On August 26, 2014, the Consumer Financial Protection Bureau ("CFPB") conducted the second in a series of webinars on the TILA-RESPA Integrated Disclosure Final Rule ("Rule"),1 entitled, "Frequently Asked Questions on TILA-RESPA Integrated Disclosures."2 The CFPB staff previously stated that questions about the Rule would be answered publicly in a webinar format, and that it did not plan to issue written FAQs similar to those produced by HUD for its revised RESPA Rule in 2010. We expect, therefore, that these webinars will serve as the primary vehicle for the CFPB to publicly respond to common or important questions about the Rule. Given the broad implications of the Rule and its implementation for the mortgage industry, we want to provide you with a timely summary of the webinar.
Richard Horn led the creation of the Rule during his tenure as Senior Counsel and Special Advisor at the CFPB.
Prior to taking questions, the CFPB staff stated that it will release revised small entity compliance guides to provide clarifications and fix certain "glitches" in the original versions released earlier this year. The revisions will address issues such as the applicability of the seven-business day waiting period under § 1026.19(e)(1)(iii)(B) to revised Loan Estimates (which was also addressed during the webinar and is described below). The CFPB staff stated that it would also publish an illustrative calendar displaying examples of the timing for providing the original and revised Loan Estimate and Closing Disclosures, including disclosing post-consummation changes. The CFPB staff also stated that it plans to conduct a third webinar, which is tentatively scheduled for October 1, 2014.
The CFPB then answered questions, and the following is a summary of those questions and the CFPB's responses.
Loan Application Issues
What if the consumer does not specify the product type or the loan term when he or she submits the application?
The CFPB staff reminded listeners that the Rule permits the strategic collection of information so as to obtain additional information before receiving all six items that make up the definition of an application. The CFPB stated that it believes lenders will be able to collect the product information. The CFPB noted that the Rule requiring provision of the Loan Estimate within three business days after receipt of an application is silent about any assumptions creditors might make about the loan product or loan term the consumer is interested in. The CFPB stated that because of that silence, creditors have to provide a Loan Estimate, but have discretion about the loan product, features, and loan term disclosed on that Loan Estimate. The CFPB also noted that the Rule does not obligate creditors to provide multiple Loan Estimates to consumers for different products, or a Loan Estimate for every product they offer. In addition, the Rule does not require creditor to default to any particular loan product or loan term for the original Loan Estimate provided. The Loan Estimate would still have to be provided in good faith and consistent with the best information reasonably available.
What if a consumer starts filling out an online application, saves it on the website with the six items completed, but does not hit the "submit" button to submit it to the creditor?
The CFPB noted that the Rule answers this question in the preamble's section-by-section analysis of § 1026.2(a)(3). The preamble provides that, "because the definition of application refers to the 'submission' of the six items of information that make up the definition, if a consumer starts filling out a mortgage application form online, enters the six pieces of information that constitute the definition of 'application,' but then saves the mortgage application form to complete at a later time, the consumer has not submitted the items of information." 78 FR 79730, 79768.
What if the loan is a refinance and the creditor has a great deal of information already on file?
The CFPB staff noted that the preamble to the Rule addresses this issue as well. The definition of "application" refers to the "submission" of the information. As the preamble states, "merely maintaining such information from a previous transaction or business relationship would not constitute an application for purposes of the definition if the consumer has not submitted any information or indicated that he or she wishes such information maintained by the creditor to be used for an application." 78 FR 79730, 79768.
In an online application system, can the creditor refuse to accept applications submitted by consumers if they have entered in the six items but have not provided other preferred additional information?
The CFPB staff noted that the Rule provides no special treatment for online applications, and that creditors are not permitted to refuse an application with the six items submitted by the consumer because preferred additional information has not been provided. The CFPB staff moreover stated that the same principle applies to online applications as to oral applications, and that an online application system designed to reject or refuse applications that include the six items but do not include preferred information would not comply with the Rule.
Do the new disclosure requirements apply to assumptions?
The CFPB staff noted that the Rule does apply to assumptions that require new disclosures, as defined by existing § 1026.20(b). The Rule did not change existing § 1026.20(b).
Would a successor in interest be a subsequent purchaser for purposes of the disclosures in an assumption?
The CFPB staff noted that the CFPB recently issued an interpretive Rule3 regarding the applicability of § 1026.20(b) to the CFPB’s Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule). The CFPB staff noted that although the the CFPB has described the interpretive Rule to concern the ATR/QM Rule, in fact the interpretive Rule concerns the definition of "assumption" under § 1026.20(b). Under the interpretive Rule, the ATR/QM Rule would not apply to the situation when a successor-in-interest who has previously acquired title to a dwelling agrees to be added as obligor or substituted for the existing obligor on the loan secured by such dwelling. The CFPB staff confirmed that the interpretive Rule's clarification of § 1026.20(b) would also apply to the TILA-RESPA Rule.
Do creditors still need to provide the existing TILA disclosure for loans exempt from the integrated disclosure requirements by § 1026.3(h)?
The CFPB staff stated that the answer is yes. The exemption under § 1026.3(h) (which applies to certain no-interest subordinate-lien transactions such as down payment assistance loans) contains several conditions that a transaction must satisfy to qualify for the exemption, and one of those conditions is that the is that the disclosures under § 1026.18 be provided.
Is the creditor required to collect and retain a seller's Closing Disclosure that is provided on a separate document by the settlement agent, as well as other supporting documentation for the disclosure?
The CFPB staff stated that the Rule requires the settlement agent to provide the seller with the Closing Disclosure. It is possible that the settlement agent could be the creditor, if the creditor is conducting the settlement of the transaction. In most cases, however, the settlement agent will be a third party. Under the Rule, when the settlement agent provides the Closing Disclosure on a separate document (as permitted under § 1026.38(t)(5)), it must also provide to the creditor a copy of the disclosure. The CFPB staff stated that creditors are obligated to obtain and retain the seller's Closing Disclosure provided by a third party settlement agent. However, the Rule does not require settlement agents to provide creditors with copies of the underlying documents (e.g., invoices bills, fees, costs) that support the seller's Closing Disclosure, and so creditors are not obligated to collect and retain such underlying documents. The CFPB staff did state, however, that to extent a creditor does obtain information related to the seller Closing Disclosure, or when it is provided such information by the settlement agent, the creditor should retain that information pursuant to the Rule's record retention requirements.
Is owner's title insurance subject to the 10% tolerance?
The CFPB staff stated that the answer is no, because the 10% tolerance category includes only charges that are required by the creditor. Optional charges that are not required by the creditor are not subject to a specific tolerance. The CFPB staff noted that the preamble to the Rule has language indicating the CFPB's intent to subject an owner's title insurance to the 10% tolerance category, but that the regulatory text is clear and does not include it in that category.
Re-disclosure Timing Requirements
Does the requirement to provide the Loan Estimate at least seven business days before consummation apply to revised Loan Estimates?
The CFPB staff confirmed that the seven-business day waiting period in § 1026.19(e)(1)(iii) applies to the originally provided Loan Estimate, and not to subsequently provided revised Loan Estimates. The CFPB staff stated that the confusion about the requirement would be clarified in the next version of the small entity compliance guide published by the CFPB.
Is a creditor required to provide the revised Loan Estimate on the same business day the consumer requests a rate lock?
The CFPB staff stated that the answer is "not necessarily." The staff noted that the term "rate lock" is not defined by Regulation Z and thus, depends on state law or contract. The CFPB also noted that the Rule's section-by-section analysis of this requirement and the Rule's commentary both provide examples of compliance with this provision and additional explanation. These examples and explanation illustrate that the CFPB's view is that this requirement applies to when the "rate lock agreement" is entered into, and not necessarily the date the rate lock is requested by the consumer. The CFPB staff noted, however, that numerous stakeholders have identified operational challenges with this provision and that the CFPB is carefully considering the issue.
Can a creditor provide the Closing Disclosure early and then use revised Closing Disclosures for tolerances?
To the first part of the question the CFPB staff answered that, yes, the Closing Disclosure can be provided early. This is because the provision that controls the timing of the Closing Disclosure requires that the disclosure be received no later than three business days before consummation.
To the second part of the question asking whether the creditor can then use the Closing Disclosure to redisclose for tolerance purposes, the CFPB staff clarified that this was not permissible under the Rule. According to the CFPB staff, under the relevant provision, the date of consummation controls the timing for use of the Closing Disclosure to redisclose for tolerance purposes and the provision does not take into account early delivery of the Closing Disclosure. In addition, the Rule does not provide any other means for the Closing Disclosure to be used for tolerances.
Is an additional 3-business day waiting period required if the APR decreases?
The CFPB staff stated that the existing accuracy standards under § 1026.22 will regulate whether it is required to provide an additional three business day waiting period if the APR becomes inaccurate. These accuracy standards are also applicable to the current redisclosure requirement under the Mortgage Disclosure Improvement Act (MDIA). The CFPB noted that the Rule did not change these accuracy standards. Accordingly, creditors can use existing guidance on the subject. [Note: Please let us know if you would like any additional information about these accuracy standards and their applicability.]
Where should the construction tolerance language be displayed on the Loan Estimate?
The CFPB staff stated that they are aware that the Rule does not provide a place on the Loan Estimate for placement of the tolerance language for construction loans where creditors reasonably expect that settlement will occur more than 60 days after disclosure. They intend to address this issue before the effective date.
Can creditors use the alternative Loan Estimate for simultaneous second-liens?
The CFPB stated that yes, the alternative disclosures for transactions without sellers can be used for simultaneous second-lien loans where the seller is not contributing to the cost of the second-lien transaction and the proceeds of second-lien transaction are disclosed on the disclosure for the first-lien transaction. The CFPB also noted that the creditor is not required to use the alternative version.
If there is more than one applicant or consumer in the transaction, what does a creditor disclose on the Loan Estimate?
The CFPB noted that § 1026.37(a)(5) requires the name and mailing address for each consumer applying for the transaction. If the information does not fit, an additional page may be appended to the Loan Estimate to disclose the information.
The CFPB then addressed the delivery requirements for multiple consumers. The CFPB stated that for purposes of delivery, the Loan Estimate may be delivered to either one of the consumers, and that the Closing Disclosure must be provided to each consumer who has right to rescind. We note that § 1026.17(d) and its commentary govern provision of the disclosures to multiple consumers, which depends on whether the consumers are primarily liable. The Rule did amend the commentary to this section to account for the integrated disclosures, including for rescindable transactions.
We believe it is a positive development for the industry that the CFPB has provided guidance on some of the common questions that have been raised since the Rule was issued in November 2013 so that there is industry uniformity in application of the Rule. The CFPB stated that it also plans to address the tolerance language for construction loans and is considering the industry's concerns regarding the same-day rate lock redisclosure requirement.
Notwithstanding the foregoing, please be advised that the guidance provided by the CFPB staff in this and other webinars is unofficial and therefore does not carry the weight of law. It is unclear what weight a court would place on CFPB's unofficial guidance on a particular issue. We note that many provisions of the Rule may be subject to civil liability for creditors, and assignee liability for investors, unlike the current disclosure rules under RESPA. This is because the rule relies on TILA, as well as RESPA, statutory authority. Thus, the issue of how much weight the courts may place on the CFPB's unofficial guidance, such as this webinar, is an important one.
The Rule amounts to a complete overhaul of the loan origination process, procedures, and disclosures and requires substantial changes to software systems, internal compliance controls, and, more broadly, relationships within the industry. The Rule is extremely detailed and highly technical. We encourage all industry stakeholders to begin their implementation efforts as soon as possible, if they have not already done so.
CFPB publishes annual threshold adjustments under HOEPA and ATR
We are writing to inform you that on August 15, 2014, the Consumer Financial Protection Bureau (CFPB) published a final rule making certain required annual threshold adjustments under Regulation Z, which implements the Truth in Lending Act. The adjustments made by the final rule are effective on January 1, 2015.
In addition to adjustments under the CARD Act which are not addressed here, the final rule provided new loan threshold amounts under the Home Ownership and Equity Protection Act (HOEPA). As adjusted, a residential mortgage loan will be considered a "high cost mortgage" if the points and fees, among other things, exceed five percent of the total loan amount for a transaction with a loan amount of $20,391 or more (previously the figure was $20,000); or, for transactions with a loan amount less than $20,391, if the points and fees exceed the lesser of eight percent or $1,020 (previously the figure was $1,000).
The final rule also provided new dollar thresholds and limitations under the Ability to Repay/Qualified Mortgage Rule. As adjusted, the points and fees (as defined under the rule) for a qualified mortgage may not exceed the following amounts:
- For a loan amount greater than or equal to $101,953 (previously $100,000), points and fees do not exceed three percent of the total loan amount
- For a loan amount greater than or equal to $61,172 (previously $60,000) but less than $101,953 (previously $100,000), points and fees do not exceed $3,059 (previously $3,000)
- For a loan amount greater than or equal to $20,391 (previously $20,000) but less than $61,172 (previously $60,000), points and fees do not exceed five percent of the total loan amount
- For a loan amount greater than or equal to $12,744 (previously $12,500) but less than $20,391 (previously $20,000), points and fees do not exceed $1,020 (previously $1,000)
- For a loan amount less than $12,744 (previously $12,500), points and fees do not exceed eight percent of the total loan amount.