TILA Rules Require Lender Transfer Disclosure 2010

8/12/2019 TILA Rules Require Lender Transfer Disclosure 2010

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58489Federal Register / Vol. 75, No. 185 / Friday, September 24, 2010/ Rules and Regulations

1RESPA is implemented by Regulation X, 24 CFRpart 3500, which is issued by the Department ofHousing and Urban Development (HUD).

vi. Model H4(I) illustrates theintroductory rate disclosure required by 226.18(s)(2)(iii) for an adjustable-ratemortgage transaction with an introductoryrate.

vii. Model H4(J) illustrates the balloonpayment disclosure required by 226.18(s)(5)for a mortgage transaction with a balloonpayment term.

viii. Model H4(K) illustrates the no-

guarantee-to-refinance statement required by 226.18(t) for a mortgage transaction.

* * * * *

By order of the Board of Governors of theFederal Reserve System, August 13, 2010.

Robert deV. Frierson,

Deputy Secretary of the Board.

[FR Doc. 201020663 Filed 92310; 8:45 am]

BILLING CODE P

FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Docket No. R1378]

Regulation Z; Truth in Lending

AGENCY: Board of Governors of theFederal Reserve System.ACTION: Final rule; official staffcommentary.

SUMMARY: The Board is publishing finalrules amending Regulation Z (Truth inLending). The final rule implementsSection 131(g) of the Truth in LendingAct (TILA), which was enacted on May20, 2009, as Section 404(a) of theHelping Families Save Their Homes

Act. TILA Section 131(g) becameeffective immediately upon enactmentand established a new requirement fornotifying consumers of the sale ortransfer of their mortgage loans.

Consistent with the statute, the finalrule requires a purchaser or assigneethat acquires a loan to provide thedisclosures in writing no later than 30days after the date on which the loanwas sold, transferred or assigned.Certain exceptions may apply if thecovered person transfers or assigns theloan to another party on or before the30th day.

DATES: Effective Date. This final rule iseffective on January 1, 2011.

Mandatory Compliance Date. Themandatory compliance date is January1, 2011. Covered persons mayimmediately comply with thisamendment or continue to comply with12 CFR 226.39 until the mandatorycompliance date.FOR FURTHER INFORMATION CONTACT:

Jelena McWilliams, Attorney, or PaulMondor, Senior Attorney; Division ofConsumer and Community Affairs,Board of Governors of the Federal

Reserve System, Washington, DC 20551,at (202) 4522412 or (202) 4523667.For users of TelecommunicationsDevice for the Deaf (TDD) only, contact(202) 2634869.SUPPLEMENTARY INFORMATION:

I. Background

The Truth in Lending Act (TILA), 15

U.S.C. 1601 et seq., seeks to promote theinformed use of consumer credit byrequiring disclosures about its costs andterms. TILA requires additionaldisclosures for loans secured byconsumers homes and permitsconsumers to rescind certaintransactions that involve their principaldwelling. TILA directs the Board toprescribe regulations to carry out itspurposes. TILA specifically authorizesthe Board, among other things, to issueregulations that contain suchclassifications, differentiations, or otherprovisions, or that provide for such

adjustments and exceptions for anyclass of transactions, that in the Boardsjudgment are necessary or proper toeffectuate the purposes of TILA,facilitate compliance with TILA, orprevent circumvention or evasion ofTILA. 15 U.S.C. 1604(a). TILA isimplemented by the Boards RegulationZ. 12 CFR part 226. An Official StaffCommentary interprets the requirementsof the regulation and provides guidanceto creditors in applying the rules tospecific transactions. See 12 CFR part226, Supp. I.

On May 20, 2009, the HelpingFamilies Save Their Homes Act of 2009

(the 2009 Act) was signed into law.Public Law 11122, 123 Stat. 1632.Section 404(a) of the 2009 Act amendedTILA to establish a new requirement fornotifying consumers of the sale ortransfer of their mortgage loans. Thepurchaser or assignee that acquires theloan must provide the requireddisclosures no later than 30 days afterthe date on which it acquired the loan.This provision is contained in TILASection 131(g), 15 U.S.C. 1641(g), whichapplies to any consumer credittransaction secured by the principaldwelling of a consumer. Consequently,

the disclosure requirements in Section131(g) apply to both closed-endmortgage loans and open-end homeequity lines of credit.

Section 131(g) became effectiveimmediately upon enactment on May20, 2009, and did not require theissuance of implementing regulations.Mortgage loans sold, or otherwisetransferred on or after that date becamesubject to the requirements of Section131(g), and failure to comply can resultin civil liability under TILA Section130(a). See 15 U.S.C. 1640(a). In

November 2009, the Board issued aninterim rule that was effectiveimmediately upon publication, so thatparties subject to the rule would haveguidance on how to interpret andcomply with the statutory requirements.74 FR 60143, Nov. 20, 2009.

Under the Real Estate SettlementProcedures Act (RESPA), consumers

must be notified when the servicer oftheir mortgage loan has changed.1 The2009 Acts legislative history reflectsthat, in addition to the informationprovided under RESPA, the Congressintended to provide consumers withinformation about the identity of theowner of their mortgage loan. In somecases, consumers that have an extendedright to rescind the loan under TILASection 125, 15 U.S.C. 1635, can assertthat right against the purchaser orassignee. See TILA Section 131(c), 15U.S.C. 1641(c). Among other things, the2009 Act seeks to ensure that consumers

attempting to exercise this right knowthe identity of the assignee and how tocontact the assignee or its agent for thatpurpose. See 155 Cong. Rec. S509899(daily ed. May 5, 2009); 155 Cong. Rec.S517374 (daily ed. May 6, 2009). Thelegislative history indicates, however,that TILA Section 131(g) was notintended to require notice when atransaction does not involve a changein the ownership of the physical note,such as when the note holder issuesmortgage-backed securities but does nottransfer legal title to the loan. 155 Cong.Rec. S5099.

II. Summary of the Final RuleThe final rule requires an acquiring

party to provide the disclosures inwriting no later than 30 days after thedate on which the loan was sold,transferred or assigned. Under the finalrule, the disclosures must state (1) Thename, address, and telephone number ofthe new owner; (2) the transfer date; (3)the name, address, and telephonenumber of an agent or other partyauthorized to receive the consumersrescission notice and resolves issuesconcerning the consumers payments onthe loan (if other than owner); and (4)

where the transfer of ownership isrecorded.

Consistent with the statute andlegislative intent, the final ruleimplements Section 404(a) of the 2009Act by applying the new disclosurerequirements to any person or entitythat acquires ownership of an existingconsumer mortgage loan, whether theacquisition occurs as a result of a

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58490 Federal Register / Vol. 75, No. 185 / Friday, September 24, 2010/ Rules and Regulations

purchase or other transfer orassignment. A person is covered by therule if it acquires legal title to the debtobligation. Although TILA andRegulation Z generally apply only topersons to whom the credit obligation isinitially made payable and thatregularly engage in extending consumercredit, Section 404(a) and the final rule

apply to persons that acquire mortgageloans without regard to whether theyalso extend consumer credit byoriginating mortgage loans. However,the final rule applies only to personsthat acquire more than one mortgageloan in any 12-month period. A partyservicing the mortgage loan is nottreated as the owner of the obligation ifthe obligation was assigned to theservicer solely for the administrativeconvenience of the servicer in servicingthe obligation.

To prevent the confusion that couldresult if consumers receive disclosures

from multiple parties or outdatedcontact information for parties that nolonger own their loan, the final ruleprovides three exceptions. Under thefinal rule, a covered person must mailor deliver the required disclosures on or

before the 30th day following the datethat the covered person acquired theloan. The disclosures need not be given,however, if the covered person transfersor assigns all of its interest in the loanto another party on or before that date.For example, a covered person thatacquires a mortgage loan on March 15must mail or deliver the disclosures onor before April 14. However, if the

covered person sells or assigns the loanto a third party on April 14 (or earlier),the covered person need not provide thedisclosures, but subsequent purchaserswould have to comply with the rule. Ifthe covered person transfers a partialinterest in the loan on or before the 30thday following its acquisition and retainsa partial interest in the loan, the coveredperson would have to comply with therule unless one of the other exceptionsapplies.

A second exception applies when theowner of the mortgage loan transfers thelegal title in a transaction that is subject

to a repurchase agreement. In that case,the disclosures are not required if thetransferor is obligated to repurchase theloan. This exception also applies whenthe acquiring party obtains a loanthrough an intermediary party instead ofthe transferor that is obligated torepurchase the loan. If the transferordoes not repurchase the mortgage loan,the acquiring party must make thedisclosures within 30 days after the datethat the transaction is recognized as anacquisition on its own books andrecords.

A third exception applies when thecovered person acquires only a partialinterest in the loan and the partyauthorized to resolve issues concerningthe consumers payments on the loan orreceive the rescission notice on behalf ofa current owner does not change as aresult of the transfer.

III. Legal AuthorityGeneral Rulemaking Authority

As noted above, TILA Section 105(a)directs the Board to prescriberegulations to carry out the actspurposes. 15 U.S.C. 1604(a). Section404(a) of the 2009 Act became effectiveimmediately without any requirementthat the Board first issue implementingrules. Nevertheless, the Board finds thatthe legislative purpose of Section 404(a)will be furthered and its effectivenessenhanced by the issuance of rules thatspecify the manner in which coveredpersons can comply with its provisions.

In addition, the Board believes thatimplementing regulations will facilitatecovered persons compliance with thestatutory provisions.

TILA specifically authorizes theBoard, among other things, to:

Issue regulations that contain suchclassifications, differentiations, or otherprovisions, or that provide for suchadjustments and exceptions for anyclass of transactions, that in the Boardsjudgment are necessary or proper toeffectuate the purposes of TILA,facilitate compliance with the act, orprevent circumvention or evasion. 15

U.S.C. 1604(a). Exempt from all or part of TILA any

class of transactions if the Boarddetermines that TILA coverage does notprovide a meaningful benefit toconsumers in the form of usefulinformation or protection. The Boardmust consider factors identified in theact and publish its rationale at the timeit proposes an exemption for comment.15 U.S.C. 1604(f).

After considering the commentsreceived and based on its experience inimplementing and enforcing RegulationZ, for the reasons discussed in this

notice the Board is using its rulemakingauthority under TILA Section 105(a)and (f) to implement Section 404(a) ofthe 2009 Act.

IV. Overview of Comments Received

In response to the interim rule, theBoard received thirty-five commentletters. Twenty letters were receivedfrom financial institutions, financialservices trade associations and lawfirms representing the financialindustry. Three letters were receivedfrom consumer groups, and twelve

letters were received from individualconsumers.

Financial institutions and financialservices trade associations generallysupported the interim rule because itclarifies statutory requirements andoffers guidance to creditors and otherparties that acquire mortgage loans. Afew of these commenters stated that the

Board should narrow the scope of therules coverage and broaden theexceptions. Three industry commenterssought an exemption for transfers thatoccur as a result of a corporate merger,acquisition, or reorganization. Onecommenter representing industryrequested that the Board expand theexemption applicable to repurchaseagreements to other short-term purchasearrangements even if the transferor isnot obligated to repurchase the loan.

Consumer groups generally supportedthe interim rule because it ensuresconsumers will receive meaningful

information in a timely manner.However, consumer advocates sought toexpand the scope of the rules coverageand narrow the scope of exceptions toprovide additional consumer protection.Individual consumers that commentedgenerally supported the interim rule.The comments are discussed in moredetail below in part V of theSUPPLEMENTARY INFORMATION.

V. Section-by-Section Analysis

Section 226.39Mortgage TransferDisclosures

39(a) Scope

Interim Rule

Section 226.39(a) defines the scope ofthe interim rules coverage. Under theinterim rule, the disclosurerequirements of 226.39 apply to anycovered person with certainexceptions specified in the rule. Forpurposes of the interim rule, a coveredperson includes any person (as definedin 226.2(a)(22)) that acquires morethan one existing mortgage loan in any12-month period. Consistent with thestatute, the interim rule applies to allconsumer mortgage transactions secured

by the principal dwelling of a consumer,whether the transaction is a closed-endmortgage loan or an extension of creditunder an open-end plan.

Generally, TILA and Regulation Zapply to parties that regularly extendconsumer credit. However, Section404(a) of the 2009 Act is not limited topersons that extend credit by originatingloans. Section 404(a) imposes thedisclosure requirements on the creditorthat is the new owner or assignee of thedebt. The Board believes that, to giveeffect to the legislative purpose, the



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term creditor in Section 404(a) mustbe construed to refer to the owner of thedebt following the sale, transfer orassignment, without regard to whetherthat party would be a creditor forother purposes under TILA orRegulation Z. In issuing the interimrule, the Board declined to limit Section404(a) to parties that originate consumer

loans because such an interpretationwould exempt a significant percentageof mortgage transfers to persons thatpurchase loans in the secondary market

but do not extend consumer credit andare not creditors for purposes of otherprovisions of Regulation Z.

The interim rule also clarified thatSection 404(a) does not alter thedefinition of creditor as used in TILAor Regulation Z. Thus, the fact that aperson purchases mortgage loans andprovides disclosures under 226.39does not by itself make that person acreditor for purposes of TILA and

Regulation Z. Accordingly, in describingthe persons subject to the requirementsof 226.39, the interim rule uses theterm covered person rather than theterm creditor.

Under the interim rule, the disclosurerequirements under 226.39 apply onlyto persons that acquire more than oneconsumer mortgage transaction in any12-month period. Generally, TILA andRegulation Z cover only parties that areregularly engaged in consumer credittransactions, who are expected to havethe capacity to put systems in place toensure compliance with the rules. Inissuing the interim rule, the Board

indicated that it found nothing in thelegislative history indicating thatSection 404(a) was intended to applymore broadly than the general TILA andRegulation Z requirements. Forexample, individual homeowners mightchoose to facilitate the sale of theirhome by providing seller financing andaccepting the buyers promissory notefor a portion of the purchase price. Ata later date, ownership of the debtobligation might transfer to anotherfamily member or to a trust for estateplanning purposes, or to another personif the original note holder dies. The

Board determined that a formal noticeunder Section 404(a) was not needed insituations involving individual transfers

because the acquiring party is likely toprovide adequate information to

borrowers to ensure that they know towhom the loan payments should bemade.

Accordingly, to prevent undue burdenon individuals under the interim rule, aperson who acquires only one existingmortgage loan in any 12-month periodis not a covered person. The interimrule excludes persons who are not

regularly engaged in the business ofpurchasing or investing in consumermortgages loans, are involved in suchtransactions only infrequently, andwould not have systems in place tocomply.

Consistent with the legislativepurpose, to become a covered personsubject to 226.39, a person must

become the owner of an existingmortgage loan by acquiring legal title tothe debt obligation. Consequently, 226.39 does not apply to persons whoacquire only a beneficial interest or asecurity interest in the loan, such aswhen the owner of the debt obligationuses the loan as security to obtainfinancing and the party providing thefinancing obtains a security interest inthe loan. Section 226.39 also does notapply to a party that assumes the creditrisk without acquiring legal title to theloans. Accordingly, an investor whopurchases an interest in a pool of loans

(such as mortgage-backed securities,pass-through certificates, participationinterests, or real estate mortgageinvestment conduits) but does notacquire legal title in the underlyingmortgage loan, is not covered by 226.39. See 155 Cong. Rec. S509899(daily ed. May 5, 2009). The interim rulealso clarifies that the disclosures arerequired under 226.39 for transfersthat occur as a result of a corporatemerger, acquisition, or reorganizationwhen ownership of the loan istransferred to a different legal entity.

Section 131(f) of TILA addresses thetreatment of loan servicers under the

provisions of Section 131(g) which wereadded by the 2009 Act. Under TILASection 131(f)(2), a party servicing themortgage loan is not treated as theowner of the obligation if the obligationwas assigned to the servicer solely forthe administrative convenience.Accordingly, the requirements of 226.39 under the interim rule do notapply to a loan servicer if the servicerholds legal title to the loan solely foradministrative convenience.

Public Comment

The Board solicited comment on the

definition of a

covered person

andwhether the scope of the interim rulescoverage is appropriate, or whether adifferent standard should apply indetermining which persons mustcomply with the disclosurerequirements of 226.39. Comment wasspecifically requested on whether theBoard should use the same Regulation Zstandard used to determine whether aperson is regularly engaged in extendingconsumer credit, which would limit theapplication of 226.39 to persons thathave acquired more than five mortgage

loans in the preceding or currentcalendar year. See 226.2(a)(17)(i),footnote 3.

The Board received several commentsthat addressed the scope of the rule. Afew industry commenters stated that therule should cover only persons thatacquire more than five mortgage loansin the preceding or current calendar

year based on the standard used todetermine whether a person is acreditor for purposes of Regulation Z.These commenters stated that athreshold of one loan in 12 months istoo low.

One financial institution commenterrequested that the Board exempttransfers that occur in connection witha merger of entities with noaccompanying change in the servicingof the mortgage loan. The commenterstated that a merger results in amortgage loan being combined with theassets of another entity, rather than

being sold or transferred. An industrytrade group requested that the Boardexempt transfers that occur as a resultof a merger of entities with noaccompanying change in either thename or the contact information for thecovered person. The commenter alsostated that some corporatereorganizations or asset sales may notallow enough advance planning for theacquiring party to produce and deliverthe disclosures required by 226.39 ina timely manner. This commentersuggested that the final rule shouldcontain a general exemption fortransfers that occur as a result of a

merger, or to provide a longercompliance period for such transfers.

Consumer group commenters statedthat the rule should cover any personthat acquires a mortgage loan, withoutexception. They also asserted thattransfers to servicers that hold legal titlesolely for administrative convenienceshould be covered. These commentersstated that if the rule exempts servicersthat take legal title solely foradministrative convenience, the ruleshould also clarify that submitting arescission notice to the servicer should

be effective as to the actual holder. They

also requested that the final rule addressthe remedies available in court when aviolation occurs.

Final Rule

The final rule adopts the samedefinition of covered person used inthe interim rule. Under the final rule, acovered person includes any person(as defined in 226.2(a)(22)) thatacquires more than one existingmortgage loan in any 12-month period.

Like the interim rule, the final ruleexempts individual transfers because



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the potential benefit of covering suchtransactions would not outweigh thelikely burden on persons who do notregularly engage in mortgagetransactions. Generally, TILA onlycovers parties that regularly engage inconsumer credit transactions who areexpected to have the capacity to putsystems in place to ensure compliance

with the rules. The Board believes thatpersons who engage in a singletransaction should not be expected tocomply. Moreover, the Board believesthat the disclosures required under 226.39 are not needed in situationsinvolving individual transfers becausethe acquiring party is directly involvedwith the borrower and has an incentiveto ensure that the borrower knowswhere to send loan payments.

Like the interim rule, the final ruleclarifies that, to become a coveredperson subject to the disclosurerequirements under 226.39, a person

must become the owner of an existingmortgage loan by acquiring legal title tothe loan. Comment 39(a)(1)2(i) isadded in the final rule to clarify that aparty may become a covered person byacquiring a partial interest in a mortgageloan. Comment 39(a)(1)2(ii) is added inthe final rule to clarify that all personsthat jointly acquire legal title to the loanare subject to the disclosurerequirements of 226.39. Multiplepersons are deemed to jointly acquirelegal title if each acquires a partialinterest in the loan pursuant to the sameagreement or they otherwise act inconcert to acquire their interest in the

loan. Comment 39(a)(1)2(iii) is addedto clarify that an acquiring party that isa separate legal entity from thetransferor must provide the disclosuresrequired by 226.39 even if the partiesare affiliated entities.

The final rule, like the interim rule,does not apply to persons who acquireonly a beneficial interest or a securityinterest in the loan, such as when theowner of the debt obligation uses theloan as security to obtain financing andthe party providing the financingobtains only a security interest in theloan. The final rule also does not apply

to a party that assumes the credit riskwithout acquiring legal title to the loanssuch as an investor who purchasesmortgage-backed securities.

Consistent with TILA Section 131(f),the final rule does not apply to a partyservicing the mortgage loan if theobligation was assigned to the servicersolely for administrative convenience.Consumer group commenters requestedthat, if the final rule exempts transfersto servicers for administrativeconvenience, it should provide thatconsumers may submit a rescission

notice to the servicer. The Board isaddressing this issue concerningconsumers ability to send rescissionnotices to the servicer in a separateproposed rule published elsewhere intodays Federal Register (Docket No. R1390). Consumer group commentersalso requested that the final rule setforth appropriate remedies for violations

of the disclosures requirements under 226.39. The Board notes that adetermination of court remedies isoutside of the scope of this rulemaking.Nonetheless, in using the term coveredperson rather than creditor in 226.39, the Board is not determiningwhether or not TILA Section 130applies. The Board notes that Section404(a) of the 2009 Act specifically addsTILA Section 131(g) to the list ofsections covered under TILA Section130.

The Board does not believe that anexemption for transfers that occur as a

result of a corporate merger, acquisition,or reorganization is appropriate whenthere is a transfer of ownership to adifferent legal entity. The final rule isconsistent with the legislative goal thatconsumers be notified of transfers thatwould require them to seek assistancefrom or assert their rights against adifferent legal entity, even if the partiesare affiliated entities. The fact that amerger results in a mortgage loan beingcombined with the assets of anotherentity is not dispositive of whether thedisclosure requirements under 226.39are triggered. If legal title in the loan is

held by the same legal entity before andafter the merger, there is no transfer oftitle and the disclosure requirements of 226.39 are not triggered. Thus,combining assets with another entity isnot in itself dispositive of whether thedisclosures under 226.39 are required.

The Board also believes that a longercompliance period for transfers thatoccur as a result of a merger, acquisitionor reorganization would not beappropriate under the statute.Consistent with the statute and theinterim rule, the final rule requires thepurchaser or assignee that acquires theloan to provide the disclosures in

writing no later than 30 days after thedate on which the loan is sold,transferred or assigned.

39(b) Disclosure Required

Interim Rule

Section 226.39(b) contains the generalrequirement for covered persons toprovide the disclosures required underSection 404(a) of the 2009 Act, unlessone of the exceptions specified in 226.39(c) applies. Under the interimrule, the disclosures must be mailed or

delivered to the consumer on or beforethe 30th calendar day following the datethat the covered person acquires theloan. Under the interim rule, the date onwhich the covered person acquires theloan is the acquisition date recognizedin the books and records of theacquiring party. If there is more thanone covered person, the interim rule

provides that only one disclosure shallbe given on behalf of all coveredpersons. If there is more than oneconsumer, a covered person may mail ordeliver the disclosures to any consumerwho is primarily liable on theobligation. This is consistent with therule generally applicable to TILAdisclosures. See TILA Section 121(a)and 226.17(d) of Regulation Z.

The disclosure requirements of 226.39 apply when the acquiring partyis a separate legal entity from thetransferor, even if the parties areaffiliated entities. If there are multiple

transfers, the regulation allows multiplecovered persons to combine theirdisclosures in a single document,provided that the disclosure meets theapplicable timing requirements for eachperson. Comment 39(b)2 providesguidance on how multiple parties mayprovide a single disclosure.

Public Comment

Consumer group commenters opposedthe provision in the interim ruleallowing covered persons to provide thedisclosures to any consumer who isprimarily liable on the loan. Theysuggested that the final rules instead

require a covered person to provide thedisclosure to every consumer who isliable on the mortgage loan and anyperson entitled to rescind. In addition toobligors, other persons may have a rightto rescind if their ownership interest intheir principal dwelling will be subjectto the creditors security interest.

One industry commenter suggestedthat the final rule should provide moreflexibility in determining theacquisition date. This commenter statedthat covered persons may use anelectronic mortgage registry thatautomatically generates and provides

the disclosures when the transferorenters the closing date for the transferand the acquirer confirms theacquisition. Because the transferor andthe acquirer may not recognize the samedate of transfer due to differences intheir accounting systems, thecommenter suggested that the disclosureshould be permitted to state either theacquisition date recognized on thepurchasers books, or the daterecognized on the transferors books.

Two other industry commenters askedthe Board to clarify that disclosures



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required by 226.39 may be combinedwith other materials or disclosures,including notices of mortgage servicingtransfers required by RESPA, 12 U.S.C.2601 et seq.

Final Rule

The final rule clarifies that thedisclosures required by 226.39 must be

provided clearly and conspicuously inwriting, in a form that the consumermay keep. Consistent with the standardthat applies to other disclosures underRegulation Z, the disclosures also may

be provided to the consumer inelectronic form, subject to compliancewith the consumer consent and otherapplicable provisions of the ElectronicSignatures in Global and NationalCommerce Act (E-Sign Act), 15 U.S.C.7001 et seq. The final rule also clarifiesthat the disclosures under 226.39 can

be combined with other materials ordisclosures, including the transfer ofservicing notices required by RESPA solong as the combined disclosuresatisfies the timing and otherrequirements in 226.39.

Consistent with the interim rule, thefinal rule allows a covered person toprovide notice to any consumerprimarily liable on the obligation.Because 226.39 applies to loanssecured by the consumers principaldwelling, additional copies sent tomultiple obligors would typically bedelivered to the same address, andwould not significantly enhanceconsumer protection. Requiring coveredpersons to also deliver the disclosures to

non-obligors who may be entitled torescind would create operationaldifficulties because the party acquiringthe loan would not necessarily knowwhich parties other than the obligor hadan interest in the property and a rightto rescind at the time the credit wasinitially extended.

Section 404(a) requires thatdisclosures be provided not later than30 days after the date on which themortgage loan is sold or otherwisetransferred or assigned to a third party.Public Law 11122, 123 Stat. 1632. Theinterim rule refers to the date of transfer

as the

acquisition date

which isdefined in the interim rule as the dateof acquisition recognized in the booksand records of the acquiring party. TheBoard recognizes that different entitiesmay use different accounting methodsso that the date of transfer on thetransferors books might differ from thedate of acquisition on the purchasers

books. To facilitate compliance, thefinal rule has been revised to clarify thatthe disclosures must be provided on or

before the 30th day following the dateof transfer which may be either the

acquisition date recognized by thetransferee, or the date recognized by thetransferor. Similarly, either date may bestated on the disclosure as the date oftransfer.

Multiple transfers. Like the interimrule, 226.39(b)(4) of the final ruleprovides that, if a mortgage loan isacquired by one covered person and

subsequently transferred to anothercovered person, a single disclosure may

be provided on behalf of both coveredpersons if the disclosure satisfies thetiming and content requirementsapplicable to each covered person. Forexample, if a covered person acquires aloan on March 15 with the intent toassign it to another entity on April 30,the covered person could mail a singledisclosure on or before April 14,providing information for both entities,and indicating when the subsequenttransfer is expected to occur. Nocomments were received on this aspect

of the rule.The Board recognizes, however, that

in this circumstance, the exact date ofa subsequent transfer may not be knownat the time the disclosure is provided.Consistent with the standard in current 226.31(d)(2), the date on which onecovered person expects to transfer theloan to another covered person may beestimated when the exact information isunknown at the time the disclosure ismade. Comment 39(b)(4)2 has beenadded for clarification. The commentfurther states that information isunknown if it is not reasonably

available to the covered person at thetime the disclosure is made. Thereasonably available standard requiresthat the covered person, acting in goodfaith, exercise due diligence inobtaining information. The commentaryprovides that a covered person normallymay rely on the representations of otherparties in obtaining information, andmay make the disclosure using anestimated date based on informationknown at the time the disclosure ismade, even though more preciseinformation will be available at a laterdate. For example, if the covered personacquires the loan on March 15, adisclosure may be provided on April 1stating that the loan will be assigned toanother entity on or around April 30,even if the covered person expects toobtain information before April 14 aboutthe expected transfer date.

Comment 39(b)(4)3 clarifies thateven if one covered person provides thedisclosures for another, each person hasa duty to ensure that disclosures relatedto its acquisition are accurate andprovided in a timely manner unless anexception in 226.39(c) applies.

Multiple covered persons. Comment39(b)(5)1 in the final rule clarifies thatmultiple covered persons who jointlyacquire the loan in a single transactionmust provide a single disclosure thatsatisfies the timing requirements foreach person. If multiple covered personsjointly acquire the loan and completethe acquisition on separate dates, a

single disclosure must be provided onbehalf of all persons on or before the30th calendar day following the earliestacquisition date.

Comment 39(b)(5)2 further clarifiesthat if multiple covered persons eachacquire a partial interest in the loan inseparate and unrelated agreements andnot jointly, each covered person has aduty to ensure that disclosures relatedto its acquisition are accurate andprovided in a timely manner, unless anexception in 226.39(c) applies. Theparties may, but are not required to,provide a single disclosure that satisfies

the timing and content requirementsapplicable to each covered person.Comment 39(b)(5)3 clarifies that asingle disclosure provided on behalf ofmultiple covered persons must satisfythe timing and content requirementsapplicable to each covered personunless an exception in 226.39(c)applies. Comment 39(b)(5)4 providesthat even though one person providesthe disclosures for another coveredperson, each has a duty to ensure thatdisclosures related to its acquisition areaccurate and provided in a timelymanner unless an exception in

226.39(c) applies.39(c) Exceptions

Interim Rule

Section 226.39(c) of the interim rulecontains two exceptions to thedisclosure requirements. Under 226.39(c)(1), a covered person neednot provide the disclosures if it transfersor assigns the loan to another party onor before the 30th calendar datefollowing the date that it acquired theloan. This provision was adoptedpursuant to the Boards authority tomake exceptions and exemptions under

TILA Sections 105(a) and 105(f). 15U.S.C. 1604(a), 1604(f). For example, ifa mortgage loan is originated on March1 and the original creditor sells the loanto a covered person on March 15, thecovered person would not be required toprovide the disclosures if the loan issubsequently sold to a third party on or

before April 14 under this exception.The Board stated in the interim rule

that this exception is necessary andproper to effectuate the purposes ofSection 404(a) and to facilitatecompliance. This exception seeks to



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2 In exercising its exemption authority underSection 105(f), Board must determine whethercoverage of such transactions provides a meaningful

benefit to consumers in light of specific factors. 15U.S.C. 1604(f)(2). These factors, which the Boardhas reviewed, are (1) The amount of the loan andwhether the disclosure provides a benefit toconsumers who are parties to the transactioninvolving a loan of such amount; (2) the extent towhich the requirement complicates, hinders, ormakes more expensive the credit process; (3) thestatus of the borrower, including any relatedfinancial arrangements of the borrower, thefinancial sophistication of the borrower relative tothe type of transaction, and the importance to theborrower of the credit, related supporting property,and coverage under TILA; (4) whether the loan issecured by the principal residence of the borrower;and (5) whether the exemption would underminethe goal of consumer protection.

prevent the confusion that could resultif consumers receive outdated contactinformation for parties that no longerown their loans. After origination, aloan might be assigned to one or moreentities for only a few days before it istransferred to an entity that will hold itfor a much longer time period. Thedisclosures sent by temporary holders

would provide information that mostconsumers are unlikely to need or use.Moreover, the disclosures fromtemporary holders could createinformation overload for manyconsumers and hinder their ability todetermine which party should becontacted to address a concern. Thus,the Board adopted the exception in 226.39(c)(1) pursuant to TILA Section105(a) to effectuate TILAs purposes andfacilitate compliance.

The Board also considered therelevant statutory factors in TILASection 105(f). The Board found that use

of Section 105(f) is appropriate becausethe disclosure of ownership intereststhat are held less than 30 days wouldnot provide a meaningful benefit toconsumers in the form of usefulinformation or consumer protection.Requiring temporary holders to providethe disclosures would complicatecompliance and impose unnecessary

burden and expense that would not beoutweighed by the benefits toconsumers.2

Section 226.39(c)(2) of the interimrule contains a second exception to thedisclosure requirements of 226.39. Insome cases, the original creditor or

owner of the mortgage loan may sell ortransfer the legal title to the loan to athird party to secure business financing.This is generally done in connectionwith a repurchase agreement thatobligates the original creditor or ownerto repurchase the loan. Under 226.39(c)(2) of the interim rule, if theoriginal creditor or owner has arepurchase obligation and does notrecognize the transaction as a sale of theloan on its books and records, the

acquiring party is not subject to thedisclosure requirements of 226.39.However, if the transferor does notrepurchase the mortgage loan, theacquiring party must make thedisclosures required by 226.39 within30 days after the date that thetransaction is recognized as anacquisition on its books and records.

This exception was adopted pursuantto the Boards authority in TILASections 105(a) and 105(f). As with theexception in 226.39(c)(1), theexception for transfers subject to arepurchase agreement in 226.39(c)(2)was intended to prevent consumerconfusion that could arise from thereceipt of outdated disclosures. TheBoard found that requiring disclosuresfor these transactions would not providea meaningful benefit to consumers inthe form of useful information orprotection. Without an exemption forthese transactions, consumers would

receive two notices: One at the timelegal title in the loan is transferred, andanother when the loan is repurchasedshortly after. Thus, the disclosure oftransfers subject to repurchaseagreements would complicatecompliance and impose unnecessary

burden and expense for covered personsthat would not be outweighed by the

benefits to consumers.

Public Comment

The Board requested comment onwhether the exemption in 226.39(c)(1)is appropriate and whether a 30-dayperiod should be shorter or longer.

Consumer group commenters stated thatthe 30-day exception is appropriate solong as the subsequent owners arerequired to disclose information aboutany prior owner who did not providethe disclosure. These commenterssuggested that the final rule clarify thateach covered person must disclose a fullchain of title so that all transfers ofownership throughout the history of theloan are listed in each disclosure.Consumer advocates also stated that, ifthe 30-day period is lengthened in thefinal rule, the rule should provide that(1) no foreclosure action is permitted

without first providing information tothe consumer about the current holderof the note and mortgage, and (2) noforeclosure action is permitted in thename of a party that no longer owns theloan.

Industry commenters generallysupported the exception in 226.39(c)(1). Several industrycommenters stated that a 30-day periodis too short because it fails to capturemany short-term acquisitions that may

be finalized shortly after the 30th day.These commenters requested that 30

days be changed to at least 60 days andpreferably 90 days, so that a coveredperson that transfers or assigns the loanto another party on or before the 60thor 90th day would not be required todeliver the disclosures. A few industrycommenters stated that listing allprevious owners in every disclosurewould increase the risk of consumers

contacting an incorrect party that nolonger owns their loan.

The Board also requested comment onwhether the exception in 226.39(c)(2)for transfers that are subject to arepurchase agreement is appropriate.Consumer group commenters opposedthe exception. They believe that adisclosures should be provided with theinitial transfer and a second disclosureshould be provided when the transferorrepurchases the loan. One industrytrade association asked the Board toclarify that loans transferred under arepurchase agreement are exempt from

the disclosure requirements under 226.39 regardless of how the loan isrecognized on the sellers books andrecords because the acquiring party maynot have that information. One industrycommenter stated that the exception forrepurchase agreements in 226.39(c)(2)of the interim rule is too narrow. Thiscommenter suggested that the final ruleclarify that the exception applies even ifthe loan is acquired from anintermediary as long as the prior holderis obligated to repurchase the loan.According to the commenter, this set oftransactions usually takes between 5

days and 90 days to complete, duringwhich time the original creditorcontinues to recognize the loan on its

books and records.A law firm that represents secondary

market participants urged the Board toexempt certain short-term acquisitionseven if they are not subject to arepurchase agreement. This commenterstated that under some financingarrangements, the acquiring party entersinto a commitment to acquire the loan,then aggregate it with other loans, andsubsequently transfer a pool of mortgageloans to a third party. However, theacquiring partys commitment totransfer the loans it acquires to a thirdparty does not apply to any particularmortgage loan; rather, it applies to thetype of loan described in the purchaseagreement. Because the transfer to thethird party might take longer than 30days, the acquiring party cannot rely onthe exception in 226.39(c)(1) for thesetransactions. The commenter suggestedthat the final rule should exempt thesekinds of transfers from the disclosurerequirements of 226.39, or,alternatively, expand the exception in



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226.39(c)(1) from 30 to 60 days toaccommodate these transactions.

Several industry commentersrequested additional exceptions. Acredit union and a credit union tradeassociation suggested that the final ruleshould exempt transfers of partialownership interests to multiple coveredpersons in accordance with

participation agreements. According toone commenter, the originating creditunion retains at least ten percent of theinterest in the underlying loan, and theparticipants generally designate a singleagent to handle all matters concerningthe consumers inquiries about the loan,including rescission and modification.For example, if the consumer sends anotice of rescission to the appointedagent, the notice is deemed to bereceived by all participants. Thesecommenters suggested that disclosuresunder 226.39 should not be required ifthe originating entity retains an interest

in the underlying loan, and the agentdoes not change as a result of thetransfer. These commenters also statedthat consumers may be confused by adisclosure stating that a portion of theirloan has been transferred to one or moreentities when the originating creditorstill holds a partial interest and theagent has not changed.

One industry commenter requestedthat the Board exempt the assignment ofa mortgage loan that is initiated by theconsumer in connection with arefinancing by the assignee. Thiscommenter explained that in somestates, the refinancing lender may

purchase the existing mortgage loan andenter into a modification agreementwith the consumer to avoid certain costsassociated with a new extension ofcredit. In this commenters view, sincethe consumer initiated the transactionwith the assignee and receives thedisclosures from the new lender atclosing, it may confuse the consumer toreceive another set of disclosures within30 days after the loan is modified. Thecommenter also expressed concernsabout the unnecessary cost and burdenof the additional disclosures.

Final Rule

The final rule retains the exceptionsin 226.39(c)(1) and (2) of the interimrule and also provides an additionalexception which is contained in new 226.39(c)(3). With respect to 226.39(c)(1), the Board has retainedthe exception for covered persons thatdo not hold a loan for more than 30calendar days after acquiring it. TheBoard recognizes that under some short-term financing arrangements, thecovered persons may acquire the loanonly temporarily, but for a period that

exceeds 30 days. However, the Boardbelieves that lengthening the 30-dayperiod would undermine the legislativepurpose. A 60-day exemption wouldcause some parties to wait up to 60 days

before determining whether to make thedisclosure for a particular loan or claiman exemption. The exemption containedin the final rule is consistent with the

legislative intent that consumers receivethe disclosure within 30 days after atransfer occurs, while eliminatingdisclosures from parties that no longerown the loan.

Comment 39(c)(1)1 has been revisedto clarify that a covered person is notrequired to provide the disclosuresrequired under 226.39 if it sells,transfers or assigns all of its interest inthe mortgage loan on or before the 30thcalendar day following the date that itacquired the mortgage loan. Comment39(c)(1)2 has been added in the finalrule to address transfers of a partial

interest in the mortgage loan. It clarifiesthat a covered person that transfers onlya partial interest in the loan on or beforethe 30th calendar day following the datethat it acquired the loan must complywith the disclosure requirements solong as it retains a partial interest in theloan on the 30th day.

The final rule does not require acovered person to disclose informationabout former holders of legal title. TheBoard is concerned that a disclosurereflecting the full chain of ownershipwould be complex and could createunnecessary confusion for consumers

trying to determine what party tocontact about their loan. Moreover, sucha requirement would impose a duty ona covered person to verify the identityof all prior owners or risk liability forproviding an incorrect disclosure. It isunclear whether assignees wouldroutinely have access to thisinformation within their own records.

The final rule also retains theexception in 226.39(c)(2) of theinterim rule which covers transferssubject to a repurchase agreement.However, in response to commentersrequests, the final rule does not require

the transferor who is obligated torepurchase the loan to continue torecognize the loan as an asset on its

books and records. While mostrepurchase arrangements are structuredso that the transferor does not recognizethe sale of the asset on its books andrecords, the Board recognizes that theacquiring party may not know how thetransferor treats the asset on its books.Under the final rule, if the originalowner does not repurchase the loan, theacquiring party must provide thedisclosures within 30 calendar days

after it recognizes the loan as an asseton its own the books and records.

The final rule has been modified toaddress a concern raised by onecommenter about transactions involvingintermediaries. Comment 39(c)(2)2 isadded to the final rule to clarify that theexception for transfers subject to arepurchase agreement applies even

when the covered person acquires theloan from an intermediary party who isnot the party obligated to repurchase theloan.

Consumer group commenters askedthe Board to require disclosures when aloan is transferred subject to arepurchase agreement and when therepurchase occurs. The Board believesthat the disclosure of all transferssubject to repurchase agreements wouldimpose unnecessary burden andexpense for covered persons that wouldnot be outweighed by the benefits toconsumers.

The final rule does not exempt short-term acquisitions for longer than 30days that are not subject to a repurchaseagreement, as requested by onecommenter. These financingarrangements differ from repurchasearrangements in that the originalcreditor is under no obligation torepurchase the loan. Moreover, thespecific loan is not subject to a purchasecommitment even though it may be thetype of loan described in the purchaseagreement. The Board does not believethat a covered person should be exemptfrom the disclosure requirements if thetransferor is not obligated to repurchase

the loan. In addition, compliance withthe exemption requested by thecommenter would be difficult to enforce

because the individual loan covered bythe exception is not subject to a specificrepurchase agreement by any otherparty.

The final rule includes an additionalexception designated as 226.39(c)(3),which was not included in the interimrule, in response to commentersrequests to exempt covered persons thatacquire partial interests in the loan. Theexemption in 226.39(c)(3) applies to acovered person that acquires only apartial interest in the loan if the partyauthorized to receive the consumersnotice of the right to rescind and resolveissues concerning the consumerspayments on the loan does not changeas a result of the transfer. This exceptionis adopted pursuant to the Boardsauthority in TILA Sections 105(a) and105(f). As with the exceptions in 226.39(c)(1) and (2), the exception fortransfers of a partial interest in 226.39(c)(3) is intended to preventconsumer confusion that could arisefrom the receipt of multiple disclosures.



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The Board believes that Section 105(f)is appropriate for the exception in 226.39(c)(3) because the disclosure ofa partial ownership interest would notprovide a meaningful benefit toconsumers in the form of usefulinformation or consumer protection.Requiring such disclosures wouldcomplicate compliance and impose

unnecessary burden and expense thatwould not be outweighed by the

benefits to consumers. The legislativehistory reflects that the statute wasintended to ensure that consumersknow the identity of the party they cancontact to rescind or seek to modify theloan terms. The Board believes that theexception in 226.39(c)(3) will notundermine the legislative purpose ofSection 404(a) so long as the transfer ofa partial interest does not result in achange for these purposes. The Board

believes that disclosures regardingtransfers of partial interests could create

consumer confusion. However, if as aresult of the transfer of a partial interestin the loan, a different agent or party isauthorized to receive the rescissionnotice and resolve issues concerning theconsumers payments, the disclosuresunder 226.39 must be provided.Comment 39(c)(3)2 is added to thefinal rule to provide examples of whendisclosures would be required inconnection with a transfer of a partialinterest in the loan.

The final rule does not provide anexception for transfers initiated byconsumers who seek to refinance theirmortgage loans. A covered personscompliance with such a rule would bedifficult to determine because it woulddepends on a case by case factualdetermination. To ease the compliance

burden, the covered person has theoption to provide the disclosuresrequired by 226.39 along with otherdisclosures at the time of refinancinginstead of 30 days later.

39(d) Content of Required Disclosures

Section 226.39(d) of the interim rulesets forth the contents of the disclosurethat must be provided under thissection. The disclosures must identifythe loan that was acquired or transferredand, consistent with the statute, containthe following: (1) The identity, address,and telephone number of the coveredperson that owns the mortgage loan; (2)the date of the acquisition or transfer;(3) contact information that theconsumer can use to reach an agent orparty having authority to act on behalfof the covered person; (4) the locationof the place where the transfer of theownership of the debt is recorded.

Identifying the Loan

Interim rule. Under the interim rule,the disclosures required by 226.39must identify the loan that was acquiredor transferred. The interim rule providesflexibility for covered persons todetermine what information to providefor this purpose. For example, the

covered person may identify the loan bystating the address of the mortgagedproperty along with the account numberor other identification numberpreviously known to the consumer,which may appear in a truncatedformat. The covered person mightinstead identify the loan by specifyingthe date on which the credit wasextended and the original amount of theloan or credit line.

Public comment. One industrycommentator stated that providing theaccount number alone should besufficient for consumers to identify theloan, and would reduce the risk of

mailing sensitive information. Thecommentator suggested that the finalrule should clarify that the accountnumber alone (or other identifyinginformation already provided to theconsumer) is adequate to identify theloan.

Final rule. To provide flexibility andease compliance while protectingconsumers confidential information,the final rule provides that a coveredperson may use any information thatwould reasonably inform a consumerwhich loan was acquired or transferred.Comment 39(d)1 in the interim rule

has been retained and providesexamples that are merely illustrations,including that the covered person mayidentify the loan by stating the addressof the mortgages property along with theaccount number, or just the loannumber previously disclosed to theconsumer.

Name, Address, and Telephone Numberof Covered Person

Interim rule. Section 226.39(d)(1)implements the requirement thatcovered persons provide their name,address and telephone number. Under

the interim rule, the party identifiedmust be a covered person who owns themortgage loan, regardless of whetheranother party services the loan or is thecovered persons agent. The coveredperson has the option of also providingan electronic mail address or internetWeb site address but is not required todo so. Section 226.39(d)(1) provides thatif there is more than one coveredperson, the required information must

be provided for each person.Public comment. The Board

specifically solicited comments on

whether the identification of multipleparties might confuse consumers andwhether the final rule should limit thenumber of covered persons identified.One industry commenter asserted thatproviding information for multiplecovered persons would confuseconsumers, and that the disclosureshould contain only the address and

telephone number of one coveredperson authorized to receive paymentsand handle questions about the loan.

Final rule. Like the interim rule, thefinal rule requires covered persons tostate their name, address and telephonenumber on the disclosure. Under 226.39(b)(4) in the final rule, if amortgage loan is acquired by a coveredperson and subsequently transferred toanother covered person, a singledisclosure may be provided on behalf of

both persons so long as the disclosuresatisfies the timing and contentrequirements applicable to each person.

Section 226.39(d)(1) of the final rulespecifies that a single disclosureprovided for multiple transfers muststate the name, address, and telephonenumber of each covered person.

Section 226.39(b)(5) of the final ruleprovides that, if multiple coveredpersons jointly acquire the loan, a singledisclosure must be provided on behalfof all covered persons. Section226.39(d)(1) of the final rule providesthat the single disclosure must providethe name, address and telephonenumber of each covered person unlessone of the covered persons has been

authorized in accordance with 226.39(d)(3) to receive the consumersnotice of the right to rescind and toresolve issues concerning theconsumers payments on the loan. Inthat case, the disclosure may state thename, address and telephone numberonly for that covered persons.

The Board recognizes that transfersoccur under a variety of circumstancesand, in case of multiple coveredpersons, it may not always be clearwhich covered person should beidentified to best effectuate thelegislative goal, particularly if none ofthem serves as agent or servicer. Basedon comments received, it is the Boardsunderstanding that most transfers ofpartial interests to multiple parties in ajoint acquisition generally involve atransfer to a single entity createdspecifically to facilitate the transaction.In that case, only the name of that singleentity that acquires legal title to the loanmay be shown as the owner on thedisclosure. However, to the extent thatpartial interests in the loan are held bymultiple persons that jointly acquire theloan, the name, address and telephone



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number of each covered person must beprovided on the disclosure.

Providing contact information formultiple covered persons when thereare multiple transactions under 226.39(b)(4) should not createconfusion because disclosure of the dateof transfer for each covered personshould clarify which covered party

currently owns the loan. The final rulealso provides additional flexibilitywhen multiple covered persons thatjointly acquire the loan are identifiedunder 226.39(b)(5). Section226.39(d)(1) of the final rule has beenrevised so that contact information needonly be provided for one covered personif that person is also authorized inaccordance with 226.39(d)(3) toreceive the rescission notice and resolveissues concerning the consumerspayments on the loan. If no coveredperson is authorized for these purposes,the disclosure must state the name,

address and telephone number for allcovered persons.Similarly, comment 39(d)(1)(ii)2 has

been added to clarify that if multiplecovered persons acquire partial interestsin the loan in separate transactions andnot jointly, each covered person has tocomply with the disclosurerequirements under 226.39 byproviding its name, address andtelephone number.

Acquisition Date

Interim rule. Section 226.39(d)(2) inthe interim rule requires disclosure ofthe date that the covered person

acquired the loan, which is the date ofacquisition recognized in the books andrecords of the acquiring party.

Public comment. One industrycommenter noted that the date ofacquisition on the purchasers booksmay not be same date recognized on thetransferors books. This commenterrequested that the purchaser bepermitted to disclose either theacquisition date recognized on thepurchasers books or the date recognizedon the transferors books.

Final rule. To facilitate compliance,the final rule permits a covered person

to disclose either the date of acquisitionrecognized in the books and records ofthe acquiring party, or the date oftransfer recognized in the books andrecords of the transferring party, asdiscussed above. The date disclosed inthe notice would also be used todetermine if the disclosure wasprovided in a timely manner.

Agents Contact Information

Interim rule. Under 226.39(d)(3), acovered person must identify andprovide contact information for the

agent or party having authority to act onbehalf of the covered person. Under theinterim rule, the disclosure mustidentify one or more persons who areauthorized to receive legal notices on

behalf of the covered person and resolveissues concerning the consumerspayments on the loan. However, contactinformation for an agent is not required

under 226.39(d)(3) if the consumer canuse the information for the coveredpersons provided under paragraph 226.39(d)(1) for these purposes. Theinterim rule does not require that acovered person designate an agent orother party, but merely requires thatcontact information be disclosed whenthere is such an agent, so thatconsumers can direct their inquiries tothe appropriate party.

The interim rule also recognizes thatseparate entities may be authorized bythe owner of the loan to act on its behalffor different purposes. The interim rule

requires a covered person to identify theparty authorized to receive legal noticesto ensure that consumers have sufficientinformation to assert legal claims,including a right to rescind the loan, ifapplicable. If the covered personappoints a different agent to resolveloan servicing issues, contactinformation must be provided for eachagent, and the disclosure must state theextent to which the authority of eachagent differs. For example, thedisclosure should indicate if only one ofthe agents is authorized to receive legalnotices or only one is authorized to

resolve issues concerning payments.Under the interim rule, a coveredperson may comply with 226.39(d)(3)

by providing only the name andtelephone number of the agent orauthorized party if the consumer canuse the telephone number to obtain thatpartys address. Comment was solicitedon whether the rule should require thatthe address be included in thedisclosure.

Public comment. Consumer groupcommenters stated that the agentsaddress should be required in thedisclosure because borrowers maymistakenly use the telephone number torescind, which must be done in writing.They also requested that the Boardrequire more information to bedisclosed about the consumers right tofile qualified written requests underRESPA.

Several industry groups stated thatthe requirement to identify an agent orperson authorized to receive legalnotice is too vague, and noted that therules for serving legal process vary bytype of action and jurisdiction. Theyasserted that the general reference to

legal notice would create compliancedifficulties.

Several industry commenters statedthat disclosing multiple contacts fordifferent purposes would increase therisk that consumers may contact thewrong party. One industry commentersuggested that the Board require theidentification of an agent or person

authorized to receive rescission andmodification requests, and, if no suchperson has been authorized, the ownershould be required to state that suchrequests should be directed to theowner. Another industry commenterwas concerned that covered personswould be required to list all agents, andnoted that the statute does not referencerescission claims.

Final rule. The final rule is revised torequire a covered person to provide thename, address and telephone numberfor the agent or other party havingauthority to receive a rescission notice

and resolve issues concerning theconsumers payments on the loan.Section 226.39(d)(3) does not require acovered person to list contactinformation for an agent or other partyif the consumer can use the coveredpersons contact information for thesepurposes. If multiple agents are listedon the disclosure, the disclosure muststate which one is authorized to receivethe rescission notice and which one isauthorized to resolve issues concerningthe consumers payments on the loan.The Board is requiring that the agentsaddress be included on the disclosure to

avoid consumer confusion about theneed to provide a written noticeregarding rescission.

To facilitate compliance and simplifythe disclosure, comment 39(d)(3)1provides that, if an agent or other partyis authorized to receive the rescissionnotice and resolve issues concerning theconsumers payments on the loan, thedisclosure need only state that theconsumer may contact that agentregarding any questions concerningconsumers account without specificallymentioning rescission or paymentissues.

Recording LocationInterim rule. Section 404(a) and the

interim rule require that the disclosurestate the location of the place where thetransfer of ownership of the debt isrecorded. When a mortgage loan is sold,however, the transfer in ownership ofthe debt instrument typically is notrecorded in public records. The newowners security interest in the propertythat secures the debt may or may not berecorded in the public land records or,if it is recorded, it may not yet be



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3Under standards the U.S. Small BusinessAdministration sets (SBA), an entity is consideredsmall if it had $175 million or less in assets forbanks and other depository institutions; and $6.5million or less in revenues for non-bank mortgagelenders, mortgage brokers, and loan servicers. U.S.Small Business Administration, Table of SmallBusiness Size Standards Matched to NorthAmerican Industry Classification System Codes,available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.

recorded at the time the disclosure issent.

Under the interim rule, if the transferof ownership has not been recorded inpublic records at the time the disclosureis provided, the covered person cancomply with the rule by stating this fact.Whether or not the transfer ofownership has been recorded in public

records at the time the disclosure ismade, the disclosure may state that thetransfer is or may be recorded at thespecified location. A covered person isnot required to provide the postaladdress for the governmental officewhere the covered persons ownershipinterest is recorded or the name of thejurisdiction where the property islocated. For example, under the interimrule it is sufficient to disclose that thetransaction is or may be recorded in theoffice of public land records or therecorder of deeds office for the countyor local jurisdiction where the property

is located.

Under the interim rule, the coveredperson also has the option of disclosingthe location where the covered personssecurity interest in the property is ormay be recorded. In light of the fact thatthe transfer in ownership of the debtinstrument usually is not recorded inpublic records, the Board specificallysolicited comment on whetherdisclosure of the location where thesecurity interest is recorded should berequired.

Public comment. Consumer groupcommenters generally supported theapproach in the interim rule, and asked

the Board to require disclosure of thelocation where the security interest isfiled. One industry trade associationcommented that requiring a disclosureregarding the filing of the securityinterest would impose considerable

burden and cost, and stated that thedisclosure required by the interim ruleis sufficient. Another industry tradeassociation agreed that most borrowersare already aware of the location wherethe security interest is recorded, andrequiring a more specific disclosurewould place considerable burden on theindustry since most loan servicers do

not have easy access to this informationin their servicing systems.Final rule. The final rule is

substantially the same as the interimrule, with some modifications forclarity. Section 226.39(d)(4) requires thecovered person to disclose wheretransfer of ownership of the debt to thecovered person is or may be recorded,or, alternatively, that the transfer ofownership has not been recorded inpublic records at the time the disclosureis provided. Comment 39(d)(4)1clarifies that the disclosure may state

that the transfer of ownership of thedebt has not been recorded in publicrecords at the time the disclosure isprovided, if that is the case, or that it isor may be recorded in the office ofpublic land records or the recorder ofdeeds office for the county or localjurisdiction where the property islocated.

As stated in the interim rule, theBoard believes that 226.39(d)(4)appropriately addresses the operationalissues regarding the land recordingprocess and provides the necessaryflexibility for compliance purposeswithout impairing the legislativepurpose. The Board adopted thisapproach after considering the relativecosts and benefits of requiring that thedisclosure provide more detailedinformation. Industry representativesstated that this information may not bereadily accessible to the acquiring party.A requirement to provide the name and

address of the governmental officewould require parties that provide suchnotices to develop and maintain asystem for matching the propertyaddress to the correct governmentaloffice, and keeping the database up todate with correct address information.The Board does not believe that thiswould provide substantial benefit toconsumers because they presumablyknow the county or jurisdiction inwhich the property is located and caneasily obtain the address of thegovernmental office from publicdirectories or other sources.

39(e) Optional disclosuresInterim Rule

Section 226.39(e) of the interim rulestates that a covered person may, at itsoption, provide with the disclosuresany other relevant informationregarding the transaction. For example,the covered person may choose toinform consumers that the locationwhere they should send mortgagepayments has not changed. The Boardsolicited comment on whether the ruleshould include any additionaldisclosure requirements.

Public CommentTwo industry trade associations

requested the Board to specify in thefinal rule that the disclosurerequirements may include a statementrequiring the consumer to contact onlythe authorized agent, such as theservicer, rather than the covered party.These commenters expressed concernsthat consumers may seek to contact acovered person that invests in the loan

but does not have the capacity to handleconsumer inquiries

Final Rule

Consistent with the statute and theinterim rule, the final rule permitscovered persons, in their sole discretion,to include additional information thatthey might deem relevant or helpful toconsumers. The Board believes that itwould be inconsistent with the statutorygoal to permit covered persons todisclose that the consumer is notpermitted to use the contact informationprovided for the covered person.

V. Final Regulatory Flexibility Analysis

In accordance with Section 4 of theRegulatory Flexibility Act (RFA), 5U.S.C. 601 et seq., the Board ispublishing a final regulatory flexibilityanalysis for the final rule. The RFAgenerally requires an agency to assessthe impact a rule is expected to have onsmall entities.3 However, under Section605(b) of the RFA, 5 U.S.C. 605(b), theregulatory flexibility analysis otherwise

required under Section 604 of the RFAis not required if an agency certifies thatthe rule will not have a significanteconomic impact on a substantialnumber of small entities and stated thefactual basis for such certification.

The Board continues to believe thatthis final rule will not have a significanteconomic impact on a substantialnumber of small entities. The final ruleis narrowly designed to implement thestatutory amendments to TILA made bySection 404(a) of the 2009 Act. Coveredpersons, including small entities, had tocomply with Section 404(a)immediately upon its enactment on May20, 2009, whether or not the Boardamends Regulation Z to conform theregulation to the statute. The Boardsfinal rule is intended to provideguidance to persons covered by the ruleon how to interpret and comply withthe statutory requirements, and toensure that consumers receivemeaningful notices consistent with thelegislative goal.

A. Reasons for the Final Rule

As indicated above, the 2009 Act wassigned into law on May 20, 2009.Section 404(a) amended TILA to

establish a new requirement fornotifying consumers of the sale,assignment, or other transfer of theirmortgage loans. This requirement

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became effective immediately uponenactment on May 20, 2009, and did notrequire the issuance of implementingregulations.

Congress enacted TILA based onfindings that economic stability would

be enhanced and competition amongconsumer credit providers would bestrengthened by the informed use of

credit resulting from consumersawareness of the cost of credit. One ofthe stated purposes of TILA is toprovide meaningful disclosure of creditterms to enable consumers to comparecredit terms available in themarketplace more readily and avoid theuninformed use of credit.

B. Summary of the 2009 Act

As described previously, thepurchaser or assignee that acquires aloan must provide the requireddisclosures no later than 30 days afterthe date on which the loan is acquired.

Section 226.39(c) of the rule provides anexception if the covered person transfersor assigns the loan to another party onor before that date. Section 226.39(d)sets forth the content of the disclosure.Consistent with the statute, the finalrule requires that the disclosure containthe following: (1) The name, address,and telephone number of the coveredperson who owns the mortgage loan; (2)the date of transfer; (3) the name,address and telephone number of anagent or other party authorized to act on

behalf of the owner; and (4) where thetransfer of ownership of the debt is ormay be recorded.

C. Statement of Objectives and LegalBasis

The SUPPLEMENTARY INFORMATION setsforth the objectives and the legal basisfor the final rule. The legal basis for thefinal rule is in TILA Sections 105(a),105(f). 15 U.S.C. 1604(a), 1604(f). Amore detailed discussion of the Boardsrulemaking authority is set forth in theSUPPLEMENTARY INFORMATION.

D. Description of Small Entities toWhich the Final Rule Applies

The final rule applies to all persons

that acquire more than one existingmortgage loan in any 12-month period,other than servicers that take title solelyas an administrative convenience toenable them to service the loans. TheBoard cannot identify with certainty thenumber of small entities that meet thisdefinition. The Board can estimate,however, approximate numbers of smallentities that purchase mortgage loans, asdiscussed below.

The Board can identify through datafrom Reports of Condition and Income(call reports) approximate numbers of

small depository institutions that wouldbe subject to the final rules if theyacquire more than one mortgage loan ina 12-month period. Based on March2010 call report data, approximately8,845 small institutions would besubject to the final rule. Approximately15,658 depository institutions in theUnited States filed call report data,

approximately 11,148 of which had totaldomestic assets of $175 million or lessand thus were considered small entitiesfor purposes of the RegulatoryFlexibility Act. Of 3,898 banks, 523thrifts and 6,727 credit unions that filedcall report data and were consideredsmall entities, 3,776 banks, 496 thrifts,and 4,573 credit unions, totaling 8,845institutions, extended mortgage credit.For purposes of this analysis, thriftsinclude savings banks, savings and loanentities, co-operative banks andindustrial banks.

The Board cannot identify with

certainty the number of small non-depository institutions because they donot file call reports. Neither can theBoard determine with certainty howmany of the 11,148 institutionsidentified above as small entitiesacquired mortgage loans in 2009.Although an estimated 8,845 suchinstitutions extended mortgage credit,the Board recognizes that not all entitiesthat extend mortgage credit also acquireexisting mortgage loans. Moreover, thereverse is also true: There are entitiesthat acquire existing mortgage loans butdo not extend mortgage credit.

The Board has another source of

information, data obtained under theHome Mortgage Disclosure Act (HMDA),12 U.S.C. 2801 et seq.; 12 CFR part 203.Based on loan purchases reported for2008 under HMDA, the Board estimatesthat 553 of the reporting institutionsengaged in more than one mortgageacquisition. The 8,388 lenders covered

by HMDA in 2008 accounted for themajority, but not all, of the homelending in the United States.Accordingly, the 553 institutions thatreported loan purchases in 2008probably do not represent all mortgageacquirers; institutions must report loan

purchases only if they are required toreport under HMDA based on loanoriginations and assets. Nevertheless,the Boards experience has been that theHMDA data are reasonablyrepresentative of the whole mortgagemarket.

A total of 2,921,684 loan purchaseswere reported under HMDA in 2008 byentities reporting more than onepurchase (and thus subject to the finalrule). Of those loan purchases,2,773,918 were reported by depositoryinstitutions. Of those depository

institution loan purchases, 2,122,288(76.5%) were reported by largedepository institutions (assets greaterthan $175 million), and 651,630 (23.5%)were reported by small depositoryinstitutions (assets of $175 million orless). Of the 553 HMDA reportersreporting more than one loan purchase,502 were depository institutions. Of

those 502 depository institutions, 387(77.1%) were large and 115 (22.9%)were small. Those 115 small depositoryinstitutions represent just slightly lessthan one percent (0.97%) of the 11,907total small institutions estimated abovefrom call report data.

A total of 147,766 loan purchaseswere reported under HMDA by non-depository institutions that reportedmore than one loan purchase in 2008.The Board cannot tell from the HMDAdata how many of those loan purchaseswere reported by small entities. Neithercan the Board tell how many of the 51

non-depository institutions thatreported those loan purchases are smallentities. If the relative shares of smallentities among small and large non-depository institutions do not differsignificantly from those amongdepository institutions, however, theshares for non-depository institutionscan be estimated. On that basis, theBoard estimates that 12 small non-depository institutions reported 34,725loan purchases and that 39 large non-depository institutions reported 113,041loan purchases (estimates are roundedto whole numbers).

Using the foregoing numbers from

2008 HMDA data for depositoryinstitutions and the foregoing estimatesfor non-depository institutions, theBoard estimates the following numbersfor all entities reporting under HMDAcombined: Of the 2,921,684 loanpurchases reported by 553 entitiesreporting more than one purchase,2,235,329 (76.5%) were reported by 426large entities (77%), and 686,355(23.5%) were reported by 127 smallentities (23%). Based on these estimates,less than one-quarter of the institutionsreporting covered loan purchases underHMDA were small entities, and less

than one-quarter of the covered loanpurchases reported were reported bysmall entities.

The foregoing data are not completein many respects. Not all depositoryinstitutions that file call reports arereporters under HMDA, and not allHMDA reporters file call reports.Further, some unknown number ofentities purchase more than onemortgage loan in any 12-month periodand yet file neither call reports norHMDA data; how many of those aresmall entities also is unknown.



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Nevertheless, if one assumes that theexisting data are reasonablyrepresentative of the market as a whole,they present an overall picture ofminimal economic impact on smallentities. For all these reasons, the Board

believes that the final rule will not havea significant economic impact on asubstantial number of small entities.

E. Projected Reporting, Recordkeeping,and Other Compliance Requirements

The compliance requirements of thefinal rules are described in theSUPPLEMENTARY INFORMATION. Asindicated above, the Board is adoptinga new disclosure rule requiring thatconsumers receive notice whenownership of their mortgage loan istransferred. The Board is aware thatnumerous covered persons are alreadycomplying with these statutoryprovisions, which became effective onMay 20, 2009. Therefore the additional

burden imposed by the Boards ruleitself is likely to be minimal.Furthermore, the information requiredto be provided is easily obtainable bycovered persons. The covered personmust provide contact information foritself and any agent (but is not requiredto designate an agent), may use theacquisition date on its own books andrecords, and may generally describe thelocation where the covered personsinterest in the property securing themortgage loan is or may be recorded.This information generally is alreadyrequired by the statute.

Based on informal surveys of industry

representatives and practices in effect,the Board understands that entities arelikely to designate servicers as theiragents. Servicers already respond toconsumer requests on the behalf ofcovered persons. Therefore, other thanproviding the disclosure itself, coveredpersons (including those who are smallentities) are not likely to incursignificant burden in responding toconsumer requests. Furthermore, theBoard has provided an exception to therule for mortgage owners who do nothold the loan more than 30 days. TheBoard believes that this exception

balances the needs of consumers forinformation with the burdens onindustry of compliance and thepotential for confusion to consumers ofreceiving multiple disclosures.

F. Other Federal Rules

The Board has not identified otherrules that conflict with the final rule. Asindicated previously, under RESPA andHUDs Regulation X, consumers must benotified when the servicer of theirmortgage loan has changed. Therefore,the disclosure of contact information for

the agent of the owner of the mortgageloan, typically the servicer underapplicable agreements, is alreadygenerally required by law. As a result ofexisting requirements, servicers mustdisclose their contact information andare subject to consumer calls regardingadministration of payment information.

G. Significant Alternatives to the FinalRule

As noted above, the final ruleimplements the statutory requirementsof the 2009 Act that were effective onMay 20, 2009. The Board hasimplemented these requirements tominimize burden while retaining

benefits to consumers. The Board wasnot required to issue rules but hasdecided that rules are needed to clarifywho is subject to the requirements andwhat information must be disclosed,and to ensure that consumers receivedisclosures of ownership that areconsistent with legislative objectives.The Board did not receive comment onany significant alternatives that wouldminimize the impact of the final rule onsmall entities.

VI. Effective Date

This final rule will become effectiveon October 25, 2010, however,compliance with the final rule will not

become mandatory until January 1,2011. Prior to the mandatorycompliance date, covered personscontinue to be subject to the statutoryrequirements but have the option tocomply with either the interim rule or

this final rule. This should facilitatecompliance by covered persons whomight need to revise their disclosures orimplement other changes under thefinal rule. Specifically, under theinterim rule, the required disclosureneed to state only the name andtelephone number for an agent that isauthorized to receive legal notices on

behalf of the owner, so long as thetelephone number can be used to obtainthe agents address. Under the final rule,however, the agents address must beincluded on the disclosure. This mayrequire some secondary market

purchasers to revise their disclosureforms. The Board believes that it isreason

Documents

TILA Rules Require Lender Transfer Disclosure 2010