[Federal Register Volume 74, Number 223 (Friday, November 20, 2009)]
[Rules and Regulations]
[Pages 60143-60153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-27742]
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FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R-1378]
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Interim final rule; request for public comment.
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SUMMARY: The Board is publishing for public comment an interim final
rule amending Regulation Z (Truth in Lending). The interim rule
implements Section 131(g) of the Truth in Lending Act (TILA), which was
enacted on May 20, 2009, as Section 404(a) of the Helping Families Save
Their Homes Act. TILA Section 131(g) became effective immediately upon
enactment and established a new requirement for notifying consumers of
the sale or transfer of their mortgage loans. The purchaser or assignee
that acquires the loan must provide the required disclosures in writing
no later than 30 days after the date on which the loan is sold or
otherwise transferred or assigned. The Board is issuing this interim
rule, effective immediately upon publication, so that parties subject
to the statutory requirement have guidance on how to comply. However,
to allow time for any necessary operational changes, compliance with
the interim final rule is optional for 60 days from the date of
publication; during this period, covered persons would continue to be
subject to the statute's requirements. The Board seeks comment on all
aspects of the interim rule.
DATES: This interim final rule is effective November 20, 2009; however,
to allow time for any necessary operational changes, compliance with
this interim final rule is optional until January 19, 2010. Comments
must be received on or before January 19, 2010.
ADDRESSES: You may submit comments, identified by Docket No. R- 1378,
by any of the following methods:
Agency Web Site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected]. Include the
docket number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Address to Jennifer J. Johnson, Secretary, Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue, NW., Washington, DC 20551.
All public comments will be made available on the Board's Web site
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, comments
will not be edited to remove any identifying or contact information.
Public comments may also be viewed electronically or in paper in Room
MP-500 of the Board's Martin Building (20th and C Streets, NW.,)
between 9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Paul Mondor, Senior Attorney, or
Stephen Shin, Attorney; Division of Consumer and Community Affairs,
Board of Governors of the Federal Reserve System, Washington, DC 20551,
at (202) 452-2412 or (202) 452-3667. For users of Telecommunications
Device for the Deaf (TDD) only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
The Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., seeks to
promote the informed use of consumer credit by requiring disclosures
about its costs and terms. TILA requires additional disclosures for
loans secured by consumers' homes and permits consumers to rescind
certain transactions that involve their principal dwelling. TILA
directs the Board to prescribe regulations to carry out its purposes
and specifically authorizes the Board, among other things, to issue
regulations that contain such classifications, differentiations, or
other provisions, or that provide for such
[[Page 60144]]
adjustments and exceptions for any class of transactions, that in the
Board's judgment are necessary or proper to effectuate the purposes of
TILA, facilitate compliance with TILA, or prevent circumvention or
evasion of TILA. 15 U.S.C. 1604(a). TILA is implemented by the Board's
Regulation Z, 12 CFR part 226. An Official Staff Commentary interprets
the requirements of the regulation and provides guidance to creditors
in applying the rules to specific transactions. See 12 CFR part 226,
Supp. I.
On May 20, 2009, the Helping Families Save Their Homes Act of 2009
(the ``2009 Act'') was signed into law. Public Law 111-22, 123 Stat.
1632. Section 404(a) of the 2009 Act amended TILA to establish a new
requirement for notifying consumers of the sale or transfer of their
mortgage loans. The purchaser or assignee that acquires the loan must
provide the required disclosures no later than 30 days after the date
on which the loan is acquired. This provision is contained in TILA
Section 131(g), 15 U.S.C. 1641(g), which applies to any consumer credit
transaction secured by the principal dwelling of a consumer.
Consequently, the disclosure requirements in Section 131(g) apply to
both closed-end mortgage loans and open-end home equity lines of credit
(HELOCs).
Section 131(g) became effective immediately upon enactment on May
20, 2009, and did not require the issuance of implementing regulations.
Mortgage loans sold or transferred on or after that date became subject
to the requirements of Section 131(g), and failure to comply can result
in civil liability under TILA Section 130(a). See 15 U.S.C. 1640(a).
Accordingly, as discussed below, the Board finds there is good cause
for issuing an interim rule that is effective immediately upon
publication, so that parties subject to the rule have guidance on how
to interpret and comply with the statutory requirements.
Under the Real Estate Settlement Procedures Act (RESPA), consumers
must be notified when the servicer of their mortgage loan has
changed.\1\ The 2009 Act's legislative history reflects that, in
addition to the information provided under RESPA, the Congress intended
to provide consumers with information about the identity of the owner
of their mortgage loan. In some cases, consumers that have an extended
right to rescind the loan under TILA Section 125, 15 U.S.C. 1635, can
assert that right against the purchaser or assignee. See TILA Section
131(c), 15 U.S.C. 1641(c). Among other things, the 2009 Act seeks to
ensure that consumers attempting to exercise this right know the
identity of the assignee and how to contact the assignee or its agent
for that purpose. See 155 Cong. Rec. S5098-99 (daily ed. May 5, 2009);
155 Cong. Rec. S5173-74 (daily ed. May 6, 2009). The legislative
history indicates, however, that TILA Section 131(g) was not intended
to require notice when a transaction ``does not involve a change in the
ownership of the physical note,'' such as when the note holder issues
mortgage-backed securities but does not transfer legal title to the
loan. 155 Cong. Rec. S5099.
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\1\ RESPA is implemented by Regulation X, 24 CFR part 3500,
which is issued by the Department of Housing and Urban Development
(HUD).
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II. Summary of the Interim Final Rule
Consistent with the legislative intent, this interim final rule
implements Section 404(a) of the 2009 Act by applying the new
disclosure requirements to any person or entity that acquires ownership
of an existing consumer mortgage loan, whether the acquisition occurs
as a result of a purchase or other transfer or assignment. A person is
covered by the rule only if the person acquires legal title to the debt
obligation. Although TILA and Regulation Z generally apply only to
persons to whom the obligation is initially made payable and that
regularly engage in extending consumer credit, Section 404(a) and the
interim final rule apply to persons that acquire mortgage loans without
regard to whether they also extend consumer credit by originating
mortgage loans. However, the interim final rule applies only to persons
that acquire more than one mortgage loan in any 12-month period.
To comply with the interim rule, a covered person must mail or
deliver the required disclosures on or before the 30th day following
the date that the covered person acquired the loan. The disclosure need
not be given, however, if the covered person transfers or assigns the
loan to another party on or before that date. This exception seeks to
prevent the confusion that could result if consumers receive outdated
contact information for parties that no longer own their loan. For
example, a covered person that acquires a mortgage loan on March 1 must
mail or deliver the disclosures on or before March 31. However, if the
covered person sells or assigns the loan to a third party on March 31
(or earlier), the covered person need not provide the disclosures, but
subsequent purchasers would have to comply with the rule.
III. Legal Authority
General Rulemaking Authority
As noted above, TILA Section 105(a) directs the Board to prescribe
regulations to carry out the act's purposes. 15 U.S.C. 1604(a). Section
404 of the 2009 Act became effective immediately without any
requirement that the Board first issue implementing rules.
Nevertheless, the Board finds that the legislative purpose of Section
404 will be furthered and its effectiveness enhanced by the issuance of
rules that specify the manner in which covered persons can comply with
its provisions. In addition, the Board believes that implementing
regulations will facilitate covered persons' compliance with the
statutory provisions.
TILA also specifically authorizes the Board, among other things,
to:
Issue regulations that contain such classifications,
differentiations, or other provisions, or that provide for such
adjustments and exceptions for any class of transactions, that in the
Board's judgment are necessary or proper to effectuate the purposes of
TILA, facilitate compliance with the act, or prevent circumvention or
evasion. 15 U.S.C. 1604(a).
Exempt from all or part of TILA any class of transactions
if the Board determines that TILA coverage does not provide a
meaningful benefit to consumers in the form of useful information or
protection. The Board must consider factors identified in the act and
publish its rationale at the time it proposes an exemption for comment.
15 U.S.C. 1604(f).
Authority To Issue Interim Final Rules Without Notice and Comment
The Administrative Procedures Act (APA), 5 U.S.C. 551 et seq.,
generally requires public notice before promulgation of regulations.
See 5 U.S.C. 553(b). Unless notice or a hearing is specifically
required by statute, however, the APA also provides an exception ``when
the agency for good cause finds (and incorporates the finding and a
brief statement of reasons therefore in the rules issued) that notice
and public procedure thereon are impracticable, unnecessary, or
contrary to the public interest.'' 5 U.S.C. 553(b)(B).
As an initial matter, neither TILA nor the 2009 Act specifically
requires the Board to provide notice or a hearing with respect to this
rulemaking. See TILA Section 105(a), 15 U.S.C. 1604(a). In addition,
the Board finds that there is good cause to conclude that providing
notice and an opportunity to comment before issuing this interim final
rule
[[Page 60145]]
would be impracticable and contrary to the public interest. The
statutory requirements in Section 404 became effective upon enactment
on May 20, 2009, as noted above. Covered persons must comply with those
requirements even if the Board does not issue this interim final rule.
This interim final rule implements the requirements contained in
the 2009 Act but also interprets the statutory text to resolve issues
and ambiguities not directly addressed by the statute. Providing notice
and opportunity for comment on these matters before issuing these rules
is not in the public interest because the legislation was effective
upon enactment. As a result, persons covered by Section 404(a) already
must be in compliance with the law or face potential liability for
violations. The Board is issuing final rules at this time so that
covered persons receive immediate guidance on how they can comply with
the law in a manner that effectuates its purposes and avoids potential
liability. The Board's issuance of a notice of proposed rulemaking for
public comment would not serve this purpose because it would not
provide certainty regarding a covered person's compliance obligations
until the rules were finalized. By clarifying that Section 404(a) of
the 2009 Act covers persons that acquire mortgage loans even if they
are not ``creditors'' as defined under TILA, the interim final rule
also ensures that consumers will receive the notice that was intended
by the legislation. Consequently, the Board finds that the use of
notice and comment procedures before issuing these rules would be
impracticable and would not be in the public interest. Interested
parties will still have an opportunity to submit comments in response
to this interim final rule.
Authority To Issue Interim Final Rules That Are Effective Immediately
This interim final rule is effective upon publication in the
Federal Register. Institutions may rely on the rules immediately to
ensure they are complying with the statutory requirements. However, to
allow time for any necessary operational changes, compliance with the
interim final rules is optional until January 19, 2010. During this 60-
day period, institutions continue to be subject to the statute's
requirements.
The APA generally requires that rules be published not less than 30
days before their effective date. See 5 U.S.C. 553(d). As with the
notice and comment requirement, however, the APA provides an exception
when ``otherwise provided by the agency for good cause found and
published with the rule.'' 5 U.S.C. 553(d)(3). Similarly, Section 302
of the Riegle Community Development and Regulatory Improvement Act of
1994 generally requires that new regulations and amendments to existing
regulations prescribed by a Federal banking agency, which impose
additional reporting, disclosure, or other new requirements on insured
depository institutions, take effect on the first day of the calendar
quarter that begins on or after the date on which the regulations are
published in final form.\2\ There is an exception, however, when ``the
agency determines, for good cause published with the regulation, that
the regulations should become effective before such time.'' 12 U.S.C.
4802(b)(1)(A).
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\2\ See Public Law 103-325, Title III, Sec. 302(b), Sept. 23,
1994, 108 Stat. 2214, codified at 12 U.S.C. 4802(b).
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The interim final rule implements statutory disclosure requirements
that have been in effect since May 20, 2009. For the reasons discussed
above, the Board finds there is good cause to make these rules
effective immediately. These rules are intended to interpret and
clarify the statutory requirements and provide compliance guidance. The
Board will consider public comments on the provisions before adopting
further rules.
Finally, TILA Section 105(d) generally provides that a regulation
requiring any disclosure that differs from the disclosures previously
required shall have an effective date no earlier than ``that October 1
which follows by at least six months the date of promulgation.'' To the
extent that the interim rule contains disclosure requirements that are
already in effect under the statute, Section 105(d) does not apply.
Moreover, the Board believes that the effective date mandated by the
2009 Act for the specific disclosures required under section 404
overrides the general provision in TILA Section 105(d).
IV. Section-by-Section Analysis
Section 226.39--Mortgage Transfer Disclosures
39(a) Scope
Section 226.39(a) defines the scope of the interim rule's coverage.
The disclosure requirements of Sec. 226.39 apply to any ``covered
person,'' with certain exceptions that are specified in the rule. For
purposes of the rule, a ``covered person'' includes any natural person
or organization (as defined in section 226.2(a)(22) of the regulation)
that acquires more than one existing mortgage loan in any 12-month
period. Consistent with the statute, the rule applies to all consumer
mortgage transactions secured by the principal dwelling of a consumer,
whether the transaction is a closed-end loan or an open-end line of
credit.
Generally, TILA and Regulation Z apply to parties that regularly
extend consumer credit. However, Section 404(a) of the 2009 Act is not
limited to persons that extend credit by originating loans. Section
404(a) imposes the disclosure duty on the ``creditor that is the new
owner or assignee of the debt.'' The Board believes that to give effect
to the legislative purpose, the term ``creditor'' in Section 404(a)
must be construed to refer to the owner of the debt following the sale,
transfer or assignment, without regard to whether that party would be a
``creditor'' for other purposes under TILA or Regulation Z. The Board
declines to limit Section 404(a) to parties that originate consumer
loans because such an interpretation would exempt a significant
percentage of mortgage transfers which are acquisitions by secondary
market investors that do not extend consumer credit and are not
``creditors'' for purposes of other provisions of Regulation Z.
The Board also believes that Section 404(a) of the 2009 Act does
not alter the definition of ``creditor'' as currently used in TILA or
Regulation Z. Thus, the fact that a person purchases mortgage loans and
provides disclosures under Sec. 226.39 does not by itself make that
person a ``creditor'' for purposes of TILA and Regulation Z (even if
the disclosure provided under Section 404(a) uses the term
``creditor''). Accordingly, in describing the persons subject to the
requirements of Sec. 226.39, the interim final rule uses the term
``covered person'' rather than the term ``creditor.''
Under the interim final rule, the disclosure requirements in Sec.
226.39 apply only to persons that acquire more than one consumer
mortgage transaction in any 12-month period. Generally, TILA and
Regulation Z cover only parties that are regularly engaged in consumer
credit transactions, who are expected to have the capacity to put
systems in place to ensure compliance with the rules. There is no
indication in the legislative history that Section 404 was intended to
apply more broadly. For example, individual homeowners might choose to
facilitate the sale of their home by providing seller financing and
accepting the buyer's promissory note for a portion of the purchase
price. At a later date, ownership of the debt obligation might be
transferred to
[[Page 60146]]
another family member or to a trust for estate planning purposes, or
might be transferred to another person if the original note holder
dies. The Board believes that a formal notice under Section 404 is not
needed in situations involving individual transfers because the
acquiring party is likely to provide adequate information to borrowers
to ensure that they know to whom the loan payments should be made.
Accordingly, to prevent undue burden on individuals under the
interim rule, a person who acquires only one existing mortgage loan in
any 12-month period is not a covered person. The Board intends to
exclude persons who are not regularly engaged in the business of
purchasing or investing in consumer mortgages loans and are involved in
such transactions infrequently and would not have systems in place to
comply. The Board specifically solicits comment on this definition and
whether the scope of the interim final rule's coverage is appropriate,
or whether a different standard should apply in determining which
persons must comply with the disclosure requirement in Sec. 226.39.
For example, comment is requested on whether the Board should use the
same standard that applies in determining whether a person is regularly
engaged in extending consumer credit, which would limit the application
of Sec. 226.39 to persons that have acquired more than five mortgage
loans in the preceding or current calendar year. See Sec.
226.2(a)(17)(i), footnote 3.
To become a ``covered person'' subject to Sec. 226.39, a person
must become the owner of an existing mortgage loan by acquiring legal
title to the debt obligation. Consequently, Sec. 226.39 does not apply
to persons who acquire only a beneficial interest in the loan or a
security interest in the loan, such as when the owner of the debt
obligation uses the loan as security to obtain financing and the party
providing the financing obtains only a security interest in the loan.
Section 226.39 also does not apply to a party that assumes the credit
risk without acquiring legal title to the loans. Accordingly, an
investor who purchases an interest in a pool of loans (such as
mortgage-backed securities, pass-through certificates, participation
interests, or real estate mortgage investment conduits) but does not
directly acquire legal title in the underlying mortgage loan, is not
covered by Sec. 226.39.
The Board has received a letter from the Department of Housing and
Urban Development's Office of General Counsel, in its capacity as legal
counsel for the Government National Mortgage Association (Ginnie Mae),
seeking to clarify Ginnie Mae's status under Section 404(a) of the 2009
Act. Ginnie Mae guarantees securities that are collateralized by
mortgage loans. HUD's letter states that, as the guarantor of these
securities, Ginnie Mae obtains equitable title in the mortgage loans
but further states that the issuers of the securities retain legal
title to the loans that collateralize the securities. According to HUD,
legal title to the loans is not conveyed to Ginnie Mae unless the
issuer of the securities defaults in its obligations. If the securities
issuer defaults, Ginnie Mae can immediately extinguish the securities
issuer's interest in the loans and take legal title. Based on HUD's
representations and legal opinion regarding Ginnie Mae's status, the
Board believes that the requirements of Sec. 226.39 do not apply to
Ginnie Mae until it finds the issuer in default and acquires legal
title to the loans.
Section 131(f) of TILA addresses the treatment of loan servicers
under the assignee liability provisions in Section 131 as well as the
provisions of Section 131(g) which were added by the 2009 Act. Under
TILA section 131(f)(2), a party servicing the mortgage loan is not
treated as the owner of the obligation if the obligation was assigned
to the servicer solely for the administrative convenience of the
servicer in servicing the obligation. Accordingly, the requirements of
Sec. 226.39 do not apply to a loan servicer in this circumstance, even
if the servicer holds legal title to the loan.
Some industry representatives have requested clarification whether
a disclosure under Sec. 226.39 is required in the case of a merger,
acquisition, or reorganization. The Board believes that the statute
covers acquisitions that occur in these situations when ownership of
the loan is transferred to a different legal entity. Accordingly, the
interim final rule does not provide an exception for such transactions.
39(b) Disclosure Required
Section 226.39(b) contains the general requirement for covered
persons to provide the disclosures required under Section 404 of the
2009 Act, unless the exception specified in Sec. 226.39(c) applies.
The disclosures must be mailed or delivered to the consumer on or
before the 30th calendar day following the date that the covered person
acquires the loan. For purposes of this requirement, the date that the
covered person acquires the loan is deemed to be the acquisition date
that is recognized in the books and records of the acquiring party. If
there is more than one covered person, the interim rule provides that
only one disclosure shall be given; the covered persons must determine
among themselves which one of them will provide the disclosure. If
there is more than one consumer, a covered person may mail or deliver
the disclosures to any consumer who is primarily liable on the
obligation.
The transfer of ownership of a mortgage loan is subject to the
disclosure requirements of this section when the acquiring party is a
separate legal entity from the transferor, even if the parties are
affiliated entities. However, if a covered person acquires a mortgage
loan and subsequently transfers the loan to another entity, the
regulation does not prohibit the two entities from combining their
disclosures on a single document. Comment 39(b)-2 clarifies how two
entities may comply with the rules in certain circumstances by
providing a single form that covers both entities. For example, a
covered person that acquires a loan on August 31 might mail a single
disclosure on or before September 30 with the knowledge that it will
assign the loan to another entity on October 15. The covered person
could mail a single disclosure providing the required information for
both entities and indicating when the subsequent transfer will occur.
39(c) Exceptions
To comply with the interim final rule, a covered person must mail
or deliver the required disclosures on or before the 30th day following
the date that the covered person acquired the loan. Section
226.39(c)(1) provides an exception, however, if the covered person
transfers or assigns the loan to another party on or before that date.
This exception is made pursuant to the Board's authority to make
exceptions and exemptions under TILA Sections 105(a) and 105(f). 15
U.S.C. 1604(a), 1604(f). This exception seeks to prevent the confusion
that could result if consumers receive outdated contact information for
parties that no longer own their loans. For example, if a mortgage loan
is originated on February 22 and the original creditor sells the loan
on March 1 to a covered person, the covered person must mail or deliver
the disclosures required by Sec. 226.39 on or before March 31.
However, under the exception in Sec. 226.39(c)(1) the covered person
would not be required to provide the disclosures if the loan is sold or
otherwise transferred or assigned to a third party on or before March
31.
The Board specifically solicits public comment on the need for this
exception and its scope. The Board believes that
[[Page 60147]]
this exception is necessary and proper to effectuate the purposes of
Section 404 and to facilitate compliance. The Board is concerned about
the potential for consumers to receive multiple disclosures, some of
which contain information that is outdated and inaccurate by the time
it is received. This can occur because during the normal securitization
process, several legal entities may be created to serve as acquisition
vehicles to hold the loan for a short period before delivering the loan
to an entity that ultimately holds it for the investors. After
origination, a loan might be assigned to one or more entities for only
a few days before it is transferred to an entity that will hold it for
a much longer time period.
The Board believes that consumers may be confused if they receive
one or more notices on or around the 30th day identifying multiple
parties that no longer own the loan. Consequently, the interim final
rule requires notices to be provided only by a covered person that
still owns the loan on the 30th day after the acquisition. Thus
consumers would be likely to receive notices only from parties actually
holding the loan as of that date. In contrast, notices sent by
temporary holders would provide information that most consumers are
unlikely to need or use and could create information overload for many
consumers, thereby hindering their ability to determine which party
should be contacted to address a particular concern. The Board believes
that the disclosure of short-term holdings of the debt obligation that
do not reflect the current ownership status at the time the consumer
receives the notice would be of minimal value to consumers and does not
provide meaningful disclosure consistent with the purposes of TILA or
the 2009 Act. Thus, the Board believes that a regulatory exception
adopted pursuant to TILA Section 105(a) would effectuate TILA's
purposes and facilitate compliance.
The Board has also considered the relevant statutory factors in
TILA Section 105(f). The Board believes that the Section 105(f)
exemption is appropriate because the disclosure of ownership interests
that are held less than the 30-day period would not provide a
meaningful benefit to consumers in the form of useful information or
protection. It would also complicate compliance and impose unnecessary
burden and expense for persons that would be required to comply, that
would not be outweighed by the benefits to consumers.\3\ The Board
requests comment on whether the scope of this exemption is appropriate
and whether the 30-day period should be shorter or longer.
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\3\ In exercising its exemption authority under Section 105(f),
Board must determine whether coverage of such transactions provides
a meaningful benefit to consumers in light of specific factors. 15
U.S.C. 1604(f)(2). These factors, which the Board has reviewed, are
(1) the amount of the loan and whether the disclosure provides a
benefit to consumers who are parties to the transaction involving a
loan of such amount; (2) the extent to which the requirement
complicates, hinders, or makes more expensive the credit process;
(3) the status of the borrower, including any related financial
arrangements of the borrower, the financial sophistication of the
borrower relative to the type of transaction, and the importance to
the borrower of the credit, related supporting property, and
coverage under TILA; (4) whether the loan is secured by the
principal residence of the borrower; and (5) whether the exemption
would undermine the goal of consumer protection.
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In some cases, the original creditor or owner of the mortgage loan
may sell or transfer the legal title to secure business financing,
pursuant to a repurchase agreement that obligates the original creditor
or owner to repurchase the loan within a short period, typically a
month or less. Under Sec. 226.39(c)(2) of the interim final rule, if
the original creditor or owner does not recognize the transaction as a
sale of the loan on its books and records for accounting purposes, the
acquiring party is not subject to the disclosure requirements of Sec.
226.39. However, if the transferor does not repurchase the mortgage
loan, the acquiring party must make the disclosures required by Sec.
226.39 within 30 days after the date that the transaction is recognized
as an acquisition in its books and records. This exception is also
being adopted pursuant to the Board's authority in TILA Sections 105(a)
and 105(f). As with the exception in Sec. 226.39(c)(1), the exception
for repurchase agreements in Sec. 226.39(c)(2) seeks to prevent
consumer confusion from the receipt of outdated disclosures. The Board
believes that providing disclosures for the transactions covered by the
exception in Sec. 226.39(c)(2) would not provide a meaningful benefit
to consumers in the form of useful information or protection. The Board
also believes that the disclosure of transfers that are subject to
repurchase agreements would complicate compliance and impose
unnecessary burden and expense for persons that would be required to
comply, that would not be outweighed by the benefits to consumers.
Comment is requested on this exception, and any unintended consequences
that may result.
39(d) Content of Required Disclosures
Section 226.39(d) sets forth the contents of the notice that must
be provided under this section. The disclosures must identify the loan
that was acquired or transferred and, consistent with the statute,
contain the following: (1) The identity, address, and telephone number
of the covered person that owns the mortgage loan; (2) the date of the
acquisition or transfer; (3) contact information that the consumer can
use to reach an agent or party having authority to act on behalf of the
covered person; (4) the location of the place where the transfer of the
ownership of the debt is recorded.
Identity, address, and telephone number. Section 226.39(d)(1)
requires acquiring parties to provide their name, as well as their
address and telephone number. Under the interim final rule, the party
identified must be the covered person who owns the mortgage loan,
regardless of whether another party has been appointed to service the
loan or otherwise serve as the covered person's agent. The covered
person has the option of also providing an electronic mail address or
Internet Web site address but is not required to do so.
Section 226.39(d)(1) provides that if there is more than one
covered person, the required information must be provided for each of
them. The Board specifically solicits comments on the benefits of this
approach, or whether the identification of multiple parties may create
confusion for consumers. Should there be limits on the number of
covered persons identified and, if so, what limits would be appropriate
consistent with the legislative intent?
Acquisition date. Section 226.39(d)(2) requires disclosure of the
date that the covered person acquired the loan. For purposes of this
section, this is defined as the date of acquisition recognized in the
books and records of the covered person. The Board believes that this
approach provides flexibility to accommodate a variety of circumstances
in which the acquisition could occur.
Agent's contact information. Under Sec. 226.39(d)(3), a covered
person must identify and provide contact information for the agent or
party having authority to act on behalf of the covered person. The
notice must identify one or more persons who are authorized to receive
legal notices on behalf of the covered person and resolve issues
concerning the consumer's payments on the loan. However, contact
information for an agent is not required to be provided under Sec.
226.39(d)(3) if the consumer can use the information provided for the
covered person provided under paragraph Sec. 226.39(d)(1) for these
purposes. Thus, the interim final rule implements the disclosure
requirement in Section 404 but does not
[[Page 60148]]
require that the owner of a loan designate an agent or other party for
any specific purpose. The rule simply requires that the owner disclose
contact information when there is such an agent, so that consumers can
direct their inquiries to the appropriate party.
The Board recognizes that separate entities may be authorized by
the owner of the loan to act on its behalf for different purposes.
Identifying the party authorized to receive legal notices is intended
to ensure that consumers have sufficient information to assert legal
claims, including a right to rescind the loan, if applicable. However,
a covered person might appoint a different agent to resolve loan
servicing issues. In such cases, the covered person must provide
contact information for each agent. If multiple agents are listed, the
disclosure must state the extent to which the authority of each agent
differs, for example, by indicating if only one of the agents is
authorized to receive legal notices or only one is authorized to
resolve issues concerning payments.
A covered person may comply with Sec. 226.39(d)(3) by providing a
telephone number on the written disclosure if the consumer can use the
telephone number to obtain the address of the agent or other authorized
person identified. This differs from the requirement in Sec.
226.39(d)(1), which requires covered persons who acquire a loan to
provide their name, address, and telephone number in all cases. The
flexibility in Sec. 226.39(d)(3) is intended to allow covered persons
to use a single disclosure form that contains a nationwide toll-free
telephone number, even though there may be different physical locations
to which documents should be sent in different regions of the country.
Comment is specifically solicited on this approach and whether both a
telephone number and address for the agent or authorized representative
should be required to be included on each disclosure under Sec.
226.39(d)(3).
Comment 39(d)(3)-2 clarifies that the covered person has the option
of also providing the agent's electronic mail address or internet web
site address but is not required to do so.
Recording location. Section 404 requires that the disclosure state
the location of the place where the transfer of ownership of the debt
is recorded. When a mortgage loan is sold, however, the transfer in
ownership of the debt instrument typically is not recorded in public
records. The new owner's security interest in the property that secures
the debt may or may not be recorded in the public land records or, if
it is recorded, it may not yet be recorded at the time the disclosure
is sent.
Consistent with the statute, Sec. 226.39(d)(4) of the interim
final rules requires covered persons to disclose the location where
their ownership of the debt is recorded. However, if the transfer of
ownership has not been recorded in public records at the time the
disclosure is provided, the covered person can comply with the rule by
stating this fact. Whether or not the transfer of ownership has been
recorded in public records at the time the disclosure is made, the
disclosure may state that the transfer ``is or may be recorded'' at the
specified location.
The covered person also has the option of disclosing the location
where the covered person's security interest in the property is or may
be recorded. In light of the fact that the transfer in ownership of the
debt instrument usually is not recorded in public records, the Board
specifically solicits comment on whether disclosure of the location
where the security interest is recorded should be required.
Comment 39(d)(4)-2 clarifies that the covered person is not
required to provide the postal address for the governmental office
where the covered person's ownership interest is recorded or the name
of the jurisdiction where the property is located. For example, it
would be sufficient in all cases to disclose that the transaction is or
may be recorded in the office of public land records or the recorder of
deeds office ``for the county or local jurisdiction where the property
is located.''
The Board has taken this approach after considering the relative
costs and benefits of requiring that the disclosure provide more
detailed information. Industry representatives have noted that this
information may not be readily accessible to the acquiring party. A
requirement to provide the name and address of the governmental office
would require parties that provide such notices to develop and maintain
a system for matching the property address to the correct governmental
office, and keeping the database up to date with correct address
information. The Board does not believe that this would provide
substantial benefit to consumers because they presumably know the
county or jurisdiction in which the property is located and can easily
obtain the address of the governmental office from public directories
or other sources. The Board solicits comments on the approach taken in
the interim final rule and the relative costs and benefits of requiring
more detailed disclosures about the location where the lender's
security interest is or may be recorded.
39(e) Optional Disclosures
Section 404 provides that the party acquiring a loan shall notify
the borrower of ``any other relevant information'' regarding the new
owner of the loan. The Board interprets this statutory language as
permitting the Board to impose additional disclosure requirements to
further the legislative purpose. Any additional disclosure requirements
would be imposed by regulation after notice and comment. The Board does
not believe that the statutory language requires covered persons to
determine independently what additional information a reviewing court
might subsequently determine to be legally relevant in order to avoid
liability. Although the interim final rule does not contain any
additional disclosure requirements, the Board solicits comment on
whether the rule should include any such requirements. The Board also
believes that, under the statutory language, covered persons are
permitted, in their sole discretion, to include additional information
that they might deem relevant or helpful to consumers, which is
reflected in Sec. 226.39(e) of the interim final rule. For example,
the covered person may choose to inform consumers that the location
where they should send mortgage payments has not changed.
V. Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires an
initial and final regulatory flexibility analysis only when 15 U.S.C.
553 requires publication of a notice of proposed rulemaking. See 5
U.S.C. 603(a), 604(a). However, the Board has found good cause under 5
U.S.C. 553(b)(B) to conclude that, with respect to this interim final
rule, publication of a notice of proposed rulemaking is impracticable
and not in the public interest. Accordingly, the Board is not required
to perform an initial or final regulatory flexibility analysis.
Nonetheless, to solicit additional information from small entities
subject to the interim final rule, the Board is publishing an initial
regulatory flexibility analysis.
Based on its analysis and for the reasons stated below, the Board
believes that this interim final rule will not have a significant
economic impact on a substantial number of small entities. The Board
invites comment on the effect of the interim final rule on small
entities.
[[Page 60149]]
A. Reasons for the Interim Final Rule
As indicated above, the 2009 Act was signed into law on May 20,
2009. Section 404 amended TILA to establish a new requirement for
notifying consumers of the sale or transfer of their mortgage loans.
This requirement became effective immediately upon enactment on May 20,
2009, and did not require the issuance of implementing regulations. As
discussed above, the Board believes there is good cause for an interim
final rule so that parties subject to the rule have guidance on how to
interpret and comply with the statutory requirements and consumers
receive notices consistent with legislative intent.
Congress enacted TILA based on findings that economic stability
would be enhanced and competition among consumer credit providers would
be strengthened by the informed use of credit resulting from consumers'
awareness of the cost of credit. One of the stated purposes of TILA is
to provide a meaningful disclosure of credit terms to enable consumers
to compare credit terms available in the marketplace more readily and
avoid the uninformed use of credit.
B. Summary of 2009 Act
As described previously, the purchaser or assignee that acquires a
loan must provide the required disclosures no later than 30 days after
the date on which the loan is acquired. Section 226.39(c) of the rule
provides an exception if the covered person transfers or assigns the
loan to another party on or before that date. Section 226.39(d) sets
forth the contents of the notice. Consistent with the statute, the
interim final rule requires that the notice contain the following: (1)
The identity, address, and telephone number of the covered person who
owns the mortgage loan; (2) the acquisition date; (3) a mailing address
and telephone number that the borrower can use to reach an agent of the
covered person; and (4) the location where the covered person's
interest in the property securing the loan is or may be recorded.
C. Statement of Objectives and Legal Basis
The SUPPLEMENTARY INFORMATION contains this information. The legal
basis for the interim final rule is in TILA Sections 105(a), 105(f). 15
U.S.C. 1604(a), 1604(f). A more detailed discussion of the Board's
rulemaking authority is set forth in the SUPPLEMENTARY INFORMATION.
D. Description of Small Entities to Which the Interim Final Rule Would
Apply
The interim final rule would apply to all persons that acquire more
than one existing mortgage loan in any 12-month period, other than
servicers that take title solely as an administrative convenience to
enable them to service the loans. The Board cannot identify with
certainty the number of small entities that meet this definition. The
Board can estimate, however, approximate numbers of small entities that
purchase mortgage loans, as discussed below.
The Board can identify through data from Reports of Condition and
Income (``call reports'') approximate numbers of small depository
institutions that would be subject to the interim final rules if they
acquire more than one mortgage loan in a 12-month period. Approximately
16,345 depository institutions in the United States filed call report
data in December of 2008, of which approximately 11,907 had total
domestic assets of $175 million or less and thus were considered small
entities for purposes of the Regulatory Flexibility Act. Of 4231 banks,
565 thrifts and 7111 credit unions that filed call report data and were
considered small entities, 4091 banks, 530 thrifts, and 4797 credit
unions, totaling 9418 institutions, extended mortgage credit. For
purposes of this analysis, thrifts include savings banks, savings and
loan entities, co-operative banks and industrial banks.
The Board cannot identify with certainty the number of small non-
depository institutions because they do not file call reports. Neither
can the Board determine with certainty how many of the 11,907
institutions identified above as small entities acquired mortgage loans
in 2008. Although an estimated 9418 such institutions extended mortgage
credit, the Board recognizes that not all entities that extend mortgage
credit also acquire existing mortgage loans. Moreover, the reverse is
also true: there are entities that acquire existing mortgage loans but
do not extend mortgage credit.
The Board has another source of information, data obtained under
the Home Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801 et seq.; 12 CFR
part 203. Based on loan purchases reported for 2008 under HMDA, the
Board estimates that 553 of the reporting institutions engaged in more
than one mortgage acquisition. The 8388 lenders covered by HMDA in 2008
accounted for the majority, but not all, of the home lending in the
United States. Accordingly, the 553 institutions that reported loan
purchases in 2008 probably do not represent all mortgage acquirers;
institutions must report loan purchases only if they are required to
report under HMDA based on loan originations and assets. Nevertheless,
the Board's experience has been that the HMDA data are reasonably
representative of the whole mortgage market.
A total of 2,921,684 loan purchases were reported under HMDA in
2008 by entities reporting more than one purchase (and thus subject to
the interim final rule). Of those loan purchases, 2,773,918 were
reported by depository institutions. Of those depository institution
loan purchases, 2,122,288 (76.5%) were reported by large depository
institutions (assets greater than $175 million), and 651,630 (23.5%)
were reported by small depository institutions (assets of $175 million
or less). Of the 553 HMDA reporters reporting more than one loan
purchase, 502 were depository institutions. Of those 502 depository
institutions, 387 (77.1%) were large and 115 (22.9%) were small. Those
115 small depository institutions represent just slightly less than one
percent (0.97%) of the 11,907 total small institutions estimated above
from call report data.
A total of 147,766 loan purchases were reported under HMDA by non-
depository institutions that reported more than one loan purchase in
2008. The Board cannot tell from the HMDA data how many of those loan
purchases were reported by small entities. Neither can the Board tell
how many of the 51 non-depository institutions that reported those loan
purchases are small entities. If the relative shares among small and
large non-depository institutions do not differ significantly from
those among depository institutions, however, the shares for non-
depository institutions can be estimated. On that basis, the Board
estimates that 12 small non-depository institutions reported 34,725
loan purchases and that 39 large non-depository institutions reported
113,041 loan purchases (estimates are rounded to whole numbers).
Using the foregoing numbers from 2008 HMDA data for depository
institutions and the foregoing estimates for non-depository
institutions, the Board estimates the following numbers for all
entities reporting under HMDA combined: of the 2,921,684 loan purchases
reported by 553 entities reporting more than one purchase, 2,235,329
(76.5%) were reported by 426 large entities (77%), and 686,355
[[Page 60150]]
(23.5%) were reported by 127 small entities (23%). Based on these
estimates, less than one-quarter of the institutions reporting covered
loan purchases under HMDA were small entities, and less than one-
quarter of the covered loan purchases reported were reported by small
entities.
The foregoing data are not complete in many respects. Not all
depository institutions that file call reports are reporters under
HMDA, and not all HMDA reporters file call reports. Further, some
unknown number of entities purchase more than one mortgage loan in any
12-month period and yet file neither call reports nor HMDA data; how
many of those are small entities also is unknown. Nevertheless, if one
assumes that the existing data are reasonably representative of the
market as a whole, they present an overall picture of minimal economic
impact on small entities. For all these reasons, the Board believes
that the interim final rule will not have a significant economic impact
on a substantial number of small entities.
E. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
The compliance requirements of the interim final rules are
described in the SUPPLEMENTARY INFORMATION. As indicated above, the
Board is adopting a new disclosure rule requiring that consumers
receive notice when ownership of their mortgage loan is transferred.
The Board is aware that numerous covered persons are already complying
with these statutory provisions, which became effective on May 20,
2009. Therefore the additional burden imposed by the Board's rule
itself is likely to be minimal. Furthermore, the information required
to be provided is easily obtainable by the covered person. The covered
person must provide contact information for itself and any agent (but
is not required to designate an agent), may use the acquisition date in
its own books and records, and may generally describe the location
where the covered person's interest in the property securing the
mortgage loan is or may be recorded. This information generally is
already required by the statute.
Based on informal surveys of industry representatives and practices
in effect, the Board understands that entities are likely to designate
servicers as their agents. Servicers already respond to consumer
requests on the behalf of covered persons. Therefore, other than
providing the notice itself, covered persons (including those who are
small entities) are not likely to incur significant burden in
responding to consumer requests. Furthermore, the Board has provided an
exception to the rule for mortgage owners who do not hold the loan more
than 30 days. The Board believes that this exception balances the needs
of consumers for information with the burdens on industry of compliance
and the potential for confusion to consumers of multiple disclosures.
F. Other Federal Rules
The Board has not identified other rules that conflict with the
rule. As indicated previously, under RESPA and HUD's Regulation X,
consumers must be notified when the servicer of their mortgage loan has
changed. Therefore, the disclosure of contact information for the agent
of the owner of the mortgage loan, typically the servicer under
applicable agreements, is already generally required by law. As a
result of existing requirements, servicers are already subject to
disclosure of their contact information and are already subject to
calls regarding administration of payment information.
G. Significant Alternatives to the Interim Final Rule
As noted above, this interim final rule implements the statutory
requirements of the 2009 Act that were effective on May 20, 2009. The
Board has implemented these requirements to minimize burden while
retaining benefits to consumers. The Board was not required to issue
rules but has decided that rules are needed to clarify who is subject
to the requirements and what information must be disclosed, and to
ensure that consumers receive disclosures of ownership that are
consistent with legislative intent. The Board welcomes comment on any
significant alternatives that would minimize the impact of the interim
final rule on small entities.
The Board welcomes further information and comment on any costs,
compliance requirements, or changes in operating procedures arising
from the application of the interim final rule to small businesses.
VI. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR part 1320 appendix A.1), the Board reviewed the
interim final rule under the authority delegated to the Board by the
Office of Management and Budget (OMB). The collection of information
that is required by this final rule is found in 12 CFR 226.39. The
Board may not conduct or sponsor, and an organization is not required
to respond to, this information collection unless the information
collection displays a currently valid OMB control number. The OMB
control number is 7100-0199.
This information collection is required to provide benefits for
consumers and is mandatory (15 U.S.C. 1601 et seq.). Since the Board
does not collect any information, no issue of confidentiality arises.
The respondents/recordkeepers are persons or entities that acquire
legal title to more than one mortgage loan in any 12-month period,
including for-profit financial institutions and small businesses.
TILA and Regulation Z are intended to ensure effective disclosure
of the costs and terms of credit to consumers. For closed-end loans,
such as mortgage and installment loans, cost disclosures are required
to be provided prior to consummation. Special disclosures are required
in connection with certain products, such as reverse mortgages, certain
variable-rate loans, and certain mortgages with rates and fees above
specified thresholds. To ease the burden and cost of complying with
Regulation Z (particularly for small entities), the Board provides
model forms, which are appended to the regulation. TILA and Regulation
Z also contain rules concerning credit advertising. Creditors are
required to retain evidence of compliance with Regulation Z for 24
months (12 CFR 226.25), but Regulation Z does not specify the types of
records that must be retained.
Under the PRA, the Board accounts for the paperwork burden
associated with Regulation Z for the state member banks and other
entities supervised by the Board that engage in activities covered by
Regulation Z and, therefore, are respondents under the PRA. Appendix I
of Regulation Z defines the institutions supervised by the Federal
Reserve System as: state member banks, branches and agencies of foreign
banks (other than federal branches, Federal agencies, and insured state
branches of foreign banks), commercial lending companies owned or
controlled by foreign banks, and organizations operating under section
25 or 25A of the Federal Reserve Act. Other Federal agencies account
for the paperwork burden imposed on the entities for which they have
administrative enforcement authority under TILA.
The current total annual burden to comply with the provisions of
Regulation Z is estimated to be 1,011,311 hours for the 1,138
institutions supervised by the Federal Reserve that are deemed to be
respondents for the purposes of the PRA.
[[Page 60151]]
As discussed in the preamble, the Board is adopting a new
disclosure rule requiring that consumers receive notice when ownership
of their mortgage loan is transferred. The new disclosure requirement
will impose a one-time increase in the total annual burden under
Regulation Z for respondents supervised by the Federal Reserve that
engage in mortgage acquisitions. The Board estimates that 68
respondents \4\ supervised by the Federal Reserve will take, on
average, 40 hours (one business week) to update their systems, internal
procedure manuals, and provide training for relevant staff to comply
with the new disclosure requirements in Sec. 226.39. Accordingly, this
revision is estimated to result in a one-time increase in the aggregate
burden by 2,720 hours for these 68 respondents.
---------------------------------------------------------------------------
\4\ Based on loan purchases reported for 2008 under the Home
Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801 et seq., and
Regulation C (12 CFR part 203), the Board estimates that 58 of the
553 institutions engaged in such mortgage acquisitions are
supervised by the Federal Reserve. Based on average Call Report data
for the past four quarters, approximately 95 institutions that do
not report under HMDA also would be subject to these new disclosure
requirements and 10 of these institutions are supervised by the
Federal Reserve.
---------------------------------------------------------------------------
On a continuing basis, the Board estimates that 68 respondents
supervised by the Federal Reserve would take, on average, 8 hours \5\
per month to comply with the new disclosure requirements, which would
increase the ongoing aggregate burden by 6,528 hours annually for these
respondents. Accordingly, the Board estimates that the new disclosure
requirement will increase the total annual burden on a continuing basis
for respondents supervised by the Federal Reserve from 1,011,311 to
1,017,839 hours (not including the one-time increase of 2,720 hours to
implement the changes, as described above). This total estimated burden
increase represents averages for all respondents supervised by the
Federal Reserve. The Board expects that the amount of time required to
implement each of the changes for a given institution may vary based on
the size and complexity of the respondent.
---------------------------------------------------------------------------
\5\ Because financial institutions are familiar with the
existing RESPA provisions which require notification to consumers
when the servicer of their mortgage loan has changed, the Federal
Reserve believes that implementation of requirements in Sec. 226.39
should not be overly burdensome.
---------------------------------------------------------------------------
The other federal financial institution supervisory agencies (the
Office of the Comptroller of the Currency (OCC), the Office of Thrift
Supervision (OTS), the Federal Deposit Insurance Corporation (FDIC),
and the National Credit Union Administration (NCUA)) are responsible
for estimating and reporting to OMB the total paperwork burden for the
domestically chartered commercial banks, thrifts, and federal credit
unions and U.S. branches and agencies of foreign banks for which they
have primary administrative enforcement jurisdiction under TILA Section
108(a), 15 U.S.C. 1607(a). These agencies may, but are not required to,
use the Board's methodology for estimating burden. Using the Board's
method, the total current estimated annual burden for the approximately
17,200 domestically chartered commercial banks, thrifts, and federal
credit unions and U.S. branches and agencies of foreign banks
supervised by the Board, OCC, OTS, FDIC, and NCUA under TILA would be
approximately 17,765,525 hours. The final rule will impose a one-time
increase in the estimated annual burden for the estimated 638
institutions thought to engage in mortgage acquisitions by 25,520
hours. On a continuing basis the annual burden would increase by 61,248
hours. The total annual burden is estimated to be 17,852,293 hours. The
above estimates represent an average across all respondents and reflect
variations between institutions based on their size, complexity, and
practices.
The Board has a continuing interest in public opinion on its
collections of information. At any time, comments regarding the burden
estimate or any other aspect of this collection of information,
including suggestions for enhancing the quality of information
collected and ways for reducing the burden on respondent. Comments on
the collection of information may be sent to: Secretary, Board of
Governors of the Federal Reserve System, 20th and C Streets, NW.,
Washington, DC 20551; and to the Office of Management and Budget,
Paperwork Reduction Project (7100-0199), Washington, DC 20503.
List of Subjects in 12 CFR Part 226
Consumer protection, Federal Reserve System, Mortgages, Reporting
and recordkeeping requirements, Truth in lending.
Authority and Issuance
0
For the reasons set forth in the preamble, the Board amends Regulation
Z, 12 CFR part 226, as set forth below:
PART 226--TRUTH IN LENDING (REGULATION Z)
0
1. The authority citation for part 226 continues to read as follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), and
1639(l); Public Law 111-24 Sec. 2, 123 Stat. 1734.
Subpart E--Special Rules for Certain Home Mortgage Transactions
0
2. Add a new Sec. 226.39 to Subpart E of Part 226 to read as follows:
Sec. 226.39 Mortgage transfer disclosures.
(a) Scope. The disclosure requirements of this section apply to any
covered person except as otherwise provided in this section. For
purposes of this section:
(1) A ``covered person'' means any person, as defined in Sec.
226.2(a)(22), that becomes the owner of an existing mortgage loan by
acquiring legal title to the debt obligation, whether through a
purchase, assignment, or other transfer, and who acquires more than one
mortgage loan in any twelve-month period. For purposes of this section,
a servicer of a mortgage loan shall not be treated as the owner of the
obligation if the servicer holds title to the loan or it is assigned to
the servicer solely for the administrative convenience of the servicer
in servicing the obligation.
(2) A ``mortgage loan'' means any consumer credit transaction that
is secured by the principal dwelling of a consumer.
(b) Disclosure required. Except as provided in paragraph (c) of
this section, any person that becomes a covered person as defined in
this section shall mail or deliver the disclosures required by this
section to the consumer on or before the 30th calendar day following
the acquisition date. If there is more than one covered person, only
one disclosure shall be given and the covered persons shall agree among
themselves which covered person shall comply with the requirements that
this section imposes on any or all of them.
(1) Acquisition date. For purposes of this section, the date that
the covered person acquired the mortgage loan shall be the date of
acquisition recognized in the books and records of the acquiring party.
(2) Multiple consumers. If there is more than one consumer liable
on the obligation, a covered person may mail or deliver the disclosures
to any consumer who is primarily liable.
(c) Exceptions. Notwithstanding paragraph (b) of this section, a
covered person is not subject to the requirements of this section with
respect to a particular mortgage loan if:
(1) The covered person sells or otherwise transfers or assigns
legal title to the mortgage loan on or before the 30th calendar day
following the date that the covered person acquired the mortgage loan;
or
[[Page 60152]]
(2) The mortgage loan is transferred to the covered person in
connection with a repurchase agreement and the transferor that is
obligated to repurchase the loan continues to recognize the loan as an
asset on its own books and records. However, if the transferor does not
repurchase the mortgage loan, the acquiring party must make the
disclosures required by Sec. 226.39 within 30 days after the date that
the transaction is recognized as an acquisition in its books and
records.
(d) Content of required disclosures. The disclosures required by
this section shall identify the loan that was acquired or transferred
and state the following:
(1) The identity, address, and telephone number of the covered
person who owns the mortgage loan. If there is more than one covered
person, the information required by this paragraph shall be provided
for each of them.
(2) The acquisition date recognized by the covered person.
(3) How to reach an agent or party having authority to act on
behalf of the covered person (or persons), which shall identify a
person (or persons) authorized to receive legal notices on behalf of
the covered person and resolve issues concerning the consumer's
payments on the loan. However, no information is required to be
provided under this paragraph if the consumer can use the information
provided under paragraph (d)(1) of this section for these purposes. If
multiple persons are identified under this paragraph, the disclosure
shall provide contact information for each and indicate the extent to
which the authority of each agent differs. For purposes of this
paragraph (d)(3), it is sufficient if the covered person provides only
a telephone number provided that the consumer can use the telephone
number to obtain the address for the agent or other person identified.
(4) The location where transfer of ownership of the debt to the
covered person is recorded. However, if the transfer of ownership has
not been recorded in public records at the time the disclosure is
provided, the covered person complies with this paragraph by stating
this fact.
(e) Optional disclosures. In addition to the information required
to be disclosed under paragraph (d) of this section, a covered person
may, at its option, provide any other information regarding the
transaction.
0
3. In Supplement I to Part 226, under Subpart E, a new Section 226.39--
Mortgage Transfer Disclosures is added to read as follows:
Supplement I to Part 226--Official Staff Interpretations
* * * * *
Subpart E--Special Rules for Certain Home Mortgage Transactions
* * * * *
Section 226.39--Mortgage transfer disclosures.
39(a) Scope.
Paragraph 39(a)(1).
1. Covered persons. The disclosure requirements of Sec. 226.39
apply to any ``covered person'' that becomes the legal owner of an
existing mortgage loan, whether through a purchase, assignment, or
other transfer, regardless of whether the person also meets the
definition of a ``creditor'' in Regulation Z. The fact that a person
purchases or acquires mortgage loans and provides disclosures under
Sec. 226.39 does not by itself make that person a ``creditor'' as
defined in the regulation.
2. Acquisition of legal title. To become a ``covered person''
subject to Sec. 226.39, a person must become the owner of an
existing mortgage loan by acquiring legal title to the debt
obligation. The transfer of ownership of a mortgage loan is subject
to the disclosure requirements of this section when the acquiring
party is a separate legal entity from the transferor, even if the
parties are affiliated entities. Section 226.39 does not apply to
persons who acquire only a beneficial interest in the loan or a
security interest in the loan. Section 226.39 also does not apply to
a party that assumes the credit risk without acquiring legal title
to the loan. Thus, an investor that acquires mortgage-backed
securities, pass-through certificates, or participation interests
and does not directly acquire legal title in the underlying mortgage
loans is not covered by this section.
3. Loan servicers. Pursuant to TILA Section 131(f)(2), the
servicer of a mortgage loan is not treated as the owner of the
obligation for purposes of Sec. 226.39 if the servicer holds title
to the loan as a result of the assignment of the obligation to the
servicer solely for the administrative convenience of the servicer
in servicing the obligation.
4. Mergers, corporate acquisitions, or reorganizations.
Disclosures are required under Sec. 226.39 when, as a result of a
merger, corporate acquisition, or reorganization the ownership of a
mortgage loan is transferred to a different legal entity.
Paragraph 39(a)(2).
1. Mortgage transactions covered. Section 226.39 applies to any
consumer credit transaction secured by the principal dwelling of a
consumer, which includes closed-end mortgage loans as well as home
equity lines of credit.
39(b) Disclosure required.
1. Generally. A covered person must mail or deliver the
disclosures required by Sec. 226.39 on or before the 30th calendar
day following the date that the covered person acquired the loan,
unless the exception in Sec. 226.39(c) applies. For example, if a
covered person acquires a mortgage loan on March 1, the required
disclosure must be mailed or delivered on or before March 31. For
purposes of this requirement, the date that the covered person
acquires the loan is the acquisition date recognized in its books
and records.
2. Disclosure provided on behalf of multiple entities. A
mortgage loan may be acquired by a covered person and subsequently
transferred to an affiliate or other entity that is also a covered
person required to provide disclosures under Sec. 226.39. In such
cases, a single disclosure may be provided on behalf of both
entities instead of providing two separate disclosures, as long as
the disclosure satisfies the timing and content requirements
applicable to both entities. For example, if a covered person
acquires a loan on August 31 with the knowledge that it will assign
the loan to another entity on October 15, the covered person could
mail a single disclosure on or before September 30 which provides
the required information for both entities and indicates when the
subsequent transfer is expected to occur. Even though one person
delegates responsibility for the disclosures to another covered
person, each has a duty to ensure that disclosures related to its
acquisition are accurate and provided in a timely manner.
39(c) Exceptions.
Paragraph 39(c)(1).
1. Example. If a mortgage loan is originated on February 22nd
and the original creditor sells the loan on March 1 to a covered
person, under the exception in Sec. 226.39(c) the covered person
would not be required to provide disclosures under Sec. 226.39 if
the loan is sold or otherwise transferred or assigned to another
party on or before March 31.
Paragraph 39(c)(2).
1. Repurchase agreements. The original creditor or owner of the
mortgage loan might sell or transfer legal title to the loan to
secure short-term business financing under an agreement where the
original creditor or owner is also obligated to repurchase the loan
within a brief period, typically a month or less. If the original
creditor or owner does not recognize such transactions as a sale of
the loan on its own books and records for accounting purposes, the
transfer of the loan in connection with such a repurchase agreement
is not covered by Sec. 226.39 and the acquiring party is not
required to provide disclosures. However, if the transferor does not
repurchase the mortgage loan, the acquiring party must make the
disclosures required by Sec. 226.39 within 30 days after the date
that the transaction is recognized as an acquisition in its books
and records.
39(d) Content of required disclosures.
1. Identifying the loan. The disclosures required by this
section should identify the loan that was acquired or transferred.
The covered person has flexibility in determining what information
to provide for this purpose. For example, the covered person may
identify the loan by stating the address of the mortgaged property
along with the account number or other identification number
previously known to the consumer, which may appear in a truncated
format. Alternatively, the covered person might identify the loan by
specifying the date on which the credit was extended and the
original amount of the loan or credit line.
[[Page 60153]]
Paragraph 39(d)(1).
1. Identification of covered person. Section 226.39(d)(1)
requires acquiring parties to provide their name, address, and
telephone number. The party identified must be the covered person
who owns the mortgage loan, regardless of whether another party has
been appointed to service the loan or otherwise serve as the covered
person's agent. In addition to providing a postal address and a
telephone number, the covered person may, at its option, provide an
address for receiving electronic mail or an internet web site
address but is not required to do so.
Paragraph 39(d)(3).
1. Identifying agents. Under Sec. 226.39(d)(3), the covered
person must provide contact information for the agent or other party
having authority to act on behalf of the covered person and who is
authorized to receive legal notices on behalf of the covered person
and resolve issues concerning the consumer's payments on the loan.
Section 226.39(d)(3) does not require that a covered person
designate an agent or other party, but if the consumer cannot use
the covered person's contact information for these purposes the
disclosure must provide contact information for an agent or other
party that can address these matters. If multiple agents are listed
on the disclosure, the disclosure shall state the extent to which
the authority of each agent differs by indicating if only one of the
agents is authorized to receive legal notices, or only one of the
agents is authorized to resolve issues concerning payments. For
purposes of Sec. 226.39(d)(3), it is sufficient to provide a
telephone number as the contact information provided that consumers
can use the telephone number to obtain the mailing address for the
agent or other person identified.
2. Other contact information. The covered person may also
provide an agent's electronic mail address or internet web site
address but is not required to do so.
Paragraph 39(d)(4).
1. Recording location. Section 226.39(d)(4) requires disclosure
of the location where transfer of ownership of the debt to the
covered person is recorded. If the transfer of ownership has not
been recorded in public records at the time the disclosure is
provided, the covered person complies with Sec. 226.39(d)(4) by
stating this fact. Whether or not the transfer has been recorded at
the time the disclosure is made, the disclosure may state that the
transfer ``is or may be recorded'' at the specified location.
2. Postal address not required. In disclosing the location where
the transfer of ownership is recorded, the covered person is not
required to provide a postal address for the governmental office
where the covered person's ownership interest is recorded. The
covered person also is not required to provide the name of the
county or jurisdiction where the property is located. For example,
it would be sufficient to disclose that the transaction is or may be
recorded in the office of public land records or the recorder of
deeds office ``for the county or local jurisdiction where the
property is located.''
39(e) Optional disclosures.
1. Generally. Section 226.39(e) provides that covered persons
may, at their option, include additional information about the
mortgage transaction that they consider relevant or helpful to
consumers. For example, the covered person may choose to inform
consumers that the location where they should send mortgage payments
has not changed.
By order of the Board of Governors of the Federal Reserve
System, November 13, 2009.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E9-27742 Filed 11-19-09; 8:45 am]
BILLING CODE 6210-01-P