80 FR 80228 - 2013 Integrated Mortgage Disclosures Rule Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z); Correction

BUREAU OF CONSUMER FINANCIAL PROTECTION

Federal Register Volume 80, Issue 247 (December 24, 2015)

The Consumer Financial Protection Bureau (Bureau) is making technical corrections to Regulation Z (Truth in Lending) and the Official Interpretations of Regulation Z. These corrections republish certain provisions of Regulation Z and the Official Interpretations that were inadvertently removed from or not incorporated into the Code of Federal Regulations by the ``Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)'' final rule (TILA-RESPA Final Rule).

[Federal Register Volume 80, Number 247 (Thursday, December 24, 2015)]
[Rules and Regulations]
[Pages 80228-80232]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-32463]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

RIN 3170-AA19


2013 Integrated Mortgage Disclosures Rule Under the Real Estate 
Settlement Procedures Act (Regulation X) and the Truth in Lending Act 
(Regulation Z); Correction

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule; Official interpretations; Correction.

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SUMMARY: The Consumer Financial Protection Bureau (Bureau) is making 
technical corrections to Regulation Z (Truth in Lending) and the 
Official Interpretations of Regulation Z. These corrections republish 
certain provisions of Regulation Z and the Official Interpretations 
that were inadvertently removed from or not incorporated into the Code 
of Federal Regulations by the ``Integrated Mortgage Disclosures Under 
the Real Estate Settlement Procedures Act (Regulation X) and the Truth 
in Lending Act (Regulation Z)'' final rule (TILA-RESPA Final Rule).

DATES: These corrections are effective on December 24, 2015.

FOR FURTHER INFORMATION CONTACT: Paul Ceja, Senior Counsel and Special 
Advisor, Office of Regulations, Consumer Financial Protection Bureau, 
1700 G Street NW., Washington, DC 20552, at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

I. Background

    In November 2013, pursuant to sections 1098 and 1100A of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 
Act),\1\ the Bureau issued the TILA-RESPA Final Rule, combining certain 
disclosures that consumers receive in connection with applying for and 
closing on a mortgage loan.\2\ On January 20, 2015, the Bureau issued 
the ``Amendments to the 2013 Integrated Mortgage Disclosures Rule Under 
the Real Estate Settlement Procedures Act (Regulation X) and the Truth 
in Lending Act (Regulation Z) and the 2013 Loan Originator Rule Under 
the Truth in Lending Act (Regulation Z)'' final rule (Amendments).\3\ 
On July 21, 2015, the Bureau issued a final rule to delay the effective 
date of the TILA-RESPA Final Rule and Amendments to October 3, 2015, 
and to finalize certain technical amendments and corrections.\4\
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    \1\ Public Law 111-203, 124 Stat. 1376, 2103-04, 2107-09 (2010).
    \2\ 78 FR 79730 (Dec. 31, 2013). The TILA-RESPA Final Rule 
finalized a proposal the Bureau had issued on July 9, 2012, 77 FR 
51116 (Aug. 23, 2012).
    \3\ 80 FR 8767 (Feb. 19, 2015). The Amendments finalized a 
proposal the Bureau had issued on October 10, 2014, 79 FR 64336 
(Oct. 29, 2014).
    \4\ 80 FR 43911 (July 24, 2015). This rule finalized a proposal 
the Bureau had issued on June 24, 2015, 80 FR 36727 (June 26, 2015).
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    The publication of the TILA-RESPA Final Rule in the Federal 
Register resulted in several unintended deletions of existing 
regulatory text from Regulation Z and the Official Interpretations 
(commentary) in the Code of Federal Regulations (CFR) and, in one case, 
the omission of regulatory language in the TILA-RESPA Final Rule from 
the CFR. To correct the CFR, the Bureau is now republishing the deleted 
and omitted text, consistent with the Bureau's intent in the TILA-RESPA 
Final Rule.
    Specifically, this final rule makes the following corrections to 
reinsert existing regulatory text that was inadvertently deleted from 
Regulation Z and its commentary:

     Amends Sec.  1026.22(a)(5) to restore subparagraphs (i) 
and (ii).
     Amends the commentary to Sec.  1026.17 at paragraph 
17(c)(1)-2 to restore subparagraphs i, ii, and iii.
     Amends commentary paragraph 17(c)(1)-4 to restore 
subparagraphs i.A, and i.B.
     Amends commentary paragraph 17(c)(1)-10 to restore 
introductory text and subparagraphs iii, iv, and vi.
     Amends commentary paragraph 17(c)(1)-11 to restore 
subparagraphs i, ii, iii, and iv.
     Amends commentary paragraph 17(c)(1)-12 to restore 
subparagraphs i, ii, and iii.
     Amends commentary paragraph 17(c)(4)-1 to restore 
subparagraphs i and ii.
     Amends commentary paragraph 17(g)-1 to restore 
subparagraphs i and ii.
     Amends the commentary to Sec.  1026.18 at paragraph 
18(g)-4 to restore text to subparagraph i.

    This rule also amends the commentary to appendix D to Regulation Z 
to add paragraph 7 that had been included in the TILA-RESPA Final Rule 
published in the Federal Register but that was inadvertently omitted 
from the commentary to appendix D in the CFR.
    These technical corrections are non-substantive changes to the 
TILA-RESPA Final Rule. No changes have been made to the deleted or 
omitted text or any text of the TILA-RESPA Final Rule that has already 
been codified in the CFR. To eliminate confusion among interested 
persons, the Bureau is republishing all paragraphs containing the 
deleted and omitted text in their entirety.

II. Basis for the Corrections

    The Bureau is issuing these technical corrections solely to correct 
the CFR. The Bureau finds that there is good cause to publish these 
corrections without seeking public comment, consistent with 5 U.S.C. 
553(b)(B). Public comment is unnecessary because the rule merely makes 
technical changes to ensure that the TILA-RESPA Final Rule appears in 
the CFR as the Bureau intended and because it corrects inadvertent, 
technical errors about

[[Page 80229]]

which there is minimal, if any, basis for substantive disagreement. 
Additionally, the Bureau finds good cause to dispense with a 30-day 
delay of the effective date. See 5 U.S.C. 553(d)(3). With these 
corrections, the Bureau is only clarifying how the TILA-RESPA Final 
Rule should have been codified in the CFR, and preventing incorrect 
codification in the 2016 hard copy edition of the CFR, which 
incorporates CFR changes made prior to January 1, 2016. Therefore, the 
Bureau is publishing these corrections as a final rule that will be 
effective upon publication in the Federal Register because the need to 
implement the corrections immediately outweighs any need for providing 
additional time to comply with this rule.

List of Subjects in 12 CFR Part 1026

    Advertising, Consumer protection, Credit, Credit unions, Mortgages, 
National banks, Reporting and recordkeeping requirements, Savings 
associations, Truth in lending.

Authority and Issuance

    For the reasons set forth above, the Bureau amends Regulation Z, 12 
CFR part 1026, as set forth below:

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
1. The authority citation for part 1026 continues to read as follows:

    Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353, 
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.

Subpart C--Closed End Credit

0
2. Section 1026.22 is amended by revising paragraph (a)(5) to read as 
follows:


Sec.  1026.22  Determination of annual percentage rate.

    (a) * * *
    (5) Additional tolerance for mortgage loans. In a transaction 
secured by real property or a dwelling, in addition to the tolerances 
applicable under paragraphs (a)(2) and (3) of this section, if the 
disclosed finance charge is calculated incorrectly but is considered 
accurate under Sec.  1026.18(d)(1) or Sec.  1026.38(o)(2), as 
applicable, or Sec.  1026.23(g) or (h), the disclosed annual percentage 
rate shall be considered accurate:
    (i) If the disclosed finance charge is understated, and the 
disclosed annual percentage rate is also understated but it is closer 
to the actual annual percentage rate than the rate that would be 
considered accurate under paragraph (a)(4) of this section;
    (ii) If the disclosed finance charge is overstated, and the 
disclosed annual percentage rate is also overstated but it is closer to 
the actual annual percentage rate than the rate that would be 
considered accurate under paragraph (a)(4) of this section.
* * * * *

0
3. In Supplement I to Part 1026--Official Interpretations, under 
Subpart C--Closed-End Credit:
0
A. In Section 1026.17--General Disclosure Requirements:
0
i. Under 17(c) Basis of Disclosures and Use of Estimates:
0
a. Under Paragraph 17(c)(1), paragraphs 2,4,10,11, and 12 are revised.
0
b. Under Paragraph 17(c)(4), paragraph 1 is revised.
0
ii. Under 17(g) Mail or Telephone Orders--Delay in Disclosures, 
paragraph 1 is revised.
0
B. In Section 1026.18--Content of Disclosures, under 18(g) Payment 
Schedule, paragraph 4 is revised.
0
C. In Appendix D--Multiple-Advance Construction Loans, paragraph 7 is 
added.
    The revisions and addition read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Subpart C--Closed End Credit

    Section 1026.17--General Disclosure Requirements
* * * * *

17(c) Basis of Disclosures and Use of Estimates

Paragraph 17(c)(1)

* * * * *
    2. Modification of obligation. The legal obligation normally is 
presumed to be contained in the note or contract that evidences the 
agreement between the consumer and the creditor. But this presumption 
is rebutted if another agreement between the consumer and creditor 
legally modifies that note or contract. If the consumer and creditor 
informally agree to a modification of the legal obligation, the 
modification should not be reflected in the disclosures unless it rises 
to the level of a change in the terms of the legal obligation. For 
example:
    i. If the creditor offers a preferential rate, such as an employee 
preferred rate, the disclosures should reflect the terms of the legal 
obligation. (See the commentary to Sec.  1026.19(b) for an example of a 
preferred-rate transaction that is a variable-rate transaction.)
    ii. If the contract provides for a certain monthly payment schedule 
but payments are made on a voluntary payroll deduction plan or an 
informal principal-reduction agreement, the disclosures should reflect 
the schedule in the contract.
    iii. If the contract provides for regular monthly payments but the 
creditor informally permits the consumer to defer payments from time to 
time, for instance, to take account of holiday seasons or seasonal 
employment, the disclosures should reflect the regular monthly 
payments.
* * * * *
    4. Consumer buydowns. In certain transactions, the consumer may pay 
an amount to the creditor to reduce the payments on the transaction. 
Consumer buydowns must be reflected as an amendment to the contract's 
interest rate provision in the disclosure of the finance charge and 
other disclosures affected by it given for that transaction. To 
illustrate, in a mortgage transaction, the creditor and consumer agree 
to a note specifying a 14 percent interest rate. However, in a separate 
document, the consumer agrees to pay an amount to the creditor at 
consummation in return for lower payments for a portion of the mortgage 
term. The amount paid by the consumer may be deposited in an escrow 
account or may be retained by the creditor. Depending upon the buydown 
plan, the consumer's prepayment of the obligation may or may not result 
in a portion of the amount being credited or refunded to the consumer. 
In the disclosure of the finance charge and other disclosures affected 
by it given for the mortgage, the creditor must reflect the terms of 
the buydown agreement.
    i. For example:
    A. The amount paid by the consumer is a prepaid finance charge 
(even if deposited in an escrow account).
    B. A composite annual percentage rate must be calculated, taking 
into account both interest rates, as well as the effect of the prepaid 
finance charge.
    C. The disclosures under Sec. Sec.  1026.18(g) and (s), 1026.37(c), 
and 1026.38(c), as applicable, must reflect the multiple rate and 
payment levels resulting from the buydown, except as otherwise provided 
in those sections. Further, for example, the disclosures must reflect 
that the transaction is a step rate product under Sec. Sec.  
1026.37(a)(10)(B) and 1026.38(a)(5)(iii).
    ii. The rules regarding consumer buydowns do not apply to 
transactions known as ``lender buydowns.'' In lender buydowns, a 
creditor pays an amount (either into an account or to the party to

[[Page 80230]]

whom the obligation is sold) to reduce the consumer's payments or 
interest rate for all or a portion of the credit term. Typically, these 
transactions are structured as a buydown of the interest rate during an 
initial period of the transaction with a higher than usual rate for the 
remainder of the term. The disclosure of the finance charge and other 
disclosures affected by it for lender buydowns should be based on the 
terms of the legal obligation between the consumer and the creditor. 
See comment 17(c)(1)-3 for the analogous rules concerning third-party 
buydowns.
* * * * *
    10. Discounted and premium variable-rate transactions. In some 
variable-rate transactions, creditors may set an initial interest rate 
that is not determined by the index or formula used to make later 
interest rate adjustments. Typically, this initial rate charged to 
consumers is lower than the rate would be if it were calculated using 
the index or formula. However, in some cases the initial rate may be 
higher. In a discounted transaction, for example, a creditor may 
calculate interest rates according to a formula using the six-month 
Treasury bill rate plus a 2 percent margin. If the Treasury bill rate 
at consummation is 10 percent, the creditor may forgo the 2 percent 
spread and charge only 10 percent for a limited time, instead of 
setting an initial rate of 12 percent.
    i. When creditors use an initial interest rate that is not 
calculated using the index or formula for later rate adjustments, the 
disclosures should reflect a composite annual percentage rate based on 
the initial rate for as long as it is charged and, for the remainder of 
the term, the rate that would have been applied using the index or 
formula at the time of consummation. The rate at consummation need not 
be used if a contract provides for a delay in the implementation of 
changes in an index value. For example, if the contract specifies that 
rate changes are based on the index value in effect 45 days before the 
change date, creditors may use any index value in effect during the 45 
day period before consummation in calculating a composite annual 
percentage rate.
    ii. The effect of the multiple rates must also be reflected in the 
calculation and disclosure of the finance charge, total of payments, 
and the disclosures required under Sec. Sec.  1026.18(g) and (s), 
1026.37(c), 1026.37(l)(1) and (3), 1026.38(c), and 1026.38(o)(5), as 
applicable.
    iii. If a loan contains a rate or payment cap that would prevent 
the initial rate or payment, at the time of the first adjustment, from 
changing to the rate determined by the index or formula at 
consummation, the effect of that rate or payment cap should be 
reflected in the disclosures.
    iv. Because these transactions involve irregular payment amounts, 
an annual percentage rate tolerance of \1/4\ of 1 percent applies, in 
accordance with Sec.  1026.22(a)(3).
    v. Examples of discounted variable-rate transactions include:
    A. A 30-year loan for $100,000 with no prepaid finance charges and 
rates determined by the Treasury bill rate plus two percent. Rate and 
payment adjustments are made annually. Although the Treasury bill rate 
at the time of consummation is 10 percent, the creditor sets the 
interest rate for one year at 9 percent, instead of 12 percent 
according to the formula. The disclosures should reflect a composite 
annual percentage rate of 11.63 percent based on 9 percent for one year 
and 12 percent for 29 years. Reflecting those two rate levels, the 
payment schedule disclosed pursuant to Sec.  1026.18(g) should show 12 
payments of $804.62 and 348 payments of $1,025.31. Similarly, the 
disclosures required by Sec. Sec.  1026.18(s), 1026.37(c), 
1026.37(l)(1) and (3), 1026.38(c), and 1026.38(o)(5) should reflect the 
effect of this calculation. The finance charge should be $266,463.32 
and, for transactions subject to Sec.  1026.18, the total of payments 
should be $366,463.32.
    B. Same loan as above, except with a two-percent rate cap on 
periodic adjustments. The disclosures should reflect a composite annual 
percentage rate of 11.53 percent based on 9 percent for the first year, 
11 percent for the second year, and 12 percent for the remaining 28 
years. Reflecting those three rate levels, the payment schedule 
disclosed pursuant to Sec.  1026.18(g) should show 12 payments of 
$804.62, 12 payments of $950.09, and 336 payments of $1,024.34. 
Similarly, the disclosures required by Sec. Sec.  1026.18(s), 
1026.37(c), 1026.37(l)(1) and (3), 1026.38(c), and 1026.38(o)(5) should 
reflect the effect of this calculation. The finance charge should be 
$265,234.76 and, for transactions subject to Sec.  1026.18, the total 
of payments should be $365,234.76.
    C. Same loan as above, except with a 7\1/2\ percent cap on payment 
adjustments. The disclosures should reflect a composite annual 
percentage rate of 11.64 percent, based on 9 percent for one year and 
12 percent for 29 years. Because of the payment cap, five levels of 
payments should be reflected. The payment schedule disclosed pursuant 
to Sec.  1026.18(g) should show 12 payments of $804.62, 12 payments of 
$864.97, 12 payments of $929.84, 12 payments of $999.58, and 312 
payments of $1,070.04. Similarly, the disclosures required by 
Sec. Sec.  1026.18(s), 1026.37(c), 1026.37(l)(1) and (3), 1026.38(c), 
and 1026.38(o)(5) should reflect the effect of this calculation. The 
finance charge should be $277,040.60, and, for transactions subject to 
Sec.  1026.18, the total of payments should be $377,040.60.
    vi. A loan in which the initial interest rate is set according to 
the index or formula used for later adjustments but is not set at the 
value of the index or formula at consummation is not a discounted 
variable-rate loan. For example, if a creditor commits to an initial 
rate based on the formula on a date prior to consummation, but the 
index has moved during the period between that time and consummation, a 
creditor should base its disclosures on the initial rate.
    11. Examples of variable-rate transactions. Variable-rate 
transactions include:
    i. Renewable balloon-payment instruments where the creditor is both 
unconditionally obligated to renew the balloon-payment loan at the 
consumer's option (or is obligated to renew subject to conditions 
within the consumer's control) and has the option of increasing the 
interest rate at the time of renewal. Disclosures must be based on the 
payment amortization (unless the specified term of the obligation with 
renewals is shorter) and on the rate in effect at the time of 
consummation of the transaction. (Examples of conditions within a 
consumer's control include requirements that a consumer be current in 
payments or continue to reside in the mortgaged property. In contrast, 
setting a limit on the rate at which the creditor would be obligated to 
renew or reserving the right to change the credit standards at the time 
of renewal are examples of conditions outside a consumer's control.) 
If, however, a creditor is not obligated to renew as described above, 
disclosures must be based on the term of the balloon-payment loan. 
Disclosures also must be based on the term of the balloon-payment loan 
in balloon-payment instruments in which the legal obligation provides 
that the loan will be renewed by a ``refinancing'' of the obligation, 
as that term is defined by Sec.  1026.20(a). If it cannot be determined 
from the legal obligation that the loan will be renewed by a 
``refinancing,'' disclosures must be based either on the term of the 
balloon-payment loan or on the payment amortization, depending

[[Page 80231]]

on whether the creditor is unconditionally obligated to renew the loan 
as described above. (This discussion does not apply to construction 
loans subject to Sec.  1026.17(c)(6).)
    ii. ``Shared-equity'' or ``shared-appreciation'' mortgages that 
have a fixed rate of interest and an appreciation share based on the 
consumer's equity in the mortgaged property. The appreciation share is 
payable in a lump sum at a specified time. Disclosures must be based on 
the fixed interest rate. (As discussed in the commentary to Sec.  
1026.2, other types of shared-equity arrangements are not considered 
``credit'' and are not subject to Regulation Z.)
    iii. Preferred-rate loans where the terms of the legal obligation 
provide that the initial underlying rate is fixed but will increase 
upon the occurrence of some event, such as an employee leaving the 
employ of the creditor, and the note reflects the preferred rate. The 
disclosures are to be based on the preferred rate.
    iv. Graduated-payment mortgages and step-rate transactions without 
a variable-rate feature are not considered variable-rate transactions.
    v. ``Price level adjusted mortgages'' or other indexed mortgages 
that have a fixed rate of interest but provide for periodic adjustments 
to payments and the loan balance to reflect changes in an index 
measuring prices or inflation. Disclosures are to be based on the fixed 
interest rate, except as otherwise provided in Sec. Sec.  1026.18(s), 
1026.37, and 1026.38, as applicable.
    12. Graduated payment adjustable rate mortgages. These mortgages 
involve both a variable interest rate and scheduled variations in 
payment amounts during the loan term. For example, under these plans, a 
series of graduated payments may be scheduled before rate adjustments 
affect payment amounts, or the initial scheduled payment may remain 
constant for a set period before rate adjustments affect the payment 
amount. In any case, the initial payment amount may be insufficient to 
cover the scheduled interest, causing negative amortization from the 
outset of the transaction. In these transactions, except as otherwise 
provided in Sec. Sec.  1026.18(s), 1026.37(c), and 1026.38(c), the 
disclosures should treat these features as follows:
    i. The finance charge includes the amount of negative amortization 
based on the assumption that the rate in effect at consummation remains 
unchanged.
    ii. The amount financed does not include the amount of negative 
amortization.
    iii. As in any variable-rate transaction, the annual percentage 
rate is based on the terms in effect at consummation.
    iv. The disclosures required by Sec.  1026.18(g) and (s) reflect 
the amount of any scheduled initial payments followed by an adjusted 
level of payments based on the initial interest rate. Since some 
mortgage plans contain limits on the amount of the payment adjustment, 
the disclosures required by Sec.  1026.18(g) and (s) may require 
several different levels of payments, even with the assumption that the 
original interest rate does not increase. For transactions subject to 
Sec.  1026.19(e) and (f), see Sec.  1026.37(c) and its commentary for a 
discussion of different rules for graduated payment adjustable rate 
mortgages.
* * * * *

Paragraph 17(c)(4)

    1. Payment schedule irregularities. When one or more payments in a 
transaction differ from the others because of a long or short first 
period, the variations may be ignored in disclosing the payment 
schedule pursuant to Sec.  1026.18(g), the disclosures required 
pursuant to Sec. Sec.  1026.18(s), 1026.37(c), or 1026.38(c), or the 
finance charge, annual percentage rate, and other terms. For example:
    i. A 36-month auto loan might be consummated on June 8 with 
payments due on July 1 and the first of each succeeding month. The 
creditor may base its calculations on a payment schedule that assumes 
36 equal intervals and 36 equal installment payments, even though a 
precise computation would produce slightly different amounts because of 
the shorter first period.
    ii. By contrast, in the same example, if the first payment were not 
scheduled until August 1, the irregular first period would exceed the 
limits in Sec.  1026.17(c)(4); the creditor could not use the special 
rule and could not ignore the extra days in the first period in 
calculating its disclosures.
* * * * *
    17(g) Mail or Telephone Orders--Delay in Disclosures.
    1. Conditions for use. Except for extensions of credit subject to 
Sec.  1026.19(a) or (e) and (f), when the creditor receives a mail or 
telephone request for credit, the creditor may delay making the 
disclosures until the first payment is due if the following conditions 
are met:
    i. The credit request is initiated without face-to-face or direct 
telephone solicitation. (Creditors may, however, use the special rule 
when credit requests are solicited by mail.)
    ii. The creditor has supplied the specified credit information 
about its credit terms either to the individual consumer or to the 
public generally. That information may be distributed through 
advertisements, catalogs, brochures, special mailers, or similar means.
* * * * *

Section 1026.18--Content of Disclosures

* * * * *

18(g) Payment Schedule

* * * * *
    4. Timing of payments. i. General rule. Section 1026.18(g) requires 
creditors to disclose the timing of payments. To meet this requirement, 
creditors may list all of the payment due dates. They also have the 
option of specifying the ``period of payments'' scheduled to repay the 
obligation. As a general rule, creditors that choose this option must 
disclose the payment intervals or frequency, such as ``monthly'' or 
``bi-weekly,'' and the calendar date that the beginning payment is due. 
For example, a creditor may disclose that payments are due ``monthly 
beginning on July 1, 1998.'' This information, when combined with the 
number of payments, is necessary to define the repayment period and 
enable a consumer to determine all of the payment due dates.
    ii. Exception. In a limited number of circumstances, the beginning-
payment date is unknown and difficult to determine at the time 
disclosures are made. For example, a consumer may become obligated on a 
credit contract that contemplates the delayed disbursement of funds 
based on a contingent event, such as the completion of repairs. 
Disclosures may also accompany loan checks that are sent by mail, in 
which case the initial disbursement and repayment dates are solely 
within the consumer's control. In such cases, if the beginning-payment 
date is unknown the creditor may use an estimated date and label the 
disclosure as an estimate pursuant to Sec.  1026.17(c). Alternatively, 
the disclosure may refer to the occurrence of a particular event, for 
example, by disclosing that the beginning payment is due ``30 days 
after the first loan disbursement.'' This information also may be 
included with an estimated date to explain the basis for the creditor's 
estimate. See comment 17(a)(1)-5.iii.
* * * * *

Appendix D--Multiple-Advance Construction Loans

* * * * *

[[Page 80232]]

    7. Relation to Sec. Sec.  1026.37 and 1026.38. A creditor must 
disclose a projected payments table for certain transactions secured by 
real property, pursuant to Sec. Sec.  1026.37(c) and 1026.38(c), 
instead of the general payment schedule required by Sec.  1026.18(g) or 
the interest rate and payments summary table required by Sec.  
1026.18(s). Accordingly, some home construction loans that are secured 
by real property are subject to Sec. Sec.  1026.37(c) and 1026.38(c) 
and not Sec.  1026.18(g). See comment app. D-6 for a discussion of 
transactions that are subject to Sec.  1026.18(s). Under Sec.  
1026.17(c)(6)(ii), when a multiple-advance construction loan may be 
permanently financed by the same creditor, the construction phase and 
the permanent phase may be treated as either one transaction or more 
than one transaction. Following are illustrations of the application of 
appendix D to transactions subject to Sec. Sec.  1026.37(c) and 
1026.38(c), under each of these two alternatives:
    i. If a creditor uses appendix D and elects pursuant to Sec.  
1026.17(c)(6)(ii) to disclose the construction and permanent phases as 
separate transactions, the construction phase must be disclosed 
according to the rules in Sec. Sec.  1026.37(c) and 1026.38(c). Under 
Sec. Sec.  1026.37(c) and 1026.38(c), the creditor must disclose the 
periodic payments during the construction phase in a projected payments 
table. The provision in appendix D, part I.A.3, which allows the 
creditor to omit the number and amounts of any interest payments ``in 
disclosing the payment schedule under Sec.  1026.18(g)'' does not apply 
because the transaction is governed by Sec. Sec.  1026.37(c) and 
1026.38(c) rather than Sec.  1026.18(g). The creditor determines the 
amount of the interest-only payment to be made during the construction 
phase using the assumption in appendix D, part I.A.1. Also, because the 
construction phase is being disclosed as a separate transaction and its 
terms do not repay all principal, the creditor must disclose the 
construction phase transaction as a product with a balloon payment 
feature, pursuant to Sec. Sec.  1026.37(a)(10)(ii)(D) and 
1026.38(a)(5)(iii), in addition to reflecting the balloon payment in 
the projected payments table.
    ii. If the creditor elects to disclose the construction and 
permanent phases as a single transaction, the repayment schedule must 
be disclosed pursuant to appendix D, part II.C.2. Under appendix D, 
part II.C.2, the projected payments table must reflect the interest-
only payments during the construction phase in a first column, followed 
by the appropriate column(s) reflecting the amortizing payments for the 
permanent phase. The creditor determines the amount of the interest-
only payment to be made during the construction phase using the 
assumption in appendix D, part II.A.1.
* * * * *

    Dated: December 15, 2015.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2015-32463 Filed 12-21-15; 4:15 pm]
BILLING CODE 4810-AM-P