These comments address the first four items of this list. ABA comments to the servicing-related provisions are addressed in a separate document.

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1 Robert R. Davis Executive Vice President Mortgage Markets, Financial Management & Public Policy (202) Submitted via Ms. Monica Jackson Office of the Executive Secretary Consumer Financial Protection Bureau 1700 G Street, NW Washington, DC Re: Docket No. CFPB ; RIN 3170-AA37 Amendments to the 2013 Mortgage Rules Under the Equal Credit Opportunity Act (Regulation B), Real Estate Settlement Procedures Act (Regulation X), and the Truth in Lending Act (Regulation Z) Act (Regulation X) and the Truth in Lending Act (Regulation Z) Dear Ms. Jackson: The American Bankers Association (ABA) 1 appreciates this opportunity to comment on the Consumer Financial Protection Bureau s clarifications to recent mortgage reform regulations issued pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act), Public Law , 124 Stat (2010). The Consumer Financial Protection Bureau (Bureau) has issued a proposed rule containing amendments and clarifications to various final mortgage rule provisions that were issued by the Bureau in January of This issuance proposes the following actions: (1) amend provisions on loss mitigation procedures under Regulation X's servicing provisions, (2) clarify what amounts must be counted as loan originator compensation to retailers of manufactured homes and their employees for purposes of applying points and fees thresholds under the Home Ownership and Equity Protection Act and the qualified mortgage rules in Regulation Z, (3) amend exemptions available to creditors that operate predominantly in rural or underserved areas for various purposes under the mortgage regulations, (4) clarify application of the loan originator compensation rules to bank tellers and similar staff, and the prohibition on creditorfinanced credit insurance, and (5) adjust the effective dates for certain provisions of the loan originator compensation rules. The Bureau also proposes technical and wording changes for clarification purposes to Regulations B, X, and Z. These comments address the first four items of this list. ABA comments to the servicing-related provisions are addressed in a separate document. 1 The American Bankers Association represents banks of all sizes and charters and is the voice for the nation s $14 trillion banking industry and its two million employees. The majority of ABA s members are banks with less than $185 million in assets. Learn more at aba.com.

2 Page No 2 Overview of Comments The following list summarizes ABA s more important comments on the loan origination matters that the CFPB has re-opened for public comment. ABA remains concerned that full compliance by the January 2014 effective date is unrealistic. The effective dates of the mortgage-related regulations is less than six months away, yet the CFPB s rules and commentary continue to evolve in very fundamental ways. ABA believes that a limited delay of the effective date of these rules is the only option that assures an orderly transition to the new mortgage regulatory structure. Current rules regarding which bank staff qualifies under the definition of loan originator are confounding and extremely challenging to apply in the real world. There is a critical need to simplify the coverage of these LO compensation rules. ABA recommends that CFPB adopt the definitions under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 ( SAFE Act ) as the base definitions applicable to TILA s LO Compensation rules. The Bureau must also reconsider the statutory basis for requiring that mere referrals be the definitional trigger for the loan originator compensation restrictions. ABA recommends that CFPB enact effective dates for the LO compensation provisions that apply to transactions that are either consummated on or after January 1, 2014, or for which the creditor paid compensation on that date. The test for inclusion of third party charges into the points and fees test is entirely unclear. ABA requests that the Bureau publish a schedule of typical fees that are charged in real estate transactions, identifying which fees and charges are included in points and fees, and which are excluded. For purposes of defining the financing of credit insurance, ABA supports, with certain small modifications, the Bureau s proposed definition of financing to cover the right to defer payment of a credit insurance premium or fee owed by the consumer beyond the month or period in which the premium is due. Discussion ABA Request for Extended Compliance Periods a. ABA Supports the CFPB s Ongoing Efforts to Clarify the Rules ABA appreciates the CFPB s efforts to clarify its mortgage regulations and staff commentary. Our members have identified many interpretive and operational questions regarding these rules, including several issues regarding definitions and loss mitigation provisions that are the subject of this rulemaking. We appreciate the CFPB s efforts to provide guidance on these matters. It is

3 Page No 3 important that the Bureau provide needed clarity as banks work to revise their policies, processes, and information technology capabilities to comply with the new regulations. While we fully support the CFPB s work to clarify the mortgage rules, we are concerned that the proposal s expedited comment period 2 did not provide sufficient time for bankers to thoroughly analyze all aspects of the proposal and its potential impact on their staffing classifications, points and fees calculations, loss mitigation efforts, foreclosure procedures, and capital allocations, as well as the proposal s relationship to State property and consumer protection laws. Banks are focused on managing their implementation efforts for all of the new mortgage origination and servicing rules scheduled to take effect in January For small and mid-size banks, this left little time and resources for reviewing and commenting on this further set of proposed amendments and clarifications to the regulations. As a result, silence on certain aspects of this proposal does not imply that banks support those provisions or that they determined that those provisions will have no impact. b. Need for Extension of the Effective Date Despite the additional guidance that the proposed amendments may provide, we remain concerned that full compliance by the January 2014 effective date is unrealistic. The CFPB s rules establish a brand-new, cradle-to-grave regulatory framework for mortgage lending. The drafting and implementation of these new rules involve monumental change in a short timeframe for bankers and regulators alike. For the reasons explained below, we request that CFPB delay the effective date of the new rules by 12 months. We believe that a temporary delay is a common-sense approach that will give banks a meaningful opportunity to fully implement the new rules, as well as the ongoing revisions to the rules, before the new legal and regulatory liabilities for non-compliance take effect. Rulemakings Are Ongoing. The effective date for the new rules is less than six months away, yet the CFPB s rules and commentary continue to evolve. Since January 2013, the CFPB has issued a combined total of 21 proposed and final rules associated with the mortgage reform rulemaking process. 3 CFPB should ensure that its regulations are truly final within a timeframe 2 The proposal was published in the Federal Register on July 2, 2013, which provided a 20-day comment period that included the July 4 th holiday. However, CFPB provided a link to the proposal on its website on June 24, Below is a list of key proposed and final rules that are part of the CFPB s mortgage implementation initiative. 1/22/13 Final rule: Escrow 1/30/13 Final rule: Ability-to-Repay and Qualified Mortgages 1/30/13 Proposed rule: Qualified Mortgages (non-profit creditors, small creditor portfolio loans) 1/31/13 Final Rule: HOEPA 1/31/13 Final Rule: Appraisal (disclosure and delivery requirements) 2/14/13 Final Rule: Servicing (TILA) 2/14/13 Final Rule: Servicing (RESPA) 2/15/13 Final Rule: Loan Originator Compensation 2/31/13 Final Rule: Appraisals for Higher-Priced Mortgage Loans (Interagency rulemaking) 4/18/13 Proposed Amendments: Escrow (rural and underserved) 5/2/13 Proposed Amendments: Servicing (preemption, small creditor exemption) 5/2/13 Proposed Amendments: Qualified Mortgages (GSE exception, QM DTI) 5/23/13 Final Rule: Amendments to Escrow (rural and underserved) 5/31/13 Delay in effective date of prohibition on financing of credit insurance premiums on certain loans (continued)

4 Page No 4 that provides banks with sufficient opportunity to thoroughly analyze and fully comply with the rules prior to their effective date. Mortgage Implementation Survey. Compliance with many aspects of the rules is contingent upon the development, customization, and implementation of information technology projects, including software, programming, and interfaces. In June 2013, ABA surveyed senior mortgage executives of member banks to learn more about their overall mortgage implementation efforts and the progress that their vendors have made in delivering technology projects related to implementation of the new mortgage rules. 4 Below is a summary of key data points from our survey. Vendor Preparedness. Multiple aspects of the rules will require banks to implement new software and computer systems; overhaul policies, procedures, and processes; train staff; and test these changes for quality assurance. Many of these steps cannot occur absent a final vendor product. 53% of respondents stated that their vendor(s) have not provided information on when they will provide all completed software and programming updates to the bank; 7% of banks anticipate receiving vendor products in September-October 2013; and 17% anticipate receiving their products during the November-December 2013 timeframe. For institutions that will receive vendor products over time (as opposed to all at once), 47% stated that their vendor has not provided information on when it will deliver the first installment of the project; 15% anticipate receiving the first installment during September-October 2013; and 6% anticipate receiving the first installment during the November-December 2013 timeframe. Integration. Even after the vendors finally release their deliverables, banks must adjust and test the vendor product. Our survey inquired about the amount of time that banks anticipate that it will take to fully integrate a vendor s products once they are made available to the institution. 41% of respondents expect to take 2-3 months; 22% expect to take 4-6 months; and 9% expect to take more than 6 months. 6/12/13 Final Rule: Amendments to Qualified Mortgage (non-profit creditors, small creditor portfolio loans, balloons) 7/2/13 Proposed Amendments: Servicing (loss mitigation, error resolution, and information requests) 7/2/13 Proposed Amendments: Escrow (rural and underserved) 7/2/13 Proposed Amendments: Loan Originator Compensation (bank tellers and similar staff) 7/2/13 Proposed Amendments: Qualified Mortgages (determination of DTI) 7/10/13 Final Rule: Servicing (preemption, small servicer exception, preamble guidance on ARM disclosures) 7/10/13 Final Rule: Amendments to Qualified Mortgage (GSE exception, DTI) TBD Final Rule: Servicing (loss mitigation, error resolution, and information requests) TBD Final Rule: Escrow (rural and underserved) TBD Final Rule: Loan Originator Compensation (bank tellers and similar staff) TBD Final Rule: Qualified Mortgages (determination of DTI) 4 The Member Survey on Implementation of the New Mortgage Rules ( Mortgage Implementation Survey ) had the participation of 187 banks. Approximately 72 percent of participating institutions had assets of less than $1 billion in assets.

5 Page No 5 The actual amount of time for financial institutions to comply is further shortened by the information technology freeze that some institutions have in place to manage existing year-end tax and reporting requirements. It may not be possible to test or revise the new mortgage compliance systems during this lock down period. As a practical matter, some of our members report that the compliance deadline will be November or December, 2013 due to the annual information technology freeze. 26% of respondents reported that their institutions have a year-end blackout period on information technology changes that will impact implementation of the mortgage rules. Of those institutions with a blackout period, 56% said that the blackout would last 2-4 weeks; 32% said it would last less than 2 weeks; 12% said the blackout would last 5-8 weeks. ABA believes that the results of our survey further demonstrate the need for a delay. In fact, we believe that a limited delay of the effective date of the rules is the only option that will best assure an orderly transition to the new mortgage regulatory structure. Proposals to Clarify Loan Originator Compensation Provisions The Bureau is proposing revisions, as well as technical and wording changes to various provisions of the 2013 Loan Originator Compensation Final Rule in In this issuance, CFPB sets forth various proposed revisions to the loan originator compensation rules, and devotes focused attention to definitions and provisions addressing when employees (or contractors or agents) of a creditor or loan originator in certain administrative or clerical roles (e.g., tellers or greeters) may become loan originators and thus subject to the rule. As a threshold matter, ABA appreciates the Bureau s efforts to add clarity to the definition of loan originator under these rules. Overall, ABA members unanimously believe that the clarifications offered in this proposal are essential to allowing bank staff to properly communicate with customers. The final rules issued in January created great uncertainties about the level and content of communications that would legally transform bank employees into loan originators. Institutions were concerned that minor mistakes or staff misstatements could, under the January provisions, entirely alter the regulatory status of any bank employee, and inadvertently expose staff to punishing and restrictive compensation restrictions. In this context, ABA supports the proposals advanced by CFPB that aim to clarify the definition of loan originator. These proposals include (i) clearer delineations to the term credit term, (ii) clarification of the administrative exemption and removal of the requirement that application forms must be provided to consumers only in response to consumers request, (iii) improved delineations of when bank employees can provide loan officer contact information, and (iv) the exclusion from rule coverage of employees that deal with product-related services. ABA believes these items are appropriately described in the proposed rule s preamble, adequately set forth in the proposed rule provisions, and we have no substantive comments on these.

6 Page No 6 Our member banks do, however, have deeper and more structural concerns regarding this portion of the proposal and most importantly, the underlying rule. Overall, ABA members believe that the definition of loan originator constitutes the paramount problematical issue in the origination portions of this proposed rule. The current rules regarding which staff fall under the definition of loan originator are confounding and extremely challenging to apply in the real world. The regulatory provisions that would subject a bank employee to being defined as a loan officer can include a broad range of interrelated activities that include (i) arranging credit, (ii) negotiating credit, (iii) advertising, (iv) assisting, (v) communicating directly or indirectly with a borrower, (vi) communicating directly or indirectly with a prospective borrower, (vii) responding to consumer requests or inquiries, (viii) presenting offers or revised offers, (ix) advising, (x) recommending, (xi) referring, (xii) steering, (xiii) collecting loan applications, (xiv) counseling on loan applications, (xv) otherwise obtaining an extension of credit. These activities are quoted directly from existing and/or proposed regulations, and they are listed here in seriem to illustrate that these terms cover an extremely wide range of engagements and activities that bank staff can have with consumers. In the end, these activities constitute core interactions between consumers and bank staff, and the specific details of these activities are not easily monitored or fully controllable within a bank setting. All these activities intertwine in manner and degree, and create uncertainty so that compliance cannot be entirely assured. While the Bureau s current proposal provides some relief for tellers and greeters, the difficulties and questions that arise from the proposals and the underlying final rules are voluminous: Repeated comments from banks state that supervisors and officers appear to be required to be treated as loan originators simply because consumer issues may be escalated to them and they help to resolve issues by agreeing to changes in terms, prices or products. Is the intent to require that institutions build a wall between higher-level officers of the creditor and consumers who seek their help? Where an employee might possibly direct a consumer to different loan originator employees of the creditor, how can they prove that the direction was not based upon the consumer s financial characteristics? How will such interactions be examined? If a bank president, for instance, directs an acquaintance to a loan originator employee in a department that handles high net worth clients, would such referral make the bank president a loan officer (therefore requiring the bank to monitor and document this individual for purposes of the 10-loan rule or the 10% bonus limit)? Where creditors have existing relationships with consumers, they may be able to identify, in an automated fashion, what products are appropriate to sell to the consumer and may direct the employee, agent or contractor to tell the consumer about the product. For example, when a consumer completes a transaction with a teller, the bank system may alert the teller to the fact that the consumer may be able to refinance his or her current loan with the bank to a lower rate, or that the consumer s deposit relationship would provide a discount on mortgage rates or fees. How are these automated and integrated systems to be judged under these rules? How does a bank treat translators that serve key roles in actually informing nonproficient consumers of the bank s products and the consumer s choices?

7 Page No 7 How do banks treat active LO assistants that relay messages and act as full-time contacts between the originator and the consumer? What elements are included in the consumer s financial characteristics? If an individual communicates certain credit terms or directs the consumer to a particular loan originator based upon an assessment of the value of the property or characteristics of the consumer s existing loan, such as its interest rate, would that cause the individual to be a loan originator? For example, if a bank would want refinance applications to be directed to one loan originator employee or team and home equity loans to a different loan originator employee or team, can the teller consider that the consumer has an existing mortgage loan and could the teller follow a script suggesting a refinance and directing the consumer to the loan originator employee or team that handles refinances? Can banks rely on Appendix Q to delineate what is considered to be financial characteristics? These are only some of the inquiries that are coming up in the ongoing rushed efforts that banks are undertaking to comply with the reform regulations. In these and other instances, banks are discovering that they cannot be fully assured of their compliance status because small deviations in technology or in interactions with the public can instantly transform mere employees into loan originators. Given the multiplicity of constructions and variations that can occur in bank settings, ABA believes there is a critical need to simplify and more carefully sharpen provisions affecting the coverage of this rule, specifically, who is and who is not a loan originator under these requirements. ABA Position: ABA recommends that CFPB adopt the definitions under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 ( SAFE Act ) as the base definitions applicable to TILA s LO Compensation rules. This approach will yield consistency and simplicity to the application of these rules, and will also add greater accuracy to the scope of covered activities under this rule. As CFPB is aware, the SAFE Act provisions (Regulation G) serve to implement mortgage registration and licensing requirements for mortgage originators and therefore provide a precise basis to delineate the universe that should be covered by these rules. More to the point, since its inception approximately 5 years ago, Regulation G provisions have proven well calibrated to capturing LO activity with accuracy. These rules have been fully incorporated by the banking industry, and have been corrected for kinks and inaccuracies. The rules also have the advantage of broad interagency input and participation in their creation, as they were developed through joint rulemaking by the FFIEC agencies. ABA believes that the SAFE Act s definitional structure is superior for numerous reasons. First, the SAFE Rule offers a much simpler structure, stating (under.103) that a Mortgage Loan Originator is defined as individuals who (1) take residential mortgage loan applications, and (2) offer or negotiate terms of a residential mortgage loan for compensation or gain. The rule then sets forth a list of activities that are not deemed to be originator-qualifying functions, such as performing purely administrative or clerical tasks, or performing only real estate brokerage activities. This two-prong approach is simple and ascertainable for compliance purposes, and

8 Page No 8 provides specific and exact standards that are faithful in capturing loan originator functions. The SAFE Rule s explicit exclusions can be used as safe harbors, allowing banks to safely organize staff duties and responsibilities in a compliant manner. This definitional approach sharply contrasts with the definition of TILA s LO Compensation rule. This latter rule sweeps in, under (a)(1), any employee that takes an application, offers consumer credit, arranges consumer credit, assists a consumer in obtaining or applying to obtain consumer credit, negotiates consumer credit, otherwise obtains or makes an extension of consumer credit for another person, or represents to the public (through advertising or other means of communication) that such person can or will perform any of these activities. Significantly, each of these prongs is then subject to more expansive agency interpretations that greatly magnify, and seriously complicate, the reach of the law. ABA members believe that the TILA definitions are unmanageable, and must be more closely aligned with the more temperate definitions set forth in the SAFE Rule. Should the Bureau decide to not use the SAFE Act as a guide for defining coverage of loan originator activity, then at minimum ABA recommends that CFPB reconsider the decision to define mere referrals as a trigger for loan originator status. We note that this interpretation regarding referrals is central to compliance burdens imposed by this provision, and we believe that it leads to an excessively broad application of the LO compensation rules one that significantly expands coverage beyond anything that Congress intended. This point merits further discussion. In the January final rules (78 F.R.11279), the Bureau expanded the interpretation of one of the definitional prongs of loan originator the making of an offer to include persons who recommend or refer a consumer to a particular loan originator, creditor, credit terms, or credit product. This enormously expansive interpretation of the statutory language is not premised on any legislative intent. It is so expansive, in fact, that it completely overtakes the actual definition of loan originator that is set forth in the statute. To explain, in every instance that a loan originator assists a consumer, the originator must necessarily recommend, refer, or steer a consumer to a particular set of credit terms or credit products. In short, the definition of refer that is set forth in the rule will necessarily define every LO activity without regard to or reliance upon the core statutory definition of loan originator. The regulation therefore comes to a somewhat incongruous place where a subsection of a rule is broader than the rule itself, and as such, the subsection actually nullifies the meaning of the main rule. Stated differently, under the Bureau s interpretation, the various prongs of Section 1401 of Dodd-Frank, setting out the definition for the term mortgage originator, become irrelevant for defining loan originator under TILA the sole deciding factor in the regulation becomes whether bank employees have referred mortgage-related products. This flawed construction is having the effect of drastically expanding the reach of loan originator restrictions to unpredictable numbers of employees in all bank operations. It is telling that the CFPB s current proposals regarding the definition of loan originator under the Commentaries to 36(a) are necessary only because of the unmanageable consequences that result from converting referral a term neither mentioned nor suggested by the Dodd-Frank Act into the crucial definitional point of that term.

9 Page No 9 In light of the above, ABA believes that the administrative interpretation of loan originator is incongruous with the statute, and this must be resolved by the Bureau. In addressing this anomaly, the Bureau must remain true to the explicit set of activities that Congress intended to apply in identifying a loan originator. In this sense, ABA respectfully objects to the Bureau s assertions that the statute was intended to reach referral activities and that such interpretations do not impose significant burdens. To the contrary, we believe the definitions of loan originator pose very significant challenges to implementation efforts and result in unintended restrictions that are very damaging to proper consumer assistance and efficient resource allocation. Proposals to Change Effective Date of Loan Originator Compensation Rule The Bureau proposes moving the general effective date for most provisions adopted by the 2013 Loan Originator Compensation Final Rule to January 1, This change shortens the implementation period by nine days, but the Bureau believes that the change would facilitate compliance and reduce implementation burden by providing a cleaner transition period that more closely aligns with changes to employers annual compensation structures and registration, licensing, and training requirements. The Bureau proposes that revisions to (d) would apply to transactions that are consummated and for which the creditor or loan originator organization paid compensation on or after January 1, The Bureau also proposes that the provisions of (d)(1)(iii), which pertain to contributions to or benefits under designated tax-advantaged plans for individual loan originators, would apply to transactions for which the creditor or loan originator organization paid compensation on or after January 1, 2014, regardless of when the transactions were consummated or their applications were received. ABA thanks the Bureau for its efforts to facilitate compliance and establish effective dates that are better aligned with banker systems. ABA believes that this is an area where bankers can be given maximum flexibility without hurting consumer safety. ABA notes that effective dates are not in-se consumer protection measures they only identify the start point for the particular provisions enacted in the rule. ABA Position: Given the extremely brief compliance periods that already apply, ABA does not see major burdens with pushing the effective dates back to January 1 st. We recommend, however, that CFPB enact effective dates that apply to transactions that are either consummated on or after January 1, 2014, or for which the creditor paid compensation on that date. Allowing for an alternative option would best accommodate the various payment systems and methods that exist across various institutions, and would not, in our opinion, give rise to significant difficulties in terms of examinations. Once selected, the institution would have to abide by their choice, and whatever effective date methodology is selected, the examiner would be able to properly identify such start point and ensure that they are properly followed in accordance with the rules. Proposals on Points and Fees Test: Charges Paid by Third Parties (Section (b)) The Bureau is proposing to add new commentary to (b)(1) to clarify when charges paid by parties other than the consumer, including third parties, are included in points and fees. New

10 Page No 10 Dodd-Frank provisions provide that points and fees calculations for HOEPA and ATR must include fees payable in connection with the loan, thus expanding the reach beyond the fees paid by the consumer calculation under old TILA. Specifically, the Bureau is proposing to add new comment 32(b)(1)-2 to clarify the treatment of charges imposed in connection with a closedend credit transaction that are paid by a party to the transaction other than the consumer, for purposes of determining whether that charge is included in points and fees as defined in (b)(1). In addition, the proposed comment restates for clarification purposes that, pursuant to (b)(1)(i)(A) and (ii), charges that are paid by the creditor, other than loan originator compensation paid by the creditor that is required to be included in points and fees under (b)(1)(ii), are excluded from points and fees. To the extent that the creditor recovers the cost of such charges from the consumer, the cost is recovered through the interest rate, which is excluded from points and fees under (b)(1)(i)(A). As crafted, these proposed provisions are somewhat unclear, and we fear that they pose yet additional complications for the points and fees test. Proposed Comment 32(b)(1)-2 appears to provide that if fees paid by a third party would be a finance charge, then it will be included in points and fees unless specifically excluded from points and fees; if it is not a finance charge but is the type of charge that is specifically included in points and fees (such as an appraisal fee for an appraisal performed by an employee of the creditor) then it is included in points and fees. In articulating this formula, the proposed rule (preamble and staff commentary) states that charges paid by third parties that fall within the definition of points and fees set forth in (b)(1)(i) through (vi) are included in points and fees. The proposed comment notes that a third-party payment of an item excluded from the finance charge under a provision of , while not included in points and fees under (b)(1)(i), may be included under (b)(1)(ii) through (vi). In discussing excluded charges, the proposed comment states that a charge paid by a third party is not included in points and fees under (b)(1)(i) as a component of the finance charge if any of the exclusions from points and fees in (b)(1)(i)(A) through (F) applies. These instructions are hardly intelligible, and various ABA banks that analyzed these provisions came to different interpretations as to the final meaning of the law. It appears that the implication of the proposal is that if a fee is the type of fee that would be a finance charge if paid by the borrower, it would be a finance charge if paid by a third party even if the fee is not imposed directly or indirectly on the consumer. That, however, would appear to be contrary to the provisions of Section which defines finance charges as including any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. The interplay of the different provisions involved, as well as the interplay of the old TILA and new TILA rules, poses deep difficulties in understanding exactly what the Bureau intends. Nor is there any clarity under this regime about why amounts paid by third parties would be treated more harshly than amounts paid by sellers. Further compliance issues still plague the proposed calculation method. Various questions arise as a result of having fees being treated differently depending upon who pays them. For instance,

11 Page No 11 where the funds for paying total closing costs come from different sources (the lender, the borrower, the seller, the borrower's employer or other third party), it is unclear how the creditor is supposed to determine which source of funds is being used to pay which fees. It would be preferable if the rule specifically permitted the creditor to allocate the funds to specific fees in whatever way it wished, but if that is not deemed permissible then the rule should state the principles that apply to the allocation. ABA notes that the points and fees test is a fundamental threshold issue in determining QM qualification and therefore in determining the scope of the mortgage market. This formula must be set forth with absolute clarity. ABA requests a more explicit clarification of what charges paid by third parties must be included in the finance charge, and what items must be counted in points and fees. ABA Position: ABA believes the points and fees formulas presented in the final and proposed rules are subject to misinterpretation and misapplication. The new TILA Rules generally adopt the existing intricate finance charge structure as the basis for the points and fees determinations, and then graft additional language to arrive at the new frameworks that must apply to both QM and HOEPA threshold calculations. ABA understands the difficulty in updating the existing TILA framework to fit the new Dodd- Frank changes, but we renew the request that the Bureau assist the industry in clarifying the patently confusing formulas that are now codified in the final regulation. Banks must have absolute certainty in the application of these laws, as the new legal framework can result in dangerous legal and reputational damage to banks. We also know that the most susceptible institutions likely will be smaller community banks that may not be able to afford expensive compliance systems necessary to adequately implement these changes. ABA respectfully requests that the Bureau simplify the process of calculating points and fees by publishing a schedule of typical fees that are charged in real estate transactions, and identifying which fees and charges are included, and which are excluded. Such a chart or schedule of fees would specifically delineate charges by name, and specifically indicate their classification for purposes of the points and fees analysis. Such a chart or schedule of fees should also include typical fees that are funded by third parties, and delineate the circumstances in which they would, or would not, be counted towards points and fees. For instance, the list would identify specific types of fees that are included in the points and fees test: application, origination, assumption, commitment, assignment recordation, document review, Desktop Underwriter, FHA MIP, funding fee, mortgage insurance premium, and others. These fees or charges would be explicitly named and defined as being included in the points and fees calculation, unless some special condition applies that would change that status. Likewise, the chart would include a listing of typical items that are excluded from the APR, such as appraisal, appraiser re-inspection, credit report, document preparation, property inspection, termite/pest inspection, title charges, and others. The chart would then identify how these fees are treated if they are paid by third parties. Again, the key to any such guidance is that fees

12 Page No 12 would be explicitly named and defined as being excluded in the points and fees calculation, unless some special condition applies that would change that status. Such a schedule would be very helpful in assisting banks to decipher the precise meaning of the regulations and would ensure that examiners and compliance professionals have appropriate guidance to apply the law. Such a list could also be of great value to the home-shopping consumer, as they would have a precise listing of charges that they should understand as they progress through their shopping experience. As we ve advocated in the past, this recommended schedule or chart of real estate settlement fees need not be incorporated into the regulatory text it could be issued informally, but under official Bureau letterhead, to ensure that it serves as conclusive guidance on how the specific fees must be analyzed under the law. Given the truncated time period left for compliance, and given that it will be several weeks before these rules are finalized, we urge that they Bureau consider such a tool to add standardization and precision to compliance efforts by lenders. Finally, with respect to charges paid by the creditor (other than mortgage broker compensation), the proposal provides helpful language that clarifies that such amounts are excluded from points and fees. It would, however, be additionally helpful if further comments were added to explicitly state that such charges are excluded from the finance charge, and that it is not material to this calculation that a creditor either absorbs the charges or provides a credit to pay them in return for a higher rate. Proposal on Financing Credit Insurance ( (i)) The Bureau is proposing amendments to (i) to clarify the scope of the prohibition on a creditor ability to finance, directly or indirectly, any premiums for credit insurance in connection with a consumer credit transaction secured by a dwelling. The Bureau is refining the January final rule to ensure it is not overbroad and does not leave ambiguity about when a creditor violates the prohibition on financing credit insurance premiums. Together with ABA s insurance subsidiary, the American Bankers Insurance Association (ABIA) 5, we commend the Bureau for taking the necessary steps of issuing a temporary delay in the effective date and proposing much needed clarifications on the application of the provision prohibiting financing credit insurance in connection with mortgages ( (i)). We appreciate the Bureau recognizing the negative consequences and consumer harm that would result if the Bureau did not modify the preamble language on this provision in the final Loan Originator Compensation rule. 5 The American Bankers Insurance Association is the separately chartered insurance subsidiary of the American Bankers Association and is the only Washington, D.C.-based full service association for bank insurance interests.

13 Page No 13 ABA/ABIA Position: We support the Bureau s proposed changes to (i) with a few key modifications that will help the Bureau achieve its goal in preventing the financing of premiums or fees for credit insurance. a. Definition of Financing We appreciate the Bureau s differentiation between financing and calculated and paid in full on a monthly basis. If a premium does not meet the requirements of calculated and paid in full on a monthly basis, this does not mean the creditor is necessarily financing the premiums. It is certainly possible that a premium is not calculated and paid in full on a monthly basis and also is not financed, and therefore is not subject to the prohibition. The Bureau is proposing to define financing as when a creditor is providing a consumer the right to defer payment of a credit insurance premium or fee owed by the consumer. The Bureau is seeking comment on whether this definition is appropriate and, in the alternative, whether a creditor should be considered to have financed premiums or fees only if it charges a finance charge, as defined in (a), on or in connection with the credit insurance premium or fee. We strongly support the Bureau s first proposed definition of financing with one change that will resolve the Bureau s concerns that the definition may be too ambiguous, as well as concerns expressed by consumer groups that lenders may add monthly premiums to the consumer s loan balance each month but the premiums are not paid since the consumer s monthly payment only covers principal and interest. The definition of financing should be clarified to cover the right to defer payment of a credit insurance premium or fee owed by the consumer beyond the month in which the premium is due. The Bureau recognizes that financing is equivalent to an extension of credit. This extension of credit only occurs when a payment is not made within the month it is due. When a premium payment is deferred beyond the month it is due, the consumer s balance increases meaning that a creditor has advanced funds to pay the premiums. In other words, in that instance, the creditor has financed the premium. On the other hand, a slight delay in processing or a grace period where the consumer s balance does not increase at the end of the month is not financing. ABA and ABIA do not support the alternative definition of financing because the term in connection with is overly inclusive, and it unintentionally will prohibit the vast majority of credit insurance products including those in which premiums are calculated and paid in full on a monthly basis. We ask the Bureau to adopt its first proposed definition of financing with our suggested modifications. b. Effective Date In May the Bureau adopted an effective date of January 10, 2014 for (i), and while the Bureau is not proposing to change the effective date, it is seeking comment on whether the

14 Page No 14 effective date may be set earlier and still permit sufficient time for creditors to adjust credit insurance premium practices as necessary. Since these much needed clarifications are still in the proposed rule stage and we do not know when they will be finalized, we ask the Bureau to consider extending all compliance timetables by a full year (as described above). Regardless, the Bureau should not accelerate the January 2014 effective date prohibiting financial credit insurance in connection with mortgages. Changes to loan processing systems require several months, and it is imperative that the industry is given the time needed. We do not believe an earlier effective date will provide creditors enough time to adjust practices, change systems and train staff. Conclusion ABA appreciates the opportunity to comment on this very important rulemaking. Should you have any questions regarding ABA s comments, please contact the undersigned, or Rod J. Alba, at ralba@aba.com. Sincerely, Robert R. Davis