(1) “Higher-priced mortgage loan” means
a closed-end consumer credit transaction secured by the consumer’s
principal dwelling with an annual percentage rate that exceeds the
average prime offer rate for a comparable transaction as of the date
the interest rate is set:
(i) By 1.5 or more percentage points,
for a loan secured by a first lien with a principal obligation at
consummation that does not exceed the limit in effect as of the date
the transaction’s interest rate is set for the maximum principal obligation
eligible for purchase by Freddie Mac;
(ii) By 2.5 or more percentage points,
for a loan secured by a first lien with a principal obligation at
consummation that exceeds the limit in effect as of the date the transaction’s
interest rate is set for the maximum principal obligation eligible
for purchase by Freddie Mac; or
(iii) By 3.5 or more percentage points,
for a loan secured by a subordinate lien.
(2) “Average prime offer rate”
means an annual percentage rate that is derived from average interest
rates, points, and other loan pricing terms currently offered to consumers
by a representative sample of creditors for mortgage transactions
that have low-risk pricing characteristics. The Bureau publishes average
prime offer rates for a broad range of types of transactions in a
table updated at least weekly as well as the methodology the Bureau
uses to derive these rates.
(3) “Insured credit union” has the meaning
given in section 101 of the Federal Credit Union Act (12 U.S.C. 1752).
(4) “Insured depository
institution” has the meaning given in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813).
(1) Requirement to escrow for property taxes and insurance. Except
as provided in paragraph (b)(2) of this section, a creditor may not
extend a higher-priced mortgage loan secured by a first lien on a
consumer’s principal dwelling unless an escrow account is established
before consummation for payment of property taxes and premiums for
mortgage-related insurance required by the creditor, such as insurance
against loss of or damage to property, or against liability arising
out of the ownership or use of the property, or insurance protecting
the creditor against the consumer’s default or other credit loss.
For purposes of this paragraph (b), the term “escrow account” has
the same meaning as under Regulation X (12 CFR 1024.17(b)), as amended.
(2) Exemptions. Notwithstanding paragraph (b)(1)
of this section:
(i) An escrow account need not be established
for:
(A) A transaction secured by shares in a cooperative;
(B) A transaction to finance
the initial construction of a dwelling;
(C) A temporary or “bridge” loan with a loan
term of twelve months or less, such as a loan to purchase a new dwelling
where the consumer plans to sell a current dwelling within twelve
months; or
(D) A reverse
mortgage transaction subject to section 1026.33.
(ii) Insurance premiums
described in paragraph (b)(1) of this section need not be included
in escrow accounts for loans secured by dwellings in condominiums,
planned unit developments, or other common interest communities in
which dwelling ownership requires participation in a governing association,
where the governing association has an obligation to the dwelling
owners to maintain a master policy insuring all dwellings.
(iii) Except as provided
in paragraph (b)(2)(v) of this section, an escrow account need not
be established for a transaction if, at the time of consummation:
(A) During the preceding calendar year, or, if the application for
the transaction was received before April 1 of the current calendar
year, during either of the two preceding calendar years, the creditor
extended a covered transaction, as defined by section 1026.43(b)(1),
secured by a first lien on a property that is located in an area that
is either “rural” or “underserved,” as set forth in paragraph (b)(2)(iv)
of this section;
(B) During
the preceding calendar year, or, if the application for the transaction
was received before April 1 of the current calendar year, during either
of the two preceding calendar years, the creditor and its affiliates
together extended no more than 2,000 covered transactions, as defined
by section 1026.43(b)(1), secured by first liens, that were sold,
assigned, or otherwise transferred to another person, or that were
subject at the time of consummation to a commitment to be acquired
by another person;
(C)
As of the preceding December 31st, or, if the application for the
transaction was received before April 1 of the current calendar year,
as of either of the two preceding December 31sts, the creditor and
its affiliates that regularly extended covered transactions, as defined
by section 1026.43(b)(1), secured by first liens, together, had total
assets of less than $2,000,000,000; this asset threshold shall adjust
automatically each year, based on the year-to-year change in the average
of the Consumer Price Index for Urban Wage Earners and Clerical Workers,
not seasonally adjusted, for each 12-month period ending in November,
with rounding to the nearest million dollars (see comment 35(b)(2)(iii)-1.iii
for the applicable threshold); and
(D) Neither the creditor nor its affiliate
maintains an escrow account of the type described in paragraph (b)(1)
of this section for any extension of consumer credit secured by real
property or a dwelling that the creditor or its affiliate currently
services, other than:
(1) Escrow accounts established for first-lien higher-priced
mortgage loans for which applications were received on or after April
1, 2010, and before May 1, 2016; or
(2) Escrow accounts established after
consummation as an accommodation to distressed consumers to assist
such consumers in avoiding default or foreclosure.
(iv)
For purposes of paragraph (b)(2)(iii)(A) of this section:
(A) An area is
“rural” during a calendar year if it is:
(1) A county that is neither in a metropolitan statistical
area nor in a micropolitan statistical area that is adjacent to a
metropolitan statistical area, as those terms are defined by the U.S.
Office of Management and Budget and as they are applied under currently
applicable Urban Influence Codes (UICs), established by the United
States Department of Agriculture’s Economic Research Service (USDA-ERS);
or
(2) A census
block that is not in an urban area, as defined by the U.S. Census
Bureau using the latest decennial census of the United States.
(3) A county or
a census block that has been designated as rural by the Bureau pursuant
to the application process established under section 89002 of the
Helping Expand Lending Practices in Rural Communities Act, Public
Law 114-94, title LXXXIX (2015). The provisions of this paragraph
(b)(2)(iv)(A)(3) shall cease to have any force or effect on
December 4, 2017.
(B) An area is “underserved” during a calendar
year if, according to Home Mortgage Disclosure Act (HMDA) data for
the preceding calendar year, it is a county in which no more than
two creditors extended covered transactions, as defined in section
1026.43(b)(1), secured by first liens on properties in the county
five or more times.
(C)
A property shall be deemed to be in an area that is rural or underserved
in a particular calendar year if the property is:
(1) Located in a county that appears
on the lists published by the Bureau of counties that are rural or
underserved, as defined by section 1026.35(b)(2)(iv)(A)(1)
or section 1026.35(b)(2)(iv)(B), for that calendar year,
(2) Designated as rural
or underserved for that calendar year by any automated tool that the
Bureau provides on its public Web site, or
(3) Not designated as located in an
urban area, as defined by the most recent delineation of urban areas
announced by the Census Bureau, by any automated address search tool
that the U.S. Census Bureau provides on its public Web site for that
purpose and that specifically indicates the urban or rural designations
of properties.
(v) Notwithstanding paragraphs (b)(2)(iii)
and (vi) of this section, an escrow account must be established pursuant
to paragraph (b)(1) of this section for any first-lien higher-priced
mortgage loan that, at consummation, is subject to a commitment to
be acquired by a person that does not satisfy the conditions in paragraph
(b)(2)(iii) or (vi) of this section, unless otherwise exempted by
this paragraph (b)(2).
(vi) Except as provided in paragraph (b)(2)(v) of this section, an
escrow account need not be established for a transaction made by a
creditor that is an insured depository institution or insured credit
union if, at the time of consummation:
(A) As of the preceding December
31st, or, if the application for the transaction was received before
April 1 of the current calendar year, as of either of the two preceding
December 31sts, the insured depository institution or insured credit
union had assets of $10,000,000,000 or less, adjusted annually for
inflation using the Consumer Price Index for Urban Wage Earners and
Clerical Workers, not seasonally adjusted, for each 12-month period
ending in November (see comment 35(b)(2)(vi)(A)-1 for the applicable
threshold);
(B) During
the preceding calendar year, or, if the application for the transaction
was received before April 1 of the current calendar year, during either
of the two preceding calendar years, the creditor and its affiliates,
as defined in section 1026.32(b)(5), together extended no more than
1,000 covered transactions secured by a first lien on a principal
dwelling; and
(C) The
transaction satisfies the criteria in paragraphs (b)(2)(iii)(A) and
(D) of this section.
(3) Cancellation.
(i) General. Except as provided in paragraph (b)(3)(ii) of this section, a creditor
or servicer may cancel an escrow account required in paragraph (b)(1) of
this section only upon the earlier of:
(A) Termination of the underlying
debt obligation; or
(B)
Receipt no earlier than five years after consummation of a consumer’s
request to cancel the escrow account.
(ii) Delayed
cancellation. Notwithstanding paragraph (b)(3)(i) of this section,
a creditor or servicer shall not cancel an escrow account pursuant
to a consumer’s request described in paragraph (b)(3)(i)(B) of this
section unless the following conditions are satisfied:
(A) The unpaid
principal balance is less than 80 percent of the original value of
the property securing the underlying debt obligation; and
(B) The consumer currently is
not delinquent or in default on the underlying debt obligation.
(1) Definitions. For purposes of this section:
(i) Certified or licensed
appraiser means a person who is certified or licensed by the State
agency in the State in which the property that secures the transaction
is located, and who performs the appraisal in conformity with the
Uniform Standards of Professional Appraisal Practice and the requirements
applicable to appraisers in title XI of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989, as amended (12 U.S.C.
3331 et seq.), and any implementing regulations in effect at
the time the appraiser signs the appraiser’s certification.
(ii) Credit risk means the financial risk that a consumer will default on a loan.
(iii) Manufactured
home has the same meaning as in 24 CFR 3280.2.
(iv) Manufacturer’s invoice means
a document issued by a manufacturer and provided with a manufactured
home to a retail dealer that separately details the wholesale (base)
prices at the factory for specific models or series of manufactured
homes and itemized options (large appliances, built-in items and equipment),
plus actual itemized charges for freight from the factory to the dealer’s
lot or the homesite (including any rental of wheels and axles) and
for any sales taxes to be paid by the dealer. The invoice may recite
such prices and charges on an itemized basis or by stating an aggregate
price or charge, as appropriate, for each category.
(v) National Registry means the
database of information about State certified and licensed appraisers
maintained by the Appraisal Subcommittee of the Federal Financial
Institutions Examination Council.
(vi) New manufactured home means
a manufactured home that has not been previously occupied.
(vii) State agency means a “State appraiser certifying and licensing agency” recognized
in accordance with section 1118(b) of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (12 U.S.C. 3347(b)) and any
implementing regulations.
(2) Exemptions. Unless otherwise specified, the requirements in paragraph (c)(3)
through (6) of this section do not apply to the following types of
transactions:
(i) A loan that satisfies the criteria
of a qualified mortgage as defined pursuant to 15 U.S.C. 1639c;
(ii) An extension of
credit for which the amount of credit extended is equal to or less
than the applicable threshold amount, which is adjusted every year
to reflect increases in the Consumer Price Index for Urban Wage Earners
and Clerical Workers, as applicable, and published in the official
staff commentary to this paragraph (c)(2)(ii);
(iii) A transaction secured by a mobile
home, boat, or trailer.
(iv) A transaction to finance the initial construction of a dwelling.
(v) A loan with a
maturity of 12 months or less, if the purpose of the loan is a “bridge”
loan connected with the acquisition of a dwelling intended to become
the consumer’s principal dwelling.
(vi) A reverse-mortgage transaction
subject to 12 CFR 1026.33(a).
(vii) An extension of credit that is
a refinancing secured by a first lien, with refinancing defined as
in section 1026.20(a) (except that the creditor need not be the original
creditor or a holder or servicer of the original obligation), provided
that the refinancing meets the following criteria:
(A) Either—
(1) The credit risk of the refinancing
is retained by the person that held the credit risk of the existing
obligation and there is no commitment, at consummation, to transfer
the credit risk to another person; or
(2) The refinancing is insured or
guaranteed by the same Federal government agency that insured or guaranteed
the existing obligation;
(B) The regular periodic payments under the
refinance loan do not—
(1) Cause the principal balance to increase;
(2) Allow the consumer to defer repayment
of principal; or
(3) Result in a balloon payment, as defined in section 1026.18(s)(5)(i);
and
(C)
The proceeds from the refinancing are used solely to satisfy the existing
obligation and amounts attributed solely to the costs of the refinancing;
and
(viii) A transaction secured by:
(A) A new manufactured home and
land, but the exemption shall only apply to the requirement in paragraph
(c)(3)(i) of this section that the appraiser conduct a physical visit
of the interior of the new manufactured home; or
(B) A manufactured home and not land, for
which the creditor obtains one of the following and provides a copy
to the consumer no later than three business days prior to consummation
of the transaction—
(1) For a new manufactured home, the manufacturer’s invoice
for the manufactured home securing the transaction, provided that
the date of manufacture is no earlier than 18 months prior to the
creditor’s receipt of the consumer’s application for credit;
(2) A cost estimate of
the value of the manufactured home securing the transaction obtained
from an independent cost service provider; or
(3) A valuation, as defined in section
1026.42(b)(3), of the manufactured home performed by a person who
has no direct or indirect interest, financial or otherwise, in the
property or transaction for which the valuation is performed and has
training in valuing manufactured homes.
(3) Appraisals required.
(i) In general. Except as provided in paragraph
(c)(2) of this section, a creditor shall not extend a higher-priced
mortgage loan to a consumer without obtaining, prior to consummation,
a written appraisal of the property to be mortgaged. The appraisal
must be performed by a certified or licensed appraiser who conducts
a physical visit of the interior of the property that will secure
the transaction.
(ii) Safe harbor. A creditor obtains
a written appraisal that meets the requirements for an appraisal required
under paragraph (c)(3)(i) of this section if the creditor:
(A) Orders that
the appraiser perform the appraisal in conformity with the Uniform
Standards of Professional Appraisal Practice and title XI of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended
(12 U.S.C. 3331 et seq.), and any implementing regulations
in effect at the time the appraiser signs the appraiser’s certification;
(B) Verifies through the
National Registry that the appraiser who signed the appraiser’s certification
was a certified or licensed appraiser in the State in which the appraised
property is located as of the date the appraiser signed the appraiser’s
certification;
(C) Confirms that the elements set forth in appendix N to this part
are addressed in the written appraisal; and
(D) Has no actual knowledge contrary to the
facts or certifications contained in the written appraisal.
(4) Additional appraisal for certain higher-priced
mortgage loans.
(i) In general. Except as provided in paragraphs (c)(2) and (c)(4)(vii) of this
section, a creditor shall not extend a higher-priced mortgage loan
to a consumer to finance the acquisition of the consumer’s principal
dwelling without obtaining, prior to consummation, two written appraisals,
if:
(A) The seller acquired the property 90 or fewer days prior to the
date of the consumer’s agreement to acquire the property and the price
in the consumer’s agreement to acquire the property exceeds the seller’s
acquisition price by more than 10 percent; or
(B) The seller acquired the property 91 to
180 days prior to the date of the consumer’s agreement to acquire
the property and the price in the consumer’s agreement to acquire
the property exceeds the seller’s acquisition price by more than 20
percent.
(ii) Different certified or licensed appraisers. The two appraisals required under paragraph (c)(4)(i) of this section
may not be performed by the same certified or licensed appraiser.
(iii) Relationship to general appraisal requirements. If two appraisals must be obtained under paragraph (c)(4)(i) of
this section, each appraisal shall meet the requirements of paragraph
(c)(3)(i) of this section.
(iv) Required
analysis in the additional appraisal. One of the two required
appraisals must include an analysis of:
(A) The difference between
the price at which the seller acquired the property and the price
that the consumer is obligated to pay to acquire the property, as
specified in the consumer’s agreement to acquire the property from
the seller;
(B) Changes
in market conditions between the date the seller acquired the property
and the date of the consumer’s agreement to acquire the property;
and
(C) Any improvements
made to the property between the date the seller acquired the property
and the date of the consumer’s agreement to acquire the property.
(v) No charge for the additional appraisal. If the creditor must obtain two appraisals under paragraph (c)(4)(i)
of this section, the creditor may charge the consumer for only one
of the appraisals.
(vi) Creditor’s determination of prior
sale date and price.
(A) Reasonable diligence. A creditor must obtain two written appraisals under paragraph (c)(4)(i)
of this section unless the creditor can demonstrate by exercising
reasonable diligence that the requirement to obtain two appraisals
does not apply. A creditor acts with reasonable diligence if the creditor
bases its determination on information contained in written source
documents, such as the documents listed in Appendix O to this part.
(B) Inability to determine prior sale date or price—modified requirements
for additional appraisal. If, after exercising reasonable diligence,
a creditor cannot determine whether the conditions in paragraphs (c)(4)(i)(A)
and (c)(4)(i)(B) are present and therefore must obtain two written
appraisals in accordance with paragraphs (c)(4)(i) through (v) of
this section, one of the two appraisals shall include an analysis
of the factors in paragraph (c)(4)(iv) of this section only to the
extent that the information necessary for the appraiser to perform
the analysis can be determined.
(vii) Exemptions
from the additional appraisal requirement. The additional appraisal
required under paragraph (c)(4)(i) of this section shall not apply
to extensions of credit that finance a consumer’s acquisition of property:
(A) From a local, State or Federal government agency;
(B) From a person who acquired
title to the property through foreclosure, deed-in-lieu of foreclosure,
or other similar judicial or non-judicial procedure as a result of
the person’s exercise of rights as the holder of a defaulted mortgage
loan;
(C) From a non-profit
entity as part of a local, State, or Federal government program under
which the non-profit entity is permitted to acquire title to single-family
properties for resale from a seller who acquired title to the property
through the process of foreclosure, deed-in-lieu of foreclosure, or
other similar judicial or non-judicial procedure;
(D) From a person who acquired title to the
property by inheritance or pursuant to a court order of dissolution
of marriage, civil union, or domestic partnership, or of partition
of joint or marital assets to which the seller was a party;
(E) From an employer or relocation
agency in connection with the relocation of an employee;
(F) From a servicemember, as
defined in 50 U.S.C. App. 511(1), who received a deployment or permanent
change of station order after the servicemember purchased the property;
(G) Located in an area designated
by the President as a federal disaster area, if and for as long as
the Federal financial institutions regulatory agencies, as defined
in 12 U.S.C. 3350(6), waive the requirements in title XI of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended
(12 U.S.C. 3331 et seq.), and any implementing regulations
in that area; or
(H) Located
in a rural county, as defined in 12 CFR 1026.35(b)(2)(iv)(A).
(5) Required disclosure.
(i) In general. Except as provided in paragraph
(c)(2) of this section, a creditor shall disclose the following statement,
in writing, to a consumer who applies for a higher-priced mortgage
loan: “We may order an appraisal to determine the property’s value
and charge you for this appraisal. We will give you a copy of any
appraisal, even if your loan does not close. You can pay for an additional
appraisal for your own use at your own cost.” Compliance with the
disclosure requirement in Regulation B, 12 CFR 1002.14(a)(2), satisfies
the requirements of this paragraph.
(ii) Timing
of disclosure. The disclosure required by paragraph (c)(5)(i)
of this section shall be delivered or placed in the mail no later
than the third business day after the creditor receives the consumer’s
application for a higher-priced mortgage loan subject to paragraph
(c) of this section. In the case of a loan that is not a higher-priced
mortgage loan subject to paragraph (c) of this section at the time
of application, but becomes a higher-priced mortgage loan subject
to paragraph (c) of this section after application, the disclosure
shall be delivered or placed in the mail not later than the third
business day after the creditor determines that the loan is a higher-priced
mortgage loan subject to paragraph (c) of this section.
(6) Copy of appraisals.
(i) In general. Except as provided in paragraph
(c)(2) of this section, a creditor shall provide to the consumer a
copy of any written appraisal performed in connection with a higher-priced
mortgage loan pursuant to paragraphs (c)(3) and (c)(4) of this section.
(ii) Timing. A creditor shall provide to the
consumer a copy of each written appraisal pursuant to paragraph (c)(6)(i)
of this section:
(A) No later than three business days prior
to consummation of the loan; or
(B) In the case of a loan that is not consummated,
no later than 30 days after the creditor determines that the loan
will not be consummated.
(iii) Form
of copy. Any copy of a written appraisal required by paragraph
(c)(6)(i) of this section may be provided to the applicant in electronic
form, subject to compliance with the consumer consent and other applicable
provisions of the Electronic Signatures in Global and National Commerce
Act (E-Sign Act) (15 U.S.C. 7001 et seq.).
(iv) No charge
for copy of appraisal. A creditor shall not charge the consumer
for a copy of a written appraisal required to be provided to the consumer
pursuant to paragraph (c)(6)(i) of this section.
(7) Relation to other rules. The rules in this paragraph (c) were
adopted jointly by the Federal Reserve Board (Board), the Office of
the Comptroller of the Currency (OCC), the Federal Deposit Insurance
Corporation, the National Credit Union Administration, the Federal
Housing Finance Agency, and the Bureau. These rules are substantively
identical to the Board’s and the OCC’s higher-priced mortgage loan
appraisal rules published separately in 12 CFR 226.43 (for the Board)
and in 12 CFR part 34, subpart G and 12 CFR part 164, subpart B (for
the OCC).
(1) Repayment
ability. A creditor shall not extend credit based on the value
of the consumer’s collateral without regard to the consumer’s repayment
ability as of consummation as provided in section 1026.34(a)(4).
(2) Prepayment penalties. A loan may not include
a penalty described by section 1026.32(d)(6) unless:
(i) The
penalty is otherwise permitted by law, including section 1026.32(d)(7)
if the loan is a mortgage transaction described in section 1026.32(a);
and
(ii) Under the
terms of the loan:
(A) The penalty will not apply after the two-year
period following consummation;
(B) The penalty will not apply if the source
of the prepayment funds is a refinancing by the creditor or an affiliate
of the creditor; and
(C)
The amount of the periodic payment of principal or interest or both
may not change during the four-year period following consummation.
(3) Exclusions. This paragraph (e)
does not apply to a transaction to finance the initial construction
of a dwelling; a temporary or “bridge” loan with a term of twelve
months or less, such as a loan to purchase a new dwelling where the
consumer plans to sell a current dwelling within twelve months; or
a reverse mortgage transaction subject to section 1026.33.
(4) Sunset of requirements on repayment ability and prepayment penalties. The requirements described in this paragraph (e) shall expire at
11:59 p.m. on January 9, 2014.
