CFPB Integrated Mortgage Disclosures Today s Goal To help you not only understand the rule changes, but make sure you have the tools, resources and support to take action to implement in your credit union by August 1, 2015. 2 1
Agenda Truth in Lending/RESPA Rule Changes Simplified/Combined Disclosures Tolerances, permitted revisions, waiting periods Timing to provide Additional Requirements/Prohibitions Important steps towards compliance A look back at 2014 Rules Best practices for 2015 and beyond 3 The New Forms Loan Estimate Key features Costs Risks of the mortgage they are applying for Closing Disclosure Outlines all costs associated with the transaction Both contain clear language and easier to locate key information like: Interest rate Monthly payments Costs to close the loan 4 2
Applicable Loans New rule applies to most closed-end loans including: Construction-only loans Loans secured by vacant land or by 25 or more acres Credit extended to certain trusts for tax or estate planning purposes Does not apply to: HELOCs Reverse Mortgages Mortgages secured by a mobile home Dwelling that is not attached to real property (land) Lenders making less than five mortgages per year 5 Loan Estimate Replaces Good Faith Estimate Early Truth in Lending Disclosure Timing Within three days of receipt of application Not required to provide for time shares Contents Good faith estimate of costs and terms In writing in prescribed format Provided by Lender OR Mortgage broker 6 3
Definition: Application 1. Member s name 2. Member s income 3. SSN to obtain credit report 4. Property address 5. Estimate of the value of the property 6. Mortgage loan amount sought The collection of this information does not prevent you from collecting additional information deemed necessary in connection with the loan request. This is to determine when the Loan Estimate must be delivered. 7 Withdrawals, Denials, Changes What if member withdraws the application within 3 business days? What if they are denied within the 3 business days? What if the member changes the application? Loan Estimate is not required Loan Estimate is not required Loan Estimate is required 8 4
Estimates Must act in good faith and exercise due diligence in obtaining information. If information is unknown, may use estimates. Must designate as an estimate on the Loan Estimate form. In some cases, may require new disclosures: If it affects the APR by more than 1/8% for fixed and ¼% for a variable rate loan. 9 Good Faith Requirement Best information reasonably available to creditor To calculate: Actual charges (Closing Disclosure) Estimated charged (Loan Estimate) = Higher at closing = NOT IN GOOD FAITH Less at closing = IN GOOD FAITH 10 5
When charges can go up Certain variations expressly permitted by TILA/RESPA Amount charged falls within tolerance Changed circumstances 11 Charges Not Subject to Tolerances Prepaid interest Property insurance premiums Amounts placed into an escrow, impound, reserve or similar account For services required by the creditor if the creditor permits the consumer to shop and the consumer selects a third-party service provider not on the creditor s written list of service providers. Charges paid to third-party service providers for services not required by the creditor (may be paid to affiliates of the creditor). 12 6
Subject to 10% Cumulative Tolerance Recording fees Charges for third party services where: Charge is not paid to creditor or affiliate The consumer is permitted to shop and they select from written list of providers 13 Zero Tolerance Charges Fees paid to 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 Transfer taxes 14 7
Charges that Exceed the Tolerance If amounts paid by consumer exceed the applicable tolerance the creditor must refund the excess to the consumer no later than 60 calendar days after consummation. For charges subject to zero tolerance, any amount charged beyond the amount disclosed on the Loan Estimate For charges subject to a 10% cumulative tolerance, the difference 15 Permitted Revisions to LE Changed circumstances that occur after the Loan Estimate (LE) is provided to the consumer that: Cause estimated settlement charges to increase more than is permitted under the TILA-RESPA rule Affect the consumer s eligibility for the terms for which the consumer applied or the value of the security for the loan 16 8
Examples - Changed Circumstance An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction War or natural disaster Discovery of new information not originally relied on when providing disclosure (value or property dispute) Title company goes out of business Income amount changes, member becomes unemployed 17 Permitted Revisions Revisions to the credit terms or the settlement are requested by the consumer The interest rate was not locked when the Loan Estimate was provided, and locking the rate causes the points or lender credits disclosed on the Loan Estimate to change The consumer indicates an intent to proceed with the transaction more than 10 business days after the Loan Estimate was originally provided or The loan is a new construction loan, and settlement is delayed by more than 60 calendar days, if the original Loan Estimate states clearly and conspicuously that at any time prior to 60 calendar days before consummation, the creditor may issue revised disclosures. 18 9
Timing for Revised LE No later than 3 business days after information warrants a revised Loan Estimate No later than seven business days before loan consummation waiting period is required Business day is defined differently for seven business day waiting period. Includes all calendar days except Sundays and legal public holidays, such as New Year s Day, MLK Day, Washington s Birthday, Memorial Day, etc. Waiting period begins the day the revised Loan Estimate is placed in the mail (not the date received by applicant.) 19 Waiver of Waiting Period Only if the consumer determines that the mortgage loan is needed to meet a bona-fide personal financial emergency. Same requirements as right to cancel Dated written statement by consumer stating emergency Specifies modification or waiver of waiting period Signed by all applicants Cannot be a preprinted form 20 10
Additional Requirements and Prohibitions Limits on fees charged prior to disclosure or application. Cannot impose a fee as follows prior to the consumer receiving the Loan Estimate and indicating intent to proceed. This restriction includes limits on imposing: Application fees Appraisal fees Underwriting fees; and Other fees imposed on the consumer One exception is the bona fide fee for obtaining a credit report 21 Intent to proceed Can be provided in any manner once the Loan Estimate is received: Oral communication if Loan Estimate is provided in person By phone, written communication, email, or signing a preprinted form after receiving Loan Estimate Consumer s silence is not indicative of intent to proceed Creditor must document this communication to satisfy the record retention requirements 22 11
Closing Disclosure Replaces HUD-1 Settlement Statement Final Truth in Lending Disclosure Timing No later than three days before consummation No timing requirement for time shares Contents Actual costs and terms In writing in prescribed format 23 Delivery Requirements Must ensure consumer receives the Closing Disclosure form at least three business days before consummation. To ensure the consumer receives the Closing Disclosure on time, creditors must arrange for delivery as follows: By providing it to the consumer in person. By mailing, or by other delivery methods, including email. Creditors may use electronic delivery methods subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act. Settlement agent is responsible for providing Closing Disclosure to Seller. In rescindable transactions, all consumers who has the right to rescind must receive a separate copy. 24 12
Revised Closing Disclosure Creditors must redisclose terms or costs on the Closing Disclosure if certain changes occur to the transaction after the Closing Disclosure was first provided that cause the disclosures to become inaccurate. There are three categories of changes that require a corrected Closing Disclosure containing all changed terms: Changes that occur before consummation that require a new three-business-day waiting period. Changes that occur before consummation and do not require a new three-business-day waiting period. Changes that occur after consummation. 25 Changes Before Consummation If one of the following occurs after delivery of original Closing Disclosure, but before consummation a revised Closing Disclosure must be provided with a 3 business day waiting period before consummation: The disclosed APR becomes inaccurate. The loan product changes. A prepayment penalty is added. For any other charge not listed above, the revised Closing Disclosure may be provided at or before consummation, unless requested by borrower (then one business day before) 26 13
Changes After Consummation Required in some circumstances If within 30 days after consummation and: Causes the Closing Disclosure to become inaccurate and results in a change to an amount paid by the consumer from what was previously disclosed. Must place a corrected Closing Disclosure in the mail no later than 30 days after receiving information that warrants a correction. To correct non-numerical clerical errors and document refunds for tolerance violations no later than 60 calendar days after consummation. 27 Timing - Revised Closing Disclosure The three-business-day waiting period requirement applies to a corrected Closing Disclosure that is provided when there are: Changes to the loan s APR; Changes to the loan product; or The addition of a prepayment penalty. If other types of changes occur, creditors must ensure that the consumer receives a corrected Closing Disclosure at or before consummation. 28 14
Waiver of Waiting Period Only if the consumer determines that the mortgage loan is needed to meet a bona-fide personal financial emergency. Same requirements as right to cancel Dated written statement by consumer stating emergency Specifies modification or waiver of waiting period Signed by all applicants Cannot be a preprinted form 29 Special Information Booklet HELOCs When Your Home is on the Line Special Information Booklet for all other consumer credit transaction secured by real property Not required for: Refinance transactions Subordinate liens Reverse mortgage 30 15
Other Required Disclosures Escrow Closing Notice Mortgage Servicing Transfer Notice Partial Payment Notices 31 Escrow Closing Notice To be provided 3 business days before escrow account is canceled when creditor cancels upon customer request To be provided no later than 30 business days before closure when creditor or servicer cancels not at customer request For any first lien loans (except reverse mortgage) with an escrow account Two exceptions to provision of Notice: If escrow was established solely in connection with delinquency or default If underlying debt is terminated 32 16
Escrow Closing Notice 33 Partial Payment Disclosure If you are required by existing Regulation Z to provide mortgage transfer notices when the ownership of a mortgage loan is being transferred, you must include in the notice information related to the partial payment policy that will apply to the mortgage loan. This post-consummation partial payment disclosure is required for a closed-end consumer credit transaction secured by a dwelling or real property, other than a reverse mortgage. 34 17
Partial Payment Disclosure The heading Partial Payment over all of the following, additional information: If periodic payments that are less than the full amount due are accepted, a statement that the covered person, using the term lender, may accept partial payments and apply such payments to the consumer s loan; If periodic payments that are less than the full amount due are accepted but not applied to a consumer s loan until the consumer pays the remainder of the full amount due, a statement that the covered person, using the term lender, may hold partial payments in a separate account until the consumer pays the remainder of the payment and then apply the full periodic payment to the consumer s loan; If periodic payments that are less than the full amount due are not accepted, a statement that the covered person, using the term lender, does not accept any partial payments; and A statement that, if the loan is sold, the new covered person, using the term lender, may have a different policy. 35 Record Retention Closing Disclosure 5 years after consummation. Includes all documents related to Closing Disclosure Post Consummation Escrow Closing Notice and Partial Payment Policy 2 years after consummation All other evidence of compliance including Loan Estimate 3 years after consummation. Different requirements if you transfer or sell the loan. Any format including electronic is permitted, so long as they can be reproduced accurately. 36 18
All Related Resources http://www.consumerfinance.gov/regulatoryimplementation/tila-respa Compliance Guide Guide to Forms Disclosure Timeline Disclosure Forms and Samples Videos Readiness Guide 37 Staff Training Consider: Processes affected New processes created Timing requirements Form changes Use real life examples Practice 2 nd review process during transition 38 19
Questions? Thank you for your time!!! 39 20