The Consumer Financial Protection Bureau (CFPB), Federal Reserve Board (the Fed) and the Office of the Comptroller of the Currency (OCC) announced Nov. 25 that the threshold for exempting loans from special appraisal requirements for higher-priced mortgage loans during 2016 will remain at $25,500.
Effective Jan. 1, 2016, these final rules amend the agencies’ official interpretations for their regulations that implement Section 129H of the Truth in Lending Act (TILA), which establishes special appraisal requirements for “higher-risk mortgages,” or “higher-priced mortgage loans” (HPMLs).
According to a news release from the CFPB, the Dodd-Frank Act amended TILA to add special appraisal requirements for higher-priced mortgage loans, including a requirement that creditors obtain a written appraisal based on a physical visit to the home’s interior before making a higher-priced mortgage loan.
“The rules implementing these requirements contain an exemption for loans of $25,000 or less and also provide that the exemption threshold will be adjusted annually to reflect increases in the CPI-W. If there is no annual percentage increase in the [Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)], the agencies will not adjust this exemption threshold from the prior year,” the CFPB stated.
Also announced Nov. 25 were the dollar thresholds in Regulations Z and M for exempt consumer credit and lease transactions.
For Regulations Z (TILA) and M (Consumer Leasing Act (CLA)), the Fed and CFPB published final rules amending the official interpretations and commentary for the agencies' regulations that implement TILA and CLA, which the Dodd-Frank Act amended by requiring that the dollar threshold for exempt consumer leases be adjusted annually by the annual percentage increase in the CPI-W.
Based on the annual percentage decrease in the CPI-W as of June 1, 2015, the exemption threshold will remain at $54,600 through Dec. 31, 2016.
“This is based on the CPI-W in effect on June 1, 2015, which was reported on May 22, 2015. The Bureau of Labor Statistics publishes consumer-based indices monthly, but does not report a [Consumer Price Index] change on June 1; adjustments are reported in the middle of the month. The CPI-W is a subset of the CPI-U index (based on all urban consumers) and represents approximately 28 percent of the U.S. population. Because the CPI-W reported on May 22, 2015 reflects a 0.8 percent decrease in the CPI-W from April 2014 to April 2015, the board and the bureau are not adjusting the exemption threshold amount,” according to the notice submitted to the Federal Register.
These rules also are effective Jan. 1, 2016.
Emergency Lending
On Nov. 30, the Fed approved a final rule on its emergency lending procedures under Section 13(3) of the Federal Reserve Act.
“Since the passage of the Dodd-Frank Act in 2010, the board's authority to engage in emergency lending has been limited to programs and facilities with ‘broad-based eligibility’ that have been established with the approval of the Secretary of the Treasury,” the Fed stated within a news release. “The Dodd-Frank Act also prohibits lending to entities that are insolvent and imposes certain other limitations. The rule provides greater clarity regarding the Board's implementation of these and other statutory requirements.”
For instance, the final rule defines “broad-based” to mean a program or facility that is not designed for the purpose of aiding any number of failing firms and in which at least five entities would be eligible to participate.
“These additional limitations are consistent with and provide further support to the revisions made by the Dodd-Frank Act that a program should not be for the purpose of aiding specific companies to avoid bankruptcy or resolution,” the release stated.
The final rule also broadens the definition of insolvency to cover borrowers who fail to pay undisputed debts as they become due during the 90 days prior to borrowing or who are determined by the Fed or the lending Reserve Bank to be insolvent.
As a pre-condition to authorizing emergency lending programs, the Fed must find “unusual and exigent circumstances.” The Fed’s practice when extending emergency credit has been to set interest rates at a penalty rate designed to encourage quick repayment. Under the final rule, the interest rate under Section 13(3) will be set at a level that is a premium to the market rate in normal circumstances, affords liquidity in unusual and exigent circumstances and encourages repayment and discourages use of the program as circumstances normalize.