On October 1, 2014, the CFPB and the Federal Reserve Board hosted a third webinar on the TILA-RESPA Integrated Disclosures Rule, which goes into effect on August 1, 2015. The webinar reviewed the new Loan Estimate, line by line, addressing concerns from the financial industry and from technology vendors. The Federal Reserve has posted a recording and presentation slides from the webinar (registration is required to view the recording). The Loan Estimate requirements are found in Section 37 (12 CFR 1026.37) of Regulation Z. There are several compliance resources available, such as the CFPB’s regulatory implementation website and disclosure timeline. The next webinar will cover the Closing Disclosure.
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 the Compliance Guide, Guide to Forms, and Integrated Loan Disclosure Forms and Samples.
PAGE 1 OF THE LOAN ESTIMATE
General Questions
Question: Is there a required font and font size for the Loan Estimate? (1026.37(o); Comment 37-2)
Answer: The final rules do not prescribe a particular font type or font size. However, creditors often will be required to use the model forms in the rule, such as using H-24 for federally-related mortgage loans. When using a model form, all of its elements must be used, including the font sizes, bolding, shading, and underscoring used in the form.
Question: Can the designation “N/A” be used where no value is to be disclosed on the Loan Estimate (Comment 37-1)?
Answer: No. The term N/A cannot be used. If a part of the disclosure is not applicable, that part of the form may be left blank.
Question: Is there a required naming convention used for charges on the Loan Estimate?
Answer: No, there are no uniform naming conventions for charges or fees. However, creditors should read the rule carefully to ensure that they correctly identify specific charges as prescribed by the rules, such as points charged to the creditor and title insurance charges.
Question: Does the creditor have to disclose an itemization of the amount financed with the Loan Estimate?
Answer: No. Some disclosures are required to be made only on the Closing Disclosure and not on the Loan Estimate, including the amount financed and the finance charge (currently found in the fed box). And note that when disclosing the amount financed on the Closing Disclosure, it will be expressed as a dollar amount and will not be itemized (12 CFR 1026.38(o)(3)).
The Top Part of the Loan Estimate
Title: Creditors cannot put the Loan Estimate title on other forms.
Creditor’s Name: The top left line above “Loan Estimate” is where you can place the creditor’s name.
Top Left
- Date Issued: the date the Loan Estimate is delivered or placed in the mail, which is not necessarily when it was printed.
- Applicants: List the name of applicants applying for the credit, as discussed in the second CFPB webinar (particularly as to multiple applicants).
- Property: Include the address and zip code of the property securing the transaction. See the Commentary when there are multiple properties.
- Sale Price: The contract price of the property being sold. If there is no seller, as in the case of a refinance, then the estimated value is substituted.
Top Right
- Loan Term: List the term of the transaction to maturity in years.
- Purpose: One of the following terms must be written on that line: home equity, purchase, refinance, or construction. The home equity category is treated as a catch-all, including any other closed transaction that is subject to the rule that is not a purchase, refinance or construction (note that HELOCs are not covered).
- Product: This is very technical. You must disclose one of three product types followed by the applicable features: adjustable rate, step rate, or fixed rate. The applicable features include a balloon payment, seasonal payment, etc.
- Loan Type: List either conventional, FHA, VA, or “other” type of loan.
- Rate Lock: Disclose whether the rate is locked, and if so, when the lock will expire and when other cost estimates will expire.
Question: 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))
Answer: No. The regulation is clear that the label of the “sale price” does not change when the creditor uses an estimated sale price. It also does not change in transactions without a seller. Because there is no sale price in those situations, disclose the estimated value of the property instead.
Question: 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))
Answer: A step-rate followed by an adjustable-rate should be disclosed as adjustable-rate loan. If the loan is a hybrid adjustable-rate loan, there will be periods when the interest rate is not known at consummation, so the product must be disclosed as an adjustable-rate loan. The disclosure does not provide for hybrid or mixed-product descriptions, so creditors must choose one, and only one, product type.
Question: 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))
Answer: You must use the applicant’s U.S. postal mailing address. No other type of address may be used. Do not use email addresses.
Brokered Transactions
A mortgage broker may provide the initial Loan Estimate on behalf of the creditor, but the creditor remains responsible for their accuracy.
Question: If a broker is issuing a Loan Estimate but does not yet know the creditor’s name, may the broker put its name in place of the creditor’s? (1026.37(a)(3))
Answer: No. The broker must make a good faith effort to learn the creditor’s name. If it is not known, the mortgage broker may leave the creditor’s name blank but should not substitute its name for the creditor’s name.
Question: 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?
Answer: No, a broker is not required to generate and disclose its own unique ID number, and if it is not readily available, the disclosure can be left blank. The loan number should be a unique number generated by creditors. Creditors can outsource this number and can provide it to a broker in advance. However, in circumstances where the creditor is unknown, the broker can leave it blank.
Question: Is the creditor required to disclose its own unique loan ID once there is a creditor for the loan?
Answer: Yes, the creditor is required to include its unique loan ID on any subsequent disclosures, such as revised Loan Estimates and the Closing Disclosure. The creditor remains ultimately responsible for these disclosures.
Loan Terms
The Loan Estimate includes basic information about loan terms, such as the loan amount, interest rate, and principal and interest payments.
- Loan Amount: The amount of credit to be extended under the terms of the legal obligation.
- Interest Rate: The applicable interest rate at consummation. For an adjustable rate transaction, if unknown, list the fully indexed rate (index plus margin) at the time of consumation.
- Principal and Interest Payment: The initial periodic payment amount due, preceded by the applicable unit period and a statement referring the reader to a projected payment table with estimated periodic payments, which may include escrow payments.
Question: 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))
Answer: The creditor should disclose the initial interest rate. A different calculation is used only when the initial interest rate is unknown at the time of consummation. The rule is clear that it is the initial rate that will be applicable to the transaction at consummation.
Question: 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))
Answer: All of the time periods in the loan terms table are disclosed as whole years, with an exception — when there are fewer than twenty-four months in a time period, then it is disclosed in months, abbreviated as “mo.”
Projected Payments Table
The first page of the Loan Estimate shows the payments a consumer will make over the life of the loan. If a consumer’s periodic payment will remain constant over the life of loan, as with a fixed-rate loan with no mortgage insurance, it will show a single column in the projected payments table. If the consumer’s periodic payment will change, as with an adjustable-rate loan, or if it includes mortgage insurance, subsequent payments must be disclosed in additional columns in the payments table. The following events generally trigger additional columns in the payments table: a change to a periodic principal interest payment, a scheduled balloon payment, or the automatic termination of mortgage insurance.
The projected payments table may contain a maximum of four columns. If more than four columns are necessary (for example, if there are more than three interest rate changes), the creditor should disclose a range of payments in the fourth column. There are special rules for the disclosure of balloon payments and the automatic termination of mortgage insurance. In addition to showing changes in periodic payments, the bottom of the table should disclose property taxes, homeowners insurance, homeowners association and similar charges, and certain insurance premiums, if they are required by the creditor. These amounts are disclosed even if an escrow account will not be established for these payments, with an indicator that they will be escrowed.
Question: 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))
Answer: Yes. Wherever the word “monthly” is used to describe the frequency of payments, the creditor should substitute the appropriate term when necessary. If the payment term is bi-weekly, the creditor should use “bi-weekly.”
Question: 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))
Answer: If all four columns are already filled up with other payment changes, the automatic termination of mortgage insurance would not be disclosed. The automatic termination of mortgage insurance is disclosed only if there is room in the projected payments table, which is limited to four columns. If there are more than three periodic payments, meaning that the four columns are already used up, the creditor would not disclose the automatic termination of the mortgage insurance.
Question: Must the escrow row be shown if no escrow account is established? (1026.37(c)(2))
Answer: Yes. The escrow row is shown, but the amount would be zero.
Question: 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))
Answer: Yes. Flood insurance is included in Homeowner’s Insurance, along with other charges for damaged property or against liability arising out of ownership in connection with the credit transaction.
Costs at Closing
- Cash to Close: The amount the consumer is expected to pay at consummation. If there is no seller, use the checkbox to let the consumer know whether to bring cash to the closing.
Question: Are the modifications to the Loan Estimate for transactions without a seller required? (1026.37(d) and 37(h))
Answer: No. Modifications for transactions without a seller are not required, but are optional. A creditor could choose to use the standard Loan Estimate for a transaction without a seller. However, both modifications must be made using the alternative Loan Estimate for transactions without a seller.
PAGE 2 OF THE LOAN ESTIMATE
The loan costs are on the left-hand column and are broken down into three categories: originator charges, third party services the borrower cannot shop for, and third party services the borrower can shop for. Each category is subtotaled and then added together to get the total loan costs.
Other costs are on the right hand column in four categories: taxes and government fees (including transfer taxes), prepaid, escrow payment at closing (broken down by each item required to be escrowed), and “other” costs not required by creditor. The total loan costs and other costs are added, applicable lender credits are subtracted, and the resulting amount is disclosed as the total closing costs.
The next table is the calculating cash to close table. There are two dynamic tables: the adjustable interest rate table in the right column and the adjustable payment table in the left column.
Origination Charges
Question: 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))
Answer: No. Only points paid to a creditor to reduce the interest rate and charged as a percentage of the loan amount may be labeled as points on the form. The form is intended provide accurate disclosures to consumers, not to document eligibility for tax benefits. If the points are not charged in connection with the transaction to reduce the interest rate, leave the points disclosure blank.
Question: 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?
Answer: No. In this scenario the creditor is not charging an up-front fee at all, but presumably is recovering the cost through the interest rate. This is commonly how pricing adjustments are factored into loan pricing. There is no settlement cost to disclose.
Question: If the creditor does charge the consumer an upfront fee, should it be disclosed as a “point” or an “origination charge”?
Answer: The answer depends on how the upfront fee is charged. If the creditor charges the consumer up front as a flat charge (which is uncommon), then the LLPA would be itemized and labeled as an origination charge. The creditor could include the cost of the LLPA in the rate, and then allow the borrower to take a point to lower the rate. If the creditor is charging the consumer as a percentage of the loan amount to reduce the rate instead of an upfront fee, then the consumer would be paying in points and the charge would be disclosed as a percentage point, not as an LLPA.
Question: 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?
Answer: Yes, this ties directly to the previous answer. Creditors have some flexibility in how they factor in pricing adjustments, specifically when the creditor is including the LLPA cost in the rate that is subsequently discounted through the payment of points. In this scenario, it is not being charged to the consumer up front, but is included in the rate that the point is being paid to reduce. The point being paid can be separate from and not necessarily equal to the cost of the LLPA — it is essentially a different type of charge. This is consistent with guidance the Bureau has provided on bona fide discount points and fees, generally permitting the undiscounted rate to include loan-level pricing adjustments. However, this analysis is not the same as the bona fide discount point test. Whether or not the discount points satisfy the discount bona fide test under 12 CFR 1026.32 does not matter for purposes of determining whether or not it is a point for disclosure on the Loan Estimate.
Loan Costs
Question: Must a creditor disclose fees that are not allowed by FHA/VA? If so, where? (Comment 37-1; 1026.17(c))
Answer: Disclosures on the Loan Estimate must reflect the terms of the legal obligation. If any information necessary for accurate disclosure is unknown to the creditor, the creditor must make the disclosure in good faith and on the best information available at the time. If certain fees are prohibited, as with an FHA or VA loan, the creditor should not disclose them because it knows they will not be charged. If the loan in question allows the creditor to charge a fee and offset it with a lender credit, then the credit should be disclosed because the consumer will have to pay it.
Question: 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))
Answer: A creditor generally decides the extent of the itemization of the origination charges on the Loan Estimate, with the exception of charges that are required to be disclosed in a specific manner, such as points and loan-level pricing adjustments charged to or passed on to the consumer. To the extent that these charges are settlement services that the consumer will pay for, such as the charges in Section 37(f)(2) (services the consumer cannot shop for), the charge must be itemized. Whether an origination service that a creditor contracts out to a third party should be separately disclosed is dependent on whether the creditor requires the consumer to pay for the service or treats the charge as normal business overhead expenses, like rent, wages, utilities, etc.
Question: 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))
Answer: No. A creditor cannot change the number of lines for each category of costs. In the event that all the lines are needed, generally the charges in excess are totaled into one charge and described as additional charges.
Question: 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))
Answer: A lender credit provided to the consumer to offset closing costs, which is a negative point, may result in a higher interest rate but remains a payment that is provided by the lender to the consumer, and therefore should be disclosed as a lender credit. As the Bureau understands it, negative points are a type of lender credit. A creditor may not add a separate addendum to address the negative points, however. They are disclosed as an aggregate sum on the Loan Estimate. The lender credit offsets the total closing costs. The Bureau made a policy decision not to have such credit itemized.
Question: 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))
Answer: No. they do not include title insurance charges. The types of government fees included in (g)(1) are limited to those that are associated with the recording of documents.
Question: 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))
Answer: No. Assuming that this question is about optional credit insurance premiums that are charged to the consumer monthly, after consummation, they would not be disclosed in this section of the form.
Calculating Cash to Close Table
The cash to close table is designed to provide consumers a line by line calculation of cash the consumer will have to pay or receive from the transaction. There are two tables used, a standard one for all transactions, and an alternative one for transactions without a seller.
- Standard Table: The standard table is technical and mandates whether the amounts shown are positive or negative numbers. On the Loan Estimate this amount is estimated based on the best information reasonably available to the creditor. In purchase transactions, where the standard table is always used, it shows the amounts due to the seller, creditor, and any third parties. The amount disclosed is the amount the consumer is expected to pay at consummation. If the consumer should get money back, the number will be negative.
- Alternative Table: Use the alternative table in transactions such as a refinance, where there is no seller. Check boxes will indicate whether the consumer is to pay or receive money. The amount of closing costs financed would also be closed.
Question: How does a creditor determine the “third party” payments to be deducted from the loan amount to calculate the Closing Costs Financed? (1026.17(c) and 37(g))
Answer: The amounts deducted from the loan amounts are third party payments not otherwise disclosed as closing costs. They would include the payoff amount for the existing loan with the same creditor in cases where the creditor did not know the payoff amount based on the information provided.
Question: Is the deposit or down payment subtracted as part of the calculation of Closing Costs Financed? (1026.37(h))
Answer: No. the calculation of this line item is not affected by a deposit — the deposit has its own line item.
Question: Is the calculation of the Closing Costs Financed line item affected by a seller credit? (1026.37(h))
Answer: No. Likewise, the calculation of the closing cost line item is not affected by seller credit. Seller credits are disclosed in separate line items in the cash to close table.
Question: For the “Downpayment/Funds for 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?
Answer: Yes, any type of debt would be included in the “Downpayment/Funds for Borrower” line item except for purchaser transactions, which have special rules. The creditor is responsible for completing this section based on the best information available at the time the Loan Estimate is issued.
Question: What debt is disclosed under §1026.37(g) instead of as part of Payoffs and Payments under the alternative Calculating Cash to Close table?
Answer: To the extent that the creditor discloses a debt the creditor knows about, the creditor may disclose these amounts in the “other” category of the other costs. If the creditor does not disclose the debt in the “other” category of the other costs, then the approximate value is included as part of the payoff of line items in the alternative cash to close table.
Question: Does the payoff of any outstanding debt of the consumer get 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))
Answer: The Payoffs and Payments line items include any amount that is paid or paid off, based on the best information reasonably available to the creditor at the time the Loan Estimate is issued. The amount is not limited to those debts that are required to be paid by the creditor.
Question: 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))
Answer: Yes, the alternative table can be used for multiple transactions. Each transaction will have a separate Loan Estimate and Closing Disclosure. Each Closing Disclosure will indicate the cash due to and from a consumer. In the rare scenario of a cash-out refinance, with a subordinate lien consummating at the same time, the settlement agency can total the amounts due to and from the consumer across all the loans to determine the final amount. This is a change from the existing use of the HUD-1A Form, which has a line for subordinate financing to provide for a master transaction record. However, the current GFE does not require the total cash to close calculation. There is no equivalent provision in the alternative cash to close table for one of the transactions to be a master transaction record on the Loan Estimate or the Closing Disclosure.
Question: Can the standard calculating cash to close table disclose the Estimated Cash to Close amount as a negative number? (1026.37(h)(1))
Answer: Yes. When the result of the calculation provides a negative number that is disclosed as the estimated cash to close, it also disclosed as a negative number of the estimated cash to close on Page 1 of the Loan Estimate. The negative number indicates that the consumer is receiving that amount on the standard Loan Estimate.
Adjustable Payment and Adjustable Interest Rate Tables
Question: Are the adjustable payments and adjustable interest tables disclosed for a fixed rate loan? (1026.37(i) and 37(j))
Answer: The adjustable payment table is used only when there are such features. For a fixed rate loan, the adjustable payments and adjustable interest rate table should not be disclosed.
PAGE 3 OF THE LOAN ESTIMATE
Page 3 includes contact information for the creditor and comparison information, which permits the consumer to shop and compare loans. For example, the consumer can view whether an appraisal is required or whether the creditor will allow for an assumption of the loan. The page also includes an optional box where the creditor can require the consumer to confirm receipt of the Loan Estimate.
Question: 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))
Answer: Yes, assuming that both are known based on the best information available to the party making the disclosures, which in this case is a broker. Both the creditor’s loan officer and the broker must be listed. However, a loan officer is not required to be assigned before the disclosures are made. If that is the case, these disclosures could be left blank.
Question: Should we use the same person’s NMLSR identification number that will be identified on the note and other documents? (1026.37(k); 1026.36(g))
Answer: Yes, creditors should use the same person’s NMLSR ID number identified on the documents. The two sections use different terms — 1026.37(k) refers to the “primary contact,” and 1026.36(g) refers to the loan originator with “primary responsibility” for the transaction — but these should be read consistently.
Note that 1026.36(g)(2)(ii) is currently reserved, and this will eventually be updated to require NMLSR IDs to be included on the new Loan Estimate and Closing Disclosure.
Question: 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))
Answer: The APR is not rounded and should be disclosed up to three decimal places. However, if the APR is a whole number, then the amount disclosed is truncated at the decimal point. For example an APR of 7% would be disclosed using the number 7 with no decimal or points added. An APR of 7.25%, would be disclosed as 7.250%. This differs from other percentage disclosures on the Loan Estimate, which are not rounded and are disclosed up to two or three decimal points.
Other Considerations
Question: 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))
Answer: Yes, if that is the creditor’s intent at the time the Loan Estimate is issued. A creditor must disclose his intent at the time the Loan Estimate is issued.
Question: 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))
Answer: Yes, if that is the creditor’s intent at the time the Loan Estimate is issued. The creditor must issue a statement on whether the creditor intends to service the loan or transfer the servicing rights.
Question: Does the Appraisal notice satisfy the requirements of Regulation B (the TILA evaluations Rule), or does the creditor need to provide a separate disclosure for that requirement? (1026.37(m)(7))
Answer: Creditors may satisfy both the Regulation B and TILA in a single disclosure, though creditors remain subject to the additional Regulation B requirement to provide copies of appraisals. In general, Regulation B requires creditors to do two things: (1) provide notice in writing of an applicant’s right to receive all appraisals developed in connection with the application, and (2) provide an applicant with copies of the written appraisals after they are completed. The new rules permit the first disclosure to be made with the Loan Estimate, but the second requirement (to provide copies of written appraisals) remains. A list of service providers must be given to the consumer when the consumer can shop for third-party servicers. The final rule also includes examples of this list.
Question: 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?
Answer: A creditor is permitted to add language to indicate that the inclusion of a service provider is not an endorsement for that particular provider. There is no specific language required to be provided when the creditor chooses to make such a disclosure — though the disclosure must be clear and conspicuous.