[Federal Register Volume 75, Number 185 (Friday, September 24, 2010)]
[Rules and Regulations]
[Pages 58489-58504]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-20664]
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FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Docket No. R-1378]
Regulation Z; Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule; official staff commentary.
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SUMMARY: The Board is publishing final rules amending Regulation Z
(Truth in Lending). The final rule implements Section 131(g) of the
Truth in Lending Act (TILA), which was enacted on May 20, 2009, as
Section 404(a) of the Helping Families Save Their Homes Act. TILA
Section 131(g) became effective immediately upon enactment and
established a new requirement for notifying consumers of the sale or
transfer of their mortgage loans.
Consistent with the statute, the final rule requires a purchaser or
assignee that acquires a loan to provide the disclosures in writing no
later than 30 days after the date on which the loan was sold,
transferred or assigned. Certain exceptions may apply if the covered
person transfers or assigns the loan to another party on or before the
30th day.
DATES: Effective Date. This final rule is effective on January 1, 2011.
Mandatory Compliance Date. The mandatory compliance date is January
1, 2011. Covered persons may immediately comply with this amendment or
continue to comply with 12 CFR 226.39 until the mandatory compliance
date.
FOR FURTHER INFORMATION CONTACT: Jelena McWilliams, Attorney, or Paul
Mondor, Senior Attorney; Division of Consumer and Community Affairs,
Board of Governors of the Federal Reserve System, Washington, DC 20551,
at (202) 452-2412 or (202) 452-3667. For users of Telecommunications
Device for the Deaf (TDD) only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
The Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., seeks to
promote the informed use of consumer credit by requiring disclosures
about its costs and terms. TILA requires additional disclosures for
loans secured by consumers' homes and permits consumers to rescind
certain transactions that involve their principal dwelling. TILA
directs the Board to prescribe regulations to carry out its purposes.
TILA specifically authorizes the Board, among other things, to issue
regulations that contain such classifications, differentiations, or
other provisions, or that provide for such adjustments and exceptions
for any class of transactions, that in the Board's judgment are
necessary or proper to effectuate the purposes of TILA, facilitate
compliance with TILA, or prevent circumvention or evasion of TILA. 15
U.S.C. 1604(a). TILA is implemented by the Board's Regulation Z. 12 CFR
part 226. An Official Staff Commentary interprets the requirements of
the regulation and provides guidance to creditors in applying the rules
to specific transactions. See 12 CFR part 226, Supp. I.
On May 20, 2009, the Helping Families Save Their Homes Act of 2009
(the ``2009 Act'') was signed into law. Public Law 111-22, 123 Stat.
1632. Section 404(a) of the 2009 Act amended TILA to establish a new
requirement for notifying consumers of the sale or transfer of their
mortgage loans. The purchaser or assignee that acquires the loan must
provide the required disclosures no later than 30 days after the date
on which it acquired the loan. This provision is contained in TILA
Section 131(g), 15 U.S.C. 1641(g), which applies to any consumer credit
transaction secured by the principal dwelling of a consumer.
Consequently, the disclosure requirements in Section 131(g) apply to
both closed-end mortgage loans and open-end home equity lines of
credit.
Section 131(g) became effective immediately upon enactment on May
20, 2009, and did not require the issuance of implementing regulations.
Mortgage loans sold, or otherwise transferred on or after that date
became subject to the requirements of Section 131(g), and failure to
comply can result in civil liability under TILA Section 130(a). See 15
U.S.C. 1640(a). In November 2009, the Board issued an interim rule that
was effective immediately upon publication, so that parties subject to
the rule would have guidance on how to interpret and comply with the
statutory requirements. 74 FR 60143, Nov. 20, 2009.
Under the Real Estate Settlement Procedures Act (RESPA), consumers
must be notified when the servicer of their mortgage loan has
changed.\1\ The 2009 Act's legislative history reflects that, in
addition to the information provided under RESPA, the Congress intended
to provide consumers with information about the identity of the owner
of their mortgage loan. In some cases, consumers that have an extended
right to rescind the loan under TILA Section 125, 15 U.S.C. 1635, can
assert that right against the purchaser or assignee. See TILA Section
131(c), 15 U.S.C. 1641(c). Among other things, the 2009 Act seeks to
ensure that consumers attempting to exercise this right know the
identity of the assignee and how to contact the assignee or its agent
for that purpose. See 155 Cong. Rec. S5098-99 (daily ed. May 5, 2009);
155 Cong. Rec. S5173-74 (daily ed. May 6, 2009). The legislative
history indicates, however, that TILA Section 131(g) was not intended
to require notice when a transaction ``does not involve a change in the
ownership of the physical note,'' such as when the note holder issues
mortgage-backed securities but does not transfer legal title to the
loan. 155 Cong. Rec. S5099.
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\1\ RESPA is implemented by Regulation X, 24 CFR part 3500,
which is issued by the Department of Housing and Urban Development
(HUD).
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II. Summary of the Final Rule
The final rule requires an acquiring party to provide the
disclosures in writing no later than 30 days after the date on which
the loan was sold, transferred or assigned. Under the final rule, the
disclosures must state (1) The name, address, and telephone number of
the new owner; (2) the transfer date; (3) the name, address, and
telephone number of an agent or other party authorized to receive the
consumer's rescission notice and resolves issues concerning the
consumer's payments on the loan (if other than owner); and (4) where
the transfer of ownership is recorded.
Consistent with the statute and legislative intent, the final rule
implements Section 404(a) of the 2009 Act by applying the new
disclosure requirements to any person or entity that acquires ownership
of an existing consumer mortgage loan, whether the acquisition occurs
as a result of a
[[Page 58490]]
purchase or other transfer or assignment. A person is covered by the
rule if it acquires legal title to the debt obligation. Although TILA
and Regulation Z generally apply only to persons to whom the credit
obligation is initially made payable and that regularly engage in
extending consumer credit, Section 404(a) and the final rule apply to
persons that acquire mortgage loans without regard to whether they also
extend consumer credit by originating mortgage loans. However, the
final rule applies only to persons that acquire more than one mortgage
loan in any 12-month period. A party servicing the mortgage loan is not
treated as the owner of the obligation if the obligation was assigned
to the servicer solely for the administrative convenience of the
servicer in servicing the obligation.
To prevent the confusion that could result if consumers receive
disclosures from multiple parties or outdated contact information for
parties that no longer own their loan, the final rule provides three
exceptions. Under the final rule, a covered person must mail or deliver
the required disclosures on or before the 30th day following the date
that the covered person acquired the loan. The disclosures need not be
given, however, if the covered person transfers or assigns all of its
interest in the loan to another party on or before that date. For
example, a covered person that acquires a mortgage loan on March 15
must mail or deliver the disclosures on or before April 14. However, if
the covered person sells or assigns the loan to a third party on April
14 (or earlier), the covered person need not provide the disclosures,
but subsequent purchasers would have to comply with the rule. If the
covered person transfers a partial interest in the loan on or before
the 30th day following its acquisition and retains a partial interest
in the loan, the covered person would have to comply with the rule
unless one of the other exceptions applies.
A second exception applies when the owner of the mortgage loan
transfers the legal title in a transaction that is subject to a
repurchase agreement. In that case, the disclosures are not required if
the transferor is obligated to repurchase the loan. This exception also
applies when the acquiring party obtains a loan through an intermediary
party instead of the transferor that is obligated to repurchase the
loan. If the transferor does not repurchase the mortgage loan, the
acquiring party must make the disclosures within 30 days after the date
that the transaction is recognized as an acquisition on its own books
and records.
A third exception applies when the covered person acquires only a
partial interest in the loan and the party authorized to resolve issues
concerning the consumer's payments on the loan or receive the
rescission notice on behalf of a current owner does not change as a
result of the transfer.
III. Legal Authority
General Rulemaking Authority
As noted above, TILA Section 105(a) directs the Board to prescribe
regulations to carry out the act's purposes. 15 U.S.C. 1604(a). Section
404(a) of the 2009 Act became effective immediately without any
requirement that the Board first issue implementing rules.
Nevertheless, the Board finds that the legislative purpose of Section
404(a) will be furthered and its effectiveness enhanced by the issuance
of rules that specify the manner in which covered persons can comply
with its provisions. In addition, the Board believes that implementing
regulations will facilitate covered persons' compliance with the
statutory provisions.
TILA specifically authorizes the Board, among other things, to:
Issue regulations that contain such classifications,
differentiations, or other provisions, or that provide for such
adjustments and exceptions for any class of transactions, that in the
Board's judgment are necessary or proper to effectuate the purposes of
TILA, facilitate compliance with the act, or prevent circumvention or
evasion. 15 U.S.C. 1604(a).
Exempt from all or part of TILA any class of transactions
if the Board determines that TILA coverage does not provide a
meaningful benefit to consumers in the form of useful information or
protection. The Board must consider factors identified in the act and
publish its rationale at the time it proposes an exemption for comment.
15 U.S.C. 1604(f).
After considering the comments received and based on its experience
in implementing and enforcing Regulation Z, for the reasons discussed
in this notice the Board is using its rulemaking authority under TILA
Section 105(a) and (f) to implement Section 404(a) of the 2009 Act.
IV. Overview of Comments Received
In response to the interim rule, the Board received thirty-five
comment letters. Twenty letters were received from financial
institutions, financial services trade associations and law firms
representing the financial industry. Three letters were received from
consumer groups, and twelve letters were received from individual
consumers.
Financial institutions and financial services trade associations
generally supported the interim rule because it clarifies statutory
requirements and offers guidance to creditors and other parties that
acquire mortgage loans. A few of these commenters stated that the Board
should narrow the scope of the rule's coverage and broaden the
exceptions. Three industry commenters sought an exemption for transfers
that occur as a result of a corporate merger, acquisition, or
reorganization. One commenter representing industry requested that the
Board expand the exemption applicable to repurchase agreements to other
short-term purchase arrangements even if the transferor is not
obligated to repurchase the loan.
Consumer groups generally supported the interim rule because it
ensures consumers will receive meaningful information in a timely
manner. However, consumer advocates sought to expand the scope of the
rule's coverage and narrow the scope of exceptions to provide
additional consumer protection. Individual consumers that commented
generally supported the interim rule. The comments are discussed in
more detail below in part V of the Supplementary Information.
V. Section-by-Section Analysis
Section 226.39--Mortgage Transfer Disclosures
39(a) Scope
Interim Rule
Section 226.39(a) defines the scope of the interim rule's coverage.
Under the interim rule, the disclosure requirements of Sec. 226.39
apply to any ``covered person'' with certain exceptions specified in
the rule. For purposes of the interim rule, a ``covered person''
includes any person (as defined in Sec. 226.2(a)(22)) that acquires
more than one existing mortgage loan in any 12-month period. Consistent
with the statute, the interim rule applies to all consumer mortgage
transactions secured by the principal dwelling of a consumer, whether
the transaction is a closed-end mortgage loan or an extension of credit
under an open-end plan.
Generally, TILA and Regulation Z apply to parties that regularly
extend consumer credit. However, Section 404(a) of the 2009 Act is not
limited to persons that extend credit by originating loans. Section
404(a) imposes the disclosure requirements on the ``creditor that is
the new owner or assignee of the debt.'' The Board believes that, to
give effect to the legislative purpose, the
[[Page 58491]]
term ``creditor'' in Section 404(a) must be construed to refer to the
owner of the debt following the sale, transfer or assignment, without
regard to whether that party would be a ``creditor'' for other purposes
under TILA or Regulation Z. In issuing the interim rule, the Board
declined to limit Section 404(a) to parties that originate consumer
loans because such an interpretation would exempt a significant
percentage of mortgage transfers to persons that purchase loans in the
secondary market but do not extend consumer credit and are not
``creditors'' for purposes of other provisions of Regulation Z.
The interim rule also clarified that Section 404(a) does not alter
the definition of ``creditor'' as used in TILA or Regulation Z. Thus,
the fact that a person purchases mortgage loans and provides
disclosures under Sec. 226.39 does not by itself make that person a
``creditor'' for purposes of TILA and Regulation Z. Accordingly, in
describing the persons subject to the requirements of Sec. 226.39, the
interim rule uses the term ``covered person'' rather than the term
``creditor.''
Under the interim rule, the disclosure requirements under Sec.
226.39 apply only to persons that acquire more than one consumer
mortgage transaction in any 12-month period. Generally, TILA and
Regulation Z cover only parties that are regularly engaged in consumer
credit transactions, who are expected to have the capacity to put
systems in place to ensure compliance with the rules. In issuing the
interim rule, the Board indicated that it found nothing in the
legislative history indicating that Section 404(a) was intended to
apply more broadly than the general TILA and Regulation Z requirements.
For example, individual homeowners might choose to facilitate the sale
of their home by providing seller financing and accepting the buyer's
promissory note for a portion of the purchase price. At a later date,
ownership of the debt obligation might transfer to another family
member or to a trust for estate planning purposes, or to another person
if the original note holder dies. The Board determined that a formal
notice under Section 404(a) was not needed in situations involving
individual transfers because the acquiring party is likely to provide
adequate information to borrowers to ensure that they know to whom the
loan payments should be made.
Accordingly, to prevent undue burden on individuals under the
interim rule, a person who acquires only one existing mortgage loan in
any 12-month period is not a covered person. The interim rule excludes
persons who are not regularly engaged in the business of purchasing or
investing in consumer mortgages loans, are involved in such
transactions only infrequently, and would not have systems in place to
comply.
Consistent with the legislative purpose, to become a ``covered
person'' subject to Sec. 226.39, a person must become the owner of an
existing mortgage loan by acquiring legal title to the debt obligation.
Consequently, Sec. 226.39 does not apply to persons who acquire only a
beneficial interest or a security interest in the loan, such as when
the owner of the debt obligation uses the loan as security to obtain
financing and the party providing the financing obtains a security
interest in the loan. Section 226.39 also does not apply to a party
that assumes the credit risk without acquiring legal title to the
loans. Accordingly, an investor who purchases an interest in a pool of
loans (such as mortgage-backed securities, pass-through certificates,
participation interests, or real estate mortgage investment conduits)
but does not acquire legal title in the underlying mortgage loan, is
not covered by Sec. 226.39. See 155 Cong. Rec. S5098-99 (daily ed. May
5, 2009). The interim rule also clarifies that the disclosures are
required under Sec. 226.39 for transfers that occur as a result of a
corporate merger, acquisition, or reorganization when ownership of the
loan is transferred to a different legal entity.
Section 131(f) of TILA addresses the treatment of loan servicers
under the provisions of Section 131(g) which were added by the 2009
Act. Under TILA Section 131(f)(2), a party servicing the mortgage loan
is not treated as the owner of the obligation if the obligation was
assigned to the servicer solely for the administrative convenience.
Accordingly, the requirements of Sec. 226.39 under the interim rule do
not apply to a loan servicer if the servicer holds legal title to the
loan solely for administrative convenience.
Public Comment
The Board solicited comment on the definition of a ``covered
person'' and whether the scope of the interim rule's coverage is
appropriate, or whether a different standard should apply in
determining which persons must comply with the disclosure requirements
of Sec. 226.39. Comment was specifically requested on whether the
Board should use the same Regulation Z standard used to determine
whether a person is regularly engaged in extending consumer credit,
which would limit the application of Sec. 226.39 to persons that have
acquired more than five mortgage loans in the preceding or current
calendar year. See Sec. 226.2(a)(17)(i), footnote 3.
The Board received several comments that addressed the scope of the
rule. A few industry commenters stated that the rule should cover only
persons that acquire more than five mortgage loans in the preceding or
current calendar year based on the standard used to determine whether a
person is a [l'dquo]creditor'' for purposes of Regulation Z. These
commenters stated that a threshold of one loan in 12 months is too low.
One financial institution commenter requested that the Board exempt
transfers that occur in connection with a merger of entities with no
accompanying change in the servicing of the mortgage loan. The
commenter stated that a merger results in a mortgage loan being
combined with the assets of another entity, rather than being sold or
transferred. An industry trade group requested that the Board exempt
transfers that occur as a result of a merger of entities with no
accompanying change in either the name or the contact information for
the covered person. The commenter also stated that some corporate
reorganizations or asset sales may not allow enough advance planning
for the acquiring party to produce and deliver the disclosures required
by Sec. 226.39 in a timely manner. This commenter suggested that the
final rule should contain a general exemption for transfers that occur
as a result of a merger, or to provide a longer compliance period for
such transfers.
Consumer group commenters stated that the rule should cover any
person that acquires a mortgage loan, without exception. They also
asserted that transfers to servicers that hold legal title solely for
administrative convenience should be covered. These commenters stated
that if the rule exempts servicers that take legal title solely for
administrative convenience, the rule should also clarify that
submitting a rescission notice to the servicer should be effective as
to the actual holder. They also requested that the final rule address
the remedies available in court when a violation occurs.
Final Rule
The final rule adopts the same definition of ``covered person''
used in the interim rule. Under the final rule, a ``covered person''
includes any person (as defined in Sec. 226.2(a)(22)) that acquires
more than one existing mortgage loan in any 12-month period.
Like the interim rule, the final rule exempts individual transfers
because
[[Page 58492]]
the potential benefit of covering such transactions would not outweigh
the likely burden on persons who do not regularly engage in mortgage
transactions. Generally, TILA only covers parties that regularly engage
in consumer credit transactions who are expected to have the capacity
to put systems in place to ensure compliance with the rules. The Board
believes that persons who engage in a single transaction should not be
expected to comply. Moreover, the Board believes that the disclosures
required under Sec. 226.39 are not needed in situations involving
individual transfers because the acquiring party is directly involved
with the borrower and has an incentive to ensure that the borrower
knows where to send loan payments.
Like the interim rule, the final rule clarifies that, to become a
``covered person'' subject to the disclosure requirements under Sec.
226.39, a person must become the owner of an existing mortgage loan by
acquiring legal title to the loan. Comment 39(a)(1)-2(i) is added in
the final rule to clarify that a party may become a covered person by
acquiring a partial interest in a mortgage loan. Comment 39(a)(1)-2(ii)
is added in the final rule to clarify that all persons that jointly
acquire legal title to the loan are subject to the disclosure
requirements of Sec. 226.39. Multiple persons are deemed to jointly
acquire legal title if each acquires a partial interest in the loan
pursuant to the same agreement or they otherwise act in concert to
acquire their interest in the loan. Comment 39(a)(1)-2(iii) is added to
clarify that an acquiring party that is a separate legal entity from
the transferor must provide the disclosures required by Sec. 226.39
even if the parties are affiliated entities.
The final rule, like the interim rule, does not apply to persons
who acquire only a beneficial interest or a security interest in the
loan, such as when the owner of the debt obligation uses the loan as
security to obtain financing and the party providing the financing
obtains only a security interest in the loan. The final rule also does
not apply to a party that assumes the credit risk without acquiring
legal title to the loans such as an investor who purchases mortgage-
backed securities.
Consistent with TILA Section 131(f), the final rule does not apply
to a party servicing the mortgage loan if the obligation was assigned
to the servicer solely for administrative convenience. Consumer group
commenters requested that, if the final rule exempts transfers to
servicers for administrative convenience, it should provide that
consumers may submit a rescission notice to the servicer. The Board is
addressing this issue concerning consumers' ability to send rescission
notices to the servicer in a separate proposed rule published elsewhere
in today's Federal Register (Docket No. R-1390). Consumer group
commenters also requested that the final rule set forth appropriate
remedies for violations of the disclosures requirements under Sec.
226.39. The Board notes that a determination of court remedies is
outside of the scope of this rulemaking. Nonetheless, in using the term
``covered person'' rather than ``creditor'' in Sec. 226.39, the Board
is not determining whether or not TILA Section 130 applies. The Board
notes that Section 404(a) of the 2009 Act specifically adds TILA
Section 131(g) to the list of sections covered under TILA Section 130.
The Board does not believe that an exemption for transfers that
occur as a result of a corporate merger, acquisition, or reorganization
is appropriate when there is a transfer of ownership to a different
legal entity. The final rule is consistent with the legislative goal
that consumers be notified of transfers that would require them to seek
assistance from or assert their rights against a different legal
entity, even if the parties are affiliated entities. The fact that a
merger results in a mortgage loan being combined with the assets of
another entity is not dispositive of whether the disclosure
requirements under Sec. 226.39 are triggered. If legal title in the
loan is held by the same legal entity before and after the merger,
there is no transfer of title and the disclosure requirements of Sec.
226.39 are not triggered. Thus, combining assets with another entity is
not in itself dispositive of whether the disclosures under Sec. 226.39
are required.
The Board also believes that a longer compliance period for
transfers that occur as a result of a merger, acquisition or
reorganization would not be appropriate under the statute. Consistent
with the statute and the interim rule, the final rule requires the
purchaser or assignee that acquires the loan to provide the disclosures
in writing no later than 30 days after the date on which the loan is
sold, transferred or assigned.
39(b) Disclosure Required
Interim Rule
Section 226.39(b) contains the general requirement for covered
persons to provide the disclosures required under Section 404(a) of the
2009 Act, unless one of the exceptions specified in Sec. 226.39(c)
applies. Under the interim rule, the disclosures must be mailed or
delivered to the consumer on or before the 30th calendar day following
the date that the covered person acquires the loan. Under the interim
rule, the date on which the covered person acquires the loan is the
acquisition date recognized in the books and records of the acquiring
party. If there is more than one covered person, the interim rule
provides that only one disclosure shall be given on behalf of all
covered persons. If there is more than one consumer, a covered person
may mail or deliver the disclosures to any consumer who is primarily
liable on the obligation. This is consistent with the rule generally
applicable to TILA disclosures. See TILA Section 121(a) and Sec.
226.17(d) of Regulation Z.
The disclosure requirements of Sec. 226.39 apply when the
acquiring party is a separate legal entity from the transferor, even if
the parties are affiliated entities. If there are multiple transfers,
the regulation allows multiple covered persons to combine their
disclosures in a single document, provided that the disclosure meets
the applicable timing requirements for each person. Comment 39(b)-2
provides guidance on how multiple parties may provide a single
disclosure.
Public Comment
Consumer group commenters opposed the provision in the interim rule
allowing covered persons to provide the disclosures to any consumer who
is primarily liable on the loan. They suggested that the final rules
instead require a covered person to provide the disclosure to every
consumer who is liable on the mortgage loan and any person entitled to
rescind. In addition to obligors, other persons may have a right to
rescind if their ownership interest in their principal dwelling will be
subject to the creditor's security interest.
One industry commenter suggested that the final rule should provide
more flexibility in determining the acquisition date. This commenter
stated that covered persons may use an electronic mortgage registry
that automatically generates and provides the disclosures when the
transferor enters the closing date for the transfer and the acquirer
confirms the acquisition. Because the transferor and the acquirer may
not recognize the same date of transfer due to differences in their
accounting systems, the commenter suggested that the disclosure should
be permitted to state either the acquisition date recognized on the
purchaser's books, or the date recognized on the transferor's books.
Two other industry commenters asked the Board to clarify that
disclosures
[[Page 58493]]
required by Sec. 226.39 may be combined with other materials or
disclosures, including notices of mortgage servicing transfers required
by RESPA, 12 U.S.C. 2601 et seq.
Final Rule
The final rule clarifies that the disclosures required by Sec.
226.39 must be provided clearly and conspicuously in writing, in a form
that the consumer may keep. Consistent with the standard that applies
to other disclosures under Regulation Z, the disclosures also may be
provided to the consumer 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. The final rule also clarifies that the disclosures under
Sec. 226.39 can be combined with other materials or disclosures,
including the transfer of servicing notices required by RESPA so long
as the combined disclosure satisfies the timing and other requirements
in Sec. 226.39.
Consistent with the interim rule, the final rule allows a covered
person to provide notice to any consumer primarily liable on the
obligation. Because Sec. 226.39 applies to loans secured by the
consumer's principal dwelling, additional copies sent to multiple
obligors would typically be delivered to the same address, and would
not significantly enhance consumer protection. Requiring covered
persons to also deliver the disclosures to non-obligors who may be
entitled to rescind would create operational difficulties because the
party acquiring the loan would not necessarily know which parties other
than the obligor had an interest in the property and a right to rescind
at the time the credit was initially extended.
Section 404(a) requires that disclosures be provided ``not later
than 30 days after the date on which the mortgage loan is sold or
otherwise transferred or assigned to a third party.'' Public Law 111-
22, 123 Stat. 1632. The interim rule refers to the date of transfer as
the ``acquisition date'' which is defined in the interim rule as ``the
date of acquisition recognized in the books and records of the
acquiring party.'' The Board recognizes that different entities may use
different accounting methods so that the date of transfer on the
transferor's books might differ from the date of acquisition on the
purchaser's books. To facilitate compliance, the final rule has been
revised to clarify that the disclosures must be provided on or before
the 30th day following the ``date of transfer'' which may be either the
acquisition date recognized by the transferee, or the date recognized
by the transferor. Similarly, either date may be stated on the
disclosure as the date of transfer.
Multiple transfers. Like the interim rule, Sec. 226.39(b)(4) of
the final rule provides that, if a mortgage loan is acquired by one
covered person and subsequently transferred to another covered person,
a single disclosure may be provided on behalf of both covered persons
if the disclosure satisfies the timing and content requirements
applicable to each covered person. For example, if a covered person
acquires a loan on March 15 with the intent to assign it to another
entity on April 30, the covered person could mail a single disclosure
on or before April 14, providing information for both entities, and
indicating when the subsequent transfer is expected to occur. No
comments were received on this aspect of the rule.
The Board recognizes, however, that in this circumstance, the exact
date of a subsequent transfer may not be known at the time the
disclosure is provided. Consistent with the standard in current Sec.
226.31(d)(2), the date on which one covered person expects to transfer
the loan to another covered person may be estimated when the exact
information is unknown at the time the disclosure is made. Comment
39(b)(4)-2 has been added for clarification. The comment further states
that information is unknown if it is not reasonably available to the
covered person at the time the disclosure is made. The ``reasonably
available'' standard requires that the covered person, acting in good
faith, exercise due diligence in obtaining information. The commentary
provides that a covered person normally may rely on the representations
of other parties in obtaining information, and may make the disclosure
using an estimated date based on information known at the time the
disclosure is made, even though more precise information will be
available at a later date. For example, if the covered person acquires
the loan on March 15, a disclosure may be provided on April 1 stating
that the loan will be assigned to another entity ``on or around'' April
30, even if the covered person expects to obtain information before
April 14 about the expected transfer date.
Comment 39(b)(4)-3 clarifies that even if one covered person
provides the disclosures for another, each person has a duty to ensure
that disclosures related to its acquisition are accurate and provided
in a timely manner unless an exception in Sec. 226.39(c) applies.
Multiple covered persons. Comment 39(b)(5)-1 in the final rule
clarifies that multiple covered persons who jointly acquire the loan in
a single transaction must provide a single disclosure that satisfies
the timing requirements for each person. If multiple covered persons
jointly acquire the loan and complete the acquisition on separate
dates, a single disclosure must be provided on behalf of all persons on
or before the 30th calendar day following the earliest acquisition
date.
Comment 39(b)(5)-2 further clarifies that if multiple covered
persons each acquire a partial interest in the loan in separate and
unrelated agreements and not jointly, each covered person has a duty to
ensure that disclosures related to its acquisition are accurate and
provided in a timely manner, unless an exception in Sec. 226.39(c)
applies. The parties may, but are not required to, provide a single
disclosure that satisfies the timing and content requirements
applicable to each covered person. Comment 39(b)(5)-3 clarifies that a
single disclosure provided on behalf of multiple covered persons must
satisfy the timing and content requirements applicable to each covered
person unless an exception in Sec. 226.39(c) applies. Comment
39(b)(5)-4 provides that even though one person provides the
disclosures for another covered person, each has a duty to ensure that
disclosures related to its acquisition are accurate and provided in a
timely manner unless an exception in Sec. 226.39(c) applies.
39(c) Exceptions
Interim Rule
Section 226.39(c) of the interim rule contains two exceptions to
the disclosure requirements. Under Sec. 226.39(c)(1), a covered person
need not provide the disclosures if it transfers or assigns the loan to
another party on or before the 30th calendar date following the date
that it acquired the loan. This provision was adopted pursuant to the
Board's authority to make exceptions and exemptions under TILA Sections
105(a) and 105(f). 15 U.S.C. 1604(a), 1604(f). For example, if a
mortgage loan is originated on March 1 and the original creditor sells
the loan to a covered person on March 15, the covered person would not
be required to provide the disclosures if the loan is subsequently sold
to a third party on or before April 14 under this exception.
The Board stated in the interim rule that this exception is
necessary and proper to effectuate the purposes of Section 404(a) and
to facilitate compliance. This exception seeks to
[[Page 58494]]
prevent the confusion that could result if consumers receive outdated
contact information for parties that no longer own their loans. After
origination, a loan might be assigned to one or more entities for only
a few days before it is transferred to an entity that will hold it for
a much longer time period. The disclosures sent by temporary holders
would provide information that most consumers are unlikely to need or
use. Moreover, the disclosures from temporary holders could create
information overload for many consumers and hinder their ability to
determine which party should be contacted to address a concern. Thus,
the Board adopted the exception in Sec. 226.39(c)(1) pursuant to TILA
Section 105(a) to effectuate TILA's purposes and facilitate compliance.
The Board also considered the relevant statutory factors in TILA
Section 105(f). The Board found that use of Section 105(f) is
appropriate because the disclosure of ownership interests that are held
less than 30 days would not provide a meaningful benefit to consumers
in the form of useful information or consumer protection. Requiring
temporary holders to provide the disclosures would complicate
compliance and impose unnecessary burden and expense that would not be
outweighed by the benefits to consumers.\2\
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\2\ In exercising its exemption authority under Section 105(f),
Board must determine whether coverage of such transactions provides
a meaningful benefit to consumers in light of specific factors. 15
U.S.C. 1604(f)(2). These factors, which the Board has reviewed, are
(1) The amount of the loan and whether the disclosure provides a
benefit to consumers who are parties to the transaction involving a
loan of such amount; (2) the extent to which the requirement
complicates, hinders, or makes more expensive the credit process;
(3) the status of the borrower, including any related financial
arrangements of the borrower, the financial sophistication of the
borrower relative to the type of transaction, and the importance to
the borrower of the credit, related supporting property, and
coverage under TILA; (4) whether the loan is secured by the
principal residence of the borrower; and (5) whether the exemption
would undermine the goal of consumer protection.
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Section 226.39(c)(2) of the interim rule contains a second
exception to the disclosure requirements of Sec. 226.39. In some
cases, the original creditor or owner of the mortgage loan may sell or
transfer the legal title to the loan to a third party to secure
business financing. This is generally done in connection with a
repurchase agreement that obligates the original creditor or owner to
repurchase the loan. Under Sec. 226.39(c)(2) of the interim rule, if
the original creditor or owner has a repurchase obligation and does not
recognize the transaction as a sale of the loan on its books and
records, the acquiring party is not subject to the disclosure
requirements of Sec. 226.39. However, if the transferor does not
repurchase the mortgage loan, the acquiring party must make the
disclosures required by Sec. 226.39 within 30 days after the date that
the transaction is recognized as an acquisition on its books and
records.
This exception was adopted pursuant to the Board's authority in
TILA Sections 105(a) and 105(f). As with the exception in Sec.
226.39(c)(1), the exception for transfers subject to a repurchase
agreement in Sec. 226.39(c)(2) was intended to prevent consumer
confusion that could arise from the receipt of outdated disclosures.
The Board found that requiring disclosures for these transactions would
not provide a meaningful benefit to consumers in the form of useful
information or protection. Without an exemption for these transactions,
consumers would receive two notices: One at the time legal title in the
loan is transferred, and another when the loan is repurchased shortly
after. Thus, the disclosure of transfers subject to repurchase
agreements would complicate compliance and impose unnecessary burden
and expense for covered persons that would not be outweighed by the
benefits to consumers.
Public Comment
The Board requested comment on whether the exemption in Sec.
226.39(c)(1) is appropriate and whether a 30-day period should be
shorter or longer. Consumer group commenters stated that the 30-day
exception is appropriate so long as the subsequent owners are required
to disclose information about any prior owner who did not provide the
disclosure. These commenters suggested that the final rule clarify that
each covered person must disclose a full chain of title so that all
transfers of ownership throughout the history of the loan are listed in
each disclosure. Consumer advocates also stated that, if the 30-day
period is lengthened in the final rule, the rule should provide that
(1) no foreclosure action is permitted without first providing
information to the consumer about the current holder of the note and
mortgage, and (2) no foreclosure action is permitted in the name of a
party that no longer owns the loan.
Industry commenters generally supported the exception in Sec.
226.39(c)(1). Several industry commenters stated that a 30-day period
is too short because it fails to capture many short-term acquisitions
that may be finalized shortly after the 30th day. These commenters
requested that 30 days be changed to at least 60 days and preferably 90
days, so that a covered person that transfers or assigns the loan to
another party on or before the 60th or 90th day would not be required
to deliver the disclosures. A few industry commenters stated that
listing all previous owners in every disclosure would increase the risk
of consumers contacting an incorrect party that no longer owns their
loan.
The Board also requested comment on whether the exception in Sec.
226.39(c)(2) for transfers that are subject to a repurchase agreement
is appropriate. Consumer group commenters opposed the exception. They
believe that a disclosures should be provided with the initial transfer
and a second disclosure should be provided when the transferor
repurchases the loan. One industry trade association asked the Board to
clarify that loans transferred under a repurchase agreement are exempt
from the disclosure requirements under Sec. 226.39 regardless of how
the loan is recognized on the seller's books and records because the
acquiring party may not have that information. One industry commenter
stated that the exception for repurchase agreements in Sec.
226.39(c)(2) of the interim rule is too narrow. This commenter
suggested that the final rule clarify that the exception applies even
if the loan is acquired from an intermediary as long as the prior
holder is obligated to repurchase the loan. According to the commenter,
this set of transactions usually takes between 5 days and 90 days to
complete, during which time the original creditor continues to
recognize the loan on its books and records.
A law firm that represents secondary market participants urged the
Board to exempt certain short-term acquisitions even if they are not
subject to a repurchase agreement. This commenter stated that under
some financing arrangements, the acquiring party enters into a
commitment to acquire the loan, then aggregate it with other loans, and
subsequently transfer a pool of mortgage loans to a third party.
However, the acquiring party's commitment to transfer the loans it
acquires to a third party does not apply to any particular mortgage
loan; rather, it applies to the type of loan described in the purchase
agreement. Because the transfer to the third party might take longer
than 30 days, the acquiring party cannot rely on the exception in Sec.
226.39(c)(1) for these transactions. The commenter suggested that the
final rule should exempt these kinds of transfers from the disclosure
requirements of Sec. 226.39, or, alternatively, expand the exception
in
[[Page 58495]]
Sec. 226.39(c)(1) from 30 to 60 days to accommodate these
transactions.
Several industry commenters requested additional exceptions. A
credit union and a credit union trade association suggested that the
final rule should exempt transfers of partial ownership interests to
multiple covered persons in accordance with participation agreements.
According to one commenter, the originating credit union retains at
least ten percent of the interest in the underlying loan, and the
participants generally designate a single agent to handle all matters
concerning the consumer's inquiries about the loan, including
rescission and modification. For example, if the consumer sends a
notice of rescission to the appointed agent, the notice is deemed to be
received by all participants. These commenters suggested that
disclosures under Sec. 226.39 should not be required if the
originating entity retains an interest in the underlying loan, and the
agent does not change as a result of the transfer. These commenters
also stated that consumers may be confused by a disclosure stating that
a portion of their loan has been transferred to one or more entities
when the originating creditor still holds a partial interest and the
agent has not changed.
One industry commenter requested that the Board exempt the
assignment of a mortgage loan that is initiated by the consumer in
connection with a refinancing by the assignee. This commenter explained
that in some states, the refinancing lender may purchase the existing
mortgage loan and enter into a modification agreement with the consumer
to avoid certain costs associated with a new extension of credit. In
this commenter's view, since the consumer initiated the transaction
with the assignee and receives the disclosures from the new lender at
closing, it may confuse the consumer to receive another set of
disclosures within 30 days after the loan is modified. The commenter
also expressed concerns about the unnecessary cost and burden of the
additional disclosures.
Final Rule
The final rule retains the exceptions in Sec. 226.39(c)(1) and (2)
of the interim rule and also provides an additional exception which is
contained in new Sec. 226.39(c)(3). With respect to Sec.
226.39(c)(1), the Board has retained the exception for covered persons
that do not hold a loan for more than 30 calendar days after acquiring
it. The Board recognizes that under some short-term financing
arrangements, the covered persons may acquire the loan only
temporarily, but for a period that exceeds 30 days. However, the Board
believes that lengthening the 30-day period would undermine the
legislative purpose. A 60-day exemption would cause some parties to
wait up to 60 days before determining whether to make the disclosure
for a particular loan or claim an exemption. The exemption contained in
the final rule is consistent with the legislative intent that consumers
receive the disclosure within 30 days after a transfer occurs, while
eliminating disclosures from parties that no longer own the loan.
Comment 39(c)(1)-1 has been revised to clarify that a covered
person is not required to provide the disclosures required under Sec.
226.39 if it sells, transfers or assigns all of its interest in the
mortgage loan on or before the 30th calendar day following the date
that it acquired the mortgage loan. Comment 39(c)(1)-2 has been added
in the final rule to address transfers of a partial interest in the
mortgage loan. It clarifies that a covered person that transfers only a
partial interest in the loan on or before the 30th calendar day
following the date that it acquired the loan must comply with the
disclosure requirements so long as it retains a partial interest in the
loan on the 30th day.
The final rule does not require a covered person to disclose
information about former holders of legal title. The Board is concerned
that a disclosure reflecting the full chain of ownership would be
complex and could create unnecessary confusion for consumers trying to
determine what party to contact about their loan. Moreover, such a
requirement would impose a duty on a covered person to verify the
identity of all prior owners or risk liability for providing an
incorrect disclosure. It is unclear whether assignees would routinely
have access to this information within their own records.
The final rule also retains the exception in Sec. 226.39(c)(2) of
the interim rule which covers transfers subject to a repurchase
agreement. However, in response to commenters' requests, the final rule
does not require the transferor who is obligated to repurchase the loan
to continue to recognize the loan as an asset on its books and records.
While most repurchase arrangements are structured so that the
transferor does not recognize the sale of the asset on its books and
records, the Board recognizes that the acquiring party may not know how
the transferor treats the asset on its books. Under the final rule, if
the original owner does not repurchase the loan, the acquiring party
must provide the disclosures within 30 calendar days after it
recognizes the loan as an asset on its own the books and records.
The final rule has been modified to address a concern raised by one
commenter about transactions involving intermediaries. Comment
39(c)(2)-2 is added to the final rule to clarify that the exception for
transfers subject to a repurchase agreement applies even when the
covered person acquires the loan from an intermediary party who is not
the party obligated to repurchase the loan.
Consumer group commenters asked the Board to require disclosures
when a loan is transferred subject to a repurchase agreement and when
the repurchase occurs. The Board believes that the disclosure of all
transfers subject to repurchase agreements would impose unnecessary
burden and expense for covered persons that would not be outweighed by
the benefits to consumers.
The final rule does not exempt short-term acquisitions for longer
than 30 days that are not subject to a repurchase agreement, as
requested by one commenter. These financing arrangements differ from
repurchase arrangements in that the original creditor is under no
obligation to repurchase the loan. Moreover, the specific loan is not
subject to a purchase commitment even though it may be the type of loan
described in the purchase agreement. The Board does not believe that a
covered person should be exempt from the disclosure requirements if the
transferor is not obligated to repurchase the loan. In addition,
compliance with the exemption requested by the commenter would be
difficult to enforce because the individual loan covered by the
exception is not subject to a specific repurchase agreement by any
other party.
The final rule includes an additional exception designated as Sec.
226.39(c)(3), which was not included in the interim rule, in response
to commenters' requests to exempt covered persons that acquire partial
interests in the loan. The exemption in Sec. 226.39(c)(3) applies to a
covered person that acquires only a partial interest in the loan if the
party authorized to receive the consumer's notice of the right to
rescind and resolve issues concerning the consumer's payments on the
loan does not change as a result of the transfer. This exception is
adopted pursuant to the Board's authority in TILA Sections 105(a) and
105(f). As with the exceptions in Sec. 226.39(c)(1) and (2), the
exception for transfers of a partial interest in Sec. 226.39(c)(3) is
intended to prevent consumer confusion that could arise from the
receipt of multiple disclosures.
[[Page 58496]]
The Board believes that Section 105(f) is appropriate for the
exception in Sec. 226.39(c)(3) because the disclosure of a partial
ownership interest would not provide a meaningful benefit to consumers
in the form of useful information or consumer protection. Requiring
such disclosures would complicate compliance and impose unnecessary
burden and expense that would not be outweighed by the benefits to
consumers. The legislative history reflects that the statute was
intended to ensure that consumers know the identity of the party they
can contact to rescind or seek to modify the loan terms. The Board
believes that the exception in Sec. 226.39(c)(3) will not undermine
the legislative purpose of Section 404(a) so long as the transfer of a
partial interest does not result in a change for these purposes. The
Board believes that disclosures regarding transfers of partial
interests could create consumer confusion. However, if as a result of
the transfer of a partial interest in the loan, a different agent or
party is authorized to receive the rescission notice and resolve issues
concerning the consumer's payments, the disclosures under Sec. 226.39
must be provided. Comment 39(c)(3)-2 is added to the final rule to
provide examples of when disclosures would be required in connection
with a transfer of a partial interest in the loan.
The final rule does not provide an exception for transfers
initiated by consumers who seek to refinance their mortgage loans. A
covered person's compliance with such a rule would be difficult to
determine because it would depends on a case by case factual
determination. To ease the compliance burden, the covered person has
the option to provide the disclosures required by Sec. 226.39 along
with other disclosures at the time of refinancing instead of 30 days
later.
39(d) Content of Required Disclosures
Section 226.39(d) of the interim rule sets forth the contents of
the disclosure that must be provided under this section. The
disclosures must identify the loan that was acquired or transferred
and, consistent with the statute, contain the following: (1) The
identity, address, and telephone number of the covered person that owns
the mortgage loan; (2) the date of the acquisition or transfer; (3)
contact information that the consumer can use to reach an agent or
party having authority to act on behalf of the covered person; (4) the
location of the place where the transfer of the ownership of the debt
is recorded.
Identifying the Loan
Interim rule. Under the interim rule, the disclosures required by
Sec. 226.39 must identify the loan that was acquired or transferred.
The interim rule provides flexibility for covered persons to determine
what information to provide for this purpose. For example, the covered
person may identify the loan by stating the address of the mortgaged
property along with the account number or other identification number
previously known to the consumer, which may appear in a truncated
format. The covered person might instead identify the loan by
specifying the date on which the credit was extended and the original
amount of the loan or credit line.
Public comment. One industry commentator stated that providing the
account number alone should be sufficient for consumers to identify the
loan, and would reduce the risk of mailing sensitive information. The
commentator suggested that the final rule should clarify that the
account number alone (or other identifying information already provided
to the consumer) is adequate to identify the loan.
Final rule. To provide flexibility and ease compliance while
protecting consumer's confidential information, the final rule provides
that a covered person may use any information that would reasonably
inform a consumer which loan was acquired or transferred. Comment
39(d)-1 in the interim rule has been retained and provides examples
that are merely illustrations, including that the covered person may
identify the loan by stating the address of the mortgages property
along with the account number, or just the loan number previously
disclosed to the consumer.
Name, Address, and Telephone Number of Covered Person
Interim rule. Section 226.39(d)(1) implements the requirement that
covered persons provide their name, address and telephone number. Under
the interim rule, the party identified must be a covered person who
owns the mortgage loan, regardless of whether another party services
the loan or is the covered person's agent. The covered person has the
option of also providing an electronic mail address or internet Web
site address but is not required to do so. Section 226.39(d)(1)
provides that if there is more than one covered person, the required
information must be provided for each person.
Public comment. The Board specifically solicited comments on
whether the identification of multiple parties might confuse consumers
and whether the final rule should limit the number of covered persons
identified. One industry commenter asserted that providing information
for multiple covered persons would confuse consumers, and that the
disclosure should contain only the address and telephone number of one
covered person authorized to receive payments and handle questions
about the loan.
Final rule. Like the interim rule, the final rule requires covered
persons to state their name, address and telephone number on the
disclosure. Under Sec. 226.39(b)(4) in the final rule, if a mortgage
loan is acquired by a covered person and subsequently transferred to
another covered person, a single disclosure may be provided on behalf
of both persons so long as the disclosure satisfies the timing and
content requirements applicable to each person. Section 226.39(d)(1) of
the final rule specifies that a single disclosure provided for multiple
transfers must state the name, address, and telephone number of each
covered person.
Section 226.39(b)(5) of the final rule provides that, if multiple
covered persons jointly acquire the loan, a single disclosure must be
provided on behalf of all covered persons. Section 226.39(d)(1) of the
final rule provides that the single disclosure must provide the name,
address and telephone number of each covered person unless one of the
covered persons has been authorized in accordance with Sec.
226.39(d)(3) to receive the consumer's notice of the right to rescind
and to resolve issues concerning the consumer's payments on the loan.
In that case, the disclosure may state the name, address and telephone
number only for that covered persons.
The Board recognizes that transfers occur under a variety of
circumstances and, in case of multiple covered persons, it may not
always be clear which covered person should be identified to best
effectuate the legislative goal, particularly if none of them serves as
agent or servicer. Based on comments received, it is the Board's
understanding that most transfers of partial interests to multiple
parties in a joint acquisition generally involve a transfer to a single
entity created specifically to facilitate the transaction. In that
case, only the name of that single entity that acquires legal title to
the loan may be shown as the owner on the disclosure. However, to the
extent that partial interests in the loan are held by multiple persons
that jointly acquire the loan, the name, address and telephone
[[Page 58497]]
number of each covered person must be provided on the disclosure.
Providing contact information for multiple covered persons when
there are multiple transactions under Sec. 226.39(b)(4) should not
create confusion because disclosure of the date of transfer for each
covered person should clarify which covered party currently owns the
loan. The final rule also provides additional flexibility when multiple
covered persons that jointly acquire the loan are identified under
Sec. 226.39(b)(5). Section 226.39(d)(1) of the final rule has been
revised so that contact information need only be provided for one
covered person if that person is also authorized in accordance with
Sec. 226.39(d)(3) to receive the rescission notice and resolve issues
concerning the consumer's payments on the loan. If no covered person is
authorized for these purposes, the disclosure must state the name,
address and telephone number for all covered persons.
Similarly, comment 39(d)(1)(ii)-2 has been added to clarify that if
multiple covered persons acquire partial interests in the loan in
separate transactions and not jointly, each covered person has to
comply with the disclosure requirements under Sec. 226.39 by providing
its name, address and telephone number.
Acquisition Date
Interim rule. Section 226.39(d)(2) in the interim rule requires
disclosure of the date that the covered person acquired the loan, which
is ``the date of acquisition recognized in the books and records of the
acquiring party.''
Public comment. One industry commenter noted that the date of
acquisition on the purchaser's books may not be same date recognized on
the transferor's books. This commenter requested that the purchaser be
permitted to disclose either the acquisition date recognized on the
purchaser's books or the date recognized on the transferor's books.
Final rule. To facilitate compliance, the final rule permits a
covered person to disclose either the date of acquisition recognized in
the books and records of the acquiring party, or the date of transfer
recognized in the books and records of the transferring party, as
discussed above. The date disclosed in the notice would also be used to
determine if the disclosure was provided in a timely manner.
Agent's Contact Information
Interim rule. Under Sec. 226.39(d)(3), a covered person must
identify and provide contact information for the agent or party having
authority to act on behalf of the covered person. Under the interim
rule, the disclosure must identify one or more persons who are
authorized to receive legal notices on behalf of the covered person and
resolve issues concerning the consumer's payments on the loan. However,
contact information for an agent is not required under Sec.
226.39(d)(3) if the consumer can use the information for the covered
persons provided under paragraph Sec. 226.39(d)(1) for these purposes.
The interim rule does not require that a covered person designate an
agent or other party, but merely requires that contact information be
disclosed when there is such an agent, so that consumers can direct
their inquiries to the appropriate party.
The interim rule also recognizes that separate entities may be
authorized by the owner of the loan to act on its behalf for different
purposes. The interim rule requires a covered person to identify the
party authorized to receive legal notices to ensure that consumers have
sufficient information to assert legal claims, including a right to
rescind the loan, if applicable. If the covered person appoints a
different agent to resolve loan servicing issues, contact information
must be provided for each agent, and the disclosure must state the
extent to which the authority of each agent differs. For example, the
disclosure should indicate if only one of the agents is authorized to
receive legal notices or only one is authorized to resolve issues
concerning payments.
Under the interim rule, a covered person may comply with Sec.
226.39(d)(3) by providing only the name and telephone number of the
agent or authorized party if the consumer can use the telephone number
to obtain that party's address. Comment was solicited on whether the
rule should require that the address be included in the disclosure.
Public comment. Consumer group commenters stated that the agent's
address should be required in the disclosure because borrowers may
mistakenly use the telephone number to rescind, which must be done in
writing. They also requested that the Board require more information to
be disclosed about the consumer's right to file qualified written
requests under RESPA.
Several industry groups stated that the requirement to identify an
agent or person authorized to receive ``legal notice'' is too vague,
and noted that the rules for serving legal process vary by type of
action and jurisdiction. They asserted that the general reference to
``legal notice'' would create compliance difficulties.
Several industry commenters stated that disclosing multiple
contacts for different purposes would increase the risk that consumers
may contact the wrong party. One industry commenter suggested that the
Board require the identification of an agent or person authorized to
receive ``rescission and modification requests,'' and, if no such
person has been authorized, the owner should be required to state that
such requests should be directed to the owner. Another industry
commenter was concerned that covered persons would be required to list
all agents, and noted that the statute does not reference rescission
claims.
Final rule. The final rule is revised to require a covered person
to provide the name, address and telephone number for the agent or
other party having authority to receive a rescission notice and resolve
issues concerning the consumer's payments on the loan. Section
226.39(d)(3) does not require a covered person to list contact
information for an agent or other party if the consumer can use the
covered person's contact information for these purposes. If multiple
agents are listed on the disclosure, the disclosure must state which
one is authorized to receive the rescission notice and which one is
authorized to resolve issues concerning the consumer's payments on the
loan. The Board is requiring that the agent's address be included on
the disclosure to avoid consumer confusion about the need to provide a
written notice regarding rescission.
To facilitate compliance and simplify the disclosure, comment
39(d)(3)-1 provides that, if an agent or other party is authorized to
receive the rescission notice and resolve issues concerning the
consumer's payments on the loan, the disclosure need only state that
the consumer may contact that agent regarding any questions concerning
consumer's account without specifically mentioning rescission or
payment issues.
Recording Location
Interim rule. Section 404(a) and the interim rule require that the
disclosure state the location of the place where the transfer of
ownership of the debt is recorded. When a mortgage loan is sold,
however, the transfer in ownership of the debt instrument typically is
not recorded in public records. The new owner's security interest in
the property that secures the debt may or may not be recorded in the
public land records or, if it is recorded, it may not yet be
[[Page 58498]]
recorded at the time the disclosure is sent.
Under the interim rule, if the transfer of ownership has not been
recorded in public records at the time the disclosure is provided, the
covered person can comply with the rule by stating this fact. Whether
or not the transfer of ownership has been recorded in public records at
the time the disclosure is made, the disclosure may state that the
transfer ``is or may be recorded'' at the specified location. A covered
person is not required to provide the postal address for the
governmental office where the covered person's ownership interest is
recorded or the name of the jurisdiction where the property is located.
For example, under the interim rule it is sufficient to disclose that
the transaction is or may be recorded in the office of public land
records or the recorder of deeds office ``for the county or local
jurisdiction where the property is located.''
Under the interim rule, the covered person also has the option of
disclosing the location where the covered person's security interest in
the property is or may be recorded. In light of the fact that the
transfer in ownership of the debt instrument usually is not recorded in
public records, the Board specifically solicited comment on whether
disclosure of the location where the security interest is recorded
should be required.
Public comment. Consumer group commenters generally supported the
approach in the interim rule, and asked the Board to require disclosure
of the location where the security interest is filed. One industry
trade association commented that requiring a disclosure regarding the
filing of the security interest would impose considerable burden and
cost, and stated that the disclosure required by the interim rule is
sufficient. Another industry trade association agreed that most
borrowers are already aware of the location where the security interest
is recorded, and requiring a more specific disclosure would place
considerable burden on the industry since most loan servicers do not
have easy access to this information in their servicing systems.
Final rule. The final rule is substantially the same as the interim
rule, with some modifications for clarity. Section 226.39(d)(4)
requires the covered person to disclose where transfer of ownership of
the debt to the covered person is or may be recorded, or,
alternatively, that the transfer of ownership has not been recorded in
public records at the time the disclosure is provided. Comment
39(d)(4)-1 clarifies that the disclosure may state that the transfer of
ownership of the debt has not been recorded in public records at the
time the disclosure is provided, if that is the case, or that it is or
may be recorded in the office of public land records or the recorder of
deeds office for the county or local jurisdiction where the property is
located.
As stated in the interim rule, the Board believes that Sec.
226.39(d)(4) appropriately addresses the operational issues regarding
the land recording process and provides the necessary flexibility for
compliance purposes without impairing the legislative purpose. The
Board adopted this approach after considering the relative costs and
benefits of requiring that the disclosure provide more detailed
information. Industry representatives stated that this information may
not be readily accessible to the acquiring party. A requirement to
provide the name and address of the governmental office would require
parties that provide such notices to develop and maintain a system for
matching the property address to the correct governmental office, and
keeping the database up to date with correct address information. The
Board does not believe that this would provide substantial benefit to
consumers because they presumably know the county or jurisdiction in
which the property is located and can easily obtain the address of the
governmental office from public directories or other sources.
39(e) Optional disclosures
Interim Rule
Section 226.39(e) of the interim rule states that a covered person
may, at its option, provide with the disclosures ``any other relevant
information'' regarding the transaction. For example, the covered
person may choose to inform consumers that the location where they
should send mortgage payments has not changed. The Board solicited
comment on whether the rule should include any additional disclosure
requirements.
Public Comment
Two industry trade associations requested the Board to specify in
the final rule that the disclosure requirements may include a statement
requiring the consumer to contact only the authorized agent, such as
the servicer, rather than the covered party. These commenters expressed
concerns that consumers may seek to contact a covered person that
invests in the loan but does not have the capacity to handle consumer
inquiries
Final Rule
Consistent with the statute and the interim rule, the final rule
permits covered persons, in their sole discretion, to include
additional information that they might deem relevant or helpful to
consumers. The Board believes that it would be inconsistent with the
statutory goal to permit covered persons to disclose that the consumer
is not permitted to use the contact information provided for the
covered person.
V. Final Regulatory Flexibility Analysis
In accordance with Section 4 of the Regulatory Flexibility Act
(RFA), 5 U.S.C. 601 et seq., the Board is publishing a final regulatory
flexibility analysis for the final rule. The RFA generally requires an
agency to assess the impact a rule is expected to have on small
entities.\3\ However, under Section 605(b) of the RFA, 5 U.S.C. 605(b),
the regulatory flexibility analysis otherwise required under Section
604 of the RFA is not required if an agency certifies that the rule
will not have a significant economic impact on a substantial number of
small entities and stated the factual basis for such certification.
---------------------------------------------------------------------------
\3\ Under standards the U.S. Small Business Administration sets
(SBA), an entity is considered ``small'' if it had $175 million or
less in assets for banks and other depository institutions; and $6.5
million or less in revenues for non-bank mortgage lenders, mortgage
brokers, and loan servicers. U.S. Small Business Administration,
Table of Small Business Size Standards Matched to North American
Industry Classification System Codes, available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.
---------------------------------------------------------------------------
The Board continues to believe that this final rule will not have a
significant economic impact on a substantial number of small entities.
The final rule is narrowly designed to implement the statutory
amendments to TILA made by Section 404(a) of the 2009 Act. Covered
persons, including small entities, had to comply with Section 404(a)
immediately upon its enactment on May 20, 2009, whether or not the
Board amends Regulation Z to conform the regulation to the statute. The
Board's final rule is intended to provide guidance to persons covered
by the rule on how to interpret and comply with the statutory
requirements, and to ensure that consumers receive meaningful notices
consistent with the legislative goal.
A. Reasons for the Final Rule
As indicated above, the 2009 Act was signed into law on May 20,
2009. Section 404(a) amended TILA to establish a new requirement for
notifying consumers of the sale, assignment, or other transfer of their
mortgage loans. This requirement
[[Page 58499]]
became effective immediately upon enactment on May 20, 2009, and did
not require the issuance of implementing regulations.
Congress enacted TILA based on findings that economic stability
would be enhanced and competition among consumer credit providers would
be strengthened by the informed use of credit resulting from consumers'
awareness of the cost of credit. One of the stated purposes of TILA is
to provide meaningful disclosure of credit terms to enable consumers to
compare credit terms available in the marketplace more readily and
avoid the uninformed use of credit.
B. Summary of the 2009 Act
As described previously, the purchaser or assignee that acquires a
loan must provide the required disclosures no later than 30 days after
the date on which the loan is acquired. Section 226.39(c) of the rule
provides an exception if the covered person transfers or assigns the
loan to another party on or before that date. Section 226.39(d) sets
forth the content of the disclosure. Consistent with the statute, the
final rule requires that the disclosure contain the following: (1) The
name, address, and telephone number of the covered person who owns the
mortgage loan; (2) the date of transfer; (3) the name, address and
telephone number of an agent or other party authorized to act on behalf
of the owner; and (4) where the transfer of ownership of the debt is or
may be recorded.
C. Statement of Objectives and Legal Basis
The SUPPLEMENTARY INFORMATION sets forth the objectives and the
legal basis for the final rule. The legal basis for the final rule is
in TILA Sections 105(a), 105(f). 15 U.S.C. 1604(a), 1604(f). A more
detailed discussion of the Board's rulemaking authority is set forth in
the SUPPLEMENTARY INFORMATION.
D. Description of Small Entities to Which the Final Rule Applies
The final rule applies to all persons that acquire more than one
existing mortgage loan in any 12-month period, other than servicers
that take title solely as an administrative convenience to enable them
to service the loans. The Board cannot identify with certainty the
number of small entities that meet this definition. The Board can
estimate, however, approximate numbers of small entities that purchase
mortgage loans, as discussed below.
The Board can identify through data from Reports of Condition and
Income (``call reports'') approximate numbers of small depository
institutions that would be subject to the final rules if they acquire
more than one mortgage loan in a 12-month period. Based on March 2010
call report data, approximately 8,845 small institutions would be
subject to the final rule. Approximately 15,658 depository institutions
in the United States filed call report data, approximately 11,148 of
which had total domestic assets of $175 million or less and thus were
considered small entities for purposes of the Regulatory Flexibility
Act. Of 3,898 banks, 523 thrifts and 6,727 credit unions that filed
call report data and were considered small entities, 3,776 banks, 496
thrifts, and 4,573 credit unions, totaling 8,845 institutions, extended
mortgage credit. For purposes of this analysis, thrifts include savings
banks, savings and loan entities, co-operative banks and industrial
banks.
The Board cannot identify with certainty the number of small non-
depository institutions because they do not file call reports. Neither
can the Board determine with certainty how many of the 11,148
institutions identified above as small entities acquired mortgage loans
in 2009. Although an estimated 8,845 such institutions extended
mortgage credit, the Board recognizes that not all entities that extend
mortgage credit also acquire existing mortgage loans. Moreover, the
reverse is also true: There are entities that acquire existing mortgage
loans but do not extend mortgage credit.
The Board has another source of information, data obtained under
the Home Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801 et seq.; 12 CFR
part 203. Based on loan purchases reported for 2008 under HMDA, the
Board estimates that 553 of the reporting institutions engaged in more
than one mortgage acquisition. The 8,388 lenders covered by HMDA in
2008 accounted for the majority, but not all, of the home lending in
the United States. Accordingly, the 553 institutions that reported loan
purchases in 2008 probably do not represent all mortgage acquirers;
institutions must report loan purchases only if they are required to
report under HMDA based on loan originations and assets. Nevertheless,
the Board's experience has been that the HMDA data are reasonably
representative of the whole mortgage market.
A total of 2,921,684 loan purchases were reported under HMDA in
2008 by entities reporting more than one purchase (and thus subject to
the final rule). Of those loan purchases, 2,773,918 were reported by
depository institutions. Of those depository institution loan
purchases, 2,122,288 (76.5%) were reported by large depository
institutions (assets greater than $175 million), and 651,630 (23.5%)
were reported by small depository institutions (assets of $175 million
or less). Of the 553 HMDA reporters reporting more than one loan
purchase, 502 were depository institutions. Of those 502 depository
institutions, 387 (77.1%) were large and 115 (22.9%) were small. Those
115 small depository institutions represent just slightly less than one
percent (0.97%) of the 11,907 total small institutions estimated above
from call report data.
A total of 147,766 loan purchases were reported under HMDA by non-
depository institutions that reported more than one loan purchase in
2008. The Board cannot tell from the HMDA data how many of those loan
purchases were reported by small entities. Neither can the Board tell
how many of the 51 non-depository institutions that reported those loan
purchases are small entities. If the relative shares of small entities
among small and large non-depository institutions do not differ
significantly from those among depository institutions, however, the
shares for non-depository institutions can be estimated. On that basis,
the Board estimates that 12 small non-depository institutions reported
34,725 loan purchases and that 39 large non-depository institutions
reported 113,041 loan purchases (estimates are rounded to whole
numbers).
Using the foregoing numbers from 2008 HMDA data for depository
institutions and the foregoing estimates for non-depository
institutions, the Board estimates the following numbers for all
entities reporting under HMDA combined: Of the 2,921,684 loan purchases
reported by 553 entities reporting more than one purchase, 2,235,329
(76.5%) were reported by 426 large entities (77%), and 686,355 (23.5%)
were reported by 127 small entities (23%). Based on these estimates,
less than one-quarter of the institutions reporting covered loan
purchases under HMDA were small entities, and less than one-quarter of
the covered loan purchases reported were reported by small entities.
The foregoing data are not complete in many respects. Not all
depository institutions that file call reports are reporters under
HMDA, and not all HMDA reporters file call reports. Further, some
unknown number of entities purchase more than one mortgage loan in any
12-month period and yet file neither call reports nor HMDA data; how
many of those are small entities also is unknown.
[[Page 58500]]
Nevertheless, if one assumes that the existing data are reasonably
representative of the market as a whole, they present an overall
picture of minimal economic impact on small entities. For all these
reasons, the Board believes that the final rule will not have a
significant economic impact on a substantial number of small entities.
E. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
The compliance requirements of the final rules are described in the
SUPPLEMENTARY INFORMATION. As indicated above, the Board is adopting a
new disclosure rule requiring that consumers receive notice when
ownership of their mortgage loan is transferred. The Board is aware
that numerous covered persons are already complying with these
statutory provisions, which became effective on May 20, 2009. Therefore
the additional burden imposed by the Board's rule itself is likely to
be minimal. Furthermore, the information required to be provided is
easily obtainable by covered persons. The covered person must provide
contact information for itself and any agent (but is not required to
designate an agent), may use the acquisition date on its own books and
records, and may generally describe the location where the covered
person's interest in the property securing the mortgage loan is or may
be recorded. This information generally is already required by the
statute.
Based on informal surveys of industry representatives and practices
in effect, the Board understands that entities are likely to designate
servicers as their agents. Servicers already respond to consumer
requests on the behalf of covered persons. Therefore, other than
providing the disclosure itself, covered persons (including those who
are small entities) are not likely to incur significant burden in
responding to consumer requests. Furthermore, the Board has provided an
exception to the rule for mortgage owners who do not hold the loan more
than 30 days. The Board believes that this exception balances the needs
of consumers for information with the burdens on industry of compliance
and the potential for confusion to consumers of receiving multiple
disclosures.
F. Other Federal Rules
The Board has not identified other rules that conflict with the
final rule. As indicated previously, under RESPA and HUD's Regulation
X, consumers must be notified when the servicer of their mortgage loan
has changed. Therefore, the disclosure of contact information for the
agent of the owner of the mortgage loan, typically the servicer under
applicable agreements, is already generally required by law. As a
result of existing requirements, servicers must disclose their contact
information and are subject to consumer calls regarding administration
of payment information.
G. Significant Alternatives to the Final Rule
As noted above, the final rule implements the statutory
requirements of the 2009 Act that were effective on May 20, 2009. The
Board has implemented these requirements to minimize burden while
retaining benefits to consumers. The Board was not required to issue
rules but has decided that rules are needed to clarify who is subject
to the requirements and what information must be disclosed, and to
ensure that consumers receive disclosures of ownership that are
consistent with legislative objectives. The Board did not receive
comment on any significant alternatives that would minimize the impact
of the final rule on small entities.
VI. Effective Date
This final rule will become effective on October 25, 2010, however,
compliance with the final rule will not become mandatory until January
1, 2011. Prior to the mandatory compliance date, covered persons
continue to be subject to the statutory requirements but have the
option to comply with either the interim rule or this final rule. This
should facilitate compliance by covered persons who might need to
revise their disclosures or implement other changes under the final
rule. Specifically, under the interim rule, the required disclosure
need to state only the name and telephone number for an agent that is
authorized to receive legal notices on behalf of the owner, so long as
the telephone number can be used to obtain the agent's address. Under
the final rule, however, the agent's address must be included on the
disclosure. This may require some secondary market purchasers to revise
their disclosure forms. The Board believes that it is reasonable to
afford covered persons until January 1, 2011 to implement the changes
required by the final rule.
TILA Section 105(d) generally provides that a regulation requiring
any disclosure that differs from the disclosures previously required
shall have an effective date no earlier than ``that October 1 which
follows by at least six months the date of promulgation.'' The Board
finds, however, that the legislative mandate represented by Section
404(a) is inconsistent with the significant delay that would be imposed
under the literal language of Section 105(d). In enacting Section
404(a), the Congress imposed disclosure requirements that became
mandatory immediately, without any requirement for implementing
regulations. Thus, the disclosure requirements imposed by Section
404(a) have been mandatory since May 20, 2009.
The Board has clear authority under TILA Section 105(a) to issue
implementing rules, including rules that interpret the statutory
requirements and establish exceptions. The Board believes that the
Congress did not intend to permit the Board to issue rules to implement
Section 404(a) and clarify a covered persons' compliance duty while
also allowing the issuance of such rules to delay implementation of
Section 404(a) which, on its face, was effective immediately upon
enactment. Accordingly, the Board issued interim rules in November 2009
that became effective upon publication. The Board finds that the public
interest is best served by making these final rules effective in the
manner described above, which gives effect to the legislative intent of
Section 404(a) rather than the provisions of TILA Section 105(d).
VII. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board reviewed the
final rule under the authority delegated to the Board by the Office of
Management and Budget (OMB). The collection of information that is
required by this final rule is found in 12 CFR 226.39. The Board may
not conduct or sponsor, and an organization is not required to respond
to, this information collection unless the information collection
displays a currently valid OMB control number. The OMB control number
is 7100-0199.
This information collection is required to provide benefits for
consumers and is mandatory (15 U.S.C. 1601 et seq.). Since the Board
does not collect any information, no issue of confidentiality arises.
The respondents/recordkeepers are persons or entities that acquire
legal title to more than one mortgage loan in any 12-month period,
including for-profit financial institutions and small businesses.
TILA and Regulation Z are intended to ensure effective disclosure
of the costs and terms of credit to consumers. For closed-end loans,
such as mortgage and installment loans, cost disclosures are required
to be provided prior to consummation. Special disclosures are required
in connection with certain
[[Page 58501]]
products, such as reverse mortgages, certain variable-rate loans, and
certain mortgages with rates and fees above specified thresholds. To
ease the burden and cost of complying with Regulation Z (particularly
for small entities), the Board provides model forms, which are appended
to the regulation. TILA and Regulation Z also contain rules concerning
credit advertising. Creditors are required to retain evidence of
compliance with Regulation Z for 24 months (12 CFR 226.25), but
Regulation Z does not specify the types of records that must be
retained.
Under the PRA, the Board accounts for the paperwork burden
associated with Regulation Z for the state member banks and other
entities supervised by the Board that engage in activities covered by
Regulation Z and, therefore, are respondents under the PRA. Appendix I
of Regulation Z defines the institutions supervised by the Federal
Reserve System as: State member banks, branches and agencies of foreign
banks (other than federal branches, federal agencies, and insured state
branches of foreign banks), commercial lending companies owned or
controlled by foreign banks, and organizations operating under section
25 or 25A of the Federal Reserve Act. Other federal agencies account
for the paperwork burden imposed on the entities for which they have
administrative enforcement authority under TILA.
As mentioned in the preamble, on November 20, 2009, a notice of
interim final rulemaking was published in the Federal Register (74 FR
60143). The comment period for this notice expired January 19, 2010. No
comments specifically addressing the burden estimate were received;
therefore, the burden estimates will remain unchanged as published in
the notice. The final rule will increase the total annual burden under
Regulation Z by 9,248 hours from 1,488,114 \4\ to 1,497,362 hours.
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\4\ The burden estimate for this final rulemaking includes
burden addressing changes to implement provisions of the Credit Card
Accountability Responsibility and Disclosure (CCARD) Act of 2009
(Docket no. R-1370) (75 FR 7658), however, it does not include the
burden addressing changes to implement the following provisions
announced in separate rulemakings:
Closed-End Mortgages (Docket No. R-1366) (74 FR 43232),
or
Home-Equity Lines of Credit (Docket No. R-1367) (74 FR
43428).
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The other federal financial agencies: Office of the Comptroller of
the Currency (OCC), Office of Thrift Supervision (OTS), the Federal
Deposit Insurance Corporation (FDIC), and the National Credit Union
Administration (NCUA) are responsible for estimating and reporting to
OMB the total paperwork burden for the domestically chartered
commercial banks, thrifts, and federal credit unions and U.S. branches
and agencies of foreign banks for which they have primary
administrative enforcement jurisdiction under TILA Section 108(a),
15.U.S.C.1607(a). These agencies are permitted, but are not required,
to use the Federal Reserve's burden estimation methodology. Using the
Federal Reserve's method, the total current estimated annual burden for
the approximately 16,200 domestically chartered commercial banks,
thrifts, and federal credit unions and U.S. branches and agencies of
foreign banks supervised by the Federal Reserve, OCC, OTS, FDIC, and
NCUA under TILA would be approximately 19,610,245 hours. The new
requirement will impose a one-time increase in the estimated annual
burden for such institutions by 648,000 hours to 20,258,245 hours. On a
continuing basis the new requirement will impose an increase in the
estimated annual burden by 1,555,200 to 21,165,445 hours. The above
estimates represent an average across all respondents; the Federal
Reserve expects variations between institutions based on their size,
complexity, and practices.
The Board has a continuing interest in public opinion on its
collections of information. At any time, comments regarding the burden
estimate or any other aspect of this collection of information,
including suggestions for enhancing the quality of information
collected and ways for reducing the burden on respondent, may be sent
to: Secretary, Board of Governors of the Federal Reserve System, 20th
and C Streets, NW, Washington, DC 20551; and to the Office of
Management and Budget, Paperwork Reduction Project (7100-0199),
Washington, DC 20503.
List of Subjects in 12 CFR Part 226
Consumer protection, Federal Reserve System, Mortgages, Reporting
and recordkeeping requirements, Truth in Lending.
Authority and Issuance
0
For the reasons set forth in the preamble, the Board amends Regulation
Z, 12 CFR part 226, as follows:
PART 226--TRUTH IN LENDING (REGULATION Z)
0
1. The authority citation for part 226 continues to read as follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), and
1639(l); Pub. L. 111-24 Sec. 2, 123 Stat. 1734.
Subpart E--Special Rules for Certain Home Mortgage Transactions
0
2. Revise Sec. 226.39 to read as follows:
Sec. 226.39 Mortgage transfer disclosures.
(a) Scope. The disclosure requirements of this section apply to any
covered person except as otherwise provided in this section. For
purposes of this section:
(1) A ``covered person'' means any person, as defined in Sec.
226.2(a)(22), that becomes the owner of an existing mortgage loan by
acquiring legal title to the debt obligation, whether through a
purchase, assignment or other transfer, and who acquires more than one
mortgage loan in any twelve-month period. For purposes of this section,
a servicer of a mortgage loan shall not be treated as the owner of the
obligation if the servicer holds title to the loan, or title is
assigned to the servicer, solely for the administrative convenience of
the servicer in servicing the obligation.
(2) A ``mortgage loan'' means any consumer credit transaction that
is secured by the principal dwelling of a consumer.
(b) Disclosure required. Except as provided in paragraph (c) of
this section, each covered person is subject to the requirements of
this section and shall mail or deliver the disclosures required by this
section to the consumer on or before the 30th calendar day following
the date of transfer.
(1) Form of disclosures. The disclosures required by this section
shall be provided clearly and conspicuously in writing, in a form that
the consumer may keep. The disclosures required by this section may be
provided to the consumer 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.).
(2) The date of transfer. For purposes of this section, the date of
transfer to the covered person may, at the covered person's option, be
either the date of acquisition recognized in the books and records of
the acquiring party, or the date of transfer recognized in the books
and records of the transferring party.
(3) Multiple consumers. If more than one consumer is liable on the
obligation, a covered person may mail or deliver the disclosures to any
consumer who is primarily liable.
(4) Multiple transfers. If a mortgage loan is acquired by a covered
person and subsequently sold, assigned, or otherwise transferred to
another covered person, a single disclosure may be provided on behalf
of both covered
[[Page 58502]]
persons if the disclosure satisfies the timing and content requirements
applicable to each covered person.
(5) Multiple covered persons. If an acquisition involves multiple
covered persons who jointly acquire the loan, a single disclosure must
be provided on behalf of all covered persons.
(c) Exceptions. Notwithstanding paragraph (b) of this section, a
covered person is not subject to the requirements of this section with
respect to a particular mortgage loan if:
(1) The covered person sells, or otherwise transfers or assigns
legal title to the mortgage loan on or before the 30th calendar day
following the date that the covered person acquired the mortgage loan
which shall be the date of transfer recognized for purposes of
paragraph (b)(2) of this section;
(2) The mortgage loan is transferred to the covered person in
connection with a repurchase agreement that obligates the transferor to
repurchase the loan. However, if the transferor does not repurchase the
loan, the covered person must provide the disclosures required by this
section within 30 days after the date that the transaction is
recognized as an acquisition on its books and records; or
(3) The covered person acquires only a partial interest in the loan
and the party authorized to receive the consumer's notice of the right
to rescind and resolve issues concerning the consumer's payments on the
loan does not change as a result of the transfer of the partial
interest.
(d) Content of required disclosures. The disclosures required by
this section shall identify the loan that was sold, assigned or
otherwise transferred, and state the following:
(1) The name, address, and telephone number of the covered person.
(i) If a single disclosure is provided on behalf of more than one
covered person, the information required by this paragraph shall be
provided for each of them unless paragraph (d)(1)(ii) of this section
applies.
(ii) If a single disclosure is provided on behalf of more than one
covered person and one of them has been authorized in accordance with
paragraph (d)(3) of this section to receive the consumer's notice of
the right to rescind and resolve issues concerning the consumer's
payments on the loan, the information required by paragraph (d)(1) of
this section may be provided only for that covered person.
(2) The date of transfer.
(3) The name, address and telephone number of an agent or party
authorized to receive notice of the right to rescind and resolve issues
concerning the consumer's payments on the loan. However, no information
is required to be provided under this paragraph if the consumer can use
the information provided under paragraph (d)(1) of this section for
these purposes.
(4) Where transfer of ownership of the debt to the covered person
is or may be recorded in public records, or, alternatively, that the
transfer of ownership has not been recorded in public records at the
time the disclosure is provided.
(e) Optional disclosures. In addition to the information required
to be disclosed under paragraph (d) of this section, a covered person
may, at its option, provide any other information regarding the
transaction.
0
3. In Supplement I to Part 226, under Subpart E, the entry for Section
226.39--Mortgage Transfer Disclosures is revised to read as follows:
Supplement I to Part 226--Official Staff Interpretations* * * * *
Subpart E--Special Rules for Certain Home Mortgage Transactions
* * * * *
Section 226.39--Mortgage transfer disclosures
39(a) Scope.
Paragraph 39(a)(1).
1. Covered persons. The disclosure requirements of this section
apply to any ``covered person'' that becomes the legal owner of an
existing mortgage loan, whether through a purchase, or other
transfer or assignment, regardless of whether the person also meets
the definition of a ``creditor'' in Regulation Z. The fact that a
person purchases or acquires mortgage loans and provides the
disclosures under this section does not by itself make that person a
``creditor'' as defined in the regulation.
2. Acquisition of legal title. To become a ``covered person''
subject to this section, a person must become the owner of an
existing mortgage loan by acquiring legal title to the debt
obligation.
i. Partial interest. A person may become a covered person by
acquiring a partial interest in the mortgage loan. If the original
creditor transfers a partial interest in the loan to one or more
persons, all such transferees are covered persons under this
section.
ii. Joint acquisitions. All persons that jointly acquire legal
title to the loan are covered persons under this section, and under
Sec. 226.39(b)(5), a single disclosure must be provided on behalf
of all such covered persons. Multiple persons are deemed to jointly
acquire legal title to the loan if each acquires a partial interest
in the loan pursuant to the same agreement or by otherwise acting in
concert. See comments 39(b)(5)-1 and 39(d)(1)(ii)-1 regarding the
disclosure requirements for multiple persons that jointly acquire a
loan.
iii. Affiliates. An acquiring party that is a separate legal
entity from the transferor must provide the disclosures required by
this section even if the parties are affiliated entities.
3. Exclusions.
i. Beneficial interest. Section 226.39 does not apply to a party
that acquires only a beneficial interest or a security interest in
the loan, or to a party that assumes the credit risk without
acquiring legal title to the loan. For example, an investor that
acquires mortgage-backed securities, pass-through certificates, or
participation interests and does not acquire legal title in the
underlying mortgage loans is not covered by this section.
ii. Loan servicers. Pursuant to TILA Section 131(f)(2), the
servicer of a mortgage loan is not the owner of the obligation for
purposes of this section if the servicer holds title to the loan as
a result of the assignment of the obligation to the servicer solely
for the administrative convenience of the servicer in servicing the
obligation.
4. Mergers, corporate acquisitions, or reorganizations.
Disclosures are required under this section when, as a result of a
merger, corporate acquisition, or reorganization, the ownership of a
mortgage loan is transferred to a different legal entity.
Paragraph 39(a)(2).
1. Mortgage transactions covered. Section 226.39 applies to
closed-end or open-end consumer credit transactions secured by the
principal dwelling of a consumer.
39(b) Disclosure required.
1. Generally. A covered person must mail or deliver the
disclosures required by this section on or before the 30th calendar
day following the date of transfer, unless an exception in Sec.
226.39(c) applies. For example, if a covered person acquires a
mortgage loan on March 15, the disclosure must be mailed or
delivered on or before April 14.
39(b)(1) Form of disclosure.
1. Combining disclosures. The disclosures under this section can
be combined with other materials or disclosures, including the
transfer of servicing notices required by the Real Estate Settlement
Procedure Act (12 U.S.C. 2601 et seq.) so long as the combined
disclosure satisfies the timing and other requirements of this
section.
39(b)(4) Multiple transfers.
1. Single disclosure for multiple transfers. A mortgage loan
might be acquired by a covered person and subsequently transferred
to another entity that is also a covered person required to provide
the disclosures under this section. In such cases, a single
disclosure may be provided on behalf of both covered persons instead
of providing two separate disclosures if the disclosure satisfies
the timing and content requirements applicable to each covered
person. For example, if a covered person acquires a loan on March 15
with the intent to assign the loan to another entity on April 30,
the covered person could mail the disclosure on or before April 14
to provide the required information for both entities and indicate
when the subsequent transfer is expected to occur.
2. Estimating the date. When a covered person provides the
disclosure required by this section that also describes a subsequent
transfer, the date of the subsequent transfer may be estimated when
the exact date is unknown at the time the disclosure is made.
[[Page 58503]]
Information is unknown if it is not reasonably available to the
covered person at the time the disclosure is made. The ``reasonably
available'' standard requires that the covered person, acting in
good faith, exercise due diligence in obtaining information. The
covered person normally may rely on the representations of other
parties in obtaining information. The covered person might make the
disclosure using an estimated date even though the covered person
knows that more precise information will be available in the future.
For example, a covered person may provide a disclosure on March 31
stating that it acquired the loan on March 15 and that a transfer to
another entity is expected to occur ``on or around'' April 30, even
if more precise information will be available by April 14.
3. Duty to comply. Even though one covered person provides the
disclosures for another covered person, each has a duty to ensure
that disclosures related to its acquisition are accurate and
provided in a timely manner unless an exception in Sec. 226.39(c)
applies.
39(b)(5) Multiple covered person.
1. Single disclosure required. If multiple covered persons
jointly acquire the loan, a single disclosure must be provided on
behalf of all covered persons instead of providing separate
disclosures. See comment 39(a)(1)-2(ii) regarding a joint
acquisition of legal title, and comment 39(d)(1)(ii)-1 regarding the
disclosure requirements for multiple persons that jointly acquire a
loan. If multiple covered persons jointly acquire the loan and
complete the acquisition on separate dates, a single disclosure must
be provided on behalf of all persons on or before the 30th day
following the earliest acquisition date. For examples, if covered
persons A and B enter into an agreement with the original creditor
to jointly acquire the loan, and complete the acquisition on March
15 and March 25, respectively, a single disclosure must be provided
on behalf of both persons on or before April 14. If the two
acquisition dates are more than 30 days apart, a single disclosure
must be provided on behalf of both persons on or before the 30th day
following the earlier acquisition date, even though one person has
not completed its acquisition. See comment 39(b)(4)-2 regarding use
of an estimated date of transfer.
2. Single disclosure not required. If multiple covered persons
each acquire a partial interest in the loan pursuant to separate and
unrelated agreements and not jointly, each covered person has a duty
to ensure that disclosures related to its acquisition are accurate
and provided in a timely manner unless an exception in Sec.
226.39(c) applies. The parties may, but are not required to, provide
a single disclosure that satisfies the timing and content
requirements applicable to each covered person.
3. Timing requirements. A single disclosure provided on behalf
of multiple covered persons must satisfy the timing and content
requirements applicable to each covered person unless an exception
in Sec. 226.39(c) applies.
4. Duty to comply. Even though one covered person provides the
disclosures for another covered person, each has a duty to ensure
that disclosures related to its acquisition are accurate and
provided in a timely manner unless an exception in Sec. 226.39(c)
applies. See comments 39(c)(1)-2, 39(c)(3)-1 and 39(c)(3)-2
regarding transfers of a partial interest in the mortgage loan.
39(c) Exceptions.
Paragraph 39(c)(1).
1. Transfer of all interest. A covered person is not required to
provide the disclosures required by this section if it sells,
assigns or otherwise transfers all of its interest in the mortgage
loan on or before the 30th calendar day following the date that it
acquired the loan. For example, if covered person A acquires the
loan on March 15 and subsequently transfers all of its interest in
the loan to covered person B on April 1, person A is not required to
provide the disclosures required by this section. Person B, however,
must provide the disclosures required by this section unless an
exception in Sec. 226.39(c) applies.
2. Transfer of partial interests. A covered person that
subsequently transfers a partial interest in the loan is required to
provide the disclosures required by this section if the covered
person retains a partial interest in the loan on the 30th calendar
day after it acquired the loan, unless an exception in Sec.
226.39(c) applies. For example, if covered person A acquires the
loan on March 15 and subsequently transfers fifty percent of its
interest in the loan to covered person B on April 1, person A is
required to provide the disclosures under this section if it retains
a partial interest in the loan on April 14. Person B in this example
must also provide the disclosures required under this section unless
an exception in Sec. 226.39(c) applies. Either person A or person B
could provide the disclosure on behalf of both of them if the
disclosure satisfies the timing and content requirements applicable
to each of them. In this example, a single disclosure for both
covered persons would have to be provided on or before April 14 to
satisfy the timing requirements for person A's acquisition of the
loan on March 15. See comment 39(b)(4)-1 regarding a single
disclosure for multiple transfers.
Paragraph 39(c)(2).
1. Repurchase agreements. The original creditor or owner of the
mortgage loan might sell, assign or otherwise transfer legal title
to the loan to secure temporary business financing under an
agreement that obligates the original creditor or owner to
repurchase the loan. The covered person that acquires the loan in
connection with such a repurchase agreement is not required to
provide disclosures under this section. However, if the transferor
does not repurchase the mortgage loan, the acquiring party must
provide the disclosures required by this section within 30 days
after the date that the transaction is recognized as an acquisition
on its books and records.
2. Intermediary parties. The exception in Sec. 226.39(c)(2)
applies regardless of whether the repurchase arrangement involves an
intermediary party. For example, legal title to the loan may
transfer from the original creditor to party A through party B as an
intermediary. If the original creditor is obligated to repurchase
the loan, neither party A nor party B is required to provide the
disclosures under this section. However, if the original creditor
does not repurchase the loan, party A must provide the disclosures
required by this section within 30 days after the date that the
transaction is recognized as an acquisition on its books and records
unless another exception in Sec. 226.39(c) applies.
Paragraph 39(c)(3).
1. Acquisition of partial interests. This exception applies if
the covered person acquires only a partial interest in the loan, and
there is no change in the agent or person authorized to receive
notice of the right to rescind and resolve issues concerning the
consumer's payments. If, as a result of the transfer of a partial
interest in the loan, a different agent or party is authorized to
receive notice of the right to rescind and resolve issues concerning
the consumer's payments, the disclosures under this section must be
provided.
2. Examples.
i. A covered person is not required to provide the disclosures
under this section if it acquires a partial interest in the loan
from the original creditor who remains authorized to receive the
notice of the right to rescind and resolve issues concerning the
consumer's payments after the transfer.
ii. The original creditor transfers fifty percent of its
interest in the loan to covered person A. Person A does not provide
the disclosures under this section because the exception in Sec.
226.39(c)(3) applies. The creditor then transfers the remaining
fifty percent of its interest in the loan to covered person B and
does not retain any interest in the loan. Person B must provide the
disclosures under this section.
iii. The original creditor transfers fifty percent of its
interest in the loan to covered person A and also authorizes party X
as its agent to receive notice of the right to rescind and resolve
issues concerning the consumer's payments on the loan. Since there
is a change in an agent or party authorized to receive notice of the
right to rescind and resolve issues concerning the consumer's
payments, person A is required to provide the disclosures under this
section. Person A then transfers all of its interest in the loan to
covered person B. Person B is not required to provide the
disclosures under this section if the original creditor retains a
partial interest in the loan and party X retains the same authority.
iv. The original creditor transfers all of its interest in the
loan to covered person A. Person A provides the disclosures under
this section and notifies the consumer that party X is authorized to
receive notice of the right to rescind and resolve issues concerning
the consumer's payments on the loan. Person A then transfers fifty
percent of its interest in the loan to covered person B. Person B is
not required to provide the disclosures under this section if person
A retains a partial interest in the loan and party X retains the
same authority.
39(d) Content of required disclosures.
1. Identifying the loan. The disclosures required by this
section must identify the loan that was acquired or transferred. The
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covered person has flexibility in determining what information to
provide for this purpose and may use any information that would
reasonably inform a consumer which loan was acquired or transferred.
For example, the covered person may identify the loan by stating:
i. The address of the mortgaged property along with the account
number or loan number previously disclosed to the consumer, which
may appear in a truncated format;
ii. The account number alone, or other identifying number, if
that number has been previously provided to the consumer, such as on
a statement that the consumer receives monthly; or
iii. The date on which the credit was extended and the original
amount of the loan or credit line.
Paragraph 39(d)(1).
1. Identification of covered person. Section 226.39(d)(1)
requires a covered person to provide its name, address, and
telephone number. The party identified must be the covered person
who owns the mortgage loan, regardless of whether another party
services the loan or is the covered person's agent. In addition to
providing its name, address and telephone number, the covered person
may, at its option, provide an address for receiving electronic mail
or an internet Web site address, but is not required to do so.
39(d)(1)(i)
1. Multiple transfers, single disclosure. If a mortgage loan is
acquired by a covered person and subsequently transferred to another
covered person, a single disclosure may be provided on behalf of
both covered persons instead of providing two separate disclosures
as long as the disclosure satisfies the timing and content
requirements applicable to each covered person. See comment
39(b)(4)-1 regarding multiple transfers. A single disclosure for
multiple transfers must state the name, address, and telephone
number of each covered person unless Sec. 226.39(d)(1)(ii) applies.
39(d)(1)(ii)
1. Multiple covered persons, single disclosure. If multiple
covered persons jointly acquire the loan, a single disclosure must
be provided on behalf of all covered persons instead of providing
separate disclosures. The single disclosure must provide the name,
address, and telephone number of each covered person unless Sec.
226.39(d)(1)(ii) applies and one of the covered persons has been
authorized in accordance with Sec. 226.39(d)(3) of this section to
receive the consumer's notice of the right to rescind and resolve
issues concerning the consumer's payments on the loan. In such
cases, the information required by Sec. 226.39(d)(1) may be
provided only for that covered person.
2. Multiple covered persons, multiple disclosures. If multiple
covered persons each acquire a partial interest in the loan in
separate transactions and not jointly, each covered person must
comply with the disclosure requirements of this section unless an
exception in Sec. 226.39(c) applies. See comment 39(a)(1)-2(ii)
regarding a joint acquisition of legal title, and comment 39(b)(5)-2
regarding the disclosure requirements for multiple covered persons.
Paragraph 39(d)(3).
1. Identifying agents. Under Sec. 226.39(d)(3), the covered
person must provide the name, address and telephone number for the
agent or other party having authority to receive the notice of the
right to rescind and resolve issues concerning the consumer's
payments on the loan. If multiple persons are identified under this
paragraph, the disclosure shall provide the name, address and
telephone number for each and indicate the extent to which the
authority of each person differs. Section 226.39(d)(3) does not
require that a covered person designate an agent or other party, but
if the consumer cannot contact the covered person for these
purposes, the disclosure must provide the name, address and
telephone number for an agent or other party that can address these
matters. If an agent or other party is authorized to receive the
notice of the right to rescind and resolve issues concerning the
consumer's payments on the loan, the disclosure can state that the
consumer may contact that agent regarding any questions concerning
the consumer's account without specifically mentioning rescission or
payment issues. However, if multiple agents are listed on the
disclosure, the disclosure shall state the extent to which the
authority of each agent differs by indicating if only one of the
agents is authorized to receive notice of the right to rescind, or
only one of the agents is authorized to resolve issues concerning
payments.
2. Other contact information. The covered person may also
provide an agent's electronic mail address or internet Web site
address, but is not required to do so.
Paragraph 39(d)(4).
1. Where recorded. Section 226.39(d)(4) requires the covered
person to disclose where transfer of ownership of the debt to the
covered person is recorded if it has been recorded in public
records. Alternatively, the disclosure can state that the transfer
of ownership of the debt has not been recorded in public records at
the time the disclosure is provided, if that is the case, or the
disclosure can state where the transfer may later be recorded. An
exact address is not required and it would be sufficient, for
example, to state that the transfer of ownership is recorded in the
office of public land records or the recorder of deeds office for
the county or local jurisdiction where the property is located.
39(e) Optional disclosures.
1. Generally. Section 226.39(e) provides that covered persons
may, at their option, include additional information about the
mortgage transaction that they consider relevant or helpful to
consumers. For example, the covered person may choose to inform
consumers that the location where they should send mortgage payments
has not changed. See comment 39(b)(1)-1 regarding combined
disclosures.
By order of the Board of Governors of the Federal Reserve
System, August 13, 2010.
Robert deV. Frierson,
Deputy Secretary of the Board.
[FR Doc. 2010-20664 Filed 9-23-10; 8:45 am]
BILLING CODE 6210-01-P