CFPB Answers FAQ on the TILA-RESPA Integrated Disclosures Rule

by Ballard Spahr LLP
Contact

On August 26, 2014, the CFPB staff and Federal Reserve Board co-hosted a webinar and addressed questions about the final TILA-RESPA Integrated Disclosures Rule that will be effective for applications received by creditors or mortgage brokers on or after August 1, 2015. The webinar is the second in a planned series intended to address the new rule.  In the initial webinar the CFPB staff provided a basic overview of the final rule and new disclosures that we have previously covered.

According to the CFPB staff, this webinar and the ones that will follow will be in the format of a spoken Q&A to answer questions that have been posed to the CFPB. Although the CFPB staff does not plan to issue written Q&A, the staff believes this approach will help facilitate clear guidance on the new rules in an accessible way. Industry members, however, would prefer written guidance.

During the remarks, the CFPB staff announced that the CFPB will soon release additional guidance material on its website, including a timing calendar to illustrate the various timing requirements under the new rule. In addition, the next webinar in the series is tentatively scheduled for October 1, 2014, and will cover Loan Estimate and Closing Disclosure content questions.

Below is a summary of various answers to questions provided by the CFPB staff. The topics covered include: (1) the receipt of an application, (2) whether new disclosures will be required for assumptions, (3) record retention, (4) the tolerance applicable to owner’s title insurance, and (5) the timing for the initial and revised  Loan Estimates.

The Receipt of an Application

Q: 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?

If a consumer submits an application, a requirement to provide the Loan Estimate is triggered under § 1026.19(e). An application is defined as the submission of six pieces of information: (1) the consumer’s name, (2) the consumer’s income, (3) the consumer’s Social Security number to obtain a credit report (or other unique identifier if the consumer has no Social Security number), (4) the property address, (5) an estimate of the value of the property, and (6) the mortgage loan amount sought.

The obligation to provide consumers with a Loan Estimate is silent regarding any assumptions a creditor may make about loan features such as the product type or term. Accordingly, provided that the disclosures in the Loan Estimate are made in good faith and consistent with the best information reasonably available to the creditor at the time the Loan Estimate is issued, a creditor has discretion with respect to what product, term, or other features it uses to issue a Loan Estimate.

A creditor is also not required to provide multiple Loan Estimates for every product it offers, but can do so if it chooses.

Q: What if the consumer starts filing out an online application and saves it with the six pieces of information entered, but has not yet submitted it to the creditor?

A creditor does not have to provide a Loan Estimate to a consumer until the consumer has submitted all six pieces of information that constitute an application. If a consumer has filled out and saved (but not submitted) a mortgage application form online to complete at a later time, even if the consumer included in the saved form the six pieces of information that constitute an application the consumer is not considered to have submitted an application that requires issuance of a Loan Estimate.

Q: 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?

No.  Although the rule provides a creditor with a degree of flexibility in how it may collect the six elements of an application, a creditor may not refuse any of the pieces of information because it wants further information. A creditor’s obligation to provide a Loan Estimate is triggered if a consumer provides all six elements of an application.

Assumptions

Q: Do the new disclosure requirements apply to assumptions?

Yes, provided that “assumptions” means a post-consummation event that is deemed a new closed-end credit transaction secured by real estate as defined by § 1026.20(b).

Note that the assumption provision (§ 1026.20(b)) has not been amended to refer to the new disclosures. It is our view that it would be helpful to make a conforming amendment to § 1026.20(b).

Record Retention

Q: For seller Closing Disclosures that are 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?

The short answer is that creditors are obligated to obtain and retain a copy of completed Closing Disclosures provided separately by a settlement agent to a seller under § 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 receives documentation related to the seller’s Closing Disclosure, such as when seller-related documents are provided to the creditor by the third party settlement agent along with the complete Closing Disclosure, the creditor should adhere to the normal record retention requirements set forth in §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.  (Please refer to the webinar for the full explanation).

Tolerance Applicable to Owner’s Title Insurance

Q: Is owner’s title insurance not required by the creditor subject to the 10% cumulative tolerance?

No.  Owner’s title insurance that is not required by the creditor is not subject to the 10% cumulative tolerance. The CFPB is aware that the preamble to the final rule contains potentially conflicting language, but advises that the final rule text is what should be followed.

Under § 1026.19(e)(3)(ii), the 10% cumulative tolerance category includes recording fees and charges paid to unaffiliated third party service providers when the consumer is permitted to shop for a settlement service provider, but chooses a provider from the creditor’s written list of providers.

Owner’s title insurance is not a charge that is assigned to a particular tolerance category. Therefore, the applicable tolerance category depends on other factors, including whether the creditor requires the insurance and, if so, whether the consumer may shop for the provider of the insurance.

To the extent owner’s title insurance is not required by the creditor and is disclosed as an optional service, under the rule the insurance is not subject to any percentage tolerance limitation, even if paid to an affiliate of the creditor.

Timing for the Initial and Revised  Loan Estimates

Q: Does the 7-day waiting period before consummation that applies to Loan Estimates apply to revised disclosures?

No.  The 7-day waiting period is a TILA statutory provision that applies to the initial Loan Estimate that is provided after receipt of an application. The 7-day waiting period does not apply to revised Loan Estimates.

However, the latest that a revised Loan Estimate may be received by a consumer is 4 business days before consummation. If a creditor will rely on the mailing rule, under which a consumer is deemed to receive a Loan Estimate 3 business days after delivery by any method other than personal delivery, the creditor would need to send the revised Loan Estimate at least 7 business days before consummation.

Note that the confusion over this issue may, at least in part, be due to a glitch in the Small Entity Guide. The CFPB has taken steps to update the Small Entity Guide to fix this issue and more accurately reflect this requirement. The CFPB anticipates the revised Small Entity Guide will be released soon.

Q: 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).

Not necessarily. A creditor must issue a revised Loan Estimate when the interest rate is locked if the interest rate was floating when the prior Loan Estimate was issued. The rule provides that the revised Loan Estimate must be issued on the same business day the rate “locked.” “Locked” is not expressly defined in Reg Z and would normally be defined by state law or contract law. However, an example in comment §1026.19(e)(3)(iv)(D)-1 provides that the revised Loan Estimate must be provided on the same business day that the rate lock agreement is entered into, not necessarily the same day the rate lock is requested.

The preamble states: “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. But, in consideration of the comments, the CFPB is adding comment § 1026.19(e)(4)(i)-2 to explain the relationship between § 1026.19(e)(4)(i) and § 1026.19(e)(3)(iv)(D). The comment clarifies that if the reason for the revision is provided under § 1026.19(e)(3)(iv)(D), notwithstanding the 3-business-day rule set forth in § 1026.19(e)(4)(i), § 1026.19(e)(3)(iv)(D) requires the creditor to provide a revised version of the disclosures required under § 1026.19(e)(1)(i) on the date the interest rate is locked. Comment 19(e)(4)(i)-2 also references comment 19(e)(3)(iv)(D)-1.”

The CFPB is considering amending the rule regarding the requirement to issue a revised Loan Estimate in connection with a rate lock because numerous stakeholders have raised operational and consumer protection concerns. Note that it is our view that without a revision to the rule, it would be prudent for creditors to view the rule as requiring that when the prior Loan Estimate was issued when the rate was floating and the rate is then locked, the creditor must issue the revised Loan Estimate when the rate is locked (even if the lock occurs before a written confirmation or agreement is sent).

A full recording of the webinar and FAQ can be accessed here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.