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 of the CFPB’s webinar 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.