Federal Register, Volume 78 Issue 205 (Wednesday, October 23, 2013)

[Federal Register Volume 78, Number 205 (Wednesday, October 23, 2013)]
[Rules and Regulations]
[Pages 62993-63007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24521]

=======================================================================
-----------------------------------------------------------------------

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Parts 1024 and 1026

[Docket No. CFPB-2013-0031]
RIN 3170-AA37

Amendments to the 2013 Mortgage Rules Under the Real Estate
Settlement Procedures Act (Regulation X) and the Truth in Lending Act
(Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Interim final rule with request for public comment.

-----------------------------------------------------------------------

SUMMARY: This rule amends provisions in Regulation Z and final rules
issued by the Bureau of Consumer Financial Protection (Bureau) in 2013,
which, among other things, required that consumers receive counseling
before obtaining high-cost mortgages and that servicers provide
periodic account statements and rate adjustment notices to mortgage
borrowers, as well as engage in early intervention when borrowers
become delinquent. The amendments clarify the specific disclosures that
must be provided before counseling for high-cost mortgages can occur,
and proper compliance regarding servicing requirements when a consumer
is in bankruptcy or sends a cease communication request under the Fair
Debt Collection Practices Act. The rule also makes technical
corrections to provisions of other rules. The Bureau requests public
comment on these changes.

DATES: This interim final rule is effective January 10, 2014. Comments
must be received on or before November 22, 2013.

[[Page 62994]]

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2013-
0031 or RIN 3170-AA37, by any of the following methods:
Electronic: http://www.regulations.gov. Follow the
instructions for submitting comments.
Mail/Hand Delivery/Courier: Monica Jackson, Office of the
Executive Secretary, Consumer Financial Protection Bureau, 1700 G
Street NW., Washington, DC 20552.
Instructions: All submissions should include the agency name and
docket number or Regulatory Information Number (RIN) for this
rulemaking. Because paper mail in the Washington, DC area and at the
Bureau is subject to delay, commenters are encouraged to submit
comments electronically. In general, all comments received will be
posted without change to http://www.regulations.gov. In addition,
comments will be available for public inspection and copying at 1700 G
Street NW., Washington, DC 20552, on official business days between the
hours of 10 a.m. and 5 p.m. Eastern Time. You can make an appointment
to inspect the documents by telephoning (202) 435-7275.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Sensitive personal information, such as account numbers or social
security numbers, should not be included. Comments will not be edited
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Joseph Devlin, Counsel; Laura Johnson,
Nicholas Hluchyj, and Marta Tanenhaus, Senior Counsels; Office of
Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

I. Summary of Interim Final Rule

In January 2013, the Bureau issued several final rules concerning
mortgage markets in the United States pursuant to the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank Act) Public Law
111-203, 124 Stat. 1376 (2010) (2013 Title XIV Final Rules). Three of
these rules were (1) the Mortgage Servicing Rules under the Real Estate
Settlement Procedures Act (Regulation X) (2013 RESPA Servicing Final
Rule); \1\ (2) the Mortgage Servicing Rules under the Truth in Lending
Act (Regulation Z) (2013 TILA Servicing Final Rule); \2\ and (3) the
High-Cost Mortgage and Homeownership Counseling Amendments to the Truth
in Lending Act (Regulation Z) and Homeownership Counseling Amendments
to the Real Estate Settlement Procedures Act (Regulation X) (2013 HOEPA
Final Rule).\3\ The 2013 TILA Servicing Final Rule and the 2013 RESPA
Servicing Final Rule are referred to collectively as the 2013 Mortgage
Servicing Final Rules.
---------------------------------------------------------------------------

\1\ 78 FR 10695 (Feb. 14, 2013).
\2\ 78 FR 10901 (Feb. 14, 2013).
\3\ 78 FR 6855 (Jan. 31, 2013).
---------------------------------------------------------------------------

The Bureau is clarifying compliance requirements in relation to
bankruptcy law and the Fair Debt Collection Practices Act (FDCPA)
through this rule and through a contemporaneous compliance bulletin.\4\
Bankruptcy law and the FDCPA both provide significant protections for
consumers, and each strictly limits communications with consumers in
certain circumstances. The Bureau has received a large number of
questions from servicers about how the servicing rules intersect with
the other two bodies of law generally and in particular on how to
communicate effectively with borrowers in light of their status in
bankruptcy. While the Bureau believes that some of these questions can
be resolved by interpretations now, it has also concluded that further
analysis and study are required to resolve other issues that cannot be
completed before the 2013 Mortgage Servicing Final Rules take effect.
In those cases, the Bureau is creating narrow exemptions from the
servicing rules to allow time to complete the additional analysis.
---------------------------------------------------------------------------

\4\ CFPB Bulletin 2013-12, available at http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.
---------------------------------------------------------------------------

Specifically, the Bulletin confirms that servicers must comply with
certain requirements of the Dodd-Frank Act and respond to certain
borrower communications in accordance with the Bureau's servicing rules
even after a borrower has sent a cease communication request under the
FDCPA. The Bulletin provides a safe harbor from liability under the
FDCPA with regard to such communications. Separately in this rule, the
Bureau is providing exemptions for two other servicing communications
that are not specifically mandated by statute--the requirement in Sec.
1026.20(c) for a notice of rate change for adjustable-rate mortgages
(ARMs) and the early intervention requirements in Sec. 1024.39--when a
borrower has properly invoked the FDCPA's cease communication
protections. The Bureau expects to explore the potential utility and
application of such requirements in comparison to the FDCPA protections
in a broader debt collection rulemaking. The interim final rule also
exempts servicers from the early intervention requirements in Sec.
1024.39 and from the periodic statement requirements under 12 CFR
1026.41 for borrowers while they are in bankruptcy. Again, the Bureau
intends to engage in further analysis of how these servicing
requirements intersect with bankruptcy law and how to ensure that
servicer communications do not confuse borrowers regarding their
status.
This interim final rule also amends the 2013 HOEPA Final Rule by
clarifying which federally required disclosure must be used in
counseling under 12 CFR 1026.34(a)(5) for a closed-end HOEPA loan not
subject to the Real Estate Settlement Procedures Act (RESPA). The rule
replaces language that could have been read to require provision of the
Good Faith Estimate (GFE) or successor disclosure under RESPA, which
are not required for transactions not covered by RESPA, and instead
clarifies that counseling may be based on the HOEPA disclosures that
are required for such transactions pursuant to TILA section 129(a) and
Regulation Z section 1026.32(c).
This interim final rule also makes two technical corrections to
Regulation Z, as revised by the May Ability-to-Repay and Qualified
Mortgage Standards Under the Truth in Lending Act (May 2013 ATR Final
Rule),\5\ Amendments to the 2013 Mortgage Rules under the Real Estate
Settlement Procedures Act (Regulation X) and the Truth in Lending Act
(Regulation X) (July 2013 Final Rule Amendments to the 2013 Mortgage
Rules),\6\ and the Amendments to the 2013 Mortgage Rules under the
Equal Credit Opportunity Act (Regulation B), Real Estate Settlement
Procedures Act (Regulation X), and the Truth in Lending Act (Regulation
Z) (September 2013 Final Rule Amendments to the 2013 Mortgage
Rules).\7\ These changes correct section 1026.43(e)(4)(ii)(C) and
comment 32(b)(1)(ii)-4.iii. This rule also makes another minor
technical correction to the September 2013 Final Rule Amendments to the
2013 Mortgage Rules.
---------------------------------------------------------------------------

\5\ 78 FR 35429 (June 12, 2013).
\6\ 78 FR 44685 (Jul. 24, 2013).
\7\ 78 FR 60382 (Oct. 1, 2013).
---------------------------------------------------------------------------

The Bureau seeks public comment on these changes.

II. Background

A. Title XIV Rules Under the Dodd-Frank Act

In response to an unprecedented cycle of expansion and contraction
in the mortgage market that sparked the most severe U.S. recession
since the Great Depression, Congress passed the Dodd-Frank Act, which
was signed into law

[[Page 62995]]

on July 21, 2010. In the Dodd-Frank Act, Congress established the
Bureau and, under sections 1061 and 1100A, generally consolidated the
rulemaking authority for Federal consumer financial laws, including the
Truth in Lending Act (TILA), in the Bureau.\8\ At the same time,
Congress significantly amended the statutory requirements governing
mortgages with the intent to restrict the practices that contributed to
and exacerbated the crisis. Under the statute, most of these new
requirements would have taken effect automatically on January 21, 2013,
if the Bureau had not issued implementing regulations by that date.\9\
To avoid uncertainty and potential disruption in the national mortgage
market at a time of economic vulnerability, the Bureau issued several
final rules in a span of less than two weeks in January 2013 to
implement these new statutory provisions and provide for an orderly
transition. These rules included the 2013 HOEPA Final Rule, issued on
January 10, and the 2013 Mortgage Servicing Final Rules, issued on
January 17.
---------------------------------------------------------------------------

\8\ Sections 1011 and 1021 of the Dodd-Frank Act, in title X,
the ``Consumer Financial Protection Act,'' Public Law 111-203, secs.
1001-1100H, codified at 12 U.S.C. 5491, 5511. The Consumer Financial
Protection Act is substantially codified at 12 U.S.C. 5481-5603.
Section 1029 of the Dodd-Frank Act excludes from this transfer of
authority, subject to certain exceptions, any rulemaking authority
over a motor vehicle dealer that is predominantly engaged in the
sale and servicing of motor vehicles, the leasing and servicing of
motor vehicles, or both. 12 U.S.C. 5519.
\9\ Dodd-Frank Act section 1400(c), 15 U.S.C. 1601 note.
---------------------------------------------------------------------------

B. Implementation Plan for New Mortgage Rules

On February 13, 2013, the Bureau announced an initiative to support
implementation of the new mortgage rules (Implementation Plan),\10\
under which the Bureau would work with the mortgage industry to ensure
that the 2013 Title XIV Final Rules could be implemented accurately and
expeditiously. The Implementation Plan included: (1) Coordination with
other agencies; (2) publication of plain-language guides to the new
rules; (3) publication of additional interpretive guidance and
corrections or clarifications of the new rules as needed; (4)
publication of readiness guides for the new rules; and (5) education of
consumers on the new rules.
---------------------------------------------------------------------------

\10\ Consumer Financial Protection Bureau Lays Out
Implementation Plan for New Mortgage Rules. Press Release. Feb. 13,
2013 available at http://www.consumerfinance.gov/newsroom/consumer-financial-protection-bureau-lays-out-implementation-plan-for-new-mortgage-rules/.
---------------------------------------------------------------------------

This interim final rule makes narrow amendments to the 2013 Title
XIV Final Rules and three technical corrections to the September 2013
Final Rule Amendments to the 2013 Mortgage Rules. The Bureau is
proceeding by interim final rule to provide immediate certainty
regarding compliance to the small sub-markets affected. For information
and documents regarding other guidance and amendments under the
Implementation Plan, please visit the Bureau's Regulatory
Implementation Web page.\11\
---------------------------------------------------------------------------

\11\ http://www.consumerfinance.gov/regulatory-implementation.
---------------------------------------------------------------------------

III. Legal Authority

The Bureau is issuing this interim final rule pursuant to its
authority under RESPA, TILA and the Dodd-Frank Act. Section 1061 of the
Dodd-Frank Act transferred to the Bureau the ``consumer financial
protection functions'' previously vested in certain other Federal
agencies, including the Board of Governors of the Federal Reserve
System (Board) and the Department of Housing and Urban Development
(HUD). The Dodd-Frank Act defines ``consumer financial protection
function'' to include ``all authority to prescribe rules or issue
orders or guidelines pursuant to any Federal consumer financial law,
including performing appropriate functions to promulgate and review
such rules, orders, and guidelines.'' \12\ RESPA, TILA, title X of the
Dodd-Frank Act, and certain subtitles and provisions of title XIV of
the Dodd-Frank Act are Federal consumer financial laws.\13\
Accordingly, the Bureau has authority to issue regulations pursuant to
RESPA, TILA, title X, and the enumerated subtitles and provisions of
title XIV.
---------------------------------------------------------------------------

\12\ 12 U.S.C. 5581(a)(1).
\13\ Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14)
(defining ``Federal consumer financial law'' to include the
``enumerated consumer laws'' and the provisions of title X of the
Dodd-Frank Act); Dodd-Frank Act section 1002(12), 12 U.S.C. 5481(12)
(defining ``enumerated consumer laws'' to include RESPA and TILA),
Dodd-Frank section 1400(b), 15 U.S.C. 1601 note (defining
``enumerated consumer laws'' to certain subtitles and provisions of
title XIV).
---------------------------------------------------------------------------

The Bureau is amending the 2013 HOEPA Final Rule and the 2013
Mortgage Servicing Final Rules with this interim final rule. The
interim final rule relies on the broad rulemaking authority
specifically granted to the Bureau by RESPA sections 6(k), 6(j)(3) and
19(a), and by TILA sections 105(a) and 105(f), and title X of the Dodd-
Frank Act. Additionally, the interim final rule relies on the
rulemaking authority used in connection with the 2013 HOEPA Final
Rule,\14\ including RESPA section 19(a), TILA section 129(p), and the
specific rulemaking provision for the pre-loan counseling requirement,
at TILA section 129(u)(3).
---------------------------------------------------------------------------

\14\ 78 FR 6855 (Jan. 31, 2013).
---------------------------------------------------------------------------

IV. Administrative Procedure Act

To the extent that notice and comment would otherwise be required,
the Bureau finds that there is good cause to publish this interim final
rule without notice and comment. See 5 U.S.C. 553(b)(3)(B).
First, with respect to the amendments of Regulation X section
1024.39 and Regulation Z sections 1026.20(c) and 1026.41, notice and
comment is impracticable and contrary to the public interest. The
amendments to these sections effectuate narrow exceptions to Regulation
Z and the 2013 Mortgage Servicing Final Rules to facilitate compliance
with the requirements of those rules with respect to the small number
of borrowers under the protection of the Bankruptcy Code or provisions
of the FDCPA that require debt collectors to cease communications upon
request by the borrower. The 2013 Mortgage Servicing Final Rules, along
with the other mortgage rules issued by the Bureau, implement
fundamental reforms and important new consumer protections mandated by
Congress to guard against practices that contributed to the nation's
most significant financial crisis in nearly a century. The rulemakings
as a whole implicate multiple processes for both mortgage originations
and servicing. Congress mandated that a number of the rules be issued
by January 21, 2013, and that they take effect by one year after
issuance. Consequently, the 2013 Mortgage Servicing Final Rules, along
with most of the other mortgage rules issued by the Bureau in January
2013, will take effect in January 2014. Although section 1026.20(c) of
Regulation Z was not established by the new rules, compliance with that
pre-existing provision must be worked in to servicers' overall
compliance strategy for January. Because many financial institutions
lock down their computer systems late in the calendar year due to high
holiday processing volume and the need to generate year-end reports,
institutions have relatively little time to institute programming
changes before the January effective dates.
If the Bureau were to give advance notice of the amendment of these
sections and even a two-week comment period, a rule could not
reasonably be published in final form until early December. Servicers
would experience a period of uncertainty in which they would have to
continue to prepare for compliance with the original rules in case the
exemptions were not finalized.

[[Page 62996]]

This would likely divert resources from activities that would have more
beneficial impacts for consumers. If the Bureau adopted the exemptions
in December, servicers would then be forced to change their systems in
a rush before the effective date, potentially leading to severe
compliance problems and harm to consumers.
Second, the Bureau finds that the notice-and-comment procedure is
unnecessary for the amendments to Sec. Sec. 1026.32, 1026.43, and
1026.34 and related commentary. As discussed more fully below in this
preamble, the amendments correct inadvertent, technical errors with
respect to these sections. First, a rule the Bureau adopted in May 2013
included the proper version of comment 32(b)(1)(ii)-4.iii, but a recent
amendment erroneously reverted the comment to an old version. The
Bureau is restoring the proper May 2013 version of the comment with a
minor clarifying adjustment to remove an extraneous phrase and thereby
avoid the misinterpretation that the comment is in conflict with the
regulatory text. The Bureau believes that affected members of the
public, including institutions subject to the rule, have understood
that the removal of the May 2013 version of the comment was
inadvertent, that the May 2013 version of the comment should not be
understood to conflict with the regulatory text, and that the Bureau
would correct the comment.
Second, the amendment to section 1026.43(e)(4)(ii)(C) corrects a
similar technical error. The July 2013 rule included the proper version
of section 1026.43(e)(4)(ii)(C) but a recent amendment inadvertently
omitted language reiterating in the regulation text that matters wholly
unrelated to ability to repay will not be relevant to the determination
of QM status under that provision. No change in the standard was
intended or made by the recent amendment, as is clear from the
interpretation of that provision contained in comment 43(e)(4)-4.
Finally, the amendment to section 1026.34(a)(5) corrects a failure to
address a very narrow category of transactions for which the
disclosures specified in the regulation are not required. In the
absence of the correction, the existing language could be read to
require new disclosures that would be unduly burdensome and unsuitable
for consumers or simply to render the provision impossible to comply
with for affected transactions. The interim final rule corrects the
inadvertent omission by expressly referencing existing disclosures that
are already required for the affected transactions.

V. Effective Date

This interim final rule is effective on January 10, 2014. As with
the requirements of the 2013 HOEPA Final Rule which it amends, the
change to Sec. 1026.34(a)(5) applies to transactions for which the
creditor received an application on or after that date. The servicing
exemptions provided in this rule amending existing Regulation Z and the
2013 Mortgage Servicing Rules are available for use with any servicing
account beginning on the effective date. The technical corrections to
section 1026.32 and section 1026.43 take effect on January 10, 2014.

VI. Section-by-Section Analysis

A. Regulation X

General
In addition to the clarifications and amendments to Regulation X
discussed below, the Bureau is making one correction to an amendatory
instruction that relates to FR Doc. 2013-22752, published on October 1,
2013.
Section 1024.39 Early intervention requirements for certain borrowers
1024.39(d) Exemptions
The early intervention requirements in Sec. 1024.39 are intended
to provide delinquent borrowers with opportunities to pursue available
loss mitigation options at the early stages of a delinquency by
requiring that the servicer attempt to make live contact with the
borrower and to issue a written notice. The requirements apply to each
payment for which the borrower is delinquent, although the written
notice must be provided only once every 180 days.\15\ In this interim
final rule, the Bureau is adding new Sec. 1024.39(d)(1), exempting a
servicer from the early intervention requirements while a borrower is a
debtor in bankruptcy, and new Sec. 1024.39(d)(2), exempting a servicer
from the early intervention requirements when a borrower has invoked
the cease communication provisions under the Fair Debt Collections
Practices Act (FDCPA).\16\
---------------------------------------------------------------------------

\15\ The Bureau has issued guidance to clarify how a servicer
may comply with the requirements in Sec. 1024.39 to make good faith
efforts to establish live contact with a borrower in CFPB Bulletin
2013-12, available at http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.
\16\ 15 U.S.C. 1692 et seq.
---------------------------------------------------------------------------

The Bureau first proposed the early intervention requirements in
Sec. 1024.39 on August 10, 2012. In the preamble to the proposed rule,
the Bureau noted that servicers may be subject to State and Federal
laws related to debt collection practices, such as the FDCPA. In
addition, the preamble acknowledged that the Bankruptcy Code's
automatic stay provisions generally prohibit, among other things,
actions to collect, assess, or recover a claim against a debtor that
arose before the debtor filed for bankruptcy.\17\ The Bureau invited
comment on whether servicers may reasonably question how they could
comply with the Bureau's proposal in light of those laws.
---------------------------------------------------------------------------

\17\ See 11 U.S.C. 362 (automatic stay); see also 11 U.S.C. 524
(effect of discharge).
---------------------------------------------------------------------------

Several industry commenters expressed concern that the Bureau's
rules overlap with and could conflict with existing State and Federal
law. Several commenters requested guidance on whether servicers would
be required to comply with the early intervention requirements if the
borrower instructed the servicer to cease collection efforts, not to
contact the borrower by telephone, or if the borrower refused to pay
the debt. Several of these commenters requested that the Bureau include
an exemption from the early intervention requirements in cases
involving debt collection or bankruptcy law. One industry commenter
requested that the Bureau clarify whether servicers would have immunity
from claims of harassment or improper conduct under the FDCPA.
With respect to addressing potential conflicts between the Bureau's
rules and existing State and Federal law as well as existing industry
practice, commenters identified a variety of ways the Bureau could
provide relief, including by not adopting rules that exceed or
otherwise conflict with existing requirements, providing safe harbors
(such as by clarifying that compliance with existing laws and
agreements satisfies Sec. 1024.39), adopting more flexible standards,
providing exemptions, including a mechanism in the rule to resolve
compliance conflicts, or broadly preempting State laws.
On January 17, 2013, the Bureau issued the 2013 RESPA Servicing
Final Rule with early intervention requirements in Sec. 1024.39 that
included a conflicts of law provision specifying that servicers are not
required to make contact with borrowers in a manner that may be
prohibited by Federal laws, such as the FDCPA or the Bankruptcy Code's
automatic stay provisions. The Bureau also added comment 39(c)-1,
addressing borrowers in bankruptcy. The comment specified, ``Section
1024.39 does not require a servicer to communicate with a borrower in a
manner that would be inconsistent with applicable bankruptcy

[[Page 62997]]

law or a court order in a bankruptcy case. To the extent permitted by
such law or court order, servicers may adapt the requirements of Sec.
1024.39 in any manner that would permit them to notify borrowers of
loss mitigation options.'' In the preamble to the final rule, the
Bureau stated that it did not seek to interpret the Bankruptcy Code
through this comment, but instead intended to indicate that servicers
could take a flexible approach to complying with Sec. 1024.39 for
borrowers in bankruptcy.

1024.39(d)(1) Borrowers in bankruptcy

After publication of the 2013 RESPA Servicing Final Rule, industry
stakeholders expressed continued concerns to the Bureau about complying
with certain servicing requirements for borrowers under the protection
of bankruptcy law. In general, and as discussed further below with
regard to periodic statement requirements, servicers asserted that
simply providing flexibility in accommodating bankruptcy law
restrictions on communications with borrowers was not sufficient
because they faced a substantial legal burden in determining when and
how bankruptcy law provisions applied in the first instance. Servicers
also expressed concern about how to fulfill the servicing rules'
requirements in a way that did not confuse borrowers with regard to
their status in bankruptcy and the fact that servicers were not
attempting to collect on accounts. Bankruptcy trustees raised similar
concerns about the likelihood of servicers providing information that
will be confusing to borrowers/debtors, debtor attorneys, and even
courts and trustees. Specifically, with regard to early intervention,
industry sought additional guidance on whether the Bureau would require
some attempt at compliance even if there was an automatic stay and
whether servicers would be subject to claims by private litigants
asserting that bankruptcy was not an excuse for a servicer's lack of
performance under Sec. 1024.39.
Based on these inquiries, the Bureau believes that the potential
interactions between the Sec. 1024.39 early intervention requirements
and bankruptcy law requirements can be highly varied and complex. The
Bankruptcy Code itself provides a robust set of consumer protections
for debtors, including oversight of debt repayment plans, where
applicable. However, whether certain communications with the borrower
may violate an automatic stay or discharge injunction are fact-specific
inquiries and can vary depending on the Chapter of the Bankruptcy Code
at issue, the intention of the debtor to retain the property, and the
frequency and detailed contents of the communications.\18\ Uncertainty
with respect to loss mitigation-related communications has led federal
regulators \19\ and several bankruptcy courts \20\ to issue guidelines
or rules for servicers on the interaction between those communications
and bankruptcy law. While some sources identified by the Bureau suggest
that it is permissible for servicers to engage in loss mitigation
negotiations with borrowers who have invoked bankruptcy protections,
they do not address affirmative outreach directly to the borrower to
solicit discussions about loss mitigation options.
---------------------------------------------------------------------------

\18\ See infra note 35; see also In re Duke, 79 F.3d 43 (7th
Cir. 1996) (holding creditor does not violate automatic stay when
sending ``nonthreatening and non-coercive'' offer to reaffirm
Chapter 7 debtor's pre-petition debt); In re Silva, No. 09-02504,
2010 WL 605578 (Bankr. D. Haw. Feb. 19, 2010) (``Nothing in the
Bankruptcy Code prevents or prohibits a chapter 7 or chapter 13
debtor or its secured creditors from entering into communications or
negotiations about the possibility of a loan modification.'')
\19\ See, e.g., HUD, Mortgagee Letter 2008-32 (Oct. 17, 2008)
(``[M]ortgagees must, upon receipt of notice of a bankruptcy filing,
send information to debtor's counsel indicating that loss mitigation
may be available, and provide instruction sufficient to facilitate
workout discussions including documentation requirements, timeframes
and servicer contact information . . . . Nothing in this mortgagee
letter requires that mortgagees make direct contact with any
borrower under bankruptcy protection.'') (emphasis added) available
at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2008ml.cfm; U.S. Dep't of Treasury, Making Home Affordable Program
Handbook for Servicers of Non-GSE Loans, v.4.3 at 77, 80 (Sept. 16,
2013) (``Borrowers in active Chapter 7 or Chapter 13 bankruptcy
cases are eligible for HAMP at the servicer's discretion in
accordance with investor guidelines, but servicers are not required
to solicit these borrowers proactively for HAMP . . . . Borrowers
who have received a Chapter 7 bankruptcy discharge in a case
involving the first lien mortgage who did not reaffirm the mortgage
debt under applicable law are eligible for HAMP . . . . [A] servicer
is deemed to have made a Reasonable Effort to solicit [those]
borrower[s] after sending two written notices to the last address of
record in addition to the two required written notices. . . .'')
(emphasis added) available at http://www.makinghomeaffordable.gov/for-partners/understanding-guidelines/Documents/mhahandbook_43.pdf.
\20\ See, e.g., Amended General Order Regarding Negotiations
Between Debtor(s) and Mortgage Servicer(s) to Consider Loan
Modifications (Bankr. D.N.J. July 24, 2009) (``[C]ommunications and/
or negotiations between debtors and mortgagees/mortgage servicers
about loan modification shall not be deemed as a violation of the
automatic stay . . . . [A]ny such communication or negotiation shall
not be used by either party against the other in any subsequent
litigation . . . .'') available at http://www.njb.uscourts.gov/sites/default/files/general-ordes/2009_07_27_generalOrderLoanModify2.pdf; Bankr. W.D. Wash. R. 4001-2(b) (``A
mortgage creditor's contact with the debtor and/or the debtor's
counsel for the purposes of negotiating a loan modification shall
not be considered a violation of the automatic stay imposed by 11
U.S.C. 362.''). While these two courts' rules might permit some
communications regarding loan modifications, their approach is not
necessarily generally accepted.
---------------------------------------------------------------------------

In addition, when a borrower is under bankruptcy protections, the
benefits of continuing early intervention contacts may depend on the
context. Borrowers who became delinquent on their mortgage loans prior
to filing bankruptcy will likely already have received early
intervention contacts from the servicer and thus will already be on
notice about the availability of potential loss mitigation options. In
such cases, continuing contacts may have limited if any utility. And
while the small group of borrowers who file bankruptcy without first
becoming delinquent on their mortgage loans might benefit from
information regarding the availability of loss mitigation information,
the Bureau is concerned that additional guidance is needed to ensure
that any early intervention contacts communicate effectively regarding
the borrower's status in bankruptcy and do not instead create borrower
confusion.
The Bureau believes that further study of these issues is warranted
but cannot be concluded quickly enough to provide further calibration
of the requirements before January 2014. Therefore, the interim final
rule adds Sec. 1024.39(d)(1), which exempts servicers from the
requirements of Sec. 1024.39 for a mortgage loan while the borrower is
a debtor in bankruptcy. However, the Bureau is not taking any position
on whether early intervention efforts generally may violate an
automatic stay or discharge injunction and encourages servicers who
communicate with borrowers in bankruptcy about loss mitigation options
to continue such tailored communications so far as bankruptcy law
permits. The Bureau believes that some borrowers facing the
complexities of bankruptcy could benefit from receiving loss mitigation
information in some tailored form that is appropriate to their
circumstances.
Because of the new exemption addressing bankruptcy in Sec.
1024.39(d)(1), the interim final rule removes comment 39(c)-1 and
incorporates it into new commentary in Sec. 1024.39(d)(1)-2, as
discussed below. Comment 39(d)(1)-1 clarifies that the exemption begins
once a petition has been filed commencing a case under Title 11 of the
United States Code in which the borrower is a debtor. Comment 39(d)(1)-
2 clarifies that with respect to any portion of the mortgage debt that
is not discharged, a servicer must resume compliance with Sec. 1024.39
after the first delinquency that follows the earliest of any of three
potential outcomes in the borrower's bankruptcy

[[Page 62998]]

case: (i) the case is dismissed, (ii) the case is closed, or (iii) the
borrower receives a discharge under 11 U.S.C. Sec. Sec. 727, 1141,
1228, or 1328. However, this requirement to resume compliance does not
require a servicer to communicate with a borrower in a manner that
would be inconsistent with applicable bankruptcy law or a court order
in a bankruptcy case. To the extent permitted by such law or court
order, a servicer may adapt the requirements of Sec. 1024.39 in any
manner believed necessary. Compliance with Sec. 1024.39 is not
required for any portion of the mortgage debt that is discharged under
applicable provisions of the U.S. Bankruptcy Code. If the borrower's
bankruptcy case is revived--for example if the court reinstates a
previously dismissed case, reopens the case, or revokes a discharge--
the servicer is again exempt from the requirement in Sec. 1024.39.
Comment 39(d)(1)-3 clarifies that the exemption applies when any of the
borrowers who are joint obligors with primary liability on the mortgage
loan is a debtor in bankruptcy.
For the reasons discussed, the Bureau is providing this exemption
at this time, particularly because of the complex compliance concerns
and the impending effective date of the 2013 RESPA Servicing Final
Rule. The Bureau will continue to examine this issue and may reinstate
an early intervention requirement with respect to borrowers in
bankruptcy, but it will not reinstate any such requirement without
notice and comment rulemaking and an appropriate implementation period.
The Bureau solicits comment on the scope of the exemption, the triggers
for meeting the exemption and having to resume early intervention, and
how the early intervention communications might be tailored to meet the
particular needs of borrowers in bankruptcy. The Bureau also seeks
comment on other factors the Bureau should take into consideration in
determining whether to reinstate any type of early intervention
requirement with respect to borrowers in bankruptcy.
Legal Authority. The Bureau uses its authority under RESPA sections
6(j)(3) and 19(a) to exempt servicers from the early intervention
requirements in Sec. 1024.39 for a mortgage loan while the borrower is
a debtor in bankruptcy and to adopt related official Bureau
interpretations in Supplement I to Part 1024. For the reasons discussed
above, the Bureau does not believe at this time that the consumer
protection purposes of RESPA would be furthered by requiring servicers
to comply with Sec. 1024.39 for a mortgage loan while the borrower is
a debtor in bankruptcy.

1024.39(d)(2) Fair Debt Collection Practices Act

A servicer of defaulted mortgage loans may also be a debt collector
under the FDCPA. The FDCPA grants debtors the right generally to bar
debt collectors from communicating with them regarding the debt by
sending a written ``cease communication'' request.\21\ As discussed
above, the Bureau is separately issuing a bulletin that concludes that
the FDCPA ``cease communication'' provision does not override
servicers' obligations to have various communications with borrowers
that are specifically mandated by the Dodd-Frank Act or to respond to
certain borrower-initiated communications in accordance with the 2013
Mortgage Servicing Final Rules.\22\ However, because the early
intervention requirements are neither statutorily mandated nor
borrower-initiated, the interplay between the early intervention
requirements and the ``cease communication'' provision of the FDCPA is
less clear than it is with the servicing provisions discussed in the
bulletin.
---------------------------------------------------------------------------

\21\ 15 U.S.C. 1692c(c).
\22\ The new mortgage servicing rules that do not exempt
servicers based on their status as debt collectors under the FDCPA
are, in Regulation X, 12 CFR 1024.35 (error resolution), 1024.36
(requests for information), 1024.37 (force-place insurance), and
1024.41 (loss mitigation) and, in Regulation Z, 12 CFR 1026.20(d)
(ARM initial interest rate adjustment) and 1026.41 (periodic
statement). See CFPB Bulletin 2013-12, available at http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf. Note that, elsewhere in this interim final rule, the
Bureau is issuing an exemption for Sec. 1026.20(c) similar to the
one for Sec. 1024.39.
---------------------------------------------------------------------------

Therefore, new Sec. 1024.39(d)(2) exempts a servicer that is a
debt collector under the FDCPA with respect to a borrower from the
requirements of Sec. 1024.39 after the borrower has exercised this
``cease communication'' right. The exemption provides a servicer that
is a debt collector under the FDCPA with certainty that it has no
obligations under Sec. 1024.39 with regard to a borrower who has
followed FDCPA procedure and instructed the servicer/debt collector to
stop communicating with the borrower about the debt. The Bureau is not,
however, making a determination as to the legal status of intervention
efforts following receipt of proper cease communication requests, and
servicers are encouraged to pursue loss mitigation options to the
extent that the FDCPA permits.
The CFPB will be exploring the legal issues and practical benefits
of requiring some type of early intervention to notify borrowers of the
potential availability of loss mitigation options, in an upcoming
rulemaking on debt collection. Balancing the rights of debtors to
protect themselves against certain debt collector practices with the
consumer protections afforded by servicer-borrower contact that may
lead to the resolution of borrower default is more appropriately
addressed in the broader context of a notice-and-comment rulemaking.
For this reason, the interim final rule revises Sec. 1024.39 to add
the exemption discussed above and provide clarity to stakeholders, but
the Bureau notes that the future rulemaking on debt collection may
alter or eliminate this exemption.
Legal Authority. The Bureau uses its authority under RESPA sections
6(j)(3) and 19(a) to exempt a servicer that is a debt collector
pursuant to the FDCPA with regard to a mortgage loan from the early
intervention requirements in Sec. 1024.39 when a borrower has
exercised the ``cease communication'' right under the FDCPA prohibiting
the servicer/debt collector from communicating with the borrower
regarding the debt. For the reasons discussed above, the Bureau
believes at this time that the consumer protection purposes of RESPA
would not be furthered by requiring compliance with Sec. 1024.39 at a
time when a borrower has specifically requested the servicer/debt
collector to stop communicating with the borrower about the debt.

B. Regulation Z

Section 1026.20 Disclosure Requirements Regarding Post-Consummation
Events
20(c) Rate Adjustments With a Corresponding Change in Payment
20(c)(1)(ii) Exemptions
20(c)(1)(ii)(C)
In this interim final rule, the Bureau is adding a third exemption
to Sec. 1026.20(c), the regulation requiring disclosures to consumers
with adjustable-rate mortgages (ARMs) each time an interest rate
adjustment causes a corresponding change in payment.\23\ Servicers of
defaulted mortgage loans may be debt collectors under the FDCPA.\24\ As
discussed above, the FDCPA grants debtors the right generally to bar
debt collectors from communicating with them by sending a written
``cease communication'' request.\25\ New Sec. 1026.20(c)(1)(ii)(C)
exempts servicers, creditors and assignees on an ARM from the

[[Page 62999]]

requirements of Sec. 1026.20(c) when the servicer for that ARM is a
debt collector under the FDCPA and the consumer has exercised this
``cease communication'' right.
---------------------------------------------------------------------------

\23\ 12 CFR 1026.20(c), as revised by 78 FR 10901 (Feb. 14,
2013) (2013 TILA Servicing Final Rule).
\24\ 15 U.S.C. 1692 et seq.
\25\ 15 U.S.C. 1692c(c).
---------------------------------------------------------------------------

As discussed above, the Bureau is separately issuing a bulletin
that concludes that the FDCPA ``cease communication'' provision does
not override servicers' obligations to have various communications with
borrowers that are specifically mandated by the Dodd-Frank Act or to
respond to certain borrower-initiated communications in accordance with
the 2013 Mortgage Servicing Final Rules.\26\ However, because the
notice requirements of Sec. 1026.20(c) are neither statutorily
mandated nor borrower-initiated, the interplay between those
requirements and the ``cease communication'' provision of the FDCPA is
less clear than it is with the servicing provisions discussed in the
bulletin.
---------------------------------------------------------------------------

\26\ The new mortgage servicing rules that do not exempt
servicers based on their status as debt collectors under the FDCPA
are, in Regulation X, 12 CFR 1024.35 (error resolution), 1024.36
(requests for information), 1024.37 (force-place insurance), and
1024.41 (loss mitigation) and, in Regulation Z, 12 CFR 1026.20(d)
(ARM initial interest rate adjustment) and 1026.41 (periodic
statement). See CFPB Bulletin 2013-12, available at http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf. Note that, elsewhere in this interim final rule, the
Bureau is issuing an exemption for Sec. 1024.39 similar to the one
for Sec. 1026.20(c).
---------------------------------------------------------------------------

Therefore, new Sec. 1026.20(c)(1)(ii)(C) exempts servicers,
creditors and assignees on an ARM from the requirements of Sec.
1026.20(c) when the servicer for that ARM is a debt collector under the
FDCPA and the consumer has exercised this ``cease communication''
right. The exemption provides a servicer that is a debt collector under
the FDCPA with certainty that it has no obligations under Sec.
1026.20(c) with regard to a borrower who has followed FDCPA procedure
and instructed the servicer/debt collector to stop communicating with
the borrower about the debt. The Bureau is not, however, making a
determination as to the legal status of Sec. 1026.20(c) requirements
following receipt of proper cease communication requests, and servicers
are encouraged to provide ARM adjustment notices to the extent that the
FDCPA permits.
The CFPB will be exploring the legal issues and practical benefits
of requiring some form of Sec. 1026.20(c) notice following a cease
communication request, in an upcoming rulemaking on debt collection.
Balancing the rights of debtors to protect themselves against certain
debt collector practices with the consumer protection afforded by
timely notice of interest rate and payment adjustments is more
appropriately addressed in the broader context of a notice-and-comment
rulemaking. For this reason, the interim final rule revises Sec.
1026.20(c) to add the exemption discussed above and provide clarity to
stakeholders, but the Bureau notes that the future rulemaking on debt
collection may alter or eliminate this exemption.
Legal Authority. The Bureau uses its authority under TILA section
105(a) to provide an exemption from the ARM disclosures required by
Sec. 1026.20(c) when a servicer that is a debt collector pursuant to
the FDCPA with regard to an adjustable-rate mortgage loan receives a
``cease communication'' notice. For the reasons discussed above, the
Bureau believes this exemption is necessary and proper under TILA
section 105(a) to effectuate the purposes of and to facilitate
compliance with TILA.
Section 1026.32 Requirements for Certain High-Cost Mortgages
32(b) Definitions
32(b)(1)
This interim final rule makes a technical correction to comment
32(b)(1)(ii)-4.iii, as revised by the May 2013 ATR Final Rule and the
September 2013 Final Rule Amendments to the 2013 Mortgage Rules. Among
other things, the May 2013 ATR Final Rule substantially revised Sec.
1026.32(b)(1)(ii) and, with it, comment 32(b)(1)(ii)-4. However, the
September 2013 Final Rule Amendments to the 2013 Mortgage Rules
inadvertently replaced comment 32(b)(1)(ii)-4.iii with the comment
language that was in place before the May 2013 ATR Final Rule revision.
This rule restores the May 2013 language.
This rule also makes a minor adjustment to the May 2013 language to
remove an extraneous reference to compensation paid by ``a consumer.''
Comment 32(b)(1)(ii)-4.iii is intended to focus on how compensation
paid by a creditor to a loan originator is included in the calculation
of points and fees. The reference to compensation paid by ``a
consumer'' in this particular context is not relevant and could have
been misread to suggest that mortgage broker compensation already
included in the points and fees calculation under Sec.
1026.32(b)(1)(i) should be counted again under Sec. 1026.32(b)(1)(ii).
Such an interpretation would not have been consistent with Sec.
1026.32(b)(1)(ii)(A), as both the regulatory text and comment 32(b)(1)-
4.i make plain. This rule makes the technical correction of removing
the phrase ``consumer or'' in comment 32(b)(1)(ii)-4.iii to avoid such
potential confusion.
Section 1026.34 Prohibited acts or practices in connection with high-
cost mortgages
34(a) Prohibited acts or practices for high-cost mortgages
34(a)(5) Pre-loan counseling
The Dodd-Frank Act provides that a creditor shall not extend a
high-cost mortgage to a consumer without obtaining certification from
an approved housing counselor that the consumer has received counseling
on the advisability of the mortgage.\27\ The Dodd-Frank Act also
requires that (1) the counselor not be employed by or affiliated with
the creditor; and (2) the counselor not certify that a consumer has
received counseling unless the consumer has received the appropriate
required disclosures. The statutory section requiring pre-loan
counseling authorizes the Bureau to prescribe regulations to carry out
the requirement.
---------------------------------------------------------------------------

\27\ Dodd-Frank Act section 1433(e), TILA section 129(u), 15
U.S.C. 1639(u).
---------------------------------------------------------------------------

The Bureau implemented the pre-loan counseling requirement in Sec.
1026.34(a)(5) of the 2013 HOEPA Final Rule. In order to ensure that a
consumer would receive useful counseling on the advisability of the
particular loan offered, Sec. 1026.34(a)(5)(ii) required that the
counseling occur after the consumer receives the initial disclosure
under RESPA (currently the GFE \28\), or the TILA disclosures for open-
end credit under Regulation Z section 1026.40. However, the rule
inadvertently failed to address a very narrow category of closed-end
transactions that are neither covered by RESPA nor subject to the
disclosures for open-end credit under Regulation Z. These other high-
cost loans are typically secured by manufactured housing but do not
involve residential real property, and therefore are not federally
related mortgage loans subject to RESPA.\29\ Such loans also are not
covered by Regulation Z section 1026.40. Consequently, Sec.
1026.34(a)(5) could be read to make such closed-end, non-RESPA
transactions impossible, or to require a RESPA or open-end disclosures
for transactions that would otherwise not require such disclosures and
for which such disclosures would

[[Page 63000]]

be unduly burdensome and unsuitable for consumers.
---------------------------------------------------------------------------

\28\ The Bureau notes that the adoption of the forthcoming TILA/
RESPA integrated disclosure, required by Dodd-Frank Act section
1098, will not affect this requirement. The new Loan Estimate
integrated disclosure will satisfy the requirement for a good faith
estimate under RESPA section 5(c), and will be provided prior to
counseling on closed-end RESPA transactions.
\29\ See 12 CFR 1024.2(b).
---------------------------------------------------------------------------

To address these concerns, this interim final rule amends Sec.
1026.34(a)(5) to require that counseling for high-cost loans that are
not covered by either RESPA or section 1026.40 must occur after the
consumer receives the HOEPA disclosure required under Sec. 1026.32(c).
The interim final rule clarifies that RESPA or open-end disclosures are
not required for these transactions.
The Bureau notes that the HOEPA disclosures are not required to be
provided until three business days before consummation of the loan,
which may cause some difficulties in obtaining the counseling and in
ensuring that consummation is not unnecessarily or unduly delayed.
Therefore, new comment 34(a)(5)(ii)-2 states that creditors are
encouraged but not required to provide the disclosures in Sec.
1026.32(c) earlier than three business days before consummation in
order to facilitate the counseling and timely consummation of covered
transactions. In addition, conforming changes have been made to comment
34(a)(5)(ii)-1, renumbered comment 34(a)(5)(ii)-3 and comment
34(a)(5)(iv)-1.
The Bureau seeks comment on this provision of the interim final
rule and whether it ensures that consumers can both receive meaningful
counseling based on disclosures of their loan terms and proceed with
consummation in a timely manner. The Bureau also solicits comment on
any burdens the interim final rule imposes on industry and how such
burdens could be mitigated, keeping in mind the consumer benefits of
timely and meaningful counseling.
The Bureau is also making a small technical correction to comment
34(a)(5)(v)-1.
Section 1026.41 Periodic Statements for Residential Mortgage Loans
41(e) Exemptions
41(e)(5) Consumers in bankruptcy
Dodd-Frank Act section 1420 established TILA section 128(f)
requiring periodic statements for mortgage loans. On January 17, 2013,
the Bureau issued the 2013 TILA Servicing Final Rule implementing the
periodic statement requirements and exemptions in Sec. 1026.41. The
periodic statements required in Sec. 1026.41 are intended to provide
consumers with useful information about the amounts they have paid as
well as the amounts they owe and other information. In this interim
final rule, the Bureau is adding new Sec. 1026.41(e)(5), exempting a
servicer \30\ from the periodic statement requirements in Sec. 1026.41
for a mortgage loan while the consumer is a debtor in bankruptcy.
---------------------------------------------------------------------------

\30\ ``Servicer'' is defined for purposes of Sec. 1026.41 as
including the creditor, assignee or servicer. To increase
readability, this interim final rule also uses the term servicer in
the preamble to describe those same entities covered by Sec.
1026.41.
---------------------------------------------------------------------------

On August 10, 2012, the Bureau proposed implementing the periodic
statement requirements and exemptions in Sec. 1026.41. The proposed
rule and preamble did not specifically address any relationship between
the periodic statement requirements and consumers in bankruptcy. The
Bureau received several comments on the proposed rule that presented
opposing views about the issue. Some consumer advocates felt it was
essential that statements be provided to consumers in bankruptcy to
ensure they are kept informed on the status of their loans and have a
record of the account, while industry commenters insisted that
providing statements for loans in bankruptcy might cause confusion or
violate court orders or the FDCPA.\31\ One commenter added that if
statements must be provided to consumers in bankruptcy, the statements
should be allowed to contain any information, disclosures or messaging
required under bankruptcy rules or court orders.
---------------------------------------------------------------------------

\31\ The Bureau has addressed the concern about the relationship
between the periodic statement requirements and the FDCPA in CFPB
Bulletin 2013-12, available at http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.
---------------------------------------------------------------------------

In the preamble to the 2013 TILA Servicing Final Rule, the Bureau
acknowledged that the Bankruptcy Code might prevent attempts to collect
a debt from a consumer in bankruptcy, but stated that it did not
believe the Bankruptcy Code would prevent a servicer from sending a
consumer a statement on the status of the mortgage loan. The Bureau
further specified that the final rule allows servicers to make changes
to the periodic statement they believe are necessary when a consumer is
in bankruptcy. Specifically, servicers may include a message about the
bankruptcy and alternatively present the amount due to reflect payment
obligations determined by the individual bankruptcy proceeding.
After publication of the final rule, industry stakeholders
expressed more detailed concerns to the Bureau about providing periodic
statements to consumers under bankruptcy protection. The Bureau
received comments on this issue in response to its proposed rules
published on May 2, 2013, and July 2, 2013, even though those proposed
rules did not address periodic statements provided to consumers in
bankruptcy. One commenter expressed support for the Bureau's suggested
message language as a way to satisfy the requirements of Sec. 1026.41
and bankruptcy law. Most of the commenters, however, expressed
continued concerns about potential conflicts with bankruptcy law and
indicated that the periodic statement would need to be redesigned for
consumers in bankruptcy.
In addition, the Bureau has received numerous specific guidance
questions and requests for clarification about how to reconcile the
periodic statement requirements in the final rule with various
bankruptcy law requirements. Industry stakeholders have expressed
concerns that bankruptcy courts, under certain circumstances, may find
servicers in violation of an automatic stay \32\ or discharge
injunction \33\ if servicers provide a periodic statement, whether or
not it includes a disclaimer.\34\ They have asked for guidance on
whether and how servicers would be able to permit consumers to request
that they receive no more statements. Bankruptcy trustees raised
similar concerns that sending a periodic statement designed to
communicate information that does not recognize the unique character of
the Chapter 13

[[Page 63001]]

treatment of mortgages in default may arguably violate the automatic
stay.
---------------------------------------------------------------------------

\32\ See 11 U.S.C. 362(a)(6) (prohibiting ``any act to collect,
assess, or recover a claim against the debtor that arose before the
commencement of the case under this title'').
\33\ See 11 U.S.C. 524(a)(2)-(3) (discharge ``operates as an
injunction against the commencement or continuation of an action,
the employment of process, or an act, to collect . . . .''); but see
11 U.S.C. 524(j) (exception from 11 U.S.C. 524(a)(2) injunction for
``an act by a creditor that is the holder of a secured claim, if--
(1) such creditor retains a security interest in real property that
is the principal residence of the debtor; (2) such act is in the
ordinary course of business between the creditor and the debtor; and
(3) such act is limited to seeking or obtaining periodic payments
associated with a valid security interest in lieu of pursuit of in
rem relief to enforce the lien.'').
\34\ See, e.g., In re Brown, 481 B.R. 351, 361 (Bankr. W.D. Pa.
2012) (Statements without a bankruptcy disclaimer sent after a
Chapter 7 discharge of the mortgage debt that ``provide the amount
of the payment and when it is due, a late charge if the payment is
not received by a certain date, and the past due amount'' were found
to ``seek payment from the Debtor and violate the discharge
injunction.''); In re Joens, No. 03-02077, 2003 WL 22839822 at *2
(Bankr. N.D. Iowa Nov. 21, 2003) (Statements including a bankruptcy
disclaimer sent to debtors in a Chapter 7 case who stated their
intent to surrender the home violated the automatic stay. ``Only if
a Chapter 7 debtor's statement of intention indicates the intent to
continue to make payments and retain property may a creditor
continue to send monthly statements postpetition.''); In re Draper,
237 B.R. 502, 506 (Bankr. M.D. Fla. 1999) (Statements including a
bankruptcy disclaimer sent to a debtor in a Chapter 13 case violated
the automatic stay because ``[t]he only credible reason to send such
invoices on a monthly basis is to try to collect payments from
debtors protected by the automatic stay.'').
---------------------------------------------------------------------------

Industry stakeholders have also asked how to comply with several
disclosure requirements in the periodic statement under specific
circumstances that can arise depending on the type of bankruptcy
proceeding. For example, the Bureau received questions from industry
and bankruptcy trustees about possible consumer confusion depending on
what ``amount due'' and ``payment due date'' servicers would disclose
in a Chapter 13 case that has different pre-petition arrearage cure
payments and post-petition monthly payments, which may be due on
different dates. Servicers also expressed concern about how to fulfill
the servicing rules' requirements in a way that did not confuse
consumers with regard to their status in bankruptcy and the fact that
servicers were not attempting to collect on accounts. Bankruptcy
trustees also raised concerns about the likelihood of servicers
providing information that will be confusing to borrowers/debtors,
debtor attorneys, and even courts and trustees. In addition, the Bureau
received requests to delay the effective date of the periodic statement
requirement with respect to consumers in bankruptcy and to exclude
those consumers from the periodic statement requirements.
Based on the detailed questions received, the Bureau believes that
the potential interactions between the Sec. 1026.41 periodic statement
requirements and bankruptcy law requirements can be highly varied and
complex. The Bankruptcy Code itself provides a robust set of consumer
protections for debtors, including oversight of debt repayment plans,
where applicable. However, whether any periodic statement provided may
violate an automatic stay or discharge injunction are fact-specific
inquiries and can vary depending on the Chapter of the Bankruptcy Code
at issue, the intention of the debtor to retain the property, and the
frequency and detailed contents of the periodic statement provided.\35\
---------------------------------------------------------------------------

\35\ Compare, e.g., In re Zotow, 432 B.R. 252, 259-60 (B.A.P.
9th Cir. 2010) (Notice to debtors showing an increase to
postpetition mortgage payments to reflect prepetition escrow arrears
``was informational in nature and thus not in violation of the stay
. . . First, [it] was not in the nature of an invoice . . . Second,
[the creditor] did not send the Notice with a payment coupon or
envelope . . . Third and last, [the creditor] sent a single Notice .
. . prior to confirmation of Debtors' Chapter 13 plan.''); and
Pearson v Bank of America, No. 3:12-cv-00013, 2012 WL 2804826, at *6
(W.D. Va. July 10, 2012) (Statements with bankruptcy disclaimers did
not violate the Chapter 7 discharge injunction even though the
statements also provided ``principal balances, estimated payments,
payment instructions, information on how [the creditor] will post
any payments made, and other remarks that could surely be construed,
by themselves, as attempts to collect an already-discharged
debt.''); with, e.g., In re Cousins, 404 B.R. 281, 284, 288 (S.D.
Ohio 2009) (Statements with the past and current balance,
``voluntary payment coupon,'' and bankruptcy disclaimer sent to the
debtor whose Chapter 13 plan provided for mortgage payments through
the trustee violated the automatic stay. ``The fact is that
statements containing conflicting information like those allegedly
sent in this case may be confusing to a debtor. Although the
document states that it is an account statement for informational
purposes only, it also includes a `current balance' and a payment
coupon.''); In re Draper, 237 B.R. 502, 506 (Bankr. M.D. Fla. 1999)
(Statements including the amount due, a detachable payment coupon,
return envelope, and bankruptcy disclaimer sent to a debtor in a
Chapter 13 case whose plan provided for the cure of defaults under
his mortgage debt violated the automatic stay because ``[t]he only
credible reason to send such invoices on a monthly basis is to try
to collect payments from debtors protected by the automatic
stay.''). See also n re Connor, 366 B.R. 133, 134-38 (Bankr. D. Haw.
2007) (Statements with the principal balance, amount due,
instructions on how to make a payment, a perforated, detachable
payment coupon, return envelope and bankruptcy disclaimer did not
violate the automatic stay while the Chapter 13 plan was pending but
did violate the automatic stay once the debtor converted to Chapter
7 and stated his intent to surrender the property. ``In order to
formulate a confirmable chapter 13 plan, [the debtor] needed to know
the amount of his mortgage arrears and current payments . . . After
[the debtor] converted his case to chapter 7 and stated his
intention to surrender the mortgaged property, . . . [he] no longer
needed to know the status of the mortgage payments. The only purpose
for sending the monthly statements after that point was to induce
[the debtor] to make payments on a prepetition debt which was
dischargeable and has now been discharged.'').
---------------------------------------------------------------------------

In addition, when a consumer is under bankruptcy protections, the
benefits of periodic statements may depend on the context. The Bureau
has indicated that servicers may take a flexible approach in complying
with Sec. 1026.41 for consumers in bankruptcy. However, without
providing additional guidance about how servicers can tailor their
periodic statements to communicate effectively the status of a
consumer's loan in light of the bankruptcy, it is not clear whether a
servicer's tailored periodic statements would provide a meaningful
benefit for that consumer in the form of useful information. Indeed,
the statements could provide that consumer with information that may be
confusing.
The Bureau believes that further study of these issues is warranted
but cannot be concluded quickly enough to provide further calibration
of the requirements before January 2014. Therefore, the interim final
rule exempts servicers from the requirements of Sec. 1026.41 for a
mortgage loan while the consumer is a debtor in bankruptcy. However,
the Bureau is not taking any position on whether periodic statements
generally may violate an automatic stay or discharge injunction and
does not discourage servicers who send tailored periodic statements or
communications to consumers in bankruptcy from continuing such
communications so far as bankruptcy law permits. The Bureau still
believes that some consumers facing the complexities of bankruptcy
could benefit from receiving information in some tailored form of a
periodic statement that is appropriate to their circumstances.
The interim final rule also adds new commentary to Sec.
1026.41(e)(5). Comment 41(e)(5)-1 clarifies that the exemption begins
once a petition has been filed commencing a case under Title 11 of the
United States Code in which the consumer is a debtor. Comment 41(e)(5)-
2 clarifies that with respect to any portion of the mortgage debt that
is not discharged, a servicer must resume sending periodic statements
in compliance with Sec. 1026.41 within a reasonably prompt time after
the next payment due date that follows the earliest of any of three
potential outcomes in the consumer's bankruptcy case: (i) the case is
dismissed, (ii) the case is closed, or (iii) the consumer receives a
discharge under 11 U.S.C. 727, 1141, 1228, or 1328. However, this
requirement to resume sending periodic statements does not require a
servicer to communicate with a consumer in a manner that would be
inconsistent with applicable bankruptcy law or a court order in a
bankruptcy case. To the extent permitted by such law or court order, a
servicer may adapt the requirements of Sec. 1026.41 in any manner
believed necessary. The periodic statement is not required for any
portion of the mortgage debt that is discharged under applicable
provisions of the U.S. Bankruptcy Code. If the consumer's bankruptcy
case is revived--for example if the court reinstates a previously
dismissed case, reopens the case, or revokes a discharge--the servicer
is again exempt from the requirement in Sec. 1026.41. Comment
41(e)(5)-3 clarifies that the exemption applies when any consumer who
is among the joint obligors with primary liability on the transaction
is a debtor in bankruptcy.
For the reasons discussed, the Bureau is providing this exemption
at this time, particularly because of the complex compliance concerns
and the impending effective date of the 2013 TILA Servicing Final Rule.
The Bureau will continue to examine this issue and may reinstate a
periodic statement requirement with respect to consumers in bankruptcy,
but it will not reinstate any such requirement without notice and
comment rulemaking and an appropriate implementation period. The

[[Page 63002]]

Bureau solicits comment on the scope of the exemption, the triggers for
meeting the exemption and having to resume sending periodic statements,
and how the content of the periodic statement might be tailored to meet
the particular needs of consumers in bankruptcy. The Bureau also seeks
comment on other factors it should take into consideration in
determining whether to reinstate any type of periodic statement
requirement with respect to consumers in bankruptcy.
Legal Authority. The Bureau uses its authority under TILA sections
105(a) and (f) and Dodd-Frank Act section 1405(b) to exempt servicers
from the requirement in TILA section 128(f) to provide periodic
statements for a mortgage loan while the consumer is a debtor in
bankruptcy and to adopt related official Bureau interpretations in
Supplement I to Part 1026. For the reasons discussed above, the Bureau
believes this exemption is necessary and proper under TILA section
105(a) to facilitate compliance. In addition, consistent with TILA
section 105(f) and in light of the factors in that provision, the
Bureau believes that imposing the periodic statement requirement for
consumers in bankruptcy may not currently provide a meaningful benefit
to those consumers in the form of useful information. Consistent with
Dodd-Frank Act section 1405(b), the Bureau also believes that the
modification of the requirements in TILA section 128(f) to provide this
exemption is in the interest of consumers and in the public interest.
Section 1026.43 Minimum standards for transactions secured by a
dwelling
43(e) Qualified mortgages
43(e)(4) Qualified mortgage defined--special rules
43(e)(4)(ii)(C)
The September 2013 Final Rule Amendments to the 2013 Mortgage Rules
inadvertently replaced the language at Sec. 1026.43(e)(4)(ii)(C) as
revised in July with the earlier version of the language. This rule
restores the language as revised in July.

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

A. Overview

The Bureau has conducted an analysis of the potential benefits,
costs, and impacts of the interim final rule.\36\ The Bureau has
consulted, or offered to consult with, the prudential regulators, SEC,
HUD, FHFA, the Federal Trade Commission, and the Department of the
Treasury, including regarding consistency with any prudential, market,
or systemic objectives administered by such agencies.
---------------------------------------------------------------------------

\36\ Section 1022(b)(2)(A) of the Dodd-Frank Act, 12 U.S.C.
5521(b)(2), directs the Bureau, when prescribing a rule under the
Federal consumer financial laws, to consider the potential benefits
and costs of regulation to consumers and covered persons, including
the potential reduction of access by consumers to consumer financial
products or services; the impact on insured depository institutions
and credit unions with $10 billion or less in total assets as
described in section 1026 of the Dodd-Frank Act; and the impact on
consumers in rural areas. Section 1022(b)(2)(B) of the Dodd-Frank
Act directs the Bureau to consult with appropriate prudential
regulators or other Federal agencies regarding consistency with
prudential, market, or systemic objectives that those agencies
administer.
---------------------------------------------------------------------------

As noted above, the interim final rule makes amendments to the 2013
RESPA Servicing Final Rule, 2013 TILA Servicing Final Rule, 2013 HOEPA
Final Rule, and makes two technical corrections to Regulation Z and the
commentary as revised by the May 2013 ATR Final Rule, the July 2013
Final Rule Amendments to the 2013 Mortgage Rules, and the September
2013 Final Rule Amendments to the 2013 Mortgage Rules. These changes
clarify, correct, or amend provisions or commentary on (1) The scope of
the requirement to engage in early intervention with delinquent
borrowers under 12 CFR 1024.39, (2) the scope of the requirement to
provide a notice to consumers with adjustable-rate mortgages when an
interest rate adjustment causes a corresponding change in payment under
12 CFR 1026.20, (3) compensation to be included in points and fees for
loan originators that are not employees of the creditor, (4) the
federally required disclosure that must be used in pre-loan counseling
required under 12 CFR 1026.34(a)(5) for a closed-end HOEPA loan not
subject to RESPA, and (5) the scope of the requirement to provide a
periodic statement under 12 CFR 1026.41.\37\
---------------------------------------------------------------------------

\37\ The interim final rule also restores the proper version of
Sec. 1026.43(e)(4)(ii)(C), as revised in the July 2013 Final Rule
Amendments to the 2013 Mortgage Rules, which was inadvertently
changed in the September 2013 Final Rule Amendments to the 2013
Mortgage Rules. No change was intended or made by the September
amendment, as is clear from the interpretation of Sec.
1026.43(e)(4)(ii)(C) contained in the commentary. Nevertheless, as
compared to the baseline established by the September amendment, the
revision made by the interim final rule may benefit consumers and
covered persons by reducing compliance costs.
---------------------------------------------------------------------------

B. Potential Benefits and Costs to Consumers and Covered Persons

Compared to the baseline established by the September 2013 Final
Rule Amendments to the 2013 Mortgage Rules (for (3)) or the baseline
established by the final rules issued in January 2013 (for (1), (2),
(4) and (5)), the Bureau believes that the interim final rule generally
reduces burden on covered persons. The impact on consumers is nuanced,
as explained above and discussed further below, but there are benefits
to consumers considering certain high-cost loans.
The interim final rule adds a new provision Sec. 1024.39(d)(1)
which exempts a servicer from the early intervention requirements in
Sec. 1024.39 for a mortgage loan while the borrower is a debtor in
bankruptcy. The Bureau is adding this exemption in light of detailed
questions received since issuing the 2013 RESPA Servicing Final Rule
concerning potential conflicts between this provision and bankruptcy
law and concerning how to tailor servicing communications for borrowers
who have invoked bankruptcy protections. This exemption will obviate
the need for servicers to analyze their Sec. 1024.39 early
intervention activities to account for the requirements of bankruptcy
law and to provide Sec. 1024.39 early intervention activities
consistent with the requirements of bankruptcy law. The new provision
therefore reduces burden on servicers.
The impact on borrowers of the exemption is less clear in light of
the continued uncertainty expressed by servicers about how to comply
with both the early intervention requirement and bankruptcy law and
because the Bureau cannot at this time provide guidance to servicers
about how to comply. As a result, there is significant uncertainty
regarding the impact of the early intervention activities that would
have been provided under the baseline rule if any on borrowers who were
debtors in bankruptcy and therefore significant uncertainty regarding
the impact of the exemption. For example, borrowers might not have
received significant benefit under the baseline rule, either because
servicers determined that early intervention contacts were prohibited
by bankruptcy law or because the contacts confused borrowers regarding
the status of their accounts, in which case the exemption imposes
little if any cost on these borrowers. The Bureau will continue to
examine this issue.
The interim final rule also adds a new provision Sec.
1024.39(d)(2) which exempts a servicer that is a debt collector under
the FDCPA with respect to a borrower who has exercised his or her
``cease communication'' right under the FDCPA from the requirements of
Sec. 1024.39. This exemption will obviate the need for servicers to
analyze their Sec. 1024.39 early intervention activities to account
for this requirement of the

[[Page 63003]]

FDCPA and to provide Sec. 1024.39 early intervention activities
consistent with this requirement of the FDCPA. The new provision
therefore reduces burden on servicers.
The impact on borrowers of the exemption is less clear in light of
continued uncertainty about how servicers would have complied with both
the early intervention requirement and the FDCPA. As a result, there is
uncertainty regarding the impact of the early intervention activities
if any that would have been provided under the baseline rule on
borrowers who had exercised their ``cease communication'' right and
therefore uncertainty regarding the impact of the exemption. For
example, a borrower might benefit from certain types of early
intervention notwithstanding a request that the servicer/debt collector
stop communicating with the borrower about the debt. If such early
intervention would have been provided under the baseline rule, then the
exemption imposes a cost on these borrowers. Balancing protections
provided by early intervention against the protections provided by the
``cease communication'' right requires a complex analysis more
appropriate in the broader context of a separate rulemaking on debt
collection. The Bureau will continue to examine this issue.
The interim final rule adds a new provision Sec.
1026.20(c)(1)(ii)(C) which exempts a servicer who is a debt collector
under the FDCPA with respect to a borrower who has an adjustable rate
mortgage from the requirement to provide a notice when an interest rate
adjustment causes a corresponding change in payment if the borrower has
exercised his or her ``cease communication'' right. As explained in the
2013 TILA Servicing Final Rule, this disclosure modified an existing
disclosure that was provided when interest rate adjustments resulted in
a corresponding payment change. Servicers who were debt collectors
presumably complied with the ``cease communication'' requirement of the
FDCPA. Under the baseline, such servicers are presumed to have incurred
the cost of determining whether the modifications to the disclosure in
the 2013 TILA Servicing Final Rule changed the circumstances under
which the disclosure needed to be provided to consumers who had
exercised their ``cease communication'' right. The exemption does,
however, obviate the need for servicers to provide the Sec. 1026.20(c)
disclosures. The exemption therefore reduces burden on servicers.
The impact on consumers of the exemption is less clear given
uncertainty about the impact of the disclosures on consumers who have
exercised their ``cease communication'' right. Some consumers who,
under the baseline rule, would have received the disclosure after
having requested the cessation of communication about the debt might
benefit from not receiving the disclosure under the exemption. Other
consumers might be made worse off from not receiving the disclosure
under the exemption. The Bureau will continue to examine this issue.
The interim final rule restores comment 32(b)(1)(ii)-4.iii as it
was established by the May 2013 ATR Final Rule in Supplement I to Part
1026 while removing an extraneous phrase that might have been
misinterpreted to conflict with the regulatory text. The technical
correction in the interim final rule conforms the comment to the
purpose intended by the May 2013 ATR Final Rule. Thus, the interim
final rule restores and clarifies the intended comment and may benefit
consumers and covered persons by reducing compliance costs.
As discussed above, under the Bureau's 2013 HOEPA Final Rule, the
pre-loan counseling requirement in Sec. 1026.34(a)(5) could be read
either to make certain closed-end non-RESPA transactions impossible or
to require creditors to provide either a GFE or TILA open-end
disclosure. The interim final rule removes the uncertainty about
compliance and specifies that the counseling requirement in Sec.
1026.34(a)(5) is met after the consumer receives the HOEPA disclosure
required by TILA section 129(a) and Regulation Z Sec. 1026.32(c).
The requirement under the interim final rule reduces burden on
covered persons by clarifying that these closed-end non-RESPA
transactions are allowed and that providers satisfy the counseling
requirement by providing counseling prior to consummation and
subsequent to furnishing the Sec. 1026.32(c) disclosure. The Bureau
recognizes that there may be as few as three days between the time
creditors furnish the Sec. 1026.32(c) disclosure and consummation of
the mortgage loan. As a result, some providers may choose to offer the
Sec. 1026.32(c) disclosure earlier to make it more feasible to meet
the counseling requirement. The Bureau believes that any costs
associated with earlier provision of the Sec. 1026.32(c) disclosure
are likely less than the cost of providing a new GFE or TILA open-end
disclosure. Consumers benefit from the requirements in the interim
final rule compared to the baseline in which the loans within the scope
of the requirement might not be offered or in which consumers would be
provided a less suitable disclosure as the basis for counseling.
The interim final rule adds a new provision Sec. 1026.41(e)(5)
which exempts a servicer from the periodic statement requirements in
Sec. 1026.41 for a mortgage loan while the consumer is a debtor in
bankruptcy. The Bureau has made this decision in light of detailed
questions received since issuing the 2013 TILA Servicing Final Rule
concerning potential conflicts between this provision and bankruptcy
law and concerning how to tailor servicing communications for borrowers
who have invoked bankruptcy protections. This exemption will obviate
the need for servicers to analyze and potentially adjust the content of
the Sec. 1026.41 periodic statements to account for the requirements
of bankruptcy law and to provide the Sec. 1026.41 periodic statements
consistent with the requirements of bankruptcy law. The exemption
therefore reduces burden on servicers.
The impact on consumers of the exemption is less clear in light of
the continued uncertainty expressed by servicers about how to comply
with both the periodic statement requirement and bankruptcy law and
because the Bureau cannot at this time provide guidance to servicers
about how to comply. As a result, there is significant uncertainty
regarding the impact of the periodic statements that would have been
provided under the baseline rule to consumers who were debtors in
bankruptcy and therefore significant uncertainty regarding the impact
of the exemption. For example, borrowers might not have received
significant benefit under the baseline rule, either because servicers
determined that periodic statements were prohibited by bankruptcy law
or because the statements confused borrowers regarding the status of
their accounts, in which case the exemption would impose little if any
cost on these consumers. The Bureau will continue to examine this
issue.
The interim final rule is generally not expected to have a
differential impact on depository institutions and credit unions with
$10 billion or less in total assets as described in section 1026 of the
Dodd-Frank Act. The main exception is for those depository institutions
and credit unions which by virtue of their size are more likely to
already be exempt from the periodic statement and early intervention

[[Page 63004]]

requirements.\38\ These institutions derive no additional benefit from
the exemptions for consumers in bankruptcy or (for early intervention
requirements) from the FDCPA. The interim final rule may have some
differential impacts on consumers in rural areas. To the extent that
liens on a dwelling that are not federally related mortgage loans are
more prevalent in these areas, the provisions on pre-loan counseling
may have slightly greater impacts. As discussed above, costs for
creditors in these areas should be reduced and consumers should benefit
from increased access to credit without any loss in consumer
protections.
---------------------------------------------------------------------------

\38\ A creditor, assignee, or servicer is exempt from the
periodic statement requirement for mortgage loans serviced by a
small servicer. A small servicer is a servicer that either services
5,000 or fewer mortgage loans, for all of which the servicer (or an
affiliate) is the creditor or assignee; or is a Housing Finance
Agency, as defined in 24 CFR 266.5. See the 2013 TILA Servicing
Final Rule, section 1026.41(e).
---------------------------------------------------------------------------

Given the nature and limited scope of the changes in the interim
final rule, the Bureau does not believe that the final rule will reduce
consumers' access to consumer financial products and services. Rather,
the reduced burden in certain changes in this rule should generally
help to improve access to credit.

VIII. Regulatory Flexibility Act Analysis

The Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996, requires each
agency to consider the potential impact of its regulations on small
entities including small businesses, small governmental units, and
small not-for-profit organizations.\39\ The RFA generally requires an
agency to conduct an initial regulatory flexibility analysis (IRFA) and
a final regulatory flexibility analysis (FRFA) of any rule subject to
notice-and-comment rulemaking requirements, unless the agency certifies
that the rule will not have a significant economic impact on a
substantial number of small entities. The CFPB is subject to certain
additional procedures under the RFA involving the convening of a panel
to consult with small business representatives regarding any rule for
which an IRFA is required.
---------------------------------------------------------------------------

\39\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

The RFA requirements do not apply in cases in which an agency finds
good cause to issue an interim final rule without a notice of proposed
rulemaking.\40\ As discussed above in Section IV, the CFPB has made
such a finding. Moreover, the CFPB believes that any delay in the
issuance of the interim final rule would be contrary to the interests
of small businesses insofar as the provisions should generally reduce
the costs of compliance for covered persons.
---------------------------------------------------------------------------

\40\ 5 U.S.C. 553(b)(B); 5 U.S.C. 605(b); 62 FR 23,538 (April
30, 1997); 66 FR 37,752 (July 19, 2001); 64 FR 3865 (Jan. 26, 1999).
---------------------------------------------------------------------------

Further, this rulemaking is part of a series of rules that have
revised and expanded the regulatory requirements for entities that
originate or service mortgage loans. Because this interim final rule
generally makes clarifying changes to conform these rules to their
intended purposes, the RFA analyses associated with those rules
generally take into account the impact of the changes made by this
interim final rule. Because these rules qualify as ``a series of
closely related rules,'' for purposes of the RFA, the Bureau relies on
those analyses and determines that it has met or exceeded the IRFA and
FRFA requirements.
In the alternative, the Bureau also concludes that the interim
final rule will not have a significant impact on a substantial number
of small entities. As noted, this interim final rule generally
clarifies the existing rule and to the extent any changes are
substantive, these changes will not have a material impact on small
entities. The provision related to servicing does not apply to many
small entities under the small servicer exemption (and to the extent
that they do, small entities will benefit), while the provisions
related to loan originator compensation and counseling lower the
regulatory burden and possible compliance costs for affected entities.
Therefore, the undersigned certifies that the rule will not have a
significant impact on a substantial number of small entities.

IX. Paperwork Reduction Act

This interim final rule amends 12 CFR part 1024 (Regulation X),
which implements the Real Estate Settlement Procedures Act (RESPA) and
12 CFR part 1026 (Regulation Z), which implements the Truth in Lending
Act (TILA). Regulations X and Z currently contains collections of
information approved by OMB. The Bureau's OMB control number for
Regulation X is 3170-0016 and for Regulation Z is 3170-0015. Regarding
new Sec. 1026.41(e)(5) and new Sec. 1024.39(d)(1), which respectively
exempt servicers from the periodic statement requirements in Sec.
1026.41 and early intervention requirements in Sec. 1024.39 for
homeowners who are debtors in bankruptcy, the Bureau cannot separately
assess the burden associated with these consumers from other
homeowners. Similarly, new Sec. 1024.39(d)(2) and new Sec.
1026.20(c)(1)(ii)(C), which respectively exempt servicers from the
early intervention requirements in Sec. 1024.39 and the notice
requirements in Sec. 1026.20(c) for mortgagors who have exercised the
``cease communication'' right under FDCPA, the Bureau cannot separately
assess the burden associated with these consumers from other
homeowners. Thus, the Bureau has determined that this interim final
rule would not materially alter these collections of information nor
impose any new recordkeeping, reporting, or disclosure requirements on
the public that would constitute collections of information requiring
approval under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.

List of Subjects

12 CFR Part 1024

Condominiums, Consumer protection, Housing, Mortgage servicing,
Mortgagees, Mortgages, Reporting and recordkeeping requirements.

12 CFR Part 1026

Advertising, Consumer protection, Mortgages, Reporting and
recordkeeping requirements, Truth in lending.

Authority and Issuance

For the reasons set forth in the preamble, the Bureau further
amends Regulation X, 12 CFR part 1024 and Regulation Z, 12 CFR part
1026, as amended by the final rules published on January 30, 2013, at
78 FR 6407, on January 31, 2013, at 78 FR 6855, on February 14, 2013,
at 78 FR 10901 and 78 FR 10695, on June 12, 2013, at 78 FR 35429, on
July 24, 2013, at 78 FR 44685, on July 30, 2013, at 78 FR 45842, and on
October 1, 2013, at 78 FR 60382, as set forth below:

PART 1024--REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)

0
1. The authority citation for part 1024 continues to read as follows:

Authority: 12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5532,
5581.

Subpart C--Mortgage Servicing

0
2. Section 1024.39, as added at 78 FR 10876 (Feb. 14, 2013), is amended
by adding paragraph (d) to read as follows:

Sec. 1024.39 Early intervention requirements for certain borrowers.

* * * * *
(d) Exemptions--(1) Borrowers in bankruptcy. A servicer is exempt
from

[[Page 63005]]

the requirements of this section for a mortgage loan while the borrower
is a debtor in bankruptcy under Title 11 of the United States Code.
(2) Fair Debt Collections Practices Act. A servicer subject to the
Fair Debt Collections Practices Act (FDCPA) (15 U.S.C. 1692 et seq.)
with respect to a borrower is exempt from the requirements of this
section with regard to a mortgage loan for which the borrower has sent
a notification pursuant to FDCPA section 805(c) (15 U.S.C. 1692c(c)).

0
3. In Supplement I to Part 1024, as added February 14, 2013, at 78 FR
10887:
0
a. Under Section 1024.39--Early intervention requirements for certain
borrowers:
0
i. The heading Paragraph 39(c) and paragraph 1 is removed.
0
ii. The heading 39(d)(1) Borrowers in bankruptcy and paragraphs 1, 2,
and 3 are added.

Supplement I to Part 1024--Official Bureau Interpretations

* * * * *

Subpart C--Mortgage Servicing

* * * * *

Section 1024.39--Early intervention requirements for certain borrowers

* * * * *

39(d)(1) Borrowers in bankruptcy.

1. Commencing a case. The requirements of Sec. 1024.39 do not
apply once a petition is filed under Title 11 of the United States
Code, commencing a case in which the borrower is a debtor.
2. Obligation to resume early intervention requirements. i. With
respect to any portion of the mortgage debt that is not discharged,
a servicer must resume compliance with Sec. 1024.39 after the first
delinquency that follows the earliest of any of three potential
outcomes in the borrower's bankruptcy case: the case is dismissed,
the case is closed, or the borrower receives a discharge under 11
U.S.C. 727, 1141, 1228, or 1328. However, this requirement to resume
compliance with Sec. 1024.39 does not require a servicer to
communicate with a borrower in a manner that would be inconsistent
with applicable bankruptcy law or a court order in a bankruptcy
case. To the extent permitted by such law or court order, a servicer
may adapt the requirements of Sec. 1024.39 in any manner believed
necessary.
ii. Compliance with Sec. 1024.39 is not required for any
portion of the mortgage debt that is discharged under applicable
provisions of the U.S. Bankruptcy Code. If the borrower's bankruptcy
case is revived--for example if the court reinstates a previously
dismissed case, reopens the case, or revokes a discharge--the
servicer is again exempt from the requirement in Sec. 1024.39.
3. Joint obligors. When two or more borrowers are joint obligors
with primary liability on a mortgage loan subject to Sec. 1024.39,
the exemption in Sec. 1024.39(d)(1) applies if any of the borrowers
is in bankruptcy. For example, if a husband and wife jointly own a
home, and the husband files for bankruptcy, the servicer is exempt
from complying with Sec. 1024.39 as to both the husband and the
wife.
* * * * *

0
4. In FR Doc. 2013-22752 appearing on page 60382 in the Federal
Register on October 1, 2013, the following correction is made:

Supplement I to Part 1024 [Corrected]

0
On page 60438, in the third column, amendatory instruction 11.g is
corrected to read as follows:
0
g. Under Section 1024.41--Loss Mitigation Procedures:
0
i. Under Paragraph 41(b)(1), paragraph 4 is revised.
0
ii. Paragraphs 41(b)(2), 41(b)(3), 41(c)(2)(iii), and 41(c)(2)(iv) are
added.
0
iii. The heading for paragraph 41(c) is revised.
0
iv. The heading Paragraph 41(d)(1) is removed.
0
v. Under Paragraph 41(d), paragraph 3 is redesignated as paragraph
41(c)(1), paragraph 4; and paragraph 4 is redesignated as paragraph 3.
0
vi. Under paragraph 41(d), paragraph 4 is added.
0
vii. Under paragraph 41(f), heading 41(f)(1) is removed, and paragraph
1 is redesignated as 41(f) paragraph 1 and republished.

PART 1026--TRUTH IN LENDING (REGULATION Z)

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

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

Subpart C--Closed-End Credit

0
6. Section 1026.20, as amended by 78 FR 11004 (Feb. 14, 2013), is
amended by:
0
a. Removing ``or'' from the end of paragraph (c)(1)(ii)(A).
0
b. Removing the period from the end of paragraph (c)(1)(ii)(B) and
adding in its place ``; or''.
0
c. Adding paragraph (c)(1)(ii)(C) to read as follows:

Sec. 1026.20 Disclosure requirements regarding post-consummation
events.

* * * * *
(c) * * *
(1) * * *
(ii) * * *
(C) The creditor, assignee or servicer of an adjustable-rate
mortgage when the servicer on the loan is subject to the Fair Debt
Collections Practices Act (FDCPA) (15 U.S.C. 1692 et seq.) with regard
to the loan and the consumer has sent a notification pursuant to FDCPA
section 805(c) (15 U.S.C. 1692c(c)).
* * * * *

Subpart E--Special Rules for Certain Home Mortgage Transactions

0
7. Section 1026.34, as amended at 78 FR 6964 (Jan. 31, 2013), is
amended by revising paragraphs (a)(5)(ii), (a)(5)(iv)(D), and
(a)(5)(iv)(E), and adding paragraph (a)(5)(iv)(F), to read as follows:

Sec. 1026.34 Prohibited acts or practices in connection with high-
cost mortgages.

(a) * * *
(5) * * *
(ii) Timing of counseling. The counseling required under this
paragraph (a)(5) must occur after:
(A) The consumer receives either the disclosure required by section
5(c) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C.
2604(c)) or the disclosures required by Sec. 1026.40; or
(B) The consumer receives the disclosures required by Sec.
1026.32(c), for transactions in which neither of the disclosures listed
in paragraph (a)(5)(ii)(A) of this section are provided.
* * * * *
(iv) * * *
(D) A statement that the consumer(s) received counseling on the
advisability of the high-cost mortgage based on the terms provided in
either the disclosure required by section 5(c) of the Real Estate
Settlement Procedures Act of 1974 (12 U.S.C. 2604(c)) or the
disclosures required by Sec. 1026.40.
(E) For transactions for which neither of the disclosures listed in
paragraph (a)(5)(ii)(A) of this section are provided, a statement that
the consumer(s) received counseling on the advisability of the high-
cost mortgage based on the terms provided in the disclosures required
by Sec. 1026.32(c); and
(F) A statement that the counselor has verified that the
consumer(s) received the disclosures required by either Sec.
1026.32(c) or the Real Estate Settlement Procedures Act of 1974 (12
U.S.C. 2601 et seq.) with respect to the transaction.
* * * * *

0
8. Section 1026.41, as added at 78 FR 11007 (Feb. 14, 2013), is amended
by adding paragraph (e)(5) to read as follows:

Sec. 1026.41 Periodic statements for residential mortgage loans.

* * * * *

[[Page 63006]]

(e) * * *
(5) Consumers in bankruptcy. A servicer is exempt from the
requirements of this section for a mortgage loan while the consumer is
a debtor in bankruptcy under Title 11 of the United States Code.

0
9. Section 1026.43(e)(4)(ii)(C), as added at 78 FR 6584 (Jan. 30, 2013)
and amended at 78 FR 44718 (July 24, 2013) and 78 FR 60442 (Oct. 1,
2013), is revised to read as follows:

Sec. 1026.43 Minimum standards for transactions secured by a
dwelling.

* * * * *
(e) * * *
(4) * * *
(ii) * * *
(C) A loan that is eligible to be guaranteed, except with regard to
matters wholly unrelated to ability to repay, by the U.S. Department of
Veterans Affairs;
* * * * *

0
10. In Supplement I to Part 1026, as amended at 78 FR 6589, Jan. 30,
2013; 78 FR 6967, Jan. 31, 2013; 78 FR 11019, Feb. 14, 2013; and 78 FR
35504, June 12, 2013:
0
A. Under Section 1026.32--Requirements for High-Cost Mortgages:
0
i. Under 32(b) Definitions:
0
a. Under Paragraph 32(b)(1)(ii), paragraph 4.iii is revised.
0
B. Under Section 1026.34--Prohibited Acts or Practices for High-Cost
Mortgages:
0
i. Under 34(a)(5) Pre-loan counseling:
0
a. Under Paragraph 34(a)(5)(ii), paragraph 1 is revised, paragraph 2 is
redesignated as paragraph 3 and revised, and new paragraph 2 is added.
0
b. Under paragraph 34(a)(5)(iv), paragraph 1 is revised.
0
c. Under paragraph 34(a)(5)(v), paragraph 1 is revised.
0
C. Under Section 1026.41--Periodic Statements for Residential Mortgage
Loans:
0
i. The heading 41(e)(5) Consumers in bankruptcy and paragraphs 1, 2,
and 3 are added.
The additions and revisions read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Subpart E--Special Rules for Certain Home Mortgage Transactions

* * * * *

Section 1026.32--Requirements for High-Cost Mortgages

* * * * *
32(b) Definitions
* * * * *
Paragraph 32(b)(1)(ii).
* * * * *
4. Loan originator compensation--calculating loan originator
compensation in connection with other charges or payments included
in the finance charge or made to loan originators.
* * * * *
iii. Creditor's origination fees--loan originator not employed
by creditor. Compensation paid by a creditor to a loan originator
who is not employed by the creditor is included in the calculation
of points and fees under Sec. 1026.32(b)(1)(ii). Such compensation
is included in points and fees in addition to any origination fees
or charges paid by the consumer to the creditor that are included in
points and fees under Sec. 1026.32(b)(1)(i). For example, assume
that a consumer pays to the creditor a $3,000 origination fee and
that the creditor pays a mortgage broker $1,500 in compensation
attributed to the transaction. Assume further that the consumer pays
no other charges to the creditor that are included in points and
fees under Sec. 1026.32(b)(1)(i) and that the mortgage broker
receives no other compensation that is included in points and fees
under Sec. 1026.32(b)(1)(ii). For purposes of calculating points
and fees, the $3,000 origination fee is included in points and fees
under Sec. 1026.32(b)(1)(i) and the $1,500 in loan originator
compensation is included in points and fees under Sec.
1026.32(b)(1)(ii), equaling $4,500 in total points and fees,
provided that no other points and fees are paid or compensation
received.
* * * * *

Section 1026.34--Prohibited Acts or Practices for High-Cost
Mortgages

* * * * *
34(a)(5) Pre-loan counseling.
* * * * *
34(a)(5)(ii) Timing of counseling.
1. Disclosures for open-end credit plans. Section
1026.34(a)(5)(ii) permits receipt of either the disclosure required
by section 5(c) of RESPA or the disclosures required under Sec.
1026.40 to allow counseling to occur. Pursuant to 12 CFR 1024.7(h),
the disclosures required by Sec. 1026.40 can be provided for open-
end plans in lieu of the usual disclosure required by section 5(c)
of RESPA.
2. Transactions not subject to RESPA or Sec. 1026.40. For
closed-end mortgage transactions that are not subject to RESPA, the
counseling certification must include a statement that the
consumer(s) received counseling on the advisability of the high-cost
mortgage based on the terms provided in the disclosures required by
Sec. 1026.32(c). (Reference to counseling on advisability using the
disclosures required by Sec. 1026.32(c) is not required for
transactions subject to RESPA or Sec. 1026.40.) The disclosures
required by Sec. 1026.32(c) must be furnished to the consumer at
least three business days prior to consummation of the mortgage. The
creditor may wish to furnish the disclosures sooner, to provide
sufficient time for counseling and certification.
3. Initial disclosure. Counseling may occur after receipt of
either an initial disclosure required by section 5(c) of RESPA, the
disclosures required by Sec. 1026.40, or the disclosures required
by Sec. 1026.32(c), regardless of whether revised versions of such
disclosures are subsequently provided to the consumer.
34(a)(5)(iv) Content of certification.
1. Statement of counseling on advisability. A statement that a
consumer has received counseling on the advisability of the high-
cost mortgage means that the consumer has received counseling about
key terms of the mortgage transaction, as set out in either the
disclosure required by section 5(c) of RESPA or the disclosures
provided to the consumer pursuant to Sec. 1026.40, or, for closed-
end transactions not subject to RESPA, the disclosures required by
Sec. 1026.32(c); the consumer's budget, including the consumer's
income, assets, financial obligations, and expenses; and the
affordability of the mortgage transaction for the consumer. Examples
of such terms of the mortgage transaction include the initial
interest rate, the initial monthly payment, whether the payment may
increase, how the minimum periodic payment will be determined, and
fees imposed by the creditor, as may be reflected in the applicable
disclosure. A statement that a consumer has received counseling on
the advisability of the high-cost mortgage does not require the
counselor to have made a judgment or determination as to the
appropriateness of the mortgage transaction for the consumer.
* * * * *
34(a)(5)(v) Counseling fees.
1. Financing. Section 1026.34(a)(5)(v) does not prohibit a
creditor from financing the counseling fee as part of the
transaction for a high-cost mortgage, if the fee is a bona fide
third-party charge as provided by Sec. 1026.32(b)(5)(i).
* * * * *

Section 1026.41--Periodic Statements for Residential Mortgage Loans

* * * * *
41(e)(5) Consumers in bankruptcy.
1. Commencing a case. The requirements of Sec. 1026.41 do not
apply once a petition is filed under Title 11 of the United States
Code, commencing a case in which the consumer is a debtor.
2. Obligation to resume sending periodic statements. i. With
respect to any portion of the mortgage debt that is not discharged,
a servicer must resume sending periodic statements in compliance
with Sec. 1026.41 within a reasonably prompt time after the next
payment due date that follows the earliest of any of three potential
outcomes in the consumer's bankruptcy case: the case is dismissed,
the case is closed, or the consumer receives a discharge under 11
U.S.C. 727, 1141, 1228, or 1328. However, this requirement to resume
sending periodic statements does not require a servicer to
communicate with a consumer in a manner that would be inconsistent
with applicable bankruptcy law or a court order in a bankruptcy
case. To the extent permitted by such law or court order, a servicer
may adapt the requirements of Sec. 1026.41 in any manner believed
necessary.
ii. The periodic statement is not required for any portion of
the mortgage debt that is

[[Page 63007]]

discharged under applicable provisions of the U.S. Bankruptcy Code.
If the consumer's bankruptcy case is revived--for example if the
court reinstates a previously dismissed case, reopens the case, or
revokes a discharge--the servicer is again exempt from the
requirement in Sec. 1026.41.
3. Joint obligors. When two or more consumers are joint obligors
with primary liability on a closed-end consumer credit transaction
secured by a dwelling subject to Sec. 1026.41, the exemption in
Sec. 1026.41(e)(5) applies if any of the consumers is in
bankruptcy. For example, if a husband and wife jointly own a home,
and the husband files for bankruptcy, the servicer is exempt from
providing periodic statements to both the husband and the wife.
* * * * *

Dated: October 15, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2013-24521 Filed 10-22-13; 8:45 am]
BILLING CODE 4810-AM-P