[Federal Register Volume 77, Number 108 (Tuesday, June 5, 2012)]
[Proposed Rules]
[Pages 33120-33125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-13608]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1026
[Docket No. CFPB-2012-0022]
RIN 3170-AA17
Truth in Lending (Regulation Z)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Notice of reopening of comment period and request for comment.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
reopening the comment period for the proposed rule published by the
Board of Governors of the Federal Reserve System (Board) in the Federal
Register on May 11, 2011 (76 FR 27390). On May 11, 2011, the Board
published for notice and comment a proposed rule amending Regulation Z
(Truth in Lending) to implement amendments to the Truth in Lending Act
(TILA) made by the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act). The proposed rule addressed new
ability-to-repay requirements that generally will apply to consumer
credit transactions secured by a dwelling and the definition of a
``qualified mortgage.'' Among other consumer financial protection laws,
the Dodd-Frank Act transferred the Board's rulemaking authority for
TILA to the Bureau as of July 21, 2011. The original comment period to
the proposed rule closed on July 22, 2011. The Bureau is reopening the
comment period until July 9, 2012 to seek comment specifically on
certain new data and information submitted during or obtained after the
close of the original comment period.
DATES: Comments must be received on or before July 9, 2012.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2012-
0022 or RIN 3170-AA17, by any of the following methods:
Electronic: http://www.regulations.gov. Follow the
instructions for submitting comments.
Mail: Monica Jackson, Office of the Executive Secretary,
Bureau of Consumer Financial Protection, 1700 G Street NW., Washington,
DC 20552.
Hand Delivery/Courier in Lieu of Mail: Monica Jackson,
Office of the Executive Secretary, Bureau of Consumer Financial
Protection, 1700 G Street NW., Washington, DC 20552.
All submissions must include the agency name and docket number or
Regulatory Information Number (RIN) for this rulemaking. In general,
all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public
inspection and copying at 1700 G Street NW., Washington, DC 20552, on
official business days between the hours of 10 a.m. and 5 p.m. Eastern
Time. You can make an appointment to inspect the documents by
telephoning (202) 435-7275.
All comments, including attachments and other supporting materials,
will become part of the record and subject to
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public disclosure. You should not include sensitive personal
information, such as account numbers or social security numbers. The
Bureau will not edit comments to remove any identifying or contact
information.
FOR FURTHER INFORMATION CONTACT: Paul Mondor or Stephen Shin, Office of
Regulations, at (202) 435-7700.
SUPPLEMENTARY INFORMATION:
I. Background
Sections 1411, 1412, and 1414 of the Dodd-Frank Act create new TILA
section 129C, which, among other things, establishes new ability-to-pay
requirements and provides a presumption of compliance with those
requirements if the mortgage loan is a ``qualified mortgage.'' On May
11, 2011, the Board published for notice and comment a proposed rule
amending Regulation Z to implement new TILA section 129C. 76 FR 27390.
The comment period closed on July 22, 2011.
As of July 21, 2011, the Dodd-Frank Act transferred the Board's
rulemaking authority for TILA, among other consumer financial
protection laws, to the Bureau. See sections 1061 and 1100A of the
Dodd-Frank Act. Accordingly, all comment letters on the proposed rule
were also transferred to the Bureau. In response to the proposed rule,
approximately 1800 comment letters were received from numerous
commenters, including members of Congress, lenders, consumer groups,
trade associations, mortgage and real estate market participants, and
individual consumers.
In addition, after the close of the original comment period,
various interested parties, including industry and consumer group
commenters, submitted to the Bureau oral and written ex parte
presentations on the proposed rule.\1\ Materials pertaining to these
presentations are filed in the record and are publicly available at
http://www.regulations.gov.
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\1\ See CFPB Bulletin 11-3, CFPB Policy on Ex Parte
Presentations in Rulemaking Proceedings, August 16, 2011.
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Through various comment letters, ex parte communications, and the
Bureau's own collection of data, the Bureau has received additional
information and new data pertaining to the proposed rule. The Bureau is
interested in providing opportunity for additional public comment on
these materials. Accordingly, the Bureau is issuing this notice to
reopen the comment period until July 9, 2012 in order to request
comment specifically on certain additional information or new data, as
discussed in detail below. The Bureau is not soliciting comment on
other aspects of the proposed rule. Therefore, the Bureau encourages
commenters to limit their submissions accordingly.
II. Discussion and Request for Comment
A. Federal Housing Finance Agency Mortgage Loan Data
The Bureau seeks comment on mortgage loan data that the Bureau has
received from the Federal Housing Finance Agency (FHFA).\2\ To date,
the Bureau has received a sample drawn from the FHFA's Historical Loan
Performance (HLP) dataset along with tabulations from the entire file.
The data include a one percent random sample of all mortgage loans in
the HLP dataset from 1997 through 2011; and tabulations of the HLP
dataset by FHFA showing the number of loans and performance of those
loans by year and debt-to-income (DTI) range.
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\2\ The Bureau notes that the data received by the Bureau are
confidential supervisory data and subject to a confidentiality
agreement between the Bureau and the FHFA. Therefore, the Bureau is
seeking comment on aggregate or otherwise non-confidential aspects
of the dataset.
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The HLP dataset consists of all mortgage loans purchased or
guaranteed by the Federal National Mortgage Association (Fannie Mae)
and the Federal Home Loan Mortgage Corporation (Freddie Mac) (jointly
with Fannie Mae, the ``Enterprises''), but does not include loans
backing private-label mortgage-backed securities (MBS) bought by the
Enterprises.\3\ The dataset contains loan-level information on
characteristics and performance of all single-family mortgages
purchased or guaranteed by the Enterprises. FHFA updates the HLP
dataset quarterly with information from each Enterprise. Among other
elements, the dataset includes product type; payment-to-income and
debt-to-income (PTI/DTI) ratios at origination; initial loan-to-value
(LTV) ratios based on the purchase price or appraised property value
and the first-lien balance; and credit score(s) for the borrower(s).
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\3\ See Mortgage Market Note 11-02 (Apr. 11, 2011), available
at: http://www.fhfa.gov/webfiles/20686/QRM_FINAL_ALL.pdf
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The Bureau notes that in the context of the multi-agency 2011
Qualified Residential Mortgage Proposal (2011 QRM Proposal) \4\ and in
the Mortgage Market Note 11-02, FHFA has discussed or released
historical loan performance data. In particular, the Bureau notes
FHFA's discussion of the HLP dataset generally, including the
limitations of the data, and the FHFA's release of historical data on
loan volumes and delinquency rates, including any tabulations or data
based on the HLP dataset, as provided in Mortgage Market Note 11-02.\5\
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\4\ 76 FR 24030 (Apr. 29, 2011).
\5\ See, e.g., Appendix A of 2011 QRM Proposal and Appendix A of
Mortgage Market Note 11-02.
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FHFA's HLP dataset contains certain loan-level variables that can
be used for a variety of data modeling and analysis. The Bureau
proposes to use these data to tabulate volumes and performance of loans
with varying characteristics and to perform other statistical analyses
that may assist the Bureau in defining loans with characteristics that
make it appropriate to presume that the lender complied with the
ability-to-pay requirements or assist the Bureau in assessing the
benefits and costs to consumers, including access to credit, and
covered persons of, as well as the market share covered by, alternative
definitions of a ``qualified mortgage.'' For example, the Bureau is
examining various measures of delinquency and their relationship to
other variables such as a consumer's total DTI ratio.
The tables below show the volume of loans and the percentage that
were ever 60 days or more delinquent, tabulated by the total DTI on the
loans and year of origination. The Bureau believes that loan
performance, as measured by delinquency rate such as 60 days or more
delinquent, is an appropriate metric to evaluate whether consumers had
the ability to repay those loans at the time made. The Bureau notes
that these specific tabulations include first-lien mortgages for first
or second homes, that have fully documented income and that are fully
amortizing with a maturity that does not exceed 30 years. The Bureau
further notes that the tabulations do not include the following types
of loans: loans for investor-owned properties, low- or no-document
mortgages; interest-only (IO) mortgages; negatively-amortizing
mortgages such as payment option-ARMs; or mortgages with a balloon
payment feature.\6\
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\6\ Some of the loans included in these tables are non-
conventional loans insured by government agencies.
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The FHFA data are comprehensive and cover the entirety of mortgages
purchased or guaranteed by the Enterprises. The Bureau has also
acquired commercially available data on mortgages securitized into
private label securities,\7\ and expects to perform similar data
modeling and analysis on this data. In addition, the Bureau is seeking
supplemental data on loans held in portfolio and non-conventional loans
insured or guaranteed by other federal agencies. These supplemental
data sources may also be used to inform the Bureau's analysis.
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\7\ For example, the Bureau has procured commercially available
loan-level data related to mortgages held in private label
securities from Blackbox Logic LLC.
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Certain commenters and interested parties requested that the Bureau
adopt a specific DTI ratio requirement for qualified mortgages. For
example, some suggested that if a borrower's total DTI ratio is below a
specified threshold, the mortgage loan should satisfy the qualified
mortgage requirements, assuming other relevant conditions are met. In
addition to a DTI requirement, some commenters and interested parties
suggested that the Bureau should include within the definition of a
``qualified mortgage'' loans with a DTI above a certain threshold if
the consumer has a certain amount of assets, such as money in a savings
or similar account, or a certain amount of residual income. The Bureau
notes, however, that available data do not provide information on
certain non-collateral factors, such as liquid financial reserves,
which would enable the Bureau to examine their relationship with
measures of loan performance and a consumer's ability to repay.
Accordingly, the Bureau seeks data, if available, from commenters or
interested parties on such factors (in addition to DTI ratios as
discussed above) and their relationship to measures of delinquency or
their impact on the number or percentage of mortgage loans that would
be a ``qualified mortgage.''
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Request for Comment
1. The Bureau seeks comment on the dataset received from FHFA and
commercially available data on mortgages securitized into private label
securities, including the data source, parameters, and whether other
data or studies are available or more appropriate for the purposes
indicated above.
2. The Bureau requests data or tabulations for loans not covered in
the FHFA data, including loans insured by the Federal Housing
Administration (FHA loans), the Department of Veterans Affairs (VA
loans), the Department of Agriculture and the Rural Housing Service
(RHS loans); or loans held in portfolio or securitized outside of the
Enterprises or a federal agency, which would be appropriate for the
purposes indicated above.
3. The Bureau seeks comment and data on any measures of loan
performance and their relationship to a consumer's DTI ratio.
4. The Bureau seeks comment and data on any measures of residual
income, the use of such measures in loan underwriting, the relationship
of these measures to loan performance, and their relationship to
measures of consumer expenditures.
5. The Bureau seeks comment and data regarding any measures of the
amount of liquid financial reserves available to meet (i) mortgage-
related obligations or (ii) current obligations, the use of such
measures in loan underwriting, and the relationship of these measures
to loan performance.
6. The Bureau seeks comment and data regarding any measures of
stable income and timely housing payments, the use of such measures in
loan underwriting, and the relationship of these measures to loan
performance.
B. Litigation Cost Estimates
In response to information received from commenters and ex parte
communications, the Bureau is seeking comment and data on estimates of
litigation costs and liability risks associated with claims alleging a
violation of ability-to-repay requirements for a mortgage loan that is
not a ``qualified mortgage,'' in addition to costs and risks that might
apply to a ``qualified mortgage.''
As discussed in detail in the proposal, section 1416 of the Dodd-
Frank Act creates special remedies for violations of TILA section
129C(a) and provides that the statute of limitations for an action for
a violation of TILA section 129C is three years from the date of the
occurrence of the violation. In addition, section 1413 of the Dodd-
Frank Act provides that a consumer may assert a violation of TILA
section 129C as a defense to foreclosure by recoupment or set off
without regard for the time limit on a private action for damages.
However, new TILA section 129C, among other things, provides a
presumption of compliance with the ability-to-repay requirements if the
mortgage loan is a ``qualified mortgage.'' To implement this special
protection from liability, the Board proposed two alternative
definitions of a ``qualified mortgage'' that would provide either a
legal safe harbor or a rebuttable presumption that the ability-to-repay
requirements had been met.
Commenters and ex parte communications addressed various aspects of
the alternative proposals implementing the presumption of compliance
for a ``qualified mortgage.'' In particular, some commenters and
interested parties presented estimates of the litigation costs
associated with claims alleging a violation of the ability-to-repay
requirements. Commenters and interested parties argued that these
estimated costs should inform the Bureau's determination between a safe
harbor or a rebuttable presumption as well as the scope of coverage of
a ``qualified mortgage.'' Other commenters and interested parties noted
that additional litigation costs should be considered, such as
commercial litigation costs associated with ``put-back'' liabilities
and risks for loans sold on the secondary market and extended
foreclosure timelines because of ongoing ability-to-repay litigation.
An industry commenter and other interested parties argued that the
estimated costs to creditors associated with litigation and penalties
for an ability-to-repay violation could be substantial and provided
illustrations of costs under the proposal, noting potential cost
estimates of the possible statutory damages and attorney's fees.\8\ For
example, the total estimated costs and damages ranged between
approximately $70,000 and $110,000 depending on various assumptions,
such as the interest rate on a loan or whether the presumption of
compliance is a safe harbor or rebuttable presumption. On the other
hand, consumer group commenters and some ex parte communications
asserted that the potential incidence of litigation is relatively
small, and therefore liability cost and risk are minimal for any given
mortgage creditor.\9\ Consumer groups provided estimates of the number
of cases in foreclosure and the percentage of cases that involve TILA
claims, such as a claim of rescission. Consumer groups also provided
percentages of borrowers in foreclosure who are represented by lawyers,
noting the difficulty in bringing a TILA violation claim, and addressed
estimates of litigation costs, such as attorney's fees.
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\8\ See, e.g., letter from David H. Stevens, Mortgage Bankers
Association, to Board of Governors of the Federal Reserve System,
July 22, 2011.
\9\ See, e.g., letter from Center for Responsible Lending,
National Consumer Law Center, Consumer Federation of America, and
National Association of Consumer Advocates, to Consumer Financial
Protection Bureau and Board of Governors of the Federal Reserve
System, July 22, 2011; Memorandum on ``Rebuttable Presumption: A
Perspective on Litigation Risk by the Numbers'' from Center for
Responsible Lending and National Consumer Law Center, to Consumer
Financial Protection Bureau, dated October 11, 2011.
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The Bureau is reopening the comment period to seek comment and data
on various factors the Bureau believes are relevant to analyzing
estimated costs associated with litigation for a claim alleging a
violation of ability-to-repay requirements, as described below.
Request for Comment
Foreclosure and other times when a suit may be filed. The Dodd-
Frank Act provides that a borrower may assert a violation of the
ability-to-repay requirements as a defense to foreclosure. Therefore,
the Bureau believes that estimates of serious delinquency and number of
homes entering foreclosure are critical to measuring the potential
costs of ability-to-repay litigation risk. Although aggregate data on
serious delinquency and homes entering foreclosure are available from
various sources such as the Mortgage Bankers Association National
Delinquency Survey, the Bureau notes that more granular estimates of
homes entering foreclosure can be estimated from the FHFA data and
other data sources.
1. The Bureau seeks comment on the most appropriate measure of
delinquency for purposes of calculating potential costs associated with
ability-to-repay litigation in the foreclosure context.
2. The Bureau seeks comment on estimates of potential lawsuits
asserting an ability-to-repay violation during the first three years
after consummation--when the borrower has not yet defaulted but
nevertheless sues the lender.
Number of potential litigants and complaints filed. Consumer groups
argued that due to the complexity of mortgage-related litigation, such
as a violation of TILA, asserting an ability-to-repay violation would
require access to a lawyer. These groups noted that appropriate proxies
for the number of
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complaints filed would be the percentage of borrowers in foreclosure
who are represented by a lawyer as well as the number of other types of
TILA violation cases. The Bureau notes that survey and other data
indicate that a majority of borrowers in default would not have legal
representation.\10\
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\10\ For example, the New York State Judiciary reported that
before New York mandated settlement conferences in residential
foreclosure cases, up to ninety percent of borrowers sued failed to
appear and received default judgments. See State of New York Unified
Court System, 2010 Report of the Chief Administrator of the Courts,
at 8, 11 (2010), available at: http://www.courts.state.ny.us/publications/pdfs/foreclosurereportnov2010.pdf. The court stated:
``The lack of representation in foreclosure cases continues to be
one of the greatest challenges we face in fulfilling our statutory
mandate.'' Id. at 12. Similarly, in one of the most mature
foreclosure diversion programs in the country, in Philadelphia, 4.5
percent of the homeowners who participated had legal representation.
See The Reinvestment Fund, Philadelphia Residential Mortgage
Foreclosure Diversion Program: Initial Report of Findings, at 10
(June 2011), available at: http://www.trfund.com/resource/downloads/policypubs/Foreclosure_Diversion_Initial_Report.pdf. In addition,
a 2010 survey of foreclosure mediation programs across the United
States by the Department of Justice and the Department of Housing
and Urban Development reported that ``legal resources for homeowners
in mediation programs generally are quite limited.'' Department of
Justice & Department of Housing & Urban Development, Emerging
Strategies for Effective Foreclosure Mediation Programs, at 6
(2010), available at: http://www.justice.gov/atj/effective-mediation-prog-strategies.pdf.
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1. The Bureau seeks comment or data on whether and if so, how the
number of lawsuits alleging an ability-to-repay violation would vary
under the following circumstances:
(a) The mortgage loan is conceded not to be a ``qualified
mortgage.''
(b) The mortgage loan is claimed to be a ``qualified mortgage.''
Potential Outcomes From Litigation and Damages
As noted above, sections 1413 and 1416 of the Dodd-Frank Act
provide special statutory remedies for violations of TILA section
129C(a), which can include an award of damages in the amount equal to
the sum of all finance charges and fees paid by the consumer within the
three-year statute of limitations and in the case of a defense to
foreclosure, recoupment or set off.
1. The Bureau seeks comment on the likelihood of potential outcomes
of litigation, such as dismissal, summary judgment, settlement, or
judgment after trial, and the effect on costs under various scenarios
including:
(a) The mortgage loan is conceded not to be a ``qualified
mortgage.''
(b) The mortgage loan is claimed to be a ``qualified mortgage.''
2. The Bureau seeks comment and data on assumptions about a loan,
such as interest rate, purchase price, finance charges, and fees,
required to calculate average amount of damages awarded in a TILA case
involving a violation of the ability-to-repay requirements based on the
scenarios listed above in paragraph 1.
3. The Bureau seeks comment on the impact of other aspects of
damages, such as a consumer's attorney's fees, and lender's litigation
costs.
Other Factors or Costs
1. The Bureau seeks comment on whether any additional factors
should be considered in assessing the litigation-related costs
associated with the ability-to-repay requirements.
2. The Bureau seeks comment and data on any other potential costs
of ability-to-repay litigation, including:
(a) Costs associated with risks that loans are ``put back'' to
originators by secondary market participants due to a potential
ability-to-repay claim or proven violation. Factors that may determine
the total cost of put backs may include: (i) Number and type of
representation and warranty provisions in purchase and sale agreements
going forward; (ii) number of loans that could potentially be put back;
(iii) frequency of put backs being realized; and (iv) cost to lender
net of any recovery through foreclosure or sale.
(b) Costs associated with extended foreclosure timelines due to
ability-to-repay litigation.
Dated: May 31, 2012.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2012-13608 Filed 6-4-12; 8:45 am]
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