The CFPB issued proposed changes to amend the KBYO/TRID rules of Regulation Z. The CFPB states that the proposed amendments memorialize its informal guidance on various issues and includes clarifications and technical amendments. There are a number of proposed changes in proposal, but are not intended to revisit major policy decisions so soon after the October 2015 effective date.
Comments on the Proposed Amendments are due October 18, 2016.
The highlights –
Currently, strict timing requirements restrict the ability of the credit union to pass on the cost of a rate lock extension or certain other charges that arise after the Closing Disclosure has been provided, even if those charges are requested by the borrower and would have been permissible before the Closing Disclosure was provided. The proposal addresses concerns that this aspect of the rule could result in cancelled transactions by making amendments to the official interpretations.
“If there are fewer than four business days between the time the revised version of the disclosures is required to be provided under § 1026.19(e)(4)(i) [i.e., three business days after the creditor learns of the change] and consummation or the Closing Disclosure required by § 1026.19(f)(1) has already been provided to the consumer, creditors comply with the requirements of § 1026.19(e)(4) (to provide a revised estimate under § 1026.19(e)(3)(iv) for the purpose of determining good faith under § 1026.19(e)(3)(i) and (ii)) if the revised disclosures are reflected in the corrected disclosures provided under § 1026.19(f)(2)(i) or (2)(ii), subject to the other requirements of § 1026.19(e)(4)(i).”
This would allow credit union to reset tolerances using a Closing Disclosure at any time during the process as long as a corrected Closing Disclosure is issued within three business days of learning about the change. (Note that the three-business-day requirement would be new because, under the current rule, it appears that the corrected Closing Disclosure can be provided at closing, as long as the timing requirements are satisfied.) However, as discussed below, this guidance may not apply to rate locks because § 1026.19(e)(4)(i) specifically excludes tolerance resets based on rate locks under § 1026.19(e)(3)(iv)(D).
Currently, the rule states that, if a creditor wishes to reset tolerances on points, credits, and other “interest rate dependent charges” as a result of a rate lock, it must provide a revised disclosure “[n]o later than three business days after the date the interest rate is locked.” However, because this requirement is a condition of the creditor resetting tolerances, it appears that the rule does not require a revised disclosure if the rate is locked but the associated points do not increase and credits do not decrease.
However, the proposed changes to the commentary suggest that the CFPB may wish to require a revised disclosure for all rate locks, regardless of whether tolerances are reset. Specifically, the preamble to the proposal states that “Section 1026.19(e)(3)(iv)(D) requires the creditor to provide a revised Loan Estimate to the consumer no later than three business days after the date the interest rate is locked” without referencing the fact that § 1026.19(e)(3)(iv)(D) is contingent on the creditor’s “use [of] a revised estimate of a charge instead of the estimate of the charge originally disclosed” for purpose of calculating tolerances under § 1026.19(e)(3)(iv). Although not specifically discussed in the preamble, the Bureau also proposes to remove the first sentence from comment 19(e)(3)(iv)(D)-1, which states that “[i]f the interest rate is not locked when the disclosures required by § 1026.19(e)(1)(i) are provided, a valid reason for revision exists when the interest rate is subsequently locked.”
The Bureau goes on to state that “there is uncertainty as to how a creditor complies with § 1026.19(e)(3)(iv)(D) and provides a revised Loan Estimate if the interest rate is locked after the Closing Disclosure has been provided.” The CFPB proposes to add an official interpretation stating that the creditor may not provide a revised Loan Estimate on or after the date the creditor provides the Closing Disclosure and that the creditor must issue a corrected Closing Disclosure consistent with the timing requirements in § 1026.19(f) if the rate lock causes the initial Closing Disclosure to become inaccurate.
The proposed rule clarifies that the written list of service providers must specifically identify a service if the particular charge for that service is payable by the consumer, unless the creditor knows that the service is provided as part of a package or combination of settlement services offered by a single service provider and the consumer is permitted to shop for all services in the package. It also clarifies in the commentary that the model form for the list in H-27 is not required, but that “creditors using it properly will be deemed to be in compliance with § 1026.19(e)(1)(vi)(C).” The proposal also seeks to change the applicable tolerances when the written list of service providers is not provided. Specifically, the proposed rule would narrow from 10% to zero the applicable tolerance limitation when the creditor permits the consumer to shop for a service but fails to provide a list.
The proposed rule clarifies that property insurance premiums, amounts placed into an escrow, impound, reserve, or similar account, charges for required shoppable services when the borrower selects a provider that is not on the written list of service providers, and charges paid for services not required by the lender are still excluded from the zero and 10% tolerances by § 1026.19(e)(3)(iii) even if the provider is an affiliate of the lender or loan originator.
The Total of Payments disclosure would generally be considered accurate for rescission purposes if it is greater than the amount required to be disclosed. For understatements, different accuracy standards apply depending on the type and delinquency status of the loan. For most loans, the disclosure would be considered accurate if it is understated by no more than ½ of 1% of the face amount of the note or $100, whichever is greater. However, for refinance transactions with a new creditor that are not subject to high-cost loan requirements where there is no new advance and no consolidation of existing loans, the disclosure would be considered accurate for rescission purposes if it is understated by no more than 1% of the face amount of the note or $100, whichever is greater. Finally, after the initiation of foreclosure on the consumer’s principal dwelling, the disclosure would be considered accurate for rescission purposes if it is understated by no more than $35.
The preamble to the proposal includes that there are exceptions to the notice and opt-out requirements under the Gramm-Leach-Bliley Act, including when the financial institution shares its customer’s non-public personal information (1) to comply with Federal, State, or local laws, rules, and other applicable legal requirements; and (2) because the institution is “required, or [it] is a usual, appropriate, or acceptable method, to provide the customer or the customer’s agent or broker with a confirmation, statement, or other record of the transaction, or information on the status or value of the financial service or financial product.”
The proposed rule clarifies that the post-consummation escrow cancellation and partial payment disclosures apply regardless of the application date for the loan. Because this was not clear in the current rule, the Bureau is proposing to require these disclosures beginning on October 1, 2017 for all pre- and post-TRID loans to which the disclosures otherwise apply, regardless of the application date. Until October 2017, the creditor is required to provide the disclosures for all loans with application dates on or after October 3, 2015, and is permitted to provide them for loans with application dates before then.
The proposed rule clarifies that, if an amount actually paid by the consumer for per diem interest differs from the amount disclosed, a creditor is not required to provide a post-consummation Closing Disclosure for any disclosure that is accurate under § 1026.17(c)(2)(ii). Section 1026.17(c)(2)(ii) states that disclosures affected by per diem interest are accurate if the disclosure is based on the information known to the creditor when the disclosure documents are prepared for consummation of the transaction.
The proposed rule clarifies that the expiration date disclosed on the initial Loan Estimate should be left blank on any revised Loan Estimates provided after the consumer has indicated an intent to proceed.
The proposed rule clarifies how construction loans should be disclosed, including a number of additions to Appendix D as well as relevant cross-references throughout. In particular, the proposed rule would clarify that construction loan inspection and handling fees are loan costs associated with the construction transaction for purposes of §1026.37(f). If the fees are collected after consummation, the proposal would impose a new requirement that they be disclosed in an addendum to both the Loan Estimate and Closing Disclosure under the heading “Inspection and Handling Fees Collected After Closing.”
The proposed rule would require that construction costs, existing lien payoffs, and unsecured debt payoffs, be disclosed in this section on both the Loan Estimate and Closing Disclosure unless they are disclosed under § 1026.37(h)(2)(iii) on the optional alternative calculating cash to close table.
