Preliminary Observations Regarding CFPB’s Final Mortgage Disclosure Rule And Forms

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**Update – The CFPB has now released the final rule and related materials, available here.**

Later today, as anticipated, the CFPB will release its final rule combining the TILA and RESPA mortgage disclosure forms and rules.  We will review the final forms and rule, monitor the related field hearing, and prepare a preliminary Special Alert followed by a more detailed summary.

The final rule and forms follow two years of drafting, testing, and revision by the Bureau.  According to the Bureau, its testing demonstrates that the new forms significantly improve the ability of consumers with a variety of experience levels and loan types to answer questions about their loans, compare competing loans, and compare estimated and final loan terms and costs.

The text of the final rule will not be available until later today.  However, we are able to make several preliminary observations based on our review of the materials made available thus far, perhaps most importantly that industry will have until August 1, 2015 to make the changes to systems and training necessary to implement the new forms, which is longer than anticipated.  Additional observations follow.

Loan Estimate Disclosure

  • The new Loan Estimate will combine the disclosures currently provided in the Good Faith Estimate and the initial Truth in Lending statement.
  • It appears that the final rule will require lenders to provide the Loan Estimate three business days after an application is submitted by a consumer, excluding days that the lender is not open (e.g., Saturdays).  However, it is not clear based from materials available thus far when a consumer has submitted sufficient information to constitute an “application.”
  • The design and layout of the Loan Estimate does not appear to differ substantially from the proposed form, except that estimated closing costs and estimated cash to close are now disclosed in separate rows on the bottom of page 1.  The CFPB also states that it modified the forms to include checkboxes to tell consumers whether they are receiving or paying cash at closing and to provide a streamlined calculation of that amount.
  • Owner’s title insurance is listed as “optional” on page 2.  During a recent House Financial Services Committee hearing with CFPB Director Cordray, two committee members–Reps. Miller (R-CA) and Perlmutter (D-CO)–expressed concern that identifying this cost as optional would not serve consumers’ best interests.
  • The Total Interest Percentage (TIP) disclosure, which was required by the Dodd-Frank Act and opposed by industry, has been retained on page 3.
  • The Annual Percentage Rate (APR) appears on page 3, despite requests by consumer advocates that it appear in a prominent location on the first page.  In addition, it appears that the Bureau did not adopt the proposal to revise the APR calculation to include more items in the finance charge and thereby potentially increase the number of loans that would fail the Qualified Mortgage’s points-and-fees test or would be treated as “high cost” or “higher priced.”
  • It is unclear from the materials provided what changes, if any, will be made to the restrictions on changes in costs (or tolerances) imposed by the Department of Housing and Urban Development (HUD) in 2010.  It is also unclear whether, under the final rule, TILA or RESPA liability will apply to violations of those restrictions.

Closing Disclosure

  • The Closing Disclosure will combine the disclosures currently provided in the HUD-1 settlement statement and any revised Truth in Lending statement.
  • It appears that the final rule will require the lender to ensure that the consumer receive the Closing Disclosure three business days before closing.  This would mean that the lender must be able to demonstrate that the consumer received the Closing Disclosure three business days before closing.
  • The CFPB materials indicate that, in comparison to the proposal that changes to the information provided in the Closing Disclosure generally require re-disclosure and an additional three business day waiting period before closing, the final rule limits the additional waiting period to situations in which there is a substantial change in the APR, a change in the loan product, or the addition of a prepayment penalty.
  • It is unclear from the materials provided what role, if any, the settlement agent will play in the preparation of the Closing Disclosure and whether TILA or RESPA liability will apply.
  • Like the final Loan Estimate, the design and layout of the final Closing Disclosure do not appear to differ substantially from the proposed form, except for the changes noted above.
  • In addition, the final Closing Disclosure, like the proposed form, eliminates the HUD-1 line numbers.  The final Closing Disclosure also eliminates the Average Cost of Funds (ACF) disclosure, which was added by the Dodd-Frank Act but opposed by industry.

Other Issues

  • It appears that the CFPB has not adopted the proposed requirement that lenders retain records in an electronic, machine-readable format.  Instead, the CFPB will work with the Fannie Mae and Freddie Mac to create a data standard based on the Closing Disclosure.

For additional background, please review our report on the rule as proposed.

Topics:  CFPB, Mortgages, Qualified Mortgage Rule, RESPA, TILA

Published In: Consumer Protection Updates, Finance & Banking Updates, Residential Real Estate Updates

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.

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