Just when you thought it was safe to sit back, relax and take a breather before the July 21 deadline came around for the Consumer Financial Protection Bureau’s (CFPB) integrated RESPA/Truth in Lending Act (TILA) proposed forms and accompanying regulation, the bureau does something unexpected. It releases them early. The massive 1100-page proposed rule will take some time to parse through, so get your highlighter ready and buckle up, because this could be a bumpy ride.
It has been 14 months since the CFPB released its first round of proposed integrated mortgage forms, and today, the agency released a 1099-page proposed rule that combines the final proposal for those disclosures and the new requirements as detailed in the Dodd-Frank Act, along with extensive guidance regarding compliance with those requirements.
Comments regarding the proposed amendments to 12 CFR Sections 1026.1(c) and 1026.4 must be received on or before Sept. 7. For all other sections including proposed amendments, comments must be received on or before Nov. 6. (See details on comment submission at the bottom of this story.)
In releasing the proposed rule, the CFPB noted that it has engaged in extensive consumer and industry research and public outreach for more than a year in crafting the new regulations and the new forms.
According to the CFPB, the two forms, called the Loan Estimate and the Closing Disclosure “use clear language” and are designed to make it easier for consumers to locate key information, such as interest rate, monthly payments and costs to close the loan. The forms are also intended to provide more information to help consumers decide whether they can afford the loan and to compare the cost of different loan offers, including the cost of the loans over time.
“In developing the new Loan Estimate form and Closing Disclosure form, the bureau has reconciled the differences between the existing forms and combined several other mandated disclosures,” the proposed regulations state. “The bureau also has responded to industry complaints of uncertainty about how to fill out the existing forms by providing detailed instructions on how to complete the new forms. This should reduce the burden on lenders and others in preparing forms in the future.”
The details
The proposed rule applies to most closed-end consumer mortgages. The proposed rule does not apply to home-equity lines of credit, reverse mortgages or mortgages secured by a mobile home or by a dwelling that is not attached to real property (in other words, land). The proposed rule also does not apply to loans made by a creditor who makes five or fewer mortgages in a year.
The Loan Estimate
The Loan Estimate form would replace two current federal forms: The Good Faith Estimate designed by the Department of Housing and Urban Development (HUD) under RESPA, and the “early” Truth in Lending disclosure designed by the Board of Governors of the Federal Reserve System under TILA.
Provision by mortgage broker. The lender may rely on a mortgage broker to provide the Loan Estimate form. However, the lender also remains responsible for the accuracy of the form.
Timing. The lender or broker must give the form to the consumer within three business days after the consumer applies for a mortgage loan. The proposed rule contains a specific definition of what constitutes an “application” for these purposes.
Limitation on fees. Consistent with current law, the lender generally cannot charge consumers any fees until after the consumers have been given the Loan Estimate form and the consumers have communicated their intent to proceed with the transaction. There is an exception that allows lenders to charge fees to obtain consumers’ credit reports.
Disclaimer on early estimates. Lenders and brokers may provide consumers with written estimates prior to application. The proposed rule requires that any such written estimates contain a disclaimer to prevent confusion with the Loan Estimate form. This disclaimer would not be required for advertisements.
The Closing Disclosure
The Closing Disclosure form would replace the current form used to close a loan, the HUD-1, which was designed by HUD under RESPA. It would also replace the revised Truth in Lending disclosure designed by the board under TILA. The proposed rule and the official Interpretations (on which lenders can rely) contain detailed instructions as to how each line on the Closing Disclosure form would be completed. The Closing Disclosure form contains additional new disclosures required by the Dodd-Frank Act and a detailed accounting of the settlement transaction.
Timing. The lender must give consumers this Closing Disclosure form at least three business days before the consumer closes on the loan. Generally, if changes occur between the time the Closing Disclosure form is given and the closing, the consumer must be provided a new form. When that happens, the consumer must be given three additional business days to review that form before closing. However, the proposed rule contains an exception from the three-day requirement for some common changes. These include changes resulting from negotiations between buyer and seller after the final walk-through. There also is an exception for minor changes which result in less than $100 in increased costs. The bureau seeks comment on whether to permit additional changes without requiring a new three-day period before closing.
Provision. Currently, settlement agents are required to provide the HUD-1, while lenders are required to provide the revised Truth in Lending disclosure. The bureau is proposing two alternatives for who is required to provide consumers with the new Closing Disclosure form. Under the first option, the lender would be responsible for delivering the Closing Disclosure form to the consumer. Under the second option, the lender may rely on the settlement agent to provide the form. However, under the second option, the lender would also remain responsible for the accuracy of the form. The bureau seeks comment as to which alternative is preferable.
Limits on closing cost Increases
Similar to existing law, the proposed rule would restrict the circumstances under which consumers can be required to pay more for settlement services — the various services required to complete a loan, such as appraisals, inspections, etc. — than the amount stated on their Loan Estimate form. Unless an exception applies, charges for the following services could not increase: 1) the lender’s or mortgage broker’s charges for its own services; 2) charges for services provided by an affiliate of the lender or mortgage broker; and 3) charges for services for which the lender or mortgage broker does not permit the consumer to shop. Also unless an exception applies, charges for other services generally could not increase by more than 10 percent.
The rule would provide exceptions, for example, when: 1) the consumer asks for a change; 2) the consumer chooses a service provider that was not identified by the lender; 3) information provided at application was inaccurate or becomes inaccurate; or 4) the Loan Estimate expires. When an exception applies, the lender generally must provide an updated Loan Estimate form within three business days.
Changes to APR
The proposed rule redefines the way the annual percentage rate (APR) is calculated. Under the rule, the APR will encompass almost all of the up-front costs of the loan. This will make it easier for consumers to use the APR to compare loans and easier for industry to calculate the APR.
Recordkeeping
The proposed rule requires lenders to keep records of the Loan Estimate and Closing Disclosure forms provided to consumers in a standard electronic format. This will make it easier for regulators to monitor compliance. The Bureau seeks comment on whether smaller lenders should be exempt from this requirement.
Effective Date
The bureau is seeking comment on when this final rule should be effective. Because the final rule will provide important benefits to consumers, the bureau seeks to make it effective as soon as possible. However, the bureau understands that the final rule will require lenders, mortgage brokers and settlement agents to make extensive revisions to their software and to retrain their staff. In addition, some entities will be required to implement other Dodd-Frank Act provisions, which are subject to separate rulemaking deadlines under the statute and will have separate effective dates. Therefore, the bureau is seeking comment on how much time industry needs to make these changes. TheCFPB is proposing to delay compliance with certain new disclosure requirements contained in the Dodd-Frank Act until the bureau’s final rule takes effect.
Submitting comments
Comments may be submitted, identified by Docket No. CFPB-2012-0028 or RIN 3170-AA19, by any of the following methods:
• Electronic: http://www.regulations.gov. Follow the instructions for submitting comments.
• Mail/Hand Delivery/Courier: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street, NW, Washington, DC 20552.
Instructions: All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Because paper mail in the Washington, D.C., area and at the bureau is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public inspection and copying at 1700 G Street, NW, Washington, D.C., 20552, on official business days between the hours of 10 a.m. and 5 p.m. Eastern Time. You can make an appointment to inspect the documents by telephoning (202) 435-7275.
All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or social security numbers, should not be included. Comments will not be edited to remove any identifying or contact information.
Contact Information: David Friend, Michael Silver and Priscilla Walton-Fein, counsels; Andrea Pruitt Edmonds, Richard Horn, Joan Kayagil, and Thomas Kearney, senior counsels; Paul Mondor, senior counsel and special advisor; and Benjamin Olson, managing counsel, Office of Regulations, at (202) 435-7700.