I. INTRODUCTION
Effective October 3, 2015, the Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure (initial TIL) have been combined into a new form, the Loan Estimate.
The new Loan Estimate form is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying, and must be provided to consumers no later than the third business day after they submit a loan application.
The HUD-1 and final Truth-in-Lending disclosure (final TIL) have been combined into another new form, the Closing Disclosure, which is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. This form must be provided to consumers at least three business days before consummation of the loan.
The new rule is effective for any application taken on or after October 3, 2015. Lenders may not use the new forms until that date.
II. SCOPE
The final rule applies to any closed-end consumer credit transaction secured by real property. However the rule specifically exempts: home equity lines of credit (HELOCs), reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land). Creditors originating these types of mortgages must continue to use, as applicable, the GFE, HUD-1, and Truth-in-Lending disclosures required under current law. The final rule also does not apply to loans made by persons who are not considered “creditors,” because they make five or fewer mortgages in a year.
The new rule, however, does NOT incorporate many of the RESPA exemptions. In particular:
In addition, the CFPB expanded the entire scope of TILA by explicitly stating in the commentary that trusts for estate or tax planning purposes are covered by TILA.
III. RECORD RETENTION REQUIREMENTS
The creditor must retain copies of the Closing Disclosure (and all documents related to the Closing Disclosure) for five years after consummation.
The creditor, or servicer if applicable, must retain the Post-Consummation Escrow Cancellation Notice (Escrow Closing Notice) and the Post-Consummation Partial Payment Policy disclosure for two years.
For all other evidence of compliance with the Integrated Disclosure provisions of Regulation Z (including the Loan Estimate) creditors must maintain records for three years after consummation of the transaction.
If a creditor sells, transfers, or otherwise disposes of its interest in a mortgage and does not service the mortgage, the creditor must provide a copy of the Closing Disclosure to the new owner or servicer of the mortgage as a part of the transfer of the loan file. Both the creditor and such owner or servicer must retain the Closing Disclosure for the remainder of the five-year period.
IV. LOAN ESTIMATE DISCLOSURE
For closed-end credit transactions secured by real property (other than reverse mortgages), the creditor is required to provide the consumer with good-faith estimates of credit costs and transaction terms on a new form called the Loan Estimate. This form integrates and replaces the existing RESPA GFE and the initial TIL for these transactions. Just like the GFE and early TIL, the creditor is bound by the terms in the Loan Estimate subject to certain tolerances.
A. Content
For any loan subject to the final rule, creditors must use the form in Appendix H-24.
The following is a brief, page-by-page overview of the Loan Estimate, generally describing the information creditors are required to disclose.
1. General Information
Page 1 includes general information including the loan terms, a table for projected payments, a closing cost table, and a link for consumers to obtain more information about loans secured by real property at a website maintained by the CFPB. This page contains most of the information under the old early TIL disclosure including the loan amount, interest rate, monthly payment, prepayment penalties, balloon payments, projected payments and total estimated closing costs and cash to close.
2. Closing Cost Details
Page 2 of the Loan Estimate form includes details of the closing costs, similar to what is found on the GFE, in an easier to read format. While the “blocks” are labeled differently, the categories remain familiar, including: origination charges, services you cannot shop for, and services you can shop for. The disclosure also provides lines for other costs such as taxes, insurance and prepaid interest, among others. All closing costs not having a specific line will be listed in alphabetical order. Any title fee must have an introductory description of “Title –“.
A note on Owner’s Title: Owner’s title can now be listed as “(optional)” on the loan estimate and listed under the subheading “other” if the lender does not require the service. This means that there will no longer be any tolerance issues for Owner’s Title insurance like there is under the current GFE.
Four main categories of charges are disclosed on page 2 of the Loan Estimate:
The items associated with the mortgage are broken down into two general types, Loan Costs and Other Costs. Generally, Loan Costs are those costs paid by the consumer to the creditor and third-party providers of services the creditor requires to be obtained by the consumer during the origination of the loan. (§ 1026.37(f)). Other Costs include taxes, governmental recording fees, and certain other payments involved in the real estate closing process.
3. Additional Information About the Loan
Page 3 of the Loan Estimate form contains additional information about the loan including contact information, comparisons (what your loan will look like in 5 years, APR, and “total interest percentage”), and other considerations. The model Loan Estimate form contains a signature line for confirmation of receipt; however a signed confirmation is done at the creditor’s option.
B. Timing – Delivery of the Loan Estimate
Generally, the creditor is responsible for ensuring that it delivers or places in the mail the Loan Estimate form no later than the third business day after receiving the consumer’s application. If the Loan Estimate is not provided to the consumer in person, the consumer is considered to have received the Loan Estimate three business days after it is delivered or placed in the mail.
The Loan Estimate must also be delivered or placed in the mail no later than the seventh business day before consummation of the transaction and at least four days before providing the Closing Disclosure.
A revised loan estimate must be provided at least seven days prior to consummation and at least four days before providing the Closing Disclosure. A creditor may not send a revised Loan Estimate after delivering the Closing Disclosure.
In some instances, creditors may list changes due to a change in circumstance on the Closing Disclosure (Seediscussion on Closing Disclosure below at section V, below).
Creditors are required to act in good faith and exercise due diligence in obtaining information necessary to complete the Loan Estimate. Normally creditors may rely on the representations of other parties in obtaining information.
However, there may be some information that is unknown (i.e., not reasonably available to the creditor at the time the Loan Estimate is made). In these instances, the creditor may use estimates even though it knows that more precise information will be available by the point of consummation. However, new disclosures may be required under § 1026.17(c) or § 1026.19.
When estimate figures are used, they must be designated as such on the Loan Estimate.
1. Application
An “application” means the submission of: the consumer’s name, income, SSN to obtain a credit report, property address, an estimate of the value of the property, and loan amount sought. The definition does NOT include the “catch-all” phrase in RESPA, that is, “any other information deemed necessary by the loan originator.” In other words, once you have the six pieces of information described above, you have an application.
This definition of application does not prevent a creditor from collecting whatever additional information it deems necessary in connection with the request for the extension of credit. However, once a creditor has received the six pieces of information discussed above, it has an application for purposes of the requirement for delivery of the Loan Estimate to the consumer, including the three-business-day timing requirement.
If the creditor determines within the three-business-day period that the consumer’s application will not or cannot be approved on the terms requested by the consumer, or if the consumer withdraws the application within that period, the creditor does not have to provide the Loan Estimate. However, if the creditor does not provide the Loan Estimate, it will not have complied with the Loan Estimate requirements under Regulation Z if it later consummates the transaction on the terms originally applied for by the consumer.
If a consumer amends an application and a creditor determines the amended application may proceed, then the creditor is required to comply with the Loan Estimate requirements, including delivering or mailing a Loan Estimate within three business days of receiving the amended or resubmitted application.
2. Business Day
For purposes of providing the Loan Estimate, a business day is a day on which the creditor’s offices are open to the public for carrying out substantially all of its business functions.
3. May a Consumer Waive The Seven-Business-Day Waiting Period?
The consumer may modify or waive the seven-business-day waiting period after receiving the Loan Estimate if the consumer has a bona-fide personal financial emergency that necessitates consummating the credit transaction before the end of the waiting period.
Whether a consumer has a bona-fide personal financial emergency is determined by the facts surrounding the consumer’s individual situation. An example of a bona-fide personal financial emergency is the imminent sale of the consumer’s home at foreclosure, where the foreclosure sale will proceed unless loan proceeds are made available to the consumer during the waiting period.
To modify or waive the waiting period, the consumer must give the creditor a dated written statement that describes the emergency, specifically modifies or waives the waiting period, and is signed by all consumers primarily liable on the legal obligation. The creditor may not provide the consumer with a pre-printed waiver form.
C. Accuracy Requirement for Loan Estimate Disclosures
Creditors are responsible for ensuring that the figures stated in the Loan Estimate are made in good faith and consistent with the best information reasonably available to the creditor at the time they are disclosed.
Whether or not a Loan Estimate was made in good faith is determined by calculating the difference between the estimated charges originally provided in the Loan Estimate and the actual charges paid by or imposed on the consumer in the Closing Disclosure.
Generally, if the charge paid by or imposed on the consumer exceeds the amount originally disclosed on the Loan Estimate it is not in good faith, regardless of whether the creditor later discovers a technical error, miscalculation, or underestimation of a charge.
However, a Loan Estimate is considered to be in good faith if the creditor charges the consumer less than the amount disclosed on the Loan Estimate, without regard to any tolerance limitations.
D. Tolerances
1. Loan Estimate Fees Without Any Tolerance Limitations.
For certain costs or terms, creditors are permitted to charge consumers more than the amount disclosed on the Loan Estimate without any tolerance limitation.
These charges are:
However, creditors may only charge consumers more than the amount disclosed when the original estimated charge, or lack of an estimated charge for a particular service, was based on the best information reasonably available to the creditor at the time the disclosure was provided.
In addition to the Loan Estimate, if the consumer is permitted to shop for a settlement service, the creditor must provide the consumer with a written list of services for which the consumer can shop. This written list of providers is separate from the Loan Estimate, but must be provided within the same time frame—that is, it must be provided to the consumer no later than three business days after the creditor receives the consumer’s application—and the list must:
The settlement service providers identified on the written list must correspond to the settlement services for which the consumer can shop as disclosed on the Loan Estimate. See form H-27(A) of Appendix H to Regulation Z for a model list.
The creditor may also identify on the written list of providers those services for which the consumer is not permitted to shop, as long as those services are clearly and conspicuously distinguished from those services for which the consumer is permitted to shop. See form H-27(C) of Appendix H to Regulation Z for a sample of the inclusion of this information.
2. Loan Estimate Fee Subject to a 10 Percent Cumulative Tolerance.
Charges for third-party services and recording fees paid by or imposed on the consumer are grouped together and subject to a 10 percent cumulative tolerance. This means the creditor may charge the consumer more than the amount disclosed on the Loan Estimate for any of these charges so long as the total sum of the charges added together does not exceed the sum of all such charges disclosed on the Loan Estimate by more than 10 percent.
o The fee is not paid to the creditor or an affiliate of the creditor; and
o The consumer is permitted to shop for the third-party service and the consumer selects a third-party service provider on the list of service providers
Note: When a creditor allows a consumer to shop for a third-party service and the consumer chooses a service provider not identified on the creditor’s list, the charge is not subject to a tolerance limitation.
3. Loan Estimate Fees Subject to a Zero Tolerance.
For all other charges, creditors are not permitted to charge consumers more than the amount disclosed on the Loan Estimate under any circumstances other than changed circumstances that permit a revised Loan Estimate.
These zero tolerance charges are:
4. Amounts Paid by Consumer at Closing Exceed Amounts Disclosed On Loan Estimate.
If the amounts paid by the consumer at closing exceed the amounts disclosed on the Loan Estimate beyond the applicable tolerance threshold, the creditor must refund the excess to the consumer no later than 60 calendar days after consummation.
E. Revisions and Corrections to Loan Estimates
Creditors generally are bound by the Loan Estimate provided within three business days of the application, and may not issue revisions to Loan Estimates because they later discover technical errors, miscalculations, or underestimations of charges. Creditors are permitted to provide to the consumer revised Loan Estimates (and use them to compare estimated amounts to amounts actually charged for purposes of determining good faith) only in certain specific circumstances:
A revised Loan Estimate with new fees may be issued if either the borrower indicates an intent to proceed with the transaction more than 10 business days after the Loan Estimate was originally provided, the customer requests revisions of the credit terms, the interest rate was not locked and the rate causes the points or credits to change, the loan is a new construction loan, and settlement is delayed by more than 60 calendar days, if the original Loan Estimate states clearly and conspicuously that at any time prior to 60 calendar days before consummation, the creditor may issue revised disclosures, or there was a “changed circumstance” that occurred after the Loan Estimate was provided.
1. Changed Circumstances
A “changed circumstance” for purposes of a revised Loan Estimate occurs when:
Examples of “changed circumstances” affecting settlement costs include:
Note: Only the fees that changed because of the changed circumstances may be changed. For example, if a title fee is increased because of a boundary dispute, only the title charges may change – you can’t change the transfer tax fee if it was unrelated to the change in circumstance.
In addition, a creditor providing a revised loan estimate to consumers when locking a rate or extending a rate lock may send the revised estimate within three business days following the rate lock or extension.
A creditor may provide and use a revised Loan Estimate redisclosing a settlement charge if changed circumstances cause the estimated charge to increase or, in the case of charges subject to the 10 percent cumulative tolerance, cause the sum of those charges to increase by more than the 10 percent tolerance.
NOTE: Creditors are not required to collect all six pieces of information constituting the consumer’s application—i.e., the consumer’s name, monthly income, social security number to obtain a credit report, the property address, an estimate of the value of the property, or the mortgage loan amount sought—prior to issuing the Loan Estimate. However, creditors are presumed to have collected this information prior to providing the Loan Estimate and may not later collect it and claim a changed circumstance. For example, if a creditor provides a Loan Estimate prior to receiving the property address from the consumer, the creditor cannot subsequently claim that the receipt of the property address is a changed circumstance.
NOTE: The final rule allows a creditor to include language notifying the consumer that a revised disclosure may be provided for a construction loan in a transaction involving new construction where the creditor reasonably expects settlement to occur more than 60 days after the provision of the initial Loan Estimate.
This is often the case in a two time close construction and permanent loan. In such transactions, the Loan Estimate for the permanent loan, which is sent along with the construction disclosures, may be revised by the creditor any time prior to 60 days before consummation. The new rule allows for the original Loan Estimate to provide a clear and conspicuous statement on the original Loan Estimate to the effect that the creditor may issue a revised disclosure any time prior to 60 days before consummation.
F. Timing For Revisions to Loan Estimate
1. General Rule
The general rule is that the creditor must deliver or place in the mail the revised Loan Estimate to the consumer no later than three business days after receiving the information sufficient to establish that one of the reasons for the revision described in section 4.E above has occurred.
For purposes of providing a revised Loan Estimate within three business days of receiving information sufficient to establish that an event permitting redisclosure has occurred, the standard definition of business day applies (See section IV.B.(2) above).
However, for purposes of the four-business-day period prior to consummation, “business day” means all calendar days except Sundays and legal public holidays specified in 5 U.S.C. 6103(a) such as New Year’s Day, the Birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
2. Exception – Good Faith Disclosure of Fee Changes
The Consumer Financial Protection Bureau (CFPB) has finalized an amendment of Federal mortgage disclosure requirements under the Real Estate Settlement Protections Act (RESPA) and the Truth in Lending Act (TILA) that are implemented in Regulation Z. The amendment is designed to fix a consequential issue with the TILA/RESPA integrated disclosure rules that caused consumers to face significant regulatory delays because of legitimate fee changes during the origination process. The final rule became effective on June 1, 2018.
The amendment relates to when a creditor may compare charges paid by or imposed on the consumer to amounts disclosed on a Closing Disclosure, instead of a Loan Estimate, to determine if an estimated closing cost was disclosed in good faith.
The final rule will allow creditors to use either an initial or corrected Closing Disclosure to reflect changes in costs for purposes of determining if an estimated closing cost was disclosed in good faith, regardless of when the Closing Disclosure was provided relative to consummation – effectively fixing the “black hole” problem that was identified by the banking industry. The final rule also removes the four-day business limit for resetting tolerances that exists in current law.
i. TRID “Black Hole”
A creditor’s inability to reset fee tolerances with a revised Closing Disclosure more than four business days before closing has resulted in an adverse unintended consequence under the TILA/RESPA integrated disclosure (TRID) regulations. Commonly referred to as the “black hole,” once the Closing Disclosure has been provided under current regulations, timing restrictions in the current regulations allow a revised Closing Disclosure to be used to reset tolerances on increased closing costs only if the disclosure is provided within three business days of the valid change in circumstance and within four business days of consummation. As a result, any increased costs to the consumer above and beyond permitted fee tolerances occurring from changes six business days or more before consummation must be absorbed by the creditor – either because the creditor pays the increased fees without any changes to the final Closing Disclosure or the creditor refunds the overage to the consumer on the final Closing Disclosure as a tolerance cure.
ii. Use of Closing Disclosures to Reset Tolerances
The final rule removes the four-business day limit on a creditor’s ability to reset tolerances with a Closing Disclosure. Thus, if a changed circumstance or another triggering event has occurred, the final rule permits a creditor to reset tolerances with either an initial or corrected Closing Disclosure regardless of the number of days between consummation and the date the Closing Disclosure reflecting the revised estimate is required to be provided to the consumer. The creditor must provide the consumer with the Closing Disclosure reflecting the revised estimate at or before consummation and within three business days of receiving information sufficient to establish that the changed circumstance or other triggering event has occurred. Additionally, the consumer must still receive an initial Closing Disclosure at least three business days prior to consummation. A new three-day waiting period is only required for a corrected Closing Disclosure if the APR becomes inaccurate, a prepayment penalty is added, or the loan product changes from a loan product previously disclosed.
V. CLOSING DISCLOSURE
A. General Requirements
For loans that require a Loan Estimate and that proceed to closing, creditors must provide a new final disclosure reflecting the actual terms of the transaction called the Closing Disclosure. The form integrates and replaces the existing HUD-1 and the final TIL disclosure for these transactions. The creditor is generally required to ensure that the consumer receives the Closing Disclosure no later than three business days before consummation of the loan.
The closing disclosure needs to be sent to each consumer who has a right to rescind the transaction under TILA. In a non-rescindable transaction, the creditor need only provide it to the primary obligor.
B. Content
The following is a brief, page-by-page overview of the Closing Disclosure form, generally describing the information creditors are required to disclose.
For any loan subject to the final rule, creditors must use the model form in appendix H-25.
Page 1 of the Closing Disclosure form contains general information about the loan terms, projected payments and costs at closing. This page mirrors page 1 of the Loan Estimate form making it easy for the borrower to compare.
2. Loan Costs and Other Costs
Page 2 of the Closing Disclosure form has the same information as page 2 of the Loan Estimate form, but is in a different format. The costs are listed in the same “blocks” (Block A through J), but the Closing Disclosure provides a column for the Borrower, Seller and other third parties. Unlike the current format, where the “Block” on the GFE corresponds to a “Line” on the HUD, the fees will not correspond to the same “block” in both the Loan Estimate and the Closing Disclosure. In other words, all the fees on Block A in the Loan Estimate will carry over to Block A of the Closing Disclosure.
3. Calculating Cash to Close
Page 3 of the Closing Disclosure form has the summary of the transaction and calculates the cash to close. This page also offers an alternative for transactions without a seller, similar to the current HUD-1A alternative to the HUD-1.
4. Additional Information
Page 4 of the Closing Disclosure form contains additional information about the loan including any assumption rules, demand features, late payments, negative amortization, partial payments, escrow accounts and other information.
5. Loan Calculations, Other Disclosures and Contact Information
Page 5 of the Closing Disclosure form includes the loan calculations, other disclosures and the contact information for the lender, settlement agent and, if applicable, the borrower’s mortgage broker and the seller’s real estate broker.
Section 1026.38(p)(3) of Regulation Z requires a creditor to include in the closing disclosure “[a] brief statement of whether, and the conditions under which, the consumer may remain responsible for any deficiency after foreclosure and under applicable state law, a brief statement that certain protections may be lost if the consumer refinances or incurs additional debt on the property, and a statement that the consumer should consult an attorney for additional information.”
Page 5 of form H-25 of appendix H to Regulation Z, contains a “check-the-box” provision to address the “Liability after Foreclosure” disclosure requirement, as follows:
Liability after Foreclosure
If your lender forecloses on this property and the foreclosure does not cover the amount of unpaid balance on this loan.
state law may protect you from liability for the unpaid balance. If you refinance or take on any additional debt on this property, you may lose this protection and have to pay any debt remaining even after foreclosure. You may want to consult a lawyer for more information.
state law does not protect you from liability for the unpaid balance.
It is recommended that lenders check the “state law may protect you from liability for the unpaid balance” box under the “Liability after Foreclosure” portion of the closing disclosure.
C. Timing
The Closing Disclosure must be delivered to the borrower no later than three business days before consummation of the loan.
To ensure the consumer receives the Closing Disclosure on time, creditors must arrange for delivery as follows:
1. May A Consumer Waive The Three-Business-Day Waiting Period?
Like the seven-business-day waiting period after receiving the Loan Estimate (see section IV.B. above), consumers may waive or modify the three-business-day waiting period when:
For example, the imminent sale of the consumer’s home at foreclosure, where the foreclosure sale will proceed unless loan proceeds are made available to the consumer during the waiting period, may be considered a bona-fide personal financial emergency.
The creditor is prohibited from providing the consumer with a pre-printed waiver form.
A corrected disclosure may be provided if there is a change in circumstances. A revised disclosure triggers a new three day waiting period if:
The settlement agent is also required to provide the Closing Disclosure to a seller in a purchase transaction no later than the day of consummation.
The Closing Disclosure is considered “received” three business days after it is placed in the mail. Alternatively, the creditor may rely on evidence showing that the borrower received it prior to the three business days, such as hand delivering it or getting written confirmation of receipt.
For timeshare transactions, the Closing Disclosure may be delivered at any time prior to consummation.
D. Revisions and Corrections to Closing Disclosures
If one of the following occurs after delivery of the Closing Disclosure and before consummation, the creditor must provide a corrected Closing Disclosure containing all changed terms and ensure that the consumer receives it no later than three business days before consummation.
For any other changes before consummation that do not fall under the three categories above (i.e., related to the APR, loan product, or the addition of a prepayment penalty), the creditor still must provide a corrected Closing Disclosure with any terms or costs that have changed and ensure that the consumer receives it.
For these changes, there is no additional three-business-day waiting period required. The creditor must ensure only that the consumer receives the revised Closing Disclosure at or before consummation.
For changes other than to the APR, loan product, or the addition of a prepayment penalty, the creditor is not required to provide the consumer with the revised Closing Disclosure until the day of consummation. However, a consumer has the right to inspect the Closing Disclosure during the business day before consummation.
If a consumer asks to inspect the Closing Disclosure the business day before consummation, the Closing Disclosure presented to the consumer must reflect any adjustments to the costs or terms that are known to the creditor at the time the consumer inspects it.
Creditors may arrange for settlement agents to permit consumers to inspect the Closing Disclosure.
An example of a post-consummation event that would require a new Closing Disclosure is a discovery that a recording fee paid by the consumer is different from the amount that was disclosed on the Closing Disclosure. However, other post-consummation events that are not related to settlement, such as tax increases, do not require a revised Closing Disclosure.
Creditors must provide a corrected Closing Disclosure if an event in connection with the settlement occurs during the 30-calendar-day period after consummation that causes the Closing Disclosure to become inaccurate and results in a change to an amount paid by the consumer from what was previously disclosed.
When a post-consummation event requires a corrected Closing Disclosure, the creditor must deliver or place in the mail a corrected Closing Disclosure not later than 30-calendar days after receiving information sufficient to establish that such an event has occurred.
Settlement agents must provide a revised Closing Disclosure if an event related to the settlement occurs during the 30-day period after consummation that causes the Closing Disclosure to become inaccurate and results in a change to an amount actually paid by the seller from what was previously disclosed.
The settlement agent must deliver or place in the mail a corrected Closing Disclosure not later than 30-calendar days after receiving information sufficient to establish that such an event has occurred.
Creditors also must provide a revised Closing Disclosure to correct non-numerical clerical errors and document refunds for tolerance violations no later than 60-calendar days after consummation.
An error is clerical if it does not affect a numerical disclosure and does not affect the timing, delivery, or other requirements imposed by § 1026.19(e) or (f).
For example:
If the creditor cures a tolerance violation by providing a refund to the consumer, the creditor must deliver or place in the mail a corrected Closing Disclosure that reflects the refund no later than 60-calendar days after consummation.
E. Average Charges
In general, the amount imposed on the consumer for any settlement service must not exceed the amount the settlement service provider actually received for that service. However, an average charge may be imposed instead of the actual amount received for a particular service, as long as the average charge satisfies certain conditions.
An average charge may be used if the following conditions are satisfied:
o For any type of insurance;
o For any charge based on the loan amount or property value; or
o If doing so is otherwise prohibited by law.
If the creditor develops representative samples of specific settlement costs for a particular class of transactions, the creditor may charge the average cost for that settlement service instead of the actual cost for such transactions. An average-charge program may not be used in a way that inflates the cost for settlement services overall.
VI. CFPB FACTSHEET-LOAN ESTIMATES AND CLOSING DISCLOSURES FOR “ASSUMPTIONS”
The Consumer Financial Protection Bureau (CFPB) recently issued a factsheet addressing whether a Loan Estimate and Closing Disclosure are required under the TILA-RESPA Integrated Disclosure Rule (TRID Rule) for a specific group of transactions. It addresses whether these disclosures are required for a transaction: (1) in which a new consumer is being added or substituted as an obligor on an existing consumer credit transaction; (2) that is a closed-end consumer credit transaction secured by real property or a cooperative unit; and (3) that is not a reverse mortgage subject to 12 CFR 1026.33. The flowchart may be used to help determine if a Loan Estimate and Closing Disclosure are required for such a transaction.
To ascertain whether a creditor must provide a Loan Estimate and Closing Disclosure for a transaction that satisfies the criteria discussed above, one must determine if the transaction is an “assumption” as that term is specifically defined in Regulation Z, 12 CFR 1026.20(b). An assumption under § 1026.20(b) occurs when a creditor expressly agrees in writing to accept a new consumer as a primary obligor on an existing residential mortgage transaction. Generally, to satisfy this particular definition of assumption, a transaction must meet the following three elements:
1. Include the creditor’s express acceptance of the new consumer as a primary obligor. The creditor must accept the new consumer as a primary obligor. The retention of the original consumer as an obligor in some capacity does not prevent the change from being an assumption under § 1026.20(b), provided the new consumer becomes a primary obligor. However, the mere addition of a guarantor to an obligation for which the original consumer remains primarily liable does not give rise to an assumption under § 1026.20(b).
Furthermore, the creditor’s acceptance of the new consumer as a primary obligor must be express. For that acceptance to be express, the creditor must unequivocally agree to accept the new consumer as a primary obligor. The following events are not construed to be express acceptance of the new consumer: (a) approval of creditworthiness; (b) notification of a change in records; (c) mailing of a coupon book to the new consumer; and (d) acceptance of payments from the new consumer.
In addition, note that if the original consumer is retained as an obligor, but neither the original consumer nor the new consumer is designated as the primary obligor, the Regulation Z official interpretations provide that an assumption nonetheless exists for purposes of § 1026.20(b) if the creditor accepts payment from the new consumer.
2. Include the creditor’s express acceptance in a written agreement. In order for a transaction to be an assumption under § 1026.20(b), it must include a written agreement and that written agreement must include the creditor’s express acceptance of the new consumer. Other than expressly accepting the new consumer as a primary obligor, the written agreement does not need to change any terms of the existing obligation.
3. Be a “residential mortgage transaction” as to the new consumer. A “residential mortgage transaction” is a transaction: (a) in which a security interest is created or retained in the new consumer’s principal dwelling; and (b) which finances the acquisition or initial construction of the new consumer’s principal dwelling. For purposes of determining whether the transaction is a residential mortgage transaction, the creditor must look to the new consumer, rather than the original consumer. Thus, the creditor must determine if the transaction involves the new consumer’s principal dwelling and whether the new consumer is financing the acquisition or initial construction of that dwelling.
The creditor must be taking or retaining a security interest in the new consumer’s principal dwelling, and the new consumer must be financing the acquisition or initial construction of his or her principal dwelling. For purposes of determining whether the transaction is a residential mortgage transaction, it is not relevant whether the transaction involved the original consumer’s principal dwelling. The transaction must be secured by and finance the acquisition or initial construction of the new consumer’s principal dwelling in order to be a residential mortgage transaction. Thus, if the transaction is only secured by the new consumer’s second or vacation home or other property that the new consumer does not use as a principal dwelling, the transaction is not a residential mortgage transaction, even if the dwelling securing the transaction is or was the original consumer’s principal dwelling.
Moreover, a residential mortgage transaction does not arise if the new consumer is not financing the acquisition or initial construction of his or her principal dwelling. Thus, even if the transaction is secured by the new consumer’s principal dwelling, a creditor must determine if the new consumer previously purchased or acquired some interest in the principal dwelling. If the new consumer takes on a debt obligation secured by a dwelling in which the new consumer previously had some interest (even if not full legal title), the transaction is not a residential mortgage transaction. For example, a residential mortgage transaction does not occur when a successor takes on a debt obligation that is secured by a dwelling in which the successor previously acquired an interest. Although these types of transactions may be commonly referred to as assumptions, they are not assumptions under § 1026.20(b) because they are not residential mortgage transactions as to the new consumer.
If the transaction is an assumption under § 1026.20(b), the creditor must provide a Loan Estimate and Closing Disclosure, unless the transaction is otherwise exempt from the requirements to provide a Loan Estimate and Closing Disclosure. For example, certain housing assistance loans are otherwise exempt from the requirements to provide a Loan Estimate and Closing Disclosure under 12 CFR 1026.3(h).
The creditor must make the disclosures in the Loan Estimate and Closing Disclosure based on the remaining obligation. For example, the amount financed is the remaining principal balance plus any arrearages or other accrued charges from the original consumer credit transaction. Similarly, in determining the amount of the finance charge and the annual percentage rate to be disclosed, the creditor should disregard any prepaid finance charges paid by the original obligor, but must include in the finance charge any prepaid finance charge imposed in connection with the assumption transaction. If the creditor requires the new consumer to pay any charges as a condition of the assumption, those sums are prepaid finance charges as to that consumer, unless exempt from the finance charge under 12 CFR 1026.4.
If a creditor adds a new consumer to an existing consumer credit transaction (regardless of whether that event triggers the requirement to provide a Loan Estimate and Closing Disclosure), the extension of credit remains a consumer credit transaction under Regulation Z. Therefore, the creditor, assignee, or servicer must comply with any ongoing obligations pertaining to the consumer credit transaction, such as servicing-related requirements. Additionally, even if the event does not trigger the requirement to provide a Loan Estimate and Closing Disclosure, it may trigger other disclosure requirements under TILA or RESPA.
VII. ADDITIONAL PROHIBITIONS
A creditor may NOT impose any fee on a consumer prior to the borrower receiving the Loan Estimate and indicating an intent to proceed. The restriction includes a prohibition on imposing application, appraisal, underwriting or other fees. The prohibition includes collecting a check or credit card number prior to providing the loan estimate, even if the bank will not cash the check or process the payment until after the borrower has indicated their intent to proceed.
VIII. CONSUMER INDICATION OF INTENT TO PROCEED
A consumer indicates intent to proceed with the transaction when the consumer communicates, in any manner, that the consumer chooses to proceed after the Loan Estimate has been delivered, unless a particular manner of communication is required by the creditor.
This may include:
A consumer’s silence is not indicative of intent to proceed.
IX. NAME AND NMLSR ID ON LOAN DOCUMENTS
The final rule requires the name and NMLSR ID of the loan officer and creditor to be included on the integrated disclosures.
The Nebraska Secretary of State has provided clarification regarding the requirement for licensee’s to provide their individual sales person’s or broker’s license number on the TRID form. Since the Secretary of State does not license brokerage companies, no state id or company license number, as asked for on the new forms, is issued. As a result, only individual license numbers need to be supplied, but a company number does not, since it does not exist. The Secretary of State has confirmed through the CFPB that since the no “state license id” is issued to brokerage companies, that the company number is not required on the form.
X. TRID FAQS ON LOAN ESTIMATES
The Consumer Financial Protection Bureau (CFPB) recently released FAQs to assist with TILA/RESPA Integrated Disclosure Rule (TRID Rule) compliance. The five new FAQs relate to providing loan estimates to consumers and address the following:
Highlights of the FAQs include:
The TRID FAQs may be found by going to the CFPB website (www.consumerfinance.gov) and searching for TRID FAQs.
XI. TILA/RESPA INTEGRATED DISCLOSURES FAQS
The Consumer Financial Protection Bureau (CFPB) recently released FAQs to assist with TILA – RESPA Integrated Disclosure Rule (TRID) compliance. Three of the four FAQs relate to corrected closing disclosures and the three business–day waiting period, while the fourth FAQ relates to the use of model forms.
The TRID rule, which applies to many consumer mortgage loans, consolidated the various disclosure forms that were required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) into two forms: (1) Loan Estimate that must be given to a borrower by the third business day after the lender receives an application; and (2) a Closing Disclosure that must be given at least three business days before consummation.
XII. CFPB INDEX TO INTEGRATED MORTGAGE DISCLOSURE RULE COMPLIANCE QUESTIONS
To help answer bankers’ compliance questions about the TILA/RESPA integrated disclosures, which take effect on October 3, the Consumer Financial Protection Bureau (CFPB), released an index of the questions and answers from its five TRID-related webinars (http://files.consumerfinance.gov/f/201508_cfpb_question-index-outlook-live-webinars-on-tila-respa-integrated-disclosure.pdf). Full recordings of the webinars are also available online (http://www.consumerfinance.gov/regulatory-implementation/tila-respa/).
The questions cover pre-application activities, the definition of “application,” the TRID rule’s scope, record retention, variations in tolerances, redisclosures, details on the Loan Estimate and Closing Disclosure forms and the required settlement booklet.
XIII. RESPA SETTLEMENT COSTS BOOKLET
Creditors must provide a copy of the special information booklet to consumers who apply for a consumer credit transaction secured by real property, except in certain circumstances (see below). The special information booklet is required pursuant to Section 5 of RESPA and is published by the CFPB to help consumers applying for federally related mortgage loans understand real estate transactions.
Creditors must deliver or place in the mail the special information booklet not later than three business days after receiving the consumer’s loan application.
If the creditor denies the consumer’s application or if the consumer withdraws the application before the end of the three-business-day period, the creditor need not provide the special information booklet.
When two or more persons apply together for a loan, the creditor may provide a copy of the special information booklet to just one of them.
XIV. ESCROW CLOSING NOTICE
For loans subject to the Escrow Closing Notice requirement, the creditor or servicer must provide consumers with a notice no later than three business days before the consumer’s escrow account is canceled.
The Escrow Closing Notice must be provided prior to cancelling an escrow account to any consumers for whom an escrow account was established in connection with a closed-end consumer credit transaction secured by a first lien on real property or a dwelling, except for reverse mortgages.
There are two exceptions to the requirement to provide the notice:
Creditors and servicers must disclose certain information on the Escrow Closing Notice and may optionally disclose certain additional information.
The creditor or servicer must disclose:
The creditor or servicer may also, at its option, disclose:
In addition, the disclosures must:
When the consumer requests cancellation, the creditor or servicer must ensure that the consumer receives the Escrow Closing Notice no later than three business days before the consumer’s escrow account is closed.
When cancellation occurs for any other reason, the creditor or servicer must ensure that the consumer receives the Escrow Closing Notice no later than 30 business days before consumer’s escrow account is closed.
If the notice is not provided to the consumer in person, the consumer is considered to have received the disclosures three business days after they are delivered or placed in the mail.
Appendix H-24 and Appendix H-25 can be found by going to www.consumerfinance.gov and searching for “loan estimate” and “disclosure comparison.”