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Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations
interpretations thereof issued by the Small Business Administration.

By order of the Board of Governors of the Federal Reserve System, February 9, 2021.
Ann Misback, Secretary of the Board.
FR Doc. 202102966 Filed 21621; 8:45 am BILLING CODE 621001P

BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Part 1026
Docket No. CFPB20200023
RIN 3170AA83

Higher-Priced Mortgage Loan Escrow Exemption Regulation Z
Bureau of Consumer Financial Protection.
ACTION: Final rule; official interpretation.
AGENCY:

The Bureau of Consumer Financial Protection Bureau is issuing this final rule to amend Regulation Z, which implements the Truth in Lending Act, as mandated by section 108 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The amendments exempt certain insured depository institutions and insured credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans.
DATES: This rule is effective on February 17, 2021.
FOR FURTHER INFORMATION CONTACT:
Joseph Devlin, Senior Counsel, Office of Regulations, at 2024357700 or https
reginquiries.consumerfinance.gov/. If you require this document in an alternative electronic format, please contact CFPB_Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:

I. Summary of the Final Rule
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Regulation Z, 12 CFR part 1026, implements the Truth in Lending Act TILA, 15 U.S.C. 1601 et seq., and includes a requirement that creditors establish an escrow account for certain higher-priced mortgage loans HPMLs,1
1 12 CFR 1026.35a and b. An HPML is defined in 12 CFR 1026.35a1 and generally means a closed-end consumer credit transaction secured by the consumers principal dwelling with an annual percentage rate APR that exceeds the average prime offer rate APOR for a comparable transaction as of the date the interest rate is set by:
1.5 percentage points or more for a first-lien transaction at or below the Freddie Mac conforming loan limit; 2.5 percentage points or more for a firstlien transaction above the Freddie Mac conforming loan limit; or 3.5 percentage points or more for a
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and also provides for certain exemptions from this requirement.2 In the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act EGRRCPA,3 Congress directed the Bureau to issue regulations to add a new exemption from TILAs escrow requirement that exempts transactions by certain insured depository institutions and insured credit unions.
This final rule implements the EGRRCPA section 108 statutory directive, removes certain obsolete text from the Official Interpretations to Regulation Z commentary,4 and also corrects prior inadvertent deletions from and two scriveners errors in existing commentary.5
New 1026.35b2vi exempts from the Regulation Z HPML escrow requirement any loan made by an insured depository institution or insured credit union and secured by a first lien on the principal dwelling of a consumer if: 1 The institution has assets of $10 billion or less; 2 the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year; and 3 certain of the existing HPML escrow exemption criteria are met, as described below in part V.6
subordinate-lien transaction. The escrow requirement only applies to first-lien HPMLs.
2 12 CFR 1026.35b2i and iii.
3 Public Law 115174, 132 Stat. 1296 2018.
4 As discussed in more detail in the section-bysection analysis of 1026.35b2iv, this obsolete text includes, among other text, language related to a recently issued interpretive rule. On June 23, 2020, the Bureau issued an interpretive rule that describes the Home Mortgage Disclosure Act of 1975 HMDA, Public Law 94200, 89 Stat. 1125
1975, data to be used in determining that an area is underserved. 85 FR 38299 June 26, 2020. As the Bureau explained in the interpretive rule, certain parts of the methodology described in comment 35b2iv1.ii became obsolete because they referred to HMDA data points replaced or otherwise modified by a 2015 Bureau final rule 2015 HMDA Final Rule. 80 FR 66128, 6625658
Oct. 28, 2015. The Bureau stated that it was issuing the interpretive rule to supersede the outdated portions of the commentary and to identify current HMDA data points it will use to determine whether a county is underserved. 85 FR
at 38299. In this final rule the Bureau amends the comment to remove the obsolete text.
5 As discussed in more detail in the section-bysection analysis of 1026.35b2iii, the scriveners errors that this rule corrects were in the commentary from Truth in Lending Act Regulation Z Adjustment to Asset-Size Exemption Threshold, 85 FR 83411 Dec. 22, 2020.
6 When amending commentary, the Office of the Federal Register requires reprinting of certain subsections being amended in their entirety rather than providing more targeted amendatory instructions and related text. The sections of commentary text included in this document show the language of those sections with the changes as adopted in this final rule. In addition, the Bureau is releasing an unofficial, informal redline to assist industry and other stakeholders in reviewing the
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II. Background A. Federal Reserve Board Escrow Rule and the Dodd-Frank Act Prior to the enactment of the DoddFrank Wall Street Reform and Consumer Protection Act Dodd-Frank Act,7 the Board of Governors of the Federal Reserve System Board issued a rule 8
requiring, among other things, the establishment of escrow accounts for payment of property taxes and insurance for certain higher-priced mortgage loans, a category which the Board defined to capture what it deemed to be subprime loans.9 The Board explained that this rule was intended to reduce consumer and systemic risks by requiring the subprime market to structure loans and disclose their pricing similarly to the prime market.10
In 2010, Congress enacted the DoddFrank Act, which amended TILA and transferred TILA rulemaking authority and other functions from the Board to the Bureau.11 The Dodd-Frank Act added TILA section 129Da, which adopted the Boards rule requiring that creditors establish an escrow account for higher-priced mortgage loans.12 The Dodd-Frank Act also excluded certain loans, such as reverse mortgages, from this escrow requirement. The DoddFrank Act further granted the Bureau authority to structure an exemption based on asset size and mortgage lending activity for creditors operating predominantly in rural or underserved areas.13 In 2013, the Bureau exercised this authority to exempt from the escrow requirement creditors with under $2 billion in assets and meeting other criteria.14 In the Helping Expand Lending Practices in Rural Communities Act of 2015, Congress amended TILA
section 129D again by striking the term changes this final rule makes to the regulatory and commentary text of Regulation Z. This redline is posted on the Bureaus website with the final rule.
If any conflicts exist between the redline and the text of Regulation Z or this final rule, the documents published in the Federal Register and the Code of Federal Regulations are the controlling documents.
7 Public Law 111203, 124 Stat. 1376 2010.
8 73 FR 44522 July 30, 2008.
9 Id. at 44532.
10 Id. at 4455761. Prime market loans generally include an escrow account, which may make the monthly payment appear higher than for a higherpriced loan that does not include an escrow account.
11 Dodd-Frank Act sections 1022, 1061, 1100A
and 1100B, 124 Stat. 1980, 203539, 210710.
12 Dodd-Frank Act section 1461a; 15 U.S.C.
1639d.
13 Id.
14 78 FR 4726 Jan. 22, 2013. This rule was subsequently amended several times, including in 2013 and 2015. See 78 FR 30739 May 23, 2013 and 80 FR 59944 Oct. 2, 2015.

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