Bureau has considered the regulation’s potential benefits, costs, and impacts.176 The proposal set forth a preliminary analysis of these effects, and the Bureau requested and received comments on this analysis. In addition, the Bureau
177Section 1022(b)(2)(B) of the Dodd-Frank Act requires the Bureau to engage in such consultation
‘‘prior to proposing a rule and during the comment process.’’
178An exception is comments received on the proposed transaction coverage rate. Numerous commenters raised concerns regarding this provision. As discussed above, however, the Bureau is not implementing the proposed provisions relating to the transaction coverage rate in this final rule. Consequently, comments on the costs and benefits of the transaction coverage rate are not discussed below.
179These restrictions and requirements include requiring that a creditor receive certification that a HOEPA consumer has received pre-loan counseling from an approved homeownership counseling organization; prohibiting creditors and brokers from recommending default on a loan to be refinanced with a high-cost mortgage; prohibiting creditors, servicers, and assignees from charging a fee to modify, defer, renew, extend, or amend a high-cost mortgage; limiting the fees that can be charged for a payoff statement; banning prepayment penalties;
substantially limiting balloon payments; and requiring that a creditor assess a consumer’s ability to repay a HELOC.
has consulted or offered to consult with the prudential regulators, the Federal Trade Commission, HUD, FHFA, and USDA in connection with this rulemaking, including regarding consistency with any prudential, market, or systemic objectives administered by such agencies.177
As discussed above, HOEPA currently addresses potentially harmful practices in refinancing and closed-end home- equity mortgages. Loans that meet HOEPA’s thresholds are subject to restrictions on loan terms as well as to special disclosure requirements intended to ensure that consumers in high-cost mortgages understand the features and implications of such loans.
Borrowers with high-cost mortgages also have enhanced remedies for violations of the law. The Dodd-Frank Act expanded the types of loans potentially covered by HOEPA to include purchase- money mortgages and HELOCs secured by a consumer’s principal dwelling. The Dodd-Frank Act also expanded the protections associated with high-cost mortgages, including by adding new restrictions on loan terms, extending the requirement that a creditor verify a consumer’s ability to repay to a HELOC, and adding a requirement that
consumers receive homeownership counseling before high-cost mortgages may be extended.
In this rulemaking, the Bureau is amending Regulation Z to implement the changes to HOEPA set forth in the Dodd-Frank Act. In addition to the amendments related to high-cost mortgages, the Bureau is also finalizing an amendment to Regulation Z and an amendment to Regulation X to implement amendments made by sections 1414(a) and 1450 of the Dodd- Frank Act to TILA and to RESPA related to homeownership counseling for other types of mortgages, respectively.
In the proposal, the Bureau generally requested comment on the section 1022 impact analysis set forth therein. Among other things, the Bureau requested comment on the use of the data described in the proposal and sought additional data regarding the potential benefits, costs, and impacts of the proposal. Industry commenters raised general concerns that expanding the set of loans potentially subject to HOEPA, changing the HOEPA coverage thresholds, and imposing additional restrictions on high-cost mortgages could decrease access to credit. Several commenters stated that few creditors are
willing to make high-cost mortgages because of the reputational, regulatory, and legal risks so that expanding HOEPA coverage will reduce access to credit. In contrast, consumer groups generally did not raise similar concerns regarding access to credit as a result of expanding the set of loans potentially subject to HOEPA and changing the HOEPA coverage thresholds. Some consumer groups further suggested stronger protections for consumers with high-cost mortgages were warranted.
Both industry and consumer groups commented that the Bureau should collect additional data to analyze the potential impacts of the proposed rule and to assess the empirical bases for implementing or deviating from statutory thresholds. For example, both manufactured housing industry commenters and consumer groups argued that the Bureau should collect additional data to inform its
specification of APR and points-and- fees thresholds that differ by collateral type and loan size.
In addition to soliciting comment generally on the impact analysis, the proposal solicited comment on and suggestions for additional data regarding specific aspects of the proposal. For example, the Bureau requested
information concerning how provisions in the rule may affect the share of HELOCs that would meet the HOEPA thresholds and the costs and benefits of requiring that the list of homeownership counseling providers for loans covered by Regulation X to be given to
applicants for all federally related mortgages rather than to only applicants for purchase-money mortgages. In addition, the Bureau requested information and data on the proposal’s potential impact on consumers in rural areas specifically as well as the proposal’s potential impact on depository institutions and credit unions with total assets of $10 billion or less. The Bureau generally received limited detail and data in response to many of these specific requests. The comments are discussed throughout this preamble and below in the context of the analysis of the benefits and costs of the respective provisions of the final rule.178
A. Provisions To Be Analyzed The discussion below considers the potential benefits, costs, and impacts to consumers and covered persons of key provisions of the final rule, as well as certain alternatives considered, which include:
1. Expanding the types of transactions potentially covered by HOEPA to include purchase-money mortgages and HELOCs;
2. Revising the existing HOEPA APR and points-and-fees thresholds to implement Dodd-Frank Act
requirements, as well as modifying the APR and points-and-fees calculations to determine whether a transaction is a high-cost mortgage;
3. Adding a prepayment penalty coverage threshold;
4. Adding and revising several restrictions and requirements on loan terms and practices for high-cost mortgages;179and
5. Implementing two separate homeownership counseling-related provisions mandated by the Dodd-Frank Act, namely, generally requiring lenders to provide a list of homeownership counseling organizations to applicants for federally related mortgages subject to RESPA, and requiring creditors to obtain documentation that a first-time borrower of a negatively amortizing loan has received homeownership
counseling.
The analysis considers the benefits and costs of certain provisions together where there are substantially similar benefits and costs. For example, expanding the types of loans potentially subject to HOEPA coverage to include purchase-money mortgages and HELOCs would likely expand the number of high-cost mortgages. The overall impact of this expansion of coverage is
generally discussed in the aggregate. In other cases, the analysis considers the costs and benefits of each provision separately. When relevant, the discussion of these five categories of provisions incorporates the comments and data the Bureau received in response to its proposal and considers the costs and benefits of changes made between the proposal and final rule.
180The Bureau noted in its Summer 2012 mortgage proposals that it sought to obtain additional data to supplement its consideration of the rulemakings, including additional data from the National Mortgage Licensing System (NMLS) and the NMLS Mortgage Call Report, loan file extracts from various lenders, and data from the pilot phases of the National Mortgage Database. Each of these data sources was not necessarily relevant to each of the rulemakings. The Bureau used the additional data from NMLS and NMLS Mortgage Call Report data to better corroborate its estimate of the contours of the non-depository segment of the mortgage market. The Bureau has received loan file extracts from three lenders, but at this point, the data from one lender is not usable and the data from the other two is not sufficiently standardized nor representative to inform consideration of the final rules. Additionally, the Bureau has thus far not yet received data from the National Mortgage Database pilot phases. The Bureau also requested that commenters submit relevant data. All probative data submitted by commenters are discussed in this document.
181The Bureau chose as a matter of discretion to consider costs and benefits of provisions that are required by the Dodd-Frank Act to inform the rulemaking more completely.
182Some States have anti-predatory lending statutes that provide additional restrictions on mortgage terms and features beyond those under HOEPA. See 74 FR 43232, 43244 (Aug. 26, 2009) (surveying State laws that are coextensive with HOEPA). In general, State statutes that overlap and/
or extend beyond the final rule would be expected to reduce both its costs and its benefits.
The analysis relies on data that the Bureau has obtained, which include updated versions of data analyzed in the proposed rule such as data on 2011 mortgages collected under HMDA that were released after publication of the proposed rule and revised data on nondepository mortgage originators from the National Mortgage Licensing System.180The analysis also draws on evidence of the impact of State anti- predatory lending statutes that often place additional or tighter restrictions on mortgages than those required by HOEPA prior to the Dodd-Frank Act amendments. However, the Bureau notes that, in some instances, there are limited data that are publicly available with which to quantify the potential costs, benefits, and impacts of the final rule. For example, data on the terms and features of HELOCs are more limited and less available than data on closed- end mortgages. The Bureau is not aware of and commenters did not provide any systematic and representative data on the terms and features of HELOCs.
Moreover, some potential costs and benefits, such as the value of
homeownership counseling, or reduced likelihood of an unanticipated fee or change in payments, are extremely difficult to quantify and to measure.
Therefore, the analysis generally provides a qualitative discussion of the benefits, costs, and impacts of the final rule.
B. Baseline for Analysis
The HOEPA amendments are self- effectuating, and the Dodd-Frank Act does not require the Bureau to adopt a regulation to implement these
amendments. Thus, many costs and benefits of the final rule considered below would arise largely or entirely from the statute, not from the final rule.
The final rule would provide substantial
benefits compared to allowing the HOEPA amendments to take effect alone by clarifying parts of the statute that call for interpretation, such as how to determine whether a HELOC is a high- cost mortgage and by creating certain exemptions. Greater clarity on parts of the statute that call for interpretation should reduce the compliance burdens on covered persons by reducing costs for attorneys and compliance officers and also by reducing the litigation risk and potential liability creditors and assignees of high-cost mortgages would face in the absence of regulatory guidance. In addition, the Bureau believes that exempting construction loans, for example, should reduce burden on not only covered persons that originate these types of loans but also on consumers because potential HOEPA coverage of these loans may have led to sharper reductions (relative to other types of loans) in the availability of construction loans. In this light, the costs that the regulation would impose beyond those imposed by the statute itself are likely to be at most minimal.
Section 1022 of the Dodd-Frank Act permits the Bureau to consider the benefits and costs of the rule solely compared to the state of the world in which the statute takes effect without an implementing regulation. The Bureau has nonetheless also considered the potential benefits, costs, and impacts of the major provisions of the final rule against a pre-statutory baseline (i.e., the benefits, costs, and impacts of the relevant provisions of the Dodd-Frank Act and the regulation combined).181 There is one exception: The Bureau does not discuss below the benefits and costs of determining whether a loan is a high-cost mortgage, e.g., the costs of computer systems and software, employee training, outside legal advice, and similar costs potentially necessary to determine whether a loan is a high- cost mortgage.182One trade association commenter asserted that the Bureau’s analysis of the compliance burden due to the expansion of HOEPA to purchase- money mortgages and HELOCs is incomplete in part because it did not consider the costs of determining whether a loan is a high-cost mortgage.
The trade association noted that these
costs would now be incurred for all purchase-money mortgages and HELOCs, including those that are ultimately not originated or that are modified to avoid classification as a high-cost mortgage. As noted in its preliminary section 1022 analysis, the Bureau does not consider these benefits and costs because these changes are required by the Dodd-Frank Act’s amendments to HOEPA. The Bureau’s discretion to exempt broad categories of loans from HOEPA coverage is limited, and the Bureau does not believe such exemptions are consistent with the mandate of the statute. The Bureau has discretion in future rulemakings to choose the most appropriate baseline for each particular rulemaking.
A few industry commenters argued that the analysis did not adequately consider the proposal’s costs and benefits in the context of related rulemakings including the cumulative effects of these rules on consumers and systemic risk. The Bureau, however, interprets the consideration required by section 1022(b)(2)(A) to be focused on the potential benefits, costs, and impacts of the particular rule at issue, and to not include those of other pending or potential rulemakings.
Moreover, the commenters do not suggest a reliable method for assessing cumulative impacts of multiple rulemakings. The Bureau believes that there are multiple reasonable
approaches for conducting the consideration called for by section 1022(b)(2)(A) and that the approach it has taken in this analysis is reasonable and that, particularly in light of the difficulties of reliably estimating certain benefits and costs, it has discretion to decline to undertake additional or different forms of analysis. The Bureau notes that it has coordinated the development of the final rule with its other rulemakings and has, as appropriate, discussed some of the significant interactions of the rulemakings.
One commenter stated that the Bureau did not sufficiently weigh the negative effects of the proposed rule against the likely benefits as measured by the goal of U.S. financial stability. The Bureau notes that, as discussed in this 1022(b)(2) analysis and other parts of the preamble, it has carefully taken into account the potential negative effects of the proposed rule and has accordingly added exceptions and other provisions to mitigate these potential negative effects while preserving the benefits of the rule within the constraints
mandated by Congress.
183The Home Mortgage Disclosure Act (HMDA), enacted by Congress in 1975, as implemented by the Bureau’s Regulation C requires lending institutions annually to report public loan-level data regarding mortgage originations. For more information, see http://www.ffiec.gov/hmda. The illustration is not exact because not all mortgage creditors report under HMDA. The HMDA data capture roughly 90–95 percent of lending by the Federal Housing Administration and 75–85 percent of other first-lien home loans. Robert B. Avery, Neil Bhutta, Kenneth P. Brevoort & Glenn B. Canner, The Mortgage Market in 2011: Highlights from the Data Reported under the Home Mortgage Disclosure Act, Fed. Res. Bull. (forthcoming), at n.2.
184As noted above, the analysis of the final rule uses updated data relative to the proposal. For example, the analysis of the proposal relied on 2010 HMDA data, since 2011 HMDA were not yet available.
185The share of closed-end originations reported under HMDA that were purchase-money mortgages was somewhat lower in 2011 than in most preceding years. The share ranged between 43 percent and 47 percent of originations over the 2004–2008 period before it fell to 31 percent in 2009. The share changed more substantially in earlier years, when it declined from 59 percent in 2000 to 26 percent in 2003. Robert B. Avery, Neil Bhutta, Kenneth P. Brevoort & Glenn B. Canner, The Mortgage Market in 2011: Highlights from the Data Reported under the Home Mortgage Disclosure Act, Fed. Res. Bull. (forthcoming), Table 3.B.
186Experian-Oliver Wyman’s analysis of credit bureau data indicates that there were roughly 13 percent as many HELOC originations in 2011 as there were originations of closed-end mortgage or home equity loans. Specifically, Experian-Oliver Wyman estimated that there were roughly 6.4 million mortgages and 418,000 home equity loans originated in 2011 compared with about 909,000 HELOC originations. The estimate of 42 percent assumes that the fraction of closed-end originations that were purchase-money mortgages among creditors that did not report under HMDA was comparable to the estimated 34 percent for HMDA reporters. More information about the Experian- Oliver Wyman quarterly Market Intelligence Report is available at http://
www.marketintelligencereports.com.
187The estimates of the shares of mortgages potentially subject to HOEPA exclude construction loans, which are not reported under HMDA.
Similarly, the estimates likely exclude reverse mortgages because these mortgages generally are not reported under HMDA.
188These estimates may overstate the extent to which high-cost mortgage lending may increase under the revised thresholds. In particular, the estimate of 0.04 percent of loans that are currently classified as high-cost mortgages in HMDA is based on the HOEPA flag in those data. This estimate of the current share of high-cost mortgages rises to nearly 0.06 percent if the fraction is estimated in an approach comparable to that for projection of the share of loans that exceed the revised thresholds.
189Every national bank, State member bank, and insured nonmember bank is required by its primary Federal regulator to file consolidated Reports of Condition and Income, also known as Call Report data, for each quarter as of the close of business on the last day of each calendar quarter (the report date). The specific reporting requirements depend upon the size of the bank and whether it has any foreign offices. For more information, see http://
www2.fdic.gov/call_tfr_rpts/.
190These estimates of creditors that make any or more than 10 high-cost mortgages under the final rule assume that some lenders avoid making high- cost mortgage loans. In particular, these estimates assume that lenders that are estimated to have not made any high-cost mortgages 2009–2011 do not originate loans that exceed the revised HOEPA thresholds.
C. Coverage of the Final Rule
HOEPA. The provisions of the final rule that relate to high-cost mortgages apply to any consumer credit
transaction that meets one of the HOEPA thresholds and that is secured by the consumer’s principal dwelling, including both closed-end credit transactions (including purchase-money mortgages) and open-end credit plans (i.e., home-equity lines of credit, or HELOCs), but not to reverse mortgages, transactions to finance the initial construction of a dwelling, transactions
transaction that meets one of the HOEPA thresholds and that is secured by the consumer’s principal dwelling, including both closed-end credit transactions (including purchase-money mortgages) and open-end credit plans (i.e., home-equity lines of credit, or HELOCs), but not to reverse mortgages, transactions to finance the initial construction of a dwelling, transactions