On October 1, 2014, the US Consumer Financial Protection Bureau ("CFPB") conducted the third in a series of webinars on the TILA-RESPA Integrated Disclosure Final Rule ("Rule"), providing guidance on some of the common questions that have been raised since the Rule was issued in November 2013.
In this public online event, staff from the CFPB's Office of Regulations presented prepared questions and answers regarding the Rule. The questions focused on completion of the Loan Estimate. The Loan Estimate is the disclosure that will replace the Good Faith Estimate and the initial Truth in Lending Statement for most closed-end consumer real estate loans on August 1, 2015. Some of the questions related to completion of the Closing Disclosure as well, which will replace the HUD-1 settlement statement and the final Truth in Lending Statement.
Below we have summarized the questions and answers addressed on this webinar. We have also included helpful notes below some of the answers, providing additional guidance on the Rule from our team of experts.
We also note that this guidance is informal and cannot replace the language of the Rule. In addition, this guidance is subject to change. The CFPB's introductory slide states, the information provided "does not represent legal interpretation, guidance or advice of the Bureau…and does not bind the Bureau." Significantly, many of the provisions of the Rule could be subject to civil and assignee liability under TILA. Therefore, we advise caution when relying on this unofficial form of guidance.
Richard Horn led the creation of the Rule during his tenure as Senior Counsel and Special Advisor at the CFPB.
Is there a required font and font size for the Loan Estimate? (1026.37(o); Comment 37-2)
There are required font sizes, but no specific font type is required for the integrated disclosures. CFPB staff noted that the preamble explains that the integrated disclosures are standard forms under §§ 1026.37(o)(3) and 1026.38(t)(5) for federally-guaranteed mortgage loans, requiring use of forms H-24 and H-25 and all of their elements, including font sizes, bolding, shading, and underscoring. The staff stated that they interpret this to require the various font sizes on the forms, but not the font type.
Can the designation “N/A” be used where no value is to be disclosed on the Loan Estimate? (Comment 37-1)
No. "N/A" cannot be used where no value is to be disclosed on the form. Generally, the Rule states that when a disclosure is not applicable, it should be deleted from the form or left blank.
Is there a required naming convention used for charges on the Loan Estimate?
No. The Rule did not prescribe a uniform naming convention for fees, or a standard list of fee names. But some specific types of charges must be disclosed in certain ways. The CFPB provided the example of points paid to lower the interest rate, which are disclosed under § 1026.37(f)(1)(i) in the first line of Origination Charges in a specific manner, as shown on Form H-24. Another example provided was that title insurance services disclosed under § 1026.37(f)(2) and (3) are required to include the prefix "Title -."
Does the creditor have to disclose an itemization of the amount financed with the Loan Estimate?
No. A creditor would not disclose an itemization of the amount financed with the Loan Estimate. The Itemization of Amount Financed, which may be required under § 1026.18(c), is not required to be provided either with the Loan Estimate or the Closing Disclosure for transactions covered by the Rule. The CFPB staff noted that for the Closing Disclosure, § 1026.38(o)(3) requires only the Amount Financed to be disclosed, calculated in accordance with § 1026.18(b). The CFPB staff also noted that some disclosures are not disclosed on the Loan Estimate, such as the Amount Financed and Finance Charge, but are disclosed on the Closing Disclosure.
Header (§ 1026.37(a))
When the Sale Price of the property is not yet known, does the creditor disclose a label other than "Sale Price" for the Sale Price on the Loan Estimate? (1026.37(a)(7))
No. For transactions with a seller, § 1026.37(a)(7) requires the label to state "Sale Price." For transactions without a seller, the creditor is required to disclose the estimated value of the property using the label "Prop. Value."
[Note: The Rule requires the label for transactions without sellers to be "Est. Prop. Value." This is because § 1026.37(o) requires lenders to incorporate "estimated" labels if they are included on Form H-24, even if the Rule does not include the estimated label in the regulatory text.]
If a loan product consists of a combination of two product types – e.g. a step rate for a set period of time, followed by an adjustable rate for the remaining term of the loan – how is the product to be described? Should it be described as an Adjustable Rate loan or as a Step Rate loan? (1026.37(a)(10))
A creditor is required under § 1026.37(a)(10) to choose only one product type from the following: Step Rate, Adjustable Rate, or Fixed Rate. If a loan has both a Step Rate and an Adjustable Rate period, it must be disclosed as Adjustable Rate. The hybrid loan would fall under the definition of "Adjustable Rate" because even though some of the interest rate changes during the step periods are known, it has an adjustable rate period during which the interest rate that will apply is not known at consummation.
Is the mailing address for each Applicant the U.S. postal mailing address or can it be some other type of address? (1026.37(a)(5))
The mailing address disclosed in this section must be the applicant's U.S. postal mailing address. No other type of address, such as an applicant's email address, may be used instead.
If a broker is issuing a Loan Estimate but does not know the creditor, may the broker put its name in place of the creditor’s? (1026.37(a)(3))
No. Section 1026.37(a)(3) requires the creditor's name. The Rule requires the broker to conduct a good faith effort to disclose the creditor's name. But if it is not known, the broker may leave this part of the disclosure blank. But the broker cannot put its own name in that section, because the Rule does not instruct the broker to substitute its name for the creditor's. See comment 37(a)(3)-2.
Section 1026.37(a)(12) indicates the creditor must disclose a unique loan ID number. If the creditor is unknown, is the broker required to generate and disclose a unique ID number?
No. A broker would not be required to generate and disclose its own unique loan ID number Assuming the creditor's Loan ID# is not reasonably available to the broker, the loan ID number could be left blank. As Comment 37(a)-1 states, the Loan ID# must be a unique alphanumeric identifier determined by the creditor. The creditor can outsource this function and allow brokers to generate and assign loan ID numbers on their behalf. Creditors could also provide unique loan ID numbers to brokers in advance of the disclosures to use on the LE. In those circumstances, the loan ID number would be reasonably available to the broker and would be required to be disclosed on the LE. However, where a creditor hasn't been determined, and the broker does not have any loan ID number based on the best information reasonably available, it can be left blank. The CFPB staff states that this is consistent with comment 37(a)(3)-1, which states that the creditor's name can be left blank if unknown. The staff also states that this is consistent with comment 37-1.
What about after the creditor is known? Is the creditor required to disclose its own unique loan ID once there is a creditor for the loan?
Yes. A creditor would be required to disclose the loan ID number on any subsequent disclosures it provides, such as revised Loan Estimates or the Closing Disclosure. The creditor is ultimately responsible for the disclosures.
Loan Terms (1026.37(b))
What interest rate should be disclosed where the initial interest rate is calculated using a different formula than that used for subsequent rate adjustments? (1026.37(b)(2))
The creditor should disclose the initial interest rate. Section 1026.37(b)(2) requires disclosure of the interest rate applicable at the date of consummation. A different calculation is only used when the initial interest rate is not known at the time the Loan Estimate is completed. Preamble to § 1026.37(b)(2) discusses multiple interest rates applying to different portions of a loan's principal balance in a precomputed transaction, and could be read to imply that the disclosure required would be one interest rate that is a composite of the different interest rates that apply to the loan's principal balance. However, the rule is clear that disclosure requires is the initial interest rate that will be applicable to the transaction at consummation.
[Note: The guidance in the Rule's preamble about precomputed transactions was provided in response to a public comment requesting guidance on how to disclose precomputed interest rates, add-on interest rates, discount rates, and split interest rates (where the interest rates are precomputed based on different rates applying to different portions of the precomputed loan amount). Please let us know if you would like guidance on these types of products.]
How does a creditor disclose items in the Loan Terms table where the applicable dates for changes to interest rate, periodic payments, balloon payments, or prepayment penalties are not in whole years? (1026.37(b)(8) and .37(a)(10))
The CFPB staff stated that these time periods are disclosed all in whole years, except when there are fewer than 24 months in that time period, in which case they are disclosed in whole months with "mo."
Projected Payments (1026.37(c))
Can the amount disclosed for Estimated Taxes, Insurance & Assessments be for a time period of other than monthly? (1026.37(c)(4) and .37(o)(5))
Yes. If the transaction terms provide for other than monthly periodic payments, § 1026.37(o)(5) provides that the creditor must disclose the applicable period set out in the terms of transaction, e.g. bi-weekly.
If mortgage insurance will automatically terminate in the time period that would be included in the 4th column, how do I indicate that mortgage insurance will terminate before the end of the loan? (1026.37(c)(1)(ii))
In this situation, the automatic termination of mortgage insurance would not be disclosed. The automatic termination of mortgage insurance is only disclosed if there are three or fewer columns. If there are already four columns required to disclose changes to the periodic principal and interest payment, regardless of when the changes to the principal and interest payment occur during the loan term, the creditor would not disclose the automatic termination of mortgage insurance. Also, comment 37(c)(1)(3)-1 clarifies that mortgage insurance premiums are not disclosed as a range of payments.
Must the escrow row be shown if no escrow account is established? (1026.37(c)(2))
Yes. If no escrow account is established, the row must be disclosed, but the amount should be disclosed as zero.
Are flood insurance premiums included in Homeowner’s Insurance for purposes of the Escrow disclosure and the Taxes, Insurance & Assessments disclosure on the Projected Payments table? (1026.37(c)(4))
Yes. Flood insurance is included in the Homeowner's Insurance disclosure. Section 1026.37(c)(4)(ii) defines what insurance is to be included, which are charges listed under section 1026.43(b)(8). This includes "premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction," and this would include flood insurance.
Costs at Closing (1026.37(d))
Are the modifications to the Loan Estimate for transactions without a seller required? (1026.37(d) and (h))
No. The modifications for transactions without a seller under § 1026.37(d)(2) and (h)(2) are not required. They are optional. However, both of the modifications to the Costs at Closing table and the Calculating Cash to Close table (on page 2) must be used together if using the alternative Loan Estimate. See comment 37(d)(2)-1.
[Note: Also note that if a creditor elects to use the alternative Loan Estimate for a transaction without a seller, the creditor must also use the alternative Closing Disclosure. See the corresponding provisions under § 1026.38.]
Origination Charges (1026.37(f))
If a creditor charges an origination fee that is a percentage of the loan amount, but it is not a “point paid to the creditor to reduce the interest rate,” may the creditor identify it as a point in some way to preserve its tax deductibility for the consumer? (1026.37(f)(1))
No. It could not. Section 1026.37(f)(1)(i) is clear that only points charged in connection with a reduction in the interest rate may be disclosed as points on the form. If there are no points charged to reduce the interest rate, the creditor leaves this row blank. The answer also relies on comment 37(f)(1)-3, which, for charges other than the points paid to reduce the interest rate, requires clear and conspicuous terminology that describes the service. The answer also relies on comment 37(f)(1)-4, which states that the creditor should leave the points line blank if there are no points paid to reduce the interest rate.
Assume the creditor will pay a Loan-Level Price Adjustment (LLPA) to the secondary market purchaser (1026.37(f)(1)). If the creditor does not charge the consumer an upfront fee, but passes the cost of the LLPA on to the consumer through interest, is the creditor required to disclose the LLPA?
No. In this scenario, the creditor is not charging the consumer an upfront fee, but capturing the LLPA through the interest rate. It would not be considered a settlement charge to disclose under § 1026.37(f).
If the creditor does charge the consumer an upfront fee, should it be disclosed as a “point” or an “origination charge”?
The answer depends on how the upfront fee is charged. If the upfront LLPA is charged at closing as a flat origination charge, then it would be itemized and labeled as an "origination charge." However, the creditor could include the cost of the LLPA in the interest rate, and then allow the borrower to pay a point to reduce the interest rate. In that case, the charge would be disclosed as a point and not a fee. See comment 37(f)(1)-5.
If the creditor offers the borrower a zero or lower point option, and the consumer chooses to pay for discount points in an amount greater than the LLPA to obtain a lower rate, may the creditor disclose the amount paid as discount points rather than an origination charge?
Yes. Creditors have some degree of flexibility in how they factor in LLPAs. If creditor includes the LLPA in the interest rate and discounts the interest rate through the payment of points. This is consistent with guidance the CFPB has provided with respect to the determination of bona fide discount points, which generally permits the undiscounted rate to include LLPAs. Whether the discount point is a bona fide discount point and excludable from "points and fees" is not a factor in whether it is disclosed as a point on the integrated disclosures.
Must a creditor disclose fees that are not allowed by FHA/VA? If so, where? (Comment 37-1; 1026.17(c))
If the FHA/VA loan prohibits a type of fee, the creditor should not charge the fee. If the program allows the creditor to charge the fee and offset it with a lender credit, the creditor must disclose the charge and the lender credit. The CFPB, however, does not weigh in on whether a fee is permissible for a particular loan program.
How does the creditor disclose charges for third-party administrative and processing fees that are currently rolled up into Block 1 of the GFE? (1026.37(f)(1) and (f)(2))
The creditor generally decides the extent of itemization in the origination charges section on the Loan Estimate, except for charges that are required to be itemized, such as points and LLPAs. To the extent these are settlement services the consumer will pay for, they are disclosed under Service You Cannot Shop For under § 1026.37(f)(2). Whether it is disclosed as a settlement service under this section depends on whether the creditor requires the consumer to pay for it, or treats it as normal business overhead expenses, such as rent or utilities.
Can a creditor change the number of lines for each category of costs if there are more or fewer charges in each category? (1026.37(f)(6))
No. Each category in the Loan Costs section has a prescribed number of lines. A creditor cannot change the number of lines on the Loan Estimate. If a creditor runs out of lines for Origination Charges or Services You Cannot Shop For, it must disclose the aggregate amount of the additional charges in the last line of the section as "additional charges." § 1026.37(f)(6)(i). However, for Services You Can Shop For, the additional charges can be itemized in an addendum to the Loan Estimate. § 1026.37(f)(6)(ii).
[Note: Section 1026.38 provides more flexibility with respect to the number of lines in the closing costs categories on the Closing Disclosure.]
How should premium rate credit or “negative points” be disclosed? May the creditor add a separate addendum to detail the offset? (1026.37(g)(6))
This should be disclosed as a Lender Credit. See comment 37(g)(6)(ii)-2. The creditor may not add an addendum to itemize the lender credits. The CFPB made a policy decision not to have these credits itemized on the Loan Estimate.
Other Costs (1026.37(g))
Recording fees and other taxes appear to encompass all government taxes which are not transfer taxes. Does this include taxes on separate services, such as title insurance? (1026.37(g)(1))
No. It does not. The taxes disclosed under § 1026.37(g)(1)(i) are limited to those associated with the recording of documents. Sales or other taxes assessed on other services and paid to the individual service provider are included in the cost of the individual service, and not disclosed in the Recording Fees and Other Taxes section.
Credit life insurance is usually paid on a monthly basis, but is only mentioned in the “Other” section of “Other Costs.” Is that where I should disclose the premium? (1026.37(g)(4))
No, assuming this is about optional credit insurance premiums charged monthly, they would not be disclosed there. The amount disclosed in this section is any amount paid in connection with the transaction as a closing cost. Section 1026.37(g)(4) would only be include amounts paid up front, to the extent permissible.
Calculating Cash to Close (1026.37(h))
How does a creditor determine the "third party" payments to be deducted from the loan amount to calculate the Closing Costs Financed line item on the Calculating Cash to Close table? (1026.17(c) and .37(g))
The amounts to be deducted are third party payments not otherwise disclosed as closing costs under § 1026.37(f) or (g). They would include the payoff of an existing loan with the same creditor, if not included in the Other category under Other Costs.
Is the deposit or down payment subtracted as part of the calculation of Closing Costs Financed? (1026.37(h))
No. The deposit would not be subtracted. The calculation of the Closing Costs Financed is not affected by the deposit. The deposit has its own line item.
Is the calculation of the Closing Costs Financed line item affected by a seller credit? (1026.37(h))
No. Closing Costs Financed is not affected by seller credits. Seller credits are disclosed as a separate Seller Credits line item.
For the “Downpayment/Funds from Borrower” line item, does the “existing debt” being satisfied include any type of debt, other than debts disclosed under §1026.37(g), whether or not the creditor required it to be repaid?
Yes. Any type of debt would be included in the Funds from Borrower line item, except for in purchase transactions, which have special rules for that (see comment 37(h)(1)(v)-1). The creditor is required to complete this section based on the best information reasonably available.
What debt is disclosed under § 1026.37(g)(4) instead of as part of Payoffs and Payments under the alternative Calculating Cash to Close table?
To the extent a creditor discloses debts the creditor knows about based on the best information reasonable available, the creditor may disclose these amounts under § 1026.37(g)(4). If it does not disclose the debt not there, then its approximate value is included in the Payoffs and Payments line in the alternative Calculating Cash to Close table.
Does the payoff of any outstanding debt of the consumer included as part of Payoffs and Payments or only those debts of the consumer that are required to be paid as a condition of the extension of credit? (1026.37(h)(2))
The Payoffs and Payments line item includes any amounts paid or payoffs to be made, based on the best information reasonably available to the creditor. The amount is not limited to those debts required to be paid by the creditor. See comment 37(h)(2)(iii)-1.
Can the alternative cash to close table be used for multiple loan transactions without a seller? There is no line for the application of subordinate financing in the alternative Cash to Close table. (1026.37(h)(2))
Yes. The alternative table can be used. To the extent there are multiple transactions, each loan covered by the rule will have a separate Loan Estimate and Closing Disclosure. In the case of a first-lien cash-out refinance with subordinate-lien financing, the settlement agent can total up the amounts due to or from the consumer across all the loans to determine the final amount due to or from the consumer. There is no requirement in the alternative Calculating Cash to Close provisions for the Loan Estimate or the Closing Disclosure for one of the loans to disclose the "master" Cash to Close amount across all the transactions.
Can the standard Calculating Cash to Close table disclose the Estimated Cash to Close amount as a negative number? (1026.37(h)(1))
Yes. When the calculation of § 1026.37(h)(1)(viii) (the sum of all the amounts disclosed in the table) is negative, then the negative number is disclosed for the Estimated Cash to Close here and also on Page 1 under § 1026.37(d)(2). The negative number indicates the consumer is receiving that amount at closing.
AP & AIR Tables (1026.37(i) and (j))
Are the adjustable payments and adjustable interest tables disclosed for a fixed rate loan? (1026.37(i) and .37(j))
The Adjustable Payment table would be disclosed if the Fixed Rate loan has any adjustable payment features. The Adjustable Interest Rate table is never disclosed for a Fixed Rate loan.
Contact Information (1026.37(k))
In a loan with a mortgage broker, must both a creditor’s loan officer and a mortgage broker’s loan officer be listed? (1026.37(k); 1026.36(g))
Yes. In a loan with a mortgage broker, both the creditor and mortgage broker's contact information, including the loan officer information (name and NMLS ID), must be disclosed. However, this is assuming that the names and IDs are available based on the best information reasonably available. This standard includes an obligation to conduct due diligence to obtain the information. But if no individual loan officer has been assigned, or if the creditor name is not known, it can be left blank. When the creditor in a brokered transaction does receive the loan, the creditor would disclose the contact information, including the information for a loan officer.
Should we use the same person’s NMSLR identification number that will be identified on the note and other documents? (1026.37(k); 1026.36(g))
Yes. Creditors should use the same person's NMLSR ID that is identified on other documents under § 1026.36(g). The CFPB staff states that these two provisions should be read the same, even though § 1026.36(g) requires this to be the LO with "primary responsibility for origination" and § 1026.37(k) describes this person as the "primary contact for the consumer." The CFPB staff states that although the language is different, they consider this to be the same person. The CFPB staff also noted that section 1026.36(g)(2)(ii) will be amended prior to the August 1, 2015 effective date to require that person's NMLSR ID on the integrated disclosures.
[Note: We hope that the CFPB includes in the final rule amending § 1026.36(g)(2)(ii) some written guidance in the commentary and/or the preamble stating that creditors should use the same loan officer under §§ 1026.36(g) and § 1026.37(k). The differences in the regulatory text could, in some circumstances, lead to a different interpretation. A commentary provision permitting this treatment of the two provisions would be helpful.]
Is the Annual Percentage Rate disclosed as a rounded amount or is it truncated at three decimal places? (1026.37(l) and .37(o)(4))
The APR is not rounded and should be disclosed to 3 decimal places. However, if it is a whole number, it is truncated at the decimal point (e.g., 7%, and not 7.0% or 7.00%). If the APR has only two decimal points, a zero is added to bring it to three decimal points (e.g., 7.250%, and not 7.25%). This is different from other percentage amount disclosures on the form for which a zero is not added to bring a two-decimal amount up to three decimal points.
Other Considerations (1026.37(m))
Does the creditor need to disclose on the Loan Estimate that it will transfer servicing if the transfer is not immediate, but will happen at some later point in time during the life of the loan? (1026.37(m)(6))
Yes. The creditor must disclose its intent to transfer servicing at any time after consummation. See comment 37(m)(6)-1, which states that the disclosure depends on the creditor's intent at the time of issuance.
Does the creditor need to disclose on the Loan Estimate that it will transfer servicing if the transfer is to the creditor’s subsidiary or affiliate? (1026.37(m)(6))
Yes. The creditor must disclose this, because the subsidiary or affiliate would be considered another servicer. See comment 37(m)(6)-1.
Does the Appraisal notice satisfy the requirements of Regulation B, or does the creditor need to provide a separate disclosure for that requirement? (1026.37(m)(7))
This disclosure satisfies the disclosure requirement of Regulation B. But the creditor is still required to provide a copy of the appraisal under Regulation B. See the preamble of the final rule, 78 FR 79985-87.
Service Provider List (1026.19(e)(1)(vi) and Appendix H-27)
How can a creditor communicate to the consumer that the identification of a service provider on the written list is not an endorsement of that service provider?
A creditor is permitted to include language indicating that inclusion of a service provider on the written list is not an endorsement of the provider. See comment 19(e)(1)(vi)-6. But there is no specific language for this statement. The general requirement that information be disclosed clearly and conspicuously under § 1026.17(a) would apply to the language included by the creditor.