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Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations
35b2ivA1.i and 2.i, as well as comment 43f1vi1.
On June 23, 2020, the Bureau issued an interpretive rule that describes the HMDA data to be used in determining whether an area is underserved. 38 As the interpretive rule explained, certain parts of the methodology described in comment 35b2iv1.ii became obsolete because they referred to HMDA
data points replaced or otherwise modified by the 2015 HMDA Final Rule.
In the proposed rule, the Bureau proposed to remove as obsolete the last two sentences from comment 35b2iv1.ii and to remove references to publishing the annual rural and underserved lists in the Federal Register, based on its tentative conclusion that such publication does not increase the ability of financial institutions to access the information, and that posting the lists on the Bureaus public website is sufficient.
The Bureau did not receive comments on these proposed changes to 1026.35b2ivA, the related changes to the official commentary, or the changes to comment 35b2iv 1.39 For the reasons discussed above, the Bureau is finalizing these amendments as proposed.

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35b2v EGRRCPA section 108 further amends TILA section 129D to provide that one of the requirements for the new escrow exemption is that an exempted loan satisfy the criterion in Regulation Z
1026.35b2v, a prerequisite to the original escrow exemption. Existing 1026.35b2v provides that, unless otherwise exempted by 1026.35b2, the exemption to the escrow requirement would not be available for any first-lien HPML that, at consummation, is subject to a commitment to be acquired by a person that does not satisfy the conditions for an exemption in 1026.35b2iii i.e., no forward commitment. In adopting the original escrow exemption, the Bureau stated that the prerequisite of no forward commitments would appropriately implement the 38 Bureau of Consumer Fin. Prot., Truth in Lending Regulation Z; Determining Underserved Areas Using Home Mortgage Disclosure Act Data June 23, 2020, https
www.consumerfinance.gov/policy-compliance/
rulemaking/final-rules/truth-lending-regulation-zunderserved-areas-home-mortgage-disclosure-actdata/.
39 Although the Bureau did not receive comments about the specific changes regarding rural or underserved status discussed here, commenters did express concern about the general rural or underserved requirement of the new escrow exemption. Those comments are discussed below in the section-by-section analysis of 1026.35b2viC.

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requirement in TILA section 129Dc1C 40 that the exemption apply only to portfolio lenders.41 The Bureau also reasoned that conditioning the exemption on a lack of forward commitments, rather than requiring that all loans be held in portfolio, would avoid consumers having to make unexpected lump sum payments to fund an escrow account.42
To implement section 108, the Bureau proposed to add references in 1026.35b2v to the new exemption to make clear that the new exemption would also not be available for transactions subject to forward commitments of the type described in 1026.35b2v. The Bureau also proposed to add similar references to the new exemption in comment 35b2v1 discussing forward commitments. The Bureau did not receive comments regarding these provisions and is finalizing them as proposed.
35b2vi As explained above in part I, section 108 of the EGRRCPA amends TILA
section 129D to provide a new exemption from the HPML escrow requirement.43 The new exemption is narrower than the existing TILA section 129D exemption in several ways, including the following. First, the section 108 exemption is limited to insured depositories and insured credit unions that meet the statutory criteria, whereas the existing escrow exemption applies to any creditor including a noninsured creditor that meets its criteria.
Second, the originations limit in the section 108 exemption is specified to be 1,000 loans secured by a first lien on a principal dwelling originated by an insured depository institution or insured credit union and its affiliates during the preceding calendar year. In contrast, TILA section 129Dc1 as redesignated gave the Bureau discretion to choose the originations limit for the original escrow exemption, which the Bureau set at 500 covered transactions, and subsequently amended to 2,000
covered transactions other than portfolio loans.44 Third, TILA section 129Dc1 also gave the Bureau discretion to determine any asset size 40 EGRRCPA section 108 redesignated this paragraph. It was previously TILA section 129Dc3.
41 78 FR 4726, 4741.
42 Id. at 474142.
43 EGRRCPA section 108 designates the new exemption as TILA section 129Dc2 and redesignates the paragraph that includes the existing escrow exemption, adopted pursuant to section 1461a of the Dodd-Frank Act, as TILA
section 129Dc1.
44 12 CFR 1026.35b2iiiB.

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threshold which the Bureau set at $2
billion and any other criteria the Bureau may establish, consistent with the purposes of TILA. EGRRCPA section 108, on the other hand, specifies an asset size threshold of $10 billion and does not expressly state that the Bureau can establish other criteria. However, as discussed above, section 108 does appear to allow for a more circumscribed ability to alter certain parameters of the new exemption by referencing the existing regulation or any successor regulation..45
As explained in the proposed rule, EGRRCPA section 108 carves out a carefully circumscribed exemption available to insured depository institutions and insured credit unions that do not pursue mortgage lending as a major business line. Congress provided an asset size limit of $10
billion, approximately eight billion dollars above the existing escrow exemption, but reduced the originations limit to 1,000 loans.
The Bureau proposed to implement the EGRRCPA section 108 exemption consistent with this understanding of its limited scope. Proposed new 1026.35b2vi would have codified the section 108 exemption by imposing as a precondition a bar on its use with transactions involving forward commitments, as explained above in the discussion of the forward commitments provision, 1026.35b2v, and limiting its use to insured depository institutions and insured credit unions.
The other requirements for the exemption would have been implemented in proposed subparagraphs A, B and C, discussed below.
Only one commenter, a national trade association, referred to the proposals discussion of the nature and purpose of the new exemption. That commenter agreed with the Bureaus reading of the statute and supported the Bureaus implementation of the new exemption.
To facilitate compliance, the Bureau also proposed to provide three-month grace periods 46 for the annually applied requirements for the EGRRCPA section 108 escrow exemption, in 1026.35b2viA, B, and C. The grace periods would allow exempt creditors to continue using the exemption for three months after they exceed a threshold in the previous year, to allow a transition period and facilitate compliance.47 The new 45 TILA

section 129Dc2C.
the discussion of 1026.35b2viA
below for further explanation of the Bureaus adoption of grace periods in the exemption.
47 See 80 FR 59944, 5994849, 59951, 59954.
46 See
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17FER1