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. Note that the American Bankers Association (ABA)has released a transcript ofthe CFPB’swebinar that is available to ABA members.
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.
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).
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.
What is the 3 day rule for TILA-RESPA? ›
A creditor must ensure that a consumer receives an initial Closing Disclosure no later than three business days before consummation.What is CFPB's TILA-RESPA integrated disclosure rule? ›
The TRID (TILA-RESPA Integrated Disclosure) rule took effect in 2015 for the purpose of harmonizing the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) disclosures and regulations. The rule has been amended twice since the initial issue, most recently in 2018.Which of the following must be disclosed on the TILA disclosure? ›
The Truth in Lending Act, or TILA, also known as regulation Z, requires lenders to disclose information about all charges and fees associated with a loan. This 1968 federal law was created to promote honesty and clarity by requiring lenders to disclose terms and costs of consumer credit.What loans are subject to the integrated disclosure rule? ›
Certain types of loans that are currently subject to Truth-In-Lending regulations but not RESPA are subject to the new integrated disclosure requirements, if the loans are made for a consumer purpose. Such loans include construction-only loans, loans secured by vacant land or by 25 or more acres.What transactions are exempt from TILA? ›
- loans primarily for business, commercial, agricultural, or organizational purposes.
- federal student loans.
The Truth in Lending Act (TILA) requires lenders to disclose important information to borrowers about the cost of a loan before the borrower agrees to the loan.What are the two most important disclosures that are required under the Truth in Lending Act? ›
Required Written Disclosures
Annual percentage rate (APR): The yearly percentage rate that applies to the cost of credit. Finance charges: The total amount of interest and fees that you'll pay over the life of a loan in dollars.
The Dodd-Frank Act generally granted rulemaking authority under the TILA to the Consumer Financial Protection Bureau (CFPB). Title XIV of the Dodd-Frank Act included a number of amendments to the TILA, and in 2013, the CFPB issued rules to implement them.What is the main difference between RESPA and TILA? ›
Only in the mortgage world would we make an acronym out of acronyms... so let's break this down a little further. TILA is the Truth in Lending Act and RESPA is the Real Estate Settlement Procedures Act.What triggers a TILA disclosure? ›
Triggering terms are words or phrases that must be accompanied by a disclosure when they're used in advertising. These disclosures are mandated by the TILA, which is designed to protect consumers from inaccurate and unfair credit billing and credit card practices.
What are the 6 RESPA triggers? ›
The six items are the consumer's name, income and social security number (to obtain a credit report), the property's address, an estimate of property's value and the loan amount sought.What is one requirement of RESPA the lender must disclose? ›
What Information Does RESPA Require To Be Disclosed? If necessary, your lender or mortgage broker must provide an Affiliated Business Arrangement Disclosure. This disclosure indicates that the lender, real estate broker, or other participant in your settlement has referred you to an affiliate for a settlement service.Why is there a 3 day waiting period after closing disclosure? ›
This will give you more time to understand your mortgage terms and costs, so that you know before you owe. Giving you three business days to review your Closing Disclosure before you sign on the dotted line is designed to protect you from surprises at the closing table.What is the 3 day rule How does it apply to the loan estimate and closing disclosure? ›
The Loan Estimate must be provided to consumers no later than three business days after they submit a loan application. The second form (Closing Disclosure) is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction.What requires a new 3 day waiting period for closing disclosure? ›
Three Business-Day Waiting Period
The CFPB final rule requires the lender to give the borrower three business days to thoroughly review the Closing Disclosure to enable them to compare the charges to the loan estimate and ensure the cost and loan program they are obtaining are as expected.
Your lender is required to send you a Closing Disclosure that you must receive at least three business days before your closing. It's important that you carefully review the Closing Disclosure to make sure that the terms of your loan are what you are expecting.