ABA Letter to CFPB re: Notice of Proposed Rulemaking on Reg Z Changes

The Honorable Kathleen L. Kraninger
Director
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20552

The American Bankers Association (ABA) appreciates the opportunity to offer comments to the Consumer Financial Protection Bureau (Bureau) regarding its Notice of Proposed Rulemaking (NPR) on changes to Regulation Z, as mandated by section 108 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”). The amendments covered under this proposed rule exempt insured depository institutions from escrow requirements for certain higher-priced mortgage loans (HPMLs). We commend the Bureau’s efforts to issue a regulation to implement this provision. We believe the proposed rule provides clear and concise direction for covered institutions, and agree that the proposal faithfully implements Section 108 of EGRRCPA.

As proposed, the rule would exempt depository institutions from HPML escrow requirements on first lien principal dwelling if: (1) the institution has assets of $10 billion or less; (2) the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year; and (3) certain criteria of the existing HPML escrow exemption criteria are met. ABA supports the proposed rule, which we believe effectively implements the statute and Congress’ objective to establish in Section 108 a limited exemption for insured depository institutions that do not pursue mortgage lending as a major business line.

ABA urges that the Bureau advance with the creation, under §1026.35(b)(2)(iii), of a three-month grace period for determination of asset size, loan volume, and rural or underserved status.

We believe this is a crucial provision that eliminates compliance uncertainty. As well explained in the preamble, these grace periods will allow exempt creditors to continue using the exemption for three months after inadvertently or otherwise exceeding a threshold in the previous year. This transition period will assure that institutions do not suddenly fall out of compliance when they experience unexpected high demand in their communities. Volume fluctuations are unavoidable, and this is a reasonable and straightforward approach to eliminate penalties for unexpected market changes.

Also, ABA agrees with the Bureau’s conclusion that Section 108 provides a new exemption from the HPML escrow requirement, but does not eliminate the existing exemption for institutions under $2 billion in assets under the existing TILA section 129D exemption. ABA supports the Bureau’s interpretation that Congress intended to exempt institutions that are not “as small as those benefiting from the original exemption, but their mortgage lending business should be small enough that they do not benefit from economies of scale in providing escrow accounts.” In short, the $2-billion-2,000-loan transaction threshold in §1026.35(b)(2)(iii)(B) should remain vibrant and in addition to the new exemption added under EGRRCPA.

If you have any comments or questions about the content of this letter, please contact the ABA’s Rod Alba at 202-663-5592.

Sincerely,

Rod J. Alba
SVP & Senior Counsel, Mortgage Markets
American Bankers Association