Appraisals for Higher-Priced Mortgage Loans Exemption Threshold Adjustment-Final Rule

AGENCY:

Board of Governors of the Federal Reserve System (Board); Bureau of Consumer Financial Protection (Bureau); and Office of the Comptroller of the Currency, Treasury (OCC).

ACTION:

Final rule; official staff interpretations; technical amendment.

SUMMARY:

The OCC, the Board and the Bureau are publishing final rules amending the official staff interpretations for their regulations that implement section 129H of the Truth in Lending Act (TILA). Section 129H of TILA establishes special appraisal requirements for “higher-risk mortgages,” termed “higher-priced mortgages” or “HPMLs” in the agencies' regulations. The OCC, the Board, the Bureau, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA) and the Federal Housing Finance Agency (FHFA) (collectively, the Agencies) issued joint final rules implementing these requirements, effective January 18, 2014. The Agencies' rules exempted, among other loan types, transactions of $25,000 or less, and required that this loan amount be adjusted annually based on any annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Based on the annual percentage increase in the CPI-W as of June 1, 2014, the OCC, the Board and the Bureau are adjusting the exemption threshold to $25,500, effective January 1, 2015.

DATES:

This final rule is effective January 1, 2015.

FOR FURTHER INFORMATION CONTACT:

OCC: Beth Knickerbocker, Counsel, Legislative & Regulatory Activities Division, at (202) 649-5490; for persons who are deaf and hard of hearing, TTY, (202) 649-5597.

Board: Lorna M. Neill, Counsel, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, at (202) 452-3667; for users of Telecommunications Device for the Deaf (TDD) only, contact (202) 263-4869.

Bureau: James Wylie, Counsel, Office of Regulations, Bureau of Consumer Financial Protection, at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

I. Background

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) amended the Truth in Lending Act (TILA) to add special appraisal requirements for “higher-risk mortgages.” In January 2013, the Agencies issued a joint final rule implementing these requirements and adopted the term “higher-priced mortgage loan” (HPML) instead of “higher-risk mortgage” (the January 2013 Final Rule). In December 2013, the Agencies issued a supplemental final rule with additional exemptions from the January 2013 Final Rule (the December 2013 Supplemental Final Rule). Among other exemptions, the Agencies adopted an exemption from the new HPML appraisal rules for transactions of $25,000 or less, to be adjusted annually for inflation.

The Bureau's, the OCC's, and the Board's versions of the January 2013 Final Rule and December 2013 Supplemental Final Rule and corresponding official interpretations are substantively identical. The FDIC, NCUA, and FHFA adopted the Bureau's version of the regulations under the January 2013 Final Rule and December 2013 Supplemental Final Rule.

Section 34.203(b)(2) of Subpart G of part 34 of the OCC's regulations, § 226.43(b)(2) of the Board's Regulation Z, and § 1026.35(c)(2)(ii) of the Bureau's Regulation Z, and their accompanying interpretations, provide that the exemption threshold for smaller loans will be adjusted effective January 1 of each year based on any annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) that was in effect on the preceding June 1. Any increase in the threshold amount will be rounded to the nearest $100 increment. For example, if the annual percentage increase in the CPI-W would result in a $950 increase in the threshold amount, the threshold amount will be increased by $1,000. However, if the annual percentage increase in the CPI-W would result in a $949 increase in the threshold amount, the threshold amount will be increased by $900.

II. Adjustment and Commentary Revision

Effective January 1, 2015, the adjusted exemption threshold amount is $25,500. This adjustment is based on the CPI-W index in effect on June 1, 2014, which was reported on May 15, 2014. The Bureau of Labor Statistics publishes consumer-based indices monthly, but does not report a CPI change on June 1; adjustments are reported in the middle of the month. The CPI-W is a subset of the CPI-U index (based on all urban consumers) and represents approximately 28 percent of the U.S. population. The adjustment reflects a 2 percent increase in the CPI-W from April 2013 to April 2014. Accordingly, the OCC, the Board, and the Bureau are revising the interpretations to their respective regulations to add new comments as follows:

• Comment 203(b)(2)-1.ii to 12 CFR part 34, Appendix C to Subpart G (OCC);
• Comment 43(b)(2)-1.ii to Supplement I of 12 CFR part 226 (Board); and
• Comment 35(c)(2)(ii)-1.ii in Supplement I of 12 CFR part 1026 (Bureau).

These new comments state that, from January 1, 2015 through December 31, 2015, the threshold amount is $25,500. These revisions are effective January 1, 2015.

III. Administrative Law Matters

Administrative Procedure Act

Under the Administrative Procedure Act (APA), notice and opportunity for public comment are not required if an agency finds that notice and public comment are impracticable, unnecessary, or contrary to the public interest. This annual adjustment is required by the December 2013 Supplemental Final Rule. The amendment in this notice is technical and non-discretionary, and it applies the method previously established, through notice and comment, in the Agencies' regulations for determining adjustments to the exemption threshold. For these reasons, the OCC, the Board and the Bureau have determined that publishing a notice of proposed rulemaking and providing opportunity for public comment are unnecessary. Therefore, the amendments are adopted in final form.

The effective date of this final rule is January 1, 2015. Under the APA, the required publication or service of a substantive rule shall be made not less than 30 days before its effective date, except, among other things, as provided by the agency for good cause found and published with the rule. Because this rule adjusts the exemption threshold consistent with the procedural requirements of the official staff interpretations, the OCC, the Board and the Bureau conclude that it is not substantive within the meaning of the APA's delayed effective date provision. Moreover, the agencies find that there is good cause for dispensing with the delayed effective date requirement, even if it applied, because their current rules already provide notice that the exemption threshold will be adjusted effective January 1 based on any annual percentage increase in the CPI-W that was in effect on the preceding June 1.

Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) does not apply to a rulemaking where a general notice of proposed rulemaking is not required. As noted previously, the agencies have determined that it is unnecessary to publish a general notice of proposed rulemaking for this joint final rule. Accordingly, the RFA's requirements relating to an initial and final regulatory flexibility analysis do not apply.

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995, the agencies reviewed this final rule. No collections of information pursuant to the Paperwork Reduction Act are contained in the final rule.

Unfunded Mandates Reform Act

The OCC analyzes proposed rules for the factors listed in Section 202 of the Unfunded Mandates Reform Act of 1995, before promulgating a final rule for which a general notice of proposed rulemaking was published. As discussed above, the OCC had determined that the publication of a general notice of proposed rulemaking is unnecessary.

List of Subjects

12 CFR Part 34

• Appraisal
• Appraiser
• Banks
• Banking
• Consumer protection
• Credit
• Mortgages
• National banks
• Reporting and recordkeeping requirements
• Savings associations
• Truth in lending

12 CFR Part 226

• Advertising
• Appraisal
• Appraiser
• Consumer protection
• Credit
• Federal Reserve System
• Mortgages
• Reporting and recordkeeping requirements
• Truth in lending

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

Department of the Treasury

Office of the Comptroller of the Currency

Authority and Issuance

For the reasons set forth in the preamble, the OCC amends 12 CFR part 34 as set forth below:

PART 34—REAL ESTATE LENDING AND APPRAISALS

1. The authority citation for part 34 continues to read as follows:

Authority: 12 U.S.C. 1 et seq., 25b, 29, 93a, 371, 1463, 1464, 1465,1701j-3, 1828(o), 3331 et seq., 5101 et seq., 5412(b)(2)(B) and 15 U.S.C. 1639h.

Subpart G—Appraisals for Higher-Priced Mortgage Loans

2. In Appendix C to Subpart G, under Section 34.203—Appraisals for Higher-Priced Mortgage Loans, paragraph 34.203(b)(2)-1.ii is added to read as follows:

Appendix C to Subpart G—OCC Interpretations

Section 34.203—Appraisals for Higher-Priced Mortgage Loans

34.203(b) Exemptions

Paragraph 34.203(b)(2)

1. Threshold amount. * * *

ii. From January 1, 2015 through December 31, 2015, the threshold amount is $25,500.

Board of Governors of the Federal Reserve System

Authority and Issuance

For the reasons set forth in the preamble, the Board amends Regulation Z, 12 CFR part 226, as set forth below:

PART 226—TRUTH IN LENDING (REGULATION Z)

3. The authority citation for part 226 continues to read as follows:

Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), 1639(l), and 1639h; Pub. L. 111-24 § 2, 123 Stat. 1734; Pub. L. 111-203, 124 Stat. 1376.

Subpart A—General

4. In Supplement I to part 226, under Section 226.43—Appraisals for Higher-Priced Mortgage Loans, under Paragraph 43(b)(2), paragraph 43(b)(2)-1.ii is added to read as follows:

Supplement I to Part 226—Official Staff Interpretations

Subpart E—Special Rules for Certain Home Mortgage Transactions

Section 226.43—Appraisals for Higher-Priced Mortgage Loans

43(b) Exemptions

Paragraph 43(b)(2)

1. Threshold amount. * * *

ii. From January 1, 2015 through December 31, 2015, the threshold amount is $25,500.

Bureau of Consumer Financial Protection

Authority and Issuance

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

PART 1026—TRUTH IN LENDING (REGULATION Z)

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.

6. In Supplement I to part 1026, under Section 1026.35—Requirements for Higher-Priced Mortgage Loans, under Paragraph 35(c)(2)(ii), paragraph 35(c)(2)(ii)-1.ii 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(c) Appraisals

35(c)(2) Exemptions

Paragraph 35(c)(2)(ii)

1. Threshold amount. * * *

ii. From January 1, 2015 through December 31, 2015, the threshold amount is $25,500.