© 2018 CFPB eRegulationsCFPB Interactive Bureau Regulations
(a) Definitions. For purposes of this section:
(1) “Higher-priced mortgage loan” means a closed-
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end consumer credit transaction secured by
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the consumer's
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principal dwelling
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with an annual percentage rate that exceeds
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the average prime offer rate
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for a comparable transaction as of the date the interest rate is set:
(i) By 1.5 or more percentage points for loans secured by a first lien with a principal obligation
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at consummation
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that does not exceed the limit in effect as of the date the transaction's interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac;
(ii) By 2.5 or more percentage points for loans secured by a first lien with a principal obligation
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at consummation
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that exceeds the limit in effect as of the date the transaction's interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac; or
(iii) By 3.5 or more percentage points for loans secured by a subordinate lien.
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(
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2) “Average prime offer rate” means an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered
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to consumers
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by a representative sample
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of creditors
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for mortgage transactions that have low-risk pricing characteristics.
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The Bureau
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publishes average
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prime offer
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rates for a broad range of types of transactions in a table updated at least weekly as well as the methodology
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the Bureau
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uses to derive these rates.
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(
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b)Escrow accounts -
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(1)Requirement to escrow for property taxes and insurance. Except as provided in
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paragraph (b)(2)
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of this section,
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a creditor
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may not extend
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a higher-priced mortgage loan
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secured by a first lien on
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a consumer's
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principal dwelling unless an escrow account is established
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before consummation
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for payment of property taxes and premiums for mortgage-related insurance required by
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the creditor, such as insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting
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the creditor
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against the consumer's default or
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other credit
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loss. For purposes of this
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paragraph (b), the term “escrow account” has the same meaning as under Regulation X ( 12 CFR 1024.17(b)), as amended.
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(
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2)Exemptions. Notwithstanding
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paragraph (b)(1)
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of this section:
(i) An escrow account need not be established for:
(A) A transaction secured by shares in a cooperative;
(B) A transaction to finance the initial construction of
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a dwelling;
(C) A temporary or “bridge” loan with a loan term of twelve months or less, such as a loan to purchase a
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new dwelling
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where the consumer
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plans to sell a
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current dwelling
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within twelve months; or
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(D) A reverse mortgage transaction
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subject to
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§ 1026.33.
OFFICIAL INTERPRETATION TO 35(b)(2)(i)
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(ii) Insurance premiums described in
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paragraph (b)(1)
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of this section need not be included in escrow accounts for loans secured
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by dwellings
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in condominiums, planned unit developments, or other common interest communities in
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which dwelling
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ownership requires participation in a governing association, where the governing association has an obligation to
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the dwelling
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owners to maintain a master policy insuring
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all dwellings.
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(
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iii) Except as provided in paragraph (b)(2)(v)
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of this section, an escrow account need not be established for a transaction if, at the time
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of consummation:
(A) During the preceding calendar year, or, if the application for the transaction was received before April 1 of the current calendar year, during either of the two preceding calendar years,
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the creditor extended
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a covered transaction, as defined by
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§ 1026.43(b)(1), secured by a first lien on a property that is located in an area that is either “rural” or “underserved,” as set forth in paragraph (b)(2)(iv) of this section;
(B) During the preceding calendar year, or, if the application for the transaction was received before April 1 of the current calendar year, during either of the two preceding calendar years,
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the creditor
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and its affiliates
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together extended no more than 2,
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000 covered transactions, as defined by
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§ 1026.43(b)(1), secured by first liens, that were sold, assigned, or otherwise transferred to
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another person, or that were subject at the time
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of consummation
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to a commitment to be acquired by
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another person;
(C) As of the preceding December 31st, or, if the application for the transaction was received before April 1 of the current calendar year, as of either of the two preceding December 31sts,
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the creditor
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and its affiliates
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that regularly
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extended covered transactions, as defined by
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§ 1026.43(b)(1), secured by first liens, together, had total assets of less than $2,000,000,000; this asset threshold shall adjust
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automatically each year, based on the year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million dollars (see
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comment 35(b)(2)(iii)-1.iii
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for the applicable threshold); and
(D) Neither
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the creditor
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nor its affiliate
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maintains an escrow account of the type described in
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paragraph (b)(1)
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of this section for any extension
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of consumer credit
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secured by real property or
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a dwelling
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that the creditor or its affiliate currently services, other than:
(1) Escrow accounts established for first-
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lien higher-priced mortgage loans
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for which applications were received on or after April 1, 2010, and before May 1, 2016; or
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(
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2
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)
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Escrow accounts established
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after consummation
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as an accommodation to
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distressed consumers
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to assist
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such consumers in avoiding default or foreclosure.
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(iv) For purposes of paragraph (b)(2)(iii)(
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OFFICIAL INTERPRETATION TO 35(b)(2)(iii)
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A) of this section:
(A) An area is “rural” during a calendar year if it is:
(1) A county that is neither in a metropolitan statistical area nor in a micropolitan statistical area that is adjacent to a metropolitan statistical area, as those terms are defined by the U.S. Office of Management and Budget and as they are applied under currently applicable Urban Influence Codes (UICs), established by the United States Department of Agriculture's Economic Research Service (USDA-ERS);
(2) A census block that is not in an urban area, as defined by the U.S. Census Bureau using the latest decennial census of the United States; or
(3) A county or a census block that has been designated as rural by
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the Bureau
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pursuant to the application process established under section 89002 of the Helping Expand Lending Practices in Rural Communities Act, Public Law 114-94, title LXXXIX (2015). The provisions of this paragraph (b)(2)(iv)(A)(3) shall cease to have any force or effect on December 4, 2017.
(B) An area is “underserved” during a calendar year if, according to Home Mortgage Disclosure Act (HMDA) data for the preceding calendar year, it is a county in which no more than
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two creditors
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extended covered transactions, as defined in
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§ 1026.43(b)(1), secured by first liens on properties in the county five or more times.
(C) A property shall be deemed to be in an area that is rural or underserved in a particular calendar year if the property is:
(1) Located in a county that appears on the lists published by
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the Bureau
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of counties that are rural or underserved, as defined by
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§ 1026.35(b)(2)(iv)(A)(1)
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or § 1026.35(b)(2)(iv)(B), for that calendar year,
(2) Designated as rural or underserved for that calendar year by any automated tool that
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the Bureau
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provides on its public Web site, or
(3) Not designated as located in an urban area, as defined by the most recent delineation of urban areas announced by the
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Census Bureau, by any automated address search tool that the U.S.
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Census Bureau provides on its public Web site for that purpose and that specifically indicates the urban or rural designations of properties.
OFFICIAL INTERPRETATION TO 35(b)(2)(iv)
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(v) Notwithstanding paragraph (b)(2)(iii)
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of this section, an escrow account must be established pursuant to
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paragraph (b)(1)
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of this section for any first-
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lien higher-priced mortgage loan
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that,
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at consummation, is subject to a commitment to be acquired by
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a person
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that does not satisfy the conditions in
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paragraph (b)(2)(iii)
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of this section, unless otherwise exempted by this
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paragraph (b)(2).
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(
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3)Cancellation -
(
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CANCELLATION—
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i)General. Except as provided in
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paragraph (b)(3)(ii)
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of this section,
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a creditor
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or servicer may cancel an escrow account required in
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paragraph (b)(1)
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of this section only upon the earlier of:
(A) Termination of the underlying debt obligation; or
(B) Receipt no earlier than five years
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after consummation
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of a consumer's request to cancel the escrow account.
(ii)Delayed cancellation. Notwithstanding
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paragraph (b)(3)(i)
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of this section,
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a creditor
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or servicer shall not cancel an escrow account pursuant to
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a consumer's request described in
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paragraph (b)(3)(i)(B)
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of this section unless the following conditions are satisfied:
(A) The unpaid principal balance is less than 80 percent of the original value of the property securing the underlying debt obligation; and
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(B) The consumer currently is not delinquent or in default on the underlying debt obligation.
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(
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c)Appraisals -
(
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OFFICIAL INTERPRETATION TO 35(b)
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APPRAISALS—
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1)Definitions. For purposes of this section:
(i)Certified or licensed
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appraiser means a person who is certified or licensed by
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the State agency
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in the State
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in which the property that secures the transaction is located, and who performs the appraisal in conformity with the Uniform Standards of Professional Appraisal Practice and the requirements applicable to appraisers in title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended ( 12 U.S.C.
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3331et seq.), and any implementing regulations in effect at the time the appraiser signs the appraiser's certification.
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(
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ii)Credit risk means the financial risk that
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a consumer
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will default on a loan.
(iii)Manufactured
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home has the same meaning as in 24 CFR 3280.2.
(iv)Manufacturer's
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invoice means a document issued by a manufacturer and provided with
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a manufactured home
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to a retail dealer that separately details the wholesale (base) prices at the factory for specific models or series
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of manufactured homes
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and itemized options (large appliances, built-in items and equipment), plus actual itemized charges for freight from the factory to the
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dealer's lot or the homesite (including any rental of wheels and axles) and for any sales taxes to be paid by the dealer. The invoice may recite such prices and charges on an itemized basis or by stating an aggregate price or charge, as appropriate, for each category.
(v)National
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Registry means the database of information
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about State certified and licensed appraisers maintained by the Appraisal Subcommittee of the Federal Financial Institutions Examination Council.
(vi)New manufactured
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home means a manufactured home
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that has not been previously occupied.
(vii)State
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agency means a “State appraiser certifying and licensing agency” recognized in accordance with section 1118(b) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ( 12 U.S.C. 3347(b)) and any implementing regulations.
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(2)Exemptions. Unless otherwise specified, the requirements in
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paragraph (c)(3)
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through (6) of this section do not apply to the following types of transactions:
(i) A loan that satisfies the criteria of a qualified mortgage as defined pursuant to 15 U.S.C. 1639c;
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(
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ii) An extension
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of credit
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for which the amount
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of credit
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extended is equal to or less than the applicable threshold amount, which is adjusted every year to reflect increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, as applicable, and published in the official staff commentary to this
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paragraph (c)(2)(ii);
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(
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iii) A transaction secured by a mobile home, boat, or trailer.
OFFICIAL INTERPRETATION TO 35(c)(2)(iii)
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(iv) A transaction to finance the initial construction of
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a dwelling.
OFFICIAL INTERPRETATION TO 35(c)(2)(iv)
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(v) A loan with a maturity of 12 months or less, if the purpose of the loan is a “bridge” loan connected with the acquisition of
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a dwelling
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intended to become
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the consumer's
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principal dwelling.
(vi) A reverse-mortgage transaction subject
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to 12 CFR 1026.33(a).
(vii) An extension
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of credit
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that is a refinancing secured by a first lien, with refinancing defined as in
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§ 1026.20(a)
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(except that
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the creditor
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need not be the
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original creditor
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or a holder or servicer of the original obligation), provided that the refinancing meets the following criteria:
Either—
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(A) Either -
(1) The credit risk of the refinancing is retained by
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the person
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that held
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the credit
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risk of the existing obligation and there is no commitment,
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at consummation, to transfer
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the credit
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risk to
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another person; or
(2) The refinancing is insured or guaranteed by the same Federal government agency that insured or guaranteed the existing obligation;
(B) The regular periodic payments under the refinance loan do
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not -
(1) Cause the principal balance to increase;
(2) Allow
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the consumer
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to defer repayment of principal; or
(3) Result in a balloon payment, as defined in
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§ 1026.18(s)(5)(i); and
(C) The proceeds from the refinancing are used solely to satisfy the existing obligation and amounts attributed solely to the costs of the refinancing; and
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(
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A transaction secured by:
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viii) A transaction secured by:
(A) A new manufactured home
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and land, but the exemption shall only apply to the requirement in
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paragraph (c)(3)(i)
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of this section that the appraiser conduct a physical visit of the interior of
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the new manufactured home; or
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(
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B) A manufactured home and not land, for which
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the creditor
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obtains one of the following and provides a copy to
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the consumer
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no later than
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three business days
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prior to consummation
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of the
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transaction -
(1) For
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a new manufactured home, the
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manufacturer's invoice for
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the manufactured home
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securing the transaction, provided that the date of manufacture is no earlier than 18 months prior to
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the creditor
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's receipt of
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the consumer
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's application
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for credit;
(2) A cost estimate of the value of
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the manufactured home
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securing the transaction obtained from an independent cost service provider; or
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(
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3) A valuation, as defined in
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§ 1026.42(b)(3), of
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the manufactured home
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performed by
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a person
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who has no direct or indirect interest, financial or otherwise, in the property or transaction for which
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the valuation
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is performed and has training in
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valuing manufactured homes.
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(
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3)Appraisals required -
(
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OFFICIAL INTERPRETATION TO 35(c)(2)
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APPRAISALS REQUIRED—
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i)In general. Except as provided in
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paragraph (c)(2)
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of this section,
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a creditor
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shall not extend
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a higher-priced mortgage loan
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to a consumer
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without obtaining, prior
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to consummation, a written appraisal of the property to be mortgaged. The appraisal must be performed by
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a certified or licensed appraiser
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who conducts a physical visit of the interior of the property that will secure the transaction.
OFFICIAL INTERPRETATION TO 35(c)(3)(i)
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(ii)Safe harbor.
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A creditor
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obtains a written appraisal that meets the requirements for an appraisal required under
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paragraph (c)(3)(i)
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of this section if
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the creditor:
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(A) Orders that the appraiser perform the appraisal in conformity with the Uniform Standards of Professional Appraisal Practice and title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended ( 12 U.S.C.
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3331et seq.), and any implementing regulations in effect at the time the appraiser signs the appraiser's certification;
(B) Verifies through
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the National Registry
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that the appraiser who signed the appraiser's certification was
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a certified or licensed appraiser
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in the State
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in which the appraised property is located as of the date the appraiser signed the appraiser's certification;
(C) Confirms that the elements set forth in
...
appendix N
...
to this part are addressed in the written appraisal; and
OFFICIAL INTERPRETATION TO 35(c)(3)(ii)(C)
...
(D) Has no actual knowledge contrary to the facts or certifications contained in the written appraisal.
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(
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ADDITIONAL APPRAISAL FOR CERTAIN HIGHER-PRICED MORTGAGE LOANS
...
4)Additional appraisal for certain higher-priced mortgage loans -
(i)In general. Except as provided in paragraphs (c)(2) and (c)(4)(vii)
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of this section,
...
a creditor
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shall not extend
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a higher-priced mortgage loan
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to a consumer
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to finance the acquisition of
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the consumer's
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principal dwelling
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without obtaining, prior
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to consummation, two written appraisals, if:
(A) The seller acquired the property 90 or fewer days prior to the date of
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the consumer'
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s agreement
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to acquire the property and the price in
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the consumer'
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s agreement
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to acquire the property exceeds the seller's acquisition price by more than 10 percent; or
(B) The seller acquired the property 91 to 180 days prior to the date of
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the consumer'
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s agreement
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to acquire the property and the price in
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the consumer'
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s agreement
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to acquire the property exceeds the seller's acquisition price by more than 20 percent.
...
(
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ii)Different certified or licensed appraisers. The two appraisals required under
...
paragraph (c)(4)(i)
...
of this section may not be performed by the
...
same certified or licensed appraiser.
OFFICIAL INTERPRETATION TO 35(c)(4)(ii)
...
(iii)Relationship to general appraisal requirements. If two appraisals must be obtained under
...
paragraph (c)(4)(i)
...
of this section, each appraisal shall meet the requirements of
...
paragraph (c)(3)(i) of this section.
OFFICIAL INTERPRETATION TO 35(c)(4)(iii)
...
(iv)Required analysis in the additional appraisal. One of the two required appraisals must include an analysis of:
(A) The difference between the price at which the seller acquired the property and the price that
...
the consumer
...
is obligated to pay to acquire the property, as specified in
...
the consumer'
...
s agreement
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to acquire the property from the seller;
(B) Changes in market conditions between the date the seller acquired the property and the date of
...
the consumer'
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s agreement
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to acquire the property; and
(C) Any improvements made to the property between the date the seller acquired the property and the date of
...
the consumer'
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s agreement
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to acquire the property.
OFFICIAL INTERPRETATION TO 35(c)(4)(iv)
...
(v)No charge for the additional appraisal. If
...
the creditor
...
must obtain two appraisals under
...
paragraph (c)(4)(i)
...
of this section,
...
the creditor
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may charge
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the consumer
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for only one of the appraisals.
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(
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vi)Creditor's determination of prior sale date and price -
(A)Reasonable diligence.
...
A creditor
...
must obtain two written appraisals under
...
paragraph (c)(4)(i)
...
of this section unless
...
the creditor
...
can demonstrate by exercising reasonable diligence that the requirement to obtain two appraisals does not apply.
...
A creditor
...
acts
...
with reasonable diligence if
...
the creditor bases its determination on information contained in written source documents, such as the documents listed in
...
appendix O
...
to this part.
OFFICIAL INTERPRETATION TO 35(c)(4)(vi)(A)
...
(B)Inability to determine prior sale date or
...
price - modified requirements for additional appraisal. If, after exercising reasonable diligence,
...
a creditor
...
cannot determine whether the conditions in
...
paragraphs (c)(4)(i)(A)
...
and (c)(4)(i)(B)
...
are present and therefore must obtain two written appraisals in accordance with
...
paragraphs (c)(4)(i)
...
through (v) of this section, one of the two appraisals shall include an analysis of the factors in
...
paragraph (c)(4)(iv)
...
of this section only to the extent that the information necessary for the appraiser to perform the analysis can be determined.
...
(
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vii)Exemptions from the additional appraisal requirement. The additional appraisal required under
...
paragraph (c)(4)(i)
...
of this section shall not apply to extensions
...
of credit
...
that finance
...
a consumer's acquisition of property:
(A) From a local,
...
State
...
or Federal government agency;
(B) From
...
a person
...
who acquired title to the property through foreclosure, deed-in-lieu of foreclosure, or other similar judicial or non-judicial procedure as a result of
...
the person's exercise of rights as the holder of a defaulted mortgage loan;
(C) From a non-profit entity as part of a local,
...
State, or Federal government program under which the non-profit entity is permitted to acquire title to single-family properties for resale from a seller who acquired title to the property through the process of foreclosure, deed-in-lieu of foreclosure, or other similar judicial or non-judicial procedure;
...
(
...
D) From a person who acquired title to the property by inheritance or pursuant to a court order of dissolution of marriage, civil union, or domestic partnership, or of partition of joint or marital assets to which the seller was a party;
(E) From an employer or relocation agency in connection with the relocation of an employee;
(F) From a servicemember, as defined in 50 U.S.C. App. 511(1), who received a deployment or permanent change of station order after the servicemember purchased the property;
(G) Located in an area designated by the President as a federal disaster area, if and for as long as the Federal financial institutions regulatory agencies, as defined in 12 U.S.C. 3350(6), waive the requirements in title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended ( 12 U.S.C.
...
3331et seq.), and any implementing regulations in that area; or
(H) Located in a rural county, as defined
...
in 12 CFR 1026.35(b)(2)(iv)(A).
...
(
...
OFFICIAL INTERPRETATION TO 35(c)(4)
...
REQUIRED DISCLOSURE—
5)Required disclosure -
(i)In general. Except as provided in
...
paragraph (c)(2)
...
of this section,
...
a creditor
...
shall disclose the following statement, in writing, to
...
a consumer
...
who applies for
...
a higher-priced mortgage loan: “We may order an appraisal to determine the property's value and charge you for this appraisal. We will give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.” Compliance with the disclosure requirement in Regulation B, 12 CFR 1002.14(a)(2), satisfies the requirements of this paragraph.
OFFICIAL INTERPRETATION TO 35(c)(5)(i)
...
(ii)Timing of disclosure. The disclosure required by
...
paragraph (c)(5)(i)
...
of this section shall be delivered or placed in the mail no later than the
...
third business day
...
after the creditor receives the consumer's application for
...
a higher-priced mortgage loan
...
subject to
...
paragraph (c)
...
of this section. In the case of a loan that is not
...
a higher-priced mortgage loan
...
subject to
...
paragraph (c)
...
of this section at the time of application, but becomes
...
a higher-priced mortgage loan
...
subject to
...
paragraph (c)
...
of this section after application, the disclosure shall be delivered or placed in the mail not later than the
...
third business day
...
after the creditor
...
determines that the loan is
...
a higher-priced mortgage loan
...
subject to
...
paragraph (c)
...
of this section.
COPY OF APPRAISALS—
(6)Copy of appraisals -
(i)In general. Except as provided in
...
paragraph (c)(2)
...
of this section,
...
a creditor
...
shall provide to
...
the consumer
...
a copy of any written appraisal performed in connection with
...
a higher-priced mortgage loan
...
pursuant to
...
paragraphs (c)(3)
...
and (c)(4)
...
of this section.
...
(
...
ii)Timing.
...
A creditor
...
shall provide to
...
the consumer
...
a copy of each written appraisal pursuant to
...
paragraph (c)(6)(i)
...
of this section:
(A) No later than
...
three business days
...
prior to consummation
...
of the loan; or
(B) In the case of a loan that is not consummated, no later than 30 days after
...
the creditor
...
determines that the loan will not be consummated.
OFFICIAL INTERPRETATION TO 35(c)(6)(ii)
...
(iii)Form of copy. Any copy of a written appraisal required by
...
paragraph (c)(6)(i)
...
of this section may be provided to the applicant in electronic form, subject to compliance with
...
the consumer
...
consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) ( 15 U.S.C.
...
7001et seq.).
(iv)No charge for copy of appraisal.
...
A creditor
...
shall not charge
...
the consumer
...
for a copy of a written appraisal required to be provided to
...
the consumer
...
pursuant to
...
paragraph (c)(6)(i) of this section.
...
(
...
7)Relation to other rules. The rules in this
...
paragraph (c)
...
were adopted jointly by the Federal Reserve Board (Board), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation, the
...
National Credit
...
Union Administration, the Federal Housing Finance Agency, and
...
the Bureau. These rules are substantively identical to the Board's and the OCC'
...
s higher-priced mortgage loan
...
appraisal rules published separately in 12 CFR 226.43 (for the Board) and in 12 CFR part 34, subpart G and 12 CFR part 164, subpart B (for the OCC).
(d)Evasion; open-end credit. In connection
...
with credit
...
secured by
...
a consumer's
...
principal dwelling
...
that does not meet the definition
...
of open-end credit
...
in § 1026.2(a)(20),
...
a creditor
...
shall not structure a home-secured loan as an open-end plan to evade the requirements of this section
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Repayment ability, prepayment penalties.Except as provided in paragraph (e)(3) of this section, higher-priced mortgage loans are subject to the following restrictions:
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REPAYMENT ABILITY.A creditor shall not extend credit based on the value of the consumer's collateral without regard to the consumer's repayment ability as of consummation as provided in § 1026.34(a)(4).
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PREPAYMENT PENALTIES.A loan may not include a penalty described by § 1026.32(d)(6) unless:
The penalty is otherwise permitted by law, including § 1026.32(d)(7) if the loan is a mortgage transaction described in § 1026.32(a); and
Under the terms of the loan:
The penalty will not apply after the two-year period following consummation;
The penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or an affiliate of the creditor; and
The amount of the periodic payment of principal or interest or both may not change during the four-year period following consummation.
OFFICIAL INTERPRETATION TO 35(e)(2)(ii)(C)
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EXCLUSIONS.This paragraph (e) does not apply to a transaction to finance the initial construction of a dwelling; a temporary or “bridge” loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months; or a reverse mortgage transaction subject to § 1026.33.
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