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Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations
of TILA and facilitate compliance with TILA.53 The Bureau believes that adjusting the threshold for inflation would facilitate compliance by allowing the institutions to remain exempt despite inflation, and that failure to adjust for inflation would interfere with the purpose of TILA by reducing the availability of the exemption over time to fewer institutions than the provision was meant to cover.
In order to facilitate compliance with 1026.35b2viA, the Bureau proposed to add comment 35b2viA1. Comment 35b2viA1 would explain the method by which the asset threshold will be adjusted for inflation, that the assets of affiliates are not considered in calculating compliance with the threshold consistent with EGRRCPA
section 108, and that the Bureau will publish notice of the adjusted asset threshold each year.
The Bureau did not receive any comments on the proposed annual inflation adjustment to the asset threshold. For the reasons discussed above, the Bureau now is finalizing this provision and comment 35b2viA
1 as proposed.

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35b2viB
EGRRCPA section 108 limits use of its escrow exemption to insured depositories and insured credit unions that, with their affiliates, during the preceding calendar year . . . originated 1,000 or fewer loans secured by a first lien on a principal dwelling. This threshold is half the limit in the existing regulatory exemption and does not exclude portfolio loans from the total.
The Bureau proposed to implement the 1,000-loan threshold in new 1026.35b2viB, with a threemonth grace period similar to the one provided in proposed 1026.35b2viA and the rural or underserved requirement in proposed 1026.35b2viC discussed in more detail in the relevant section-by-section analysis below. For the Bureaus reasoning regarding the adoption of grace periods with the new exemption, see the section-by-section analyses of 1026.35b2vi and viA above.
There are important differences between the 2,000-loan transaction threshold in existing 1026.35b2iiiB and the 1,000-loan transaction threshold in proposed 1026.35b2viB. Proposed comment 35b2viB1 would aid compliance by explaining the differences between the transactions to 53 15

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be counted toward the two thresholds for their respective exemptions.
Four commenters discussed the proposed loan-limit threshold. As explained above in the section-bysection analysis of 1026.35b2viA, one commenter suggested that the Bureau make the exemption available to financial institutions with assets of $4 billion dollars or more that originate 100 or more mortgages per year. Two commenters stated that the threshold should be 2,000 loans a year, the same as the existing escrow exemption, in order to reduce costs and allow them to better serve their customers. However, EGRRCPA section 108 specifies the 1,000 loan limit, and does not cite to the 2,000 loan limit in the existing escrow exemption, even though it does cite to the existing escrow exemption for other requirements.54 In other words, Congress specifically addressed this issue and chose not to use the numbers suggested by the commenters.
For the reasons discussed above, the Bureau is finalizing 1026.35b2viB and comment 35b2viB1 as proposed.
35b2viC
EGRRCPA section 108 requires that, in order to be eligible for the new exemption, an insured depository institution or insured credit union must, among other things, satisfy the criteria in 1026.35b2iiiA and D, or any successor regulation. The Bureau proposed to implement these requirements in new 1026.35b2viC.
Section 1026.35b2iiiA requires that during the preceding calendar year, or, if the application for the transaction was received before April 1 of the current calendar year, during either of the two preceding calendar years, a creditor has extended a covered transaction, as defined by 1026.43b1, secured by a first lien on a property that is located in an area that is either rural or underserved, as set forth in 1026.35b2iv. As discussed above in the section-bysection analysis of 1026.35b2viA, the current regulation includes a three-month grace period at the beginning of a calendar year to allow a transition period for institutions that lose the existing escrow exemption, and EGRRCPA section 108
incorporates that provision, including 54 A different commenter acknowledged that the statute would not allow an increase to a 2,000 loan limit, but requested that the Bureau support future legislation that would do so. The Bureau generally does not take a position on pending or future legislation.

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the grace period, into the new exemption. By following the EGRRCPA
and citing to the current regulation, the Bureau proposed to include the criteria for extending credit in a rural or underserved area, including the grace period, in the new exemption.
Four commenters stated that the final rule should exclude small manufactured housing loans from the rural or underserved requirement. These commenters raised concerns that the cost of escrowing was taking lenders out of this market and making these loans less available, and they indicated that the requirement would interfere with many institutions ability to make appropriate use of the new exemption.
Two of these commenters suggested that the Bureau eliminate the rural or underserved requirement for loans under $100,000, which they said would generally be manufactured housing loans, as long as the lender meets all of the other requirements for the new HPML escrow exemption. The commenters did not provide any data or specific information to support their statements.
The rural or underserved provision is a TILA statutory requirement incorporated in the existing regulatory exemption.55 EGRRCPA section 108
expressly cites to and adopts this requirement,56 and the proposed rule proposed to do the same. The Bureau does not believe that partial elimination of this statutory requirement would implement EGRRCPA section 108
appropriately. Furthermore, the statutory EGRRCPA provision did not differentiate between manufactured housing and other real estate, the Bureaus proposal did not discuss the rules potential effects on manufactured housing loans, and the proposal did not consider or include a loan amount based carve-out. The commenters did not provide any evidence that Congress intended a carve-out targeted at manufactured housing as they propose, and such a carve-out could affect the existing escrow exemption if adopted fully. Moreover, these commenters did not provide data demonstrating that the escrow requirement interferes with the availability of manufactured housing loans, and the Bureau does not have such data. For these reasons, the Bureau declines to alter the rural or underserved requirement for the new exemption and finalizes the provision as proposed. However, the Bureau will continue to monitor the market regarding this issue.
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