The CFPB recently issued revised TILA/RESPA Integrated Disclosure (TRID) rule guides to reflect the adoption of an amendment to the rule to fix the so-called “black hole” issue.  As we reported previously, the amendment will permit the use of an initial or revised Closing Disclosure to reset tolerances without regard to the timing of when before consummation the creditor learns of a change that causes one or more fees to increase.  The amendment will apply to transactions in process as of June 1, 2018 regardless of when the loan application was received, but the amendment may not be applied retroactively.

The CFPB updated both versions of the Small Entity Compliance Guide and the Guide to Forms.  The reason there are two versions of each guide is to account for the TRID rule amendments adopted last summer that became effective on October 10, 2017, but have a mandatory compliance date of October 1, 2018.  While both versions of each guide now reflect the 2018 TRID rule amendment, one version of each guide does not reflect the 2017 amendments and one version of each guide reflects the 2017 amendments.

As we reported previously, the CFPB recently adopted a long-awaited amendment to the TILA/RESPA Integrated Disclosure (TRID) rule that fixes the so-called black hole issue.

The amendment was published in the May 2, 2018 Federal Register and will become effective on June 1, 2018.  The CFPB notes in the supplementary information to the amendment that “[o]nce the final rule becomes effective, the ability to reset tolerances prior to consummation for a given transaction will not be limited by when the application was received.”  Thus, as of June 1, 2018 the flexibility created by the amendment regarding the use of a Closing Disclosure to reset tolerances will be available for both loan applications that are in process at the time, as well as loan applications made on and after such date.  However, the CFPB also made clear that the amendment may not be applied retroactively.

The CFPB, which is now referring to itself as the “Bureau of Consumer Financial Protection,” published the long-awaited final rule to address the so-called “black hole” issue under the TILA/RESPA Integrated Disclosure (TRID) rule.  The CFPB also issued an Executive Summary of the final rule.  The final rule will become effective 30 days after publication in the Federal Register.

Under the TRID rule, a Loan Estimate is the disclosure primarily used to reset tolerances. Because the final revised Loan Estimate must be received by the consumer no later than four business days before consummation, the Commentary to the TRID rule includes a provision under which a creditor may use a Closing Disclosure to reset tolerances if “there are less than four business days between the time” a revised Loan Estimate would need to be provided and consummation.  Because of the four-business-day timing element, in various cases when a creditor learns of a change, the creditor is not able to use a Closing Disclosure to reset tolerances.  This situation is what the industry termed the “black hole.”  The industry repeatedly asked the CFPB to address the black hole issue.  As previously reported in our Mortgage Banking Update, when the CFPB finalized various amendments to the TRID rule last summer, it punted on a prior proposal to address the black hole issue and proposed another rule to address the issue.  The CFPB has now finalized the second proposal.

In the final rule the CFPB removes the four business day timing element, and makes clear that either an initial or a revised Closing Disclosure can be used to reset tolerances.  Consistent with the requirements for the Loan Estimate, when the TRID rule permits a creditor to use a Closing Disclosure to revise expenses, the creditor must provide the Closing Disclosure within three business days of receiving information sufficient to establish that a changed circumstance or other event triggering a change has occurred.

When proposing the amendment last summer, the CFPB requested comments on whether it should impose additional limits on the ability of a creditor to reset tolerances with a Closing Disclosure, such as allowing a reset of tolerances only in certain of the circumstances currently permitted by the TRID rule.  The CFPB decided not to impose additional limits.

A federal district court in Kentucky recently handed the CFPB its second defeat in the agency’s lawsuit against Borders & Borders PLC and the law firm’s principals by denying the CFPB’s motion for reconsideration. Significantly, the court based its decision on grounds that are completely different than the basis for its original decision to grant the defendants’ motion for summary judgment.

As previously reported, the CFPB filed suit against the law firm and its principals in October 2013, claiming that they violated the referral fee prohibition under the Real Estate Settlement Procedures Act (RESPA) in connection with the establishment and operation of joint venture title insurance agencies (Joint Ventures) with the principals of real estate and mortgage brokerage companies. The CFPB asserted that Borders paid kickbacks to the principals of the real estate and mortgage brokerage companies that were disguised as profit distributions from the Joint Ventures, and that the kickbacks were for the referrals by the real estate and mortgage broker companies to Borders of consumers needing loan closing services.

Central to the CFPB’s position was its assertion that the Joint Ventures were not entitled to the affiliated business arrangement safe harbor under RESPA section 8(c)(4), which permits referrals and payments of ownership distributions among affiliated parties if the three statutory conditions of the safe harbor are met. The CFPB claimed that the Joint Ventures were not entitled to the safe harbor because they were not bona fide providers of settlement services within the meaning of RESPA.  Being a bona fide provider of settlement services is not one of the three statutory conditions.  It is a concept developed by the US Department of Housing and Urban Development, which had the responsibility for RESPA before the CFPB.

In its original decision, the court determined that a violation of the RESPA section 8(a) referral fee prohibition was established by the CFPB because the Joint Ventures referred loan closing business to the law firm, and the firm provided a thing of value to the Joint Ventures in connection with the assignment of title work to the companies. However, the court also determined that the three statutory conditions of the affiliated business arrangement safe harbor were met, so there was a safe harbor from the violation.  The court, apparently following the decision of the US Circuit Court of Appeals for the Sixth Circuit in Carter v. Welles-Bowen Realty, Inc., 736 F.3d 722 (6th 2013), refused to impose a bona fide settlement service provider condition on the ability to qualify for the affiliated business arrangement safe harbor.

The CFPB asked for reconsideration in August of 2017. In denying the CFPB’s motion for reconsideration, the court found that there was no underlying violation of the RESPA section 8(a) referral fee prohibition.  The CFPB had alleged that the nominal assignment of title work by the law firm to the Joint Ventures was a thing of value.  According to the CFPB, the law firm did most of the actual title work for the matters nominally assigned to the Joint Ventures.  The court determined that the nominal assignments of title work did not constitute a thing of value based on the following reasoning:

“The court continues to believe that this “nominal assignment” is insufficient to constitute a ‘thing of value’ because consumers were not obligated to follow the suggestion of Borders & Borders. Indeed, consumers had thirty days after the closing to decide whether to use the Title LLC suggested by Borders & Borders, or to use a different title insurance underwriter. If the consumer chose to purchase insurance from another underwriter, the JVP involved with the case received nothing. This potential benefit is insufficient to constitute a ‘thing of value’ because it is entirely conditioned on the third-party consumer’s choice.”

The court also concluded that even if the law firm provided a thing of value to the Joint Ventures when nominally assigning the title work, the safe harbor of RESPA section 8(c)(2) applied. RESPA section 8(c)(2) permits the payment of a bona fide salary or compensation for goods or facilities actually furnished or for services actually performed.  In this part of the opinion, the court discussed the PHH case against the CFPB and found it to be analogous.  In determining that the section 8(c)(2) safe harbor applied, the court reasoned as follows:

“Here, consumers made payments to the Title LLCs, which subsequently distributed profits to the JVPs in accordance with their ownership interest. However, these payments were not made in exchange for referrals, but in exchange for title insurance, which the consumers actually received. These payments are presumed to be bona fide because there is no evidence that the consumers paid above market value for the title insurance.”

In determining that the law firm did not provide a thing of value to the Joint Ventures, it appears that the court focused on the referral of title business itself as the alleged thing of value, and not the related CFPB assertion that the law firm actually performed most of the title work for the Joint Ventures. In determining that, even if there was a thing of value, the section 8(c)(2) safe harbor applied, it appears that the court focused on the title insurance received by consumers for the payment of premiums, and not the CFPB assertion that the Joint Ventures did not actually perform the title work.

While the CFPB can still pursue the case, we will have to wait and see if under the leadership of Acting Director Mulvaney the CFPB elects to continue its challenge to the Joint Venture arrangements.

On February 14, 2018, the United States House of Representatives passed the TRID Improvement Act of 2017, H.R. 3978, by a vote of 245 to 171.  The bill would amend the manner in which title insurance premiums are disclosed under the TILA/RESPA Integrated Disclosure (TRID) rule.

Under title insurance price structures in many states, when a consumer purchases both an owner’s title insurance policy and lender’s title insurance policy at the same time, a discount is offered on the price of the lender’s title insurance policy.  Nevertheless, when the consumer will purchase both an owner’s title insurance policy and lender’s title insurance policy, the TRID rule requires that the amounts disclosed for the owner’s title insurance policy premium and lender’s title insurance policy premium be determined as follows:

Lender’s Title Insurance Premium:  The premium for the lender’s policy based on the full premium rate (i.e., without regard to any discount offered by the title insurer).

Owner’s Title Insurance Premium:  The result of adding the full owner’s title insurance premium and discounted premium for the lender’s policy, and subtracting the premium for the lender’s policy based on the full premium rate.

Industry members have objected to the required disclosure approach because it deviates from the manner in which the actual premium amounts are charged.

The bill would amend language in the Real Estate Settlement Procedures Act (RESPA) to require the itemization of “all actual charges” and not just the itemization of “all charges.”  The bill also would amend RESPA to require that ‘‘Charges for any title insurance premium disclosed on [the TRID rule] forms shall be equal to the amount charged for each individual title insurance policy, subject to any discounts as required by State regulation or the title company rate filings.’’. Thus, the bill would not permit the current approach to the disclosure of title insurance premiums under the TRID rule, and would require that the amounts disclosed for title insurance reflect the actual premium charges, including any discounts.

Forty-three Democrats joined Republications in passing the bill.

Congress is back in session and this Thursday, September 7, the House Subcommittee on Financial Institutions and Consumer Credit will hold a one-panel hearing entitled “Legislative Proposals for a More Efficient Federal Financial Regulatory Regime.”  The hearing will take place at 10:00 a.m. in room 2128 of the Rayburn House Office Building, and will involve the following witnesses:

  • Anne Fortney, Partner Emerita, Hudson Cook LLP
  • Charles Tuggle, Executive Vice President and General Counsel, First Horizon National Corporation
  • Thomas Quaadman, Executive Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce
  • Chi Chi Wu, Staff Attorney, National Consumer Law Center

The witnesses will testify on the following six bills:

H.R. 1849 (Rep. Trott), the “Practice of Law Technical Clarification Act of 2017

This bill seeks to protect attorney debt collectors by amending the Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Act of 2010.  A “debt collector” is currently defined under the FDCPA as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”  Courts have interpreted this definition to cover attorneys who collect debts as a matter of course for their clients, or who collect debts as a principal part of their law practice.  Moreover, some courts have held that representations made by an attorney in court filings during the course of debt-collection litigation are actionable under the FDCPA, even when they are addressed to a consumer’s attorney and not the consumer himself.  Under the proposal, the FDCPA’s definition of “debt collector” would exclude law firms and licensed attorneys who (1) serve, file, or convey formal legal pleadings, discovery requests, or other documents pursuant to the applicable rules of civil procedure; or who (2) communicate in, or at the direction of, a court of law or in depositions or settlement conferences, in connection with a pending legal action to collect a debt on behalf of a client.

The bill would also provide that the Consumer Financial Protections Bureau (CFPB) cannot exercise supervisory or enforcement authority over attorneys engaged in the practice of law who do not offer or provide consumer financial products or services.  The CFPB has brought a number of enforcement actions against attorneys and law firms engaged in allegedly illegal debt collection practices.

H.R. 2359 (Rep. Loudermilk), the “FCRA Liability Harmonization Act

This bill would amend the Fair Credit Reporting Act (FCRA) to limit statutory damages in FCRA class actions to the lesser of $500,000 or one percent of the net worth of the defendant. This proposal would also eliminate punitive damages that can be awarded under the FCRA.  The FCRA currently permits an award of punitive damages, and has no cap on statutory damages for individual or class actions.

H.R. 3312 (Rep. Luetkemeyer), the “Systemic Risk Designation Improvement Act of 2017

This bill seeks to amend the definition of “systemically important financial institutions” that are subject to enhanced regulatory standards under Title I of The Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).  Currently, Dodd-Frank requires each bank holding company deemed “too big to fail” by virtue of total consolidated assets of $50 billion or more to, among other things, prepare and provide to the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve a resolution plan, or “living will,” for its rapid and orderly resolution under the U.S. bankruptcy code. The bill would remove the $50 billion asset threshold from Dodd-Frank and instead add a measurement approach based on “systemic indicator scores.”  Under this approach, only bank holding companies that are identified as global systemically important banks (G-SIB) would be subject to the Federal Reserve Board’s enhanced supervision and prudential standards.

H.R. ____ (Rep. Royce), the “Facilitating Access to Credit Act

This proposal seeks to exempt an Authorized Credit Services Provider (ACSP) from the Credit Repair Organizations Act (CROA) to the extent it provides credit and identity protection or credit education services, as defined in the bill.  The CROA currently covers a “credit repair organization,” which is defined to include anyone who provides a service, “in return for the payment of money or other valuable consideration, for the express or implied purpose of— (i) improving any consumer’s credit record, credit history, or credit rating; or (ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i).” While originally aimed at credit repair scams, this broad definition has been read to cover credit monitoring products offered by consumer reporting agencies.

The bill seeks to narrow this definition by setting forth a process to apply to become an ACSP with the Federal Trade Commission (FTC), which if approved by the FTC, would allow the ACSP to provide the defined services without being subject to the CROA and without being subject to state laws and regulations concerning a credit repair organization.  State laws and regulations related to unfair or deceptive acts or practices in marketing products or services would still apply.  ACSPs that violate any of the eligibility criteria provided in the bill would be subject to retroactive revocation of status to the time of the conduct, thereby allowing the FTC to then enforce violations of the CROA.

H.R. ____ (Rep. Tenney), the “Community Institution Mortgage Relief Act of 2017

This bill would amend the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA) and would direct the CFPB to reduce loan servicing and escrow account administration requirements imposed on certain loan servicers.  First, the proposal would require the CFPB to exempt from certain escrow or impound requirements a loan that is secured by a first lien on a consumer’s principal dwelling if the loan is held by a creditor with assets of $50 billion or less.  The statute does not currently provide an exemption for “smaller creditors” based on asset size.  Second, the CFPB would need to provide either exemptions to, or adjustments from, certain RESPA requirements for servicers of 30,000 or fewer mortgage loans.  The current statute provides no such threshold or exemption for “small servicers of mortgage loans.”

H.R. ____ (Rep. Hill), the “TRID Improvement Act of 2017

This bill would expand the period under RESPA and TILA in which a creditor is allowed to cure a good-faith violation on a loan estimate or closing disclosure from 60 to 210 days after consummation.  The proposal would also amend RESPA to allow for the calculation of a simultaneous issue discount when disclosing title insurance premiums.  Presently under RESPA, a lender may disclose a simultaneous issue discount by disclosing the full premium rate and by taking the full owner’s title insurance premium, adding the simultaneous issuance premium for the lender’s coverage, and then deducting the full premium for lender’s coverage.  This calculation method renders inaccurate disclosures of the lender’s and owner’s individual title insurance premiums even though the sum will equal the amount actually charged to the consumer when paying for both policies.

Congress is also currently considering government funding legislation, raising the debt ceiling, and tax reform so these bills may not receive close attention.  We will report back on the hearing and provide updates.

As we reported previously, on July 7, 2017 the Consumer Financial Protection Bureau (CFPB) posted on its website long awaited amendments to the TILA/RESPA Integrated Disclosure (TRID) rule, and a proposal to address the so-called “black hole” issue (regarding limits on the ability of a credit to reset tolerances with a Closing Disclosure).

Both the amendments and the proposal were published in Federal Register on August 11, 2017.  As a result, the amendments become effective on October 10, 2017, with a mandatory compliance date of October 1, 2018, and the comment deadline for the proposal is also October 10, 2017.

On Tuesday, January 20, the CFPB promulgated its first final rule of 2015, a series of minor amendments to the TILA/RESPA integrated disclosures (TRID) rule.  The substantive changes to the TRID rule are (1) an extension of the time period to issue a revised Loan Estimate when an interest rate moves from floating to locked, and (2) a provision for disclosing that a creditor has reserved its right to issue a revised Loan Estimate for loans funding new construction.

As originally adopted, the TRID rule required creditors to provide a revised Loan Estimate the very same day that a consumer locked a floating rate.  This differed from the general requirement under the TRID rule, which required creditors to issue a revised Loan Estimate no later than three business days after learning of a change that necessitated a revision.

The industry advised the CFPB that the requirement to issue a revised Loan Estimate on the date of the rate lock would not only present significant operational burdens, but also would result in changes to lock-in policies that would be adverse to consumers.  In short, creditors would have to set deadlines to lock rates very early in the day if a revised Loan Estimate had to be issued on the date of the lock.

When the CFPB proposed in October 2014 to revise the time frame, it proposed to require creditors to issue a revised Loan Estimate no later than the business day after the consumer locked the rate.  The industry advised the CFPB the time frame still would present operational burdens and result in unfavorable changes to lock-in policies.  In the end, the CFPB amended the TRID rule to allow three business days for creditors to prepare and provide a revised Loan Estimate when the rate moves from floating to locked.

The second of two substantive amendments to the TRID rule applies only in the context of loans for new home construction where consummation is expected to occur at least 60 days after the creditor issues the initial Loan Estimate.  With respect to these loans, the TRID rule permits a creditor to reserve the right to issue a revised Loan Estimate any time prior to 60 days before consummation, as long as the creditor includes a statement to this effect in the Loan Estimate.  For most loans, however, the Loan Estimate will be a standard form that cannot be revised except as expressly permitted by the TRID rule; the original TRID rule did not provide for where in the Loan Estimate such a statement could be included.  As indicated in the preamble to the October 2014 proposed rule, the Bureau’s failure to provide a space for this statement in the original TRID rule was an oversight.  The amendment allows for the statement to be included in the “Other Considerations” section on page 3 of the Loan Estimate.

The final rule also includes a conforming change to the loan originator provisions in Regulation Z section 1026.36.  Among various requirements, the loan originator provisions require certain loan originator identification information (name and NMLSR ID) to be included in specified loan documents.  When the CFPB originally adopted the requirement, it decided not to require that the information be included in the existing TILA and RESPA disclosures.  The CFPB knew that the existing disclosures would soon be replaced by the disclosures under the TRID rule, and it decided not to require that the existing disclosures be modified to provide for the disclosure of this information.  The conforming change revises the disclosure requirement to provide for the loan originator identification information to be included in the disclosures under the TRID rule.

The balance of the final rule is comprised of non-substantive corrections to the TRID rule.  The amendments, including the single addition to the loan originator rule, will become effective on the same date as the TRID rule—August 1, 2015.

In a report released on January 13, 2015, the CFPB announced that nearly half of consumers do not shop among multiple lenders before applying for a mortgage loan.  Even fewer—about one of every four—submit multiple applications to gauge the best deal, the Bureau says.

The report is the first to harness data gathered by the National Survey of Mortgage Borrowers, an ongoing research effort funded jointly by the Bureau and the Federal Housing Finance Agency (FHFA).  Its findings rely on responses gathered from roughly 1,900 consumers who took out home-purchase mortgages in 2013.

Among its salient points, the report concludes that the vast majority of consumers—about 70 percent—gather information about mortgage loans primarily from lenders and brokers.  Not surprisingly, the report expresses concern that these parties may not offer the most objective information, given their interest in closing the transaction.  In conjunction with the report’s publication, the CFPB announced steps that aim to provide another avenue for consumers to gather information about available mortgage products.  These steps are discussed below.

The report also concludes that consumers who identify as “unfamiliar” with the basic features of mortgage loans are less likely to shop around for the best deal, and that factors not related to cost, like a lender’s reputation and proximity of a branch office, are important to a significant minority of mortgage borrowers.

Though likely no surprise to the industry, the data and their attendant conclusions suggest that the new TILA/RESPA integrated disclosures, set to be implemented in August 2015, may not, by themselves, sufficiently address consumers’ failure to shop the mortgage market.  Federal regulatory efforts traditionally have focused on encouraging consumers to shop for mortgage loans through an easier, more streamlined loan application process.  The reality emphasized by the report, however, is that to the extent a consumer shops around for a mortgage, the shopping typically ends when the consumer submits a loan application.  Thus, prior efforts have targeted the wrong point in the process.  The report demonstrates that the CFPB is attempting to address this issue.

Alongside the report, the CFPB has rolled out a new landing page called the “Owning a Home Toolkit” within its existing website.  The toolkit includes factsheets to get potential homebuyers started shopping for a mortgage loan and checklists to prepare borrowers for a closing.  The toolkit’s brass ring, though, is its “Rate Checker” tool, which the Bureau disclaims is still in beta testing.  The Rate Checker allows a consumer to enter information about his or her location, credit profile, desired loan amount, and collateral value.  Pairing this information with daily-updated data from financial institutions (via a private research firm), the Rate Checker displays the prevailing interest rates for which the consumer may qualify, as well as the number of financial institutions offering those rates to consumers with the consumer’s profile.  Though wildly simplified and, at this point, a little clunky, this tool could provide potential borrowers with useful information about typical products in the mortgage market, and, toward the Bureau’s goal, it could help consumers better assess terms offered once they apply for a loan.  The concern, of course, is that consumers may unduly rely on information produced by the tool, which does not account for the full scope of consumers’ risk profiles.

At the end of the report, the CFPB notes that the current analysis did not evaluate the extent to which more shopping by consumers improves mortgage outcomes, such as better loan terms and fewer delinquencies and foreclosures.  The CFPB advises that the National Mortgage Database project (which is part of the CFPB’s joint endeavor with the FHFA) hopes to develop a much better understanding of consumer shopping behavior and how it affects mortgage outcomes.