Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuations Under the Equal Credit Opportunity Act (Regulation B)

Federal RegisterJan 31, 2013

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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1002

[Docket No. CFPB-2012-0032]

RIN 3170-AA26

Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuations Under the Equal Credit Opportunity Act (Regulation B)

AGENCY:

Bureau of Consumer Financial Protection.

ACTION:

Final rule; official interpretations.

SUMMARY:

The Bureau of Consumer Financial Protection (Bureau) is amending Regulation B, which implements the Equal Credit Opportunity Act (ECOA), and the Bureau's official interpretations of the regulation, which interpret and clarify the requirements of Regulation B. The final rule revises Regulation B to implement an ECOA amendment concerning appraisals and other valuations that was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). In general, the revisions to Regulation B require creditors to provide to applicants free copies of all appraisals and other written valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling, and require creditors to notify applicants in writing that copies of appraisals will be provided to them promptly.

DATES:

This final rule is effective January 18, 2014.

FOR FURTHER INFORMATION CONTACT:

Owen Bonheimer, Counsel, or William W. Matchneer, Senior Counsel, Office of Regulations, at (202) 435-7000.

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule

Congress amended ECOA section 701(e) to require creditors to provide applicants with a copy of appraisals and other written valuations developed in connection with certain mortgage transactions as a matter of course, rather than only providing copies of appraisals upon applicants' request as previously required. For the reasons discussed below, the Bureau is now adopting amendments to Regulation B in final form, generally as proposed. The final rule amends § 1002.14 of Regulation B to provide for the following in connection with applications for credit to be secured by a first lien on a dwelling:

• Require creditors to notify applicants within three business days of receiving an application of their right to receive a copy of appraisals developed.

• Require creditors to provide applicants a copy of each appraisal and other written valuation promptly upon its completion or three business days before consummation (for closed-end credit) or account opening (for open-end credit), whichever is earlier.

• Permit applicants to waive the timing requirement for providing these copies. However, applicants who waive the timing requirement must be given a copy of all appraisals and other written valuations at or prior to consummation or account opening, or, if the transaction is not consummated or the account is not opened, no later than 30 days after the creditor determines the transaction will not be consummated or the account will not be opened.

• Prohibit creditors from charging for the copy of appraisals and other written valuations, but permit creditors to charge applicants reasonable fees for the cost of the appraisals or other written valuations unless applicable law provides otherwise.

As discussed further in part VI, this final rule becomes effective on January 18, 2014. Accordingly, the final rule applies to mortgage transactions to be secured by a first lien on a dwelling for which the creditor receives an application on or after January 18, 2014.

II. Background

A. ECOA and Regulation B

ECOA

makes it unlawful for creditors to discriminate in any aspect of a credit transaction on the basis of sex, race, color, religion, national origin, marital status, or age (provided the applicant has the capacity to contract), or because all or part of an applicant's income derives from public assistance, or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. ECOA applies to consumer credit as well as to business and commercial credit except as provided in Regulation B, § 1002.3(a)-(d).

15 U.S.C. 1691

et seq.

Prior to its amendment by the Dodd-Frank Act, section 701(e) of ECOA required creditors to provide credit applicants, upon written request, with copies of appraisal reports used in connection with their applications for a loan secured by residential real property. This provision was added to ECOA in 1991 as part of the Federal Deposit Insurance Corporation Improvement Act (FDICIA).

The Senate report on FDICIA suggests that one purpose of ECOA section 701(e) was to make it easier for loan applicants to determine whether a loan was denied due to a discriminatory appraisal.

Public Law 102-242, 105 Stat. 2236 (1991).

For additional legislative history on the appraisal provision as originally added by the FDICIA, see S. Rept.167, 102nd Cong. (1991); S. Rept. 461, 101st Cong. (1990); 137 Cong. Rec. S2519 (daily ed. Feb. 28, 1991); 136 Cong. Rec. S14592, 14598-99 (daily ed. Oct. 5, 1990).

Section 1474 of the Dodd-Frank Act replaces the existing section 701(e) with a new provision that imposed several new requirements concerning appraisals as well as other valuations, as described below. The Act also transferred general rulemaking authority for ECOA from the Board of Governors of the Federal Reserve System (Board) to the Bureau on July 21, 2011.

Pursuant to the Dodd-Frank Act and ECOA, as amended, the Bureau published for public comment an interim final rule establishing a new Regulation B, 12 CFR part 1002, implementing ECOA (except with respect to persons excluded from the Bureau's rulemaking authority by section 1029 of the Dodd-Frank Act). 76 FR 79442 (Dec. 21, 2011). This interim final rule did not impose any new substantive obligations but did make technical and conforming changes to reflect the transfer of authority and certain other changes made by the Dodd-Frank Act. The Bureau's Regulation B took effect on December 30, 2011.

Public Law 111-203, 124 Stat. 1376 (2010). The transfer of authority is further discussed in Part IV below.

B. Dodd-Frank Act Amendments Concerning Appraisals and Other Valuations

Congress enacted the Dodd-Frank Act after a cycle of unprecedented expansion and contraction in the mortgage market sparked the most severe U.S. recession since the Great Depression.

The Dodd-Frank Act created the Bureau and consolidated various rulemaking and supervisory authorities in this new agency, including the authority to implement ECOA.

At the same time, Congress imposed new statutory requirements governing mortgage practices with the intent to restrict the practices that

contributed to the crisis and to provide additional protections to consumers.

For more discussion of the mortgage market, the financial crisis, and mortgage origination generally, see the Bureau's 2012 TILA-RESPA Proposal, 77 FR 51116 (Aug. 23, 2012),

available at http://www.consumerfinance.gov/regulations/

Sections 1011 and 1021 of title X of the Dodd-Frank Act, the “Consumer Financial Protection Act,” Public Law 111-203, sections 1001-1100H, codified at 12 U.S.C. 5491, 5511. The Consumer Financial Protection Act is substantially codified at 12 U.S.C. 5481-5603.

Sections 1471 through 1474 of the Dodd-Frank Act established a number of new requirements for appraisal and other valuation activities, including requirements relating to appraisal independence, appraisals for higher-risk mortgages, regulation of appraisal management companies, automated valuation models (AVMs), and providing copies of appraisals and other written valuations.

Many of the Dodd-Frank Act appraisal provisions are required to be implemented through joint rulemakings involving the Bureau and other Federal agencies. The amendment to ECOA section 701(e), however, does not require a joint rulemaking. As discussed below, the amendments to section 701(e) overlap with the disclosure and appraisal copy requirements of a Dodd-Frank Act amendment to the Truth in Lending Act (TILA) applicable to higher-risk mortgages. That Dodd-Frank Act amendment to TILA, which adds TILA section 129H, is required to be implemented through joint rulemaking.

See

TILA section 129H(b)(4)(A); 15 U.S.C. 1639h(b)(4)(A).

See

TILA sections 129E and 129H as established by Dodd-Frank Act sections 1471 and 1472, 15 U.S.C. 1639e and 1639h; sections 1124 and 1125 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) as established by Dodd-Frank Act sections 1473(f)(2), 12 U.S.C. 3353, and 1473(q), 12 U.S.C. 3354; and section 701(e) of ECOA as amended by Dodd-Frank Act section 1474, 15 U.S.C. 1691(e).

ECOA Requirements Relating to Appraisals and Other Valuations

Section 1474 of the Dodd-Frank Act

amended ECOA section 701(e) to require that creditors provide copies of all appraisals and other written valuations to loan applicants, in credit transactions to be secured by a first lien on a dwelling, at no additional cost and without requiring applicants to request such copies affirmatively. Amended ECOA section 701(e) generally provides that:

Public Law 111-203, sec. 1474, 124 Stat. 1376 (2010).

• A creditor shall furnish to an applicant a copy of any and all appraisals and other written valuations developed in connection with the applicant's application for a loan that is or would be secured by a first lien on a dwelling. The copy must be provided promptly upon completion, and in no case later than three days prior to closing of the loan, whether the creditor grants or denies the applicant's request for credit or the application is incomplete or withdrawn. However, the applicant may waive the timing requirement that copies of such appraisals or other valuations be provided three days prior to closing, except where otherwise required by law.

• The creditor shall provide a copy of each appraisal or other written valuation at no additional cost to the applicant, though the creditor may impose a reasonable fee on the applicant to reimburse the creditor for the cost of the appraisal.

• At the time of application, the creditor shall notify applicants in writing of the right to receive a copy of each appraisal and other written valuation under ECOA section 701(e).

Amended ECOA section 701(e)(6) defines the term “valuation” as including “any estimate of the value of a dwelling developed in connection with a creditor's decision to provide credit, including those values developed pursuant to a policy of a government sponsored enterprise or by an automated valuation model, a broker price opinion, or other methodology or mechanism.”

Higher-Risk Mortgage Appraisal Requirements

On August 15, 2012, the Bureau—along with the Board, the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Finance Agency (FHFA), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC)—jointly issued for public comment a proposal to implement new section 129H of TILA relating to appraisals for higher-risk mortgages (2012 Interagency Appraisals Proposal). The proposal was published in the

Federal Register

on September 5, 2012.

See

77 FR 54722 (Sept. 5, 2012). TILA section 129H includes certain requirements that are similar to ECOA section 701(e). Under Section 129H(d), creditors must provide applicants, at least three days prior to closing, a copy of any appraisal prepared in connection with a higher-risk mortgage. 15 U.S.C. 1639h(c). Creditors also must provide applicants, at the time of the initial mortgage application, a statement that any appraisal prepared for the mortgage is for the creditor's sole use and that the consumer may choose to have a separate appraisal conducted at his or her own expense.

Id.

1639h(d). Section 1471 of the Dodd-Frank Act defines the term “higher-risk mortgage” generally as a residential mortgage loan, other than a reverse mortgage, that is secured by a principal dwelling with an annual percentage rate (APR) that exceeds the average prime offer rate for a comparable transaction by specified percentages.

Id.

1639h(f). To finalize the 2012 Interagency Appraisals Proposal described above, the inter-agency group is issuing a final rule under section 129H of TILA (2103 Interagency Appraisals Final Rule).

III. Summary of the Rulemaking Process

A. Pre-Proposal Testing and Outreach

The Bureau has conducted consumer testing relating to implementation of ECOA section 701(e) requirements in conjunction with its 2012 TILA-RESPA Proposal.

A more detailed discussion of the Bureau's overall testing and form design can be found in the report

Know Before You Owe: Evolution of the Integrated TILA-RESPA Disclosures,

which is available on the Bureau's Web site.

See

77 FR 51116 at 51313-14, 51427 (Aug. 23, 2012). On July 9, 2012, the Bureau issued for public comment a proposed rule and forms combining the TILA mortgage loan disclosures with the Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate (GFE) and settlement statement required pursuant to Dodd-Frank Act section 1032(f) as well as sections 4(a) of RESPA and 105(b) of TILA, as amended by Dodd-Frank Act sections 1098 and 1100A, respectively (2012 TILA-RESPA Proposal). 12 U.S.C. 2603(a); 15 U.S.C. 1604(b).

Kleimann Comm. Gp., Inc.,

Know Before You Owe: Evolution of the Integrated TILA-RESPA Disclosures

(July 9, 2012),

available at http://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-testing.pdf

In January 2011, the Bureau contracted with a communication, design, consumer testing, and research firm, Kleimann Communication Group, Inc. (Kleimann), which specializes in consumer financial disclosures. The Bureau and Kleimann developed a plan to conduct qualitative usability testing, consisting of one-on-one cognitive interviews, over several iterations of prototype integrated disclosure forms. Between January and May 2011, the Bureau and Kleimann worked collaboratively on developing a qualitative testing plan, and several prototype integrated forms for the disclosure to be provided in connection with a consumer's application (

i.e.,

a form integrating the RESPA good faith estimate and the early TILA disclosure).

The qualitative testing plan developed by the Bureau and Kleimann was unique with respect to qualitative testing performed by other

federal agencies in that the Bureau planned to conduct qualitative testing with industry participants as well as consumers. Each round of qualitative testing included at least two industry participants, including lenders from several different types of depository (including credit unions) and nondepository institutions, mortgage brokers, and closing agents.

This discussion is limited to testing of the disclosure to be provided in connection with a consumer's application, which is the portion of the testing relevant to the appraisal-related disclosure required under § 1002.14(a)(2). As discussed in the supplementary information to the 2012 RESPA-TILA Proposal, the Bureau and Kleimann also tested prototype designs for the integrated disclosure forms to be provided in connection with the closing of the mortgage loan and real estate transaction.

See

the Bureau's 2012 TILA-RESPA Proposal,

available at http://www.consumerfinance.gov/regulations/

In addition, the Bureau launched an initiative to obtain public feedback on each round of prototype disclosures at the same time as it conducted the qualitative testing of the prototypes, which it titled “Know Before You Owe.”

This initiative consisted of publishing and obtaining feedback on the prototype designs through an interactive tool on the Bureau's Web site or through posting the prototypes to the Bureau's blog on its Web site and providing an opportunity for the public to email feedback directly to the Bureau. From May to October 2011, Kleimann and the Bureau conducted a series of five rounds of qualitative testing on revised iterations of integrated disclosure prototype forms. This testing was conducted in five different cities across different U.S. Census regions and divisions: Baltimore, Maryland; Los Angeles, California; Chicago, Illinois; Springfield, Massachusetts; and Albuquerque, New Mexico. After each round, Kleimann analyzed and reported to the Bureau on the results of the testing. Based on these results and feedback received from the Bureau's Know Before You Owe public outreach project, the Bureau revised the prototype disclosure forms for the next round of testing.

See http://www.consumerfinance.gov/knowbeforeyouowe

As part of the larger Know Before You Owe public outreach project, the Bureau tested two versions of the new appraisal-related disclosures required by both TILA section 129H and ECOA section 701(e).

The Bureau believed that it was important to test the TILA and ECOA appraisal-related disclosures together, in an integrated manner, to determine how to provide these overlapping but separate disclosures in a manner that would minimize consumer confusion and improve consumer comprehension. Testing of the first version showed that consumers tended to find the TILA and ECOA disclosures confusing when they were given together using the specific language set forth in the respective statutes.

Consumer comprehension improved when the Bureau developed a slightly longer plain language version that was designed to incorporate the elements of both statutes. Based on the results of that testing, the Bureau developed the following appraisal disclosure language: “We may order an appraisal to determine the property's value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.” The Bureau included this language in the prototype form used in the final rounds of the testing process.

Kleimann Comm. Gp., Inc.,

Know Before You Owe: Evolution of the Integrated TILA-RESPA Disclosures

254-256 (July 9, 2012),

available at http://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-testing.pdf.

Id.

In addition, as part of the rulemaking process for this rule, as described in the proposal, 77 FR 53090, at 50400 n.39, 50402 n.48 (Aug. 21, 2012), the Bureau considered information obtained during pre-proposal outreach to industry regarding its practices in providing copies of written appraisals to applicants. This outreach was carried out in the context of the development of the 2012 Interagency Appraisals Proposal and involved a large bank, a trade group of smaller depository institutions, and an independent mortgage bank (IMB).

B. The Bureau's 2012 ECOA Proposal on Providing Copies of Appraisals and Other Written Valuations

The Bureau issued for public comment its proposal to amend Regulation B to implement the Dodd-Frank Act amendment to ECOA section 701(e) on August 15, 2012. The proposal was published in the

Federal Register

on August 21, 2012. 77 FR 50390 (Aug. 21, 2012). The Bureau proposed to amend Regulation B, § 1002.14(a)(1), to set forth a general requirement that creditors provide applicants for credit to be secured by a first lien on a dwelling with copies of all appraisals and other written valuations developed in connection with their applications. The Bureau further proposed timing requirements for providing such copies and standards governing any waiver of the timing requirements. The Bureau proposed to amend § 1002.14(a)(2) to require that a creditor provide a written disclosure of the applicant's right to receive a copy of such appraisals and other written valuations. As proposed, § 1002.14(a)(3) would have prohibited creditors from charging the applicants for providing a copy of appraisals and other written valuations, but would have permitted creditors to require applicants to pay a reasonable fee to reimburse the creditor for the cost of appraisals and other written valuations. The Bureau proposed in § 1002.14(a)(4) to clarify that the requirements of § 1002.14(a)(1) would apply regardless of whether credit is extended or denied, or if the application is incomplete or withdrawn. The Bureau proposed in § 1002.14(a)(5) to allow the copies of appraisals and other written valuations required by § 1002.14(a)(1) to be provided in electronic form. As is discussed in more detail below, proposed § 1002.14(b) would have defined certain terms used in § 1002.14(a).

C. Overview of Comments Received

The Bureau received 68 comments on the 2012 ECOA Proposal, primarily from creditors and their representatives. Most of the industry commenters generally supported the core elements of the proposal, while providing suggestions for exemptions, clarifications, or changes to particular elements of the proposal. Comment letters also were submitted by a group advocating for the use of plain language, and on behalf of appraisers, government-sponsored enterprises (GSEs), and real estate agents, as well as an affordable housing advocacy group. The affordable housing advocacy group commenter generally supported the proposal and suggested changes to strengthen consumer protections. The plain language group commenter suggested changes to make the rule easier to understand. Most of the remaining commenters generally supported the rule but suggested clarifications and changes to particular elements of the proposal. The comments are discussed in more detail in the section-by-section analysis below.

D. Other Rulemakings

In addition to this final rule and the 2013 Interagency Appraisals Final Rule described above, the Bureau currently is adopting several other final rules and issuing one proposal, all relating to mortgage credit to implement requirements of title XIV of the Dodd-Frank Act. Each of the final rules follows a proposal issued in 2011 by the Board or in 2012 by the Bureau. Collectively, these proposed and final rules are referred to as the Title XIV Rulemakings.

•

Ability to Repay:

The Bureau is finalizing a rule, following a May 2011 proposal issued by the Board (Board's 2011 ATR Proposal),

to implement provisions of the Dodd-Frank Act (1) requiring creditors to determine that a consumer has a reasonable ability to repay covered mortgage loans and

establishing standards for compliance, such as by making a “qualified mortgage,” and (2) establishing certain limitations on prepayment penalties, pursuant to TILA section 129C as established by Dodd-Frank Act sections 1411, 1412, and 1414. 15 U.S.C. 1639c. The Bureau's final rule is referred to as the 2013 ATR Final Rule. Simultaneously with the 2013 ATR Final Rule, the Bureau is issuing a proposal to amend the final rule implementing the ability-to-repay requirements, including by the addition of exemptions for certain nonprofit creditors and certain homeownership stabilization programs and a definition of a “qualified mortgage” for certain loans made and held in portfolio by small creditors (2013 ATR Concurrent Proposal). The Bureau expects to act on the 2013 ATR Concurrent Proposal on an expedited basis, so that any exceptions or adjustments to the 2013 ATR Final Rule can take effect simultaneously with that rule.

76 FR 27390 (May 11, 2011).

•

Escrows:

The Bureau is finalizing a rule, following a March 2011 proposal issued by the Board (Board's 2011 Escrows Proposal),

to implement certain provisions of the Dodd-Frank Act expanding on existing rules that require escrow accounts to be established for higher-priced mortgage loans and creating an exemption for certain loans held by creditors operating predominantly in rural or underserved areas, pursuant to TILA section 129D as established by Dodd-Frank Act section 1461. 15 U.S.C. 1639d. The Bureau's final rule is referred to as the 2013 Escrows Final Rule.

76 FR 11598 (Mar. 2, 2011).

•

HOEPA:

Following its July 2012 proposal (2012 HOEPA Proposal),

the Bureau is issuing a final rule to implement Dodd-Frank Act requirements expanding protections for “high-cost mortgages” under the Homeownership and Equity Protection Act (HOEPA), pursuant to TILA sections 103(bb) and 129, as amended by Dodd-Frank Act sections 1431 through 1433. 15 U.S.C. 1602(bb) and 1639. The Bureau also is finalizing rules to implement certain title XIV requirements concerning homeownership counseling, including a requirement that lenders provide lists of homeownership counselors to applicants for federally-related mortgage loans, pursuant to RESPA section 5(c), as amended by Dodd-Frank Act section 1450. 12 U.S.C. 2604(c). The Bureau's final rule is referred to as the 2013 HOEPA Final Rule.

77 FR 49090 (Aug. 15,2012).

•

Servicing:

Following its August 2012 proposals (2012 RESPA Servicing Proposal and 2012 TILA Servicing Proposal),

the Bureau is adopting final rules to implement Dodd-Frank Act requirements regarding force-placed insurance, error resolution, information requests, and payment crediting, as well as requirements for mortgage loan periodic statements and adjustable-rate mortgage reset disclosures, pursuant to section 6 of RESPA and sections 128, 128A, 129F, and 129G of TILA, as amended or established by Dodd-Frank Act sections 1418, 1420, 1463, and 1464. 12 U.S.C. 2605; 15 U.S.C. 1638, 1638a, 1639f, and 1639g. The Bureau also is finalizing rules on early intervention for troubled and delinquent borrowers, and loss mitigation procedures, pursuant to the Bureau's authority under section 6 of RESPA, as amended by Dodd-Frank Act section 1463, to establish obligations for mortgage servicers that it finds to be appropriate to carry out the consumer protection purposes of RESPA, and its authority under section 19(a) of RESPA to prescribe rules necessary to achieve the purposes of RESPA. The Bureau's final rule under RESPA with respect to mortgage servicing also establishes requirements for general servicing standards policies and procedures and continuity of contact pursuant to its authority under section 19(a) of RESPA. The Bureau's final rules are referred to as the 2013 RESPA Servicing Final Rule and the 2013 TILA Servicing Final Rule, respectively.

77 FR 57200 (Sept. 17, 2012) (RESPA); 77 FR 57318 (Sept. 17, 2012) (TILA).

•

Loan Originator Compensation:

Following its August 2012 proposal (2012 Loan Originator Proposal),

the Bureau is issuing a final rule to implement provisions of the Dodd-Frank Act requiring certain creditors and loan originators to meet certain duties of care, including qualification requirements; requiring the establishment of certain compliance procedures by depository institutions; prohibiting loan originators, creditors, and the affiliates of both from receiving compensation in various forms (including based on the terms of the transaction) and from sources other than the consumer, with specified exceptions; and establishing restrictions on mandatory arbitration and financing of single-premium credit insurance, pursuant to TILA sections 129B and 129C as established by Dodd-Frank Act sections 1402, 1403, and 1414(a). 15 U.S.C. 1639b, 1639c. The Bureau's final rule is referred to as the 2013 Loan Originator Final Rule.

77 FR 55272 (Sept. 7, 2012).

The Bureau is not at this time finalizing proposals concerning various disclosure requirements that were added by title XIV of the Dodd-Frank Act, integration of mortgage disclosures under TILA and RESPA, or a simpler, more inclusive definition of the finance charge for purposes of disclosures for closed-end mortgage transactions under Regulation Z. The Bureau expects to finalize these proposals and to consider whether to adjust regulatory thresholds under the Title XIV Rulemakings in connection with any change in the calculation of the finance charge later in 2013, after it has completed quantitative testing, and any additional qualitative testing deemed appropriate, of the forms that it proposed in July 2012 to combine TILA mortgage disclosures with the good faith estimate (RESPA GFE) and settlement statement (RESPA settlement statement) required under RESPA, pursuant to Dodd-Frank Act section 1032(f) and sections 4(a) of RESPA and 105(b) of TILA, as amended by Dodd-Frank Act sections 1098 and 1100A, respectively (2012 TILA-RESPA Proposal).

Accordingly, the Bureau already has issued a final rule delaying implementation of various affected title XIV disclosure provisions.

The Bureau's approach to coordinating the implementation of the Title XIV Rulemakings is discussed below.

77 FR 51116 (Aug. 23, 2012).

77 FR 70105 (Nov. 23, 2012).

Coordinated Implementation of Title XIV Rulemakings

As noted in all of its foregoing proposals, the Bureau regards each of the Title XIV Rulemakings as affecting aspects of the mortgage industry and its regulations. Accordingly, as noted in its proposals, the Bureau is coordinating carefully the Title XIV Rulemakings, particularly with respect to their effective dates. The Dodd-Frank Act requirements to be implemented by the Title XIV Rulemakings generally will take effect on January 21, 2013, unless final rules implementing those requirements are issued on or before that date and provide for a different effective date.

See

Dodd-Frank Act section 1400(c), 15 U.S.C. 1601 note. In addition, some of the Title XIV Rulemakings are to take effect no later than one year after they are issued.

Id.

The comments on the appropriate implementation date for this final rule are discussed in detail below in part VI of this notice. In general, however, consumer advocates requested that the Bureau put the protections in the Title

XIV Rulemakings into effect as soon as practicable. In contrast, the Bureau received some industry comments indicating that implementing so many new requirements at the same time would create a significant cumulative burden for creditors. In addition, many commenters also acknowledged the advantages of implementing multiple revisions to the regulations in a coordinated fashion.

Thus, a tension exists between coordinating the adoption of the Title XIV Rulemakings and facilitating industry's implementation of such a large set of new requirements. Some have suggested that the Bureau resolve this tension by adopting a sequenced implementation, while others have requested that the Bureau simply provide a longer implementation period for all of the final rules.

Of the several final rules being adopted under the Title XIV Rulemakings, six entail amendments to Regulation Z, with the only exceptions being the 2013 RESPA Servicing Final Rule (Regulation X) and the 2013 ECOA Appraisals Final Rule (Regulation B); the 2013 HOEPA Final Rule also amends Regulation X, in addition to Regulation Z. The six Regulation Z final rules involve numerous instances of intersecting provisions, either by cross-references to each other's provisions or by adopting parallel provisions. Thus, adopting some of those amendments without also adopting certain other, closely-related provisions would create significant technical issues,

e.g.,

new provisions containing cross-references to other provisions that do not yet exist, which could undermine the ability of creditors and other parties subject to the rules to understand their obligations and implement appropriate systems changes in an integrated and efficient manner.

The Bureau recognizes that many of the new provisions will require creditors to make changes to automated systems and, further, that most administrators of large systems are reluctant to make too many changes to their systems at once. At the same time, however, the Bureau notes that the Dodd-Frank Act established virtually all of these changes to institutions' compliance responsibilities, and contemplated that they be implemented in a relatively short period of time. And, as already noted, the extent of interaction among many of the Title XIV Rulemakings necessitates that many of their provisions take effect together. Finally, notwithstanding commenters' expressed concerns for cumulative burden, the Bureau expects that creditors actually may realize some efficiencies from adapting their systems for compliance with multiple new, closely-related requirements at once, especially if given sufficient overall time to do so.

Accordingly, the Bureau is requiring that, as a general matter, creditors and other affected persons begin complying with the final rules on January 10, 2014. As noted above, section 1400(c) of the Dodd-Frank Act requires that some provisions of the Title XIV Rulemakings take effect no later than one year after the Bureau issues them. Accordingly, the Bureau is establishing January 10, 2014, one year after issuance of the Bureau's 2013 ATR, Escrows, and HOEPA Final Rules (

i.e.,

the earliest of the title XIV final rules), as the baseline effective date for most of the Title XIV Rulemakings. The Bureau believes that, on balance, this approach will facilitate the implementation of the rules' overlapping provisions, while also affording creditors sufficient time to implement the more complex or resource-intensive new requirements. As discussed in part VI below, however, the effective date of this final rule is January 18, 2014, to align with the effective date of the 2013 Interagency Appraisals Final Rule.

The Bureau has identified certain rulemakings or selected aspects thereof, however, that do not present significant implementation burdens for industry. Accordingly, the Bureau is setting earlier effective dates for those final rules or certain aspects thereof, as applicable. Those effective dates are set forth and explained in the

Federal Register

notices for those final rules.

IV. Legal Authority

The final rule was issued on January 18, 2013, in accordance with 12 CFR 1074.1. The Bureau issued this final rule pursuant to its authority under ECOA and the Dodd-Frank Act. On July 21, 2011, section 1061 of the Dodd-Frank Act transferred to the Bureau all of the “consumer financial protection functions” previously vested in certain other Federal agencies, including the Board.

The term “consumer financial protection functions” is defined to include “all authority to prescribe rules or issue orders or guidelines pursuant to any Federal consumer financial law, including performing appropriate functions to promulgate and review such rules, orders, and guidelines.”

ECOA is a Federal consumer financial law.

Accordingly, the Bureau has authority to issue regulations pursuant to ECOA.

Public Law 111-203, sec. 1061(b)(7), 124 Stat. 1376; 12 U.S.C. 5581(b)(7).

12 U.S.C. 5581(a)(1).

Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14) (defining “Federal consumer financial law” to include the “enumerated consumer laws” and the provisions of title X of the Dodd-Frank Act); Dodd-Frank Act section 1002(12), 12 U.S.C. 5481(12) (defining “enumerated consumer laws” to include ECOA).

Section 703(a) of ECOA authorizes the Bureau to prescribe regulations to carry out the purposes of ECOA. Section 703(a) further states that such regulations may contain—but are not limited to—such classifications, differentiation, or other provision, and may provide for such adjustments and exceptions for any class of transactions as, in the judgment of the Bureau, are necessary or proper to effectuate the purposes of ECOA, to prevent circumvention or evasion thereof, or to facilitate or substantiate compliance. 15 U.S.C. 1691b(a).

Section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to prescribe rules “as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof[.]” 12 U.S.C. 5512(b)(1). ECOA and title X of the Dodd-Frank Act are Federal consumer financial laws. Accordingly, the Bureau is exercising its authority under Dodd-Frank Act section 1022(b)(1) to prescribe rules that carry out the purposes and objectives of ECOA and title X and prevent evasion of those laws.

Section 1405(b) of the Dodd-Frank Act provides that, “[n]otwithstanding any other provision of [title XIV of the Dodd-Frank Act], in order to improve consumer awareness and understanding of transactions involving residential mortgage loans through the use of disclosures, the [Bureau] may, by rule, exempt from or modify disclosure requirements, in whole or in part, for any class of residential mortgage loans if the [Bureau] determines that such exemption or modification is in the interest of consumers and in the public interest.” 15 U.S.C. 1601 note. Section 1401 of the Dodd-Frank Act, which amended TILA section 103(cc), 15 U.S.C. 1602(cc), generally defines residential mortgage loan as any consumer credit transaction that is secured by a mortgage on a dwelling or on residential real property that includes a dwelling other than an open-end credit plan or an extension of credit secured by a consumer's interest in a timeshare plan. Notably, the authority granted by section 1405(b) applies to “disclosure requirements” generally, and is not limited to a specific statute or statutes.

V. Section-by-Section Analysis

Section 1002.14 Rules on Providing Copies of Appraisals and Other Written Valuations

Overview

Public comments generally.

Many commenters offered general support for the proposed rule, with some

comments, for example by a large trade association for real estate brokers and agents, offering strong support for its potential to educate and inform consumers about appraisals and other valuations and their role in the real estate transaction. Most of the industry commenters generally supported the proposal and provided numerous suggestions for clarifications or changes to particular elements of the proposal, which are discussed in the corresponding sections below. Some industry commenters including community banks and other lending institutions, however, opposed the proposal. These comments stated, for example, that the mortgage credit industry cannot keep up with the all the regulations being issued under the Dodd-Frank Act and that rules requiring creditors to provide copies of appraisals are already in place.

Discussion.

As discussed above, the Dodd-Frank Act amendments to ECOA section 701(e) will take effect 18 months after the designated transfer date under the Dodd-Frank Act unless final rules implementing section 701(e) are issued on or before that date and provide for a different effective date. For that reason, the Bureau believes that, rather than adding burden to industry, this final regulation will relieve industry of uncertainty and potential liability risk that would likely result from ECOA section 701(e) taking effect without an implementing regulation. Furthermore, by issuing this final rule the Bureau is able to provide industry with additional time to develop new policies, train employees, and make system changes to implement the rule's requirements that would not be available if the statute takes effect in January 2013.

4(d) General Rules on Providing Disclosure in Electronic Form

As discussed in the section-by-section analysis relating to § 1002.14(a)(5), the Bureau is updating the cross-reference in § 1002.4(d) to § 1002.14, to reflect that the new disclosure requirement is cited as § 1002.14(a)(2), rather than § 1002.14(a)(2)(i). This change will ensure that electronic disclosure standards in Regulation B apply to the new notice required by § 1002.14(a)(2) to the same extent as they have applied to the existing notice required by § 1002.14(a)(2)(i) that the new notice will replace.

14(a) Providing Copies of Appraisals and Other Written Valuations

14(a)(1) In General

ECOA section 701(e)(1) requires a creditor to provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. This requirement replaced the previous requirement in section 701(e) to provide copies of appraisal reports upon request of the applicant for a loan secured by a lien on a dwelling. Accordingly, the Bureau proposed to revise § 1002.14(a)(1) in two important ways: to specify the types of materials that must be provided to consumers (i.e., copies of appraisals and other written valuations developed in connection with the application), and to specify the types of transactions for which these copies must be provided (i.e., applications for credit to be secured by a first lien on a dwelling).

First, consistent with new ECOA section 701(e)(1), the Bureau proposed broadening the scope of the valuation materials for which copies must be provided to applicants under § 1002.14(a)(1) to include copies of “all written appraisals and valuations developed.” The Bureau further proposed new comment 14(a)(1)-3 to clarify that for purposes of § 1002.14, a “written” appraisal or other valuation would include, without limitation, an appraisal or valuation received or developed by the creditor in any of the following manners: in paper form (hard copy); electronically, such as by CD or email; or by any other similar media. In addition, the proposed comment would have clarified that creditors should look to § 1002.14(a)(5) regarding the provision of copies of appraisals and other written valuations to applicants via electronic means.

Second, the Dodd-Frank Act amendments to ECOA section 701(e) also narrowed the types of transactions that are covered to “first lien” transactions. Accordingly, the Bureau proposed revising § 1002.14(a)(1) to add the word “first” to narrow the scope of the final rule to cover only loans to be secured by a first lien on a dwelling.

The Bureau also proposed changes to the Regulation B commentary further clarifying the types of transactions subject to the requirement to deliver copies of appraisals and other written valuations. Prior to this final rule, comments 14(a)-1 and 2 had clarified that Regulation B appraisal delivery requirements applied to credit for business purposes and to renewals of credit secured by a dwelling. The Bureau proposed generally retaining these comments (renumbered as comments 14(a)(1)-1 and 2), with several conforming and technical changes. The Bureau proposed comment 14(a)(1)-1 to clarify that § 1002.14(a)(1) covers applications for credit to be secured by a first lien on a dwelling, as the term “dwelling” is defined in § 1002.14(b)(2), whether the credit is business credit (

see

§ 1002.2(g)) or consumer credit (

see

§ 1002.2(h)). The Bureau also proposed comment 14(a)(1)-2 to clarify that § 1002.14(a)(1) applies when an applicant requests the renewal of an existing extension of credit and the creditor develops a new appraisal or other written valuation. Consequently, the Bureau proposed that this comment clarify that § 1002.14(a) does not apply when a creditor uses the appraisals or other valuations that were previously developed in connection with the prior extension of credit in order to evaluate the renewal request.

Public comment.

Many commenters provided suggestions on which types of documents would qualify as appraisals or other written valuations copies of which must be provided to applicants.

A significant number of industry commenters urged the Bureau to require creditors to provide only “final” versions of appraisals and other written valuations, to prevent uncertainty over whether creditors would be required to provide copies of drafts or preliminary versions of these documents. Commenters also suggested this clarification would help to reduce the volume of information that must be provided to and received by applicants, thereby reducing burden on creditors and preventing consumer confusion.

Several industry commenters asked the Bureau to clarify that ECOA only requires providing copies of appraisals or other written valuations that are actually performed. In addition, a few industry commenters suggested that the Bureau require providing copies of only those appraisals and other written valuations that are used or relied upon by the creditor in making the credit decision. This narrower focus was viewed as more in line with the purpose of ECOA. One commenter requested that creditors should not be required to provide a copy of an appraisal or other written valuation that is “materially deficient,” as it could confuse the consumer.

Some industry commenters expressed a general concern over liability risks raised by the proposed requirement to provide copies of appraisals and other written valuations. These commenters suggested that providing these copies to applicants could create liability risks for creditors and preparers. Some creditors and a creditor trade association expressed concern that applicants might view valuations that lenders conduct in-house, without commissioning an appraisal, as warranting the value of the

home. Two creditors and a creditor association in one state expressed concern over the potential for lender liability to carry over to investors under an assignee liability theory, which could reduce access to credit by reducing investor demand. Other industry commenters suggested that applicants might seek to hold an appraiser liable for the applicant's reliance upon the appraisal in entering into a transaction, particularly if the appraiser lists, or is required to list, the applicant as an “intended user” of the appraisal under the Uniform Standards of Professional Appraisal Practices (USPAP). Some of these commenters raised these concerns over potential liability as part of an overall concern with the potential burden of the regulation, and some urged the Bureau to include provisions in the final rule protecting creditors and preparers of appraisals and other valuations against liability.

A number of commenters also urged the Bureau to exclude certain types of transactions from the scope of the final rule. Several industry group commenters requested that the Bureau exempt loan modifications, loss mitigation, short sales, and deed-in-lieu transactions from the rule's requirements altogether. These commenters suggested that these transactions did not involve an “application” by the consumer for an “extension of credit” within the meaning of ECOA. They also argued that applying the rule to loss mitigation and other foreclosure alternatives would increase the costs of these transactions and decrease their availability to consumers. One industry commenter also suggested that the Bureau clarify that a loan modification did not fit within the type of transaction the rule would cover, because a modification does not lead to “consummation” of the loan.

In addition, an industry commenter requested clarification on whether the rule applies to an annual renewal clause under which a creditor makes a unilateral decision each year whether or not to renew a line of credit. Another industry trade association requested that the final rule exclude temporary loans, such as bridge or construction loans, which it argued are treated specially under other statutes such as RESPA and TILA. For construction loans, this commenter also asserted that applicants are more interested in receiving copies of valuations when the permanent financing begins, after the construction is complete and therefore factored into the valuation.

One commenter suggested that the rule should cover second liens to protect consumers in these transactions. This commenter asserted second lien transactions generally carry higher risk than first lien transactions, and therefore are even more worthy of the protections in the rule.

Discussion.

The final rule adopts the language in § 1002.14(a)(1) discussed above as proposed, with a minor clarification. To clarify that an appraisal is intended to be classified as a type of “valuation” under the final rule, and to clarify that the rule applies to written valuations, the final rule uniformly adopts the phrases “appraisals and other written valuations” and “appraisals or other written valuations.” This usage also aligns with the use of the term “valuation” to include appraisals in recent amendments to Regulation Z, § 1026.42(b)(3), to implement section 129E of TILA.

See

75 FR 66554, 66558 (Oct. 28, 2010) (adopting term “valuation”).

To provide guidance on § 1002.14(a)(1), the final rule also adopts comments 14(a)(1)-1 through 3 as proposed, with an additional clarification in comment 14(a)(1)-1 relating to waiver (

see

discussion of waiver further below), and adopts an additional comment 14(a)(1)-7.

Other comments on § 1002.14(a)(1) relate to timing and waiver, and are discussed further below.

The Bureau considered comments seeking clarification that the final rule does not require lenders to conduct appraisals or other written valuations. The Bureau does not believe, however, that this clarification is needed in the final rule or its commentary. On its face, section 701(e) of ECOA requires disclosure of copies of the appraisals and other written valuations that are developed in connection with an application. Neither ECOA section 701(e) nor the final rule requires that lenders must obtain appraisals or other written valuations.

The final rule also retains the language from the proposed rule—“developed in connection with an application for credit”—for determining which appraisals and other written valuations must be disclosed. Prior to the Dodd-Frank Act, ECOA section 701(e) referred to appraisals that were “used” in connection with the application. Had Congress intended to maintain that scope, it could have continued to use that term; instead, Congress referred to appraisals and other valuations that are “developed” in connection with the application, without necessarily requiring that they ultimately be “used.” The Bureau assumes this difference in terms reflects a deliberate wording choice by Congress, and the Bureau does not believe consumer protection will be enhanced by adjusting the statutory terminology. If an appraisal or other written valuation is “developed in connection with” an application, then the applicant may benefit from receiving a copy, even if the creditor does not to use the valuation. Some commenters expressed concern that applicants could mistakenly believe that such a valuation was “used” by the creditor. However, there is nothing in the final rule that prohibits creditors from providing information to applicants concerning whether a particular valuation was used.

Other industry commenters suggested that consumers would not benefit from receiving copies of valuations that were not used, and which may contain errors or even material deficiencies. The statute does not distinguish, however, between valuations that are used and those that are not used.

As noted above, some commenters stated a concern that providing copies of appraisals and other written valuations to applicants could result in liability issues for creditors and preparers of appraisals or other written valuations. Industry commenters noted questions or concerns over whether creditors would be deemed to have warranted home values contained in their internal valuations provided to applicants, and on whether consumers would assert legal claims based upon their reliance on appraisals in deciding whether to enter into transactions. The commenters do not appear to be raising concerns over liability under ECOA section 701(e) itself. On its face, section 701(e) concerns providing copies of certain materials and providing a disclosure. It does not specify the content of valuations or otherwise supply standards regarding what they should contain.

Moreover, ECOA has long required creditors to provide copies of appraisals upon request, and creditors routinely provide copies of appraisals for first lien loans including under GSE requirements. The commenters have not explained how requiring that copies of appraisals and other written valuations be provided as a matter of course increases creditors' exposure to liability under legal standards other than ECOA. In any event, as for legal standards other than those contained in ECOA, it is unclear what authority the Bureau would have to limit remedies arising from a creditor's providing copies of appraisals or other written valuations.

Congress has spelled out the conduct that gives rise to liability under ECOA. 15 U.S.C. 1691e. Creditors that “fail[] to comply with any requirement imposed under [ECOA] shall be liable to the aggrieved applicant.” 15 U.S.C. 1691e(a).

As to whether USPAP will require that appraisals list applicants as intended users of

written appraisal reports, the Bureau believes this is a question that arises under USPAP and not ECOA; thus it is a matter for appraisers to determine pursuant to USPAP, and for the Appraisal Standards Board, which is charged with developing, interpreting, and amending USPAP.

With regard to the types of transactions that are covered by the final rule, the Bureau considered industry comments seeking clarification on whether loss mitigation activities, such as loan modifications, short sales, and deed-in-lieu transactions, are covered. These comments implicate provisions of ECOA and Regulation B that turn on whether there is an “applicant” or “application” for an “extension of credit.”

While some loan modifications can be subject to the provisions of Regulation B,

including the existing § 1002.14 disclosure-upon-request regime, there is variation between different types of loss mitigation programs; the particulars of the program at issue are important to understand in evaluating whether there is an application or applicant for an extension of credit within the meaning of Regulation B. Accordingly, the Bureau believes that questions on coverage of these types of transactions are best addressed with reference to the existing provisions of Regulation B.

To the extent a loss mitigation transaction is covered by Regulation B, the transaction is covered by the final rule, including its requirement of providing copies of appraisals and other written valuations. Consumers generally will benefit from receiving information about the value of their dwelling, both in the context of making a decision about the loss mitigation transaction and also in detecting potential discrimination, consistent with the purposes of ECOA. The Bureau believes these benefits outweigh the cost to the creditor of providing copies of documentation that the creditor already has received. For the reasons discussed in the Bureau's analysis under section 1022(b) below, the Bureau believes the per-loan cost of providing copies of these materials is modest, and they will often be provided in electronic form. The Bureau is therefore not exercising its exception authority to exempt loss mitigation transactions from § 1002.14 if those transactions would otherwise be covered by Regulation B.

See

12 CFR 1002.2(e)-(f), (j) and (q).

In the context of interpreting the requirement of Regulation B that there be a notice of an adverse action on an application, for example, the Federal Reserve Board Consumer Affairs Letter CA 09-13 (Dec. 4, 2009), noted that loan modifications can involve an “application” for an “extension of credit” within the meaning of Regulation B.

See

Consumer Affairs Letter CA 09-13,

Mortgage Loan Modification and Regulation B's Adverse Action Requirement

(2009),

available at http://www.federalreserve.gov/boarddocs/caletters/2009/0913/caltr0913.htm.

The Board determined that certain transactions under the U.S. Department of Treasury's Making Home Affordable Modification Program (HAMP) then in place did involve applications for extension of credit within the meaning of Regulation B. Guidance issued by the Board prior to the transfer of ECOA rulemaking authority to the Bureau will be applied by the Bureau absent further action. 76 FR at 43570 (July 21, 2011).

Similarly, questions about the rule's coverage of temporary loans, such as bridge or construction loans, and renewals of credit, relate to the overall scope of Regulation B. The final rule is not intended to address whether these loans are subject to ECOA in the first place. If a temporary loan or a renewal is subject to ECOA, and an appraisal or other written valuation is developed for that loan, then the applicant has a right to receive a copy under the final rule. This approach is consistent with existing comment 14(a)(1)-2 concerning the application of § 1002.14 to renewals, which is maintained in the final rule.

With respect to the comment suggesting that “consummation” is not necessarily occurring in the loan modification context, the Bureau is not persuaded that this is necessarily the case. The term “consummation” in Regulation Z is defined as the time the consumer becomes “contractually obligated on the credit transaction.” A loan modification can occur contractually, and take effect on a date certain.

While the Bureau has considered the comment that the final rule should apply to second lien transactions because they are higher risk, it is not expanding the scope of the final rule to include second liens because such an expansion would be inconsistent with the plain meaning of section 701(e). The Bureau notes that the Dodd-Frank Act specifically limited the scope of ECOA section 701(e) to “first liens,” while applying the overlapping requirements under section 129H of TILA to certain subordinate lien loans that meet the definition of “higher risk mortgage.” The commenters have not presented data or other specific information warranting a departure from the plain language of ECOA section 701(e).

The final rule maintains comment 14(a)(1)-2, pertaining to credit renewals, with minor changes for consistency and clarity. Comment 14(a)(1)-2 clarifies that creditors must provide copies of appraisals or other written valuations prepared in connection with credit renewals requested by the applicant. Whether an applicant has requested a credit renewal, and when such an application is received for purposes of the timing requirements under § 1002.14(a)(2), depend on the facts and circumstances of an individual transaction. The remaining part of comment 14(a)(1)-2, clarifying that the rule does not apply to the use of an appraisal or other written valuation that was developed for a prior extension of credit, is adopted as proposed. Because the creditor in a prior transaction covered by the final rule would already have been required to provide a copy of an appraisal or other written valuation to the applicant, requiring the creditor in the subsequent transaction to provide another copy of that appraisal or other written valuation would be duplicative.

The Bureau is therefore finalizing comment 14(a)(1)-2 largely as proposed.

To the extent that an appraisal or other written valuation is developed in connection with an application received before January 18, 2014, it would not be subject to the final rule.

In response to industry comments, the Bureau has added new comment 14(a)(1)-7, which clarifies what copies must be provided in the event there are multiple versions of an appraisal or other written valuation. The comment clarifies that, if a creditor receives multiple versions of a particular appraisal or other written valuation, then the creditor is required to provide a copy of only the latest version received by the creditor. (

see also

Freddie Mac,

Appraiser Independence Requirements Frequently Asked Questions, available at http://www.freddiemac.com/singlefamily/appraiser_independence_faq.html#52

(question 52 stating that “[t]he terms `promptly upon completion' and `completed appraisal' refer to when the lender has reviewed and accepted the appraisal to include any changes or corrections required.”).

This guidance is then illustrated by several examples in new comment 14(a)(1)-5 of situations in which the “promptly upon completion” standard would or would not be satisfied. While the “promptly upon completion” standard does not provide the same degree of certainty as a fixed time period, the Bureau believes that the statute specifically contemplates a standard that is flexible.

The Bureau's final rule implements the statutory requirement that copies of valuations be provided promptly upon completion, but not later than three days before consummation. As noted in the 2012 ECOA Appraisals Proposal, the Bureau is interpreting “days” as used in the statute to mean “business days.” The Bureau did not receive comments on this interpretation, and is adopting this standard as proposed.

To ensure applicants actually receive the mandated copies at least three business days prior to consummation or account opening (absent waiver), the final rule includes additional guidance in comment 14(a)(1)-4. Under this comment, “provide”—which is a statutory term in ECOA section 701(e)(4)

that is similar to the term “furnish” in ECOA section 701(e)(1)—is interpreted to mean delivery to the applicant. The comment clarifies that delivery occurs three business days after mailing or delivering the copy to the last-known address of the applicant, or when evidence indicates the applicant actually received the copies, whichever is earlier. The Bureau believes this clarification is consistent with the plain meaning of the applicable terms “furnish” and “provide” in Dodd-Frank Act section 1474. In addition, this approach is generally consistent with the proposed approach to the three-business-day timing requirement in the 2012 TILA-RESPA Proposal.

This clarification also should prevent situations in which the creditor mails copies of appraisals or other written valuations to the applicant three business days before consummation or account opening, and the applicant does not receive these materials until after the consummation or account opening. This clarification thus should ensure that applicants have at least the minimum amount of time contemplated by section 701(e) to review these copies before the transaction is consummated or the account is opened.

ECOA section 701(e)(4) states, in pertinent part, “[T]he creditor shall provide a copy of each written appraisal or valuation at no additional cost to the applicant.”

See

77 FR 51116 at 51313-14, 51427 (Aug. 23, 2012) (proposed § 1026.19(f)(1)(iii) and commentary).

While one commenter requested including the day of consummation in the three-business-day time period that is part of § 1002.14(a)(1), the final rule does not adopt this approach. Under this approach, if a closing were to occur at 9 a.m. on a Friday, copies of the appraisals and other written valuations could be disclosed at 11:59 p.m. on the preceding Wednesday via email. This would leave the consumer with effectively only one day to review the materials, which would be inconsistent with the three-day requirement in the statute.

The waiver provision in § 1002.14(a)(1) is revised to clarify that a waiver applies to both components of the general timing requirement, and not only to one aspect of it. As proposed, the waiver would have applied to only one component of the proposed timing requirement, the requirement that copies be provided three business days before closing. Read literally, the proposed waiver provision would not have applied to the other component of the timing requirement, the requirement that copies be provided “promptly.” As a result, as proposed, applicants would only have been permitted to partially waive the timing requirement.

Upon further consideration, the Bureau interprets section 701(e)(2) to permit consumers to provide a waiver of both components of the timing requirements. Otherwise, the effect of a waiver would be unclear, providing a disincentive for applicants and creditors to avail themselves of this provision, even where a waiver would be in the applicant's interest. Additionally, to the extent that the Bureau's final rule departs from the language of the statute in this regard, the Bureau relies on its authority under section 703(a) to make provisions and adjustments to effectuate the purposes of and facilitate or substantiate compliance with ECOA. The Bureau finds that this adjustment is warranted to ensure creditors' ability to obtain and applicants' ability to provide a valid waiver of the timing requirements of § 1002.14(a)(1).

The Bureau is finalizing the provision in proposed § 1002.14(a)(1) that waiver is permitted “except where otherwise prohibited by law.” No commenters specifically addressed this provision in the proposed rule, which is based upon the statutory language in ECOA section 701(e)(2). The Bureau continues to believe this limitation is important to clarify that other provisions of law may not permit waiver. For example, the 2013 Interagency Appraisals Final Rule under TILA section 129H does not provide for a waiver of the timing requirement for providing copies of written appraisals no later than three business days before consummation.

With respect to the form of the waiver, the Bureau is finalizing in renumbered comment 14(a)(1)-6 the provision in proposed comment 14(a)(1)-4 allowing for an affirmative oral or written statement.

A more prescriptive, rigid, or specific set of requirements as to the form of the waiver could unduly restrict the applicant's ability to exercise the waiver right. By allowing for an affirmative oral or written waiver, the final rule is designed to allow creditors to apply existing practices such as the standards for waiver of the appraisal copy requirement under the Appraisal Independence Requirements applied by certain GSEs.

If the waiver resulted in

an applicant not receiving an appraisal or other written valuation at all or until after consummation or account opening, a more prescriptive approach might be warranted. Under the final rule, however, even if the waiver is obtained, creditors are still required to provide the required copies at or before consummation or account opening.

Where there are multiple applicants, the final rule adopts the proposed approach of allowing one applicant to waive the timing requirement. This approach is consistent with the 2013 Interagency Appraisals Final Rule being adopted under section 129H of TILA. Comment 14(a)-1 is revised to clarify that the waiver must be provided by the primary applicant where one is readily apparent. This change is designed to ensure that in multiple applicant transactions, the individual providing the waiver generally is the same individual who would be receiving the documents.

See

Fannie Mae,

Appraiser Independence Requirements Frequently Asked Questions

(Nov. 2010) (question 45 stating that Fannie Mae “does not specify what form the waiver must take or whether it be oral or written. In addition, [the Appraiser Independence Requirements standard] does not prohibit that a waiver, given in a timely manner, be recorded at some later point when the parties are available. … For example, a lender may obtain a waiver from a borrower through an email, phone call, or some other means, prior to the three-day period, and then have that waiver recorded in writing at the settlement table or at some other

time.”);

see also

Freddie Mac,

Appraiser Independence Requirements Frequently Asked Questions,

Questions 45-46.

With respect to when the waiver must be provided, § 1002.14(a)(1) is revised in the final rule. ECOA section 701(e) is silent on when the waiver must be provided. As noted above, several industry commenters asked the Bureau to provide more guidance on how waivers can occur. The Bureau believes that further clarity on when applicants can provide waivers is important. Under § 1002.14(a)(1) in the final rule, as further clarified in comment 14(a)(1)-6, waivers can be provided in either of two situations: generally before three business days of consummation or account opening,

or within three business days of consummation or account opening if certain conditions are met.

See

Freddie Mac,

Appraiser Independence Requirements Frequently Asked Questions

(question 43 stating that “[i]f the borrower waives the requirement the waiver must be obtained three days prior to the closing of the mortgage.”);

see also

Fannie Mae,

Appraiser Independence Requirements Frequently Asked Questions

(Nov. 2010) (question 45 stating that “[s]ituations in which a borrower is unaware of his or her right to a copy of the appraisal prior to the three days and is then provided a waiver of that right at the closing table would not be compliant with the intent of [the Appraiser Independence Requirements]”).

The Bureau believes that, in general, requests for waivers should not be presented to consumers less than three business days before consummation or account opening. Permitting such requests would, in the Bureau's view, present a risk that consumers would feel unduly pressured to provide waivers in order to avoid delays in closing and that creditors could use such waivers to cure previous violations of the rule's timing requirements. The Bureau is adopting in § 1002.14(a)(1) an exception to this general rule, however, governing treatment of waivers pertaining to copies of appraisals or other written valuations containing correction of clerical errors in previously-provided copies.

Section 1002.14(a)(1) and the associated comment 14(a)(1)-6.ii therefore clarifies that an applicant can provide a waiver within three business days of consummation or account opening in the following circumstance: the creditor receives a revised version of an appraisal or other written valuation that the applicant already received three business days before consummation or account opening. The option to provide a waiver in this situation would only apply, though, if each of the following criteria are met: (1) The revisions are solely to correct clerical errors in that appraisal or other written valuation; (2) the revisions have no impact on the estimated value; (3) the revisions have no impact on the calculation or methodology used to derive the estimate; and (4) the applicant receives the copy of the revised appraisal or other written valuation at or prior to consummation or account opening. The Bureau believes this approach strikes an appropriate balance by allowing consumers to exercise their waiver right to avoid delays in closing due to last-minute, purely clerical corrections in appraisals and other written valuations.

This approach also is supported by other mortgage regulations that allow for technical revisions of materials otherwise due to the consumer prior to consummation.

See, e.g.,

RESPA Regulation X, § 1024.8(c), providing an exception for the timing of a disclosure of a HUD-1 settlement statement which makes a technical correction;

see also

the Bureau's 2012 TILA-RESPA Proposal, proposed § 1026.19(f)(2)(iv), which would provide an exception for the timing of a disclosure due to clerical errors, and proposed comment 19(f)(2)(iv)-1 (clarifying that “an error is clerical if it does not affect a numerical disclosure”).

Finally, the Bureau is adding language to § 1002.14(a)(1) to clarify the timing requirement in situations where the applicant has provided a waiver, but no consummation or account opening occurs. In that instance, the copy must be provided no later than 30 days after the creditor determines the transaction will not be consummated or the account will not be opened. In the absence of a statutory timeframe applicable to this situation, the Bureau is exercising its authority under ECOA section 703(a) to adopt a reasonable period for providing copies. The Bureau believes that providing a clear rule will reduce compliance burden and risks for creditors, while ensuring that consumers receive copies in a timely fashion. Additionally, the timeframe adopted uses familiar timeframes from longstanding timing requirements for providing copies of appraisals under existing § 1002.14(a)(2)(ii).

Tying this timing requirement to a different point in time, such as receipt of an appraisal or other written valuation, could result in creditors who have received waivers not being able to comply when more than 30 days elapse between receipt and a decision not to consummate the transaction or open the account.

Delivery of Copies of Appraisals and Other Written Valuations

Section 1474 of the Dodd-Frank Act amended ECOA section 701(e) to mandate that creditors provide copies of appraisals and other written valuations regardless of whether the consumer affirmatively requests such copies. Accordingly, the Bureau proposed to remove current § 1002.14(a)(1) and (2), which permitted creditors to choose between the “routine delivery” and “delivery upon request” methods of complying with the requirements of § 1002.14. Further, proposed comment 14(a)(1)-1 clarified that if there is more than one applicant, the disclosure about appraisals and the provision of copies of appraisals need only be given to one applicant, but they must be given to the primary applicant where one is readily apparent.

Public comments.

An appraisal group commenter suggested that the rule should require providing copies to all applicants in a multi-applicant transaction, if consent has been given to provide the copies by electronic means. Another industry commenter requested clarification of whether delivery can be made to the same address for multiple applicants. Finally an industry commenter asked whether delivery can be made to the last-known address.

Discussion.

With respect to whether copies of appraisals and other written valuations can be sent to the last known address, new comment 14(a)(1)-4 provides that copies of appraisals and other written valuations are deemed “provided” three days after they are mailed to the last known address of the applicant.

see also

U.S. Gov't Accountability Office, GAO-12-147,

Real Estate Appraisals: Appraisal Subcommittee Needs to Improve Monitoring Procedures,

at 39 (2012).

The Bureau proposed that comment 14(a)(3)-2 clarify that § 1002.14(a)(3) would not prohibit the creditor from charging a fee reasonably designed to reimburse costs incurred in connection with obtaining appraisal and other valuations services, but would not permit increasing the fee for the appraisal or other valuation to cover costs of providing documentation under § 1002.14. As stated in the proposal, the Bureau believed that ECOA section 701(e)(3) and (4) did not call for more prescriptive rate regulation of valuation-related activities. By contrast, section 1472 of the Dodd-Frank Act created TILA section 129E, which specifically imposes a criterion for appraiser fees—that they be “reasonable and customary” in the market area where the property is located—and specified various sources for determining whether fees meet the standard. The Bureau therefore stated that it did not believe that Congress intended ECOA section 701, which focuses on the provision of copies of written valuation documents to loan applicants rather than the substantive performance of appraisal and other valuation services, to function in such a manner. Accordingly, the Bureau stated that it believed that section 701(e)(3) and (4) is simply designed to prevent direct or indirect “upcharging” related to the provision of documents that is the focus of this section of the statute.

To clarify the statutory language stating that creditors cannot seek reimbursement for the cost of the appraisal “where otherwise required in law,” the Bureau also proposed that comment 14(a)(3)-2 note that other laws may separately prohibit creditors from charging fees to reimburse the costs of appraisals, and are not overridden by section 701(e)(3). For instance, section 1471 of the Dodd-Frank Act requires creditors to obtain a second interior appraisal in connection with certain higher-risk mortgages, but prohibits creditors from charging applicants for the cost of the second appraisal. TILA section 129H(b)(2)(B), 15 U.S.C. 1639h(b)(2)(B).

The Bureau proposed comment 14(a)(3)-1 to provide examples of the specific types of charges that are prohibited under the regulation, such as photocopying fees and postage for mailing a copy of appraisals or other written valuations. In addition, comment 14(a)(3)-2 was proposed to clarify that § 1002.14(a)(3) does not prohibit creditors from imposing fees that are reasonably designed to reimburse the creditor for costs incurred in connection with obtaining actual appraisal or other valuation services, so long they are not increased to cover the costs of providing copies required under § 1002.14(a)(1).

Public comment.

Several commenters addressed proposed § 1002.14(a)(3). These comments generally addressed the following two aspects of § 1002.14(a)(3): the proposed provision relating to reasonable fees charged to reimburse costs of appraisals and other valuations, and the provision prohibiting charges for the costs of providing copies of appraisals and other valuations to applicants.

No commenters opposed the proposal to allow creditors to charge reasonable fees for appraisals and other valuations unless otherwise provided by law. One industry commenter requested that the rule explicitly allow the fee to cover costs charged by appraisal management companies (AMCs), which can be either a component of or supplemental to the cost of the appraisal. This commenter argued that Congress did not intend to prohibit AMC fees in the Dodd-Frank Act, as it specifically provided for their disclosure in the settlement statement pursuant to RESPA section 4(c). 12 U.S.C. 2603(c). Another industry commenter suggested that the final rule interpret “reasonable fee” to mean a fee that was disclosed and agreed to by the applicant. A different industry commenter requested additional clarification on what could not be charged under this provision.

An appraisal industry commenter objected to certain language in the Bureau's preamble, including the statement that appraisals could involve “needless cost” in certain transactions where other valuations could be used, and to the statement that broker price opinions and automated valuation models are “equally appropriate” for some transactions.

In addition, several industry commenters requested that the rule allow creditors to withhold copies of the appraisals and other valuations if the borrower did not pay the permitted fees to reimburse the cost of appraisals and other valuations. Some commenters noted this type of exception would be particularly important in transactions where the application is withdrawn, incomplete, or denied. One commenter also requested that disclosure required under section 14(a)(2) inform the consumer of the ability of the creditor to withhold these copies.

Industry commenters were generally supportive of the proposed prohibition on charges for providing copies of appraisals and other written valuations. While a large internet lender specifically agreed with the proposed prohibition, a few lending institutions objected to the proposed prohibition on the grounds that it would force them to absorb additional costs. Because proposed § 1002.14(a)(3) and comment 14(a)(3)-1 referred to a prohibition on charges for providing “a copy,” several industry commenters suggested this could be read as prohibiting charges for providing duplicate or additional copies. These commenters therefore requested that the final rule clarify that creditors could charge for subsequent copies of appraisals and other written valuations. A large industry trade association also noted a concern over whether the prohibition against charging for copies of appraisals and other written valuations would prohibit indirect recovery of these costs.

Discussion.

Section 1002.14(a)(3) in the final rule and associated commentary are generally adopted as proposed, with some minor clarifications as discussed below.

As in the proposal, § 1002.14(a)(3) in the final rule clarifies that charges for valuations are not prohibited by section 701(e)(3) of ECOA. No commenters addressed this provision in the proposal. As noted in the proposal, in adopting this provision in the final rule, the Bureau relies to the extent necessary on its authority to make adjustments under section 703(a) of ECOA. Such an adjustment would facilitate compliance with ECOA and prevent circumvention, and also would effectuate the purposes of ECOA. Otherwise, ECOA section 701(e)(3) might be interpreted as distinguishing between one type of valuation (an “appraisal”) whose cost may be reimbursed by applicants, and all other types of valuations whose cost may not be reimbursed by the applicant. Yet the definition of “valuation” in section 701(e)(6) of ECOA refers broadly to “any estimate of the value of a dwelling,” without distinguishing between these types of valuations. Under such an interpretation, the Bureau would need to provide guidance on how to distinguish between appraisal and non-appraisal valuations; without such guidance, creditors could deliberately or inadvertently mischaracterize non-appraisal valuations as appraisals to recover their cost, or creditors may avoid valuations altogether to avoid incurring unrecoverable costs. Additionally, as noted in the proposal, a distinction between the ability to recover costs for appraisals versus other types of valuations could discourage creditors from using less costly forms of valuations, especially in smaller dollar-amount transactions. For example, Federal banking regulations do not require federally-insured financial institutions to obtain an appraisal in low-risk real estate-related financial transactions in which the transaction value is $250,000 or less.

It is not the purpose of ECOA section 701(e) to encourage one type of valuation over another; its purpose is to inform the consumer of the basis for the credit decision. Thus the adjustment in § 1002.14(a)(3) will ensure the final rule adheres more closely to the purpose of ECOA as well.

See, e.g.,

12 CFR 323.3(a)(1) exempting real estate-related financial transactions with a transaction value of less than $250,000 from the FDIC's rule requiring FDIC-insured institutions to obtain an appraisal performed by a State certified or licensed appraiser for all real estate-related financial transactions.

At the same time, comment 14(a)(3)-2 in the final rule clarifies that in allowing reasonable fees to reimburse

the cost of appraisals and other valuations, § 1002.14(a)(3) is not intended to create a legal obligation of the applicant to pay these fees. As noted above, one commenter suggested a link between the concept of a “reasonable fee,” and whether the fee was disclosed and agreed to by the consumer. While the Bureau does not believe that the term “reasonable fee” could be equated in all cases with fees disclosed to and agreed by the applicant, the commenter highlights the relevance of the applicant's agreement to pay the fee. Whether the legal obligation to pay the fee exists is a matter arising under other laws, including without limitation contract law, however. Other laws also may limit the ability to recover these fees, as indicated by the phrase “unless otherwise provided by law” in § 1002.14(a)(3).

With respect to proposed § 1002.14(a)(3) more broadly, the comment suggesting the word “reimbursement” be used more consistently left unclear exactly how it would suggest the term be used.

These other laws may include requirements applicable to estimates of loan fees provided at the time of application, limitations on changes to these fees in certain circumstances, prohibitions against charging for second appraisals in higher-risk-mortgage transactions involving “flipping,” and prohibitions against unfair, deceptive, and abusive acts and practices under applicable law. While one commenter requested additional clarification of what charges are prohibited by § 1002.14(a)(3), the Bureau believes that the phrase “otherwise provided by law” is intended to be open-ended, and calls for creditors to consider applicable laws when setting their fees. As noted in the proposal, the Bureau does not believe that ECOA section 701(e) calls for rate regulations.

In response to the comment seeking clarification that § 1002.14(a)(3) does not limit the recoverability of AMC charges, the Bureau recognizes that the Dodd-Frank Act did not intend to prohibit recovery of AMC fees. As the commenter noted, RESPA section 4(c) allows but does not require creditors to break out the AMC fees on the settlement statement from the fees paid directly to the appraiser. The commenter suggests that recoverability of AMC fees was left in doubt by the proposed comment 14(a)(3)-2, referring to fees “reasonably designed” to reimburse creditor costs incurred “in connection with obtaining” appraisal and other valuation services. To clarify, the Bureau is revising comment 14(a)(3)-2 so its language more closely tracks ECOA section 701(e) (which refers to “reasonable fees” to reimburse appraisal costs, rather than fees that are

“reasonably designed” for this purpose) and to specifically indicate that section 14(a)(3) is not intended to prohibit recovery of AMC fees.

The final rule also adopts the prohibition in proposed § 1002.14(a)(3) against charging for providing a copy of an appraisal or other written valuation “as required under the final rule.” While industry commenters raised a question of whether creditors could charge for providing additional copies of the same appraisal or other written valuation, such as when the applicant requests them, the Bureau does not believe that the regulation is unclear on this point. The final rule, in § 1002.14(a)(1), requires only that the creditor provide “a copy” of each appraisal or other written valuation. The prohibition against charging for copies only applies to copies that are “required under the final rule.” Because the final rule does not require that creditors provide more than one copy, there is no suggestion in the final rule that creditors are prohibited from charging for duplicates or additional copies. If they do provide additional duplicate copies, it would not be pursuant to a requirement in the rule. The Bureau also does not believe the rule requires, as one commenter suggested, the tracking of mailing or copying costs and even their refund to the consumer to ensure they are not included in the interest rate previously set.

As noted in comment 14(a)(3)-2, the prohibition against charging for copies is designed to prevent an increase of charges within a specific transaction based upon the copies that must be provided. Thus a creditor would be prohibited from imposing a line-item fee for providing copies, or from adjusting other line item fees based upon the copies that are provided (for example, increasing the points and fees in the closing statement above the amount specified in the loan estimate to account for costs of copies that are being provided).

To fully implement the prohibition in § 1002.14(a)(3) against charging for providing a copy of an appraisal or other written valuation, the Bureau also is amending the commentary to sample disclosure form C-9. Comment Appendix C-1-ii is revised to remove the suggestion that a creditor may add text to the disclosure notifying the applicant of the cost the applicant will be required to pay for a copy of the report.

The Bureau declines to add an exception in the final rule to the requirement to provide copies of appraisals and other written valuations where the applicant has not paid the fee for the appraisal or other written valuation. Section 1002.14(a)(2)(ii) of Regulation B currently calls for providing the copy after receipt of the request, the report, or reimbursement for the report, “whichever is last to occur.” As proposed, § 1002.14(a)(2) would no longer have based the timing of disclosure upon the receipt of payment. The Bureau believes this approach is consistent with the language of ECOA section 701(e) as amended. The statutory timing requirement concerning providing copies contains no reference to receipt of reimbursement for the valuation from the applicant. Moreover, ECOA section 701(e)(4) specifically states that “notwithstanding” the creditor's ability to charge a reasonable fee to reimburse the creditor's appraisal costs, the creditor “shall provide” the copy at no additional cost. The Bureau does not believe that conditioning the creditor's obligation to provide copies at no additional cost on the applicant's reimbursement of the costs of the appraisal or other written valuation would be consistent with legislative intent as expressed in ECOA section 701.

The Bureau understands the need for creditors to manage payment risks. The final rule does not affect the ability of creditors to request up-front payment from applicants before appraisals or other written valuations are ordered (which would protect creditors even if the application is withdrawn, incomplete, or denied), to collect payment at consummation or account opening, or to undertake other efforts to collect the fee if the transaction is not consummated or the account is not opened. The Bureau therefore declines to adopt this exception suggested by comments it received.

14(a)(4) Withdrawn, Denied, or Incomplete Applications

ECOA section 701(e)(1) requires providing copies of the appraisals or other written valuations “whether the creditor grants or denies the applicant's request for credit or the application is incomplete or withdrawn.” The Bureau therefore proposed in § 1002.14(a)(4) that the requirements of § 1002.14(a)(1) also apply whether credit is extended or denied or if the application is incomplete or withdrawn. Specifically, creditors would be required to provide copies of appraisals and other written valuations even in situations where an applicant provides only an incomplete application.

Public comments.

Two national associations of creditors suggested that the Bureau use its adjustment authority under ECOA to eliminate the statutory requirement to provide copies of appraisals and other written valuations where an applicant withdraws from the application process before indicating an intent to proceed. These commenters argued that the valuation is not relevant to the withdrawing applicant, and providing a copy would impose an unnecessary cost.

Discussion.

Dodd-Frank Act section 1474 amended ECOA section 701(e) to require providing copies of appraisals and other written valuations even in cases where the application is withdrawn. The statute did not distinguish between withdrawals that occur before or after declaring an intent to proceed with the transaction. While the commenter suggested the Bureau should exercise its exception authority in cases in which the application is withdrawn before the applicant expresses an intent to proceed, the Bureau is not persuaded there is a basis for doing so here. The “intent to proceed” standard governs whether fees can be charged to applicants under Regulation X, which implements RESPA, and not when applicants have a protected interest against discrimination under ECOA. The Bureau does not believe that the purpose of ECOA in preventing, detecting, and remedying discrimination would be served by providing such an exception. Under Regulation X, § 1024.7(a)(4), the intent to proceed comes after the applicant has received a good faith estimate (or a revised good faith estimate), which quotes loan terms to applicants and which could be based upon an appraisal or other written valuation. Indeed, in some cases the very reason that the consumer elects to withdraw the application may be the result of what the lender has said or done in response to the appraisal or other valuation, for example by changing the interest rate based on a lower-than-expected loan to value ratio. Therefore the text of § 1002.14(a)(4) is adopted as proposed.

14(a)(5) Copies in Electronic Form

The Bureau believes that it is appropriate to allow creditors to provide applicants with copies of appraisals and other written valuations in electronic form if the applicant consents to receiving the copies in such form. Accordingly, the Bureau proposed that § 1002.14(a)(5) permit copies of appraisals and other written valuations required by § 1002.14(a)(1) to be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001

et seq.

As noted in the proposal, § 1002.4(d)(2) of Regulation B currently provides that the disclosures

required to be provided in writing by Regulation B may be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the E-Sign Act. While § 1002.4(d)(2) refers to written “disclosures”, the E-Sign Act also applies more broadly to “information relating to a transaction” that is required to be made available in writing. 15 U.S.C. 7001(c)(1). Thus the proposal sought to clarify that the requirements of the E-Sign Act also would apply to providing copies of appraisals and other written valuations.

Public comments.

Several industry commenters supported the option of consent-based electronic delivery. Two lenders suggested the E-Sign Act consent process is burdensome, and should not be required; one industry commenter suggested that the E-Sign Act consent process is important, however.

Discussion.

The Bureau believes that application of the E-Sign Act to the electronic disclosure of copies of appraisals and other written valuations is appropriate, and the final rule maintains this condition. While one commenter noted that the appraisal is not a contract document, Section 101(a) of the E-Sign Act governing electronic signatures in contracts is not the provision at issue here. Rather, Section 101(c) of the E-Sign Act, 15 U.S.C. 7001(c), governs consent for provision of consumer disclosures by electronic means. The commenter therefore has not articulated a basis for treating copies of appraisals and other written valuations as falling outside the scope of Section 101(c). In any event, however, applying the E-Sign Act requirements to provision of copies of appraisals and other written valuations by electronic means would not force creditors to institute E-Sign Act compliance procedures. Creditors could simply choose not to provide the copies by electronic means.

The Bureau also notes that because the disclosure required by § 1002.14(a)(2) is a written disclosure required by Regulation B, § 1002.4(d)(2) will permit that disclosure to be provided electronically based upon a consent given in compliance with the E-Sign Act. There is no need to restate this point in a separate provision within § 1002.14. As discussed at the beginning of the section-by-section analysis above, the Bureau is revising the electronic disclosure provision in § 1002.4(d)(2), however, to ensure its exception can apply to the new notice required by § 1002.14(a)(2) of the final rule, which replaces the consumer notice required by existing § 1002.14(a)(2)(i). While this change was not proposed in the proposal, this revision is necessary to maintain the consistency of cross-references in Regulation B and its existing approach to electronic disclosure of the consumer notice required under § 1002.14. In particular, existing § 1002.4(d)(2) allows the creditor to provide written disclosures required by certain specified provisions of existing Regulation B, including existing § 1002.14(a)(2)(i), electronically without regard to consumer consent or provisions of the E-Sign Act, if the disclosure “accompan[ies] an application accessed by the applicant in electronic form.” The Bureau believes this cross-reference in § 1002.4(d)(2) to the notice requirement in § 1002.14(a)(2) should be maintained, for the same reasons the Board did not apply the E-Sign Act requirements to disclosures provided with the application.

In addition, creditors could choose to provide the notice as an accompanying disclosure with the application, which would, by definition, be provided within three business days of the application as required by this final rule.

Therefore, the cross-reference is being updated to reflect the citation to the disclosure provision in the final rule, § 1002.14(a)(2).

The Bureau notes that the Board adopted this exception to the requirements of the E-Sign Act for certain disclosures required in Regulation B in amendments to provide guidance on electronic delivery of disclosures. For the same reasons that the Board cited, the Bureau believes that permitting the disclosure required in § 1002.14(a)(2) to be provided without regard to the consumer consent or other provisions of the E-Sign Act when the disclosure accompanies an application the consumer accesses electronically eliminates a “a potential significant burden on electronic commerce without increasing the risk of harm to consumers.” 72 FR 63445, 63448 (Nov. 9, 2007).

This option would not necessarily be available for all transactions. For example, if the 2012 TILA-RESPA Proposal is finalized as proposed, the appraisal notice will be required to be included in the integrated TILA-RESPA Loan Estimate. The exception under § 1002.4(d)(2) would not be triggered by a Loan Estimate disclosed after the application, rather than accompanying the application.

Removal of Exemption for Credit Unions

The Board's 1993 Final Rule on Providing Appraisal Reports (1993 Final Rule) provided in § 1002.14(b) that credit unions were exempt from the requirements in § 1002.14(a) to provide copies of appraisals upon request, if not provided routinely.

See

58 FR 65657, 65660 (Dec. 16, 1993). In the 1993 Final Rule, the Board pointed to pre-existing NCUA regulations, and how they already required credit unions to provide copies of appraisals upon request.

The Board also cited the legislative history of the 1991 ECOA amendments, which indicated Congress was aware of these pre-existing regulations and thus did not intend to modify them.

Accordingly, the Board found it unnecessary to require under Regulation B what the NCUA already required under its own regulations.

See

12 CFR 701.31(c)(5), which currently provides:

Each Federal credit union shall make available, to any requesting member/applicant, a copy of the appraisal used in connection with that member's real estate-related loan application. The appraisal shall be available for a period of 25 months after the applicant has received notice from the Federal credit union of the action taken by the Federal credit union on the real estate-related loan application.

S. Rept. 167, 102nd Cong., at 90 (1991). The Senate Report stated as follows: “Regulations by the National Credit Union Administration (NCUA) currently require credit unions to make appraisals available without regard to who has paid for the appraisal;[] test[sic] this legislation is not intended to modify those NCUA regulations. Neither is the legislation intended to affect the current custom of many lenders routinely to provide copies of appraisal reports.”

Under today's version of the NCUA regulation, 12 CFR 701.31(c)(5), Federal credit unions are still required to make available to any requesting member/applicant a copy of the appraisal used in connection with that member's real estate-related loan application. However, as described above, the Dodd-Frank Act amendments to ECOA removed the prior provisions of section 701(e) and replaced them with requirements that were significantly broader in scope. Unlike the prior provisions of section 701(e), section 701(e) as amended requires creditors to provide copies of all valuations, and not only appraisals; section 701(e) also requires that creditors provide these copies automatically, rather than allowing them to be provided upon request. Thus amended section 701(e) guarantees that applicants will receive copies of valuations that are performed, including non-appraisal valuations, and regardless of whether applicants specifically request the copies. In addition, neither section 1474 of the Dodd-Frank Act nor its legislative history refers to an exception for credit unions subject to, and complying with, the provisions of the NCUA regulations relating to making appraisals available upon request. Accordingly, the Bureau proposed deleting the exemption for credit unions provided in § 1002.14(b).

Public comment.

Most credit union commenters urged the Bureau to maintain the exemption for credit unions, suggesting, for example, that the existing rule (requiring disclosure on request) be maintained and that credit unions did not need to be covered by the new rule because they were not a cause of the financial crisis that the Dodd-Frank Act was intended to address. One of the commenters argued that the Bureau should maintain the

exemption in order to allow the NCUA to amend its regulations to conform to section 701(e) of ECOA. Some of these commenters suggested the proposed rule would be burdensome, particularly when viewed in combination with the other rules being implemented under the Dodd-Frank Act. One credit union stated, however, that it understood the Bureau's proposed rationale for removing the exemption in Regulation B. An appraisal industry commenter also stated that it supported removing the exemption.

Discussion.

As noted in the proposal, Congress did not exclude credit unions from the requirements of ECOA section 701(e), and the legislative history of the Dodd-Frank Act did not suggest Congress intended to exclude credit unions, unlike when Congress adopted the previous version of section 701(e) in 1991. Moreover, even assuming credit unions may have had a lesser role in precipitating the financial crisis to which the Dodd-Frank Act responded, the purposes of ECOA include preventing and remedying unlawful discrimination in credit transactions. By including the requirement to provide copies of appraisals and other written valuations in ECOA, Congress made the judgment that enhanced transparency of appraisals and other written valuations would further these purposes. In addition, applicants to credit unions have an equal interest in the protection and remedies afforded by ECOA as applicants to other creditors. Failure to apply the rule to credit unions would result in applicants to these creditors not having the same guarantees of receiving copies of appraisals and other written valuations promptly (regardless of whether they request them), or of receiving copies of non-appraisal valuations at all. In addition, the Bureau is not persuaded by the comments that the final rule implementing section 701(e) would impose a significant additional burden on creditors, as credit union commenters did not establish that credit unions do not follow the general industry practice of providing copies of appraisals to applicants in first lien transactions.

The Bureau therefore is not persuaded that the standards for exercising its exception authority are met, whether under section 703(a) of ECOA to effectuate the purposes of, or foster compliance with, ECOA or under section 1405(b) of the Dodd-Frank Act to protect the interests of consumers and the public.

Accordingly, the final rule does not include an exemption for credit unions.

The Bureau also does not believe that the final rule implementing section 701(e) affects the ability of credit unions to comply with the existing NCUA regulations at 12 CFR 701.31(c)(5). Credit unions that comply with the final rule requiring disclosure of appraisals and other valuations to applicants also would be able to comply with existing NCUA regulations by maintaining appraisals on file for the specified time period for provision upon request.

Despite commenter suggestions that the Bureau could wait to see if NCUA adopted its own rule, the Dodd-Frank Act does not suggest it is the responsibility of NCUA to issue such a rule under ECOA, backed by the remedies which ECOA provides. Section 1085 of the Dodd-Frank Act amended ECOA to transfer ECOA rulemaking authority (including authority under ECOA section 701(e)) to the Bureau. Section 1061 of the Dodd-Frank Act also transferred consumer financial protection functions of the NCUA to the Bureau. In any event, if the NCUA were to amend its rules in a manner consistent with section 701(e), the Bureau would review that regulation and consider any consequences that regulation could have on the application of this final rule to credit unions.

14(b) Definitions

As discussed below, the Bureau proposed to define three terms in § 1002.14(b). The Bureau also requested comment on whether there are additional terms that should be defined for purposes of this rule and how best to define those terms in a manner consistent with ECOA section 701(e).

14(b)(1) Consummation

As discussed above, for clarity and to be consistent with other similar regulatory requirements under TILA and RESPA, the Bureau proposed that § 1002.14(a)(1) use the term “consummation” in place of the statutory term “closing.” The Bureau proposed to define the term “consummation” in § 1002.14(b)(1) as the time that a consumer becomes contractually obligated on a credit transaction. This definition mirrors the definition of the term provided in § 1026.2(a)(13) of Regulation Z.

The Bureau also proposed two comments to clarify the meaning of the term “consummation.” First, comment 14(b)(1)-1 was proposed to clarify that the question of when a contractual obligation on the consumer's part is created is a matter to be determined under applicable law; proposed § 1002.14 does not make this determination. A contractual commitment agreement, for example, that under applicable law binds the consumer to the credit terms would be consummation. Consummation, however, does not occur merely because the consumer has made some financial investment in the transaction (for example, by paying a nonrefundable fee) unless, of course, applicable law holds otherwise. Second, comment 14(b)(1)-2 was proposed to clarify that consummation does not occur when the consumer becomes contractually committed to a sale transaction, unless the consumer also becomes legally obligated to accept a particular credit arrangement.

Public comments.

The Bureau received very few comments on this definition. One industry commenter suggested the term would be confusing in the case of a rescindable transaction, and also queried whether consummation would occur when the lender issues a loan commitment. One commenter suggested the term is not plain English.

Discussion.

The lack of industry comments on use of the term “consummation” suggests that industry is familiar with the meaning of the term. Consummation is a term that is defined elsewhere in regulations and used throughout mortgage regulations. The Bureau believes it is appropriate to use here for consistency and precision for closed-end transactions, and that given its common usage confusion is unlikely.

In any event, for clarity, this final rule adopts the proposed comments 14(b)(1)-1 and 2 clarifying the meaning of “consummation;” this guidance mirrors longstanding guidance in Regulation Z.

Accordingly, the final rule thus maintains the definition of the term “consummation” as proposed.

Section 3(2)(C) of the Plain Writing Act of 2010 excludes regulations from the scope of its requirements. In any event, the term “consummation” need not be included in the disclosure applicants will receive under § 1002.14(a)(2) and is not included in the sample disclosure.

The Bureau also does not agree with the comment suggesting that consummation could occur at the end of the rescission period. TILA specifically defines its rescission right as arising “following the consummation of the transaction,” 15 U.S.C. 1635(a), such that the existence of a rescission period after consummation under TILA would not affect the pre-consummation timing standards in this final rule.

14(b)(2) Dwelling

The Bureau proposed that § 1002.14(b)(2) retain the definition of the term “dwelling” in current § 1002.14(c). Specifically, § 1002.14(b)(2) proposed to define the term “dwelling” as a residential structure that contains one to four units whether or not that structure is attached to real property, and including but not limited to an individual condominium or cooperative unit, and a mobile or other manufactured home.

Public comment.

Industry commenters asked the Bureau to clarify several aspects of the definition of “dwelling.” For example, several commenters asked the Bureau to clarify in the final rule whether the definition of “dwelling” refers only to an owner-occupied dwelling, or to any residential

dwelling regardless of the applicant's residence in the building. Several commenters in the manufactured housing industry also requested that the definition of “dwelling” exclude residential structures that are not attached to the real property, such as recreational vehicles and house boats, as well as manufactured homes when titled as chattel. Further, some industry commenter asked for clarification on whether the rule applies to commercial transactions. Some of these comments requested that the final rule exclude commercial transactions even when they involve a first lien on a dwelling. One commenter argued, however, that covering commercial transactions would promote education, knowledge, and creditor safety and soundness by ensuring applicants are aware of the appraisals and other valuations on which the credit decisions are based. In addition, some industry commenters requested clarification on whether the final rule would cover certain multiple residence situations involving a single lot, such as three four-unit buildings situated on a single land parcel and operated as one small 12-unit apartment complex. Finally, one commenter suggested the definition of “dwelling” be harmonized with the definition in Regulation C promulgated under the Home Mortgage Disclosure Act (HMDA), which is not limited to one-to-four-family structures, while another commenter suggested the definition be limited to single-family housing.

Discussion.

The final rule does not exclude business credit when it is secured by a first lien on a dwelling because business credit is covered by ECOA and Regulation B. ECOA section 701(e) applies to a “creditor”, a term that ECOA section 702(e) defines by reference to the term “credit” in section 702(d). Section 702(d) of ECOA does not limit the term “credit” to credit for personal, family, or household purposes, and Regulation B has long interpreted “credit” to include personal and “business credit.”

See

comment 1002.2(j)-1 (discussing definition of “credit” in § 1002.2(j));

§ 1002.2(g) (definition of “business credit”).

Thus, the final rule covers applications for business credit to be secured by a first lien on a dwelling.

The comme

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