On May 1, 2019, the Consumer Financial Protection Bureau (CFPB) released a Fact Sheet on the application of the TILA-RESPA Integrated Disclosure Rule (TRID) to assumptions of residential mortgage loans. The Fact Sheet appears to be another CFPB effort, following its release of TRID FAQs in March 2019, to provide the industry with written guidance without the time delay involved in advance notice‑and-comment processes. We summarize below the Fact Sheet’s clarifications. All citations are to Regulation Z, 12 C.F.R. part 1026, unless otherwise noted.
- A Loan Estimate and Closing Disclosure must be provided if a transaction that is an assumption of a residential mortgage loan is covered by TRID and is an “assumption” as defined in § 1026.20(b).
- First, the assumption must be a closed-end consumer credit transaction that is not a reverse mortgage under § 1026.33 and that is secured by real property or a cooperative unit. §§ 1026.19(e) and (f). Further, the transaction must not be otherwise exempt from TRID; for example, TRID exempts certain housing assistance loans. § 1206.3(h).
- Second, the creditor must expressly agree in writing to accept a new consumer as a primary obligor in an existing residential mortgage transaction as defined in § 1026.2(a)(24). § 1206.20(b). The original borrower must be a consumer; however, whether the original borrower is retained as an obligor is irrelevant.
- If a new consumer will be added as a guarantor, the transaction is not included in the § 1026.20(b) definition of an assumption.
- An express agreement does not occur merely because a creditor approves a consumer’s creditworthiness, or mails a coupon book to, or accepts payments from, the consumer. This often occurs when a new consumer purchases a property “subject to” a mortgage, but does not expressly assume the mortgage.
- An assumption must be a residential mortgage transaction involving the new consumer, not the original borrower. This means that a security interest must be retained in the new consumer’s principal dwelling, and must finance the new consumer’s acquisition or initial construction of that dwelling. An assumption involving a successor-in-interest to the dwelling, who previously acquired an interest in the dwelling (e.g., by inheritance), is not a residential mortgage transaction.
- Disclosures are based on the remaining obligation at the time of the assumption. A finance charge that is imposed as a condition of the assumption is disclosed as a prepaid finance charge, while prepaid charges that were imposed on the original consumer are ignored. However, any arrearages or other accrued charges from the original transaction are added to the remaining balance to calculate the amount that is financed.
The Fact Sheet closes by reminding creditors that even if an assumption does not require a Loan Estimate and Closing Disclosure, if it is a consumer credit transaction, other Regulation Z and Regulation X servicing requirements may apply.