[Federal Register Volume 81, Number 245 (Wednesday, December 21, 2016)]
[Rules and Regulations]
[Pages 93581-93583]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30730]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026


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

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule; official interpretation.

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SUMMARY: The Bureau is amending the official commentary that interprets 
the requirements of the Bureau's Regulation Z (Truth in Lending) to 
reflect a change in the asset-size threshold for certain creditors to 
qualify for an exemption to the requirement to establish an escrow 
account for a higher-priced mortgage loan based on the annual 
percentage change in the average of the Consumer Price Index for Urban 
Wage Earners and Clerical Workers (CPI-W) for the 12-month period 
ending in November. The exemption threshold is adjusted to increase to 
$2.069 billion from $2.052 billion. The adjustment is based on the .8 
percent increase in the average of the CPI-W for the 12-month period 
ending in November 2016. Therefore, creditors with assets of less than 
$2.069 billion (including assets of certain affiliates) as of December 
31, 2016, are exempt, if other requirements of Regulation Z also are 
met, from establishing escrow accounts for higher-priced mortgage loans 
in 2017. This asset limit will also apply during a grace period, in 
certain circumstances, with respect to transactions with applications 
received before April 1 of 2018. The adjustment to the escrows 
exemption asset-size threshold will also increase a similar threshold 
for small-creditor portfolio and balloon-payment qualified mortgages. 
Balloon-payment qualified

[[Page 93582]]

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

DATES: This final rule is effective January 1, 2017.

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

SUPPLEMENTARY INFORMATION: 

I. Background

    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) amended TILA to add section 129D(a), which contains a 
general requirement that an escrow account be established by a creditor 
to pay for property taxes and insurance premiums for certain first-lien 
higher-priced mortgage loan transactions. TILA section 129D also 
generally permits an exemption from the higher-priced mortgage loan 
escrow requirement for a creditor that meets certain requirements, 
including any asset-size threshold the Bureau may establish.
    In the 2013 Escrows Final Rule,\1\ the Bureau established such an 
asset-size threshold of $2 billion, which would adjust automatically 
each year, based on the year-to-year change in the average of the CPI-W 
for each 12-month period ending in November, with rounding to the 
nearest million dollars.\2\ In 2015, the Bureau revised the criteria 
for small creditors, and rural and underserved areas, for purposes of 
certain special provisions and exemptions from various requirements 
provided to certain small creditors under the Bureau's mortgage 
rules.\3\ As part of this revision the Bureau made certain changes that 
affect how the asset-size threshold applies. The Bureau revised Sec.  
1026.35(b)(2)(iii)(C) and its accompanying commentary to include in the 
calculation of the asset-size threshold the assets of the creditor's 
affiliates that regularly extended covered transactions secured by 
first liens during the applicable period. The Bureau also added a grace 
period from calendar year to calendar year to allow an otherwise 
eligible creditor that exceeded the asset limit in the preceding 
calendar year (but not in the calendar year before the preceding year) 
to continue to operate as a small creditor with respect to transactions 
with applications received before April 1 of the current calendar 
year.4 5 For 2016, the threshold was $2.052 billion.
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    \1\ 78 FR 4726 (Jan. 22, 2013).
    \2\ See 12 CFR 1026.35(b)(2)(iii)(C).
    \3\ See 80 FR 59943 (Oct. 2, 2015).
    \4\ See 80 FR 59943, 59951 (Oct. 2, 2015).
    \5\ The Bureau also issued an interim final rule in March 2016 
to revise certain provisions in Regulation Z to effectuate the HELP 
Rural Communities Act's amendments to TILA (Pub. L. 114-94, section 
89003 (2015)). The rule broadened the cohort of creditors that may 
be eligible under TILA for the special provisions allowing 
origination of balloon-payment qualified mortgages and balloon-
payment high-cost mortgages, as well as for the escrow exemption. 
See 81 FR 16074 (Mar. 25, 2016).
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    During the 12-month period ending in November 2016, the average of 
the CPI-W increased by .8 percent. As a result, the exemption threshold 
is increased to $2.069 billion for 2017. Thus, if the creditor's assets 
together with the assets of its affiliates that regularly extended 
first-lien covered transactions during calendar year 2016 are less than 
$2.069 billion on December 31, 2016, and it meets the other 
requirements of Sec.  1026.35(b)(2)(iii), it will be exempt in 2017 
from the escrow-accounts requirement for higher-priced mortgage loans 
and will also be exempt from the escrow-accounts requirement for 
higher-priced mortgage loans for purposes of any loan consummated in 
2018 for which the application was received before April 1, 2018. The 
adjustment to the escrows exemption asset-size threshold will also 
increase the threshold for small-creditor portfolio and balloon-payment 
qualified mortgages under Regulation Z. The requirements for small-
creditor portfolio qualified mortgages at Sec.  1026.43(e)(5)(i)(D) 
reference the asset threshold in Sec.  1026.35(b)(2)(iii)(C). Likewise, 
the requirements for balloon-payment qualified mortgages at Sec.  
1026.43(f)(1)(vi) reference the asset threshold in Sec.  
1026.35(b)(2)(iii)(C). Under Sec.  1026.32(d)(1)(ii)(C), balloon-
payment qualified mortgages that satisfy all applicable criteria in 
Sec.  1026.43(f)(1)(i) through (vi) and (f)(2), including being made by 
creditors that have (together with certain affiliates) total assets 
below the threshold in Sec.  1026.35(b)(2)(iii)(C), are also excepted 
from the prohibition on balloon payments for high-cost mortgages.

II. Procedural Requirements

A. Administrative Procedure Act

    Under the Administrative Procedure Act (APA), notice and 
opportunity for public comment are not required if the Bureau finds 
that notice and public comment are impracticable, unnecessary, or 
contrary to the public interest. 5 U.S.C. 553(b)(B). Pursuant to this 
final rule, comment 35(b)(2)(iii)-1 in Regulation Z is amended to 
update the exemption threshold. The amendment in this final rule is 
technical and merely applies the formula previously established in 
Regulation Z for determining any adjustments to the exemption 
threshold. For these reasons, the Bureau has determined that publishing 
a notice of proposed rulemaking and providing opportunity for public 
comment are unnecessary. Therefore, the amendment is adopted in final 
form.
    Section 553(d) of the APA generally requires publication of a final 
rule not less than 30 days before its effective date, except (1) a 
substantive rule which grants or recognizes an exemption or relieves a 
restriction; (2) interpretive rules and statements of policy; or (3) as 
otherwise provided by the agency for good cause found and published 
with the rule. 5 U.S.C. 553(d). At a minimum, the Bureau believes the 
amendments fall under the third exception to section 553(d). The Bureau 
finds that there is good cause to make the amendments effective on 
January 1, 2017. The amendment in this notice is technical and applies 
the method previously established in the agency's regulations for 
automatic adjustments to the threshold.

B. Regulatory Flexibility Act

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

C. Paperwork Reduction Act

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

List of Subjects in 12 CFR Part 1026

    Advertising, Appraisal, Appraiser, Banking, Banks, Consumer 
protection, Credit, Credit unions, Mortgages, National banks, Reporting 
and recordkeeping requirements, Savings associations, Truth in lending.

Authority and Issuance

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

PART 1026--TRUTH IN LENDING (REGULATION Z)

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


[[Page 93583]]


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


0
2. In Supplement I to Part 1026, under Section 1026.35--Requirements 
for Higher-Priced Mortgage Loans, 35(b)(2) Exemptions, Paragraph 
35(b)(2)(iii), paragraph 1.iii.E introductory text is revised and 
paragraph 1.iii.E.4 is added to read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Subpart E--Special Rules for Certain Home Mortgage Transactions

* * * * *
    Section 1026.35--Requirements for Higher-Priced Mortgage Loans
* * * * *
    35(b)(2) Exemptions.
* * * * *
    Paragraph 35(b)(2)(iii).
    1. * * *
    iii. * * *
    E. Under Sec.  1026.35(b)(2)(iii)(C), the $2,000,000,000 asset 
threshold adjusts automatically each year based on the year-to-year 
change in the average of the Consumer Price Index for Urban Wage 
Earners and Clerical Workers, not seasonally adjusted, for each 12-
month period ending in November, with rounding to the nearest 
million dollars. The Bureau will publish notice of the asset 
threshold each year by amending this comment. For calendar year 
2017, the asset threshold is $2,069,000,000. A creditor that 
together with the assets of its affiliates that regularly extended 
first-lien covered transactions during calendar year 2016 has total 
assets of less than $2,069,000,000 on December 31, 2016, satisfies 
this criterion for purposes of any loan consummated in 2017 and for 
purposes of any loan consummated in 2018 for which the application 
was received before April 1, 2018. For historical purposes:
* * * * *
    4. For calendar year 2016, the asset threshold was 
$2,052,000,000. A creditor that together with the assets of its 
affiliates that regularly extended first-lien covered transactions 
during calendar year 2015 had total assets of less than 
$2,052,000,000 on December 31, 2015, satisfied this criterion for 
purposes of any loan consummated in 2016 and for purposes of any 
loan consummated in 2017 for which the application was received 
before April 1, 2017.
* * * * *

    Dated: December 15, 2016.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2016-30730 Filed 12-19-16; 4:15 pm]
 BILLING CODE 4810-AM-P