On August 26, 2014, the CFPB and Federal Reserve Board co-hosted a webinar on frequently asked questions about the TILA-RESPA Integrated Disclosure Rule, which goes into effect on August 1, 2015. The webinar is the second in a planned series to help explain the rule and its procedural requirements. The webinar addressed recurring issues and interpretive questions that the CFPB has received since the first webinar. In this second webinar, the CFPB announced that it soon will be issuing additional guidance material on its dedicated TILA-RESPA Integrated Disclosure Rule Implementation Webpage and will include a new sample calendar to illustrate the various timing requirements. The next webinar in the series is tentatively scheduled for October 1, 2014, and will cover content questions about Loan Estimates and Closing Disclosure.
The Federal Reserve has posted a recording of the August webinar along with its presentation slides. We also have created a TILA-RESPA Integrated Disclosure Rule Topic Page with links to the final rules and compliance resources from the CFPB, such as a Compliance Guide, Guide to Forms, and Integrated Loan Disclosure Forms and Samples.
Below is a summary of the questions that addressed by the CFPB and Fed on the following topics: application, scope, record retention, timing for delivery and redisclosure, tolerance, and basic form contents:
APPLICATION
Question: The definition of application does not include loan term or product type. What if a consumer submits the six elements listed in the rule, but does not specify the type of product or term?
Answer: The CFPB staff encouraged listeners to listen to the discussion about applications in the first webinar. Creditors have a degree of flexibility about information they will collect prior to providing the Loan Estimate. However, once the creditor has all six elements of an application, the creditor must produce the Loan Estimate. The creditor can collect information such as the loan term and product type, but that does not relieve the creditor from the responsibility to produce the Loan Estimate. The creditor has discretion regarding what product term and features it uses to issue a Loan Estimate, so long as the disclosures are made in good faith and consistent with the best information made available to the creditor at the time the disclosures are made. A creditor is also not required to provide multiple Loan Estimates for every product it offers, but is not prohibited from doing so.
Question: What if the consumer starts filling out an online application and saves it with the six pieces of information entered, but has not yet submitted it to the creditor?
Answer: This question was considered and addressed in the Preamble of the Federal Register Notice. See 78 Fed. Reg. 79768 (December 31, 2013). Because the definition of application refers to the submission of six pieces of information, if a consumer enters the six pieces and saves the application, the consumer has not submitted an application that requires issuance of the Loan Estimate.
Question: What if the loan is a refinance and the creditor already has this particular information on file?
Answer: Information on file from a previous or existing loan or loan application does not translate into a new submitted application, even if the consumer contacts the creditor and expresses an interest in applying for a refinance or a new loan. An application is only triggered upon the submission of the information for purposes of obtaining credit, and the information is not resubmitted just because it exists on the creditor’s file. The creditor can require the consumer to submit a new application prior to providing the Loan Estimate.
Question: May an online application system reject applications submitted by a consumer that contain the six elements of an application because other preferred information is not included?
Answer: No. Although the rule provides a creditor with a degree of flexibility as to how the creditor may collect the six elements of an application, a creditor may not refuse any of the pieces of information because the creditor wants further information. A creditor’s obligation to provide a Loan Estimate is triggered if a consumer provides all six elements of an application.
SCOPE
Question: Do the new disclosure requirements apply to assumptions?
Answer: Yes, “assumption” is a defined term in Regulation Z, 12 CFR 1026.20(b). An “assumption” is covered under the new Integrated Disclosure rules.
Question: Would a successor-in-interest be considered a “subsequent purchaser” for the purpose of the assumption disclosure?
Answer: This question relates directly to the CFPB’s July 2014 interpretive rule (for more information see the IBA’s summary) which clarifies that when a successor-in-interest previously acquires title and agrees to be added as an obligor on the dwelling, the agreement of the successor-in-interest is not subject to the ATR rule because it does not constitute an assumption. The interpretive rule was related to the ATR rule, but it did provide an interpretation of Section 20(b), where assumption is defined, which is not unique to the ATR rule. In fact, that section states that certain post-consummation events (such as a refinancing or an assumption) constitute new transactions and thus require new disclosures to be provided to consumers. The Integrated Disclosure Rules are tied to these definitions, and because the interpretive rule provides guidance on whether substitution of a successor-in-interest as an obligor triggers the ATR rule, the guidance is also applicable to the question of whether new disclosures are required.
Question: Section 1026.3(h) exempts certain down payment assistance loans from the new rules. Do creditors still need to provide the existing TILA disclosures for those loans?
Answer: Yes they do. The Section 1026.3(h) exemption assumes that all the criteria are met from the Integrated Disclosure requirements, and there is a corresponding exemption to the RESPA disclosure requirements. However, one of the conditions to meeting that exemption is that the 12 CFR 1026.18 disclosures (existing TILA disclosures) are provided to the consumer. You can find that information in 12 CFR 1026.3(h)(6).
RECORD RETENTION
Question: For seller Closing Disclosures provided on a separate document by the settlement agent pursuant to 1026.38(t)(5) and 1026.19(f)(4), are creditors required to collect and retain documents related to the seller that were provided only to the settlement agent?
Answer: Creditors are obligated to obtain and retain a copy of a completed Closing Disclosure provided separately by a settlement agent to a seller under 12 CFR 1026.38(t)(5). However, creditors are not obligated to collect underlying seller-specific documents and records from that third-party settlement agent to support the Closing Disclosure.
To the extent that the creditor does receive documentation related to the seller’s Closing Disclosure, such as when the creditor is the settlement agent or when seller-related documents are provided to the creditor by the third-party settlement agent along with the completed Closing Disclosure, the creditor should adhere to the normal record retention requirements set forth in 12 CFR 1026.25(c) and retain these records. But this does not mean that the rule imposes a mandatory collection requirement on creditors for this underlying information.
VARIATIONS/TOLERANCES
Question: Is owner’s title insurance not required by the creditor subject to the 10% cumulative tolerance?
Answer: Generally no. The 10% cumulative tolerance category only includes recording fees and charges paid to unaffiliated third-party service providers where the consumer is allowed to shop and chooses a provider from the creditor’s written list of providers. Owner’s title insurance does not receive this treatment. If title insurance is disclosed as optional, even if the fee is paid to an affiliate of the creditor, the charge is not subject to the 10% cumulative tolerance. Therefore, owner’s title insurance not required by the creditor will be a permitted charge that is not subject to the tolerance. The CFPB is aware of potentially confusing language in the preamble about the 10% cumulative tolerance. The CFPB staff said that regardless of the preamble, the rule text does not subject owner’s title insurance to tolerance, and the rule text should be followed.
DISCLOSURE/REDISCLOSURE TIMING
Question: Does the 7-day waiting period before consummation that applies to Loan Estimates apply to revised disclosures?
Answer: No. The 7-day waiting period is a TILA statutory provision that applies to the initial TILA disclosures that are provided after receipt of an application. The 7-day waiting period does not apply to revised disclosures. In most cases where a creditor is providing a revised Loan Estimate, relying on the three-day mail box rule, there is an assumption that the creditor will need to place the revised disclosure in the mail no later than the seventh business day before consummation in order for it to be received by the consumer four business days prior to consummation as required by 12 CFR 1026.19(e)(4). This question comes from a glitch in the Small Entity Guide that was issued last spring, which has now been fixed (look for a revised version to be issued soon).
Question: Are creditors required to provide revised Loan Estimates on the same business day that a consumer or loan officer requests a rate lock? (1026.19(e)(3)(iv)(D))
Answer: Not necessarily. The rule provides that the revised Loan Estimate must be issued on the same business day the rate is “locked.” The CFPB staff said that “locked” is not expressly defined in Regulation Z and therefore is defined by state law or contract law. Comment 1 to 12 CFR 1026.19(e)(3)(iv)(D) provides an example of when the revised Loan Estimate must be provided on the business day that the rate lock agreement between the creditor and consumer is entered into.
The preamble to the final rule further states that the creditor should be able to meet a same business day requirement because “the Bureau does not believe that creditors need that much time in situations where the interest rate is locked because the creditor controls when it executes the rate lock agreement.” See 78 Fed. Reg. 79730, 79833 (December 31, 2013). The preamble explains that redisclosure is not triggered when the interest rate has been set, but the rate lock agreement does not yet exist. “The Bureau intended that §1026.19(e)(3)(iv)(D) only applies in situations where the rate lock agreement has been entered into between the consumer and creditor or has expired.” See 78 Fed. Reg. 79730, 79833 (December 31, 2013). However, numerous stakeholders have identified operational challenges and a possible disadvantage to consumers on this approach, and the CFPB is closely considering this issue.
Question: May a Closing Disclosure be provided early and revised Closing Disclosures used in place of revised Loan Estimates for redisclosing estimates that changed due to changed circumstances?
Answer: This question touches on numerous procedural requirements. The provision on timing for the Closing Disclosure does allow creditors to provide the disclosure earlier than required. It only requires that the consumer receive the Closing Disclosure no later than three business days prior to consummation. The answer to the question of whether the Closing Disclosure may be provided early and used to redisclose, is no. Creditors must provide the Loan Estimate until after they have provided the Closing Disclosure. Creditors may use the Closing Disclosure to redisclose charges, but that applies after consummation. While a creditor may provide a Closing Disclosure earlier than required, the rule does not provide a mechanism for redisclosure using revised Closing Disclosures in place of revised Loan Estimates in the event the Closing Disclosure is provided earlier than required and the timing for redisclosure does not fit neatly within this mechanism.
Similar to the RESPA GFE rules, the Integrated Disclosure rules permit creditors to provide redisclosed estimates due to changed circumstances or other triggering events, such as revisions requested by the consumer, interest-rate dependent charges where the interest rate locks, expiration of loan estimate, and delayed settlement in a construction loan.
Additional timing restrictions apply when the transaction approaches consummation. The rule addresses what has been called the “magic GFE” that is provided by lenders after the Closing Disclosure. The creditor shall not provide a revised Loan Estimate on or after the date that it provides the Closing Disclosure, and the consumer must receive a revised Loan Estimate no later than 3 business days prior to consummation. This prevents the creditor from providing the Loan Estimate after the consumer receives the Closing Disclosure. Comment 1 says that in circumstances where there are fewer than four business days from when the revised disclosure would be required to be provided, then the Closing Disclosure may be used to redisclose any estimates that changed due to a triggering event. The CFPB staff said to see the examples in the commentary, Comment 1, to 12 CFR 1026.19(e)(4)(ii). The rule does not provide any other means for a Closing Disclosure to be used to reset and redisclose applicable tolerance levels in other circumstances, including when the Closing Disclosure is provided earlier than required.
Question: Is an additional 3-business-day waiting period required if the APR decreases by more than 1/4 or 1/8 percentage points?
Answer: The CFPB staff said they have received this question several times. The rule requires an additional three business day waiting period if the APR disclosed becomes “inaccurate” under 12 CFR 1026.22. The accuracy requirements within that section (12 CFR 1026.22) are not changed. Accordingly, creditors may continue to use existing guidance on this section from the CFPB and the FRB. CFPB staff said that Federal Reserve Bank of Philadelphia guidance from the 2011 Consumer Compliance Outlook is helpful on this point. As the publication indicates, the APR that is overdisclosed due to an overdisclosed finance charge does not require a new waiting period. However, as the publication cautions, this applies only if the APR is overdisclosed due to the finance charge.
LOAN ESTIMATES
(The CFPB staff said they will go into further details on the requirements of the loan estimate forms in future webinars; in this webinar, the staff addressed only threshold questions.)
Question: Where on the Loan Estimate form is the creditor supposed to provide the language described in 12 CFR 1026.19(e)(3)(iv)(F) for construction loans where settlement might be delayed?
Answer: This is a continuation of current practice for the GFE under RESPA. Section 1026.37, which governs the information to be placed on the Loan Estimate, does not indicate where this language should be placed by the creditor. The CFPB is aware of this inconsistency and intends to address this before the effective date in order to permit creditors to provide the Loan Estimate with the required language for construction loans.
Question: For second mortgages issued simultaneously with first mortgages as part of a purchase transaction (or “simultaneous seconds”) is the creditor allowed to use the alternative Loan Estimate for transactions without a seller?
Answer: Generally, the alternative form may be used for refinancings, home equity loans, or other transactions that do not involve a seller and a real estate transaction. The CFPB staff said it is permissible to use alternative forms when (1) the seller is not contributing to the cost of the second loan and (2) the differences in costs are reflected in the Closing Disclosures provided to the consumer in connection with the first-lien transaction. The CFPB expects in typical transactions there will be two separate transactions with two separate creditors, but even if the same creditor provides both, the CFPB expects they will be treated as separate transactions with separate notes to secure the instrument. In the CFPB’s view, a simultaneous second has a seller only insofar as proceeds go to the seller. See Comment 1 to 12 CFR 1026.38(j)(2)(iv).
Question: If there is more than one applicant/consumer, what needs to be disclosed on the Loan Estimate?
Answer: If there is more than one consumer applying for credit, the rule requires disclosure of the name and mailing address of each consumer that is applying. If the names and addresses do not fit in the space provided, an additional page may be added. For purposes of delivery, the Loan Estimate may be delivered to either one of two jointly-obligated consumers. In rescindable transactions, however, the Closing Disclosure must be provided separately to each consumer who has the right to rescind within the timing requirements. See Comment 2 to 12 CFR 1026.17(d)(2) for more information. This will be discussed in more detail in a later webinar.