[Federal Register Volume 85, Number 124 (Friday, June 26, 2020)]
[Rules and Regulations]
[Pages 38299-38301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13801]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1026
Truth in Lending (Regulation Z); Determining ``Underserved''
Areas Using Home Mortgage Disclosure Act Data
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Interpretive rule.
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SUMMARY: This interpretive rule construes the Bureau of Consumer
Financial Protection's (Bureau's) Regulation Z, which implements the
Truth in Lending Act (TILA). The Bureau produces annually a list of
rural and underserved counties and areas that is used in applying
various Regulation Z provisions, such as the exemption from the
requirement to establish an escrow account for a higher-priced mortgage
loan and the ability to originate balloon-payment qualified mortgages.
Regulation Z states that an area is ``underserved'' during a calendar
year if, according to Home Mortgage Disclosure Act (HMDA) data for the
preceding calendar year, it is a county in which no more than two
creditors extended covered transactions, as defined in Regulation Z,
secured by first liens on properties in the county five or more times.
The official commentary provides an interpretation relating to this
standard that refers to certain data elements from the previous version
of the Bureau's Regulation C, which implements HMDA, that were modified
or eliminated in the 2015 amendments to Regulation C. The Bureau is
issuing this interpretive rule to supersede that now outdated
interpretation, specifically by describing below the HMDA data that
will instead be used in determining that an area is ``underserved.''
DATES: This interpretive rule is effective on June 26, 2020.
[[Page 38300]]
FOR FURTHER INFORMATION CONTACT: Waeiz Syed, Counsel, Office of
Regulations, at (202) 435-7700 or https://reginquiries.consumerfinance.gov/. If you require this document in an
alternative electronic format, please contact
[email protected].
SUPPLEMENTARY INFORMATION:
I. Discussion
A. Definition of ``Underserved''
As adopted in the Dodd-Frank Act and further amended by the Helping
Expand Lending Practices in Rural Communities Act of 2015, TILA
sections 129C(b)(2)(E) and 129D(c) granted the Bureau authority, among
other things, to create a special provision allowing the origination of
balloon-payment qualified mortgages and an exemption from the
requirement to establish an escrow account for higher-priced mortgage
loans.\1\ Through these amendments, Congress limited the class of
creditors to which the Bureau may grant the special provision and
exemption to include only certain creditors that operate in ``rural''
or ``underserved'' areas.
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\1\ Public Law 111-203, sections 1412 and 1461(a), 124 Stat.
1376, 2147 and 2179 (2010); Public Law 114-94, section 89003, 129
Stat. 1312, 1800 (2015) (codified at 15 U.S.C. 1639c(b)(2)(E) and 15
U.S.C. 1639d(c)).
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Section 1026.35(b)(2)(iv)(B) of Regulation Z defines an area as
``underserved'' during a calendar year if, according to HMDA data for
the preceding calendar year, it is a county in which no more than two
creditors extended covered transactions, as defined in Sec.
1026.43(b)(1), secured by first liens on properties in the county five
or more times.\2\ Section 1026.43(b)(1) of Regulation Z defines a
``covered transaction'' as a consumer credit transaction that is
secured by a dwelling, as defined in Sec. 1026.2(a)(19), including any
real property attached to a dwelling, other than a transaction exempt
from coverage under Sec. 1026.43(a).\3\ Accordingly, in determining
the number of first-lien covered transactions in an area for the
purposes of determining whether an area is ``underserved,'' the Bureau
would not count transactions that fail to meet the definition of a
``covered transaction'' as set forth in Sec. 1026.43(b)(1), such as a
home equity line of credit subject to Sec. 1026.40.
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\2\ Escrow Requirements Under the Truth in Lending Act
(Regulation Z), 78 FR 4725, 4740-41 (Jan. 22, 2013) (noting that the
Bureau adopted this definition based on HMDA data to provide an
objective, easily administered rule and one that is consistent with
the purpose of preserving credit access in underserved areas), as
subsequently amended by Amendments to the 2013 Escrows Final Rule
under the Truth in Lending Act (Regulation Z), 78 FR 30739 (May 23,
2013), and Amendments Relating to Small Creditors and Rural or
Underserved Areas Under the Truth in Lending Act (Regulation Z), 80
FR 59943 (Oct. 2, 2015). 12 CFR 1026.35(b)(2)(iv)(B).
\3\ 12 CFR 1026.43(b)(1).
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The Bureau interpreted the definition of ``underserved'' in the
official commentary to Regulation Z. In comment 35(b)(2)(iv)-1.ii, the
Bureau stated that a county is an ``underserved'' area if, in the
applicable calendar year's public HMDA aggregate dataset, no more than
two creditors have reported five or more first-lien covered
transactions with HMDA geocoding that places the properties in that
county. For the purposes of this determination, because only covered
transactions as defined in Sec. 1026.43(b)(1) of Regulation Z are
counted, all first-lien originations (and only first-lien originations)
reported in the HMDA data are counted except those for which the owner-
occupancy status is reported as ``Not owner-occupied,'' the property
type is reported as ``Multifamily,'' the applicant's or co-applicant's
race is reported as ``Not applicable,'' or the applicant's or co-
applicant's sex is reported as ``Not applicable.'' Comment
35(b)(2)(iv)-1.ii also specified HMDA codes for each of these HMDA
reporting categories.
B. Determining ``Underserved'' Areas Using HMDA Data
In 2015, the Bureau issued a final rule amending Regulation C; for
the most part, the 2015 amendments took effect on January 1, 2018.\4\
Among other changes, the 2015 HMDA Final Rule amended Regulation C to
include nine new data points as required by the Dodd-Frank Act; added a
number of additional data points pursuant to the Bureau's discretionary
authority under HMDA section 304(b)(5) and (6); and revised certain
pre-existing data points to clarify or amend their requirements.
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\4\ Home Mortgage Disclosure Act (Regulation C), 80 FR 66128,
66256-58 (Oct. 28, 2015).
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In light of these changes, certain parts of the methodology
described in comment 35(b)(2)(iv)-1.ii became obsolete, as they
referred to HMDA data points replaced or otherwise modified by the 2015
HMDA Final Rule. To avoid uncertainty concerning how HMDA data is to be
used to determine the underserved status of a county, the Bureau is
issuing this interpretive rule to supersede the outdated portions of
the commentary and identify current HMDA data points it will use to
determine whether a county is underserved.
Under this interpretive rule, the determination will be made by
counting first-lien originations from HMDA data for the preceding
calendar year, except those for which any of the following HMDA data
points are reported with values we interpret as being inconsistent with
Regulation Z's definition of a ``covered transaction.''
1. Construction Method and Total Units
Because a ``covered transaction,'' as defined in Sec.
1026.43(b)(1) of Regulation Z, includes loans secured by residential
structures that contain one to four units, the Bureau will not count
first-lien originations reported in HMDA data for which the
construction method status is reported as ``Site-built'' (HMDA Code 1)
and the total units (i.e., number of individual dwelling units related
to the property) is reported as being greater than ``4.''
2. Open-End Line of Credit and Reverse Mortgage
The definition of a ``covered transaction'' in Sec. 1026.43(b)(1)
of Regulation Z excludes specific categories of loans, such as a home
equity line of credit subject to Sec. 1026.40. The definition of a
``covered transaction'' also excludes, for example, a reverse mortgage
subject to Sec. 1026.33, for the purposes of Sec. 1026.43(f), which
is the provision that permits creditors operating in underserved areas
to originate qualified mortgages with balloon payments.
For these reasons, the Bureau will not count first-lien
originations reported in HMDA data for which the open-end line of
credit status is reported as ``Open-end line of credit'' (HMDA Code 1)
or the reverse mortgage status is reported as ``Reverse mortgage''
(HMDA Code 1).
3. Business or Commercial Purpose
Regulation Z's ``covered transaction'' definition also excludes an
extension of credit primarily for a business or commercial purpose.
Accordingly, the Bureau will not count first-lien originations reported
in HMDA data for which the business or commercial purpose status is
reported as ``Primarily for a business or commercial purpose'' (HMDA
Code 1).
4. Demographic Information of Applicant and Co-Applicant
As defined in Sec. 1026.43(b)(1) of Regulation Z, a ``covered
transaction'' is limited to transactions made to consumers, which Sec.
1026.2(a)(11) of Regulation Z defines, in part, as a natural person to
whom consumer credit is offered or extended.
Appendix B and comment 4(a)(10)(ii)-4 of Regulation C instruct
covered financial institutions to report
[[Page 38301]]
the applicant's or co-applicant's ethnicity, race, sex, and age as
``not applicable'' if the applicant or co-applicant is not a natural
person. For these reasons, the Bureau will not count first-lien
originations reported in HMDA data for which both the applicant's and
co-applicant's ethnicity, race, sex, and age all are reported as
follows: (1) The applicant's ethnicity is reported as ``Not
applicable'' (HMDA Code 4); (2) the applicant's race is reported as
``Not applicable'' (HMDA Code 7); (3) the applicant's sex is reported
as ``Not applicable'' (HMDA Code 4); (4) the applicant's age is
reported as ``Not applicable'' (HMDA Code 8888); (5) the co-applicant's
ethnicity is reported as ``Not applicable'' (HMDA Code 4) or ``No co-
applicant'' (HMDA Code 5); (6) the co-applicant's race is reported as
``Not applicable'' (HMDA Code 7) or ``No co-applicant'' (HMDA Code 8);
(7) the co-applicant's sex is reported as ``Not applicable'' (HMDA Code
4) or ``No co-applicant'' (HMDA Code 5); and (8) the co-applicant's age
is reported as ``Not applicable'' (HMDA Code 8888) or ``No co-
applicant'' (HMDA Code 9999).
The underserved counties list, using the HMDA data described above,
can be found on the Bureau's public website at https://www.consumerfinance.gov/policy-compliance/guidance/mortgage-resources/rural-and-underserved-counties-list/, where, consistent with past
practice, the list is made available along with historical lists.
C. Legal Authority
The Bureau is issuing this interpretive rule based on its authority
to interpret Regulation Z, including under section 1022(b)(1) of the
Dodd-Frank Act, which authorizes guidance as may be necessary or
appropriate to enable the Bureau to administer and carry out the
purposes and objectives of Federal consumer financial laws.\5\
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\5\ 12 U.S.C. 5512(b)(1). The relevant provisions of Regulation
Z form part of Federal consumer financial law. 12 U.S.C.
5481(12)(O), (14).
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By operation of TILA section 130(f), no provision of TILA sections
130, 108(b), 108(c), 108(e), or 112 imposing any liability applies to
any act done or omitted in good faith in conformity with this
interpretive rule, notwithstanding that after such act or omission has
occurred, the interpretive rule is amended, rescinded, or determined by
judicial or other authority to be invalid for any reason.\6\
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\6\ 15 U.S.C. 1640(f).
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II. Effective Date
Because this rule is solely interpretive, it is not subject to the
30-day delayed effective date for substantive rules under section
553(d) of the Administrative Procedure Act.\7\ Therefore, this rule is
effective on June 26, 2020, the same date that it is published in the
Federal Register.
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\7\ 5 U.S.C. 553(d).
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III. Regulatory Requirements
This rule articulates the Bureau's interpretation of Regulation Z
and TILA. As an interpretive rule, it is exempt from the notice-and-
comment rulemaking requirements of the Administrative Procedure Act.\8\
Because no notice of proposed rulemaking is required, the Regulatory
Flexibility Act does not require an initial or final regulatory
flexibility analysis.\9\
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\8\ 5 U.S.C. 553(b).
\9\ 5 U.S.C. 603(a), 604(a).
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The Bureau has determined that this interpretive rule does not
impose any new requirements or revise any existing recordkeeping,
reporting, or disclosure requirements on covered entities or members of
the public that would be collections of information requiring approval
by the Office of Management and Budget under the Paperwork Reduction
Act.\10\
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\10\ 44 U.S.C. 3501 et seq.
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IV. Congressional Review Act
Pursuant to the Congressional Review Act,\11\ the Bureau will
submit a report containing this interpretive rule and other required
information to the United States Senate, the United States House of
Representatives, and the Comptroller General of the United States prior
to the rule's published effective date. The Office of Information and
Regulatory Affairs has designated this interpretive rule as not a
``major rule'' as defined by 5 U.S.C. 804(2).
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\11\ 5 U.S.C. 801 et seq.
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V. Signing Authority
The Director of the Bureau, having reviewed and approved this
document, is delegating the authority to electronically sign this
document to Laura Galban, a Bureau Federal Register Liaison, for
purposes of publication in the Federal Register.
Dated: June 23, 2020.
Laura Galban,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2020-13801 Filed 6-25-20; 8:45 am]
BILLING CODE 4810-AM-P