

respectively. In support of such an 

expansion, one credit union trade 

association noted that some credit 

unions that would otherwise qualify for 

the existing small servicer definition 

under § 1024.41(e)(4)(ii)(A) are 

disqualified because of ownership 

stakes in credit union service 

organizations (CUSOs). 

Final Rule 

For the reasons set forth below, the 

Bureau is adopting as proposed 

§ 1026.41(e)(4)(ii) and (iii) and 

associated commentary. The Bureau 

finds that the potential benefits to 

consumers that may result from 

nonprofit entities consolidating 

servicing activities outweigh the 

consumer protections provided by the 

servicing rules to the affected 

consumers. The Bureau believes that the 

entities that qualify for the exemption 

under the nonprofit small servicer 

definition have other incentives to 

provide high levels of customer contact 

and information, which lends further 

support to the exemption. 

The Bureau considered comments 

requesting the addition of a bona fide 

qualifier to the nonprofit small servicer 

definition but has not adopted this 

approach in the final rule. A bona fide 

requirement is unnecessary because the 

nonprofit small servicer definition is 

more limited than the existing small 

servicer definition and is narrowly 

tailored to prevent evasion. Specifically, 

the nonprofit small servicer definition 

would require that a nonprofit entity 

service only loans for which it or an 

associated nonprofit entity is the 

creditor. This is in contrast to the 

existing small servicer exemption under 

§ 1026.41(e)(4)(ii)(A), which applies to 

entities that service loans for which it or 

an affiliate is the creditor or assignee. To 

satisfy the nonprofit small servicer 

definition, an associated nonprofit 

entity must be the creditor on the loan. 

In addition, to meet the nonprofit small 

servicer definition, the ‘‘associated 

nonprofit entities,’’ as defined in 

§ 1026.41(e)(4)(ii)(C)(2), must by 

agreement operate using a common 

name, trademark, or servicemark to 

further and support a common 

charitable mission or purpose. As such, 

nonprofit entities that operate in a 

manner that is inconsistent with the 

group’s common charitable purpose—or 

a group of associated nonprofits that 

operates without a charitable purpose— 

would not satisfy the nonprofit small 

servicer definition. Although the final 

rule does not include a bona fide 

nonprofit qualifier, the Bureau will 

monitor use of the nonprofit small 

servicer exemptions and consider any 

changes to the definition, as 

appropriate. 

The Bureau has not expanded the 

nonprofit small servicer definition to 

cover credit unions designated as taxexempt under IRC sections 501(c)(1) and 

(14), as requested by some credit union 

and credit union trade association 

commenters.15 The Bureau believes that 

credit unions and their affiliates are 

likely to have greater capacity to comply 

with the full mortgage servicing rules 

than those nonprofit entities that are 

covered by the nonprofit small servicer 

definition. The commenters did not 

provide any data to support an 

expansion of the exemption to credit 

unions. 

Legal Authority 

The Bureau is adopting an exemption 

from the periodic statement requirement 

under TILA section 128(f) for certain 

small servicers pursuant to its authority 

under TILA section 105(a) and (f) and 

Dodd-Frank Act section 1405(b). 

For the reasons discussed above, the 

Bureau finds that the exemption is 

necessary and proper under TILA 

section 105(a) to facilitate TILA 

compliance. The purpose of the periodic 

statement requirement is to ensure that 

consumers receive ongoing customer 

contact and account information. As 

discussed above, the Bureau finds that 

nonprofit entities that qualify for the 

exemption have incentives to provide 

ongoing consumer contact and account 

information that would exist absent a 

regulatory requirement to do so. The 

Bureau also finds that such nonprofits 

may consolidate servicing functions in 

an associated nonprofit entity to provide 

more cost-effectively this high level of 

customer contact and otherwise to 

comply with applicable regulatory 

requirements. As noted, the Bureau is 

concerned that the current rule may 

discourage consolidation of servicing 

functions. As a result, the current rule 

may result in nonprofits being unable to 

provide high-contact servicing or to 

comply with other applicable regulatory 

requirements due to the costs that 

would be imposed on each individual 

servicer. Accordingly, the Bureau finds 

that the nonprofit small servicer 

definition facilitates compliance with 

TILA by allowing nonprofit small 

servicers to consolidate servicing 

functions, without losing status as a 

small servicer, to service loans more 

cost-effectively in compliance with 

applicable regulatory requirements. 

In addition, consistent with TILA 

section 105(f) and in light of the factors 

in that provision, the Bureau finds that 

requiring nonprofit entities servicing 

5,000 or fewer loans (including those 

serviced on behalf of associated 

nonprofits, for all of which that servicer 

or an associated nonprofit is the 

creditor) to comply with the periodic 

statement requirement in TILA section 

128(f) would not provide a meaningful 

benefit to consumers in the form of 

useful information or protection. The 

Bureau finds that these nonprofit 

servicers have incentives to provide 

consumers with necessary information, 

and that requiring provision of periodic 

statements would impose significant 

costs and burden. Specifically, the 


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Bureau finds that the nonprofit small 

servicer definition will not complicate, 

hinder, or make more expensive the 

credit process—and is proper without 

regard to the amount of the loan, to the 

status of the consumer (including 

related financial arrangements, financial 

sophistication, and the importance to 

the consumer of the loan or related 

supporting property), or to whether the 

loan is secured by the principal 

residence of the consumer. In addition, 

consistent with Dodd-Frank Act section 

1405(b), for the reasons discussed 

above, the Bureau finds that exempting 

nonprofit small servicers from the 

requirements of TILA section 128(f) is in 

the interest of consumers and in the 

public interest. 

As noted above, Regulation X crossreferences the definition of small 

servicer in § 1026.41(e)(4) for the 

purpose of exempting small servicers 

from several mortgage servicing 

requirements. Accordingly, in amending 

the small servicer definition in 

Regulation Z, the Bureau is also 

effectively amending the current 

Regulation X exemptions for small 

servicers. For this purpose, the Bureau 

is relying on the same authorities on 

which it relied in promulgating the 

current Regulation X small servicer 

exemptions. Specifically, the Bureau is 

exempting nonprofit small servicers 

from the requirements of Regulation X 

§§ 1024.38 through 41, except as 

otherwise provided in § 1024.41(j), see 

§ 1024.30(b)(1), as well as certain 

requirements of § 1024.17(k)(5), 

pursuant to its authority under section 

19(a) of RESPA to grant such reasonable 

exemptions for classes of transactions as 

may be necessary to achieve the 

consumer protection purposes of 

RESPA. The consumer protection 

purposes of RESPA include helping 

borrowers avoid unwarranted or 

unnecessary costs and fees. The Bureau 

finds that the nonprofit small servicer 

definition would ensure that consumers 

avoid unwarranted and unnecessary 

costs and fees by encouraging nonprofit 

small servicers to consolidate servicing 

functions. 

In addition, the Bureau relies on its 

authority pursuant to section 1022(b) of 

the Dodd-Frank Act to prescribe 

regulations necessary or appropriate to 

carry out the purposes and objectives of 

Federal consumer financial law, 

including the purposes and objectives of 

title X of the Dodd-Frank Act. 

Specifically, the Bureau finds that the 

nonprofit small servicer definition is 

necessary and appropriate to carry out 

the purpose under section 1021(a) of the 

Dodd-Frank Act of ensuring that all 

consumers have access to markets for 

consumer financial products and 

services that are fair, transparent, and 

competitive, and the objective under 

section 1021(b) of the Dodd-Frank Act 

of ensuring that markets for consumer 

financial products and services operate 

transparently and efficiently to facilitate 

access and innovation. 

With respect to §§ 1024.17(k)(5), 39, 

and 41 (except as otherwise provided in 

§ 1024.41(j)), the Bureau is also adopting 

the nonprofit small servicer definition 

pursuant to its authority in section 

6(j)(3) of RESPA to set forth 

requirements necessary to carry out 

section 6 of RESPA and in section 

6(k)(1)(E) of RESPA to set forth 

obligations appropriate to carry out the 

consumer protection purposes of 

RESPA. 

Section 1026.43 Minimum Standards 

for Transactions Secured by a Dwelling 

43(a) Scope 

43(a)(3) 

The Bureau’s Proposal 

The Bureau proposed to amend the 

nonprofit small creditor exemption from 

the ability-to-repay rule that is set forth 

in § 1026.43(a)(3)(v)(D). To qualify for 

this exemption, a creditor must have 

extended credit secured by a dwelling 

no more than 200 times during the 

calendar year preceding receipt of the 

consumer’s application and meet certain 

additional requirements. The proposal 

would have excluded certain 

subordinate-lien transactions from the 

200-credit extension limit. For the 

reasons set forth below and in the 

proposal, the Bureau is finalizing this 

provision as proposed. 

Currently, § 1026.43(a)(3)(v)(D) 

provides an exemption from the abilityto-repay rule if the creditor and the loan 

meet certain criteria. First, the creditor 

must have a tax exemption ruling or 

determination letter from the IRS under 

section 501(c)(3) of the IRC. Second, the 

creditor may not have extended credit 

secured by a dwelling more than 200 

times in the calendar year preceding 

receipt of the consumer’s application. 

Third, the creditor, in the calendar year 

preceding receipt of the consumer’s 

application, must have extended credit 

only to consumers whose income did 

not exceed the low- and moderateincome household limit established by 

HUD. Fourth, the extension of credit 

must be to a consumer with income that 

does not exceed HUD’s low- and 

moderate-income household limit. Fifth, 

the creditor must have determined, in 

accordance with written procedures, 

that the consumer has a reasonable 

ability to repay the extension of credit. 

As noted in the proposal, the Bureau 

has heard concerns from some nonprofit 

creditors about the treatment of certain 

subordinate-lien programs under the 

nonprofit exemption from the ability-torepay requirements. These creditors 

expressed concern that they may be 

forced to curtail their subordinate-lien 

programs or more generally limit their 

lending activities to avoid exceeding the 

200-credit extension limit. In particular, 

these entities indicated concern with 

the treatment of subordinate-lien 

transactions that charge no interest and 

for which repayment is generally either 

forgivable or of a contingent nature. 

In light of these concerns, the Bureau 

proposed to amend 

§ 1026.43(a)(3)(v)(D)(1) to exclude 

certain subordinate liens from the 200- 

credit extension limit determination. 

Specifically, the Bureau proposed to 

add § 1026.43(a)(3)(vii), which would 

have provided that consumer credit 

transactions that meet the following 

criteria would not be considered in 

determining whether a creditor meets 

the credit extension limit in 

§ 1026.43(a)(3)(v)(D)(1): (1) The 

transaction is secured by a subordinate 

lien; (2) the transaction is for the 

purpose of downpayment, closing costs, 

or other similar home buyer assistance, 

such as principal or interest subsidies, 

property rehabilitation assistance, 

energy efficiency assistance, or 

foreclosure avoidance or prevention; (3) 

the credit contract does not require 

payment of interest; (4) the credit 

contract provides that the repayment of 

the amount of credit extended is (a) 

forgiven incrementally or in whole, at a 

date certain, and subject only to 

specified ownership and occupancy 

conditions, such as a requirement that 

the consumer maintain the property as 

the consumer’s principal dwelling for 

five years, (b) deferred for a minimum 

of 20 years after consummation of the 

transaction, (c) deferred until sale of the 

property securing the transaction, or (d) 

deferred until the property securing the 

transaction is no longer the principal 

dwelling of the consumer; (5) the total 

of costs payable by the consumer in 

connection with the transaction at 

consummation is less than 1 percent of 

the amount of credit extended and 

includes no charges other than fees for 

recordation of security instruments, 

deeds, and similar documents, a bona 

fide and reasonable application fee, and 

a bona fide and reasonable fee for 

housing counseling services; and (6) in 

connection with the transaction, the 

creditor complies with all other 

applicable requirements of Regulation 

Z. 


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Proposed comment 43(a)(3)(vii)–1 

would have clarified that the terms of 

the credit contract must satisfy the 

conditions that the transaction not 

require the payment of interest under 

§ 1026.43(a)(3)(vii)(C) and that 

repayment of the amount of credit 

extended be forgiven or deferred in 

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

The comment would have further 

clarified that the other requirements of 

§ 1026.43(a)(3)(vii) need not be reflected 

in the credit contract, but the creditor 

must retain evidence of compliance 

with those provisions, as required by 

the record retention provisions of 

§ 1026.25(a). In particular, the creditor 

must have information reflecting that 

the total of closing costs imposed in 

connection with the transaction are less 

than 1 percent of the amount of credit 

extended and includes no charges other 

than recordation, application, and 

housing counseling fees, in accordance 

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

itemization of the amount financed 

sufficiently details this requirement, the 

creditor must establish compliance with 

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

written document and retain it in 

accordance with § 1026.25(a). 

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

accompanying comment would have 

largely mirrored a provision and 

accompanying comment that was 

adopted as part of the Bureau’s rule 

integrating the pre-consummation 

disclosure requirements of TILA and 

RESPA (2013 TILA–RESPA Final Rule), 

effective August 1, 2015. See 78 FR 

79729 (Dec. 31, 2013). That provision, 

which was adopted in both Regulation 

X, at § 1024.5(d) (by cross-reference), 

and Regulation Z, at § 1026.3(h), 

provides a partial exemption from the 

disclosure requirements for loans that 

meet criteria that largely mirror those in 

proposed § 1026.43(a)(3)(vii). As noted 

in the proposal, that exemption was 

intended to describe criteria associated 

with certain housing assistance loan 

programs for low- and moderate-income 

persons. The Bureau believed the same 

criteria for the partial exemption from 

the 2013 TILA–RESPA Final Rule 

would describe the class of transactions 

that might appropriately be excluded 

from the 200-credit extension limit in 

the ability-to-repay exemption for 

nonprofits and that defining a single 

class of transactions for purposes of 

§ 1024.5(d), § 1026.3(h), and 

§ 1026.43(a)(3)(vii) might facilitate 

compliance for creditors. 

Comments 

The Bureau received comments on the 

proposed revisions to the nonprofit 

creditor exemption from consumer 

groups, credit union trade associations, 

and one nonprofit creditor. Commenters 

generally favored the proposed 

provision but raised concerns about the 

scope and interpretation of the 

provisions. 

The nonprofit creditor commenter 

generally supported the proposal but 

requested certain revisions and 

clarifications. First, the commenter 

expressed concern with the requirement 

in proposed § 1026.43(a)(3)(vii)(D) that, 

to be excluded from the 200-credit 

extension limit, the credit contract 

provide that repayment be forgiven or 

deferred. Specifically, that commenter 

expressed concern that a subordinate 

lien that defers repayment, but for less 

than 20 years, does not meet the criteria 

for the exclusion from the credit 

extension limit under proposed 

§ 1026.43(a)(3)(vii)(D)(2). The 

commenter did not indicate whether its 

exemption status or the status of any 

other nonprofit creditor might be 

jeopardized if this provision were 

finalized, nor did it provide a specific 

justification for loosening the deferment 

period. Second, the nonprofit creditor 

requested that the repayment criteria be 

revised or commentary added to clarify 

that the provisions in the credit contract 

may provide for repayment where a 

borrower defaults on or refinances an 

accompanying first-lien mortgage 

without jeopardizing the loan’s 

exemption status. Third, the nonprofit 

creditor commenter expressed concerns 

that the 200-credit extension limit 

discourages expansion and 

consolidation among nonprofit 

creditors. The commenter stated that the 

existing extension limit complicates 

mortgage sale transactions to its banking 

partners, but did not suggest any 

specific number of credit extensions 

that would be an appropriate limit for 

the nonprofit creditor exemption. 

Consumer group commenters 

generally supported adoption of the 

proposal but two consumer group 

commenters suggested that the Bureau 

should occasionally examine 

subordinate liens to ensure that any fees 

charged are bona fide. Credit union 

trade association commenters suggested 

that the Bureau expand the nonprofit 

exemption to include both Federal and 

State credit unions. 

Final Rule 

For the reasons discussed in the 

proposal, and in light of the comments 

received, the Bureau is adopting the 

revision to § 1026.43(a)(3)(v)(D), the 

addition of § 1026.43(a)(3)(vii), and 

comment 43(a)(3)(vii)–1 as proposed. 

The Bureau considered whether to 

relax the deferment period required by 

§ 1026.43(a)(3)(vii)(D)(2) but has not 

adopted such a change in the final rule. 

The Bureau believes that relaxing the 

deferment period may create a risk of 

consumer harm with respect to the 

excluded subordinate liens. As noted in 

the proposal, the exclusion is narrowly 

tailored to accommodate subordinateliens that both reduce a consumer’s 

monthly mortgage obligations and allow 

the consumer to control whether and 

when repayment is triggered, for at least 

20 years. Reducing that period where 

the consumer controls repayment 

increases risks to consumers. The 20- 

year deferment requirement also serves 

to discourage use of the exclusion as a 

means of evasion of the ability-to-repay 

rule. Moreover, the nonprofit 

commenter did not assert that the 20- 

year deferment period required by 

§ 1026.43(a)(3)(vii)(D)(2) would 

presently or foreseeably jeopardize its 

exemption status (or the exemption 

status of any other nonprofit creditor). 

Finally, as noted above, 

§ 1026.43(a)(3)(vii) largely mirrors a 

provision that was adopted as part of 

the Bureau’s 2013 TILA–RESPA Final 

Rule. The Bureau does not, at this time, 

believe there is a basis for amending the 

exclusion from that rule and is 

concerned that maintaining two 

separate exclusion regimes would create 

undue regulatory burden. 

In addition, the Bureau considered 

whether the rule or commentary should 

specify that the credit contract may 

provide for repayment where a 

consumer defaults on or refinances an 

accompanying first-lien mortgage. 

However, the Bureau does not believe 

that such a provision is necessary. The 

exclusion criteria do not bar such 

provisions, nor would such provisions 

be inconsistent with the proposed 

criteria. The Bureau is concerned that 

revising § 1026.43(a)(3)(vii) or adding 

commentary expressly to permit such 

standard contract terms could call into 

question the effect of other standard 

contract terms providing for 

acceleration, such as for nonpayment of 

property taxes, on a loan’s status under 

the exclusion. As a result, addressing 

these provisions might necessitate 

amending the commentary to cover a 

much more exhaustive list of what is 

prohibited or permitted. 

The Bureau also considered the 

request that it increase or remove the 

200-credit extension limit from the 

§ 1026.43(a)(3)(v)(D) nonprofit 

exemption altogether. The Bureau has 

determined that it would be 

inappropriate to do so because it 

believes that nonprofit creditors that 

originate more than 200 dwellingsecured transactions in a year 


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16See TILA section 129C(b)(3)(B)(i). TILA section 

129C(b)(2)(D) requires the Bureau to prescribe rules 

adjusting the 3-percent points and fees limit to 

‘‘permit lenders that extend smaller loans to meet 

the requirements of the presumption of 

compliance.’’ 

(excluding the transactions described in 

§ 1026.43(a)(3)(vii)) generally have the 

resources necessary to comply with the 

TILA ability-to-repay requirements. In 

the absence of information that suggests 

that the rationale behind the extension 

limit is no longer appropriate, the 

Bureau has not increased the extension 

limit. 

As noted above, consumer group 

commenters suggested that subordinate 

liens should be examined occasionally 

to determine whether any charges 

imposed are bona fide. The Bureau 

intends to monitor the mortgage market 

to ensure that the nonprofit creditor 

exemption does not become a means for 

evasion of the ability-to-repay 

requirements. 

As also noted above, some 

commenters suggested that the 

nonprofit creditor exemption be 

expanded to cover State and Federal 

credit unions. The Bureau notes that, in 

adopting the nonprofit creditor 

exemption in the May 2013 ATR Final 

Rule, the Bureau considered, but 

declined to adopt, an exemption for 

entities that are designated nonprofit 

organizations under sections 501(c)(1) 

and (14) of the IRC. See 78 FR 35429, 

35468 (June 12, 2013). Commenters did 

not present any information that would 

suggest that the Bureau should 

reconsider its decision in the May 2013 

ATR Final Rule. Thus the Bureau lacks 

a sufficient basis to adopt an expanded 

exemption as requested by the credit 

union trade associations. 

Legal Authority 

The current § 1026.43(a)(3)(v)(D) 

exemption from the ability-to-repay 

requirements was adopted pursuant to 

the Bureau’s authority under section 

105(a) and (f) of TILA. Pursuant to 

section 105(a) of TILA, the Bureau 

generally may prescribe regulations that 

provide for such adjustments and 

exceptions for all or any class of 

transactions that the Bureau judges are 

necessary or proper to effectuate, among 

other things, the purposes of TILA. For 

the reasons discussed above, the Bureau 

concludes that the amendment to the 

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

TILA ability-to-repay requirements is 

necessary and proper to effectuate the 

purposes of TILA, which include the 

purposes of TILA section 129C. The 

Bureau concludes that the amendment 

to the exemption ensures that 

consumers are offered and receive 

residential mortgage loans on terms that 

reasonably reflect their ability to repay 

by helping to ensure the viability of the 

mortgage market for low- and moderateincome consumers. The Bureau believes 

that the mortgage loans originated by 

nonprofit creditors identified in 

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

for a consumer’s ability to repay. 

Without the amendment to the 

exemption, the Bureau concludes that 

low- and moderate-income consumers 

might be at risk of being denied access 

to the responsible and affordable credit 

offered by these creditors, which is 

contrary to the purposes of TILA. The 

amendment to the exemption is 

consistent with the purposes of TILA by 

ensuring that consumers are able to 

obtain responsible, affordable credit 

from the nonprofit creditors discussed 

above. 

The Bureau has also considered the 

factors in TILA section 105(f) and 

concludes that, for the reasons 

discussed above, the amendment to the 

exemption is appropriate under that 

provision. For the reasons discussed 

above, the Bureau concludes that the 

amendment to § 1026.43(a)(3)(v)(D) 

would exempt extensions of credit for 

which coverage under the ability-torepay requirements does not provide a 

meaningful benefit to consumers (in the 

form of useful information or 

protection) in light of the protection that 

the Bureau believes the credit extended 

by these creditors already provides to 

consumers. The Bureau concludes that 

the amendment to the 

§ 1026.43(a)(3)(v)(D) exemption is 

appropriate for all affected consumers, 

regardless of their other financial 

arrangements and financial 

sophistication and the importance of the 

loan and supporting property to them. 

Similarly, the Bureau concludes that the 

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

exemption is appropriate for all affected 

loans covered under the exemption, 

regardless of the amount of the loan and 

whether the loan is secured by the 

principal residence of the consumer. 

Furthermore, the Bureau concludes that, 

on balance, the amendment to the 

§ 1026.43(a)(3)(v)(D) exemption will 

simplify the credit process without 

undermining the goal of consumer 

protection, denying important benefits 

to consumers, or increasing the expense 

of (or otherwise hindering) the credit 

process. 

43(e) Qualified Mortgages 

43(e)(3) Limits on Points and Fees for 

Qualified Mortgages 

The Bureau’s Proposal 

The Bureau proposed to permit a 

creditor or assignee to cure an excess 

over the qualified mortgage points and 

fees limit under defined conditions. 

Those conditions included that the 

creditor originated the loan in good faith 

as a qualified mortgage, that the creditor 

or assignee refunds the overage within 

120 days of consummation, and that the 

creditor or assignee maintains and 

follows policies and procedures for 

post-consummation review of loans and 

refunding to consumers of such points 

and fees overages. For the reasons 

discussed below, the Bureau is 

finalizing the proposed cure provision 

but is making certain adjustments to 

address concerns raised by commenters. 

Section 1411 of the Dodd-Frank Act 

added TILA section 129C(a) to require a 

creditor making a residential mortgage 

loan to make a reasonable and good 

faith determination (based on verified 

and documented information) that, at 

the time the loan is consummated, the 

consumer has a reasonable ability to 

repay the loan. 15 U.S.C. 1639c(a). TILA 

section 129C(b) further: Provides that 

the ability-to-repay requirements are 

presumed to be met if the loan is a 

qualified mortgage; sets certain productfeature and underwriting requirements 

for qualified mortgages (including limits 

on points and fees); and gives the 

Bureau authority to revise, add to, or 

subtract from these requirements.16

Section 1026.43(e)(3), which 

implements the statutory points and 

fees limits for qualified mortgages, 

provides that the up-front points and 

fees charged in connection with a 

qualified mortgage must not exceed 3 

percent of the total loan amount, with 

higher thresholds specified for various 

categories of loans below $100,000. 

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

fees are the ‘‘fees or charges that are 

known at or before consummation.’’ The 

current rule does not provide a 

mechanism for curing points and fees 

overages that are discovered after 

consummation. 

As noted in the proposal, the Bureau 

understands that some creditors seeking 

to originate and some secondary market 

participants seeking to purchase 

qualified mortgages may establish 

buffers, set at a level below the 

applicable points and fees limit in 

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

exceeding those limits. Creditors may 

simply refuse to extend mortgage credit 

to consumers whose loans would 

exceed the buffer threshold (even 

though such loans, if under the 

applicable Regulation Z points and fees 

limit, would otherwise be qualified 

mortgages), due to the creditors’ 

concerns about the potential liability 

attending loans originated under the 


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general ability-to-repay standard, the 

ability to sell those loans into the 

secondary market, or the risk of 

repurchase demands from the secondary 

market if the applicable qualified 

mortgage points and fees limit is later 

found to have been exceeded. 

Alternatively, creditors may charge 

more for loans exceeding the buffer 

threshold (even if those loans are under 

the applicable Regulation Z points and 

fees limit for qualified mortgages). The 

proposal noted the Bureau’s concerns 

that access to credit might be negatively 

affected where such buffers are 

established. 

Because of these concerns about 

access to credit, the Bureau proposed 

§ 1026.43(e)(3)(iii), which would have 

provided that, if the creditor or assignee 

determines after consummation that the 

total points and fees payable in 

connection with a loan exceed the 

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

the loan is not precluded from being a 

qualified mortgage, provided: (1) The 

creditor originated the loan in good faith 

as a qualified mortgage and the loan 

otherwise meets the requirements for a 

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

(e)(4), (e)(5), (e)(6), or (f), as applicable; 

(2) within 120 days after consummation, 

the creditor or assignee refunds to the 

consumer the dollar amount by which 

the transaction’s points and fees 

exceeded the applicable limit under 

§ 1026.43(e)(3)(i); and (3) the creditor or 

assignee, as applicable, maintains and 

follows policies and procedures for 

post-consummation review of loans and 

refunding to consumers amounts that 

exceed the applicable limit under 

§ 1026.43(e)(3)(i). 

In conformance with proposed 

§ 1026.43(e)(3)(iii), the Bureau also 

proposed to amend § 1026.43(e)(3)(i) to 

add the introductory phrase ‘‘[e]xcept as 

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

section.’’ That conforming change 

would have specified that the cure 

provision in § 1026.43(e)(3)(iii) is an 

exception to the general rule that a 

covered transaction is not a qualified 

mortgage if the transaction’s total points 

and fees exceed the applicable limit set 

forth in § 1026.43(e)(3)(i). Proposed 

comment 43(e)(3)(iii)–1 would have 

provided examples of evidence that a 

creditor originated a loan in good faith 

as a qualified mortgage and examples of 

evidence that a loan was not originated 

in good faith as a qualified mortgage. 

Proposed comment 43(e)(3)(iii)–2 would 

have provided guidance on the policies 

and procedures requirement. In addition 

to these specific proposals, the Bureau 

requested comment on whether a postconsummation points and fees cure 

should be permitted, and whether 

different, additional, or fewer 

conditions should be imposed upon its 

availability. 

Comments 

Industry commenters, including trade 

associations, large and small creditors, 

and secondary market purchasers, 

unanimously supported permitting a 

cure for points and fees overages. 

Industry commenters noted that the 

complex nature of the points and fees 

calculation and the potential liability 

associated with non-qualified mortgages 

have caused some creditors to impose 

operational buffers on points and fees 

that are well under the limits in the 

rule. These commenters also noted that 

it is not uncommon for investors and 

originators to disagree on the 

interpretation of parts of the points and 

fees calculation, which may impede the 

sale of some loans in the secondary 

market. One large industry trade 

association cited the definition of ‘‘bona 

fide discount point,’’ which depends in 

part on whether ‘‘the interest rate 

without any discount’’ exceeds a certain 

threshold, as an area of industry 

uncertainty in the points and fees 

calculation that could lead to different 

interpretations. 

Industry commenters stated that 

creditors that are uncertain of the 

qualified mortgage status of loans near 

the applicable points and fees limit may 

overprice the risk of the loan, passing on 

the costs of legal uncertainty to the 

consumer. Those commenters stated 

that, as a result, consumers receive 

loans on less favorable terms than they 

would otherwise receive or may be 

ineligible for credit. These commenters 

stated that the points and fees cure 

would provide creditors the opportunity 

to achieve precise compliance after 

consummation, which in turn would 

allow creditors to approve more loans, 

or provide loans at a lower cost to, 

consumers at the boundaries of the 

points and fees limits under the rule. 

Industry commenters also generally 

stated that the proposed cure provision 

would incentivize robust postconsummation quality control and audit 

procedures in a way that would benefit 

both creditors and consumers. Creditors 

would benefit by being afforded the 

opportunity to achieve precise 

compliance and allow loans to flow 

smoothly into the secondary market, 

while consumers would benefit by 

receiving cure payments. A nonprofit 

commenter that promotes asset-building 

policies for low- and middle-income 

families also supported the proposed 

points and fees cure. This commenter 

noted that, for smaller loans subject to 

the tiered points and fees limits, any 

change in total costs agreed to at or near 

consummation may cause the loan to 

cross from one limit tier to another. 

Some consumer group commenters, 

including two large national consumer 

groups, strongly opposed the proposed 

cure provision. These commenters 

generally stated that the proposal would 

do more harm to consumers than good 

and was unnecessary, contrary to 

Congressional intent, and without 

evidentiary foundation. Consumer 

group commenters that generally 

opposed the cure provision stated that 

it could incentivize inaccurate preconsummation points and fees 

calculations. For example, these 

commenters warned that loan 

originators and processors could face 

pressure to close loans and to overlook 

problems before closing in the belief 

that they can be cured postconsummation. To these commenters, 

the cure would encourage the lending 

industry to be less vigilant, less accurate 

and, for some, less honest, in marketing, 

disclosures, and underwriting practices. 

Consumer group commenters also 

objected to the proposal’s provision 

allowing a cure by refunding nothing 

more than the overage to the consumer. 

Some consumer group commenters 

argued that the cure is unnecessary 

because of the regulations’ limited 

impact on access to credit. Two large 

national consumer group commenters 

stated that the qualified mortgage points 

and fees limits are not actually 

restricting access to credit or increasing 

the cost of credit. Those commenters 

cited a lack of data to support the 

Bureau’s assertions about the effect of 

the points and fees limits on access to 

credit. The commenters stated that, if it 

had such data, the Bureau should adjust 

the qualified mortgage standards rather 

than permit a cure. The commenters 

argued that the mortgage industry 

restricts or expands access to credit 

based on perceptions of credit risk and 

profitability and not on the impact of 

consumer protection rules. 

The commenters asserted that, 

although current concerns are about 

access to credit, creditors will loosen 

their standards in order to increase their 

market share—just as they did before 

the recent financial crisis. Some 

consumer group commenters also noted 

that the Dodd-Frank Act was adopted to 

prevent the type of irresponsible 

lending that led to the financial crisis, 

and that each exception the Bureau adds 

to the qualified mortgage rule weakens 

the restraints the Dodd-Frank Act 

imposed. These commenters argued that 

the cure will harm consumers by 

depriving them of otherwise available 

legal remedies. 


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Consumer group commenters also 

stated that the secondary market had 

already taken action to address 

repurchase concerns. The commenters 

noted that, to the extent that credit is 

tight due to the risk of repurchase 

demands from the secondary market, 

the government-sponsored enterprises 

(GSEs) have announced a set of revised 

quality review policies and a right to fix 

documentation problems that will 

reduce creditors’ exposure to repurchase 

demands. Other consumer group 

commenters, including a large national 

nonprofit, generally supported the cure 

but urged the Bureau to include greater 

protections for consumers in the final 

rule. Similarly, the consumer groups 

that generally opposed the cure 

commented that, if the Bureau adopts a 

points and fees cure provision, it should 

provide greater consumer protections. 

These commenters made several 

suggestions to increase consumer 

protections in the final rule, including: 

A sunset date for the right to cure; 

cutting off the right to cure upon notice 

from the consumer of an overage and 

other similar events; and requiring 

creditors or assignees to provide a cure 

payment that is more than the overage 

itself. These suggestions are discussed 

more fully, below. 

Final Rule 

For the reasons discussed below, the 

Bureau is adopting the cure provision 

for points and fees overages in 

§ 1026.43(e)(3)(iii) and (iv). The Bureau 

is finalizing the cure provision 

substantially as proposed but with some 

modifications based on comments 

received. The final cure provision 

provides bright-line rules to incentivize 

creditors to ease current points and fees 

buffers (and, in turn, increase access to 

responsible, affordable mortgage credit) 

while, at the same time, limiting the 

ability and incentives for creditors to 

engage in careless pre-consummation 

points and fees calculations or 

otherwise misuse the cure. In addition 

to certain clarifying changes, the final 

rule makes the following adjustments 

from the proposal: 

• Sunsets the cure after January 10, 

2021; 

• Eliminates the condition that the 

creditor originate the loan in ‘‘good 

faith’’ as a qualified mortgage (discussed 

below in the section-by-section analysis 

of § 1026.43(e)(3)(iii)(A)); 

• Increases the cure period from 120 

days to 210 days after consummation 

(discussed below in the section-bysection analysis of 

§ 1026.43(e)(3)(iii)(B)); 

• Cuts off the ability to cure upon one 

or more of the following occurrences: 

The consumer’s institution of a legal 

action in connection with the loan; the 

creditor, assignee, or servicer’s receipt 

of the consumer’s written notice that the 

loan’s points and fees exceeded the 

qualified mortgage limit; or the 

consumer becoming 60 days past due on 

the legal obligation (discussed below in 

the section-by-section analysis of 

§ 1026.43(e)(3)(iii)(B)); and 

• Requires the creditor or assignee to 

also pay interest to the consumer on the 

dollar amount by which the points and 

fees exceed the qualified mortgage limit, 

for the period from consummation until 

the cure payment is made to the 

consumer (discussed below in the 

section-by-section analysis of 

§ 1026.43(e)(3)(iv)). 

The cure will only be available for 

transactions consummated on or after 

the effective date of this final rule and 

on or before the sunset date. 

The Bureau concludes that the cure 

provision will ease current market 

uncertainties and, as a result, may 

increase consumers’ access to affordable 

credit in the near term. As explained in 

the proposal, the calculation of points 

and fees is complex and can involve the 

exercise of judgment that may lead to 

inadvertent errors with respect to 

charges imposed at or before 

consummation. Where a creditor 

originated a loan with the expectation of 

qualified mortgage status, the Bureau 

believes the consumer likely received 

the benefit of qualified mortgage 

treatment by receiving lower overall 

pricing. For this reason, the Bureau 

concludes that a cure provision, if 

appropriately limited, could reflect the 

expectations of both consumers and 

creditors at consummation and could 

increase access to credit for consumers 

seeking loans at the margins of the 

points and fees limits. A limited cure 

provision should also promote 

consistent pricing within the qualified 

mortgage range by decreasing the 

market’s perceived need for higher 

pricing at the margins of the points and 

fees limits. The cure provision should 

also promote stability in the market by 

limiting the need for repurchase 

demands that may otherwise be 

triggered without the cure. In addition, 

the Bureau notes that the cure provision 

will encourage some creditors to 

undertake or strengthen rigorous postconsummation review of loans and 

consequently result in consumers 

receiving cure payments that would not 

have been received absent a cure 

provision. 

At the same time, and as stated in the 

proposal, the Bureau expects that, over 

time, creditors will develop greater 

confidence in compliance systems and 

also with originating loans that are not 

qualified mortgages under the general 

ability-to-repay standard. As this occurs, 

creditors should be able to relax internal 

buffers on points and fees that are 

predicated on the qualified mortgage 

threshold and to provide consistent 

pricing for qualified mortgages that are 

at the margin of the points and fees 

limits. Additionally, the risk of 

repurchase demands based on points 

and fees overages should decrease with 

experience. For these reasons, the cure 

provision finalized in § 1026.43(e)(3) 

contains a sunset date of January 10, 

2021. This sunset date is also the 

general sunset date for the temporary 

qualified mortgage definition for loans 

eligible for purchase or guarantee by the 

GSEs or certain Federal agencies 

pursuant to § 1026.43(e)(4). As creditors’ 

confidence increases and market 

conditions stabilize, creditors should 

become less reliant on points and fees 

buffers. The Bureau concludes that this 

sunset will provide sufficient time for 

creditors to develop confidence in 

compliance systems for regulatory 

requirements and for economic and 

market conditions to stabilize. 

As noted above, consumer group 

commenters argued that the cure 

provision could encourage the lending 

industry to be negligent or reckless. The 

Bureau notes that the final cure 

provision has been carefully calibrated 

to incentivize creditors to ease current 

buffers (which should in turn increase 

access to responsible, affordable 

mortgage credit), while limiting the 

ability and incentives for creditors to 

abuse the cure. The Bureau 

acknowledges that a cure provision 

could allow some creditors to conduct 

inaccurate pre-consummation points 

and fees calculations and that the cure 

provision would operate to limit legal 

remedies for some consumers who 

might later bring ability-to-repay claims. 

However, the Bureau concludes that the 

safeguards described more fully below, 

such as limiting the cure period to a 

short and finite period after 

consummation, cutting off the ability to 

cure upon the occurrence of certain 

events (including the consumer filing a 

lawsuit in connection with the loan), 

and requiring creditors to pay interest 

on the points and fees overages, will 

appropriately limit the incentives and 

opportunity for misuse of the cure. 

Market forces (such as repurchase 

demands), concerns about litigation 

risk, and the costs of administering a 

post-consummation cure, will also limit 

the extent to which creditors may be 

incentivized to misuse the cure 

provision. 


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The Bureau also believes that, in most 

cases, the cure provision will align the 

loan terms with the expectations of the 

creditor and the consumer: The creditor 

likely believed the loan was a qualified 

mortgage when it originated the loan 

and, assuming buffers that affect pricing 

at the margins are removed, the 

consumer likely received more 

affordable qualified mortgage pricing 

because of the creditor’s belief that the 

loan was a qualified mortgage. If a cure 

is effectuated, the consumer will also 

receive a monetary cure payment for the 

points and fees overage. For these 

reasons, the Bureau concludes that 

allowing a points and fees cure as 

structured in this final rule will benefit 

consumers. 

Legal Authority 

The Bureau is adopting the points and 

fees cure provision in § 1026.43(e)(3) 

pursuant to its authority under TILA 

section 129C(b)(3)(B)(i) to promulgate 

regulations that revise, add to, or 

subtract from the criteria that define a 

qualified mortgage. In addition, because 

revised § 1026.43(e)(3) permits creditors 

to cure non-compliance with the general 

qualified mortgage points and fees 

limits up to 210 days after 

consummation, the Bureau also adopts 

revised § 1026.43(e)(3) pursuant to its 

authority under section 105(a) and (f) of 

TILA. Each of these authorities is 

discussed in turn below. 

For the reasons discussed herein, the 

Bureau concludes that revised 

§ 1026.43(e)(3) is warranted under TILA 

section 129C(b)(3)(B)(i) because the 

limited post-consummation cure 

provision is necessary and proper to 

ensure that responsible, affordable 

mortgage credit remains available to 

consumers in a manner consistent with 

the purposes of section 129C of TILA, 

and also necessary and appropriate to 

facilitate compliance with section 129C 

of TILA. For example, the Bureau 

concludes that the limited postconsummation cure provision will 

facilitate compliance with TILA section 

129C by encouraging rigorous, postconsummation quality control loan 

reviews that will, over time, improve 

the origination process. 

Pursuant to section 105(a) of TILA, 

the Bureau generally may prescribe 

regulations that provide for such 

adjustments and exceptions for all or 

any class of transactions that the Bureau 

judges are necessary or proper to 

effectuate the purposes of TILA. For the 

reasons discussed below, the Bureau 

concludes that exempting the class of 

qualified mortgages that involve a postconsummation points and fees cure 

from the statutory requirement that the 

creditor make a good faith 

determination that the consumer has the 

ability to repay ‘‘at the time the loan is 

consummated’’ is necessary and proper 

to effectuate the purposes of TILA. The 

Bureau concludes that a limited postconsummation cure of points and fees 

overages will preserve access to credit to 

the extent it encourages creditors to 

extend credit to consumers seeking 

loans with points and fees up to the 

applicable limit under the rule. Without 

a points and fees cure provision, the 

Bureau believes that some consumers 

might be at risk of being denied access 

to responsible, affordable credit to the 

extent some creditors will not make 

loans near the points and fees limits due 

to concerns about inadvertently 

exceeding that limit, or will make more 

expensive loans near the limit. This 

would be contrary to the purposes of 

TILA, which include ensuring that 

responsible, affordable mortgage credit 

remains available to consumers. See 15 

U.S.C. 1639b(a)(1). The Bureau also 

concludes that a limited postconsummation cure provision will 

facilitate compliance with TILA section 

129C by encouraging rigorous, postconsummation quality control loan 

reviews that will, over time, improve 

the origination process. 

The Bureau has considered the factors 

in TILA section 105(f) and concludes 

that a limited points and fees cure 

provision is appropriate under that 

provision. The Bureau concludes that 

the exemption, as limited by the final 

rule, is appropriate for all affected 

consumers, specifically, those seeking 

loans at the margins of the points and 

fees limits whose access to credit may 

be affected adversely without the 

exemption. Similarly, the Bureau 

concludes that the exemption is 

appropriate for all affected loans 

covered under the exemption, regardless 

of the amount of the loan and whether 

the loan is secured by the principal 

residence of the consumer. Furthermore, 

the Bureau concludes that, on balance, 

the exemption will not undermine the 

goal of consumer protection or increase 

the complexity or expense of (or 

otherwise hinder) the credit process. 

While the exemption may result in 

consumers in affected transactions 

losing some of TILA’s benefits, 

potentially including some aspects of a 

foreclosure legal defense, the Bureau 

concludes such potential losses are 

outweighed by the potentially increased 

access to responsible, affordable credit, 

an important benefit to consumers. The 

Bureau concludes that is the case for all 

affected consumers, regardless of their 

other financial arrangements, their 

financial sophistication, and the 

importance of the loan and supporting 

property to them. 

43(e)(3)(iii) 

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

The Bureau’s Proposal 

As noted above, proposed 

§ 1026.43(e)(3)(iii)(A) would have 

required, as a condition of curing a 

points and fees overage, that the loan 

was originated in good faith as a 

qualified mortgage and the loan 

otherwise meets the requirements of 

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

(i.e., the requirements to be a qualified 

mortgage), as applicable. The Bureau 

also proposed comment 43(e)(3)(iii)–1, 

which would have provided examples 

of evidence that a loan was originated 

in good faith as a qualified mortgage, 

and examples of circumstances that 

would evidence that a loan was not 

originated in good faith as a qualified 

mortgage. The Bureau proposed to limit 

the cure provision to loans originated in 

good faith as a qualified mortgage to 

ensure that the cure provision is 

available only in cases of inadvertent 

errors in the origination process and to 

prevent creditors from misusing the 

cure provision by intentionally 

exceeding the points and fees limits. 

However, the Bureau sought comment 

on whether the good faith element of 

proposed § 1026.43(e)(3)(iii)(A) is 

necessary in light of the other proposed 

limitations on the cure provision. The 

Bureau also sought comment on the 

proposed examples in comment 

43(e)(3)(iii)–1. 

For the reasons discussed below, the 

final rule does not contain an express 

requirement that the loan was originated 

in good faith as a qualified mortgage. 

Rather, as finalized, 

§ 1026.43(e)(3)(iii)(A) requires, as a 

condition of curing a points and fees 

overage, that the loan otherwise meets 

the criteria for a qualified mortgage in 

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

as applicable. 

Comments 

Industry commenters argued for 

removal of the ‘‘good faith’’ requirement 

for exercising a points and fees cure. 

These commenters argued that a good 

faith standard is too subjective and 

likely to create grounds for expensive 

litigation. They also stated it is 

unnecessary because of other limitations 

on the cure provision, among other 

reasons. 

First, industry commenters stated that 

the subjective nature of good faith 

would have the unintended 

consequence of limiting industry’s use 


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Federal Register / Vol. 79, No. 212 / Monday, November 3, 2014 / Rules and Regulations 65311 

of the points and fees cure. They noted 

that the good faith requirement cannot 

be satisfied by objectively reviewing a 

loan file post-consummation. One GSE 

commenter noted that the good faith 

requirement would require an assignee 

to maintain copies of the creditor’s 

business records, which may present 

evidentiary issues if introduced in court 

by an assignee in future litigation. 

Second, industry commenters argued 

that the good faith requirement could 

lead to expensive litigation. For 

example, one large industry trade 

association argued that, even if a 

creditor had acted in good faith, because 

good faith may be a jury question, it 

would be difficult to get claims 

dismissed. The commenter argued that 

the same is true with respect to the two 

examples of good faith in the proposed 

commentary. Whether a creditor had 

appropriate policies and procedures, or 

whether a loan was priced as a qualified 

mortgage, may be a jury question, thus 

prospective litigation costs (and other 

risks) would militate against reducing 

current buffers. 

Third, industry commenters argued 

that the good faith requirement is 

unnecessary to discourage bad behavior 

by a creditor. These commenters stated 

that assignees’ contractual remedies 

provide sufficient incentives for good 

behavior by creditors. They also argued 

that the good faith requirement is 

unnecessary in light of the cure 

provision’s other requirements, 

including that the loan otherwise 

comply with all applicable qualified 

mortgage provisions. These commenters 

also noted the availability of other 

methods of ensuring the cure provision 

is not abused, such as bringing actions 

for unfair or deceptive acts or practices. 

Fourth, industry commenters 

requested that, if the good faith 

requirement is retained, the 

commentary should provide more 

definitive statements as to what 

constitutes good faith. For example, one 

GSE commenter stated that avoiding 

subjective terms such as ‘‘consistent’’ or 

‘‘contemporaneously’’ would be useful. 

Similarly, one large bank trade 

association argued that stating that a 

particular factor ‘‘is’’ evidence of good 

faith rather than merely saying it ‘‘may 

be’’ evidence of good faith would 

provide greater clarity and certainty that 

the good faith standard was met. A GSE 

commenter also noted that it is unclear 

what percentage of loans originated by 

the creditor should be reviewed to 

determine consistency (i.e., whether 

review of all loans is required or 

whether some lower percentage is 

sufficient). Two State industry trade 

associations stated that the term 

‘‘contemporaneously’’ would not take 

into account the different types of loans 

and loan features that affect pricing 

more than proximity in time. 

The consumer group commenters who 

generally opposed a points and fees cure 

stated that if the final rule permits a 

cure it must require good faith both in 

the loan’s origination as a qualified 

mortgage and in exercising the cure 

itself. These commenters stated that, 

without a good faith requirement for the 

cure, creditors and assignees could 

selectively cure loans only when they 

feared a challenge to the creditor’s 

compliance with the ability-to-repay 

rule or when the creditor wanted to sell 

a loan on the secondary market. These 

commenters argued that the final rule 

should make clear that curing some 

loans selectively, or otherwise using the 

cure provision to cut off a consumer’s 

attempt to seek a remedy, indicates the 

mortgage holder is attempting to evade 

compliance, rather than making a good 

faith attempt to comply, with the 

qualified mortgage rule. 

Consumer group commenters also 

noted that allowing creditors to exercise 

the right to cure for loans that were not 

originated in good faith as qualified 

mortgages would defeat the consumer 

protection purpose of the ability-torepay rule. Several such commenters 

suggested that the magnitude of the 

points and fees error is relevant to 

determining whether the loan was 

originated in good faith as a qualified 

mortgage; the larger the amount of the 

overage, the less likely it is that the loan 

was originated in good faith as a 

qualified mortgage loan. Consumer 

group commenters were also concerned 

that, absent a good faith requirement, 

the cure would become a license for 

careless underwriting. 

Final Rule 

Section 1026.43(e)(3)(iii)(A) of the 

final rule provides that, as a condition 

of exercising the cure, the loan must 

meet the requirements of 

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

as applicable. The final rule does not 

expressly require that the loan was 

originated in good faith as a qualified 

mortgage. As noted above, the Bureau 

largely expects creditors and assignees 

to use the cure provision in cases of 

inadvertent errors in the origination 

process. In addition, the Bureau 

concludes that meeting the other 

requirements to be a qualified mortgage 

is a sufficient proxy for the loan being 

originated with the expectation of 

qualified mortgage status, and 

eliminating the good faith requirement 

provides a bright-line rule that gives 

certainty to creditors and assignees. The 

final rule contains additional 

mechanisms to prevent creditors from 

misusing the cure provision, such as 

cutting off the ability to cure before the 

consumer becomes seriously delinquent 

on payments; upon the institution of an 

action by the consumer related to the 

loan; or upon notice of the points and 

fees overage from the consumer. The 

Bureau is not finalizing comment 

43(e)(3)(iii)–1 as proposed, because it is 

not adopting the good faith requirement 

as part of the cure provision. 

As discussed, the Bureau intends the 

cure to provide certainty to the market 

until it has gained experience with the 

qualified mortgage rules and points and 

fees calculations in particular. Good 

faith—or its absence—may be clear in 

some situations, but in other situations 

it may only be determined based on an 

analysis of the facts and circumstances 

of the particular case. The Bureau 

recognizes that such case-by-case 

determinations would not provide the 

certainty that the cure provision is 

intended to provide. This uncertainty 

could deter creditors and assignees from 

relying on the cure provision and, 

instead, incentivize creditors to 

maintain current points and fees buffers. 

To the extent creditors do not rely on 

the cure provision, its intended purpose 

of increasing access to credit or 

decreasing the cost of credit would not 

be realized. Moreover, the Bureau 

expects that secondary market forces 

may impose many of the same restraints 

as the good faith requirement would 

have imposed. 

Consumer group commenters argued 

that, without the good faith 

requirement, the cure provision could 

lead to careless or willful preconsummation points and fees overages. 

However, the Bureau believes that if the 

loan must meet all other qualified 

mortgage requirements at 

consummation, the final rule should 

largely prevent creditors from engaging 

in careless calculations and limit use of 

the cure to loans that were originated 

with the expectation of qualified 

mortgage status. The Bureau further 

concludes that concerns about litigation 

risk, repurchase demands, and the 

administrative costs associated with 

curing points and fees overages will 

discourage creditors from conducting 

inaccurate pre-consummation 

calculations or intentionally exceeding 

the applicable points and fees limit for 

qualified mortgages. 

In addition, and as explained more 

fully below in the section-by-section 

analysis of § 1026.43(e)(3)(iii)(B), the 

Bureau is adopting other safeguards to 

ensure that creditors and assignees have 

the proper incentives not to engage in 


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17The general TILA section 130(b) cure provision 

applies to TILA violations. Given that TILA does 

not require all loans to be qualified mortgages, TILA 

section 130(b) is not directly applicable to the 

qualified mortgage points and fees limit. 

careless or willful pre-consummation 

overages. These safeguards include 

cutting off the right to cure when the 

consumer files a lawsuit in connection 

with the loan, when the consumer gives 

written notice of the points and fees 

overage, or when the consumer becomes 

60 days past due on the legal obligation. 

Additionally, the final rule requires that 

the cure payment to consumers include 

interest in addition to the overage 

amount, to guard against abuse of the 

cure provision. See the section-bysection analysis of § 1026.43(e)(iv). 

Finally, the Bureau notes that a repeated 

pattern of inappropriate underwriting 

could be viewed as a potential violation 

of other Federal consumer protection 

laws. The Bureau intends to monitor the 

use of the cure provision for potential 

abuses and will consider changes to the 

rule to prevent abuses, as appropriate. 

The Bureau considered but is not 

adopting an approach that takes into 

account the magnitude of the points and 

fees overage because the Bureau does 

not believe the magnitude of an overage 

alone indicates an intent to abuse the 

cure provision. Moreover, the Bureau 

believes creditors are sufficiently 

motivated to avoid large points and fees 

overages because they generally seek to 

avoid HOEPA’s 5 percent points and 

fees threshold. See § 1026.32(a)(1)(ii). 

As noted, this final rule contains more 

targeted safeguards to prevent abuse of 

the cure provision. 

The Bureau also considered 

comments from consumer groups who 

urged that the rule require the cure to 

be executed in good faith and who 

expressed concern that the cure 

provision could allow creditors and 

assignees to selectively cure overages 

only after problems develop with the 

loan. These comments are addressed in 

the section-by-section analysis of 

§ 1026.43(e)(3)(iii)(C), below. 

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

The Bureau’s Proposal 

As noted above, proposed 

§ 1026.43(e)(3)(iii)(B) would have 

required the creditor or assignee, within 

120 days after consummation, to refund 

the overage amount (i.e., the dollar 

amount by which the transaction’s 

points and fees at consummation 

exceeded the applicable limit under 

paragraph § 1026.43(e)(3)(i)) to effect a 

points and fees cure. The proposal 

solicited comment on whether the rule 

should provide a longer or shorter cure 

period and, if a longer period, whether 

additional cure limitations should apply 

beyond those in the proposal. For 

example, the Bureau solicited comment 

on whether a cure should be permitted 

where a consumer has already instituted 

an action or provided the creditor or 

assignee with written notice of the error. 

For the reasons discussed below, the 

Bureau is adopting § 1026.43(e)(3)(iii)(B) 

with modifications that extend the cure 

period to 210 days after consummation 

and automatically terminate the cure 

period upon certain events. 

Comments 

Although one large creditor and one 

trade association supported the 

proposed 120-day cure period, most 

industry commenters argued in favor of 

extending that period. Several trade 

associations recommended increasing 

the number of days after consummation, 

including one State trade association 

that favored a period up to one year 

after consummation. Most of those 

commenters supported a cure period of 

at least 180 days after consummation to 

allow many creditors to maintain 

existing systems for review. 

To supplement the proposed 120-day 

cure period, a large creditor, a GSE, and 

two trade associations recommended 

also permitting cure within a certain 

period (e.g., 60, 120, or 270 days) after 

the purchase of the loan on the 

secondary market. Those commenters 

generally argued that the proposed cure 

period is too short to allow assignees 

opportunities for loan compliance 

review; for example, the GSE 

commenter, which favored a period 

extending 270 days after loan purchase, 

stated that its average time between 

consummation and a completed loan 

review in 2013 was approximately nine 

months—and that this timeframe might 

increase due to additional testing 

related to the January 2013 and May 

2013 ATR Final Rules. 

Industry commenters also supported 

extending the cure period from the time 

the error is discovered. Two GSEs 

recommended 120 days after discovery, 

while three trade associations endorsed 

a cure period of 60 days after discovery, 

not to exceed one year from 

consummation. The GSEs noted that 

TILA section 130(b) and current 

§ 1026.31(h) of Regulation Z already 

have cure periods that extend from the 

time that an error is discovered. One of 

the GSEs also advocated allowing a loan 

to be cured so long as the creditor or 

assignee provides notice to the 

consumer within the cure period, with 

the actual cure payment coming within 

a reasonable time (e.g., 30 days) after 

that notice. One trade association 

suggested that, to encourage more cure 

payments to consumers, a cure should 

be permitted even if the overage is 

discovered after the standard cure 

period, so long as the consumer has not 

already instituted a legal action and the 

creditor or assignee makes a larger cure 

payment. 

Some commenters also suggested 

different forms of payment, which could 

have some implications for the timing of 

the cure payment. A GSE commenter 

advocated for having the cure payment 

made to the consumer through a check 

or an automated clearing house (ACH) 

transfer to the consumer’s checking or 

savings account. A regional trade 

association commenter urged that 

consumers and creditors should have an 

option to directly apply the cure 

payment to the relevant loan obligation. 

Consumer group commenters 

supported the proposal to limit the cure 

period to a fixed period after 

consummation. Those commenters 

favored the proposal over a time period 

based on discovery of the overage, citing 

drawn-out uncertainty and additional 

litigation that a discovery-based period 

would cause. The consumer group 

commenters stated that a cure period 

running from discovery of the error, 

rather than from consummation, would 

allow creditors or assignees to 

intentionally cure only loans in which 

problems have arisen by claiming that 

the overage had been discovered only 

then. 

Because the cure affords creditors and 

assignees qualified mortgage protection 

where there was a defect in the points 

and fees calculation at the time of 

consummation, consumer group 

commenters also stated that the cure 

period should automatically terminate 

upon certain events (‘‘cut-off events’’) to 

preserve consumers’ potential ability-torepay claims. These commenters noted 

that TILA’s cure provision has similar 

cut-off events.17 Consumer group 

commenters recommended that the cutoff events should include a consumer 

defaulting on the loan. The commenters 

viewed a default within the first few 

months after consummation as strong 

evidence that the loan may have 

violated ability-to-repay underwriting 

requirements. Consumer group 

commenters also advocated other cut-off 

events, broadly including various means 

for consumers to assert legal remedies 

regarding the loan, e.g., filing a lawsuit, 

exercising a right of rescission, and 

complaining to a regulator. Consumer 

group commenters specifically 

recommended that cut-off events 

include a consumer or regulator 

notifying a creditor or assignee of a 

points and fees error; the commenters 


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noted that, if a consumer or regulator 

discovers the error before the creditor or 

assignee cures, that is a possible 

indication that the creditor or assignee 

lacks robust loan review procedures or 

is attempting to exploit the cure 

provision in bad faith. 

The Bureau also received some 

comments from industry groups 

regarding cut-off events. A GSE 

commenter argued that, for consumers 

struggling to make payments on their 

loans, cut-off events may deprive them 

of an opportunity to review their loans 

for points and fees overages and 

potentially receive a cure payment that 

could assist them in making loan 

payments. A trade association argued 

that cutting off the cure upon the 

consumer’s notice of a points and fees 

error would encourage every consumer 

to send such notices automatically for 

every loan to strengthen their litigation 

claims. 

Final Rule 

The Bureau is adopting 

§ 1026.43(e)(3)(iii)(B) with 

modifications extending the cure period 

to 210 days after consummation and 

automatically terminating the cure 

period upon certain enumerated events. 

As finalized, § 1026.43(e)(3)(iii)(B) 

provides that the cure is only available 

if the creditor or assignee makes the 

cure payment described in 

§ 1026.43(e)(3)(iv) to the consumer 

within 210 days after consummation 

and prior to the occurrence of any of the 

following events: (1) The consumer’s 

institution of an action in connection 

with the loan; (2) the creditor, assignee, 

or servicer receiving the consumer’s 

written notice that the transaction’s total 

points and fees exceed the applicable 

limit under § 1026.43(e)(3)(i); or (3) the 

consumer becoming 60 days past due on 

the legal obligation. The cure payment 

amount under the final rule is discussed 

below in the section-by-section analysis 

of § 1026.43(e)(3)(iv). 

The Bureau concludes that limiting 

the cure to a short and specific period 

after consummation, and automatically 

terminating that cure period upon 

certain events, will provide certainty to 

the market and increase access to credit, 

while also curbing the potential for 

abuses of the cure provision. For 

example, the limited cure period will 

discourage creditors from intentionally 

or recklessly originating loans with high 

points and fees and then waiting as long 

as possible to see if certain loans 

become riskier—with the expectation 

that, if they do, the creditor will use the 

cure provision selectively to help avoid 

legal liability on those loans. With a 

limited cure period, such a scenario 

becomes riskier and less attractive to 

creditors. At the same time, the Bureau 

recognizes that, if the cure period is too 

limited, creditors and assignees will be 

deterred from relying on the cure 

provision in lieu of maintaining current 

buffers near the qualified mortgage 

points and fees limits, which would 

hinder the intended effect of increasing 

access to affordable credit. 

The Bureau concludes that a cure 

period limited to 210 days after 

consummation will address the 

concerns of many industry commenters. 

Prior to the proposal, the Bureau’s 

initial outreach to industry stakeholders 

suggested that a 120-day period after 

consummation would be consistent 

with industry’s existing systems for 

quality control review. However, as 

discussed above, most industry 

commenters that suggested a specific 

cure time period stated that 180 days 

after consummation would be more 

consistent with current practices for 

post-consummation review. It is not 

clear whether all such commenters 

considered the administrative time 

required to process a cure payment once 

a points and fees overage has been 

identified, or whether those commenters 

were instead focused solely on current 

timelines for completing postconsummation loan audits. One GSE 

commenter suggested that 30 days is a 

reasonable amount of time for creditors 

or assignees to process and execute a 

cure payment to the consumer. 

The Bureau is finalizing a cure period 

of 210 days after consummation, which 

generally provides 180 days for postconsummation points and fees reviews 

and an additional 30 days to process 

and provide cure payments to 

consumers. The Bureau is not adopting 

a cure period that could extend beyond 

210 days after consummation because, 

as explained above, an extended cure 

period would increase the potential for 

abusing the cure. Moreover, a cure 

period running from a loan’s purchase 

or an overage’s discovery would provide 

less encouragement for rigorous and 

prompt loan review and would likely 

delay cure payments to consumers. 

The Bureau is also adopting new 

comment 43(e)(3)(iii)–1 to provide 

additional clarification regarding the 

210-day cure period. The comment 

provides that the creditor or assignee, as 

applicable, complies with 

§ 1026.43(e)(3)(iii)(B) if it makes the 

cure payment described in 

§ 1026.43(e)(3)(iv) to the consumer 

within 210 days after consummation 

and prior to the occurrence of any of the 

cut-off events described in 

§ 1026.43(e)(3)(iii)(B)(1) through (3). A 

creditor or assignee, as applicable, does 

not comply with § 1026.43(e)(3)(iii)(B) if 

the cure payment is made to the 

consumer more than 210 days after 

consummation or after the occurrence of 

any of the events in 

§ 1026.43(e)(3)(iii)(B)(1) through (3). In 

response to public comments suggesting 

different forms of payment, comment 

43(e)(3)(iii)–1 also provides that the 

cure payment may be made by any 

means mutually agreeable to the 

consumer and the creditor or assignee, 

as applicable, or by check. This 

provision in comment 43(e)(3)(iii)–1 

clarifies that the consumer and creditor 

or assignee (as applicable) may agree to 

any method of making the cure payment 

to the consumer. For example, as 

discussed below in the section-bysection analysis of § 1026.43(e)(3)(iv), 

the consumer and the creditor or 

assignee may agree to apply the cure 

payment towards the loan’s unpaid 

principal balance. This provision in 

comment 43(e)(3)(iii)–1 also clarifies 

that the creditor or assignee (as 

applicable) may make the cure payment 

to the consumer by check without the 

agreement of the consumer. As such, 

comment 43(e)(3)(iii)–1 further provides 

that, if the cure payment is made by 

check, the creditor or assignee complies 

with § 1026.43(e)(3)(iii)(B) if the check 

is delivered or placed in the mail to the 

consumer within 210 days after 

consummation. 

The Bureau further concludes that the 

cure period should terminate 

automatically upon certain enumerated 

cut-off events, particularly given the 

expanded cure period provided in the 

final rule. Specifically, those cut-off 

events are: (1) The consumer’s 

institution of any action in connection 

with the loan; (2) the creditor, assignee, 

or servicer receiving the consumer’s 

written notice that the transaction’s total 

points and fees exceed the applicable 

limit under § 1026.43(e)(3)(i); or (3) the 

consumer becoming 60 days past due on 

the terms of the legal obligation. As 

discussed below, the Bureau concludes 

that these limitations will help protect 

consumers, curb potential abuse of the 

cure provision, and incentivize the 

creditor or assignee to detect and make 

cure payments as early as possible. At 

the same time, the Bureau expects that 

the enumerated cut-off events will not 

substantially hinder the cure provision’s 

intended effect of increasing access to 

affordable credit. The Bureau 

anticipates that the cut-off events will 

occur relatively infrequently and should 

not unduly deter creditors and assignees 

from relying on the cure provision. 

Institution of any action. The Bureau 

concludes that creditors and assignees 

should not be permitted to cure defects 


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65314 Federal Register / Vol. 79, No. 212 / Monday, November 3, 2014 / Rules and Regulations 

18While the institution of any action by the 

consumer in connection with the loan will cut off 

the ability to cure a points and fees overage and 

thus prevents the loan from being a qualified 

mortgage, nothing in this rule precludes the 

negotiated settlement of claims otherwise permitted 

by law. 

19As noted above, nothing in this rule precludes 

the negotiated settlement of claims otherwise 

permitted by law. See supra note 18. 

20See, e.g., Freddie Mac, January 2014 U.S. 

Economic & Housing Market Outlook —Taking the 

Temperature of the Markets 1 (Jan. 16, 2014), 

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

pdf/Jan_2014_public_outlook.pdf; Fannie Mae, 

Monthly Summary 4 tbl. 9 (June 2014), available at 

http://www.fanniemae.com/resources/file/ir/pdf/

monthly-summary/063014.pdf. 

in points and fees calculations after the 

consumer’s institution of a legal action 

in connection with the loan. The Bureau 

is concerned that allowing a points and 

fees cure after the action is instituted 

would permit creditors and assignees to 

misuse the cure provision. The Bureau 

concludes that cut-off events should not 

be limited to actions related to the 

ability-to-repay rules. Any litigation by 

the consumer so early in the loan’s term 

is a signal of potential problems and 

suggests that the consumer likely values 

the right to litigate more than the 

limited cure payment, regardless of 

whether the claim is based specifically 

on the ability-to-repay rules or sounds 

in another legal theory. Moreover, 

consumers in litigation are wellpositioned to negotiate compensation in 

settlement of the litigation, and so are 

unlikely to be harmed by cutting off the 

cure.18 Accordingly, 

§ 1026.43(e)(3)(iii)(B)(1) cuts off the 

ability to cure upon the consumer’s 

institution of any action in connection 

with the loan. 

The Bureau declines to cut off the 

ability to cure upon a regulator’s 

institution of an action in connection 

with the loan. While such an action so 

early in the loan’s term may also be a 

signal of potential problems with the 

loan, a regulator instituting an action 

does not indicate whether an individual 

consumer values a potential litigation 

claim more than the limited cure 

payment. Legal action by a regulator 

may be connected to a vast number of 

loans for which the regulator is unable 

to determine whether each consumer 

would prefer to receive a cure payment. 

Written notice of overage. The Bureau 

also concludes that creditors and 

assignees should not be permitted to 

cure defects in points and fees 

calculations after a consumer provides 

notice of a points and fees overage to the 

creditor, assignee, or servicer. The 

Bureau is concerned that cutting off the 

cure period only when a consumer files 

legal action would encourage disputes 

to be taken to court prematurely. Such 

an approach would be inefficient and 

would increase costs for both consumers 

and creditors. 

Unlike the cut-off event related to the 

institution of legal action described 

above, the notice cut-off event is 

triggered only where the consumer 

specifically gives notice that points and 

fees exceed the applicable limit, and not 

by notice of any defect with the loan 

more generally. The Bureau concludes 

this approach is appropriate to prevent 

consumers from inadvertently cutting 

off the ability to cure (and therefore 

potentially forfeiting cure payments) 

and also to provide a bright-line rule. 

The Bureau assumes that most 

consumers who have identified points 

and fees overages and are concerned 

about preserving their ability-to-repay 

litigation rights will be represented by 

counsel and will be able to make tactical 

decisions about forgoing a cure payment 

to strengthen their ability-to-repay 

claims.19 These consumers may prefer 

to delay litigation if, for example, they 

are seeking a loan modification and are 

unsure if legal action will ultimately be 

necessary or if they believe additional 

investigation is necessary before 

bringing suit. Accordingly, 

§ 1026.43(e)(3)(iii)(B)(2) cuts off the 

ability to cure upon the creditor, 

assignee, or servicer receiving written 

notice from the consumer that the 

transaction’s total points and fees 

exceed the applicable limit under 

§ 1026.43(e)(3)(i). Given that many 

consumers communicate with their 

servicers regarding their loans, 

§ 1026.43(e)(3)(iii)(B)(2) specifically 

provides that notice of an overage to the 

servicer, in addition to the creditor and 

assignee, cuts off the ability to cure. For 

the reasons discussed above regarding 

cutting off the cure upon initiation of an 

action, the Bureau also concludes that 

notice of a points and fees overage from 

a regulator (rather than the consumer) 

should not cut off the cure period. 

A trade association commenter argued 

that a cut-off event based on an overage 

notice would incentivize all consumers 

to send such overage notices for every 

loan. The Bureau notes, however, that 

the notice cut-off event in the final rule 

is a concept similar to that in TILA 

section 130(b), and the Bureau is 

unaware of evidence that TILA section 

130(b) has led to significant problems. 

60 days past due. The Bureau 

concludes that consumers who are 60 

days behind on their loans should 

generally be able to preserve potential 

ability-to-repay claims. Consumer group 

commenters broadly recommended that 

a consumer’s default should cut off the 

cure period, but they did not elaborate 

on the types of default or periods of 

delinquency. The Bureau believes that, 

if cut-off events are too broad, creditors 

and assignees will be deterred from 

relying on the cure provision in lieu of 

maintaining current buffers near the 

qualified mortgage points and fees 

limits. The Bureau concludes that 

including any and all consumer defaults 

as cut-off events does not strike an 

appropriate balance between promoting 

affordable credit with the cure and 

protecting litigation rights for 

consumers most likely to benefit from 

them. 

A widely-used threshold for defining 

‘‘serious’’ delinquencies is 90 days.20

The Bureau believes that a loan 

becoming seriously delinquent within 

the first 210 days after consummation 

raises concerns that the loan violates 

ability-to-repay requirements. See, e.g., 

comment 43(c)(1)–1.ii.B.1 (‘‘the 

consumer’s default on the loan a short 

time after consummation’’ may be 

evidence that a creditor’s ability-torepay determination was not reasonable 

or in good faith). For this reason, the 

cure is not permitted for seriously 

delinquent loans. Further, the Bureau is 

concerned that permitting cure of a 

points and fees overage when a loan is 

already near the point of serious 

delinquency could incentivize abuse of 

the cure provision. Therefore, 

§ 1026.43(e)(iii)(3)(B)(3) cuts off the 

ability to cure upon a payment 

becoming 60 days past due. 

The Bureau is also adopting new 

comment 43(e)(3)(iii)–2 to provide 

additional clarification regarding the 60 

days past due threshold. The comment 

provides that, for purposes of 

§ 1026.43(e)(3)(iii)(B)(3), ‘‘past due’’ 

means the failure to make a periodic 

payment (in one full payment or in two 

or more partial payments) sufficient to 

cover principal, interest, and, if 

applicable, escrow under the terms of 

the legal obligation. Other amounts, 

such as any late fees, are not considered 

for this purpose. For purposes of 

§ 1026.43(e)(3)(iii)(B)(3), a periodic 

payment is 30 days past due when it is 

not paid on or before the due date of the 

following scheduled periodic payment 

and is 60 days past due when, after 

already becoming 30 days past due, it is 

not paid on or before the due date of the 

next scheduled periodic payment. For 

purposes of § 1026.43(e)(3)(iii)(B)(3), the 

creditor or assignee may treat a received 

payment as applying to the oldest 

outstanding periodic payment. 

The commentary provides an example 

to illustrate the meaning of 60 days past 

due for purposes of 


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21See, e.g., Fannie Mae, Security Instruments, 

https://www.fanniemae.com/singlefamily/securityinstruments (last visited October 15, 2014) (security 

instruments for various states but with a uniform 

covenant that payments shall be applied to each 

periodic payment in the order in which it became 

due, such as Fannie Mae & Freddie Mac, California 

Single Family Uniform Instrument 4, available at 

https://www.fanniemae.com/content/legal_form/

3005w.doc; Fannie Mae & Freddie Mac, New York 

Single Family Uniform Instrument 5, available at 

https://www.fanniemae.com/content/legal_form/

3033w.doc). 

§ 1026.43(e)(3)(iii)(B)(3). The example 

assumes a loan is consummated on 

October 15, 2015, that the consumer’s 

periodic payment is due on the 1st of 

each month, and that the consumer 

timely made the first periodic payment 

due on December 1, 2015. For purposes 

of § 1026.43(e)(3)(iii)(B)(3), the 

consumer is 30 days past due if the 

consumer fails to make a payment 

(sufficient to cover the scheduled 

January 1, 2016 periodic payment of 

principal, interest, and, if applicable, 

escrow) on or before February 1, 2016. 

For purposes of § 1026.43(e)(3)(iii)(B)(3), 

the consumer is 60 days past due if the 

consumer then also fails to make a 

payment (sufficient to cover the 

scheduled January 1, 2016 periodic 

payment of principal, interest, and, if 

applicable, escrow) on or before March 

1, 2016. For purposes of 

§ 1026.43(e)(3)(iii)(B)(3), the consumer 

is not 60 days past due if the consumer 

makes a payment (sufficient to cover the 

scheduled January 1, 2016 periodic 

payment of principal, interest, and, if 

applicable, escrow) on or before March 

1, 2016. This is consistent with the 

general industry accounting practice of 

crediting a received payment by 

applying it to the oldest outstanding 

periodic payment.21

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

The Bureau’s Proposal 

Proposed § 1026.43(e)(3)(iii)(C) and 

proposed comment 43(e)(3)(iii)–2 would 

have provided that, as a condition of 

curing a points and fees overage, the 

creditor or assignee must maintain and 

follow policies and procedures for postconsummation review of loans and for 

refunding to consumers amounts that 

exceed the applicable limit under 

§ 1026.43(e)(3)(i). 

For the reasons set forth below, the 

Bureau is finalizing 

§ 1026.43(e)(3)(iii)(C), with certain 

clarifying changes. The Bureau is not 

finalizing the substance of proposed 

comment 43(e)(3)(iii)–2 but is finalizing 

new comment 43(e)(3)(iii)–3 to provide 

additional guidance on the postconsummation policies and procedures 

requirement in § 1026.43(e)(3)(iii)(C). 

Comments 

A State industry trade association and 

a nonprofit organization supported the 

post-consummation policies and 

procedures requirement as appropriate. 

However, several industry commenters 

expressed doubts about the requirement. 

Some industry commenters were not 

certain of the scope of the proposed 

requirement. For example, one national 

industry association asked whether a 

post-consummation review of all loans 

was required and noted that the cost of 

such a requirement would be 

prohibitive. A large creditor noted that 

the proposed cure period of 120 days 

would not provide sufficient time for 

post-consummation reviews of a 

significant number of loans. 

Other industry commenters, including 

a large creditor and an association of 

large creditors, argued that the postconsummation policies and procedures 

requirement introduced a subjective 

element into the cure procedure and 

that the resulting uncertainty would 

make the cure provision less usable by 

creditors. A GSE commenter stated that, 

in addition to being subjective, the 

requirement is not necessary. This 

commenter argued that the mere 

existence of a limited cure period would 

provide a powerful incentive for 

creditors to maintain and follow postconsummation review policies and 

procedures. 

While consumer group commenters 

generally did not focus on the postconsummation policies and procedures 

requirement, they addressed related 

issues by insisting that the cure itself 

must be made in good faith. As noted in 

the section-by-section analysis of 

§ 1026.43(e)(3)(iii)(A), above, these 

commenters stated that, without a good 

faith requirement for the cure, creditors 

and assignees could selectively cure 

loans only when they feared a challenge 

to the creditor’s compliance with the 

ability-to-repay rule or when the 

creditor wanted to sell a loan on the 

secondary market. These commenters 

argued that the final rule should make 

clear that curing some loans selectively 

indicates the mortgage holder is 

attempting to exploit the cure in bad 

faith rather than making a good faith 

attempt to comply with the ability-torepay rule. 

Final Rule 

The Bureau is finalizing 

§ 1026.43(e)(3)(iii)(C) generally as 

proposed, but with changes to provide 

greater clarity in response to issues 

raised by commenters and for 

consistency with other provisions of 

this final rule. As finalized, 

§ 1026.43(e)(3)(iii)(C) provides that, as a 

condition of the cure, the creditor or 

assignee, as applicable, must maintain 

and follow policies and procedures for 

post-consummation review of points 

and fees and for making cure payments 

to consumers in accordance with 

§ 1026.43(e)(3)(iii)(B) and (iv). The final 

commentary has been modified from the 

proposal to reflect and provide guidance 

on the final rule. 

Final § 1026.43(e)(3)(iii)(C) differs 

from the proposal in two ways. First, the 

final rule requires policies and 

procedures ‘‘for post-consummation 

review of points and fees’’ instead of 

‘‘post-consummation review of loans.’’ 

The final rule makes clear that, for 

purposes of exercising the cure, the 

required post-consummation review 

may focus only on points and fees and 

is not required to be a full loan review. 

Second, final § 1026.43(e)(3)(iii)(C) 

refers to policies and procedures for 

‘‘making payments to consumers in 

accordance with [§ 1026.43(e)(3)(iii)(B) 

and (e)(3)(iv)]’’ rather than ‘‘refunding to 

consumers amounts that exceed the 

applicable limit under 

[§ 1026.43(e)(3)(i)],’’ for consistency 

with the expanded cure payment 

described below in the section-bysection analysis of § 1026.43(e)(iv). 

To address further some of the 

concerns on which the comments 

requested clarification, comment 

43(e)(3)(iii)–3 provides that the policies 

and procedures described in 

§ 1026.43(e)(3)(iii)(C) need not require 

post-consummation review of all loans 

originated by the creditor or acquired by 

the assignee, as applicable, nor must 

such policies and procedures require a 

creditor or assignee to apply 

§ 1026.43(e)(3)(iii) and (iv) for all loans 

that are found to exceed the applicable 

points and fees limit. The Bureau did 

not intend the post-consummation 

review requirement, as proposed, to 

require review of all loans, and the 

Bureau is making these clarifying 

changes to address concerns raised by 

commenters. As noted by industry 

commenters, a rule that requires review 

of all loans within a short time after 

consummation could be impracticable. 

Similarly, the Bureau did not intend 

proposed § 1026.43(e)(3)(iii)(C) to 

require the creditor or assignee to make 

cure payments for all loans that are 

found to exceed the applicable points 

and fees limit. 

The Bureau has considered 

commenters’ concerns that the policies 

and procedures requirement is 

subjective and unnecessary or that the 

rule must require that the cure be 

exercised in good faith. The final rule 

includes clarifying changes to 


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§ 1026.43(e)(3)(iii)(C) and the addition 

of comment 43(e)(3)(iii)–3. The Bureau, 

however, does not believe that the 

requirement for policies and procedures 

is unnecessary or that the rule should 

explicitly require that the cure itself be 

made in good faith. Rather, the Bureau 

believes that the post-consummation 

policies and procedures requirement 

will serve a purpose similar to a good 

faith requirement while maintaining 

more of a ‘‘bright-line’’ focus, will help 

deter abusive practices by creditors, and 

will better allow regulators to monitor 

the use of the cure. 

43(e)(3)(iv) 

The Bureau’s Proposal 

Proposed § 1026.43(e)(3)(iii)(B) would 

have required the creditor or assignee to 

refund only the overage amount, i.e., the 

dollar amount by which the 

transaction’s points and fees exceeded 

the applicable limit under 

§ 1026.43(e)(3)(i). The proposal solicited 

comment on whether other forms of 

cure compensation may be appropriate. 

For the reasons discussed below, the 

Bureau is adopting the cure payment 

provision in proposed 

§ 1026.43(e)(3)(iii)(B) in new 

§ 1026.43(e)(3)(iv), with modifications 

to require payment of interest from the 

time of consummation to the time of 

cure and to clarify that a cure payment 

in an amount greater than required also 

satisfies the cure’s requirements. 

Comments 

Several creditors and industry trade 

associations stated that the cure 

provision should not require any cure 

payment beyond a refund of the overage 

amount. On the other hand, consumer 

groups generally commented that the 

cure provision should avoid unjustly 

enriching creditors or assignees and 

address all negative consequences to 

consumers such that consumers are 

made entirely whole. 

A GSE commenter noted that 

requiring interest as an additional 

component of the cure payment would 

be an incentive to the creditor or 

assignee to detect and cure any overage 

as early as possible. The GSE also noted 

that including interest in the cure 

payment would come closer to making 

consumers whole. 

Some commenters stated that 

creditors should be required to 

restructure loans if consumers financed 

their points and fees. Consumer group 

commenters expressed concern that, 

where consumers used loan proceeds to 

pay for points and fees overages, absent 

the overages those consumers might 

have borrowed smaller loan amounts 

with smaller monthly payments. Thus, 

consumer group commenters 

recommended that the cure provision 

require the creditor or assignee to apply 

the cure payment to the loan balance 

and to restructure the loan’s payments 

and amortization schedule accordingly. 

Alternatively, one consumer group 

commenter urged a bright-line rule that 

would permit a cure only where the 

overage was not paid using loan 

proceeds and did not otherwise affect 

the terms of the loan contract. 

Consumer group commenters, as well 

as an association of State regulators, 

were also concerned with overage 

situations where consumers paid 

discount points that did not reduce their 

interest rates as promised. In such 

circumstances, consumer group 

commenters stated that consumers 

should have a choice of cure 

compensation, including restructuring 

one or more loan contract terms (e.g., 

interest rate, payment amortization 

schedule), in lieu of the present value of 

the discount point discrepancy. 

In contrast, several creditors and 

industry trade associations noted that a 

loan restructuring would be unduly 

complex and disruptive to the loan 

securitization process. A large creditor 

argued that a loan restructuring is 

unnecessary because the consumer may 

opt to make a prepayment with the cure 

payment to reduce the loan balance. 

That commenter further noted that the 

net present value of cash in the hands 

of the borrower may potentially 

outweigh future loan payments. 

To clarify a potential ambiguity about 

whether the cure payment must be the 

exact amount of the overage, a GSE 

commenter recommended that the 

Bureau explicitly state that the cure 

provision allows the creditor or assignee 

to provide cure payments that are 

greater than the amount required by the 

rule. Regarding another potential 

ambiguity, a mortgage company 

commenter sought guidance as to what 

impacts, if any, this cure provision and 

the RESPA settlement charges cure 

provision have on one another. 

Final Rule 

The Bureau is adopting the cure 

payment provision in proposed 

§ 1026.43(e)(3)(iii)(B) in new 

§ 1026.43(e)(3)(iv), with modifications 

to require payment of interest on the 

points and fees overage amount from the 

time of consummation to the time of 

cure. The final rule also clarifies that a 

cure payment in an amount greater than 

required also satisfies the cure’s 

requirements. Specifically, 

§ 1026.43(e)(3)(iv) provides that, for 

purposes of § 1026.43(e)(3)(iii)(B), the 

creditor or assignee must make a cure 

payment in an amount that is not less 

than the sum of the following: (1) The 

dollar amount by which the 

transaction’s total points and fees 

exceeds the applicable limit under 

§ 1026.43(e)(3)(i); and (2) interest on the 

dollar amount described in 

§ 1026.43(e)(3)(iv)(A), calculated using 

the contract interest rate applicable 

during the period from consummation 

until the cure payment is made to the 

consumer. 

The Bureau concludes that requiring 

interest on the overage amount as part 

of the cure payment will be an incentive 

to creditors and assignees to detect and 

cure overages as early as possible and 

that such a requirement will go towards 

making consumers whole. The interest 

will compensate consumers for their 

inability to use (e.g., make loan 

payments with) the overage funds until 

the time of cure. Thus, the Bureau is 

requiring that interest be calculated at 

the contract rate. 

Loan restructuring. For purposes of 

this cure provision, the Bureau is not 

requiring loan restructuring. First, it is 

speculative to assume that, but for a 

points and fees overage, consumers 

might have borrowed a smaller overall 

loan amount. In many cases it is also 

possible that, without the overage, 

consumers would have opted to make a 

smaller down-payment while borrowing 

the same loan amount or simply would 

have paid less in upfront costs. 

Moreover, often only some of the total 

points and fees will be financed while 

some will be paid without using loan 

proceeds. In such situations it will be 

unclear whether or not an overage 

should be treated as having inflated the 

loan amount. 

Second, the Bureau concludes that, 

even without a loan restructuring, the 

consumer will not be forced to pay more 

interest over the life of the loan. 

Although the Bureau recognizes that 

restructuring the loan payment 

amortization schedule would give the 

consumer a lower monthly interest 

payment, the consumer may opt to make 

a prepayment with the cure payment to 

reduce the loan balance and thereby 

reduce overall interest payments by 

paying off the loan faster. The Bureau 

concludes that the overall financial 

impact on the consumer is the same 

under either approach. Final comment 

43(e)(3)(iii)–1 states that the cure 

payment may be delivered to the 

consumer ‘‘by any means mutually 

agreeable to the consumer and the 

creditor or assignee,’’ which means that 

the consumer and the creditor or 

assignee may agree to apply the cure 

payment towards the loan’s unpaid 


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22Section 1026.43(g)(2) limits prepayment 

penalties within a loan’s first two years to no more 

than 2 percent of the amount prepaid. 

23While this § 1026.43 cure provision does not 

require a cure payment beyond the points and fees 

overage plus interest, nothing in this rule should be 

read to limit the restitution that may be required for 

violations of other sections of Regulation Z or other 

applicable law. 

24Likewise, for the Regulation X tolerance cure to 

be effective, it must be accomplished in accordance 

with the applicable Regulation X timing 

requirements. 

principal balance (with or without 

reamortization) or the consumer may 

simply opt to make a prepayment once 

the cure payment is received from the 

creditor or assignee. 

Third, a loan restructuring would be 

disruptive to the loan securitization 

process, making the cure less 

practicable and thus potentially 

harming consumers’ access to affordable 

credit. 

Prepayment penalties. For purposes 

of this cure provision, the Bureau also 

is not requiring that the cure payment 

include any prepayment penalty 

associated with applying the cure 

payment towards the loan balance. 

Section 1026.32(b)(1)(v) already 

includes the ‘‘maximum prepayment 

penalty’’ as part of the definition of 

‘‘points and fees.’’ 22 The Bureau 

concludes that including such amounts 

in the cure payment would be 

impractical because creditors and 

assignees may not know until after the 

cure payment is provided to the 

consumer whether the consumer will 

apply the cure payment towards the 

unpaid principal balance. As a practical 

matter, the Bureau believes that few 

creditors will impose such prepayment 

penalties, particularly since such 

penalties would be counted towards the 

points and fees limit. 

Other costs. The final rule does not 

require a cure payment for other costs 

(beyond the points and fees overage 

plus interest) because the Bureau 

believes that such a requirement would 

hinder the cure provision’s intended 

effect of increasing access to affordable 

credit. The Bureau believes that 

attributing other costs (such as mortgage 

insurance premiums) to an overage is 

speculative and is inconsistent with the 

bright-line nature of qualified 

mortgages. The Bureau recognizes that 

the final rule will not make consumers 

entirely whole in every circumstance 

but concludes that requiring and 

specifying how cure payments must be 

made for other costs would, on balance, 

encourage creditors to retain points and 

fees buffers and thus reduce access to 

credit. 

For example, the cure provision does 

not require a cure payment for mortgage 

insurance costs paid by the consumer 

that arguably were increased as a result 

of a points and fees overage. The Bureau 

understands that mortgage insurance 

premiums are typically calculated as a 

percentage of the loan amount—and that 

percentage itself typically varies based 

on loan-to-value (LTV) ratios, such that 

some loan size increases could move a 

consumer from a lower-cost rate tier to 

a higher one. Assuming that creditors or 

assignees, at the time of cure, are aware 

of the various tiers of mortgage 

insurance rates in effect at 

consummation, the Bureau considered 

whether cure payments for points and 

fees overages should include the present 

value of the portion of previously-paid 

and future mortgage insurance 

payments that could be attributed to the 

overages (assuming that consumers 

would have had smaller loan amounts 

but for the points and fees overages). 

As noted above, for purposes of the 

points and fees cure provision, the final 

rule does not assume that consumers 

would have had a smaller loan amount 

but for a points and fees overage. In 

many if not all cases it is uncertain 

whether, but for the overage, the 

consumer would have opted to make a 

smaller down-payment while borrowing 

the same loan amount. Moreover, in 

many cases only some of the total points 

and fees will be financed while some 

will be paid without using loan 

proceeds. In such situations it will be 

unclear whether an overage should be 

treated as having increased the loan 

amount. 

In the final rule, the Bureau is also 

balancing the additional complexity of 

determining all potential costs that 

might have been caused by a points and 

fees overage against the expectation that 

most consumers will have already 

received pricing benefits associated 

with qualified mortgages (as the creditor 

likely expected the loan to be a qualified 

mortgage). By not requiring cure 

payments for mortgage insurance or 

other costs that vary based on loan size, 

the cure provision will be less 

complicated, less risky, and otherwise 

less costly for creditors and assignees to 

use, which will encourage more easing 

of points and fees buffers by creditors, 

with attendant increases to credit access 

and lower credit costs for consumers.23

The final rule also helps avoid 

disincentives for creditors to ease points 

and fees buffers on loans with mortgage 

insurance—loans that are essential for 

many consumers with otherwise limited 

access to credit. 

Discount points. The Bureau 

acknowledges commenter concerns 

about abuses surrounding the payment 

of ‘‘discount points’’ that did not reduce 

the consumer’s interest rate as 

promised, as occurred during the period 

leading up to the financial crisis. 

Nothing in the final rule specifically 

addresses that practice. The Bureau 

believes that such a practice raises 

broader legal issues, including fraud 

and deception, which are beyond the 

scope of this specific cure provision. 

Further, the Bureau believes that 

payment of ‘‘discount points’’ that do 

not reduce the consumer’s interest rate 

as promised would raise compliance 

issues regardless of whether the 

applicable points and fees limit was 

exceeded. The Bureau will monitor the 

market for potential abuses, in 

particular those involving the payment 

of discount points that do not actually 

reduce the consumer’s interest rate as 

promised, and will consider 

adjustments to the rule or other actions, 

if appropriate. 

Relationship to RESPA tolerance cure. 

Under Regulation X § 1024.7(i), if any 

charges at settlement exceed the charges 

listed on the good faith estimate of 

settlement costs by more than the 

amounts permitted under § 1024.7(e), 

the loan originator may cure the 

tolerance violation by reimbursing the 

amount by which the tolerance was 

exceeded at settlement or within 30 

calendar days after settlement. Some 

settlement charges that could give rise 

to tolerance violations under Regulation 

X may also be points and fees as defined 

in § 1026.32(b)(1) of Regulation Z. To 

clarify the relationship between the 

Regulation X tolerance cure provision 

and the points and fees cure, comment 

43(e)(3)(iv)–2 states that the amount 

paid to the consumer pursuant to 

§ 1026.43(e)(3)(iv) may be offset by the 

amount paid to the consumer pursuant 

to 12 CFR 1024.7(i), to the extent that 

the amount paid to the consumer 

pursuant to 12 CFR 1024.7(i) is being 

applied to fees or charges included in 

points and fees pursuant to 

§ 1026.32(b)(1). However, a creditor or 

assignee has not satisfied 

§ 1026.43(e)(3)(iii) unless the total 

amount described in § 1026.43(e)(3)(iv), 

including any offset due to a payment 

made pursuant to 12 CFR 1024.7(i), is 

paid to the consumer within 210 days 

after consummation and prior to the 

occurrence of any of the events in 

§ 1026.43(e)(3)(iii)(B)(1) through (3).24

As previously noted, the 2013 TILA– 

RESPA Final Rule will take effect on 

August 1, 2015. Among other things, the 

2013 TILA–RESPA Final Rule 

implements in new § 1026.19(f)(2)(v) a 

tolerance cure provision similar to 


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25Specifically, section 1022(b)(2)(A) of the DoddFrank Act calls for the Bureau to consider the 

potential benefits and costs of a regulation to 

consumers and covered persons, including the 

potential reduction of access by consumers to 

consumer financial products or services; the impact 

on depository institutions and credit unions with 

$10 billion or less in total assets as described in 

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

on consumers in rural areas. 

current Regulation X § 1024.7(i) that 

will apply, in place of Regulation X 

§ 1024.7(i), to transactions covered by 

the 2013 TILA–RESPA Final Rule. 

Accordingly, on August 1, 2015, 

comment 43(e)(3)(iv)–2, described 

above, will be replaced by a new 

comment 43(e)(3)(iv)–2. That comment 

will provide that the amount paid to the 

consumer pursuant to § 1026.43(e)(3)(iv) 

may be offset by the amount paid to the 

consumer pursuant to 12 CFR 1024.7(i) 

or § 1026.19(f)(2)(v), to the extent that 

the amount paid pursuant to 12 CFR 

1024.7(i) or § 1026.19(f)(2)(v) is being 

applied to fees or charges included in 

points and fees pursuant to 

§ 1026.32(b)(1). However, a creditor or 

assignee has not satisfied 

§ 1026.43(e)(3)(iii) unless the total 

amount described in § 1026.43(e)(3)(iv), 

including any offset due to a payment 

made pursuant to 12 CFR 1024.7(i) or 

§ 1026.19(f)(2)(v), is paid to the 

consumer within 210 days after 

consummation and prior to the 

occurrence of any of the events in 

§ 1026.43(e)(3)(iii)(B)(1) through (3). 

VI. Effective Dates 

The final rule is effective on 

November 3, 2014, except amendatory 

instruction 5, which is effective August 

1, 2015 (for consistency with the 2013 

TILA–RESPA Final Rule). The 

amendments to § 1026.43 and 

commentary to § 1026.43 in Supplement 

I to part 1026, other than amendatory 

instruction 5, apply to transactions 

consummated on or after November 3, 

2014. 

The Bureau proposed an effective date 

of thirty days after publication of a final 

rule in the Federal Register. The 

proposed changes would have expanded 

exemptions and provided relief from 

regulatory requirements; therefore the 

Bureau believed an effective date of 30 

days after publication might be 

appropriate. The Bureau sought 

comment on whether the proposed 

effective date is appropriate, or whether 

the Bureau should adopt an alternative 

effective date. 

One commenter representing 

community banks generally supported 

the proposed effective date. One 

mortgage company commenter 

requested clarification as to whether the 

rule would apply to new applications or 

loans consummated after the effective 

date. One trade association representing 

national mortgage lenders, servicers, 

and service providers recommended the 

proposed points and fees cure take 

effect immediately. Two commenters, 

an association of community mortgage 

bankers and lenders and a GSE, argued 

that the proposed points and fees cure 

should be applied to transactions 

consummated prior to the effective date. 

The GSE commenter argued that an 

effective date of 30 days after 

publication in the Federal Register 

would create two classes of qualified 

mortgages originated during 2014: 

Those that had the opportunity to cure 

and those that did not. That commenter 

argued that all loans consummated prior 

to the effective date of the new rule 

should be eligible for cure up to 120 

days after the effective date of the rule. 

As noted, the final rule (other than 

amendatory instruction 5) is effective 

upon publication in the Federal 

Register. Under section 553(d) of the 

Administrative Procedure Act (APA), 

the required publication or service of a 

substantive rule shall be made not less 

than 30 days before its effective date 

except for certain instances, including 

when a substantive rule grants or 

recognizes an exemption or relieves a 

restriction. 5 U.S.C. 553(d). There are 

three main provisions in this final rule, 

each of which either expands an 

existing exemption or relieves a 

restriction. The first provision extends 

the small servicer exemption from 

certain provisions of the 2013 Mortgage 

Servicing Final Rules to nonprofit 

servicers that service 5,000 or fewer 

loans on behalf of themselves and 

associated nonprofits, all of which were 

originated by the nonprofit or an 

associated nonprofit. The second 

provision expands the existing 

nonprofit exemption from the ability-torepay rule by excluding certain noninterest bearing, contingent subordinate 

liens that meet the requirements of 

§ 1026.43(a)(3)(v)(D) from the 200-credit 

extension limit calculation for purposes 

of qualifying for exemption. The third 

provision affords creditors an option, in 

limited circumstances, to cure mistakes 

in cases where a loan exceeded the 

applicable points and fees limit for 

qualified mortgages at consummation. 

As each of the provisions in this rule 

expands an existing exemption or 

relieves a restriction, the Bureau is 

publishing this final rule less than 30 

days before its effective date (other than 

with respect to amendatory instruction 

5). 

The Bureau considered comments 

requesting that loans consummated 

prior to the effective date be eligible for 

the points and fees cure, but believes 

that those provisions of the final rule 

should apply only to transactions 

consummated on or after the effective 

date (other than amendatory instruction 

5, which does not take effect until 

August 1, 2015). As discussed above, 

the purpose of the cure is to ensure that 

the Bureau’s rules do not cause a 

restriction in access to credit while the 

market adjusts to the ability-to-repay 

and qualified mortgage rules. The 

Bureau understands that some creditors 

are refusing to make, or are making 

more expensive, loans with points and 

fees that are close to the limit for 

qualified mortgages, which raises 

concerns about access to credit. The 

cure is intended to encourage creditors 

to remove any such buffers. The Bureau 

believes that loans consummated after 

the rule takes effect could benefit from 

relaxed points and fees buffers. The 

Bureau does not, however, believe that 

those provisions of the rule should 

apply to loans consummated prior to the 

effective date because doing so would 

not further the goal of increasing access 

to credit. 

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

Analysis 

A. Overview 

In developing the final rule, the 

Bureau has considered potential 

benefits, costs, and impacts.25 The 

Bureau has consulted, or offered to 

consult with, the prudential regulators, 

the Securities and Exchange 

Commission, the Department of Housing 

and Urban Development, the Federal 

Housing Finance Agency, the Federal 

Trade Commission, the U.S. Department 

of Veterans Affairs, the U.S. Department 

of Agriculture, and the Department of 

the Treasury, including regarding 

consistency with any prudential, 

market, or systemic objectives 

administered by such agencies. 

There are three main provisions in 

this final rule. The first provision 

extends the small servicer exemption 

from certain provisions of the 2013 

Mortgage Servicing Final Rules to 

nonprofit servicers that service 5,000 or 

fewer loans on behalf of themselves and 

associated nonprofits, all of which were 

originated by the nonprofit or an 

associated nonprofit. The second 

provision excludes certain non-interest 

bearing, contingent subordinate liens 

that meet the requirements of 

§ 1026.43(a)(3)(v)(D) (‘‘contingent 

subordinate liens’’) from the 200-credit 

extension limit calculation for purposes 

of qualifying for the nonprofit 

exemption from the ability-to-repay 

requirements. The third provision 


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26The Bureau has discretion in future 

rulemakings to choose the relevant provisions to 

discuss and to choose the most appropriate baseline 

for that particular rulemaking. 

affords creditors an option, in limited 

circumstances, to cure certain mistakes 

in cases where the loan met all of the 

requirements to be a qualified mortgage 

except that the loan actually exceeded 

the applicable points and fees limit for 

qualified mortgages at consummation 

(‘‘points and fees cure’’). 

The Bureau has chosen to evaluate the 

benefits, costs, and impacts of these 

provisions against the current state of 

the world. That is, the Bureau’s analysis 

below considers the benefits, costs, and 

impacts of the three provisions relative 

to the current regulatory regime, as set 

forth primarily in the January 2013 ATR 

Final Rule, the May 2013 ATR Final 

Rule, and the 2013 Mortgage Servicing 

Final Rules.26 The baseline considers 

economic attributes of the relevant 

market and the existing regulatory 

structure. 

The main benefit of each of these 

provisions to consumers is a potential 

increase in access to credit and a 

potential decrease in the cost of credit. 

It is possible that, but for these 

provisions, (1) financial institutions 

would stop or curtail originating or 

servicing in particular market segments 

or would increase the cost of credit or 

servicing in those market segments in 

numbers sufficient to have an adverse 

impact on those market segments, (2) 

the financial institutions that would 

remain in those market segments would 

not provide a sufficient quantum of 

mortgage loan origination or servicing at 

the non-increased price, and (3) there 

would not be significant new entry into 

the market segments left by the 

departing institutions. If, but for these 

provisions, all three of these scenarios 

would be realized, then the three 

provisions will increase access to credit. 

The Bureau does not possess any data, 

aside from anecdotal comments, to 

refute or confirm any of these scenarios 

for any of the exemptions. However, the 

Bureau notes that, at least in some 

market segments, these three scenarios 

could be realized by just one creditor or 

servicer stopping or curtailing 

originating or servicing or increasing the 

cost of credit. This would occur, for 

example, if that creditor or servicer is 

the only one willing to extend credit or 

provide servicing to this market segment 

(for example, to low- and moderateincome consumers), no other creditor or 

servicer would enter the market even if 

the incumbent exits, and the incumbent 

faces higher costs that would lead it 

either to increase the cost of credit or to 

curtail access to credit. 

The main cost to consumers of the 

small nonprofit servicer and small 

nonprofit originator provisions is that, 

for some transactions, creditors or 

servicers will not have to provide 

consumers some of the protections 

provided by the ability-to-repay and 

mortgage servicing rules. The main cost 

of the points and fees cure provision to 

consumers is that a creditor could 

reimburse a consumer for a points and 

fees overage after consummation—with 

the creditor thereby obtaining the safe 

harbor or rebuttable presumption of 

TILA ability-to-repay compliance 

afforded by a qualified mortgage, and 

the consumer having less ability to 

challenge the mortgage on ability-torepay grounds. As noted above, the 

Bureau does not possess data to provide 

a precise estimate of the number of 

transactions affected. However, the 

Bureau believes that the number will be 

relatively small. 

The main benefit of each of these 

provisions to covered persons is that the 

affected covered persons do not have to 

incur certain expenses associated with 

the ability-to-repay and mortgage 

servicing rules, or will not be forced 

either to exit the market or to curtail 

origination or servicing activities to 

maintain certain regulatory exemptions. 

Given the currently available data, it is 

impossible for the Bureau to estimate 

the number of transactions affected with 

any useful degree of precision; that is 

also the case for estimating the amount 

of monetary benefits for such covered 

persons. 

There is no major cost of these 

proposed provisions to covered 

persons—each of the provisions is an 

option that a financial institution is free 

to undertake or not to undertake. The 

only potential costs for covered persons 

is that financial institutions that would 

have complied with the ability-to-repay 

and mortgage servicing rules with or 

without the provisions may lose profits 

to the institutions that are able to 

continue operating in a market segment 

by virtue of one of the provisions. 

However, these losses are likely to be 

small and are difficult to estimate. 

B. Potential Benefits and Costs to 

Consumers and Covered Persons Small 

Servicer Exemption Extension for 

Servicing Associated Nonprofits’ Loans 

The Bureau’s 2013 Mortgage Servicing 

Final Rules were designed to address 

the market failure of consumers not 

choosing their servicers and of servicers 

not having sufficient incentives to 

invest in quality control and consumer 

satisfaction. The demand for larger loan 

servicers’ services comes from 

originators, not from consumers. 

Smaller servicers, however, have an 

additional incentive to provide ‘‘hightouch’’ servicing that focuses on 

ensuring consumer satisfaction. 78 FR 

10695, 10845–46 (Feb. 14, 2013); 78 FR 

10901, 10980–82 (Feb. 14, 2013). 

The Bureau’s 2013 Mortgage Servicing 

Final Rules provide many benefits to 

consumers: For example, detailed 

periodic statements. These benefits tend 

to present potential costs to servicers: 

For example, changing their software 

systems to include additional 

information on the periodic statements 

to consumers. These benefits and costs 

are further described in the ‘‘DoddFrank Act Section 1022(b)(2) Analysis’’ 

sections of the 2013 Mortgage Servicing 

Final Rules. 78 FR 10695, 10842–61 

(Feb. 14, 2013); 78 FR 10901, 10978–94 

(published concurrently). 

Smaller servicers are generally 

community banks and credit unions that 

have a built-in incentive to manage their 

reputation with consumers carefully 

because they are servicing loans in 

communities in which they also 

originate loans. This incentive is 

reinforced if they are servicing only 

loans that they originate. Prior to this 

final rule, § 1026.41(e)(4)(ii) provided 

that a small servicer is a servicer that 

either (1) services, together with any 

affiliates, 5,000 or fewer mortgage loans 

for all of which the servicer (or an 

affiliate) is the creditor or assignee; or 

(2) is a Housing Finance Agency, as 

defined in 24 CFR 266.5. The definition 

of the term ‘‘affiliate’’ is the definition 

provided in the Bank Holding Company 

Act (BHCA). The rationale for the small 

servicer exemption is provided in the 

Bureau’s 2013 Mortgage Servicing Final 

Rules. 78 FR 10695, 10845–46 (Feb. 14, 

2013); 78 FR 10901, 10980–82 

(published concurrently). 

The final rule adds new 

§ 1026.41(e)(4)(ii)(C), which allows a 

nonprofit servicer to service loans on 

behalf of ‘‘associated nonprofit entities’’ 

that do not meet the BHCA ‘‘affiliate’’ 

definition and still qualify as a ‘‘small 

servicer,’’ as long as certain other 

conditions are met (for example, it has 

no more than 5,000 loans in its servicing 

portfolio). The Bureau believes these 

nonprofit servicers typically follow the 

same ‘‘high-touch’’ servicing model 

followed by the small servicers 

described in the Dodd-Frank Act 

Section 1022(b)(2) Analysis in the 2013 

Mortgage Servicing Final Rules. While 

these nonprofit servicers are not 

motivated by the profit incentive that 

motivates community banks and small 

credit unions, they nonetheless have a 

reputation incentive and a mission 


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incentive to provide ‘‘high-touch’’ 

servicing, neither of which is 

diminished when they service 

associated nonprofits’ loans. Because it 

is limited to entities sharing a common 

name, trademark, or servicemark, 

§ 1026.41(e)(4)(ii)(C) further ensures that 

the reputation incentive remains intact. 

In addition, the 5,000-loan servicing 

portfolio limit ensures that nonprofit 

servicers are still sufficiently small to 

provide ‘‘high-touch’’ servicing. 

Another rationale for the revision of the 

exemption is that it creates a more level 

playing field for nonprofits. Prior to this 

final rule, for-profit affiliates could take 

advantage of economies of scale to 

service their loans together, but related 

nonprofits could not because they 

typically are not ‘‘affiliates’’ as defined 

by the BHCA. 

Overall, the primary benefit to 

consumers of the amendment to the 

small servicer definition is a potential 

increase in access to credit and a 

potential decrease in the cost of credit. 

The primary cost to consumers is losing 

some of the protections of the Bureau’s 

2013 Mortgage Servicing Final Rules. 

The primary benefit to covered persons 

is exemption from certain provisions of 

those rules, and the attendant cost 

savings of not having to comply with 

those provisions while still being able to 

achieve a certain degree of scale by 

taking on servicing for associated 

nonprofits. See also 78 FR 10695, 

10842–61 (Feb. 14, 2013); 78 FR 10901, 

10978–94 (Feb. 14, 2013). There are no 

significant costs to covered persons. 

Finally, the Bureau does not possess 

any data that would enable it to report 

the number of transactions affected. 

Nevertheless, from anecdotal evidence 

and taking into account the size of the 

nonprofit servicers that are the most 

likely to take advantage of this 

exemption, it is unlikely that there will 

be a significant number of loans affected 

each year. Several nonprofit servicers 

might be affected. 

Ability-To-Repay Exemption for 

Contingent Subordinate Liens 

The Bureau’s ability-to-repay rule was 

designed to address the market failure of 

mortgage loan originators not 

internalizing the effects of consumers 

not being able to repay their loans, with 

negative effects both on the consumers 

themselves and on the consumers’ 

neighbors, whose houses drop in value 

due to foreclosures nearby. 

The May 2013 ATR Final Rule added 

a nonprofit exemption from the abilityto-repay requirements. The rationale of 

that exemption is preserving low- and 

moderate-income consumers’ access to 

credit available from nonprofit 

organizations, which might have 

stopped or curtailed originating loans 

but for this exemption. The main benefit 

of the exemption for consumers is a 

potential expansion of access to credit 

and a potential decrease in the cost of 

credit; the main cost for consumers is 

not receiving protections provided by 

the ability-to-repay rule. The May 2013 

ATR Final Rule exempted only 

nonprofit creditors that originated 200 

or fewer dwelling-secured transactions a 

year, based on the Bureau’s belief that 

these institutions do internalize the 

effects of consumers not being able to 

repay their loans and that the loan 

limitation is necessary to prevent the 

exemption from being exploited by 

unscrupulous creditors seeking to harm 

consumers. 

Section 1026.43(a)(3)(vii) of this final 

rule excludes contingent subordinate 

liens from the 200-credit extension limit 

for purposes of the May 2013 ATR Final 

Rule’s nonprofit exemption. Given the 

numerous limitations on contingent 

subordinate liens, including but not 

limited to the 1-percent cap on upfront 

costs payable by the consumer, and 

given the 200-credit extension limit for 

other loans, the Bureau believes that the 

potential for creditors to improperly 

exploit the amended rule is low. The 

Bureau also believes that this exemption 

will allow a greater number of nonprofit 

creditors to originate more loans than 

under the current rule, or to remain in 

the low- and moderate-income 

consumer market without passing 

through cost increases to consumers. 

Overall, the primary benefit to 

consumers of the exclusion is a 

potential increase in access to credit and 

a potential decrease in the cost of credit. 

The primary cost to consumers is losing 

some of the protections provided by the 

Bureau’s ability-to-repay rule. The 

primary benefit to covered persons is 

exemption from that same rule. See 78 

FR 6407, 6555–75 (Jan. 30, 2013) 

(specifically, the ‘‘Dodd-Frank Act 

Section 1022(b)(2) Analysis’’ section in 

the January 2013 ATR Final Rule); 78 

FR 35429, 35492–97 (June 12, 2013) 

(similar section in the May 2013 ATR 

Final Rule). There are no significant 

costs to covered persons. 

Finally, the Bureau does not possess 

any data that would enable it to report 

the number of transactions affected. 

Nevertheless, from anecdotal evidence 

and taking into account the size of the 

nonprofit creditors that are most likely 

to take advantage of this exemption, it 

is unlikely that there will be a 

significant number of loans affected 

each year, and it is possible that 

virtually no loans will be affected in the 

near future. Several nonprofit creditors 

might be affected, but it is possible that 

no nonprofit creditors will be affected in 

the near future. 

Cure for Points and Fees Over the 

Qualified Mortgage Threshold 

To originate a qualified mortgage, a 

creditor must satisfy various conditions, 

including the condition of charging at 

most 3 percent of the total loan amount 

in points and fees, with higher 

thresholds for loan amounts lower than 

$100,000, and not including up to two 

bona-fide discount points. However, 

origination processes are not perfect, 

and creditors might be concerned about 

potential errors that result in a loan 

exceeding the applicable points and fees 

limit discovered upon further, postconsummation review. 

The three most likely responses by a 

creditor concerned about such errors 

would be to originate loans with points 

and fees well below the applicable limit, 

to insert additional quality control in its 

origination process, and to charge a 

premium for the risk of a loan being 

deemed not to be a qualified mortgage, 

especially on loans with points and fees 

not well below the applicable limit. 

Such creditors might adopt any one, or 

any combination of two or more, of 

these responses. The first solution is not 

what the Bureau, or presumably 

Congress, intended; otherwise the 

statutory limit would have been set 

lower than 3 percent. The second 

solution could result in more than the 

economically efficient amount of effort 

expended on quality control. The 

savings from forgoing additional quality 

control might be passed through to 

consumers, to the extent that costs 

saved are marginal (as opposed to fixed) 

and the markets are sufficiently 

competitive. The third solution is, 

effectively, a less stark version of the 

first solution, with loans close to the 

applicable points and fees limit still 

being originated, albeit at higher prices 

simply due to being close to the limit. 

Like the first potential solution, this 

would be an unintended and 

undesirable consequence of the rule. 

The final rule provides a limited postconsummation cure provision that 

creditors or assignees may exercise 

when they discover errors in points and 

fees calculations that resulted in loans 

exceeding the applicable points and fees 

limit. The primary potential drawback 

of allowing creditors and assignees to 

cure such errors is the risk of 

inappropriate exploitation. However, 

the conditions the Bureau has placed on 

the cure mechanism—such as limiting 

the cure period to 210 days after 

consummation and cutting off the 

creditor’s and assignee’s ability to cure 


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27While a result of the points and fees cure is that 

creditors have less of an incentive to perform 

rigorous quality control before consummation, there 

is also an alleviating effect. Any errors uncovered 

in the post-consummation review might help 

creditors improve their pre-consummation review 

by immediately pointing out areas on which to 

focus. In addition, the incentive to limit (to an 

undesirable extent) pre-consummation quality 

control measures is mitigated by the fact that 

effecting the cure is not without costs, both 

operational and reputational. 

28Bd. of Governors of the Fed. Reserve Sys., July 

2014 Senior Loan Officer Opinion Survey on Bank 

Lending Practices, (August 4, 2014), available at 

http://www.federalreserve.gov/boarddocs/

snloansurvey/201408/fullreport.pdf. 

when the consumer files an action in 

connection with the loan or provides 

written notice of the overage to the 

creditor, assignee, or servicer, or when 

the consumer becomes 60 days past due 

on the legal obligation—help to guard 

against abuse of this mechanism and 

thus ensure that consumers are unlikely 

to experience negative side-effects. 

One such potential exploitation 

scenario involves a creditor originating 

risky loans with high points and fees 

while hoping to avoid a massive wave 

of foreclosures. In this case, the 

possibility of cure could be thought of 

as an option that the creditor could 

exercise to strengthen its position for 

foreclosure litigation, but only if the 

creditor foresees the wave of 

foreclosures and effects a cure of the 

points and fees overage before the 

consumer becomes 60 days past due on 

the legal obligation, files a lawsuit, or 

provides written notice of the points 

and fees overage. The elements of 

§ 1026.43(e)(3)(iii) requiring that the 

overage be cured within 210 days after 

consummation and before certain cut-off 

events should discourage this type of 

exploitation. Another exploitation 

scenario is a creditor that only cures 

overages on loans that go into 

foreclosure; however, this possibility is 

limited by the past-due cut-off and the 

210-day cure window. 

The Bureau proposed a requirement 

that, to cure a points and fees overage, 

the loan must have been originated in 

good faith as a qualified mortgage. The 

Bureau is not adopting this requirement 

in the final rule. The Bureau also 

proposed a 120-day cure period, and it 

is finalizing a 210-day cure period 

instead. While both of these 

requirements would have provided 

additional protections against 

inappropriate exploitation by creditors, 

the Bureau believes that these two 

requirements would be sufficiently 

burdensome for creditors that 

significantly fewer creditors would 

utilize the cure provision. The Bureau 

believes the 210-day window, combined 

with the creditors being able to exercise 

the cure only before the occurrence of 

certain cut-off events, provides 

sufficient disincentives against 

inappropriate exploitation. 

The primary benefit to consumers of 

the cure provision is a potential increase 

in access to credit and a potential 

decrease of the cost of credit. Another 

potential benefit is that, when a creditor 

discovers a points and fees overage, the 

creditor may reimburse the consumer 

for the overage and interest on the 

overage from the time of consummation 

until the cure is effectuated. However, 

this is a benefit only for consumers who 

place greater value on being reimbursed 

than on preserving a potential ability-torepay claim. The primary cost to 

consumers is that, without the 

consumer’s consent, a creditor could 

reimburse the consumer for a points and 

fees overage after consummation—with 

the creditor thereby obtaining the 

qualified mortgage presumption of TILA 

ability-to-repay compliance. However, 

the Bureau believes that the safeguards 

included in the rule will mitigate this 

potential concern as creditors are 

unlikely to be able to exploit the rule 

inappropriately and thereby deprive 

consumers of the protections provided 

by the ability-to-pay rule. 

The primary benefit to covered 

persons is being able to originate 

qualified mortgages without engaging in 

inefficient additional quality control 

processes, with the attendant reduction 

in legal risk. Some larger creditors might 

have sufficiently robust compliance 

procedures that largely prevent 

inadvertent points and fees overages. 

These creditors might lose some market 

share to creditors for whom this 

provision will be more useful. The 

Bureau cannot meaningfully estimate 

the magnitude of this effect. 

The Bureau believes that the benefits 

of this provision are likely to decrease 

over time, as creditors familiarize 

themselves with points and fees 

calculations necessary for origination of 

qualified mortgages and institute even 

better and more efficient quality control 

processes. All creditors could then 

originate loans with points and fees 

close to or at the applicable limit, 

without charging either an extra risk 

premium or having to incur significant 

quality control costs. However, some 

exploitation incentives and costs to 

consumers may remain. Therefore, the 

Bureau is finalizing the cure provision 

with a sunset date of January 10, 2021. 

Finally, the Bureau does not possess 

any data that would enable it to report 

the number of transactions affected. For 

some creditors, the provision might save 

additional verification and quality 

control in the loan origination process 

for every qualified mortgage transaction 

that they originate 27 and/or allow them 

to originate loans with points and fees 

close to or at the applicable points and 

fees limit at lower prices that do not 

reflect the risk of the loan unexpectedly 

turning out not to be a qualified 

mortgage. 

Several consumer groups commented 

that there is no evidence to support the 

assertion that the points and fees cure 

provision adopted by this final rule will 

provide consumer benefits. As noted 

above, the Bureau does not possess any 

data to calculate the impact of this 

provision on consumer welfare, the 

likely costs of credit, or the availability 

of access to credit. No commenters 

suggested data sources. 

The Bureau is aware that after the 

comment period closed some data 

became available, as the Federal Reserve 

System released its July 2014 

installment of the Senior Loan Officer 

Opinion Survey.28 Several questions 

(for example, survey question 18e) were 

regarding the points and fees qualified 

mortgage limit, and whether it affected 

certain aspects of creditors’ practices. 

Most of the responses indicated that the 

points and fees limits did not have a 

significant effect. Given that this is not 

a representative survey and that the 

survey has qualitative replies, the 

Bureau still does not have sufficient 

data to calculate the effect of this 

provision on consumer welfare, the 

likely costs of credit, or the availability 

of access to credit. Moreover, as 

mentioned in part VII.C, the Bureau 

believes that this provision will largely 

benefit smaller creditors (and, 

potentially, their consumers), whereas 

larger creditors are sampled at a higher 

rate than smaller creditors in the Senior 

Loan Officer Opinion Survey. 

C. Impact on Covered Persons With No 

More Than $10 Billion in Assets 

Covered persons with no more than 

$10 billion in assets likely will be the 

only covered persons affected by the 

two exemptions regarding associated 

nonprofits and contingent subordinate 

liens: The respective loan limits of each 

provision virtually ensure that any 

creditor or servicer with over $10 billion 

in assets would not qualify for these two 

exemptions. For the third provision, 

regarding points and fees, smaller 

creditors might benefit more than larger 

creditors. Larger creditors are more 

likely to have sufficiently robust 

compliance procedures that largely 

prevent inadvertent points and fees 

overages. Thus, this provision might not 

benefit them as much. The third 

provision may lead smaller creditors to 


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65322 Federal Register / Vol. 79, No. 212 / Monday, November 3, 2014 / Rules and Regulations 

extend a greater number of qualified 

mortgages near or at the applicable 

points and fees limit, to extend them for 

a lower price, and/or to forgo inefficient 

pre-consummation quality control. To 

the extent that possibility is realized, 

smaller creditors would benefit from the 

liability protection afforded by qualified 

mortgages. 

D. Impact on Access to Credit 

The Bureau does not believe that 

there will be an adverse impact on 

access to credit resulting from any of the 

three provisions. Moreover, it is 

possible that there will be an expansion 

of access to credit. 

E. Impact on Rural Areas 

The Bureau believes that rural areas 

might benefit from these three 

provisions more than urban areas, to the 

extent that there are fewer active 

creditors or servicers operating in rural 

areas than in urban areas. Thus, any 

creditors or servicers exiting the market 

or curtailing lending or servicing in 

rural areas—or restricting the 

origination of loans with points and fees 

close to or at the applicable limit for 

qualified mortgages—might negatively 

affect access to credit in those areas 

more than similar behavior by creditors 

or servicers operating in more urban 

areas. A similar argument applies to any 

increases in the cost of credit. 

VIII. Regulatory Flexibility Act 

Analysis 

The Regulatory Flexibility Act (the 

RFA), as amended by the Small 

Business Regulatory Enforcement 

Fairness Act of 1996, requires each 

agency to consider the potential impact 

of its regulations on small entities, 

including small businesses, small 

governmental units, and small nonprofit 

organizations. The RFA defines a ‘‘small 

business’’ as a business that meets the 

size standard developed by the Small 

Business Administration pursuant to the 

Small Business Act. 

The RFA generally requires an agency 

to conduct an initial regulatory 

flexibility analysis (IRFA) and a final 

regulatory flexibility analysis (FRFA) of 

any rule subject to notice-and-comment 

rulemaking requirements, unless the 

agency certifies that the rule will not 

have a significant economic impact on 

a substantial number of small entities. 

The Bureau also is subject to certain 

additional procedures under the RFA 

involving the convening of a panel to 

consult with small business 

representatives prior to proposing a rule 

for which an IRFA is required. 

The final rule will not have a 

significant economic impact on any 

small entities. As noted in the Section 

1022(b)(2) Analysis, above, the Bureau 

does not expect the rule to impose costs 

on covered persons, including small 

entities. All methods of compliance 

under current law will remain available 

to small entities when these provisions 

become effective. Thus, a small entity 

that is in compliance with current law 

need not take any additional action if 

the proposal is adopted. Further, the 

Bureau does not possess any data that 

would enable it to report the number of 

transactions affected, including 

transactions involving small entities. 

Accordingly, the undersigned certifies 

that this rule will not have a significant 

economic impact on a substantial 

number of small entities. 

IX. Paperwork Reduction Act 

Under the Paperwork Reduction Act 

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

Federal agencies are generally required 

to seek the Office of Management and 

Budget (OMB) approval for information 

collection requirements prior to 

implementation. The collections of 

information related to Regulations Z and 

X have been previously reviewed and 

approved by OMB in accordance with 

the PRA and assigned OMB Control 

Number 3170–0015 (Regulation Z) and 

3170–0016 (Regulation X). Under the 

PRA, the Bureau may not conduct or 

sponsor, and, notwithstanding any other 

provision of law, a person is not 

required to respond to an information 

collection unless the information 

collection displays a valid control 

number assigned by OMB. The Bureau 

has determined that this final rule 

would not impose any new or revised 

information collection requirements 

(recordkeeping, reporting, or disclosure 

requirements) on covered entities or 

members of the public that would 

constitute collections of information 

requiring OMB approval under the PRA. 

List of Subjects in 12 CFR Part 1026 

Advertising, Consumer protection, 

Credit, Credit unions, Mortgages, 

National banks, Reporting and 

recordkeeping requirements, Savings 

associations, Truth in lending. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Bureau amends 12 CFR 

part 1026 as set forth below: 

PART 1026—TRUTH IN LENDING 

(REGULATION Z) 

■ 1. The authority citation for part 1026 

continues to read as follows: 

Authority: 12 U.S.C. 2601, 2603–2605, 

2607, 2609, 2617, 5511, 5512, 5532, 5581; 15 

U.S.C. 1601 et seq. 

Subpart E—Special Rules for Certain 

Home Mortgage Transactions 

■ 2. Section 1026.41 is amended by 

revising paragraph (e)(4)(ii) and the 

introductory text of paragraph (e)(4)(iii) 

to read as follows: 

§ 1026.41 Periodic statements for 

residential mortgage loans. 

* * * * * 

(e) * * * 

(4) * * * 

(ii) Small servicer defined. A small 

servicer is a servicer that: 

(A) Services, together with any 

affiliates, 5,000 or fewer mortgage loans, 

for all of which the servicer (or an 

affiliate) is the creditor or assignee; 

(B) Is a Housing Finance Agency, as 

defined in 24 CFR 266.5; or 

(C) Is a nonprofit entity that services 

5,000 or fewer mortgage loans, 

including any mortgage loans serviced 

on behalf of associated nonprofit 

entities, for all of which the servicer or 

an associated nonprofit entity is the 

creditor. For purposes of this paragraph 

(e)(4)(ii)(C), the following definitions 

apply: 

(1) The term ‘‘nonprofit entity’’ means 

an entity having a tax exemption ruling 

or determination letter from the Internal 

Revenue Service under section 501(c)(3) 

of the Internal Revenue Code of 1986 

(26 U.S.C. 501(c)(3); 26 CFR 1.501(c)(3)– 

1), and; 

(2) The term ‘‘associated nonprofit 

entities’’ means nonprofit entities that 

by agreement operate using a common 

name, trademark, or servicemark to 

further and support a common 

charitable mission or purpose. 

(iii) Small servicer determination. In 

determining whether a servicer satisfies 

paragraph (e)(4)(ii)(A) of this section, 

the servicer is evaluated based on the 

mortgage loans serviced by the servicer 

and any affiliates as of January 1 and for 

the remainder of the calendar year. In 

determining whether a servicer satisfies 

paragraph (e)(4)(ii)(C) of this section, the 

servicer is evaluated based on the 

mortgage loans serviced by the servicer 

as of January 1 and for the remainder of 

the calendar year. A servicer that ceases 

to qualify as a small servicer will have 

six months from the time it ceases to 

qualify or until the next January 1, 

whichever is later, to comply with any 

requirements from which the servicer is 

no longer exempt as a small servicer. 

The following mortgage loans are not 

considered in determining whether a 

servicer qualifies as a small servicer: 

* * * * * 


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■ 3. Section 1026.43 is amended by 

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

adding new paragraph (a)(3)(vii) and by 

revising the introductory text of 

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

paragraphs (e)(3)(iii) and (iv) to read as 

follows: 

§ 1026.43 Minimum standards for 

transactions secured by a dwelling. 

(a) * * * 

(3) * * * 

(v) * * * 

(D) * * * 

(1) During the calendar year preceding 

receipt of the consumer’s application, 

the creditor extended credit secured by 

a dwelling no more than 200 times, 

except as provided in paragraph 

(a)(3)(vii) of this section; 

* * * * * 

(vii) Consumer credit transactions that 

meet the following criteria are not 

considered in determining whether a 

creditor exceeds the credit extension 

limitation in paragraph (a)(3)(v)(D)(1) of 

this section: 

(A) The transaction is secured by a 

subordinate lien; 

(B) The transaction is for the purpose 

of: 

(1) Downpayment, closing costs, or 

other similar home buyer assistance, 

such as principal or interest subsidies; 

(2) Property rehabilitation assistance; 

(3) Energy efficiency assistance; or 

(4) Foreclosure avoidance or 

prevention; 

(C) The credit contract does not 

require payment of interest; 

(D) The credit contract provides that 

repayment of the amount of the credit 

extended is: 

(1) Forgiven either incrementally or in 

whole, at a date certain, and subject 

only to specified ownership and 

occupancy conditions, such as a 

requirement that the consumer maintain 

the property as the consumer’s principal 

dwelling for five years; 

(2) Deferred for a minimum of 20 

years after consummation of the 

transaction; 

(3) Deferred until sale of the property 

securing the transaction; or 

(4) Deferred until the property 

securing the transaction is no longer the 

principal dwelling of the consumer; 

(E) The total of costs payable by the 

consumer in connection with the 

transaction at consummation is less 

than 1 percent of the amount of credit 

extended and includes no charges other 

than: 

(1) Fees for recordation of security 

instruments, deeds, and similar 

documents; 

(2) A bona fide and reasonable 

application fee; and 

(3) A bona fide and reasonable fee for 

housing counseling services; and 

(F) The creditor complies with all 

other applicable requirements of this 

part in connection with the transaction. 

* * * * * 

(e) * * * 

(3) * * * (i) Except as provided in 

paragraph (e)(3)(iii) of this section, a 

covered transaction is not a qualified 

mortgage unless the transaction’s total 

points and fees, as defined in 

§ 1026.32(b)(1), do not exceed: 

* * * * * 

(iii) For covered transactions 

consummated on or before January 10, 

2021, if the creditor or assignee 

determines after consummation that the 

transaction’s total points and fees 

exceed the applicable limit under 

paragraph (e)(3)(i) of this section, the 

loan is not precluded from being a 

qualified mortgage, provided: 

(A) The loan otherwise meets the 

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

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

applicable; 

(B) The creditor or assignee pays to 

the consumer the amount described in 

paragraph (e)(3)(iv) of this section 

within 210 days after consummation 

and prior to the occurrence of any of the 

following events: 

(1) The institution of any action by 

the consumer in connection with the 

loan; 

(2) The receipt by the creditor, 

assignee, or servicer of written notice 

from the consumer that the transaction’s 

total points and fees exceed the 

applicable limit under paragraph 

(e)(3)(i) of this section; or 

(3) The consumer becoming 60 days 

past due on the legal obligation; and 

(C) The creditor or assignee, as 

applicable, maintains and follows 

policies and procedures for postconsummation review of points and fees 

and for making payments to consumers 

in accordance with paragraphs 

(e)(3)(iii)(B) and (e)(3)(iv) of this section. 

(iv) For purposes of paragraph 

(e)(3)(iii) of this section, the creditor or 

assignee must pay to the consumer an 

amount that is not less than the sum of 

the following: 

(A) The dollar amount by which the 

transaction’s total points and fees 

exceeds the applicable limit under 

paragraph (e)(3)(i) of this section; and 

(B) Interest on the dollar amount 

described in paragraph (e)(3)(iv)(A) of 

this section, calculated using the 

contract interest rate applicable during 

the period from consummation until the 

payment described in this paragraph 

(e)(3)(iv) is made to the consumer. 

* * * * * 

■ 4. In Supplement I to part 1026: 

■ a. Under Section 1026.41—Periodic 

Statements for Residential Mortgage 

Loans: 

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

defined, the introductory text of 

paragraph 2 is revised and paragraph 4 

is added. 

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

determination, paragraphs 2 and 3 are 

revised and paragraphs 4 and 5 are 

added. 

■ b. Under Section 1026.43—Minimum 

Standards for Transactions Secured by 

a Dwelling: 

■ i. New subheading Paragraph 

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

subheading are added. 

■ ii. New subheading Paragraph 

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

under that subheading are added. 

■ iii. New subheading Paragraph 

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

under that subheading are added. 

The revisions and additions read as 

follows: 

Supplement I to Part 1026—Official 

Interpretations 

* * * * * 

Subpart E—Special Rules for Certain Home 

Mortgage Transactions 

* * * * * 

Section 1026.41—Periodic Statements for 

Residential Mortgage Loans 

* * * * * 

41(e)(4)(ii) Small servicer defined. 

* * * * * 

2. Services, together with affiliates, 5,000 or 

fewer mortgage loans. To qualify as a small 

servicer, under § 1026.41(e)(4)(ii)(A), a 

servicer must service, together with any 

affiliates, 5,000 or fewer mortgage loans, for 

all of which the servicer (or an affiliate) is the 

creditor or assignee. There are two elements 

to satisfying § 1026.41(e)(4)(ii)(A). First, a 

servicer, together with any affiliates, must 

service 5,000 or fewer mortgage loans. 

Second, a servicer must service only 

mortgage loans for which the servicer (or an 

affiliate) is the creditor or assignee. To be the 

creditor or assignee of a mortgage loan, the 

servicer (or an affiliate) must either currently 

own the mortgage loan or must have been the 

entity to which the mortgage loan obligation 

was initially payable (that is, the originator 

of the mortgage loan). A servicer is not a 

small servicer under § 1026.41(e)(4)(ii)(A) if 

it services any mortgage loans for which the 

servicer or an affiliate is not the creditor or 

assignee (that is, for which the servicer or an 

affiliate is not the owner or was not the 

originator). The following two examples 

demonstrate circumstances in which a 

servicer would not qualify as a small servicer 

under § 1026.41(e)(4)(ii)(A) because it did not 

meet both requirements under 

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

servicer’s status as a small servicer: 

* * * * * 


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4. Nonprofit entity that services 5,000 or 

fewer mortgage loans. To qualify as a small 

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

servicer must be a nonprofit entity that 

services 5,000 or fewer mortgage loans, 

including any mortgage loans serviced on 

behalf of associated nonprofit entities, for all 

of which the servicer or an associated 

nonprofit entity is the creditor. There are two 

elements to satisfying § 1026.41(e)(4)(ii)(C). 

First, a nonprofit entity must service 5,000 or 

fewer mortgage loans, including any 

mortgage loans serviced on behalf of 

associated nonprofit entities. For each 

associated nonprofit entity, the small servicer 

determination is made separately, without 

consideration of the number of loans serviced 

by another associated nonprofit entity. 

Second, a nonprofit entity must service only 

mortgage loans for which the servicer (or an 

associated nonprofit entity) is the creditor. 

To be the creditor, the servicer (or an 

associated nonprofit entity) must have been 

the entity to which the mortgage loan 

obligation was initially payable (that is, the 

originator of the mortgage loan). A nonprofit 

entity is not a small servicer under 

§ 1026.41(e)(4)(ii)(C) if it services any 

mortgage loans for which the servicer (or an 

associated nonprofit entity) is not the 

creditor (that is, for which the servicer or an 

associated nonprofit entity was not the 

originator). The first of the following two 

examples demonstrates circumstances in 

which a nonprofit entity would qualify as a 

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

because it meets both requirements for 

determining a nonprofit entity’s status as a 

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

The second example demonstrates 

circumstances in which a nonprofit entity 

would not qualify as a small servicer under 

§ 1026.41(e)(4)(ii)(C) because it does not meet 

both requirements under 

§ 1026.41(e)(4)(ii)(C). 

i. Nonprofit entity A services 3,000 of its 

own mortgage loans, and 1,500 mortgage 

loans on behalf of associated nonprofit entity 

B. All 4,500 mortgage loans were originated 

by A or B. Associated nonprofit entity C 

services 2,500 mortgage loans, all of which it 

originated. Because the number of mortgage 

loans serviced by a nonprofit entity is 

determined by counting the number of 

mortgage loans serviced by the nonprofit 

entity (including mortgage loans serviced on 

behalf of associated nonprofit entities) but 

not counting any mortgage loans serviced by 

an associated nonprofit entity, A and C are 

both small servicers. 

ii. A nonprofit entity services 4,500 

mortgage loans—3,000 mortgage loans it 

originated, 1,000 mortgage loans originated 

by associated nonprofit entities, and 500 

mortgage loans neither it nor an associated 

nonprofit entity originated. The nonprofit 

entity is not a small servicer because it 

services mortgage loans for which neither it 

nor an associated nonprofit entity is the 

creditor, notwithstanding that it services 

fewer than 5,000 mortgage loans. 

41(e)(4)(iii) Small servicer determination. 

* * * * * 

2. Timing for small servicer exemption. 

The following examples demonstrate when a 

servicer either is considered or is no longer 

considered a small servicer under 

§ 1026.41(e)(4)(ii)(A) and (C): 

i. Assume a servicer (that as of January 1 

of the current year qualifies as a small 

servicer) begins servicing more than 5,000 

mortgage loans on October 1, and services 

more than 5,000 mortgage loans as of January 

1 of the following year. The servicer would 

no longer be considered a small servicer on 

January 1 of the following year and would 

have to comply with any requirements from 

which it is no longer exempt as a small 

servicer on April 1 of the following year. 

ii. Assume a servicer (that as of January 1 

of the current year qualifies as a small 

servicer) begins servicing more than 5,000 

mortgage loans on February 1, and services 

more than 5,000 mortgage loans as of January 

1 of the following year. The servicer would 

no longer be considered a small servicer on 

January 1 of the following year and would 

have to comply with any requirements from 

which it is no longer exempt as a small 

servicer on that same January 1. 

iii. Assume a servicer (that as of January 1 

of the current year qualifies as a small 

servicer) begins servicing more than 5,000 

mortgage loans on February 1, but services 

fewer than 5,000 mortgage loans as of January 

1 of the following year. The servicer is 

considered a small servicer for the following 

year. 

3. Mortgage loans not considered in 

determining whether a servicer is a small 

servicer. Mortgage loans that are not 

considered pursuant to § 1026.41(e)(4)(iii) in 

applying § 1026.41(e)(4)(ii)(A) are not 

considered either for determining whether a 

servicer (together with any affiliates) services 

5,000 or fewer mortgage loans or whether a 

servicer is servicing only mortgage loans that 

it (or an affiliate) owns or originated. For 

example, assume a servicer services 5,400 

mortgage loans. Of these mortgage loans, the 

servicer owns or originated 4,800 mortgage 

loans, voluntarily services 300 mortgage 

loans that neither it (nor an affiliate) owns or 

originated and for which the servicer does 

not receive any compensation or fees, and 

services 300 reverse mortgage transactions. 

The voluntarily serviced mortgage loans and 

reverse mortgage loans are not considered in 

determining whether the servicer qualifies as 

a small servicer pursuant to 

§ 1026.41(e)(4)(iii)(A). Thus, because only the 

4,800 mortgage loans owned or originated by 

the servicer are considered in determining 

whether the servicer qualifies as a small 

servicer, the servicer satisfies 

§ 1026.41(e)(4)(ii)(A) with regard to all 5,400 

mortgage loans it services. 

4. Mortgage loans not considered in 

determining whether a nonprofit entity is a 

small servicer. Mortgage loans that are not 

considered pursuant to § 1026.41(e)(4)(iii) in 

applying § 1026.41(e)(4)(ii)(C) are not 

considered either for determining whether a 

nonprofit entity services 5,000 or fewer 

mortgage loans, including any mortgage loans 

serviced on behalf of associated nonprofit 

entities, or whether a nonprofit entity is 

servicing only mortgage loans that it or an 

associated nonprofit entity originated. For 

example, assume a servicer that is a nonprofit 

entity services 5,400 mortgage loans. Of these 

mortgage loans, the nonprofit entity 

originated 2,800 mortgage loans and 

associated nonprofit entities originated 2,000 

mortgage loans. The nonprofit entity receives 

compensation for servicing the loans 

originated by associated nonprofits. The 

nonprofit entity also voluntarily services 600 

mortgage loans that were originated by an 

entity that is not an associated nonprofit 

entity, and receives no compensation or fees 

for servicing these loans. The voluntarily 

serviced mortgage loans are not considered in 

determining whether the servicer qualifies as 

a small servicer. Thus, because only the 

4,800 mortgage loans originated by the 

nonprofit entity or associated nonprofit 

entities are considered in determining 

whether the servicer qualifies as a small 

servicer, the servicer satisfies 

§ 1026.41(e)(4)(ii)(C) with regard to all 5,400 

mortgage loans it services. 

5. Limited role of voluntarily serviced 

mortgage loans. Reverse mortgages and 

mortgage loans secured by consumers’ 

interests in timeshare plans, in addition to 

not being considered in determining small 

servicer qualification, are also exempt from 

the requirements of § 1026.41. In contrast, 

although voluntarily serviced mortgage loans, 

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

likewise not considered in determining small 

servicer status, they are not exempt from the 

requirements of § 1026.41. Thus, a servicer 

that does not qualify as a small servicer 

would not have to provide periodic 

statements for reverse mortgages and 

timeshare plans because they are exempt 

from the rule, but would have to provide 

periodic statements for mortgage loans it 

voluntarily services. 

* * * * * 

Section 1026.43—Minimum Standards for 

Transactions Secured by a Dwelling 

* * * * * 

Paragraph 43(a)(3)(vii). 

1. Requirements of exclusion. Section 

1026.43(a)(3)(vii) excludes certain 

transactions from the credit extension limit 

set forth in § 1026.43(a)(3)(v)(D)(1), provided 

a transaction meets several conditions. The 

terms of the credit contract must satisfy the 

conditions that the transaction not require 

the payment of interest under 

§ 1026.43(a)(3)(vii)(C) and that repayment of 

the amount of credit extended be forgiven or 

deferred in accordance with 

§ 1026.43(a)(3)(vii)(D). The other 

requirements of § 1026.43(a)(3)(vii) need not 

be reflected in the credit contract, but the 

creditor must retain evidence of compliance 

with those provisions, as required by 

§ 1026.25(a). In particular, the creditor must 

have information reflecting that the total of 

closing costs imposed in connection with the 

transaction is less than 1 percent of the 

amount of credit extended and include no 

charges other than recordation, application, 

and housing counseling fees, in accordance 

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

itemization of the amount financed 

sufficiently details this requirement, the 

creditor must establish compliance with 

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

document and retain it in accordance with 

§ 1026.25(a). 

* * * * * 


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Paragraph 43(e)(3)(iii). 

1. Payment to the consumer. The creditor 

or assignee, as applicable, complies with 

§ 1026.43(e)(3)(iii)(B) if it pays to the 

consumer the amount described in 

§ 1026.43(e)(3)(iv) within 210 days after 

consummation and prior to the occurrence of 

any of the events in § 1026.43(e)(3)(iii)(B)(1) 

through (3). A creditor or assignee, as 

applicable, does not comply with 

§ 1026.43(e)(3)(iii)(B) if it pays to the 

consumer the amount described in 

§ 1026.43(e)(3)(iv) more than 210 days after 

consummation or after the occurrence of any 

of the events in § 1026.43(e)(3)(iii)(B)(1) 

through (3). Payment may be made by any 

means mutually agreeable to the consumer 

and the creditor or assignee, as applicable, or 

by check. If payment is made by check, the 

creditor or assignee complies with 

§ 1026.43(e)(3)(iii)(B) if the check is delivered 

or placed in the mail to the consumer within 

210 days after consummation. 

2. 60 days past due. Section 

1026.43(e)(3)(iii)(B)(3) provides that, to 

comply with § 1026.43(e)(3)(iii)(B), the 

creditor or assignee must pay to the 

consumer the amount described in 

§ 1026.43(e)(3)(iv) prior to the consumer 

becoming 60 days past due on the legal 

obligation. For this purpose, ‘‘past due’’ 

means the failure to make a periodic payment 

(in one full payment or in two or more partial 

payments) sufficient to cover principal, 

interest, and, if applicable, escrow under the 

terms of the legal obligation. Other amounts, 

such as any late fees, are not considered for 

this purpose. For purposes of 

§ 1026.43(e)(3)(iii)(B)(3), a periodic payment 

is 30 days past due when it is not paid on 

or before the due date of the following 

scheduled periodic payment and is 60 days 

past due when, after already becoming 30 

days past due, it is not paid on or before the 

due date of the next scheduled periodic 

payment. For purposes of 

§ 1026.43(e)(3)(iii)(B)(3), the creditor or 

assignee may treat a received payment as 

applying to the oldest outstanding periodic 

payment. The following example illustrates 

the meaning of 60 days past due for purposes 

of § 1026.43(e)(3)(iii)(B)(3): 

i. Assume a loan is consummated on 

October 15, 2015, that the consumer’s 

periodic payment is due on the 1st of each 

month, and that the consumer timely made 

the first periodic payment due on December 

1, 2015. For purposes of 

§ 1026.43(e)(3)(iii)(B)(3), the consumer is 30 

days past due if the consumer fails to make 

a payment (sufficient to cover the scheduled 

January 1, 2016 periodic payment of 

principal, interest, and, if applicable, escrow) 

on or before February 1, 2016. For purposes 

of § 1026.43(e)(3)(iii)(B)(3), the consumer is 

60 days past due if the consumer then also 

fails to make a payment (sufficient to cover 

the scheduled January 1, 2016 periodic 

payment of principal, interest, and, if 

applicable, escrow) on or before March 1, 

2016. For purposes of 

§ 1026.43(e)(3)(iii)(B)(3), the consumer is not 

60 days past due if the consumer makes a 

payment (sufficient to cover the scheduled 

January 1, 2016 periodic payment of 

principal, interest, and, if applicable, escrow) 

on or before March 1, 2016. 

3. Post-consummation policies and 

procedures. The policies and procedures 

described in § 1026.43(e)(3)(iii)(C) need not 

require that a creditor or assignee, as 

applicable, conduct a post-consummation 

review of all loans originated by the creditor 

or acquired by the assignee, nor must such 

policies and procedures require a creditor or 

assignee to apply § 1026.43(e)(3)(iii) and (iv) 

for all loans for which the total points and 

fees are found to exceed the applicable limit 

under § 1026.43(e)(3)(i). 

Paragraph 43(e)(3)(iv). 

1. Interest rate. For purposes of 

§ 1026.43(e)(3)(iv)(B), interest is calculated 

using the contract interest rate applicable 

during the period from consummation until 

the payment described in § 1026.43(e)(3)(iv) 

is made to the consumer. In an adjustablerate or step-rate transaction in which more 

than one interest rate applies during the 

period from consummation until payment is 

made to the consumer, the minimum 

payment amount is determined by 

calculating interest on the dollar amount 

described in § 1026.43(e)(3)(iv)(A) at each 

such interest rate for the part of the overall 

period during which that rate applies. 

However, § 1026.43(e)(3)(iv) provides that, 

for purposes of § 1026.43(e)(3)(iii), the 

creditor or assignee can pay to the consumer 

an amount that exceeds the sum of the 

amounts described in § 1026.43(e)(3)(iv)(A) 

and (B). Therefore, a creditor or assignee 

may, for example, elect to calculate interest 

using the maximum interest rate that may 

apply during the period from consummation 

until payment is made to the consumer. See 

comment 43(e)(3)(iii)–1 for guidance on 

making payments to the consumer. 

2. Relationship to RESPA tolerance cure. 

Under Regulation X (12 CFR 1024.7(i)), if any 

charges at settlement exceed the charges 

listed on the good faith estimate of settlement 

costs by more than the amounts permitted 

under 12 CFR 1024.7(e), the loan originator 

may cure the tolerance violation by 

reimbursing the amount by which the 

tolerance was exceeded at settlement or 

within 30 calendar days after settlement. The 

amount paid to the consumer pursuant to 

§ 1026.43(e)(3)(iv) may be offset by the 

amount paid to the consumer pursuant to 12 

CFR 1024.7(i), to the extent that the amount 

paid to the consumer pursuant to 12 CFR 

1024.7(i) is being applied to fees or charges 

included in points and fees pursuant to 

§ 1026.32(b)(1). However, a creditor or 

assignee has not satisfied § 1026.43(e)(3)(iii) 

unless the total amount described in 

§ 1026.43(e)(3)(iv), including any offset due 

to a payment made pursuant to 12 CFR 

1024.7(i), is paid to the consumer within 210 

days after consummation and prior to the 

occurrence of any of the events in 

§ 1026.43(e)(3)(iii)(B)(1) through (3). 

* * * * * 

■ 5. Effective August 1, 2015, in 

Supplement I to part 1026, under 

Section 1026.43, subheading Paragraph 

43(e)(3)(iv), paragraph 2 is revised to 

read as follows: 

Supplement I to Part 1026—Official 

Interpretations 

* * * * * 

Subpart E—Special Rules for Certain Home 

Mortgage Transactions 

* * * * * 

Section 1026.43—Minimum Standards for 

Transactions Secured by a Dwelling 

* * * * * 

Paragraph 43(e)(3)(iv). 

* * * * * 

2. Relationship to RESPA tolerance cure. 

Under Regulation X (12 CFR 1024.7(i)), if any 

charges at settlement exceed the charges 

listed on the good faith estimate of settlement 

costs by more than the amounts permitted 

under 12 CFR 1024.7(e), the loan originator 

may cure the tolerance violation by 

reimbursing the amount by which the 

tolerance was exceeded at settlement or 

within 30 calendar days after settlement. 

Similarly, under § 1026.19(f)(2)(v), if 

amounts paid by the consumer exceed the 

amounts specified under § 1026.19(e)(3)(i) or 

(ii), the creditor complies with 

§ 1026.19(e)(1)(i) if the creditor refunds the 

excess to the consumer no later than 60 days 

after consummation. The amount paid to the 

consumer pursuant to § 1026.43(e)(3)(iv) may 

be offset by the amount paid to the consumer 

pursuant to 12 CFR 1024.7(i) or 

§ 1026.19(f)(2)(v), to the extent that the 

amount paid to the consumer pursuant to 12 

CFR 1024.7(i) or § 1026.19(f)(2)(v) is being 

applied to fees or charges included in points 

and fees pursuant to § 1026.32(b)(1). 

However, a creditor or assignee has not 

satisfied § 1026.43(e)(3)(iii) unless the total 

amount described in § 1026.43(e)(3)(iv), 

including any offset due to a payment made 

pursuant to 12 CFR 1024.7(i) or 

§ 1026.19(f)(2)(v), is paid to the consumer 

within 210 days after consummation and 

prior to the occurrence of any of the events 

in § 1026.43(e)(3)(iii)(B)(1) through (3). 

* * * * * 

Dated: October 17, 2014. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

[FR Doc. 2014–25503 Filed 10–31–14; 8:45 am] 

BILLING CODE 4810–AM–P 


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