INTEGRATED MORTGAGE
DISCLOSURES
(TILA‐RESPA RULE)
Financial Solutions Patti Blenden April 2015 1CFPB Accomplishes Integration of GFE/eTILA
• After 30 years of encouraging HUD and the FRB to cooperate—Dodd Frank Act Sections 1098 and 1100A were adopted −The CFPB was ordered to combine RESPA and TILA application and loan closing disclosures • On November 20, 2013, the CFPB issued final rule as part of its RESPA‐TILA integration effort −Originally proposed by the CFPB in July of 2012 −Published in the Federal Register on August 23, 2012 • 77 Fed. Reg. 51116 ‐ 51457 (Aug. 23, 2012) Proposed Regs −The newly promulgated forms reflect extensive consumer testing by the CFPB and numerous hearings • 78 Fed. Reg. 79730 ‐ 80365 FINAL RULE −Includes model disclosures and rules governing how and when lender must provide the forms −Establishes restrictions—some new, some old—on cost variations between amounts disclosed in the Loan Estimate and the final amounts disclosed in the Closing Disclosure • 80 Fed. Reg. 8767 – 8778 AMENDMENT −Adjusted changed circumstance disclosure delivery due to rate lock (extended to 3 business days) −Amended amends the 2013 Loan Originator Final Rule to provide for placement of the NMLSR ID on the integrated disclosuresTRID Design and Testing Process
•Two goals mandated by Dodd‐Frank Act −Aid consumer understanding by utilizing readily understandable language to simplify the technical nature of the disclosures −Facilitate compliance with TILA and RESPA disclosure requirements •Design principles −Highlight most important and understandable information on Page 1 −Graphic design with less text to reduce information overload −Limit content to loan terms, cost information, and exclude educational material −First page could be used as a one‐page mortgage shopping sheet −Match the LE and CD in titles, sections and wording 13Key TRID Challenges for Lenders
• Heavily reliant on software and document preparation platform vendors • Managing pipeline turnover and dual treatment of consumer mortgages during implementation period and then for personal property dwellings long‐term • Fee accuracy – adjusting to the changes in tolerances in the 3 categories • Managing the settlement agent transition of responsibilities • Operational changes: −Breaking old habits – last minute flurry to get to closing with no preliminary review −Upfront fee limitations −Timing the closing properly with accurate disclosures 4Truth In Lending Act’s Reg Z § 1026
• Sub‐Part A General • Sub‐Part B Open‐End Credit • Sub‐Part C Closed‐End Credit • Sub‐Part D Miscellaneous • Sub‐Part E Special Rules For Certain Home Mortgage Transactions • Sub‐Part F Special Rules For Private Education Loans • Sub‐Part G Special Rules Applicable To Credit Card Accounts And Open‐end Credit Offered To College Students • Appendices 5Sub‐Part C Closed‐End Credit
§ 1026.19 Certain Mortgage &Variable‐Rate Transactions
(a) Mortgage transactions subject to RESPA (current) (a) Reverse mortgage transactions subject to RESPA (eff. 8/1/15) (b) Certain variable‐rate transactions (c) Electronic disclosures (d) Substitutes for variable‐rate disclosures (e) Mortgage loans secured by real property—Early disclosures (eff. 8/1/15) (e)(1) Provision of disclosures (e)(2) Predisclosure activity (e)(3) Good faith determination for estimates of closing costs (e)(4) Provision and receipt of revised disclosures (f) Mortgage loans secured by real property—final disclosures (eff. 8/1/15) (f)(1) Provision of disclosures (f)(2) Subsequent changes (f)(3) Charges disclosed (f)(4) Transactions involving a seller (f)(5) Prohibition on fee for disclosuresReg Z Subpart E‐‐Special Rules For Certain
Home Mortgage Transactions
7Integrated Disclosures’ Effective Date
• The new Integrated Disclosures must be provided for an application for a closed‐ end consumer credit transaction secured by real property on or after 8/1/2015. • Creditors required to use the GFE, HUD‐1 and TILA forms for applications received prior to 8/1/2015. • As applications received prior to August 1stare consummated, withdrawn, or cancelled, the use of the GFE, HUD‐1, and TILA will no longer be used for most mortgage loans. −Example: For an application received 7/31/2015, the Loan Estimate, Closing Disclosures and the Special Information Booklet required under the new TILA‐RESPA integrated disclosure rule do not apply. Instead, the creditor and the settlement agent must provide the disclosure requirement under the existing TILA and RESPA rules, as applicable. −Do not implement the forms’ use prior to the effective date!
8TRID Effective Date: August 1, 2015
• Generally applies to transactions for which the creditor or mortgage broker receives an application on or after August 1, 2015 • What about loans in process? If receive application before effective date use: −Current early forms (early TIL and GFE) −Current closing forms (final TIL and HUD‐1) −Current timeframes and tolerances • Must run 2 parallel systems for a period of time for in process loans (including construction loans) and then ongoing for mortgages not covered by TRID −HELOCs, investment properties purchased by individuals, reverse mortgages 9TILA‐RESPA Rule Significant Changes
•Initial Truth‐in Lending disclosure and RESPA Good Faith Estimate (GFE) combined into new Loan Estimate form (1026.37 and Appendix H‐24)−Given within 3 business days after 6‐element application received
•Final TILA disclosure and RESPA HUD‐1 combined into new Closing Disclosure
(1026.38 and Appendix H‐25)
−Received by consumer at least 3 business days prior to consummation
•New timing requirements for disclosures (1026.19(e) and (f)) •New tolerance levels for disclosed estimates (1026.19(e) and (f)) •New pre‐disclosure requirements (1026.19(e)(2)) •The rule leaves sufficient flexibility for creditors, brokers and settlement agents to arrive at the most efficient means of preparation and delivery of the Loan Estimate and the Closing Disclosure. Creditors retain all responsibility!
Scope of TILA/RESPA Integrated Disclosure Rule
• Closed‐end consumer loans secured by a real property dwelling primarily for personal or household use • Loans not previously covered by RESPA are now covered: • Trusts as borrowers (e.g., tax or estate purposes) • Construction only • Vacant land • Residential land parcels of 25 or more acres • Exemptions: • Investment property loans to individuals • Reverse mortgages • Home equity lines of credit (HELOCs) • Mortgages secured by dwellings that are personal property (e.g. mobile homes without real estate) • Small lenders (5 or fewer covered loans per year) • Partial exemption for certain no‐interest housing assistance program transactions 11Does TILA Apply?
Is borrower a natural person? Business or consumer purpose loan? Consumer purpose and secured by real estate (1) or a private education loan (PEL). Consumer purpose, and not secured by real estateand not a PEL.
Business purpose loan. Reg Z does not apply. Reg Z does apply. Consumer loan for $25,000 or less. Consumer loan in excess of $54,600*. Note (1) ‐ Refer to separate chart for Rental Property. No Yes
13 Is the rental property owner‐occupied for > 14 days per year? Is the loan purpose to purchase or improve rental property? Reg Z does not apply. Reg Z does apply. No Yes Purchase 1 or 2 unit property. Consumer purpose. Purchase 3+ units property. Business purpose. Improve 1 to 4 unit property. Consumer purpose. Improve 5+ units property. Business purpose. Reg Z does not apply. Reg Z does apply. Reg Z does not apply.
NOT Covered by Integrated Disclosure Rule
Loan Type• Home‐equity lines of credit (HELOCs) and reverse mortgages
• Chattel‐dwelling loans (secured by a mobile home or by a dwelling not attached to land) • Certain loan types subject to TILA but not RESPA (e.g., construction‐only, lot loans, > 25 acre parcels) Entity • Persons making 5 or fewer mortgages per year (therefore NOT a Creditor) No‐Interest Loans
• Secured by subordinate liens made for the purpose of down payment or similar home buyer assistance, property rehabilitation, energy efficiency, or foreclosure avoidance or prevention
Partial Exemption
• Certain transactions associated with HUD housing assistance loan programs for low‐ and moderate‐income consumers are partially exempt from new rule. They’re given disclosures geared specifically to these exempt transactions. • They’re exempt from the requirements to provide: −RESPA Special Information Booklet (settlement costs), −RESPA Good Faith Estimate (GFE), −RESPA settlement statement (HUD‐1, HUD‐1A), and −Mortgage servicing transfer disclosure. • The exemptions are still subject to all other requirements of Reg X, such as provisions implementing the servicing requirements in RESPA § 6 (other than the application servicing disclosure statement), prohibitions on referral fees and kickbacks in RESPA § 8, and limits on amounts to be deposited in escrow accounts in RESPA § 10. 15Construction Loans
•The final TRID rule includes a concept introduced under RESPA for delayed closings for construction loans. •For transactions involving new construction, if the creditor expects that closing will occur more than 60 days after the Loan Estimate is provided, the creditor may issue revised disclosures any time prior to 60 days before consummation without regard to the limitations on revising the estimated costs, as long as the original Loan Estimate clearly states that revised disclosures may be issued at any time prior to 60 days before consummation. 16Commentary §1026.3(a)‐10 Exempt Transactions
• Trusts. Credit extended for consumer purposes to certain trusts is considered to be credit extended to a natural person rather than credit extended to an organization. Specifically: −i. Trusts for tax or estate planning purposes. In some instances, a creditor may extend credit for consumer purposes to a trust that a consumer has created for tax or estate planning purposes (or both). Consumers sometimes place their assets in trust, with themselves or themselves and their families or other prospective heirs as beneficiaries, to obtain certain tax benefits and to facilitate the future administration of their estates. During their lifetimes, however, such consumers may continue to use the assets and/or income of such trusts as their property. −A creditor extending credit to finance the acquisition of, for example, a consumer's dwelling that is held in such a trust, or to refinance existing debt secured by such a dwelling, may prepare the note, security instrument, and similar loan documents for execution by a trustee, rather than the beneficiaries of the trust. −Regardless of the capacity or capacities in which the loan documents are executed, assuming the transaction is primarily for personal, family, or household purposes, the transaction is subject to the regulation because in substance (if not form) consumer credit is being extended. 17The Loan Estimate
•Provides summary of key loan terms and estimates of loan and closing costs to promote comparison shopping •Timing—must be provided within 3 business days of receiving an “application” −Application requires the following 6 data points— • Borrower’s name • Income • Social Security number (to obtain a credit report) • Property address • Estimated value of the property • Requested loan amount −“Catch‐All” provision eliminated −Prequalification services still permitted, but do NOT use the Loan Estimate form! •Broker may provide the Loan Estimate −Bank retains the responsibility for the rule’s disclosure requirements, regardless of whetherClosing Disclosure
•Provides detailed accounting of the complete transaction •Timing—Closing Disclosure must be delivered to applicants/borrowers 3 business days prior to the loan closing. Must be delivered to Seller the business day of closing. −A revised disclosure is required (as well as a new 3‐day waiting period) If the creditor— • Makes a change to the APR −1/8 of 1% for regular loans −¼ of 1% for loans with irregular payments or periods • Changes the loan product • Adds a prepayment penalty •Fee Limitation (i.e., tolerances, variances) provisions adopts many of the limits on changes that are in current RESPA rule—and may also require redisclosure •Closing Disclosure compared to the last accurate Loan Estimate (one that was accurately prepared based on an acceptable change in circumstance) 19Revised Closing Disclosure
• If Closing Disclosure becomes inaccurate before closing, provide corrected disclosure at or before consummation −Still must be able to inspect one business day prior to consummation • This is a change from proposed rule −Changes in dollar amounts $100 or greater would have required a new waiting period • Important! Less significant changes can be disclosed at loan closing without a new three‐day waiting period 20Post‐Closing Changes Require a Revised CD
• Changes post‐closing require revised Closing Disclosure: −Event related to settlement 30 days after closing and to an amount paid by consumer and/or seller = re‐disclose 30 days after learning event occurred • Non‐numeric clerical errors can be corrected and redisclosed 60 days after loan closing • If a variation (tolerance) violation occurs, you must refund and redisclose within 60 calendar days after consummation 21Revising or Correcting the CD
• Categories of changes require a corrected CD containing all changed terms: −Changes after consummation • Event in connection with settlement causes CD to become inaccurate and results in change to amount paid by the consumer or seller occurs within 30‐day period after consummation −To document refunds for tolerance violations −To correct non‐numerical clerical errors – 60 days • If it does not affect a numerical disclosure and does not affect the timing, delivery, or other requirements • Deliver or mail corrected disclosures no later than 30 days after receiving information sufficient to establish that the event occurred • Note that different states (such as NY) define “consummation” differently −Title company issues hereBusiness Days
Two definitions for business days • General (Creditor’s Issuance) Business Days • Loan Estimate provided to consumer within 3 business days of application −Defined as day on which the creditor’s offices are open to the public to carry on substantially all functions • Specific (Consumer’s Receipt) Business Days • Waiting period for Loan Estimate and consumer receipt of Closing Disclosure −Defined as all calendar days except Sunday and certain federal holidays 23Business Days per Disclosure
• General Business Day −§ 1026.19(e)(1)(iii)(A) Loan Estimate – early disclosures issued after receipt of application • Specific Business Day −§ 1026.19(a) Reverse mortgage early disclosures −§ 1026.19(e)(1)(iii)(B) Consumer closed‐end mortgage early disclosures −§ 1026.19(e)(1)(iv) Consumer’s receipt of early disclosures −§ 1026.19(e)(2)(i)(A) Predisclosure fee restriction −§1026.19(e)(4)(ii) Receipt of Revised Loan Estimate −§1026.20(e)(5) Post‐Consummation Escrow Cancellation Disclosure −§ 1026.19(f)(1)(ii) Consumer closed‐end mortgage final disclosures −§ 1026.19(f)(1)(iii) Consumer’s receipt of final disclosures 24General Business Day Example
• The disclosures required by §1026.19(e)(1)(i) must be delivered not later than 3 business days after the creditor receives the consumer's application. • For example, if an application is received on Monday, the creditor satisfies this requirement by either hand delivering the disclosures on or before Thursday, or placing them in the mail on or before Thursday, assuming each weekday is a business day. • For purposes of §1026.19(e)(1)(iii)(A), the term “business day” means a day on which the creditor's offices are open to the public for carrying out substantially all of its business functions. 25Specific Business Day Period Example
• The MDIA 7‐business‐day waiting period begins when the creditor delivers the disclosures or places them in the mail, not when the consumer receives or is considered to have received the disclosures. • For example, if a creditor delivers the early disclosures to the consumer in person or places them in the mail on Monday, June 1, consummation may occur on or after Tuesday, June 9, the seventh business day following delivery or mailing of the early disclosures, because, for the purposes of § 1026.19(e)(1)(iii)(B), Saturday is a business day, pursuant to § 1026.2(a)(6).September 2014 Guide
The Loan Estimate and Closing
Disclosure must be used for most
closed‐end consumer mortgages
other than a reverse mortgage.
Even construction‐only loans!
Designed to provide consumers a
better understanding of:
Key Features Costs Risks 27HUD’s Housing Assistance Loans’ 6 Prerequisites
• The loan is secured by a subordinate lien; • The loan’s purpose is to finance downpayment, closing costs, or similar homebuyer assistance, such as principal or interest subsidies, property rehabilitation assistance, energy efficiency assistance, or foreclosure avoidance or prevention; • Interest is not charged on the loan; • Repayment of the loan is forgiven or deferred subject to specified conditions; • Total settlement costs do not exceed one percent of the loan amount and are limited to fees for recordation, application, and housing counseling; and • Loan recipient is provided at or before settlement with a written disclosure of the loan terms, repayment conditions, and costs of the loan. 28Two Doc Prep Workflows Required
• Follow existing RESPA coverage • Use existing GFE, HUD 1 and other disclosures Old RESPA Apps Received pre‐ 8/1/15 & Personal Property • Follow newly revised TRID coverage • Use new Loan Estimate and Closing Disclosure New RESPA Apps Received on or post‐8/1/15 • Carefully proceed with compliance implementation due to different coverage rules! BEWARE!! 29Restrictions Effective on August 1, 2015
• Regardless of an application’s date before, on or after August 1st, the following
activity prohibitions are effective on August 1, 2015: 1. No imposing of fees on a consumer before the Loan Estimate has been received and the consumer has expressed an intent to proceed, with exception of credit report fee. 2. No providing written estimates of terms or costs specific to consumers before the Loan Estimate is received without a written statement information the consumer that the terms and costs may change. 3. No requiring the submission of verification documents related to the consumer’s application before providing the Loan Estimate. 4. Provisions addressing the preemption of inconsistent state disclosure laws (§1026.28(a)(1)), as well as the commentary regarding the “substantial similarity” standard used to grant state exemptions (§1026.29).
Restriction of Fees Before Intent to Proceed
•Prohibited from imposing fees on a consumer before the Loan Estimate has been received and the consumer has expressed an intent to proceed, with exception of credit report fee •Example: −A third party submits a consumer's application to a creditor following a different creditor's denial of the consumer's application (or following the consumer's withdrawal of that application)a −If a credit report fee has already been assessed, the new creditor or third party may not impose any additional fee until the consumer receives the Loan Estimate from the new creditor and indicates an intent to proceed with the transaction described by those disclosures. 31Fees “Imposed” by a Person §1026.19(e)
• Fee considered imposed if the person requires a consumer to provide a method for payment, even if the payment is not made at that time.X
If a person requires a $500 check or a credit card number to pay for a “processing fee” before the consumer receives the Loan Estimate, the person does not comply with the fee restriction, even if stated the check will not be cashed or the credit card will not be charged until after the disclosures are received and person waited until after subsequent intent to proceed to cash the check or charge the card.In contrast, a creditor or other person complies if they require a credit card number before
receipt of the disclosures and later indicates an intent to proceed, provided that the consumer ONLY authorizes the credit report and is ONLY charged a reasonable and bona fide fee for obtaining the consumer's credit report.Creditor still complies if they maintain the credit card number on file and charges the
consumer a $500 processing fee after the disclosures are received and the consumer later indicates an intent to proceed with the transaction described by those disclosures, provided that the creditor or other person requested and received a separate authorization for the processing fee after receipt of the disclosures followed by an intent to proceed. 32Requiring Verification Docs Too Early
i. A creditor may ask for the sale price and address of the property, but the creditor may not require the consumer to provide a purchase and sale agreement to support the information the consumer provides orally before the creditor provides the early disclosures. ii. A mortgage broker may ask for the names, account numbers, and balances of the consumer's checking and savings accounts, but the mortgage broker may not require the consumer to provide bank statements, or similar documentation, to support the information the consumer provides orally before the mortgage broker provides the early disclosures. 33New Forms In General…
• Require disclosure of categories of information that will vary due to: −Loan type, −Payment type, −Payment schedule, −Fees charged, −Terms of transaction, and −State law provisions • Use exact format specified by CFPB in model forms. May include logo or slogan at top of LE Page 1 in the allotted space. • Signature section on page 3 is optional.Loan Estimate: Detailed Fee Information
• The Integrated Disclosures reflect the CFPB’s change in philosophy −HUD’s 2010 GFE and HUD‐1 included many bundled services and charges using the theory that consumers care very little about detailed figures. • CFPB purposely unbundled the services and separately itemizes each charge – to provide the consumer information about exactly who and what they are paying −Fees and charges listed alphabetically within appropriate categories −All title insurance charges (including closing fee) must be designated by “Title – [description of fee]” 35Key TRID Definitions
•Application – Per Reg Z Subpart C (Closed‐end Credit) § 1026.2(a)(3), submission
of a consumer’s financial information for purposes of obtaining an extension of credit. Six elements including name, income, SSN, property address, loan amount and estimated property value. •Business Day – For purposes of Loan Estimate issuance, a day on which the creditor’s offices are open to the public for carrying out substantially all of its business functions. [Creditor’s or Broker’s Business Days] •Business Day – For rescission and Closing Disclosure receipt by consumer, all calendar days except Sundays and legal public holidays (i.e., mail schedule) [Delivery Business Days] •Issue ‐ Deliver or place in the mail the applicable disclosure −Includes electronic delivery in compliance with E‐Sign 36
Special Information Booklet
•Creditor must deliver or place in
the mail the Special Information
Booklet not later than 3 creditor’s
business days (CBDays) after the
mortgage application is received.
•If the creditor denies the
application before the end of the
3 CBDay period, the creditor is
not required to send the booklet.
37Special Information Booklet Issues
•Required for purchase money consumer credit transactions secured by real property −NOT limited to closed‐end credit if purchase money transaction • Can substitute “When Your Home is On the Line: What You Should Know About Home Equity Lines of Credit” −Remember to provide on newly covered RESPA transactions post‐8/1/2015 •Exclusions −Refinances −Closed‐end loans secured by a subordinate lien or non‐purchase money transactions −Reverse mortgages •Same timing as the Loan Estimate (three business days of application) −Mortgage broker can provide if they are delivering disclosuresLOAN ESTIMATE (LE)
39Integrated Disclosures: Loan Estimate
Good Faith Estimate Early TIL ECOA Appraisal Notice RESPA Mortgage Servicing Transfer Previously 5 to 6 pages long Now 3 pages long 40What is Settlement?
•Settlement:
−The process of executing legally binding documents. −All of the work completed to get to settlement. •Settlement services include (but are not limited to):
−Taking an application −Bringing borrower and lender together to finalize terms −Obtaining verifications −Obtaining, reviewing or conducting an appraisal −Conducting a title search −Preparing documents −Conducting settlement/closingPrequalifications and Preapprovals
•You can still provide these services •Do NOT use the Loan Estimate form •What can you disclose prior to “application?” −Estimates or worksheets for preliminary applicant communications −Expressly permitted, but format MUST NOT be similar to LE −Disclaimer on preliminary forms required in at least 12‐point font: • “Your actual rate, payment and costs could be higher. Get an official Loan Estimate before choosing a loan.”H‐26 Mortgage Loan Transaction—
Pre‐Loan Estimate Statement—Model Form
• Description: This is a model of the statement required by §1026.19(e)(2)(ii) to be stated at the top of the front of the first page of a written estimate of terms or costs specific to a consumer that is provided to a consumer before the consumer receives the disclosures required under §1026.19(e)(1)(i). 43Loan Estimate = GFE + eTILA
• The Loan Estimate form also includes several new disclosures required by the Dodd‐Frank Act, such as: −Total interest percentage (TIP), −Aggregate amount of loan charges and closing costs the consumer must pay at closing (Cash at Closing), −Homeowner’s insurance disclosure, and −For refinance transactions – the anti‐deficiency protection notice. 44DFA Title XIV Disclosures
1. Warning regarding negative amortization features 2. Disclosure of State law anti‐deficiency protections 3. Disclosure regarding creditor’s partial payment policy 4. Disclosure regarding mandatory escrow or impound accounts. 5. Disclosure prior to consummation regarding waiver of escrow 6. Disclosure regarding cancellation of escrow after consummation 7. Disclosure of monthly payment, including escrow, at initial and fully indexed rate for variable‐rate residential mortgage loan transactions. 8. Repayment analysis disclosure to include amount of escrow payments for taxes and insurance 9. Disclosure of aggregate amount of settlement charges (paid at closing and/or financed) 10. Disclosure of aggregate amount of mortgage originator fees paid by creditor and by borrower 11. Disclosure of total interest as a percentage of principal 12. Optional disclosure of appraisal management company fees 13. Disclosure regarding notice of reset of hybrid ARM 14. Loan originator identifier 15. Consumer notification regarding HPML appraisals 16. Consumer notification regarding the right to receive an appraisal copy. 45Loan Estimate §1026.37
•Page 1 – General Information − General Application Information − Loan Terms & Features − Projected Payments − Costs at Closing •Page 2 – Closing Cost Details − Loan Costs − Other Costs − Calculating Cash to Close − Adjustable Payment (AP) Table − Adjustable Interest Rate (AIR) Table •Page 3 – Additional Information About This Loan − Contact Information − Comparisons Table − Other Considerations Table • Appraisal • Assumption • Homeowner’s Insurance • Late Payment • Refinance • Servicing − Confirm Receipt • Signature Statement (optional)§1026.37—Content of Disclosures for Certain
Mortgage Transactions (Loan Estimate)
• The disclosures required by § 1026.37 are required to reflect the terms of the legal obligation between the parties, and if any information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure in good faith, based on the best information reasonably available to the creditor. • Where a disclosure is not applicable to a particular transaction, unless otherwise provided by §1026.37, form H‐24 of appendix H to this part may not be modified to delete the disclosure from form H‐24, or to state “not applicable” or “N/A” in place of such disclosure. The portion of the form pertaining to the inapplicable disclosure may be left blank, unless otherwise provided by § 1026.37. • If no points paid, leave that section blank. The adjustable payment and adjustable interest rate tables required by those paragraphs may be included only if those disclosures are applicable to the transaction and otherwise must be excluded. 47Alternative Loan Estimate: No Seller
•Alternative Loan Estimate may be used if the transaction does not have a
seller
−For example, refinance transactions
−Can also be used for simultaneous closed‐end seconds by the same
lender (but not required to do so)
−Checkboxes used to indicate if Cash to Close is being paid by or to the
consumer on Page 1
−Alternative Calculating Cash to Close table used with fewer entries on
Page 2
48Issuance and Delivery (2.1.1)
• Loan Estimate (LE) must be provided to consumer by hand delivery or mail, no later than 3 BDays of receipt of application • Application is considered received when consumer provides: −Address of property −Loan amount −Income −Estimated property value −Name −Social Security Number (to obtain credit report) 49 Removed the 7th Catch‐AllLoan Estimate Key Timing Provisions
3 General
Business Days
After Application
MDIA: 7 Specific
Business Days
Before Closing
Varies by Creditor Same for Everyone (rescission BDay)Ability to Repay (ATR)
•CFPB clarifies that this timing provision does not prevent a creditor from
fulfilling its obligation to evaluate a borrower’s ability to repay.
•Creditors will be able to collect any information needed to evaluate a
borrower’s ability to repay as long as they sequence the collection of that
information to ensure the creditor provides a Loan Estimate within 3
business days of receiving the required 6 application pieces of information.
−May ask for information in excess of the required 6 pieces, but CANNOT REQUIRE it!
•
Creditors cannot condition the issuance of the initial disclosure on
verifying the information.
51Application
• Submission of application −In writing −Electronic format −Written record of oral application • Issue Loan Estimate within 3 business days of receiving all 6 application items • If applicant withdraws or creditor denies application within the 3‐BDay period, no Loan Estimate required • If creditor later consummates the transaction on the terms originally applied for, out of compliance with the Loan Estimate delivery requirements • If consumer amends application, deliver Loan Estimate within 3‐BDays of receiving amended or resubmitted application 52Good Faith Disclosures §1026.37
•“The disclosures required by §1026.37 are required to reflect the terms of
the legal obligation between the parties, and if any information necessary
for an accurate disclosure is unknown to the creditor, the creditor shall
make the disclosure in good faith, based on the best information
reasonably available to the creditor…)
•Creditor is still accountable for reasonable estimates for items in the No
Tolerance Bucket to produce good faith estimates
•You cannot intentionally lowball prepaid interest, escrow amounts, etc.
•Could potentially pose UDAAP risk!
53Estimated Information
• Creditors must act in good faith, exercising due diligence to obtain information required to complete the Loan Estimate. • If information is unknown (i.e., not reasonably available to the creditor at the time the LE is prepared), Creditor may use estimates. −The “reasonably available” standard requires that the creditor, acting in good faith, exercise due diligence in obtaining information. • Creditors may normally rely upon other parties’ representations. • Designate estimated figures as estimates on the LE. (Comment 17(c)(2)(i)‐2) • New disclosures may be required under §1026.17(c) or §1026.19.Labeling Estimates
• Commentary 17(c)(2)(i)‐2 • Estimates must be designated as such in the segregated disclosures. • Even though other disclosures are based on the same assumption on which a specific estimated disclosure was based, the creditor has some flexibility in labeling the estimates. Generally, only the particular disclosure for which the exact information is unknown is labeled as an estimate. • However, when several disclosures are affected because of the unknown information, the creditor has the option of labeling either every affected disclosure or only the disclosure primarily affected. −For example, when the finance charge is unknown because the date of consummation is unknown, the creditor must label the finance charge as an estimate and may also label as estimates the total of payments and the payment schedule. • When many disclosures are estimates, the creditor may use a general statement, such as “all numerical disclosures except the late payment disclosure are estimates,” as a method to label those disclosures as estimates. 55Loan Estimate Disclosure Delivery
•Deliver or place in the mail no later than on the third business day after
receiving completed application or after subsequent revised information
•Creditor responsible for ensuring LE’s delivery complies with
requirements for:
−Content
−Delivery
−Timing
•If LE not delivered in person, considered received by consumer 3 business
days after it is delivered or placed in the mail
56Revised Loan Estimate (2.1.2)
•If AFTER Loan Estimate has been provided, an allowed change in
circumstance occurs:
−Creditor can revise the Loan Estimate
−If revising, must revise within 3 business days of learning of change,
including when a rate lock is completed (mandatory revised GFE)
−A revised Loan Estimate generally can be provided no later than 7
business days BEFORE consummation (see section 2.1.5 below)
57When Can a Loan Estimate Change?
•LE can change prior to the issuance of the Closing Disclosure if:
−Consumer does not indicate Intent to Proceed (ITP) within 10 days of LE
issuance and the preliminary period expires
−Consumer requests a change in loan terms
−Rate was floating at time of LE and subsequent rate lock impacts points
or lender credit
−Allowable “changed circumstances” since LE was provided that impact
fees and charges
•Revised Loan Estimate should be issued within 3 business days
Reissuance of Loan Estimate
• Another critical component in the timing of reissuing the LE occurs when there is a change in circumstance just before closing. The Rule does not accommodate a process to always and automatically re‐disclose. The pre‐closing compliance review process will need to be early • The borrower must acknowledge receipt of the correct Loan Estimate prior to issuing the Closing Disclosure. The need to have the borrower acknowledge receipt of the LE could cost 24 hours in some cases. • On the surface, the initial disclosure of the Loan Estimate (LE) appears to be one of the most straightforward components of the regulation. However, the nuances in the phrasing of requirements force important changes that start at the point of first communication with the borrower. 59Changed Circumstances
•Extraordinary event beyond the control of any interested party or other unexpected event •Information specific to the consumer applicant that was inaccurate or has changed •New information •Change requested by consumer •Interest rate dependent charges at rate lock •Expiration of a previously issued LE •Information particular to the borrower relied upon to create the GFE and changes or is found to be inaccurate later •New information that was not relied upon in compiling the GFE •Acts of God, war, disaster, or other emergency •Other allowable changed circumstances New RESPA‐TILA Rule Old RESPA RulesOld Tolerances
for all Other
Non‐Creditor
Settlement Services
61Circumstances Justifying Charge > Estimate
•Expressly permitted variations
−Unlimited variance −Limited to 10% more than estimate •Excess amount is below the allowable tolerance threshold
•Changed circumstances permitting a revised LE or a Closing Disclosure
permitting the charge
•Creditors generally prohibited from revising estimates due to
−Technical errors −Miscalculations Underestimations of chargesVariations to Loan Estimate
• An estimated closing cost disclosed is in good faith if the charge paid by or imposed on the consumer does not exceed the amount originally disclosed under paragraph (e)(1)(i) of this section, except as otherwise provided in paragraphs (e)(3)(ii) through (iv) −(e)(3)(ii) 10% aggregate increase −(e)(3)(iii) unlimited increase −(e)(3)(iv) due to changed circumstances • Estimates must be made in good faith relying on the best information reasonably available at the time of Loan Estimate issuance • If Closing Disclosure is higher than limits established, it is NOT in good faith −Does not matter whether an error, an underestimation or a miscalculation −Charging less is always an option 63Tolerance Rules—Variations Between LE and CD
• Key calculation is to compare the final Loan Estimate based on allowed circumstances to the final accurate Closing Disclosure • The final rule applies a “zero tolerance” or no change requirement to lender‐ controlled charges and fees— −Lender and broker charges −Fees charged by an affiliate of the creditor or a mortgage broker −Fees charged by unaffiliated service providers selected by the creditor if the borrower is not permitted to shop • Third‐party charges would be subject to a 10% limit overall on increases from the Loan Estimate IF the borrower is permitted to shop −If the borrower is permitted to shop, the lender provide a list of service providers to assist in the selection 25Old Reg X Tolerances & New Reg Z Variations
• Current Reg X creates 3 “Tolerance Buckets” − 1024.7(e)(1) Zero Tolerance • Origination charges • Transfer taxes − 1024.7(e)(2) 10% Tolerance • Required charges paid to SSPs creditor selects • Title services and title insurance from SSPs from creditor list • Required charges borrower shops for using SSPs from creditor list − 1024.7(e)(3) Unlimited Tolerance • Required services from SSPs not on creditor list • Prepaid interest • Property insurance premiums • Escrow amounts • New Reg Z creates 3 “Variation Buckets” − 1026. 19(e)(3)(i) Zero Variations • Required charges paid to creditor, broker or affiliate of either • Required charges paid to creditor‐selected unaffiliated SSP • Transfer taxes − 1026. 19(e)(3)(ii) 10% Variations • Required charges paid to unaffiliated SSP from creditor’s list − 1026. 19(e)(3)(iii) Unlimited Variations • Unaffiliated SSP selected entirely by consumer and service not creditor‐required • Prepaid interest • Property insurance premiums • Escrow amounts 65 SSP – Settlement Service ProviderCharges Subject to Zero Variations
•Creditors may not charge consumers more than disclosed on the LE under
any circumstances other than changed circumstances for these items:
−Fees paid to (and retained by) the creditor, mortgage broker, or an
affiliate of either;
−Fees paid to an unaffiliated third party if the creditor did not permit the
consumer to shop for a third party service provider for a settlement
service, or
−Transfer taxes.
•
Exceptions to the 10% limit on increases—
−Borrower‐requested change
−Borrower request for a service provider not identified by the creditor
−Information provided as of the application was or becomes inaccurate
−The Loan Estimate expires or other valid changes in circumstance occur
•When an exception to the 10% limitation on increases applies, the creditor
generally must provide an updated Loan Estimate within 3 business days
26Tolerance Rules—Variations Between LE and CD
•An estimate for a third‐party service of a recording fee is in good faith
if all three conditions are met:
1.The sum of the actual charges for third‐party services and recording
fees does not exceed the category’s estimated sum on the LE by more
than 10%;
2.The charge for third‐party service is not paid to the creditor or an
affiliate of the creditor; and
3.The creditor permits the consumer to shop for the third‐party service.
68Charges Subject to a 10% Aggregate Variation
10% Aggregate Limit on Increases
•If an estimated service is not performed, the estimate for that charge
should be removed from the category’s total of estimated charges before
computing the aggregate variation.
•May charge for a service that was not included on the LE so long as the
sum of the category’s charges is below the estimated category total.
• If the creditor does not include an estimated charge for a notary fee but a $10 notary fee is charged to the consumer, and the notary fee is subject to § 1026.19(e)(3)(ii), then the creditor complies if the sum of all amounts charged to the consumer does not exceed 110% of estimated costs, even though an individual notary fee was not included in the estimated disclosures provided. 69Revised Loan Estimate Increases > 10%
• The creditor should not reissue the Loan Estimate unless the cumulative change exceeds 10%. For example, if the survey fee increases by only 5%, monitor for the next change in circumstance that applies to services where the borrower can shop. It could take two or more changes before a cumulative 10% change occurs where redisclosure is required. • If the creditor discloses the 5% change, that version of the Loan Estimate cannot be used to compare to the Closing Disclosure for accuracy. • This is a significant change in process because creditors have been reissuing a good faith estimate (GFE) with every change and using the last GFE as the one for comparison to the HUD‐1 settlement statement.Charges Without Regard to a Tolerance Limitation
•Creditors may charge >LE disclosed amount without tolerance limit:
1.Prepaid interest, property insurance premiums
2.Escrowed amounts
3.Services required by the creditor for which consumer may shop and the
third party service provider is NOT on the creditor’s written list of
service providers or affiliated with creditor
4.Services not required by the creditor paid to third parties (even
creditor’s affiliates)
•No regard to tolerance ONLY if credit did not purposefully under
disclose the estimated costs
71Cure for Excess Over Allowable Tolerances
•If amounts paid by consumer at closing exceed the LE disclosure
tolerances, the creditor must refund the excess and provide a corrected
disclosure reflecting the refund no later than 60 calendar days after
consummation.
−For charges subject to zero tolerance, any amount charged beyond the
LE disclosure amount must be refunded to the consumer.
−For charges subject to a 10% cumulative tolerance, the difference in the
total category’s sum compared to the disclosed estimated category’s
sum must be refunded to the consumer.
72Revised Loan Estimate: Six Exceptions
1. Changed circumstances affecting settlement charges 2. Changed circumstances affecting eligibility (e.g., borrower’s creditworthiness, value of the collateral and the resulting LTV) 3. Revisions requested by the consumer 4. Interest rate dependent charges (before the interest rate has been locked) 5. Consumer’s intent to proceed after expiration (10 business days) of the LE disclosures 6. Delayed settlement on a construction loan (closing scheduled to occur >60 days after delivery of the estimated disclosures if consumer was alerted to this possibility when LE was provided) 73Changed Circumstances Affecting Settlement Charges
1. An extraordinary event beyond the control of any interested party or other unexpected event specific to the member or transaction; 2. Information specific to the consumer or transaction that the creditor relied upon when providing the disclosures and that was inaccurate or subsequently changes; or 3. New information specific to the consumer or transaction that was not relied on when providing the disclosures. •The new rule eliminates the existing 4th section of the definition which included “other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems.” CFPB believes this is already covered by other elements of the definition and suggests that the overlap contributed to uncertainty surrounding what scenarios constitute a changed circumstance.Rounding (2.1.4)
• Dollar amounts must be rounded to nearest whole dollar where noted in the regulation (§1026.37(o)(4)). Follow the specific instructions per section! • If an amount is required to be rounded but is composed of other amounts that are not required or permitted to be rounded, use the unrounded amounts in calculating the total and then round the final sum. • Conversely, if amount is required to be rounded & is composed of rounded amounts, use rounded amounts in calculating the total (Comment 37(o)(4)‐2). • Percentage amounts may not be rounded and should be shown up to 2 or 3 decimals, as needed, except where noted in regulation (§1026.37(o)(4)(ii)). If percentage amount is a whole number, show the whole number with no decimals (§1026.37(o)(4)(ii)); Comment 37(o)(4)(ii)‐1) 75LE General Form Requirements §1026.37(o)
•Creditor must make the disclosures clearly and conspicuously (legible and easily understandable) in writing, in a form that the consumer may keep. Disclosures must be grouped together as specified and segregated from everything else. •Disclosures may only contain information required by Sections 37(a) – (n), and must be made in the order and format specified by regulation, Model Form H‐24 −No pages can be added in between pages, only at end if allowed. •The disclosure may be translated into other languages. Creditors can modify Model Form H‐24, even to the extent that translation prevents the headings, labels, designations and required disclosure items under this section from fitting in the space provided. •Creditor may insert at the bottom of each page under the disclosures required, any administrative information, text or codes that assist in identification of the form, so long as the space provided and other sections are not altered. 76Loan Estimate (2.2), Page 1
• Page 1 of the Loan Estimate includes: −General information, −A Loan Terms table with descriptions of applicable information about the loan, −A Projected Payments table, −A Costs at Closing table, and −A CFPB link for consumers to obtain more information about loans secured by real property. • Page 1 includes a statement of “Save this Loan Estimate to compare with your Closing Disclosure.” • Page 1 also includes the creditor’s name and address. • If there are multiple creditors, use only the name of the creditor completing the Loan Estimate. (Comment 37(a)(3)‐1) • If a mortgage broker is completing the Loan Estimate, use the name and address of the creditor if known. If not yet known, leave this space blank. (Comment 37(a)(3)‐2) 77LE Page 1, Fixed Rate
•Key General Information
•Loan Terms
•Projected Payments
•Costs at Closing
−Estimated Closing Costs Summary
−Estimated Cash to Close Summary
Creditor Information
•§1026.37(a)(3) Creditor name and address of creditor making the disclosures •Creditor providing the disclosures may use a logo and slogan for the information required by (a)(3) in any font size or type, provided that such logo or slogan does not cause information required in this section to exceed space provided. −If creditor does not use a log, info must be disclosed in manner similar to model form •Multiple Creditors: Reference 1026.17(d) and Comment 17(d)‐1 •Mortgage Broker: In transactions involving a mortgage broker, the name and address of the creditor must be disclosed if known at time of LE issuance. If the name of the creditor is not known, broker may leave this section blank. •§1026.37(o) allows creditor to physically attach a business card over the information required under (a)(3) [creditor name and address] 79General Loan Information (2.2.1)
•Date Issued •Applicants •Property •Sales Price •Loan Term •Purpose •Product •Loan Type •Loan ID # •Rate Lock Figure 2: General Information of the Loan EstimateLoan Estimate: General Loan Information
•Date Issued: Date placed in the mail or delivered to the consumer
•Applicants:
−Name and mailing address of the consumer(s) applying for the loan.
• Each applicant should receive a copy −Use name and mailing address for each if multiple applicants.
−An additional page may be added if the space provided is insufficient.
81Property
• Use the address, including zip code, that will secure transaction • If address is unavailable, use description of location (lot number or property description) • Personal property (i.e., furniture, appliances, etc.) may secure the credit transaction, but are not required to be included as Property • An additional page may NOT be appended to Loan Estimate to disclose a description of personal propertySale Price
•If loan is a purchase money mortgage, use Sale Price
• If seller’s Sale Price is not yet known, use the estimated value of the property used as the basis for the LE disclosures •If personal property is included in Sale Price of Property, use that
combined Sale Price without any reduction for appraised or estimated
value of personal property
•If loan is for a transaction without a seller (such as a refinance), use
Appraised Value or Estimated Value
•If Creditor has obtained or estimated valuation by issuance of LE, use
that Appraisal Value or Estimated Value
83Loan Term
•Loan Term is the term of the debt obligation
•Describe Loan Term as “years” when the Loan Term is in whole years
•For a Loan Term is more than 24 months but is not whole years,
describe using years and months with the abbreviations “yr.” and “mo.”
−Example: Loan term of 185 months is disclosed as “15 yr., 5 mo.”
•For a Loan Term of exactly 24 months, us “2 years”
•For Loan Term less than 24 months and not whole years, use months
only with abbreviation “mo.”
−Example: “6 mo.” or “16 mo.”
84Purpose
•Describe the consumer’s intended use for the loan
•Purpose is disclosed using one of four descriptions:
1.Purchase: Loan will be used to finance the acquisition of the identified
Property
2.Refinance: Loan will be used to refinance an existing obligation that is
secured by the Property (even if creditor is not holder or servicer of
original obligation)
3.Construction: Loan will finance initial construction of a dwelling on
property disclosed on Loan Estimate
4.Home Equity Loan: Loan will be used for any other purpose not
listed in the categories above
85Product: Payment Feature & Rate Feature
• The description of the loan should contain these 2 pieces of information: −[duration of intro period][frequency of 1stadjustment period][product] −Any payment feature that may change the periodic payment (in order of importance to CFPB!) 1. Negative Amortization: Principal balance of loan may increase due to the addition of accrued interest to the principal of the loan 2. Interest Only: When one or more periodic payments may be applied only to interest accrued and not to principal of the loan 3. Step Payment: When the scheduled variations in regular periodic payments amounts occur that are not caused by changes to interest rate during loan term 4. Balloon Payment: When terms of legal obligation include a payment that is more than 2 times that of a regular periodic payment 5. Seasonal Payment: When terms of the obligation expressly provide that regular periodic payments are not scheduled between specified unit‐periods on a regular basis (ex. “teacher” loan not requiring monthly payments during summer months) • If a loan can be described with more than one description, only first applicable feature is disclosed. −Ex: Loan with both Neg Amort and Balloon would only disclose Neg AmortProduct Rate Feature: Not a Fixed Rate Product
−Interest rate applied • Adjustable Rate: Interest rate may increase after consummation, but rates that will apply or the periods for which they apply are not known at consummation −Description must be preceded by duration of any introductory rate or payment period, and the first adjustment period , as applicable −When no introductory period for an Adjustable Rate, disclose “0” • Step Rate: Interest rate will change after consummation and the rates that apply and the periods for which they apply are known at consummation −Description must be preceded by duration of any introductory rate or payment period, and the first adjustment period, as applicable −When no introductory rate for a Step Rate, disclose “0” and then the applicable time period until the first adjustment 87Product Rate Feature: Fixed Rate Product
• Fixed Rate: Interest rate is not an Adjustable Rate or Step Rate• Examples:[duration of intro period][frequency of 1stadjustment period][product] −Year 7 Balloon Payment, 3/1 Step Rate: A step rate with an introductory interest rate that lasts for 3 years and adjusts each year thereafter until a balloon payment is due in the 7thyear of the loan −2 Year Negative Amortization: A fixed rate produce with a step‐payment feature for the first 2 years of the obligation that may negatively amortize −2.58/1 Adjustable Rate: An adjustable rate product with an introductory interest rate for 31 months that adjusts every year thereafter (2 years and 7 months, where 7/12=0.58 and stated as 2.58) −18 mo./18 m0. Adjustable Rate: An adjustable rate product with an introductory interest rate for 18 months that adjusts every 18 months thereafter 88
Loan Type
•Loan Type is the type of loan from these 4 categories:
−Conventional: Not guaranteed or insured by Federal or State government agency −FHA: Loan is insured by the Federal Housing Administration −VA: Loan is guaranteed by the U.S. Department of Veterans Affairs −Other: Describe if loan is insured or guaranteed by another Federal or State agency •Examples: Rural Housing Service (RHS), US Department of Agriculture (USDA) 89Loan ID#
• The creditor’s loan identification number that may be used by a creditor, consumer and other parties to identify the transaction • May contain alpha‐numeric characters and must be unique to the particular transaction • Same Loan ID# may not be used for different, but related, loan transactions (such as different loans to same borrower) • When a revised Loan Estimate is issued, the Loan ID# must be sufficient to identify the transaction associated with the initial Loan EstimateRate Lock
•Indicate rate is locked with Yes, indicate rate is not locked with No
•When interest rate is locked at time of Loan Estimate’s delivery, the date
and time (including applicable time zone) when lock period ends must be
disclosed. Provide revised Loan Estimate within 3 business days of lock.
•Date and time (including time zone) at which estimated closing costs
expire must be disclosed on every Loan Estimate (see bold below)
−“Before closing, your interest rate, points, and lender credits can change unless you lock the interest rate. All other estimated closing costs expire on xx/xx/2014 at 5:00 p.m. EDT” 91
