HRM Appraisals Final Supporting Statement 2-13-13

CONSUMER FINANCIAL PROTECTION BUREAU
INFORMATION COLLECTION REQUEST – SUPPORTING STATEMENT
HIGHER-RISK MORTGAGE APPRAISALS
TRUTH IN LENDING ACT (REGULATION Z) 12 CFR 1026.35
(OMB CONTROL NUMBER: 3170-0026)
The Consumer Financial Protection Bureau (Bureau) is dividing certain proposals to amend the
Bureau’s Regulations X and Z into separate Information Collection Requests (ICRs) in the
Office of Management and Budget (OMB) system (accessible at www.reginfo.gov) to ease the
public’s ability to view and understand the individual proposals. Subsequent to the finalization
of the rules, the Bureau anticipates that it will recombine the portions of Regulations Z and X
that are broken out in the reginfo.gov system into the existing control numbers for Regulations X
and Z. Bureau respondents should continue to use the 3170-0015 control number for Regulation
Z and 3170-0016 control number for Regulation X throughout this time.
TERMS OF CLEARANCE: In accordance with 5 CFR 1320, OMB has been withholding
approval, providing that the agency shall examine public comment in response to the notice of
proposed rulemaking and include in this supporting statement submitted to OMB at the final rule
stage a description of how the agency has responded to any public comments on the information
collection requirements, including comments on maximizing the practical utility of the collection
and minimizing the burden.
A. JUSTIFICATION
1. Circumstances Necessitating the Data Collection
In response to the recent mortgage crisis, Congress amended the Truth in Lending Act
(TILA) to require creditors originating mortgages with an annual percentage rate that exceeds the
average prime offer rate by a specified percentage (higher-risk mortgage loans) to obtain an
appraisal or appraisals meeting certain specified standards, provide applicants with a notification
regarding the use of appraisals, and give applicants a copy of written appraisals used. These
changes were enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank Act), Pub. L. 111-203, § 1471, 124 Stat. 1376, 2185 (2010). Section 1471 of
the Dodd-Frank Act adds a new section to TILA, section 129H, addressing appraisal
requirements for higher-risk mortgage loans.
Responsibility for rulemaking under TILA generally rests with the Bureau.1 However,
section 129H requires six agencies to jointly prescribe implementing regulations regarding
appraisals for higher-risk mortgage loans: the Board of Governors of the Federal Reserve
System, the Office the Comptroller of the Currency, the Federal Deposit Insurance Corporation,
the National Credit Union Administration, the Federal Housing Finance Agency, and the Bureau
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The Board of Governors of the Federal Reserve System has rulemaking authority under TILA for motor vehicle
dealers as defined in section 1029 of the Dodd-Frank Act. 15 U.S.C. 5519; 15 U.S.C. 1604(a).

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(Agencies). Pursuant to section 129H, the rule was jointly developed and issued by the
Agencies. In addition to amending other portions of the Code of Federal Regulations, the rule
amends the Bureau’s Regulation Z and its Official Interpretations. 12 CFR Part 1026. To ease
compliance burdens, the final rule adopts the term “higher-priced mortgage loan” instead of
“higher-risk mortgage loan,” as higher-priced mortgage loan is a term already used in other
provisions of Regulation Z.
The information collections under the rule include (1) requiring creditors to obtain a
written appraisal meeting certain standards for higher-priced mortgage loans and provide a free
copy of the appraisal to consumers (Written Appraisal); and (2) requiring an additional written
appraisal for transactions involving the purchase of properties the seller acquired within the last
180 days, when certain price increases have occurred, and providing free copies of these
appraisals to consumers (Additional Written Appraisal). The information collections are
required by statute, are necessary to protect consumers, and promote the safety and soundness of
creditors making higher-priced mortgage loans. The final rule also requires providing providing
a disclosure within three days of application that informs the consumer regarding the purpose of
the appraisal, that the creditor will provide the consumer a copy of any appraisal, and that the
consumer may choose to have a separate appraisal conducted a the expense of the consumer
(Initial Appraisal Disclosure). As discussed below, the Initial Appraisal Disclosure is not an
information collection requirement.
2. Use of the Information
For higher-priced mortgage loans that fall within section 129H and the final rule which
are not eligible for an exemption, creditors will be required to obtain a Written Appraisal that
meets certain standards. Creditors will also be required to obtain an Additional Written
Appraisal when the higher-priced mortgage loan is used to purchase a principal dwelling that the
seller has acquired within the last 180 days, if certain price increase thresholds are met (an
increase of more than 10% if the seller acquired the property within the past 90 days, or an
increase of more than 20% if the seller acquired the property within the past 91 to 180 days).
The Bureau anticipates that creditors will use these appraisals to determine the value of the
collateral for higher-priced mortgage loans, and that these appraisals will assist in preventing
potential mortgage fraud by sellers, borrowers and other participants in a residential real estate
transaction. Creditors will be required to copies of written appraisals obtained by the creditor for
higher-priced mortgage loans to consumers. The Bureau anticipates that this information will
assist consumers in understanding valuations for property securing higher-priced mortgage loans.
The Written Appraisal and Additional Written Appraisal are not submitted to the federal
government; the Initial Appraisal Disclosure also is not submitted to the federal government.
3. Use of Information Technology
The Initial Appraisal Disclosure and copies of written appraisals may be provided to
applicants 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
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Act), 15 U.S.C. 7001 et seq. Additionally, most disclosures are computer generated. The
Bureau expects that creditors will be able transmit the required copies to applicants either
electronically or in hard copy.
4. Efforts to Identify Duplication
This information collection does duplicate, in part, two other Federal efforts.
Specifically, the information collection requirement duplicates in part the requirement the
Bureau is adopting under the Equal Credit Opportunity Act (ECOA)’s Regulation B to provide
free copies of written appraisals to applicants. 15 U.S.C. 1691(e). In addition, the requirement
also duplicates in part the National Credit Union Administration’s regulation requiring national
credit unions to provide copies of appraisal reports to loan applicants upon request. 12 CFR
701.31(c)(5). However, where duplicative requirements apply, a lender need only provide an
applicant one copy of each written appraisal to comply with all three requirements. The initial
appraisal disclosure required under ECOA also can be used to satisfy the Initial Appraisal
Disclosure requirement in this rule.
5. Efforts to Minimize Burdens on Small Entities
Of the estimated 14,000 depository institutions and independent mortgage banks that
originate mortgage loans, 9,000 are estimated to fall below the small entity thresholds of $175
million in assets for depository institutions and $7 million in assets for independent mortgage
banks.
The Bureau estimates that a high proportion of higher-priced mortgage loans will be
qualified mortgages under the Bureau’s 2013 ATR Final Rule. By statute, this final rule exempts
qualified mortgages from its requirements. Therefore, the qualified mortgage exemption leads to
a significant reduction in burden for all depository institutions and independent mortgage banks,
including small entities. The rule also further reduces burden by exempting loans for initial
construction, tempory bridge loans for less than 12 months, reverse mortgages, loans secured by
new manufactured homes, and loans secured by boats, trailers, or mobile homes other than
manufactured homes. Further, the rule exempts a series of loans from the requirement to obtain
an Additional Written Appraisal, including for properties locted in rural areas, and other types of
transactions specified in the final rule. These exemptions were developed by the Agencies after
careful considerion of the comemnts filed on the proposed rule including its ICRs.
Based on its outreach, the Bureau believes that it is routine business practice for
appraisals to be performed for 95% of first lien transactions that are purchases and 90% of first
lien transactions that are refinances, and sent to consumers for all first lien transactions that result
in an origination. Government-sponsored enterprises also require copies of appraisals be sent to
consumers. These pre-existing practices minimize the additional burden generated by the rule,
as only a portion of appraisals conducted each year will have been caused by the rule (as
opposed to pre-existing practices). These pre-existing practies also reduce the time and
resources necessary to compile and distribute the copies of written appraisals the rule requires.
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6. Consequences of Less Frequent Collection and Obstacles to Burden Reduction
This information is not submitted to the federal government. These disclosures are
required by statute, 15 U.S.C. 1639h. The burdens on respondents are the minimum necessary to
comply with the statute, to assist consumers in obtaining information about how the property’s
value was determined by the creditor in higher-priced mortgage loan transactions, and to
promote safe and sound lending with respect to higher-priced mortgage loans.
7. Circumstances Requiring Special Information Collection
Information is not reported to the Bureau. There are no special circumstances. The
collection of information requirements in the changes to Regulation Z are consistent with the
applicable guidelines contained in 5 CFR 1320.5(d)(2)
8. Consultation Outside the Agency
The Agencies published a notice of proposed rulemaking in the Federal Register for
public comment. Prior to the proposal stage, the Agencies conducted outreach with industry and
also relied upon certain testing of consumer disclosures carried out by the Bureau in connection
with the development of the proposed Loan Estimate form in its 2012 TILA-RESPA Proposal.
The Agencies issued the proposal and the final rule jointly and consulted extensively prior to
publishing the proposal and before finalizing the rule. The Bureau also consulted with the
Department of Housing and Urban Development and the Federal Trade Commission consistent
with section 1022 of the Dodd-Frank Act.
The comment period for the Paperwork Reduction Act analysis expired on October 22,
2012. The Agencies jointly reviewed comments received on the rule, including on its ICRs.
The Agencies received only one public comment specific to Paperwork Reduction Act
compliance. The comment questioned the burden estimates for the reading the final rule and
training staff for compliance. The Bureau responds that the burden estimates are averages across
many types and sizes of financial institutions, and that the exact amount of time may vary from
institution to institution. Footnotes 131 and 141 in the Section 1022 analysis of the final rule
address this comment in further detail.
9. Payments or Gifts to Respondents
No payments or gifts are provided to respondents.
10. Assurances of Confidentiality
There are no assurances of confidentiality provided to respondents.
11. Justification for Sensitive Questions
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This information collection does not include questions of a sensitive nature.
12. Estimated Burden of Information Collection
Creditors will be required to provide an Initial Appraisal Disclosure, investigate and
verify the applicability of the requirement for an Additional Written Appraisal, and review and
provide copies of written appraisals obtained by the creditor for higher-priced mortgage loans to
consumers, to the extent exemptions under the final rule do not apply.
In the Initial Appraisal Disclosure, the creditor will be required to provide a short, written
disclosure; this disclosure must be provided within three business days of application. This
disclosure is provided by the Bureau and must be given, verbatim, to the applicant. The public
disclosure of information originally supplied by the Federal government to the recipient for the
purpose of disclosure to the public is not included within the definition of “collection of
information” in 5 CFR 1320.3(c)(2) and therefore has no burden under the PRA. Accordingly,
the Bureau does not consider the Initial Appraisal Disclosure an information collection and
calculates no burden for that disclosure.
The estimated burden for the Written Appraisal requirements includes the creditor’s
burden of reviewing the Written Appraisal in order to satisfy the safe harbor criteria set forth in
the rule and providing a copy of the Written Appraisal to the consumer. Additionally, as
discussed above, an Additional Written Appraisal containing additional analyses is required in
certain circumstances. The Additional Written Appraisal must meet the standards of the Written
Appraisal. The Additional Written Appraisal is also required to be prepared by a certified or
licensed appraiser different from the appraiser performing the Written Appraisal, and a copy of
the Additional Written Appraisal must be provided to the consumer. The creditor must
separately review the Additional Written Appraisal in order to qualify for the safe harbor
provided in the final rule.
The Agencies estimate that respondents will take, on average, 15 minutes for each
higher-priced mortgage loan that is subject to the rule to review the Written Appraisal and to
provide a copy of the Written Appraisal. The Agencies estimate further that respondents will
take, on average, 15 minutes for each higher-priced mortgage loan that is subject to the rule to
investigate and verify the need for an Additional Written Appraisal and, where applicable, an
additional 15 minutes to review the Additional Written Appraisal and to provide a copy of the
Additional Written Appraisal. For the small fraction of loans requiring an Additional Written
Appraisal, the burden is similar to that of the Written Appraisal.
The total annualized on-going hour burden allocated to the Bureau for the depository
institutions and credit unions with more than $10 billion in assets (including their depository
affiliates) that originate mortgage loans is estimated to be roughly 900 hours and the annualized
ongoing burden for all non-depository institutions that originate mortgage loans is estimated to
be 600 hours. These respondents are estimated to incur an additional 36,000 hours in one-time
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burden, collectively.
13. Estimated Total Annual Cost Burden to Respondents or Recordkeepers
The Bureau has not determined that there are any capital or start-up costs other than those
captured in item 12 of the supporting statement.
14. Estimated Cost to the Federal Government
As the Bureau does not collect any information, there are no costs to the Bureau
associated with this information collection.
15. Program Changes or Adjustments
The Bureau’s rule implements in Regulation Z the information collection requirements
described above. These are new information collections created to enact the amendments made
to 12 CFR 1026 which implement the statutory requirements of section 129H of the Truth in
Lending Act which was amended by the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act), Pub. L. 111-203, § 1471, 124 Stat. 1376, 2185 (2010).
Section 1471.

16. Plans for Tabulation, Statistical Analysis, and Publication
The results of the information collection will not be published.
17. Display of Expiration Date
We believe that displaying the OMB expiration date is inappropriate because it could
cause confusion by leading consumers to believe that the regulation sunsets as of the expiration
date. Consumers are not likely to be aware that the Bureau intends to request renewal of OMB
approval and obtain a new expiration date before the old one expires.
18. Exceptions to the Certification Requirement
None.

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