[Federal Register Volume 61, Number 222 (Friday, November 15, 1996)]
[Rules and Regulations]
[Pages 58472-58479]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29278]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 3500
[Docket No. FR 4148-F-01]
Amendments to Regulation X, the Real Estate Settlement Procedures
Act Regulation (Withdrawal of Employer-Employee and Computer Loan
Origination Systems (CLOs) Exemptions); Final Rule
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
[[Page 58473]]
ACTION: Final rule.
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SUMMARY: In this final rule, the Department is implementing portions of
a final rule revising Regulation X that was published June 7, 1996, and
corrected and revised on August 12, 1996. The Department had delayed
the effectiveness of that rule based on the requirements of recent
legislation. After carefully reviewing the legislation, however, the
Department has determined that several portions of that rule are not
affected by the legislative delay. Therefore, this final rule
implements those portions of the previous rule. This rule also makes
several technical revisions to Regulations X, some of which implement
various provisions in the recent legislation.
EFFECTIVE DATE: January 14, 1997.
FOR FURTHER INFORMATION CONTACT: David Williamson, Director, Office of
Consumer and Regulatory Affairs, Room 9146, telephone (202) 708-4560;
or, for legal questions, Kenneth A. Markison, Assistant General Counsel
for GSE/RESPA, Grant E. Mitchell, Senior Attorney for RESPA, or Richard
S. Bennett, Attorney, Office of General Counsel, Room 9262, telephone
(202) 708-1550. (The telephone numbers are not toll-free.) For hearing-
or speech-impaired persons, these numbers may be accessed via TTY (text
telephone) by calling the Federal Information Relay Service at 1-800-
877-8339. The address for the above-listed persons is: Department of
Housing and Urban Development, 451 Seventh Street, SW., Washington, DC
20410.
SUPPLEMENTARY INFORMATION:
Background
In the final rule published on June 7, 1996 (61 FR 29238) entitled
``Amendments to Regulation X, the Real Estate Settlement Procedures
Act: Withdrawal of Employer-Employee and Computer Loan Origination
Systems (CLOs) Exemptions,'' the Department established an effective
date for the rule of 120 days from publication: October 7, 1996.
Subsequently, on August 12, 1996 (61 FR 41944), the Department
published a revision to a document associated with that rule--Appendix
D, the Controlled Business Arrangement (CBA) Disclosure Statement
Format--in order to clarify the directions on completing the format.
Section 2103 of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (Title II of the Omnibus Consolidated
Appropriations Act, 1997, Pub. L. 104-208; approved September 30, 1996)
(the Act) was signed by the President on September 30, 1996. The Act
delays the effective date of the provisions of the June 7, 1996 final
rule under the Real Estate Settlement Procedures Act (RESPA) (Pub. L.
92-533; 12 U.S.C. 2601 et seq.) concerning payments to employees by
their employers. One such provision of the June 7 rule would have
eliminated 24 CFR 3500.14(g)(1)(vii), which permits ``[a]n employer's
payment to its own employees for any referral activities.'' Section
2103 of the Act provides that this provision of the June 7 rule shall
not take effect before July 31, 1997. The Act provides that the
following provisions also shall not take effect before July 31, 1997:
(1) The exemption for employer payments to managerial employees
(Sec. 3500.14(g)(1)(viii) of the June 7 rule); (2) The exemption for
employer payments to employees who do not perform settlement services
in any transaction (Sec. 3500.14(g)(1)(ix) of the June 7 rule); and (3)
The provision clarifying that ``[a] payment by an employer to its own
bona fide employee for generating business for that employer'' is
permissible (Sec. 3500.14(g)(1)(vii) of the June 7 rule).
Although not required by the Act, on October 4, 1996 (61 FR 51782),
the Department announced its determination to delay temporarily the
effective date of the entire June 7 final rule, as corrected and
revised on August 12, and to continue the prior provisions relating to
employer-employee payments (as in effect on May 1, 1996, as required by
the Act). The reason for the delay was to provide the Department with
an opportunity to analyze the Act and develop an appropriate time
schedule for establishing the effective dates of the various provisions
of the June 7 rule, as revised August 12. The October 4 notice stated
that within 30 days of publication of that notice, the Department would
publish further information on this time schedule. That notice was
published in the Federal Register on November 4, 1996 (61 FR 56624).
The Department has reviewed the Act and has determined that certain
portions of the June 7 final rule and the August 12 technical revisions
to Appendix D that are not delayed by the Act should be made effective,
subject to further technical revisions. The Department is issuing this
final rule to make these provisions effective on January 14, 1997, for
the reasons stated in the preambles to the June 7 final rule and August
12 technical revision, to the extent applicable. With respect to the
other provisions of the June 7 final rule, the Department intends to
act in accordance with the notice published November 4, 1996.
Provisions Made Effective by This Final Rule
One portion of the June 7 final rule that this rule puts into
effect deals with Computer Loan Origination (CLO) Systems.
Specifically, this rule makes effective the withdrawal of the CLO
exemption at 24 CFR 3500.14(g)(1)(viii). It also makes effective the
elimination of the CLO Fee Disclosure form, which previously was
codified as Appendix E to 24 CFR part 3500. By making these provisions
of the June 7 rule effective, the guidance contained in ``Statement of
Policy 1996-1, Computer Loan Origination Systems (CLOs),'' concerning
the applicability of RESPA to CLOs, that was also published June 7,
1996 (61 FR 29255), is more fully effective. The guidance in that
statement of policy is effective except to the limited extent that it
interprets provisions that are not yet effective, such as those
provisions in the June 7 final rule changing the employer-employee
exemption.
Today's rule also puts into effect the revised Appendix D to part
3500 as published August 12, 1996. Appendix D contains what was
formerly known as the ``Controlled Business Arrangement Disclosure
Statement Format,'' and which, for the reasons explained below, is
redesignated by this rule as the ``Affiliated Business Arrangement
Disclosure Statement Format.'' Persons should refer to the preamble of
the August 12 technical revision for general guidance and background
information. Finally, today's rule will make effective conforming
changes to Sec. 3500.17 that are necessary because of the redesignation
of Appendix F as Appendix E.
Technical Revisions and Corrections
This final rule also makes several technical revisions and
corrections to Regulation X. The first revision is required by an
amendment to RESPA in section 2103(c) of the Act. Section 2103(c)
redesignated ``Controlled Business Arrangements'' as ``Affiliated
Business Arrangements'' or ``AfBAs.'' This rule makes conforming
revisions throughout the RESPA regulations and appendices in part 3500,
wherever the term ``Controlled Business Arrangement'' appears,
including in Appendix D, which is redesignated by this rule as the
``Affiliated Business Arrangement Disclosure Statement Format.''
The second revision also conforms the regulation to the Act.
Section 2103(b) of the Act requires the Department, in
[[Page 58474]]
prescribing regulations under RESPA, to conform the exemption of
business, commercial, or agricultural loans under RESPA to the
exemption of such loans under the Truth In Lending Act (TILA) (15
U.S.C. 1601 et seq.). The primary effect of this legislative
requirement is to eliminate RESPA coverage for 1- to 4-family
residential properties used by individuals for rental purposes.
Accordingly, this final rule amends Sec. 3500.5(b) to delete the
sentence providing that the exemption to RESPA for business purpose
loans ``does not include any loan to one or more persons acting in an
individual capacity (natural persons) to acquire, refinance, improve,
or maintain 1- to 4-family residential property used, or to be used, to
rent to other persons.'' By deleting this sentence, Regulation X, with
respect to the coverage of business, commercial, or agricultural loans
under RESPA now conforms to the coverage of such loans under TILA, as
required. Section 3500.5(b), as revised by this rule, defers to TILA
for interpretation of the coverage of business purpose loans.
This final rule also withdraws RESPA Interpretive Rule 1995-1,
published in the Federal Register on February 27, 1995 (60 FR 10762).
That interpretive rule had reaffirmed the determination set forth in
the Department's RESPA rule, published on February 10, 1994 (59 FR
6505), and amended on March 30, 1994 (59 FR 14748), that transactions
by individuals involving 1- to 4-family residential rental properties
are covered by RESPA. This interpretation does not survive the
statutory amendment and no longer represents the Department's position.
The third revision also relates to the Act. It revises
Sec. 3500.15(b)(1) to make reference to section 8(c)(4)(A) of RESPA,
which was amended by section 2103(d) of the Act. Section 2103(d) of the
Act amends section 8(c)(4)(A) to establish special procedures for
disclosures of affiliated business arrangements in conjunction with
referrals where the telephone or electronic media are used in
marketing. This rule makes clear that the provisions of
Sec. 3500.15(b)(1) shall not apply to the extent they are inconsistent
with the legislative amendment. The Department will conduct further
rulemaking to implement section 2103(d) of the Act.
This rule also makes two technical revisions and corrections that
are unrelated to the June 7 rule and the new Act. This rule revises the
definition of ``Federally related mortgage loan'' in Sec. 3500.2. In
the March 26, 1996 streamlining rule (61 FR 29238), the Department
promulgated a streamlined definition of this term that incorporated the
statutory language in section 3(1) of RESPA (Pub. L. 93-533; 12 U.S.C.
2602(1)). Consistent with the preamble of the March 26 rule, the
Department had not intended to make any substantive change in the
definition. Nonetheless, adoption of the streamlined definition caused
some confusion about RESPA's applicability. Since the former definition
had pertained for decades, the Department has determined that the best
way to eliminate the confusion is to revert to the definition that
applied under Regulation X prior to the streamlining rule, with minor
technical clarifications, most notably, indicating that the term is
used interchangeably with the term ``mortgage loan'' in the regulation.
The other technical correction removes Appendix N. The preamble of
the March 26 streamlining rule explained that, as part of that
streamlining, the Department was removing certain appendices from
codification. The appendices to be removed included Appendix N, ``HUD-1
Aggregate Accounting Adjustment Example.'' Because of an error in the
amendatory instructions of that rule and the April 29, 1996 correction
to that rule (61 FR 18674), the instruction to remove Appendix N, as
specified in the preamble to the March 26 rule, was omitted. This final
rule includes those instructions and removes Appendix N from
codification. The appendices that have been removed, including Appendix
N, are available from the Department as Public Guidance Documents.
Persons should refer to the preamble of the June 7 rule and August
12 technical revision, both for general guidance and for additional
background on provisions that are being made effective by today's rule.
The only portions of the June 7 rule that are affected by the Act
concerning a delay in the effective date are those provisions
identified as Sec. 3500.14(g)(1) (vii)-(ix), for which the effective
date has been delayed.
Justification for Final Rulemaking
The Department generally publishes a rule for public comment before
issuing a rule for effect, in accordance with its regulations on
rulemaking in 24 CFR part 10. Part 10 provides for exceptions from this
general rule, however, when the agency finds good cause to omit advance
notice and public participation. The good cause requirement is
satisfied when prior public procedure is ``impracticable, unnecessary,
or contrary to the public interest'' (24 CFR 10.1).
This final rule establishes the effective date for certain
provisions in the June 7, 1996 final rule, for which the Department has
already solicited public comments. This rule also makes several
technical revisions or clarifications to the RESPA regulations that
strictly conform with the requirements of the Act; the Department is
not exercising any new regulatory discretion. Therefore, the Department
finds that good cause exists to publish this rule for effect without
first soliciting public comments, in that prior public procedure would
be unnecessary.
Findings and Certifications
Paperwork Reduction Act
The regulations implementing the statutory requirement for a
disclosure regarding ``affiliated'' business arrangements are in 24 CFR
3500.15(b). In accordance with the emergency processing procedures in 5
CFR 1320.13, the information collection requirements in Sec. 3500.15(b)
have been approved by the Office of Management and Budget (OMB) under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520), and assigned
OMB control number 2502-0516. The Department provided notice of the
estimate of the average burden of the collection, and solicited public
comments on this estimate, on August 12, 1996 (61 FR 44990). The
Department is in the process of seeking OMB approval of the information
collection requirements through the regular processing procedures in 5
CFR part 1320; the regular approval number, when assigned, will be
announced by separate notice in the Federal Register. An agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless the collection displays a valid
control number.
This final rule does not impose additional information collection
requirements, nor does it substantively change the information
collection requirements in Sec. 3500.15(b) issued in the June 7, 1996
final rule (61 FR 29238), and corrected and revised on August 12, 1996
(61 FR 41944). The only effect of this rule upon the information
collection requirements is to redesignate the term ``controlled
business arrangements'' as ``affiliated business arrangements,'' in
accordance with section 2103(c) of the Act.
Environmental Impact
A finding of no significant impact with respect to the environment
was made at the time of the development of the June 7, 1996 final rule
(61 FR 29238), in accordance with HUD regulations in 24 CFR part 50
[[Page 58475]]
implementing section 102(2)(C) of the National Environmental Policy Act
of 1969 (42 U.S.C. 4332). That finding continues to apply to this final
rule, and is available for public inspection during regular business
hours in the Office of General Counsel, the Rules Docket Clerk, room
10276, 451 Seventh Street, SW, Washington, DC 20410-0500.
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed this rule before publication and by
approving it certifies that this rule does not have a significant
economic impact on a substantial number of small entities, other than
those impacts specifically required to be applied universally by the
RESPA statute.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that the policies
contained in this final rule will not have substantial direct effects
on States or their political subdivisions, or the relationship between
the Federal government and the States, or on the distribution of power
and responsibilities among the various levels of government. As a
result, the rule is not subject to review under the Order. Promulgation
of this rule amends the applicable regulatory requirements pursuant to
statutory direction.
Executive Order 12606, the Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that this final rule does not
have potential for significant impact on family formation, maintenance,
and general well-being, and thus, is not subject to review under the
order. No significant change in existing HUD policies or programs will
result from promulgation of this rule, as those policies and programs
relate to family concerns.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) establishes requirements for Federal
agencies to assess the effects of their regulatory actions on State,
local, and tribal governments, and the private sector. This rule does
not impose any Federal mandates on any State, local, or tribal
governments, or on the private sector, within the meaning of the UMRA.
List of Subjects in 24 CFR Part 3500
Consumer protection, Condominiums, Housing, Mortgages, Mortgage
servicing, Reporting and recordkeeping requirements.
Accordingly, for the reasons set out in the preamble, Interpretive
Rule 1995-1, published in the Federal Register on February 27, 1995 (60
FR 10762), is removed; and part 3500 of title 24 of the Code of Federal
Regulations is amended as follows:
PART 3500--REAL ESTATE SETTLEMENT PROCEDURES ACT
1. The authority citation for 24 CFR part 3500 is revised to read
as follows:
Authority: 12 U.S.C. 2601 et seq.; 28 U.S.C. 2461 note; 42
U.S.C. 3535(d).
2. In Sec. 3500.2, paragraph (b) is amended by revising the
definition of ``Federally related mortgage loan'' to read as follows:
Sec. 3500.2 Definitions.
* * * * *
Federally related mortgage loan or mortgage loan means as follows:
(1) Any loan (other than temporary financing, such as a
construction loan):
(i) That is secured by a first or subordinate lien on residential
real property, including a refinancing of any secured loan on
residential real property upon which there is either:
(A) Located or, following settlement, will be constructed using
proceeds of the loan, a structure or structures designed principally
for occupancy of from one to four families (including individual units
of condominiums and cooperatives and including any related interests,
such as a share in the cooperative or right to occupancy of the unit);
or
(B) Located or, following settlement, will be placed using proceeds
of the loan, a manufactured home; and
(ii) For which one of the following paragraphs applies. The loan:
(A) Is made in whole or in part by any lender that is either
regulated by or whose deposits or accounts are insured by any agency of
the Federal Government;
(B) Is made in whole or in part, or is insured, guaranteed,
supplemented, or assisted in any way:
(1) By the Secretary or any other officer or agency of the Federal
Government; or
(2) Under or in connection with a housing or urban development
program administered by the Secretary or a housing or related program
administered by any other officer or agency of the Federal Government;
(C) Is intended to be sold by the originating lender to the Federal
National Mortgage Association, the Government National Mortgage
Association, the Federal Home Loan Mortgage Corporation (or its
successors), or a financial institution from which the loan is to be
purchased by the Federal Home Loan Mortgage Corporation (or its
successors);
(D) Is made in whole or in part by a ``creditor'', as defined in
section 103(f) of the Consumer Credit Protection Act (15 U.S.C.
1602(f)), that makes or invests in residential real estate loans
aggregating more than $1,000,000 per year. For purposes of this
definition, the term ``creditor'' does not include any agency or
instrumentality of any State, and the term ``residential real estate
loan'' means any loan secured by residential real property, including
single-family and multifamily residential property;
(E) Is originated either by a dealer or, if the obligation is to be
assigned to any maker of mortgage loans specified in paragraphs (1)(ii)
(A) through (D) of this definition, by a mortgage broker; or
(F) Is the subject of a home equity conversion mortgage, also
frequently called a ``reverse mortgage,'' issued by any maker of
mortgage loans specified in paragraphs (1)(ii) (A) through (D) of this
definition.
(2) Any installment sales contract, land contract, or contract for
deed on otherwise qualifying residential property is a federally
related mortgage loan if the contract is funded in whole or in part by
proceeds of a loan made by any maker of mortgage loans specified in
paragraphs (1)(ii) (A) through (D) of this definition.
(3) If the residential real property securing a mortgage loan is
not located in a State, the loan is not a federally related mortgage
loan.
* * * * *
Sec. 3500.5 [Amended]
3. Section 3500.5 is amended by revising paragraph (b)(2) to read
as follows:
Sec. 3500.5 Coverage of RESPA.
* * * * *
(b) * * *
(2) Business purpose loans. An extension of credit primarily for a
business, commercial, or agricultural purpose, as defined by Regulation
Z, 12 CFR 226.3(a)(1). Persons may rely on Regulation Z in determining
whether the exemption applies.
* * * * *
[[Page 58476]]
Sec. 3500.7 [Amended]
4. In Sec. 3500.7, paragraph (e)(3) is amended by removing the
phrase ``a controlled'', and by adding in its place the phrase ``an
affiliated''.
Sec. 3500.8 [Amended]
5. In Sec. 3500.8, the fourth sentence of paragraph (c)(2) is
amended by removing the reference ``Appendix F'', and by adding in its
place the reference ``Appendix E''.
Sec. 3500.13 [Amended]
6. In Sec. 3500.13, paragraph (b)(2) is amended by removing the
word ``controlled'' wherever it appears, and by adding in its place the
word ``affiliated''.
Sec. 3500.14 [Amended]
7. In Sec. 3500.14, paragraph (g) is amended by removing paragraph
(g)(1)(viii); by adding the word ``or'' at the end of paragraph
(g)(1)(vi); and by removing the phrase ``; or'' at the end of paragraph
(g)(1)(vii), and by adding in its place a period.
8. Section 3500.15 is amended as follows:
a. The section heading is revised as set forth below;
b. Paragraph (a) is amended by removing the phrase ``A
controlled'', and by adding in its place the phrase ``An affiliated'';
c. The first sentence of the introductory text of paragraph (b)(1)
is amended by removing the word ``Controlled'', and by adding in its
place the word ``Affiliated'';
d. Paragraph (b)(3)(i) is amended by removing the phrase ``a
controlled'' and adding in its place the phrase ``an affiliated''; and
e. The introductory text of paragraph (b) is amended by removing
the phrase ``A controlled'', and by adding in its place the phrase ``An
affiliated''; and is further amended by adding a new sentence at the
end of the introductory text, to read as follows:
Sec. 3500.15 Affiliated business arrangements.
* * * * *
(b) * * * Paragraph (b)(1) of this section shall not apply to the
extent it is inconsistent with section 8(c)(4)(A) of RESPA (12 U.S.C.
2607(c)(4)(A)).
* * * * *
Sec. 3500.17 [Amended]
9. Section 3500.17 is amended as follows:
a. In paragraph (b), the last sentence of the definition of
``Aggregate (or) composite analysis'' and the last sentence of the
definition of ``Single-item analysis'' are amended by removing the
references ``Appendix F'', and by adding in their place the references
``Appendix E'';
b. In paragraph (c)(1)(i), the second sentence is amended by
removing the reference ``appendix F'', and by adding in its place the
reference ``Appendix E''; and
c. In paragraph (d)(1)(ii), the last sentence is amended by
removing the reference ``Appendix F'', and by adding in its place the
reference ``Appendix E''.
Appendix B to Part 3500 [Amended]
10. Appendix B to part 3500 is amended as follows:
a. In Illustration 7, ``Comments'', the first sentence is amended
by removing the phrase ``a controlled,'' and by adding in its place the
phrase ``an affiliated''; and the third and last sentences are amended
by removing the word ``controlled'', and by adding in its place the
word ``affiliated'';
b. In Illustration 8, ``Comments'', the first sentence is amended
by removing the word ``CBA'', and by adding in its place the phrase
``affiliated business arrangement'';
c. In Illustration 9, ``Comments'', the first sentence is amended
by removing the phrase ``a controlled'', and by adding in its place the
phrase ``an affiliated'';
d. In Illustration 10, ``Comments'', the first and second sentences
are amended by removing the phrase ``a controlled'', and by adding in
its place the phrase ``an affiliated''; and the second sentence is
further amended by removing the phrase ``the controlled'', and by
adding in its place the phrase ``the affiliated''; and
e. In Illustration 11, ``Facts'', the last sentence is amended by
removing the phrase ``a controlled'', and by adding in its place the
phrase ``an affiliated''; and in Illustration 11, ``Comments'', the
second sentence is amended by removing the word ``controlled'', and by
adding in its place the word ``affiliated''.
11. Appendix D to part 3500 is revised to read as follows:
BILLING CODE 4210-27-C
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[GRAPHIC] [TIFF OMITTED] TR15NO96.000
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[GRAPHIC] [TIFF OMITTED] TR15NO96.001
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Appendix E to part 3500 [Removed]
12. Appendix E to part 3500 is removed.
Appendix F to part 3500 [Redesignated]
13. Appendix F to part 3500 is redesignated as Appendix E to part
3500.
Appendix N to part 3500 [Removed]
14. Appendix N to part 3500 is removed.
Dated: November 8, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner
[FR Doc. 96-29278 Filed 11-14-96; 8:45 am]
BILLING CODE 4210-27-M
