INTEGRATED MORTGAGE DISCLOSURES

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1 INTEGRATED MORTGAGE DISCLOSURES (TILA RESPA RULE) Financial Solutions Patti Blenden April CFPB Accomplishes Integration of GFE/eTILA After 30 years of encouraging HUD and the FRB to cooperate Dodd Frank Act Sections 1098 and 1100A were adopted The CFPB was ordered to combine RESPA and TILA application and loan closing disclosures On November 20, 2013, the CFPB issued final rule as part of its RESPA TILA integration effort Originally proposed by the CFPB in July of 2012 Published in the Federal Register on August 23, Fed. Reg (Aug. 23, 2012) Proposed Regs The newly promulgated forms reflect extensive consumer testing by the CFPB and numerous hearings 78 Fed. Reg FINAL RULE Includes model disclosures and rules governing how and when lender must provide the forms Establishes restrictions some new, some old on cost variations between amounts disclosed in the Loan Estimate and the final amounts disclosed in the Closing Disclosure 80 Fed. Reg AMENDMENT Adjusted changed circumstance disclosure delivery due to rate lock (extended to 3 business days) Amended amends the 2013 Loan Originator Final Rule to provide for placement of the NMLSR ID on the integrated disclosures Non substantive corrections, including citation and cross reference updates and wording changes for clarification purposes, to various provisions of TRID Final Rule. 2 Financial Solutions * April

2 TRID Design and Testing Process Two goals mandated by Dodd Frank Act Aid consumer understanding by utilizing readily understandable language to simplify the technical nature of the disclosures Facilitate compliance with TILA and RESPA disclosure requirements Design principles Highlight most important and understandable information on Page 1 Graphic design with less text to reduce information overload Limit content to loan terms, cost information, and exclude educational material First page could be used as a one page mortgage shopping sheet Match the LE and CD in titles, sections and wording 13 Key TRID Challenges for Lenders Heavily reliant on software and document preparation platform vendors Managing pipeline turnover and dual treatment of consumer mortgages during implementation period and then for personal property dwellings long term Fee accuracy adjusting to the changes in tolerances in the 3 categories Managing the settlement agent transition of responsibilities Operational changes: Breaking old habits last minute flurry to get to closing with no preliminary review Upfront fee limitations Timing the closing properly with accurate disclosures 4 Financial Solutions * April

3 Truth In Lending Act s Reg Z 1026 Sub Part A General Sub Part B Open End Credit Sub Part C Closed End Credit Sub Part D Miscellaneous Sub Part E Special Rules For Certain Home Mortgage Transactions Sub Part F Special Rules For Private Education Loans Sub Part G Special Rules Applicable To Credit Card Accounts And Open end Credit Offered To College Students Appendices 5 Sub Part C Closed End Credit Certain Mortgage &Variable Rate Transactions (a) Mortgage transactions subject to RESPA (current) (a) Reverse mortgage transactions subject to RESPA (eff. 8/1/15) (b) Certain variable rate transactions (c) Electronic disclosures (d) Substitutes for variable rate disclosures (e) Mortgage loans secured by real property Early disclosures (eff. 8/1/15) (e)(1) Provision of disclosures (e)(2) Predisclosure activity (e)(3) Good faith determination for estimates of closing costs (e)(4) Provision and receipt of revised disclosures (f) Mortgage loans secured by real property final disclosures (eff. 8/1/15) (f)(1) Provision of disclosures (f)(2) Subsequent changes (f)(3) Charges disclosed (f)(4) Transactions involving a seller (f)(5) Prohibition on fee for disclosures (g) Special information booklet at time of application(eff. 8/1/15) 6 Financial Solutions * April

4 Reg Z Subpart E Special Rules For Certain Home Mortgage Transactions 7 Integrated Disclosures Effective Date The new Integrated Disclosures must be provided for an application for a closedend consumer credit transaction secured by real property on or after 8/1/2015. Creditors required to use the GFE, HUD 1 and TILA forms for applications received prior to 8/1/2015. As applications received prior to August 1 st are consummated, withdrawn, or cancelled, the use of the GFE, HUD 1, and TILA will no longer be used for most mortgage loans. Example: For an application received 7/31/2015, the Loan Estimate, Closing Disclosures and the Special Information Booklet required under the new TILA RESPA integrated disclosure rule do not apply. Instead, the creditor and the settlement agent must provide the disclosure requirement under the existing TILA and RESPA rules, as applicable. Do not implement the forms use prior to the effective date! 8 Financial Solutions * April

5 TRID Effective Date: August 1, 2015 Generally applies to transactions for which the creditor or mortgage broker receives an application on or after August 1, 2015 What about loans in process? If receive application before effective date use: Current early forms (early TIL and GFE) Current closing forms (final TIL and HUD 1) Current timeframes and tolerances Must run 2 parallel systems for a period of time for in process loans (including construction loans) and then ongoing for mortgages not covered by TRID HELOCs, investment properties purchased by individuals, reverse mortgages 9 TILA RESPA Rule Significant Changes Initial Truth in Lending disclosure and RESPA Good Faith Estimate (GFE) combined into new Loan Estimate form ( and Appendix H 24) Given within 3 business days after 6 element application received Final TILA disclosure and RESPA HUD 1 combined into new Closing Disclosure ( and Appendix H 25) Received by consumer at least 3 business days prior to consummation New timing requirements for disclosures ( (e) and (f)) New tolerance levels for disclosed estimates ( (e) and (f)) New pre disclosure requirements ( (e)(2)) The rule leaves sufficient flexibility for creditors, brokers and settlement agents to arrive at the most efficient means of preparation and delivery of the Loan Estimate and the Closing Disclosure. Creditors retain all responsibility! 10 Financial Solutions * April

6 Scope of TILA/RESPA Integrated Disclosure Rule Closed end consumer loans secured by a real property dwelling primarily for personal or household use Loans not previously covered by RESPA are now covered: Trusts as borrowers (e.g., tax or estate purposes) Construction only Vacant land Residential land parcels of 25 or more acres Exemptions: Investment property loans to individuals Reverse mortgages Home equity lines of credit (HELOCs) Mortgages secured by dwellings that are personal property (e.g. mobile homes without real estate) Small lenders (5 or fewer covered loans per year) Partial exemption for certain no interest housing assistance program transactions 11 Does TILA Apply? Consumer purpose and secured by real estate (1) or a private education loan (PEL). Reg Z does apply. Yes Is borrower a natural person? Business or consumer purpose loan? Consumer purpose, and not secured by real estate and not a PEL. Consumer loan for $25,000 or less. No Business purpose loan. Consumer loan in excess of $54,600*. Reg Z does not apply. *Indexed annually Note (1) Refer to separate chart for Rental Property. 12 Financial Solutions * April

7 Rental Property: Does TILA Apply? Is the rental property owner occupied for > 14 days per year? No Yes Is the loan purpose to purchase or improve rental property? Reg Z does not apply. Purchase 1 or 2 unit property. Consumer purpose. Purchase 3+ units property. Business purpose. Improve 1 to 4 unit property. Consumer purpose. Improve 5+ units property. Business purpose. Reg Z does apply. Reg Z does not apply. Reg Z does apply. Reg Z does not apply. 13 NOT Covered by Integrated Disclosure Rule Loan Type Home equity lines of credit (HELOCs) and reverse mortgages Chattel dwelling loans (secured by a mobile home or by a dwelling not attached to land) Certain loan types subject to TILA but not RESPA (e.g., construction only, lot loans, > 25 acre parcels) Entity Persons making 5 or fewer mortgages per year (therefore NOT a Creditor) No Interest Loans Secured by subordinate liens made for the purpose of down payment or similar home buyer assistance, property rehabilitation, energy efficiency, or foreclosure avoidance or prevention 14 Financial Solutions * April

8 Partial Exemption Certain transactions associated with HUD housing assistance loan programs for low and moderate income consumers are partially exempt from new rule. They re given disclosures geared specifically to these exempt transactions. They re exempt from the requirements to provide: RESPA Special Information Booklet (settlement costs), RESPA Good Faith Estimate (GFE), RESPA settlement statement (HUD 1, HUD 1A), and Mortgage servicing transfer disclosure. The exemptions are still subject to all other requirements of Reg X, such as provisions implementing the servicing requirements in RESPA 6 (other than the application servicing disclosure statement), prohibitions on referral fees and kickbacks in RESPA 8, and limits on amounts to be deposited in escrow accounts in RESPA Construction Loans The final TRID rule includes a concept introduced under RESPA for delayed closings for construction loans. For transactions involving new construction, if the creditor expects that closing will occur more than 60 days after the Loan Estimate is provided, the creditor may issue revised disclosures any time prior to 60 days before consummation without regard to the limitations on revising the estimated costs, as long as the original Loan Estimate clearly states that revised disclosures may be issued at any time prior to 60 days before consummation. 16 Financial Solutions * April

9 Commentary (a) 10 Exempt Transactions Trusts. Credit extended for consumer purposes to certain trusts is considered to be credit extended to a natural person rather than credit extended to an organization. Specifically: i. Trusts for tax or estate planning purposes. In some instances, a creditor may extend credit for consumer purposes to a trust that a consumer has created for tax or estate planning purposes (or both). Consumers sometimes place their assets in trust, with themselves or themselves and their families or other prospective heirs as beneficiaries, to obtain certain tax benefits and to facilitate the future administration of their estates. During their lifetimes, however, such consumers may continue to use the assets and/or income of such trusts as their property. A creditor extending credit to finance the acquisition of, for example, a consumer's dwelling that is held in such a trust, or to refinance existing debt secured by such a dwelling, may prepare the note, security instrument, and similar loan documents for execution by a trustee, rather than the beneficiaries of the trust. Regardless of the capacity or capacities in which the loan documents are executed, assuming the transaction is primarily for personal, family, or household purposes, the transaction is subject to the regulation because in substance (if not form) consumer credit is being extended. 17 The Loan Estimate Provides summary of key loan terms and estimates of loan and closing costs to promote comparison shopping Timing must be provided within 3 business days of receiving an application Application requires the following 6 data points Borrower s name Income Social Security number (to obtain a credit report) Property address Estimated value of the property Requested loan amount Catch All provision eliminated Prequalification services still permitted, but do NOT use the Loan Estimate form! Broker may provide the Loan Estimate Bank retains the responsibility for the rule s disclosure requirements, regardless of whether app is received by Lender or the mortgage broker 9 Financial Solutions * April

10 Closing Disclosure Provides detailed accounting of the complete transaction Timing Closing Disclosure must be delivered to applicants/borrowers 3 business days prior to the loan closing. Must be delivered to Seller the business day of closing. A revised disclosure is required (as well as a new 3 day waiting period) If the creditor Makes a change to the APR 1/8 of 1% for regular loans ¼ of 1% for loans with irregular payments or periods Changes the loan product Adds a prepayment penalty Fee Limitation (i.e., tolerances, variances) provisions adopts many of the limits on changes that are in current RESPA rule and may also require redisclosure Closing Disclosure compared to the last accurate Loan Estimate (one that was accurately prepared based on an acceptable change in circumstance) 19 Revised Closing Disclosure If Closing Disclosure becomes inaccurate before closing, provide corrected disclosure at or before consummation Still must be able to inspect one business day prior to consummation This is a change from proposed rule Changes in dollar amounts $100 or greater would have required a new waiting period Important! Less significant changes can be disclosed at loan closing without a new three day waiting period 20 Financial Solutions * April

11 Post Closing Changes Require a Revised CD Changes post closing require revised Closing Disclosure: Event related to settlement 30 days after closing and to an amount paid by consumer and/or seller = re disclose 30 days after learning event occurred Non numeric clerical errors can be corrected and redisclosed 60 days after loan closing If a variation (tolerance) violation occurs, you must refund and redisclose within 60 calendar days after consummation 21 Revising or Correcting the CD Categories of changes require a corrected CD containing all changed terms: Changes after consummation Event in connection with settlement causes CD to become inaccurate and results in change to amount paid by the consumer or seller occurs within 30 day period after consummation To document refunds for tolerance violations To correct non numerical clerical errors 60 days If it does not affect a numerical disclosure and does not affect the timing, delivery, or other requirements Deliver or mail corrected disclosures no later than 30 days after receiving information sufficient to establish that the event occurred Note that different states (such as NY) define consummation differently Title company issues here Financial Solutions * April

12 Business Days Two definitions for business days General (Creditor s Issuance) Business Days Loan Estimate provided to consumer within 3 business days of application Defined as day on which the creditor s offices are open to the public to carry on substantially all functions Specific (Consumer s Receipt) Business Days Waiting period for Loan Estimate and consumer receipt of Closing Disclosure Defined as all calendar days except Sunday and certain federal holidays 23 Business Days per Disclosure General Business Day (e)(1)(iii)(A) Loan Estimate early disclosures issued after receipt of application Specific Business Day (a) Reverse mortgage early disclosures (e)(1)(iii)(B) Consumer closed end mortgage early disclosures (e)(1)(iv) Consumer s receipt of early disclosures (e)(2)(i)(A) Predisclosure fee restriction (e)(4)(ii) Receipt of Revised Loan Estimate (e)(5) Post Consummation Escrow Cancellation Disclosure (f)(1)(ii) Consumer closed end mortgage final disclosures (f)(1)(iii) Consumer s receipt of final disclosures 24 Financial Solutions * April

13 General Business Day Example The disclosures required by (e)(1)(i) must be delivered not later than 3 business days after the creditor receives the consumer's application. For example, if an application is received on Monday, the creditor satisfies this requirement by either hand delivering the disclosures on or before Thursday, or placing them in the mail on or before Thursday, assuming each weekday is a business day. For purposes of (e)(1)(iii)(A), the term business day means a day on which the creditor's offices are open to the public for carrying out substantially all of its business functions. 25 Specific Business Day Period Example The MDIA 7 business day waiting period begins when the creditor delivers the disclosures or places them in the mail, not when the consumer receives or is considered to have received the disclosures. For example, if a creditor delivers the early disclosures to the consumer in person or places them in the mail on Monday, June 1, consummation may occur on or after Tuesday, June 9, the seventh business day following delivery or mailing of the early disclosures, because, for the purposes of (e)(1)(iii)(B), Saturday is a business day, pursuant to (a)(6). 26 Financial Solutions * April

14 September 2014 Guide The Loan Estimate and Closing Disclosure must be used for most closed end consumer mortgages other than a reverse mortgage. Even construction only loans! Designed to provide consumers a better understanding of: Key Features Costs Risks 27 HUD s Housing Assistance Loans 6 Prerequisites The loan is secured by a subordinate lien; The loan s purpose is to finance downpayment, closing costs, or similar homebuyer assistance, such as principal or interest subsidies, property rehabilitation assistance, energy efficiency assistance, or foreclosure avoidance or prevention; Interest is not charged on the loan; Repayment of the loan is forgiven or deferred subject to specified conditions; Total settlement costs do not exceed one percent of the loan amount and are limited to fees for recordation, application, and housing counseling; and Loan recipient is provided at or before settlement with a written disclosure of the loan terms, repayment conditions, and costs of the loan. 28 Financial Solutions * April

15 Two Doc Prep Workflows Required Old RESPA Apps Received pre 8/1/15 & Personal Property Follow existing RESPA coverage Use existing GFE, HUD 1 and other disclosures New RESPA Apps Received on or post 8/1/15 Follow newly revised TRID coverage Use new Loan Estimate and Closing Disclosure BEWARE!! Carefully proceed with compliance implementation due to different coverage rules! 29 Restrictions Effective on August 1, 2015 Regardless of an application s date before, on or after August 1 st, the following activity prohibitions are effective on August 1, 2015: 1. No imposing of fees on a consumer before the Loan Estimate has been received and the consumer has expressed an intent to proceed, with exception of credit report fee. 2. No providing written estimates of terms or costs specific to consumers before the Loan Estimate is received without a written statement information the consumer that the terms and costs may change. 3. No requiring the submission of verification documents related to the consumer s application before providing the Loan Estimate. 4. Provisions addressing the preemption of inconsistent state disclosure laws ( (a)(1)), as well as the commentary regarding the substantial similarity standard used to grant state exemptions ( ). 30 Financial Solutions * April

16 Restriction of Fees Before Intent to Proceed Prohibited from imposing fees on a consumer before the Loan Estimate has been received and the consumer has expressed an intent to proceed, with exception of credit report fee Example: A third party submits a consumer's application to a creditor following a different creditor's denial of the consumer's application (or following the consumer's withdrawal of that application)a If a credit report fee has already been assessed, the new creditor or third party may not impose any additional fee until the consumer receives the Loan Estimate from the new creditor and indicates an intent to proceed with the transaction described by those disclosures. 31 Fees Imposed by a Person (e) Fee considered imposed if the person requires a consumer to provide a method for payment, even if the payment is not made at that time. XIf a person requires a $500 check or a credit card number to pay for a processing fee before the consumer receives the Loan Estimate, the person does not comply with the fee restriction, even if stated the check will not be cashed or the credit card will not be charged until after the disclosures are received and person waited until after subsequent intent to proceed to cash the check or charge the card. In contrast, a creditor or other person complies if they require a credit card number before receipt of the disclosures and later indicates an intent to proceed, provided that the consumer ONLY authorizes the credit report and is ONLY charged a reasonable and bona fide fee for obtaining the consumer's credit report. Creditor still complies if they maintain the credit card number on file and charges the consumer a $500 processing fee after the disclosures are received and the consumer later indicates an intent to proceed with the transaction described by those disclosures, provided that the creditor or other person requested and received a separate authorization for the processing fee after receipt of the disclosures followed by an intent to proceed. 32 Financial Solutions * April

17 Requiring Verification Docs Too Early i. A creditor may ask for the sale price and address of the property, but the creditor may not require the consumer to provide a purchase and sale agreement to support the information the consumer provides orally before the creditor provides the early disclosures. ii. A mortgage broker may ask for the names, account numbers, and balances of the consumer's checking and savings accounts, but the mortgage broker may not require the consumer to provide bank statements, or similar documentation, to support the information the consumer provides orally before the mortgage broker provides the early disclosures. 33 New Forms In General Require disclosure of categories of information that will vary due to: Loan type, Payment type, Payment schedule, Fees charged, Terms of transaction, and State law provisions Use exact format specified by CFPB in model forms. May include logo or slogan at top of LE Page 1 in the allotted space. Signature section on page 3 is optional. 34 Financial Solutions * April

18 Loan Estimate: Detailed Fee Information The Integrated Disclosures reflect the CFPB s change in philosophy HUD s 2010 GFE and HUD 1 included many bundled services and charges using the theory that consumers care very little about detailed figures. CFPB purposely unbundled the services and separately itemizes each charge to provide the consumer information about exactly who and what they are paying Fees and charges listed alphabetically within appropriate categories All title insurance charges (including closing fee) must be designated by Title [description of fee] 35 Key TRID Definitions Application Per Reg Z Subpart C (Closed end Credit) (a)(3), submission of a consumer s financial information for purposes of obtaining an extension of credit. Six elements including name, income, SSN, property address, loan amount and estimated property value. Business Day For purposes of Loan Estimate issuance, a day on which the creditor s offices are open to the public for carrying out substantially all of its business functions. [Creditor s or Broker s Business Days] Business Day For rescission and Closing Disclosure receipt by consumer, all calendar days except Sundays and legal public holidays (i.e., mail schedule) [Delivery Business Days] Issue Deliver or place in the mail the applicable disclosure Includes electronic delivery in compliance with E Sign 36 Financial Solutions * April

19 Special Information Booklet Creditor must deliver or place in the mail the Special Information Booklet not later than 3 creditor s business days (CBDays) after the mortgage application is received. If the creditor denies the application before the end of the 3 CBDay period, the creditor is not required to send the booklet. 37 Special Information Booklet Issues Required for purchase money consumer credit transactions secured by real property NOT limited to closed end credit if purchase money transaction Can substitute When Your Home is On the Line: What You Should Know About Home Equity Lines of Credit Remember to provide on newly covered RESPA transactions post 8/1/2015 Exclusions Refinances Closed end loans secured by a subordinate lien or non purchase money transactions Reverse mortgages Same timing as the Loan Estimate (three business days of application) Mortgage broker can provide if they are delivering disclosures Denial before the end of three days, not required 38 Financial Solutions * April

20 LOAN ESTIMATE (LE) 39 Integrated Disclosures: Loan Estimate Good Faith Estimate Early TIL ECOA Appraisal Notice RESPA Mortgage Servicing Transfer Previously 5 to 6 pages long Now 3 pages long 40 Financial Solutions * April

21 What is Settlement? Settlement: The process of executing legally binding documents. All of the work completed to get to settlement. Settlement services include (but are not limited to): Taking an application Bringing borrower and lender together to finalize terms Obtaining verifications Obtaining, reviewing or conducting an appraisal Conducting a title search Preparing documents Conducting settlement/closing Prequalifications and Preapprovals You can still provide these services Do NOT use the Loan Estimate form What can you disclose prior to application? Estimates or worksheets for preliminary applicant communications Expressly permitted, but format MUST NOT be similar to LE Disclaimer on preliminary forms required in at least 12 point font: Your actual rate, payment and costs could be higher. Get an official Loan Estimate before choosing a loan. 42 Financial Solutions * April

22 H 26 Mortgage Loan Transaction Pre Loan Estimate Statement Model Form Description: This is a model of the statement required by (e)(2)(ii) to be stated at the top of the front of the first page of a written estimate of terms or costs specific to a consumer that is provided to a consumer before the consumer receives the disclosures required under (e)(1)(i). 43 Loan Estimate = GFE + etila The Loan Estimate form also includes several new disclosures required by the Dodd Frank Act, such as: Total interest percentage (TIP), Aggregate amount of loan charges and closing costs the consumer must pay at closing (Cash at Closing), Homeowner s insurance disclosure, and For refinance transactions the anti deficiency protection notice. 44 Financial Solutions * April

23 DFA Title XIV Disclosures 1. Warning regarding negative amortization features 2. Disclosure of State law anti deficiency protections 3. Disclosure regarding creditor s partial payment policy 4. Disclosure regarding mandatory escrow or impound accounts. 5. Disclosure prior to consummation regarding waiver of escrow 6. Disclosure regarding cancellation of escrow after consummation 7. Disclosure of monthly payment, including escrow, at initial and fully indexed rate for variable rate residential mortgage loan transactions. 8. Repayment analysis disclosure to include amount of escrow payments for taxes and insurance 9. Disclosure of aggregate amount of settlement charges (paid at closing and/or financed) 10. Disclosure of aggregate amount of mortgage originator fees paid by creditor and by borrower 11. Disclosure of total interest as a percentage of principal 12. Optional disclosure of appraisal management company fees 13. Disclosure regarding notice of reset of hybrid ARM 14. Loan originator identifier 15. Consumer notification regarding HPML appraisals 16. Consumer notification regarding the right to receive an appraisal copy. 45 Loan Estimate Page 1 General Information General Application Information Loan Terms & Features Projected Payments Costs at Closing Page 2 Closing Cost Details Loan Costs Other Costs Calculating Cash to Close Adjustable Payment (AP) Table Adjustable Interest Rate (AIR) Table Page 3 Additional Information About This Loan Contact Information Comparisons Table Other Considerations Table Appraisal Assumption Homeowner s Insurance Late Payment Refinance Servicing Confirm Receipt Signature Statement (optional) Delivered by the lender or the mortgage broker. Lender retains responsibility for accuracy. 46 Financial Solutions * April

24 Content of Disclosures for Certain Mortgage Transactions (Loan Estimate) The disclosures required by are required to reflect the terms of the legal obligation between the parties, and if any information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure in good faith, based on the best information reasonably available to the creditor. Where a disclosure is not applicable to a particular transaction, unless otherwise provided by , form H 24 of appendix H to this part may not be modified to delete the disclosure from form H 24, or to state not applicable or N/A in place of such disclosure. The portion of the form pertaining to the inapplicable disclosure may be left blank, unless otherwise provided by If no points paid, leave that section blank. The adjustable payment and adjustable interest rate tables required by those paragraphs may be included only if those disclosures are applicable to the transaction and otherwise must be excluded. 47 Alternative Loan Estimate: No Seller Alternative Loan Estimate may be used if the transaction does not have a seller For example, refinance transactions Can also be used for simultaneous closed end seconds by the same lender (but not required to do so) Checkboxes used to indicate if Cash to Close is being paid by or to the consumer on Page 1 Alternative Calculating Cash to Close table used with fewer entries on Page 2 48 Financial Solutions * April

25 Issuance and Delivery (2.1.1) Loan Estimate (LE) must be provided to consumer by hand delivery or mail, no later than 3 BDays of receipt of application Application is considered received when consumer provides: Address of property Loan amount Income Estimated property value Name Social Security Number (to obtain credit report) Removed the 7 th Catch All 49 Loan Estimate Key Timing Provisions Varies by Creditor 3 General Business Days After Application MDIA: 7 Specific Business Days Before Closing Same for Everyone (rescission BDay) 50 Financial Solutions * April

26 Ability to Repay (ATR) CFPB clarifies that this timing provision does not prevent a creditor from fulfilling its obligation to evaluate a borrower s ability to repay. Creditors will be able to collect any information needed to evaluate a borrower s ability to repay as long as they sequence the collection of that information to ensure the creditor provides a Loan Estimate within 3 business days of receiving the required 6 application pieces of information. May ask for information in excess of the required 6 pieces, but CANNOT REQUIRE it! Creditors cannot condition the issuance of the initial disclosure on verifying the information. 51 Application Submission of application In writing Electronic format Written record of oral application Issue Loan Estimate within 3 business days of receiving all 6 application items If applicant withdraws or creditor denies application within the 3 BDay period, no Loan Estimate required If creditor later consummates the transaction on the terms originally applied for, out of compliance with the Loan Estimate delivery requirements If consumer amends application, deliver Loan Estimate within 3 BDays of receiving amended or resubmitted application 52 Financial Solutions * April

27 Good Faith Disclosures The disclosures required by are required to reflect the terms of the legal obligation between the parties, and if any information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure in good faith, based on the best information reasonably available to the creditor ) Creditor is still accountable for reasonable estimates for items in the No Tolerance Bucket to produce good faith estimates You cannot intentionally lowball prepaid interest, escrow amounts, etc. Could potentially pose UDAAP risk! 53 Estimated Information Creditors must act in good faith, exercising due diligence to obtain information required to complete the Loan Estimate. If information is unknown (i.e., not reasonably available to the creditor at the time the LE is prepared), Creditor may use estimates. The reasonably available standard requires that the creditor, acting in good faith, exercise due diligence in obtaining information. Creditors may normally rely upon other parties representations. Designate estimated figures as estimates on the LE. (Comment 17(c)(2)(i) 2) New disclosures may be required under (c) or Financial Solutions * April

28 Labeling Estimates Commentary 17(c)(2)(i) 2 Estimates must be designated as such in the segregated disclosures. Even though other disclosures are based on the same assumption on which a specific estimated disclosure was based, the creditor has some flexibility in labeling the estimates. Generally, only the particular disclosure for which the exact information is unknown is labeled as an estimate. However, when several disclosures are affected because of the unknown information, the creditor has the option of labeling either every affected disclosure or only the disclosure primarily affected. For example, when the finance charge is unknown because the date of consummation is unknown, the creditor must label the finance charge as an estimate and may also label as estimates the total of payments and the payment schedule. When many disclosures are estimates, the creditor may use a general statement, such as all numerical disclosures except the late payment disclosure are estimates, as a method to label those disclosures as estimates. 55 Loan Estimate Disclosure Delivery Deliver or place in the mail no later than on the third business day after receiving completed application or after subsequent revised information Creditor responsible for ensuring LE s delivery complies with requirements for: Content Delivery Timing If LE not delivered in person, considered received by consumer 3 business days after it is delivered or placed in the mail 56 Financial Solutions * April

29 Revised Loan Estimate (2.1.2) If AFTER Loan Estimate has been provided, an allowed change in circumstance occurs: Creditor can revise the Loan Estimate If revising, must revise within 3 business days of learning of change, including when a rate lock is completed (mandatory revised GFE) A revised Loan Estimate generally can be provided no later than 7 business days BEFORE consummation (see section below) 57 When Can a Loan Estimate Change? LE can change prior to the issuance of the Closing Disclosure if: Consumer does not indicate Intent to Proceed (ITP) within 10 days of LE issuance and the preliminary period expires Consumer requests a change in loan terms Rate was floating at time of LE and subsequent rate lock impacts points or lender credit Allowable changed circumstances since LE was provided that impact fees and charges Revised Loan Estimate should be issued within 3 business days 58 Financial Solutions * April

30 Reissuance of Loan Estimate Another critical component in the timing of reissuing the LE occurs when there is a change in circumstance just before closing. The Rule does not accommodate a process to always and automatically re disclose. The pre closing compliance review process will need to be early The borrower must acknowledge receipt of the correct Loan Estimate prior to issuing the Closing Disclosure. The need to have the borrower acknowledge receipt of the LE could cost 24 hours in some cases. On the surface, the initial disclosure of the Loan Estimate (LE) appears to be one of the most straightforward components of the regulation. However, the nuances in the phrasing of requirements force important changes that start at the point of first communication with the borrower. 59 Changed Circumstances New RESPA TILA Rule Extraordinary event beyond the control of any interested party or other unexpected event Information specific to the consumer applicant that was inaccurate or has changed New information Change requested by consumer Interest rate dependent charges at rate lock Expiration of a previously issued LE Old RESPA Rules Information particular to the borrower relied upon to create the GFE and changes or is found to be inaccurate later New information that was not relied upon in compiling the GFE Acts of God, war, disaster, or other emergency Other allowable changed circumstances 60 Financial Solutions * April

31 Old Tolerances for all Other Non Creditor Settlement Services 61 Circumstances Justifying Charge > Estimate Expressly permitted variations Unlimited variance Limited to 10% more than estimate Excess amount is below the allowable tolerance threshold Changed circumstances permitting a revised LE or a Closing Disclosure permitting the charge Creditors generally prohibited from revising estimates due to Technical errors Miscalculations Underestimations of charges 62 Financial Solutions * April

32 Variations to Loan Estimate An estimated closing cost disclosed is in good faith if the charge paid by or imposed on the consumer does not exceed the amount originally disclosed under paragraph (e)(1)(i) of this section, except as otherwise provided in paragraphs (e)(3)(ii) through (iv) (e)(3)(ii) 10% aggregate increase (e)(3)(iii) unlimited increase (e)(3)(iv) due to changed circumstances Estimates must be made in good faith relying on the best information reasonably available at the time of Loan Estimate issuance If Closing Disclosure is higher than limits established, it is NOT in good faith Does not matter whether an error, an underestimation or a miscalculation Charging less is always an option 63 Tolerance Rules Variations Between LE and CD Key calculation is to compare the final Loan Estimate based on allowed circumstances to the final accurate Closing Disclosure The final rule applies a zero tolerance or no change requirement to lendercontrolled charges and fees Lender and broker charges Fees charged by an affiliate of the creditor or a mortgage broker Fees charged by unaffiliated service providers selected by the creditor if the borrower is not permitted to shop Third party charges would be subject to a 10% limit overall on increases from the Loan Estimate IF the borrower is permitted to shop If the borrower is permitted to shop, the lender provide a list of service providers to assist in the selection 25 Financial Solutions * April

33 Old Reg X Tolerances & New Reg Z Variations Current Reg X creates 3 Tolerance Buckets (e)(1) Zero Tolerance Origination charges Transfer taxes (e)(2) 10% Tolerance Required charges paid to SSPs creditor selects Title services and title insurance from SSPs from creditor list Required charges borrower shops for using SSPs from creditor list (e)(3) Unlimited Tolerance Required services from SSPs not on creditor list Prepaid interest Property insurance premiums Escrow amounts New Reg Z creates 3 Variation Buckets (e)(3)(i) Zero Variations Required charges paid to creditor, broker or affiliate of either Required charges paid to creditor selected unaffiliated SSP Transfer taxes (e)(3)(ii) 10% Variations Required charges paid to unaffiliated SSP from creditor s list (e)(3)(iii) Unlimited Variations Unaffiliated SSP selected entirely by consumer and service not creditor required Prepaid interest Property insurance premiums Escrow amounts SSP Settlement Service Provider 65 Charges Subject to Zero Variations Creditors may not charge consumers more than disclosed on the LE under any circumstances other than changed circumstances for these items: Fees paid to (and retained by) the creditor, mortgage broker, or an affiliate of either; Fees paid to an unaffiliated third party if the creditor did not permit the consumer to shop for a third party service provider for a settlement service, or Transfer taxes. 66 Financial Solutions * April

34 Tolerance Rules Variations Between LE and CD Exceptions to the 10% limit on increases Borrower requested change Borrower request for a service provider not identified by the creditor Information provided as of the application was or becomes inaccurate The Loan Estimate expires or other valid changes in circumstance occur When an exception to the 10% limitation on increases applies, the creditor generally must provide an updated Loan Estimate within 3 business days 26 Charges Subject to a 10% Aggregate Variation An estimate for a third party service of a recording fee is in good faith if all three conditions are met: 1. The sum of the actual charges for third party services and recording fees does not exceed the category s estimated sum on the LE by more than 10%; 2. The charge for third party service is not paid to the creditor or an affiliate of the creditor; and 3. The creditor permits the consumer to shop for the third party service. 68 Financial Solutions * April

35 10% Aggregate Limit on Increases If an estimated service is not performed, the estimate for that charge should be removed from the category s total of estimated charges before computing the aggregate variation. May charge for a service that was not included on the LE so long as the sum of the category s charges is below the estimated category total. If the creditor does not include an estimated charge for a notary fee but a $10 notary fee is charged to the consumer, and the notary fee is subject to (e)(3)(ii), then the creditor complies if the sum of all amounts charged to the consumer does not exceed 110% of estimated costs, even though an individual notary fee was not included in the estimated disclosures provided. 69 Revised Loan Estimate Increases > 10% The creditor should not reissue the Loan Estimate unless the cumulative change exceeds 10%. For example, if the survey fee increases by only 5%, monitor for the next change in circumstance that applies to services where the borrower can shop. It could take two or more changes before a cumulative 10% change occurs where redisclosure is required. If the creditor discloses the 5% change, that version of the Loan Estimate cannot be used to compare to the Closing Disclosure for accuracy. This is a significant change in process because creditors have been reissuing a good faith estimate (GFE) with every change and using the last GFE as the one for comparison to the HUD 1 settlement statement. 70 Financial Solutions * April

36 Charges Without Regard to a Tolerance Limitation Creditors may charge >LE disclosed amount without tolerance limit: 1. Prepaid interest, property insurance premiums 2. Escrowed amounts 3. Services required by the creditor for which consumer may shop and the third party service provider is NOT on the creditor s written list of service providers or affiliated with creditor 4. Services not required by the creditor paid to third parties (even creditor s affiliates) No regard to tolerance ONLY if credit did not purposefully under disclose the estimated costs 71 Cure for Excess Over Allowable Tolerances If amounts paid by consumer at closing exceed the LE disclosure tolerances, the creditor must refund the excess and provide a corrected disclosure reflecting the refund no later than 60 calendar days after consummation. For charges subject to zero tolerance, any amount charged beyond the LE disclosure amount must be refunded to the consumer. For charges subject to a 10% cumulative tolerance, the difference in the total category s sum compared to the disclosed estimated category s sum must be refunded to the consumer. 72 Financial Solutions * April

37 Revised Loan Estimate: Six Exceptions 1. Changed circumstances affecting settlement charges 2. Changed circumstances affecting eligibility (e.g., borrower s creditworthiness, value of the collateral and the resulting LTV) 3. Revisions requested by the consumer 4. Interest rate dependent charges (before the interest rate has been locked) 5. Consumer s intent to proceed after expiration (10 business days) of the LE disclosures 6. Delayed settlement on a construction loan (closing scheduled to occur >60 days after delivery of the estimated disclosures if consumer was alerted to this possibility when LE was provided) 73 Changed Circumstances Affecting Settlement Charges 1. An extraordinary event beyond the control of any interested party or other unexpected event specific to the member or transaction; 2. Information specific to the consumer or transaction that the creditor relied upon when providing the disclosures and that was inaccurate or subsequently changes; or 3. New information specific to the consumer or transaction that was not relied on when providing the disclosures. The new rule eliminates the existing 4th section of the definition which included other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems. CFPB believes this is already covered by other elements of the definition and suggests that the overlap contributed to uncertainty surrounding what scenarios constitute a changed circumstance. 74 Financial Solutions * April

38 Rounding (2.1.4) Dollar amounts must be rounded to nearest whole dollar where noted in the regulation ( (o)(4)). Follow the specific instructions per section! If an amount is required to be rounded but is composed of other amounts that are not required or permitted to be rounded, use the unrounded amounts in calculating the total and then round the final sum. Conversely, if amount is required to be rounded & is composed of rounded amounts, use rounded amounts in calculating the total (Comment 37(o)(4) 2). Percentage amounts may not be rounded and should be shown up to 2 or 3 decimals, as needed, except where noted in regulation ( (o)(4)(ii)). If percentage amount is a whole number, show the whole number with no decimals ( (o)(4)(ii)); Comment 37(o)(4)(ii) 1) 75 LE General Form Requirements (o) Creditor must make the disclosures clearly and conspicuously (legible and easily understandable) in writing, in a form that the consumer may keep. Disclosures must be grouped together as specified and segregated from everything else. Disclosures may only contain information required by Sections 37(a) (n), and must be made in the order and format specified by regulation, Model Form H 24 No pages can be added in between pages, only at end if allowed. The disclosure may be translated into other languages. Creditors can modify Model Form H 24, even to the extent that translation prevents the headings, labels, designations and required disclosure items under this section from fitting in the space provided. Creditor may insert at the bottom of each page under the disclosures required, any administrative information, text or codes that assist in identification of the form, so long as the space provided and other sections are not altered. 76 Financial Solutions * April

39 Loan Estimate (2.2), Page 1 Page 1 of the Loan Estimate includes: General information, A Loan Terms table with descriptions of applicable information about the loan, A Projected Payments table, A Costs at Closing table, and A CFPB link for consumers to obtain more information about loans secured by real property. Page 1 includes a statement of Save this Loan Estimate to compare with your Closing Disclosure. Page 1 also includes the creditor s name and address. If there are multiple creditors, use only the name of the creditor completing the Loan Estimate. (Comment 37(a)(3) 1) If a mortgage broker is completing the Loan Estimate, use the name and address of the creditor if known. If not yet known, leave this space blank. (Comment 37(a)(3) 2) 77 LE Page 1, Fixed Rate Key General Information Loan Terms Projected Payments Costs at Closing Estimated Closing Costs Summary Estimated Cash to Close Summary 78 Financial Solutions * April

40 Creditor Information (a)(3) Creditor name and address of creditor making the disclosures Creditor providing the disclosures may use a logo and slogan for the information required by (a)(3) in any font size or type, provided that such logo or slogan does not cause information required in this section to exceed space provided. If creditor does not use a log, info must be disclosed in manner similar to model form Multiple Creditors: Reference (d) and Comment 17(d) 1 Mortgage Broker: In transactions involving a mortgage broker, the name and address of the creditor must be disclosed if known at time of LE issuance. If the name of the creditor is not known, broker may leave this section blank (o) allows creditor to physically attach a business card over the information required under (a)(3) [creditor name and address] 79 General Loan Information (2.2.1) Date Issued Applicants Property Sales Price Loan Term Purpose Product Loan Type Loan ID # Rate Lock Figure 2: General Information of the Loan Estimate 80 Financial Solutions * April

41 Loan Estimate: General Loan Information Date Issued: Date placed in the mail or delivered to the consumer Applicants: Name and mailing address of the consumer(s) applying for the loan. Each applicant should receive a copy Use name and mailing address for each if multiple applicants. An additional page may be added if the space provided is insufficient. 81 Property Use the address, including zip code, that will secure transaction If address is unavailable, use description of location (lot number or property description) Personal property (i.e., furniture, appliances, etc.) may secure the credit transaction, but are not required to be included as Property An additional page may NOT be appended to Loan Estimate to disclose a description of personal property 82 Financial Solutions * April

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