On October 1, 2014, the CFPB staff and Federal Reserve Board co-hosted a webinar that addressed questions about the Final TILA-RESPA Integrated Disclosure Rule that will be effective for applications received by creditors or mortgage brokers on or after August 1, 2015. The webinar focused on the Loan Estimate and addressed specific questions regarding the content of the Loan Estimate form that relate to corresponding provisions of the Closing Disclosure. Many of the issues covered were in response to questions received by the CFPB from mortgage industry stakeholders and technology vendors who need additional information in order to facilitate the development of compliance and quality control procedures and software.
The webinar is the third in a planned series to address the new rule. In the initial webinar, the CFPB staff provided a basic overview of the final rule and new disclosures. In the second webinar, the CFPB staff focused on core operation issues such as the receipt of an application, assumptions, fee tolerances, record retention, and timing for the initial and revised Loan Estimates.
According to the CFPB staff, this webinar and the ones that will follow will be in the format of a spoken Q&A. 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. As we have stated before, industry members would prefer formal written guidance. Among other concerns, the CFPB approach presents challenges to the ability of hearing impaired individuals to benefit from the guidance.
During the webinar the CFPB staff provided a high-level overview of the rule and answered more than thirty technical questions. Below is a summary of select questions of interest addressed by the CFPB staff. The topics covered include: (1) brokered transactions, (2) origination charges, (3) calculating cash to close, and (4) the adjustable payment and adjustable interest rate tables.
Q: Does the creditor have to disclose an itemization of the amount financed with the Loan Estimate?
No. A creditor would not disclose an itemization of the amount financed with the Loan Estimate and Closing Disclosure. The CFPB also advised that some disclosures are required to be made only on the Closing Disclosure and not the Loan Estimate. These include some of the fed box disclosures, such as the amount financed and the finance charge. These disclosures are required to be on the Closing Disclosure pursuant to sections 1026.38(o)(2) and (o)(3), but are not required to be included on the Loan Estimate. However, note that even for the Closing Disclosure, the amount financed is not itemized. Section 1026.38(o)(3) requires that only the amount financed itself (which is calculated in accordance with section 1026.18(b)) be disclosed.
Q: 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?
No. The label should state the sale price, and the label does not change when the creditor uses an estimated sales price as described in commentary section 1026.37(a)(7)-1. For transactions without a seller, such as a refinance, because there is no sale, the estimated value of the property is disclosed in place of the sales price, and labeled “property value” with “property” abbreviated as “prop.”
Q: If a broker is issuing a Loan Estimate but does not know the creditor, may the broker put its name on the form in place of the creditor’s?
No. Section 1026.37(a)(3) requires the name and address of the creditor, and a broker would not place its name and address where the name of the creditor is unknown . Commentary section 1026.37(a)(3)-2 addresses situations where the mortgage broker is making the disclosure and the creditor has not yet been determined. The comment provides that the broker must make a good faith estimate to disclose the name of the creditor, but when the name of the creditor is not known at the time the Loan Estimate is required to be delivered or placed in the mail, the mortgage broker may leave the creditor’s name blank. This does not allow the mortgage broker to substitute its name for the creditor’s name.
Q: Section 1026.37(a)(12) indicates that the creditor must disclose a unique loan ID number. If the creditor is unknown:
(A) Is the broker required to generate and disclose a unique ID number?
No. A broker would not be required to generate and disclose its own unique loan ID in a Loan Estimate, and assuming the creditor’s unique ID is not available to the broker, the disclosure may be left blank. The loan ID number must be a unique identifier that should be determined by the creditor. However, the rule does not prohibit creditors from outsourcing this function, and creditors could allow brokers to assign and generate unique IDs on their behalf. Creditors could also provide the unique loan ID to brokers in advance of the disclosures for them to include it on the Loan Estimate.
(B) Is the creditor required to disclose its own unique loan ID once there is a creditor for the loan?
Yes. The creditor is required to include a unique loan ID on any subsequent disclosures it provides, such as revised Loan Estimates or the Closing Disclosure. The creditor is ultimately responsible for the disclosures and that includes providing its own unique loan ID.
Q: 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?
No. Section 1026.37(f)(1)(i) provides that only points paid to the creditor to reduce the interest rate may be labeled as points. The Loan Estimate form is meant to provide accurate disclosures to consumers, not to document eligibility for tax benefits or other purposes.
Q: Can the alternative cash to close table be used for multiple loan transactions without a seller?
Yes. The alternative table can be used where there are multiple loan transactions without a seller. To the extent there are multiple transactions, each loan covered by the rule will have a separate Loan Estimate and Closing Disclosure. At consummation, each Closing Disclosure will indicate the cash due to or from the consumer for each loan. In the rare scenario, involving a cash out refinance and a subordinate lien consummating at the same time, the settlement agent can total the cash due to and the cash due from the consumer across all of the loans to determine the final amount that is payable to or due from the consumer. This is a change from the existing use of the HUD-1-A form.
Q: Are the adjustable payments and adjustable interest tables disclosed for a fixed rate loan?
The adjustable payments table (APT) is used only when there are adjustable payment features. If there are no such features in the legal obligation the APT table is not disclosed. Accordingly, the APT table will only be disclosed if the fixed rate loan has adjustable payment features. The adjustable interest rate (AIR) table is only disclosed when interest rates can change, which would be contrary to the definition of a fixed rate loan. Therefore, the AIR table should never be disclosed with a fixed rate loan.
Q: 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?
Yes. The creditor must disclose on the Loan Estimate that it will transfer servicing if the creditor’s intent at the time the Loan Estimate is issued is to transfer servicing at some point during the life of the loan. Section 1026.37(m)(6) requires disclosure of a statement of when the creditor intends to service the loan or transfer the loan to another servicer. This means that a creditor is required to disclose whether it intends to service the loan directly or transfer servicing to another servicer at any time after consummation. A creditor complies with the rule if the disclosure reflects the creditor’s intent at the time the Loan Estimate is issued.
Q: 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?
Yes. The creditor must disclose that it will transfer servicing, even if the transfer will be to a subsidiary or affiliate, if that is the creditor’s intent at the time the Loan Estimate is issued. As with the previous question, Section 1026.37(m)(6) requires a creditor to disclose a statement of whether the creditor intends to service the loan directly or transfer servicing to another servicer. A creditor’s subsidiary or affiliate is another servicer for the purposes of this requirement if it is a person responsible for receiving scheduled periodic payments from a borrower.